January 20, 2007 / 8:00 PM / 12 years ago

UPDATE 1-INTERVIEW-Serbs, Russia initial Soviet era debt deal

(Updates with more detail, quotes, background)

By Gordana Filipovic

BELGRADE, Dec 13 (Reuters) - Serbia and Russia on Wednesday initialled a deal to settle mutual communist-era debts, with Serbia clearing its debt to Gazprom (GAZP.MM) amassed in the 1990s and Russia repaying its liabilities through work in various energy sectors.

The formal signing of the complex plan that untangles a decades old debt backlog is expected by the end of the month in Moscow, Serbia’s Economy Minister Predrag Bubalo told Reuters.

It also paves the way for greater Russian involvement in the Serbian energy and financial sectors, Bubalo, in Moscow for talks, told Reuters in a telephone interview.

“The (debt-settlement) agreement refers to repayment of $188 million debt for gas deliveries in the past,” Bubalo said.

Serbia piled up a $243 million debt for gas delivered during the rule of late strongman Slobodan Milosevic, $70 million of which will be treated as commercial debt and repaid separately by Serbian gas monopoly Srbijagas, Bubalo said.

As part of the debt settlement, Russia will deliver $100 million worth of equipment for Djerdap hydroelectric power plant on the Serbian border with Romania and build a $5 million accelerator unit in Belgrade Institute of Nuclear Science Vinca.

Earlier plans for Gazprom to take part in the construction of Serbia’s first underground gas reservoir at Banatski Dvor were amended after Serbia completed the first stage on its own.

“But Gazprom can fill the reservoir with the gas. We will build other gas reservoirs and the Russian side is ready to invest in those facilities,” Bubalo said. The initialling of the debt deal was only a part of what Bubalo agreed with Russian Emergencies Minister Sergei Shoigu.

“Next week, Serbia and Russia will sign in Moscow a memorandum of understanding on the construction of a ($1.0 billion) gas pipeline from Bulgaria through Serbia to northern Italy,” Bubalo said of a deal first agreed six months ago.

PLEASING RUSSIA

Bubalo said Serbia would have to tackle the Russian side’s concerns over the inability of oil giant LUKOIL (LKOH.MM) to expand business in Serbia due to tough rules implemented by local authorities in Belgrade and some other towns. LUKOIL bought a 70 percent stake in Serbia’s second-largest petrol chain Beopetrol for 207 million euros in August 2003, but has not managed to upgrade the filling station network.

Modernising the network will boost its image in the retail market where competition has grown since 2003 with the arrival of Austria’s OMV (OMVV.VI), Slovenia’s Petrol (PETG.LJ), AVIA, Hungary’s MOL (MOLB.BU) and Greek Hellenic Petroleum (HEPr.AT).

Also, Russia will finally get access to the Serbian banking sector, dominated by western banks, Bubalo said.

“The National Bank of Serbia has issued an approval to the Bank of Moscow to buy Agrobanka AGBN.BEL. The Russian partner can now move on with its plans,” he said.

Pleasing Russia is seen as the key to ensuring its support in Belgrade’s battle to keep the breakaway, United Nations-run province of Kosovo within its borders. In turn, Russian Duma will by March 2007 ratify a free trade pact with Serbia, which allows exports of some goods to Russia at a zero customs duty.

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