Serbia signs strategic energy deal with Russia

MOSCOW Fri Jan 25, 2008 4:10pm GMT

1 of 2. Russian President Vladimir Putin (R) shakes hands with his Serbian counterpart Boris Tadic in the Kremlin in Moscow January 25, 2008. Russia and Serbia signed on Friday an energy pact adding Serbia to Russia's new gas pipeline to southern Europe and allowing Russian gas monopoly Gazprom to buy control of Serbia's oil monopoly.

Credit: Reuters/Alexander Natruskin

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MOSCOW (Reuters) - Serbian leaders signed a deal with Russia on Friday giving Moscow control of the Serbian oil monopoly and the right to route a major European gas pipeline through Serbian territory.

The agreement came nine days before a runoff presidential election in Serbia between a pro-Western and a pro-Moscow candidate.

Analysts said it marked a Kremlin victory in a "pipeline war" with the EU in which Russian opposition to independence for the Serbian province of Kosovo was a key bargaining chip.

"Our close political relations were today converted into economic results," President Vladimir Putin's chosen successor as president, First Deputy Prime Minister Dmitry Medvedev, told reporters. "This is a great breakthrough".

At the signing, Putin reiterated Moscow's strong backing for Belgrade's campaign against independence for Kosovo, which the European Union broadly supports. Serbia could count on Russia as a reliable friend and partner, he added.

The EU, worried about its dependence on Russian gas, has been promoting a rival pipeline scheme which would take gas from Central Asia through Turkey to Europe. But it has been having trouble finding enough gas supply to justify the project.

"Russia has taken advantage of the current situation in the Balkans, when Serbia needed strong support on Kosovo," Chris Weafer, chief strategist at UralSib investment bank in Moscow.

"The Kremlin has played a very smart and effective game over the past two years, effectively winning a pipeline war with the European Union."

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Serbian President Boris Tadic told reporters as he started talks with Putin that without Russia's support "Serbia would find it far more difficult to defend its position on Kosovo".

Friday's agreements gave Russian gas monopoly Gazprom a 51 percent stake in NIS, the Serbian oil and gas company, for an undisclosed price.

Gazprom's initial offer of 400 million euros last month was described by analysts as well below market value but it was not clear whether this had been raised.

NIS, the only state-owned oil firm in the Balkans to have escaped major restructuring or sale, dominates Serbia's market with a monopoly on refining and a network of almost 500 petrol stations across the country.

Estimates of its market value vary between 1.0 billion euros (743 million pounds) and 2.0 billion euros (1.5 billion pounds).

Tadic and Serbia's Russophile Prime Minister Vojislav Kostunica also signed an agreement in Moscow for Gazprom to route a branch of its South Stream gas pipeline through Serbia and make Serbia a major transit hub for the supplies.

South Stream is a 10 billion euro gas transit project organised jointly by Gazprom and Italian energy giant ENI to bring Siberian gas to southern Europe via the Black Sea.

In Bulgaria, the pipeline will divide, with a southern branch supplying Greece and southern Italy and a northern spur running through Romania and Serbia towards northern Italy.

(Reporting by Oleg Shechrov; writing by Michael Stott; editing by Andrew Roche)

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