PIPELINE DIPLOMACY

South Stream in Heat of Energy Battles

By Pyotr ISKENDEROV Eurasian energy wars are on the way to the next phase. The United States and the European Commission’s leadership tried real hard to frustrate the implementation of North Stream project. Having failed at that, they refocusing their activities on the attempts to foil the plans to construct South Stream. In the case of North Stream they counted on the states that had no relation to the gas pipeline. Now they have changed the tactics to rely on recruiting influential political forces in the countries which are to become the main beneficiaries in case the project goes through. Serbia has a special place in these plans; some Serbian media outlets have already launched an anti-Russian campaign... There is a series programs offered by Serbian Insajder (Insider) B92 TV channel devoted to the arguments put forward by South Stream opponents who slam the 2008 Russia-Serbia energy accords. The channel’s experts expose the view that in comparison with all the states encompassed by the project Serbia ended up with the most unfavorable terms. The 2008 negotiation team included some top leaders at the time, such as the former President of the country Boris Tadić, former Prime Minister Vojislav Koštunica and then Serbia's Minister of Construction and Urbanism Velimir Ilic. The negotiators are reproached for selling the Serbian monopoly Naftnа IndustrijаSrbije (NIS) below the price and ceding control over Banatski Dvor gas storage facility. Aside from that, B92’s investigative program Insajder has learned that there is a possibility that the money from the fees will first go to Switzerland because a joint Serbian-Russian company that should build the pipeline in Serbia is registered in the Swiss town of Zug, an alleged offshore zone “black hole”. The company is in charge of the entire construction of the South Stream gas pipeline in Serbia but money from future transit fees could end up on its accounts.   Now let’s take the facts and make head or tail of it. It would not be an exaggeration to say that the Balkan peninsula became an important hub for transcontinental transportation routes at least since the end of the XIX century when new world minerals exporting and trade routes emerged. Nowadays the competition for control over transportation routes has become a key aspect of contemporary geopolitical situation. At the beginning of the last century, the well-known British publicist John Ellis Barker wrote that the Balkans and Asia Minor occupied the most important strategic position in the world. He went on to say that they are the nucleus and the center of the old world and divide, as well as bridge, three continents: Europe, Asia and Africa. Unlike the pre-war and WW I days, the United States have a growing role to play now. At first, the objective was defined in the document issued by the Department of State/USAID called Joint Strategic Plan FY 2007/2012.  It was the first time since the Cold War days when the US administration put the mission to counter the “negative conduct” of Russia, first of all its growing presence on the world energy market, at the top of its priority list.   One of the top tasks is to prevent an energy alliance between Russia and the European Union. The ways to reach the set goal presuppose the construction of oil and gas routes from the Caspian Sea and Central Asia to Western Europe going around Russia while applying efforts to counter Russia-initiated projects to export resources across the Balkans peninsula. Political, financial, economic and other means are resorted to for this purpose.  This strategy matches well the US global priorities. For instance, the US National Intelligence Council Global Trends 2030: Alternative Worlds report predicts growing tensions between the states competing for limited resources against the background of growing political instability in the Middle East and diminishing confidence in the ability of markets to satisfy the growing demand. National companies may acquire the control over the lion’s share of world mineral resources entailing further tailoring energy policies of states according to their energy needs to affect the geopolitical trends.      No wonder, as a large-scale project, South Steam happened to be in the heat of the geopolitical fray from the start. Up to now, Russia has managed to keep intact the initially designed parameters beneficial for all parties, including Serbia.   The first document signed to launch the project was the Memorandum of Understanding signed between Gasprom Vice-President Alexander Medvedev and executive director of Italian ENI Paolo Scaroni in Rome on June 23, 2007. In November the same year  Eni and Gazprom signed in Moscow a further agreement related the South Stream project, in which the parties agreed to use a joint special purpose vehicle (SPV) for the commissioning of the marketing and technical feasibility studies of the project. The new structure was to be governed by a shareholders agreement. On January 18, 2008 a special purpose company for the construction of the offshore pipeline, South Stream AG, was registered in Switzerland. The founders of the company were Gazprom and Eni on a parity basis. The pipeline’s initial annual supply capacity was to be 30 billion cubic meters.   Italy is one of key European Union members.  The Russia-Italy accords created a solid basis for further development of the project; there is no way the Russia-Serbia agreements could be called unilateral. The first preliminary agreement between Russia and Serbia was signed even before announcement of the South Stream project. On December 20, 2006, Gazprom and Serbian state-owned gas company Srbijagas agreed to conduct a study on building a gas pipeline running from Bulgaria to Serbia.    On January 25, 2008, Russia and Serbia signed a comprehensive inter-government agreement to route a northern pipe of South Stream through Serbia and to create a joint company to build the Serbian section of the pipeline and large gas storage facility near Banatski Dvor in Serbia. Serbian and Russian officials signed several economic agreements in Moscow in the presence of Serbian President Boris Tadic and Prime Minister Vojislav Kostunica and Russian President Vladimir Putin and First Deputy Prime Minister Dmitry Medvedev.   The most important deals involve the sale of Serbia's state oil monopoly, Naftna Industrija Srbije (NIS), to a Gazprom-led group, and the construction by Gazprom of a pipeline going through Serbia. Gazprom acquired a controlling stake (51 per cent) in state-owned NIS for 400 million euros in cash and 500 million euros in direct investment.  Naftna Industrija Srbije was going through hard times those days and it was a good deal for the company. Gasprom also promised to build South Stream across Serbia with the capacity of at least 10 billion cubic meters a year going to Central Europe, expand the Banatski Dvor underground gas storage facility from 800 million to 3 billion cubic meters, and build Serbia's largest gas-fuelled power plant.   Probably those who raise their voices against the agreement and Russia-Serbia energy cooperation in general today forget the financial and political realities which existed at the time the agreements were concluded. Nenad Popovic,Vice-President of National Assembly of the Republic of Serbia, Vice-President of the Democratic Party of Serbia and President of the Economic Council of the Democratic Party of Serbia, said those days that the South Stream agreement could totally bring in the income of 2 billion euros in investments and 200 million euros in annual transit fees. Besides, Banatski Dvor would become the third largest gas storage facility in South-East Europe.  This is the reason the agreement is under attack from outside and some circles inside Serbia.   According to Nenad Popovic, powerful forces try to counter the implementation of the existing agreement and undermine the Russia-Serbia cooperation in general. These forces are not limited by some members of cabinet. There are a few lobbies trying to oppose the development of bilateral cooperation. Popovic believes the mightiest force is represented by two oil-gas majors who belong to the members of the European Union that is encircling Serbia (he meant Hungarian MOL and Austrian OMV – remark by author). There giants enjoy the position of monopolies on Serbian market, naturally they want no competition from Gasprom. The companies have their own processing facilities and are ready to buy Naftna Industrija Srbije paying a higher price to get rid of the competitor. Let me remember that the Hungarian Coalition was the main opponent of the agreement in the Parliament - the National Assembly of the Republic of Serbia (Narodna Skupština). The party represent Voevodina, the autonomous province within Serbia, where NIS is based.    There are Hungarians in Voevodina who have already made public their desire to separate from Serbia following the example of Kosovo. They panickly fear Gasprom Neft would buy NIS. With the deal in force, Naftna Industrija Srbijewould become anelement of South Stream project’s infrastructure.   Then the separatist plans will be buried: Neither Serbia, nor Russia or the European Union will reconcile with the plans to undermine the European energy security.   These factors are emphasized by the President of the Economic Council of the Democratic Party of Serbia. After the Russia-Serbia energy agreements had been concluded, Russian Gazprom and Serbian Srbijagas created South Stream Serbia AG in Bern, Switzerland on 17 November 2009. The joint engineering company was to prepare feasibility study of the Serbian section of project. The new joint venture was also to be responsible for design, financing, construction and operation of the pipeline in Serbia.  Gazprom's share in the joint venture was 51%, while Srbijagas was to hold 49%. In other words this deal had not preceded the accords in question and the issue could not have been part of the agenda.   Besides the creation of South Stream Serbia AG joint venture in Switzerland was not motivated by the desire to use a black hole for money laundering. Rather the reason behind was the goal to avoid a number of energy sector limitations imposed by the European Union on its territory. This tactics have been tried with other countries – Gasprom partners besides Serbia, for instance with France and Norway, the country which is a key actor on the European energy market. Otherwise the project’s cost could grow exponentially to upset the Serbian partners of Russia first.     Government is the #1 enemy of the people and the source of all major problems of humanity.  Anarchy is the best political system.  Basil Venitis, venitis@gmail.com, http://themostsearched.blogspot.com, @Venitis