Serb govt to continue talks on Russian energy pact

BELGRADE Sat Dec 29, 2007 4:16pm GMT

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BELGRADE Dec 29 (Reuters) - The Serbian government said on Saturday it would continue negotiations with Russia on a controversial energy pact that would potentially see Serbia included in Russia's "South Stream" gas pipeline.

Russia proposed the deal earlier this month, seeking in return a controlling stake in Serb oil monopoly NIS. But the proposal has drawn fire from one faction of Serbia's ruling coalition, which argues the offer undervalues NIS.

The government said in a statement it had adopted a platform for further negotiations with Russia. But Economy Minister Mladjan Dinkic quit the committee working on the deal, Belgrade's Radio B92 reported.

"The negotiations on cooperation in the energy and gas sector with Russia will continue in order to reach an agreement that would respect the interests of both parties," the government said in a statement.

The special cabinet session followed angry criticism of the proposed deal on Friday by Dinkic, who said Russia had offered 400 million euros ($588.4 million) for a 51-percent stake in NIS.

Dinkic, a pro-Western reformer, told Reuters the offer seriously undervalued the company and was "humiliating."

Analysts believe nationalist Prime Minister Vojislav Kostunica wants to accept the offer, to reward Russia for backing Serbia's efforts to block the independence of its breakaway Kosovo province by threatening to use its U.N. veto.

The partial sale of refining monopoly NIS is one of the most eagerly anticipated privatisations in Serbia. First discussed in 2005, it has been delayed by political infighting over how large a stake should be sold.

Belgrade initially planned to sell a 25 percent stake for around $300 million, coupled with a requirement for the buyer to commit to an additional $250 million investment. But some in the government want to sell a majority stake for a better price.

Companies including MOL MOLB.BU, OMV (OMVV.VI), Hellenic Petroleum (HEPr.AT) and Rompetrol have expressed interest.

NIS, with an estimated total nominal value of $1.2 billion, has Serbia's biggest retail network. But its technology is outdated and it needs new investment to fend off competitors once a monopoly on processing derivatives ends in 2010.

Russia's Gazprom (GAZP.MM), the world's largest gas company and supplier of a quarter of Europe's gas, has said in the past it might take part in the privatisation of NIS on condition it is allowed to expand its gas business in Serbia.

But critics say the proffered arm of its South Stream pipeline project, Russia's rival to the Nabucco pipeline scheme, would carry less gas and make less revenue than Serbia had initially hoped for. (Editing by Matt Robinson and James Jukwey)