Gazprom's secret agent unmasked in Serbia

Oct 25, 2008 02:00 AM

A scandal concerning Russian gas supplies has been stirred up in Serbia, with Gazprom-controlled reseller Yugorosgaz, which receives a EUR 35 mm commission annually, in the spotlight.
The scandal may tell on the outlook for the realization of an oil and gas agreement, which has been recently concluded by Russia and Serbia. According to the agreement, Gazprom is due to restore control over Serbia's energy monopoly NIS.

Moscow protocol
The scandal was initiated by signing an annual protocol to the Russia-Serbian gas agreement, which envisions supplying to Serbia 2390 mm cm of gas costing EUR 700 mm in 2009. The protocol of October 14 was signed by Srbijagas Acting Director Sasa Ilic on behalf of Belgrade.
Although the Russian and Serbian parties sign this kind of a protocol every autumn, this time the deal resulted in a big scandal in Serbia. Governmental officials have been involved in it, and many Serbian politicians urged the government to "put and end to gas mafia".

The protocol has brought up a lot of questions in Serbia. First, it turned out that the Srbijagas board was unaware of Sasa Ilic's signing the document. Moreover, he was dismissed recently. He had the right to conclude agreements, whose sum didn't exceed EUR 2 mm, and the price of the Moscow question is 350 times higher.
Second, it was not Gazprom that signed the agreement with Sasa Ilic -- it was Yugorosgaz, which will receive a 5 % commission, or EUR 35 mm for its services. Finally, Mr Ilic is the Yugorosgaz Vice President, which means that he signed the agreement with himself.

The tensions were stoked because Sasa Ilic's visit to Moscow was secret. At least, the Serbian Embassy in Moscow didn't take part in organizing it. Serbia's media learnt about the visit only after Mr Ilic was interviewed by a couple Russian news agencies, where he even didn't touch upon the main goal of his visit.
After Belgrade learnt that information, Sasa Ilic had to find excuses. According to him, Serbian Energy Minister Petar Skundric and Srbijagas acting Board Chairman Predrag Grgic read the contents of the protocol (both of them denied it). In addition, Mr Ilic stated that his predecessor signed similar protocols. Answering a straight-forward question, how much each company will earn as a result of the deal, Sasa Ilic said, "Srbijagas -- some EUR 3,000, and as to Yugorosgaz, I cannot divulge the figure."

Serbia's high-ranking officials had to comment on the scandal. A representative of the Serbian Prosecutor General's Office reported that the republic's Prosecutor General Slobodan Radovanovic has already issued an order to investigate into the matter, finding the cases of possible power abuse connected with Russian gas export.
Chairman of the government's Committee on Interest Conflict Slobodan Belyansky remembered that in August his committee suggested that Sasa Ilic should resign from either posts because the interest conflict was evident, but he replied that all his predecessors combined two posts.

Energy Minister Petar Skundric tried to ease the tensions stating that protocol only "reserves the amount of gas Serbia needs" and that the document won't take effect without approval of Srbijagas's Board. The company's acting Board Chairman Predrag Grgic said that "no decision will be made without the Government's verdict".
Speaking on behalf of the Government, Economic Minister Mladjan Dinkic said that Serbia will demand that no third-party companies should participate in gas deals with Russia.

Either with Yugorosgaz or without gas
The role of Yugorosgaz is now in the spotlight of the scandal. In 1996 Yugorosgaz was owned 50/50 by Gazprom and five Yugoslav companies: NIS, Sartid, Progres, Progres Gas Trejding and Beobanka. Yugorosgaz received a concession to lay a gas pipeline in Serbia, which was to be a continuation of a Bulgarian branch.
Until October 5, 2000 Russian gas was supplied to Serbia via Progres Gas Trejding. After Slobodan Milosevic's regime collapsed, the Serbian Government stated t didn't need the reseller's services any longer.

Meanwhile NIS bought out the stakes of Sartid and Beobanka, and in May 2005 the company was going to purchase 25 % of Progres and Progres Gas Trejding to maintain the Russia-Serbian parity in Yugorosgaz. But then Prime Minister Vojislav Kostunica didn't authorize the deal. Gazprom took advantage of that raising its stake in Yugorosgaz to 75 % via its affiliate Central ME Energy & Gas.
At the beginning of 2006 Yugorosgaz became the reseller of Russia's gas. Mladjan Dinkic, who belonged to Vojislav Kostunica's Government, explained why Belgrade agreed to it. According to Mr Dinkic, Moscow issued Belgrade an ultimatum: either with Yugorosgaz or without gas.

However, it is believes that Serbia's yielding to Gazprom had other grounds. According to sources, giving Gazprom control over Yugorosgaz and the latter's becoming reseller were Serbia's payment for Moscow's siding with Belgrade in the Kosovo issue, in other words, Russia's veto in the UN Security Council, which Moscow promised to use in case it came to voting.
"At that time the energy sector was in the hands of Kostunica's people, who were ready to stake everything on Kosovo," sources opine. At the same time the sources with Gazprom consider supplying gas to Serbia via a reseller to be ordinary practice. According to them, "getting commission on sales, Yugorosgaz invests funds in its own projects, including building gas pipelines and providing gas to Southern Serbia, which results in growth of gas consumption in the country".

Revival
The scandal over Russian gas supplies to Serbia may have far-reaching consequences. The protocol, signed by Sasa Ilic in Moscow, brought to life the issue of oil and gas agreements concluded this year, where Russia is due to build a gas pipeline branch in the framework of the South Stream project, and Gazprom is to purchase 51 % of the Serbian monopoly NIS's stocks for EUR 400 mm.
Interestingly, Gazprom's Guidelines for the Development of the Gas Industry up to 2030, the date of launching the South Stream pipeline has been postponed from 2013 to 2015.

Also, Gazprom CEO Alexei Miller held talks with heads of Romanian companies, where Romania's participation in the South Stream project and Bucharest's possible substituting for Belgrade. Serbia regards it as a testimony that Gazprom has problems realizing the project.
"There are too many questions in the agreement Serbia relies on," a source said. "When will Serbia receive gas? At what price? Where will the pipeline be laid? And now the scandal with the reseller has broken out. Unless the matter of Yugorosgaz is promptly settled, Serbia will have even more doubts in the expediency of the gas deal with Russia, and the deal's opponents will have an advantage."

Gazprom doesn't think these concerns to be serious.
"Signing a final gas agreement depends on the Serbian party," a source stated. "Gazprom has processed all necessary documents, and now we are waiting for Belgrade to do the same."

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