Radoslav Striković: Gazprom has taken over Petroleum Industry of Serbia to invest in it

PHOTO: Seniha Muharemi-Vukas

Slovenia is the latest potential partner in the South Stream project to sign the association agreement. What stage is the project on in Serbia? What are your first impressions and where do you expect difficulties?

Our expectations of South Stream are high. Serbia has chosen the right moment to step over to the right side. This investment is a basis for a further technological development of the entire state. South Stream is within the competence of the Republic of Serbia, so the province of Vojvodina has do direct say in the matter. On 18 November an agreement was signed establishing a new joint venture of Srbijagas and Gazprom. With 51 percent, Gazprom will hold the majority stake, while the state-owned company Srbijagas will have a 49-percent ownership. The South Stream project cannot be set apart from the gas storage facility in Banatski dvor, which will be constructed in thee phases. The joint venture will continue with its construction to complete this large storage, which will have the capacity of about 800 million cubic metres, while it currently houses around 250 million cubic metres of gas. Serbia consumes approximately 10 million cubic metres of gas per workday. Gas is used by 210,000 households, 180,000 of them in Vojvodina. The total length of pipelines through Serbia will be 470 kilometres, while the capacity increased from 10 billion cubic metres, as originally planned, to between 36 and 44 billion cubic metres – owing also to new partners in the project, such as Slovenia. Nabucco once used to be regarded as an alternative to South Stream, but neither our Russian partner nor us have paid much attention to this “provocation”. Economic cooperation between Serbia and Russia has intensified substantially recently and this has contributed to the decision to support South Stream.

In bringing about such an enormous project, difficulties are not in the foreground and not thought about to a great extent. We are currently dealing with the acquisition of land, relatively small plots of it. In the past the state set a fair market price in these instances, while the process is not as simple now. South Stream needs to be placed in a general urban plan and the local administration needs to make detailed plans, but I do not expect any special difficulties. South Stream is a big development opportunity for Serbia. The project will involve the engagement of a major part of the Serbian construction sector, as well as companies from Russia and other partner countries. Serbia needs this, because it has long been excluded from these kind of international schemes.

Does the economic crisis affect the dynamics of the South Stream project?

The economic crisis affects everything. However, this crisis is not like other big crises in the past. It has not, for instance, changed social order, generated new ideas, brought new thinkers. It is a crisis of capital, which has mostly caused recession in the US market. But as everything happening to the big ones is reflected in the small ones, we have been drawn to it, as well. We hadn’t been exporting much, so we couldn’t have lost much. A usual reaction in a crisis is to strive for more savings and to reduce consumption, which slows down cash flows. The South Stream project is still in its early stages and hasn’t required any major capital flows yet, so the crisis hasn’t affected us much, but it was always at the back of our minds.

Judging by the Russian domination in the field of energy – is Serbia interested in the Nabucco pipeline? Do you think this project can be completed at all?

The state should be interested in anything that could boost its development, but we had to make a realistic assessment of our economic capabilities and be a trustworthy partner to the party we work with. I don’t think Nabucco has a future. I saw it as a provocative response to South Stream. After it had become clear that South Stream had better chances of being completed, the Nabucco story slowly went quiet. I don’t think the authorities ever gave much thought to Nabucco. Srbijagas has always directed all its attention to South Stream. This does not mean we wouldn’t participate if Nabucco was brought back to life and its route crossed Serbia. However, this does not seem very likely at the moment.

Slovenia buys Russian gas, which comes through Ukraine and Austria, and Algerian gas, which crosses Italy; it has joined the South Stream project and is considering investments in liquefied gas terminals in the Adriatic. Has Serbia diversified its gas supply sources and routes and how?

All the gas Serbia buys from Russia comes through Hungary. There haven’t been any disruptions and during the last year’s crisis we bought gas from Hungary, which has large storage facilities and has, despite the severe crisis, earmarked some of the gas for Republika Srpska. A part of our production in Vojvodina, which amounts to between 5 and 10 percent of the total gas consumption in Serbia, is directly involved in these transport routes. We are aware that the future will bring a constant battle for energy sources. Gas deposits are diminishing, while the demand is increasing. The sales contract specifies obligations of the Russian owners of NIS regarding the funding of further research into gas in Serbia or, more precisely, Vojvodina. The figures available at the moment show that oil deposits in Vojvodina will last for another 20 to 30 years at the current rate of exploitation. This is why further research is fundamental. Oil deposits are usually where you find gas, as well. We don’t expect amounts that would satisfy the total Serbian demand, but having a part of oil coming from domestic sources is a good thing, important also from the point of view of control over the technology. NIS used to explore in many parts of the world. It searched for oil in Angola, it is likely to do the same in Montenegro and elsewhere. Its new Russian owner has drawn up a development strategy by 2012, in which these activities are involved.

As an agricultural area Vojvodina could produce large amounts of renewable energy from waste and crops grown for this purpose. Before the crisis there was a lot of talk of foreign investments in the production of biofuels, bioethanol and biodiesel. What is the situation like today and what are the plans in this field?

At its next meeting, the government of Serbia will adopt a regulation that will specify stimulating prices for the production of renewable energy. At a recent energy fair, one day was dedicated to biomass, one to solar power and one to energy efficiency. Biomass was the topic that attracted most attention. Many consumers are already using it for the production of heat, but not for electricity production. For the time being there are no investments in the production of electricity from renewable energy sources, because prices are not yet stimulated by a regulation, so financial outcome of such an investment is not clear. There are many potential investors from abroad. A delegation from Spain interested in investments in wind power visited us on 19 November. Wind power also attracts investors from Slovenia. All potential investors can use our wind atlas of Vojvodina. In Zrenjanin water for a hospital and high schools will soon be heated by means of solar panels. Foreign investors, including some from Slovenia, are also interested in our geothermal potential. NIS used to do research on this subject, so we have the data on the location of thermal water, its temperature, flow rate etc.

As for biofuels, preliminary tests have been done. A facility for the production of biodiesel from rapeseed was opened in Šid, but had to be shut due to the unregulated price issue. When prices are set at a stimulating level, this kind of production will stand a chance. Most of the industry in Vojvodina, all oil mills for example, are using heat produced from biomass waste. The number of producers of briquettes and pellets, used in automatically-fed stoves, is increasing. By organising meetings on expert issues, our secretariat is trying to raise awareness regarding renewable energy sources. The role of the media is very important. Together with the Secretariat for Education, we are preparing a programme for the first four years of primary school, which is to teach children about energy, how we can save it, about renewable sources etc. At a meeting of the Executive Board of Vojvodina we have also adopted a decision to set up a renewable sources fund.

Serbia, and Vojvodina with it, is becoming a large international energy transit hub. What specific benefits and what drawbacks could this bring to Vojvodina?

Large-scale construction work will be done by a number of companies. Their staff will be living here, which opens up many possible directions of development. NIS has recently let go of 2000 workers. Although all have received compensation, I had strongly opposed these dismissals. Their results are similar to closing down four to five factories. 2000 people no longer use company mobile phones and computers. When they use up means they have been compensated with they will only raise the number of those registered with the employment service. The same goes the other way round. When people find new jobs, this has a multiple positive effect, bringing a rise in cinema, theatre and sports attendance.

Serbia will collect s transit fee for the gas crossing its territory. We expect 500 million dollars in transit fee each year. Most of the towns from Niš to Sombor have signed an agreement on the construction of oil products pipeline running between these cities and crossing Belgrade and Novi Sad. This will allow for oil and petroleum products to be transported via the pipeline, bringing a relief for road transport, reducing pollution etc. The agreement has the support of the executive board of Vojvodina. Our neighbours, Bulgaria and Hungary, as well as Slovakia, have already built such transport systems and ours could be connected to them.

Vojvodina has already built or at least made plans to build a number of energy facilities – refineries, pipeline, underground gas storage facility. This means a big ecological burden and poses a threat to the security with potential accidents and terrorist attacks. What does the government do to minimise this risk?

In all meetings that include a discussion on energy, the improvement of energy efficiency, or similar, we join forces with the secretariat for urban planning and construction, and the secretariat for environmental protection. In this business we have become inseparable. Those two bodies must give consent to all new energy facilities. In the past year we passed a number of laws that improve environmental protection, including a new law on urban planning. The legislation on energy will soon be amended. Environmental issues are therefore acquiring a legal framework. There are also non-governmental organisations, raising awareness on environmental issues and posing desired questions. Around here, the use of energy is still wasteful. Our industry consumes too much energy per product, our savings are too small. We should pay more attention to environmental protection. Plenty has already been done and the results are beginning to show. We have started projects, secured collaboration of the local authorities, included the issues we are discussing now in these projects.

What changes have been introduced to NIS after Gazprom had become the majority owner? What benefits has this brought to consumers that buy petrol at filling stations?

Bigger changes that consumers could notice are yet to come. Some petrol stations have a new appearance and new equipment, different selection, self-service etc. There has not yet been much change as for the quality of fuel, but we expect steps in this direction in the next years. The sales contract envisages all types of fuel to meet European standards by 2012. The Russian owners have a year or two to get acquainted with the situation, after which they will need to reach these standards. They have introduced a more serious approach that stems from financial security. Gazprom is a committed, strong company that makes business reliable and trustworthy. NIS employees have embraced that.

As a gas producer, what interest did Gazprom have to decide to be a part of the ownership structure of NIS, which primarily produces and trades in oil and petroleum products? Has Gazprom had the same strategy in other countries?

Gazprom has acted the same in our neighbouring countries, Bulgaria and Romania. If world population continues to increase at the current pace, energy will become the most important sector in research and investments. Any serious company that can afford to invest and is familiar with these issues, will seek a future in energy. I am not surprised Gazprom acquired a stake in NIS, because in many aspects oil and gas are inseparable fields. Apart from that is it well known that NIS is a reliable company and that Serbia is an important country in this part of the Balkans. In addition, Russia probably has strategic interest here. Gazprom is a state-owned company. Moscow banks are already entering the Serbian market. Russian influence can be noticed in Belgrade and Novi Sad.

Even though energy companies usually rank among the most profitable ones in a country, an audit carried out in NIS last year revealed a loss of 8 billion dinars or over 80 million euros. What are the reasons for such a poor performance?

Everybody knows what problems Serbia went through in the last ten years of the last century. Economic problems continued to the present decade. Companies such as those in power industry, railways, NIS, were state-owned. If we wanted to keep what was left of the economy, boost the existing economy and preserve hospitals, schools and other institutions, we could not have economic prices of energy sources. In modern history the prices of electricity, coal and oil has never been at an economic level. When there are no market prices, there is loss. Whether the figure you mentioned is correct, will become clear after another audit. The important thing is that NIS is no longer making loss, that prices are reaching the market level etc. In gas, prices are still below the market ones, bringing loss to Srbijagas. The biggest problem is Elektroprivreda Srbije, which sells electricity at a price which is by far the lowest in the region. Compared to Italy, the price is 4 to 5 times lower. “Selling off” energy sources, these companies face a tough economic situation, but until the country embarks on a path of healthy economic development, the government must pay attention to the social aspect.

How will NIS develop under the new owners? What will be the priority – production, processing, distribution? What are the investments that are to be carried out in the next two or three years?

Vojvodina has proven oil and gas deposits, so the new majority owner will continue to invest in research. Each product also requires distribution. Serbia is a consumer society by all criteria. We are known to consume more than we have. One of the strongest forms of consumption is linked to transport. People in Serbia are known to prefer driving to walking, spending more for transport than for food. This is our mentality. The new majority owner of NIS knows that considering its size Serbia is a strong consumer society and situated in a territory that allows for efficient distribution. The new owner wants more than just Serbia. In my experience Russia is very interested in Serbia. It has not bought NIS to shut it down but to develop it. From here on it could expand to the Adriatic, to Montenegro and so on. The question is whether Serbia will keep two refineries – one of them for certain –, whether storage facilities will only be situated in Belgrade and Novi Sad or in Niš and Sombor, as well, but Gazprom came to stay and to expand development and distribution facilities.