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RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK
RUEHYG
DE RUEHBW #0024/01 0061325
ZNR UUUUU ZZH
R 061322Z JAN 10
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0545
INFO EUROPEAN POLITICAL COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 BELGRADE 000024 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINT ENRG SENV PREL PGOV SR KV
SUBJECT: SERBIA: WEDDED TO COAL FOR ENERGY AND POLITICAL NEEDS 
 
REF: 09 BELGRADE 1482 
 
SUMMARY 
 
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¶1. (SBU) Serbia remains deeply wedded to coal to fuel its energy 
needs.  Despite ongoing efforts to further diversify energy 
resources to include more hydropower and renewable energy (Ref A), 
Serbia's natural abundance of coal has assured that the fossil fuel 
will have a primary place in meeting Serbia's - and the region's - 
energy needs for the coming fifty years.  In order to provide 
supply and meet demand, Serbia's coal industry is hoping for nearly 
$1 billion in investments over the next ten years, providing 
commercial opportunities for western firms.  In addition to its 
economic significance, Serbia's coal industry and its militant 
miners remain a political force, which has proven in the past its 
ability to topple governments and to fund political parties.  This 
dirty fuel remains a dirty but lucrative business in Serbia.  End 
Summary. 
 
 
 
KOLUBARA MINE 
 
------------- 
 
 
 
¶2.  (U) The Kolubara open pit coal mine, located 40 miles southwest 
of Belgrade in the municipality of Lazarevac, is Serbia's largest 
coal producer, responsible for 70% of the country's lignite. 
Kolubara produces 30 million tons annually and has 2.2 billion tons 
of reserves.  (By comparison, Kosovo's fields produce 7.1 million 
tons per year and have 12 billion tons of reserves.)  Kolubara is 
owned by Serbia's state owned electric power industry, EPS, and 
nearly 90% of Kolubara's coal is used for electricity production at 
EPS' four thermo-power plants.  The rest of Kolubara's coal is used 
either for domestic heating or is exported, primarily to Romania. 
 
 
 
 
ENOUGH COAL TO LAST UNTIL 2060 
 
------------------------------ 
 
 
 
¶3. (U) Kolubara currently has four fields in operation and intends 
to open two new fields to replace the current ones over the next 
several years, Kolubara's Deputy Director Vladan Radovanovic told 
us during a December 21 visit to the mine. Kolubara's two oldest 
lignite fields opened in 1955 and 1961 and currently have 10 to 40 
million tons of reserves left, which could continue producing for 
the next six to eight years.  The newest lignite field opened in 
1994, and is scheduled to operate until 2045 with annual production 
averaging 12 million tons.  Radovanovic said that starting in 2010 
Kolubara would prepare to open two new fields to replace the oldest 
ones.  For those new fields Kolubara would need equipment including 
excavators and conveyor systems valued at more than $700 million. 
Currently, Kolubara uses primarily German equipment.  Radovanovic 
said the German Government had shown great interest in providing 
grants and soft loans to Kolubara since October 2000.  These new 
lignite fields should satisfy Serbia's needs for coal until 2060, 
Radovanovic said. 
 
 
 
FROM COAL TO ELECTRICITY:  NIKOLA TESLA THERMO POWER PLANTS 
 
--------------------------------------------- -------------- 
 
 
 
¶4.  (U) With 3,288 MW of installed capacity at its four 
thermoelectric power plants, EPS' daughter company TPP Nikola Tesla 
provides 36% of Serbia's total electricity capacity and is the 
largest producer of electricity in South-East Europe.  Combined, 
the four thermal power plants (TENT A, TENT B, Kolubara A and 
Morava) provide 18 billion kWh annually, around 47% of EPS' total 
production.  Together, these four plants consume 27 million tons of 
Kolubara's coal annually, with TENT B alone consuming 60,000-80,000 
tons of lignite per day.  To feed this constant demand, TPP Nikola 
 
BELGRADE 00000024  002 OF 003 
 
 
Tesla operates its own railway system taking the coal directly from 
Kolubara to the power plants.  The EPS coal train is the only 
railway system permitted to operate independently of the 
state-owned Serbian Railways in Serbia. 
 
 
 
¶5.  (SBU) Aleksandar Vlajcic, Assistant Manager at TPP Nikola 
Tesla, told us during a December 21 visit to the facility that 
Serbia and the region is dependent upon the coal powered plants and 
the coal fields that feed them.  As an example, he cited the 
January 2009 power shortages in Europe when Russia cut off natural 
gas supplies to Ukraine.  Vlajcic said during those weeks the power 
plants and mines operated at full capacity to maintain Serbia's and 
the region's electricity supply and to avoid spikes.  He said 
Serbia was essential for the functioning of the regional 
electricity grid, since Serbia bordered and was connected to the 
electricity grids of its eight neighbors (including Kosovo).  He 
proudly noted that without Serbian electricity the EU grid would 
not function since Serbia connected the EU's southern members 
(Bulgaria and Greece) with its western and northern members. 
 
 
 
KOLUBARA'S POLITICAL INFLUENCE IN SERBIA 
 
----------------------------------------- 
 
 
 
¶5.  (SBU) In addition to its economic significance, the coal 
industry and its militant miners remains a significant political 
force in Serbia, requiring the constant courting and caution of 
political leaders.  Currently, Kolubara employs 10,500 people out 
of 30,200 in EPS in Serbia proper. (Counting workers still on its 
payroll in Kosovo, EPS has 35,800 employees.)  Although it has cut 
back from having 17,000 workers in 2000, Kolubara still employs 
more workers than Telekom Srbija (9,500) and has a similar number 
of employees as Serbia's NIS petroleum industry (11,000). 
 
 
 
¶6.  (SBU) The 17,000 employees of Kolubara played a key role in 
bringing down the regime of late Slobodan Milosevic in October 2000 
when they halted coal production in protest of Milosevic's election 
fraud and refusal to step down.  Despite threats from the army and 
EPS, the miners showed their support for democratic presidential 
candidate Vojislav Kostunica.  The halt in coal production further 
weakened Milosevic, who was toppled just days later.  One year 
later, the miners' demand for higher salaries challenged the 
still-fragile democratic government.  The threat of a strike forced 
then-PM Zoran Djindjic to come personally to Kolubara for direct 
negotiations with the miners to resolve the problem and to save his 
government. 
 
 
 
DIRTY MONEY FROM A DIRTY BUSINESS 
 
---------------------------------- 
 
 
 
¶7. (SBU) As they do with other state-owned companies in Serbia, 
ruling political parties use Kolubara and its resources for 
personal and party interests.  Aleksandar Kovacevic, an independent 
energy economist for the UNDP, told us in June 2009 that when 
Kostunica's Democratic Party of Serbia (DSS) controlled the mines 
in 2008 party bosses serving as mine managers would illegally sell 
coal to fill both their personal and party coffers.  Party 
officials working at Kolubara also found creative ways to profit 
from the mine's enlargement plans, according to Kovacevic; as 
Kolubara spent millions of dollars per year to buy surrounding 
property, party bosses would sell "movable houses" to the company 
multiple times. 
 
 
 
¶8.  (SBU) The DSS lost control of both EPS and Kolubara when Boris 
Tadic's Democratic Party (DS) and the Socialist Party of Serbia 
(SPS) formed the new national government in July 2008.  In July 
2009, the DS- led government appointed Nebojsa Ceran as Kolubara's 
director, replacing former DSS director Dragan Tomic.  (Ceran also 
serves as a DS Member of Parliament.)  Some daughter companies spun 
off from Kolubara in 2005 are currently controlled by the SPS 
because the local government in Lazarevac (the municipality where 
 
BELGRADE 00000024  003 OF 003 
 
 
the mine is located) is comprised of a DSS-NS-Serbian Radical Party 
and SPS coalition. 
 
 
 
¶9.  (SBU) In September 2009, Belgrade mayor and DS Vice President 
Dragan Djilas accused former Director Tomic of spending more than 
$150 million over five years on renting transport and equipment 
from private individuals and companies.  Soon after, Serbia's tax 
police submitted criminal charges for tax evasion against Tomic. 
Goran Perisic, Chief of Staff in Kolubara, told us on January 5 
that he suspected the accusations were a politically-motivated DS 
effort to further weaken the DSS. 
 
 
 
¶10. (SBU) After becoming director, Ceran announced efforts to cut 
costs and to introduce public tenders for Kolubara projects. The 
impact of these changes has yet to be seen, however.  In 2009 
Kolubara spent $15 million to purchase expropriated land 
surrounding the mine.  Kolubara Deputy Director Radovanovic told us 
that an additional $3 million has been set aside in the budget to 
buy more land.  While currently there are no accusations of 
corruption against the DS management, the amount of funds required 
for purchasing equipment and land leaves open significant 
opportunities for internal malfeasance.  The government, the 
parties and EPS will need to continue to reform if they are to 
significantly reign in corruption in the sector. 
 
 
 
COMMENT 
 
------- 
 
 
 
¶11. (SBU) While Serbia plans to diversify its energy resources, 
coal will remain the primary fuel for the next few decades thanks 
to its natural abundance and the potential it presents for 
political patronage and graft.  Ultimately, Serbia's efforts to 
clean up its air will be directly tied to its ability to clean up 
the power and influence of the politically-charged domestic coal 
industry.  End Comment. 
BRUSH