VZCZCXRO9468
OO RUEHIK
DE RUEHPS #0558/01 3511732
ZNR UUUUU ZZH
O 171732Z DEC 09
FM AMEMBASSY PRISTINA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9556
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHNO/USMISSION USNATO 1303
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUCNDT/USMISSION USUN NEW YORK 1840
RHFMIUU/AFSOUTH NAPLES IT
RHMFISS/CDR TF FALCON
RHEFDIA/DIA WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEPGEA/CDR650THMIGP SHAPE BE
RHEHNSC/NSC WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUZEJAA/USNIC PRISTINA SR

UNCLAS SECTION 01 OF 03 PRISTINA 000558 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EUR/SCE, EUR/PGI, INL, DRL, PRM, USAID 
 
E.O. 12958: N/A 
TAGS: ECON ENRG PGOV KV SR
SUBJECT:  KOSOVO: DEBUNKING MYTHS ON NORTH KOSOVO POWER 
 
REF:  A) PRISTINA 465 
      B) PRISTINA 541 AND PREVIOUS 
      C) BELGRADE 1314 
 
PRISTINA 00000558  001.2 OF 003 
 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
¶1. (SBU) SUMMARY:  Recent discussions on electricity in the North of 
Kosovo have become clouded by the introduction of arguments in 
defense of Serbia's control of the Valac substation, in favor of the 
start of political negotiations on electricity, and/or for the 
introduction of a second (Serbian) energy distributor for Kosovo. 
These arguments are couched in the language of free trade and 
non-confrontation, but they are based at best on Belgrade spin and 
at worst on outright falsehoods.  The repetition and reification of 
these myths must be avoided, lest we risk success of energy 
privatization in Kosovo, Kosovo's sovereignty and broader Balkan 
regional security.  This message provides evidence to dispel such 
myths.  END SUMMARY 
 
MYTH 1:  THE KEK SHUTOFF OF POWER TO THE NORTH WAS A POLITICIZATION 
OF A COMMERCIAL DISPUTE 
--------------------------------------------- ------- 
 
¶2. (SBU) Some international interlocutors, representing the EU, 
individual EU states and international organizations, have advanced 
the myth that KEK's October 2009 shutoff of power from Obilic to the 
Valac substation was its attempt to inject politics into a 
commercial dispute.  The facts tell a different story.  While two 
power lines were down for scheduled maintenance, unseasonably cold 
weather pushed northern power consumption over 60 MW, placing the 
substation equipment and lines at risk of catastrophic failure, and 
months of repair costing millions.  When KEK asked its employees to 
load shed, to bring demand to safe levels, its requests were 
refused, and so -- for safety reasons, and in the interest of 
protecting the wider transmission and distribution system -- it 
stopped providing power to the North through Valac substation (REF 
A). 
 
¶3. (SBU) It was an act of nature, not a devious KEK plan, that was 
behind the October power cutoff.  In fact, since late October, when 
repairs to other north/south lines were completed, KEK has offered 
to resume supply from its Obilic generation assets to Valac and the 
North, but Serbia's electrical distribution and transmission 
conglomerates EPS and EMS, who control Valac through Kosovo Serb 
employees present at the station, have refused these requests. 
There is a written record of such exchanges, including KEK's 
unconditional offers to restore power.  While some in KEK may have 
preferred to utilize the technical/safety outage that began October 
18 to force the issue of regularization of payments for electricity 
in the North, KEK has not escalated the dispute.  KEK's actions have 
been constructive -- including not only offers for reconnection but 
also continued KEK payment for electricity for the North generated 
by the Ujmani hydropower plant -- and it has in the main abstained 
from public comment.  By contrast, Serbian firms have issued letters 
annexing Kosovo municipalities to their service territory (Ref B) 
and have disconnected majority ethnic-Albanian villages in Northern 
municipalities to cut demand.  Despite these provocations KEK has 
kept lines of communication open with Serbian entities to find a 
true commercial solution to the problem, through an electrical 
services subcontracting arrangement. 
 
MYTH 2:  THE OWNERSHIP OF NORTHERN KOSOVO ELECTRICITY ASSETS, LIKE 
VALAC, IS DEBATABLE 
-------------------------------------------- 
 
¶4. (SBU) Kosovo's ownership of the Valac substation and power lines 
for the transmission and distribution of power in Kosovo, though 
unchallenged for years, has recently been questioned.  Unless UNSCR 
1244 and UNMIK itself are questionable, there are no legal grounds 
to question Kosovo's ownership of these assets. 
 
¶5. (SBU) In December 2005, pursuant to UNMIK Regulations 2002/12 and 
2005/18, the Kosovo Trust Agency, an UNMIK organ, implemented a Plan 
for Transformation for Kosovo's energy sector.  "Deeds of Transfer" 
 
PRISTINA 00000558  002.2 OF 003 
 
 
and "Declarations of Subscription and Contribution in Kind" 
established Valac substation, the buildings that house it, the land 
on which it sits, and the lines that feed it and emanate from it, as 
the property of Kosovo's energy conglomerate KEK or its energy 
transmission entity KOSTT.  Public notices to this effect were 
issued in the Serbian and the Kosovo press, and no legal challenges 
were filed.  Moreover, Kosovo's Energy Regulatory Office, another 
UNMIK-established organ, gave KEK and KOSTT unique licenses that 
make them the sole legal distribution and transmission companies for 
the entire territory of Kosovo. 
 
¶6. (SBU) These decisions, deeds and documents not only form the 
basis of KEK's/KOSTT's claim to Valac, but also for all other 
substations, lines, generation and distribution capacity throughout 
the country.  In August 2009, in spite of the fact that the Strpce 
substation -- like Valac today -- was occupied by employees of 
Serbia's EPS, they did not claim legal rights to ownership and 
yielded control of the substation to KEK.  KEK and KOSTT have the 
same ownership rights to Valac substation that they have to Strpce 
substation.  To argue anything to the contrary is a dangerous 
recognition of "Northern Exceptionalism" and partition. 
 
VALAC METER READING A GOOD FIRST STEP, NOT AN ANSWER 
--------------------------------------------- ------- 
 
¶7. (SBU) Some who agree that KEK and KOSTT hold the rights to Valac 
substation would trumpet a recent agreement to reestablish KEK's 
regular reading of meters on high voltage lines at Valac as 
important progress.  While KEK's access is important, its importance 
is as tactical progress.  Freezing in place EPS' control of Valac 
substation with monthly meter reading by KEK is no more a solution 
to energy regularization in the north, than granting parents 
visitation rights would be a solution to a kidnapping. 
 
MYTH 3:  EPS CONTROL OF VALAC WILL FACILITATE TALKS 
--------------------------------------------- ------ 
 
¶8. (SBU) Since the establishment of KFOR and EULEX security cordons 
around the Valac substation, some in the international community 
have argued against any action to facilitate KEK's access to the 
substation or to assert its ownership of it.  No doubt, one reason 
for such a position is the conviction that tension and conflict of 
any kind must be avoided at all costs.  Another rationale given for 
such a position is that continued EPS control of Valac will 
facilitate talks toward a commercial solution to electrical power 
provision and payment in the North.  Again, such an assertion does 
not conform to the realities of the past year. 
 
¶9. (SBU) These arguments are not only wrong but backwards.  It is 
KEK control of Valac that would be conducive to a regularization of 
commercial relations for power.  EPS control of the substation has 
done anything but that.  Rather than facilitate talks, EPS control 
of Valac -- exercised exclusively since October 2009 -- has led only 
to illegal modifications to the substation to facilitate unlicensed 
(and therefore illegal) provision of electrical services by Serbian 
entities in the North.  Continued, unchallenged EPS control of Valac 
won't lead to talks, but to the continued retrofitting of the 
station to permit EPS to provide more power to the North.  These 
efforts will continue to take place without licenses from Kosovo's 
UNMIK-established Energy Regulatory Office, and in contravention of 
existing licenses to KEK and KOSTT to provide services to the whole 
territory of Kosovo.  The end result, as in the cases above, would 
be clear violations of UNMIK law and regulations, Kosovo state 
firms' loss of property, and the effectual strengthening of the 
bonds between the northern municipalities and Serbia. 
 
¶10. (SBU) If it is a commercial solution that is sought, a 
commercial solution has been on the table for some time.  KEK has 
advocated since May 2009 for an electrical services company 
agreement with Serbia's EPS, through which EPS could register a 
Kosovo firm that could serve as a subcontractor for KEK, providing 
services including billing and meter reading to majority Kosovo Serb 
communities like North Mitrovica, Zvecan, Zubin Potok, and Leposavic 
(previous versions of the same proposal included Strpce and 
 
PRISTINA 00000558  003.2 OF 003 
 
 
Gracanica, before KEK regularized payments in these areas without 
EPS participation).  KEK's overtures have never been met with a 
serious, substantive response and it is hard to see how EPS' control 
of Valac will change this.  (Note:  Here, too, a record of these 
exchanges exists that documents this version of events.  End note) 
 
 
MYTH 4:  A SERBIAN POWER DISTRIBUTOR IS THE ANSWER 
--------------------------------------------- ----- 
 
¶11. (SBU) Some, who claim to argue for a commercial solution, press 
the previous arguments further and contend that the introduction of 
a second, Serbian, power distributor would not only improve 
electricity distribution in the North, but would also be insurance 
against KEK's ability to politicize power or use it as a weapon. 
This argument, too, falls flat, as it assumes the same faulty 
challenges to KEK/KOSTT property rights, and in fact takes them one 
(harmful) step further. 
 
¶12. (SBU) For a Serbian electricity provider to be established in 
the North, KEK and KOSTT would essentially be forced to cede control 
of assets that are theirs by legal right.  In addition to annulling 
Kosovo firms' property rights directly, such a move would have 
second order negative consequences for these entities, by 
denigrating the value of the licenses KEK and KOSTT currently hold 
as sole providers for distribution and transmission for the whole 
territory of Kosovo.  For KEK especially, this loss of assets, 
service territory and customers would wreck its value in 
privatization, unraveling years of work by USAID and others and 
placing in jeopardy comprehensive energy sector reform in Kosovo. 
If the provider operated only in the North, the scheme would advance 
partition.  If, as some claim, the Serbian provider should operate 
in Kosovo Serb inhabited areas both north and south of the Ibar, 
even more damage would be done to the value of KEK's licenses and 
its privatization prospects, and electricity in Kosovo would 
officially become an "ethnic" commodity -- a prospect that we 
certainly should avoid. 
 
COMMENT 
------- 
 
¶13. (SBU) Though some of the myths put forward are legal and others 
political, most are differing expressions of the same position -- 
negotiations of any kind are preferable to tensions or the 
possibility of hostilities of any kind.  While perhaps tempting, 
this assertion must be rejected.  The process of regularization of 
commercial relations for power that has taken place south of the 
Ibar was made possible thanks to a firm but reasonable stance toward 
Belgrade officials.  Success there was an important step forward for 
Kosovo and a blow to the credibility of parallel structures, a 
success that opened vistas for Serbs for cooperation with other 
Kosovo institutions.  If we are to succeed in the North, we must 
remain firm now, firm in defense of law, of property rights, and 
license rights.  We must not rush to negotiate away property rights 
or the chance to privatize Kosovo's energy system.  Similarly, we 
must not confuse today's conflict avoidance with an honest attempt 
at long-term risk management.  If we succumb to arguments that would 
further separate Kosovo's North from the rest of the country, we 
will soon find that, far from solving problems, we are creating 
incentives for future challenges and encouraging the belief that 
partition is a real possibility.  If left unchecked, both are likely 
to produce a more serious confrontation in the future than the one 
some are trying to avoid today. 
 
DELL