Serbian Gas Monopoly Facing Restructuring

State-owned gas company Srbijagas, the monopolist in Serbia’s natural gas market, has debts totaling around a billion euros, which makes its further operation conspicuously more difficult. However, its transformation into a functional company has become a matter of political dispute within the Serbian government, as well as a matter of relations with Russia, because Srbijagas is one of the carriers of the South Stream pipeline project in Serbia.

After years of bad business, the takeover of Serbian loss-making companies and an uneconomical price of gas, the state monopolist reached about a billion euros in debt in 2013. That was a signal to the government to urgently start reorganizing the company and two plans have been made for that purpose so far. One was made by a team headed by Srbijagas director Dusan Bajatovic, while the other was put together by Energy, Development and Environmental Protection Minister Zorana Mihajlovic’s team.

The plan of Srbijagas’ transformation has become a source of political conflict in the government, because Zorana Mihajlovic is the vice president of the Serbian Progressive Party, the strongest member of the ruling coalition, whereas Bajatovic is the vice president of second strongest ruling coalition member, the Socialist Party of Serbia.

According to the Ministry’s plan, Srbijagas would by the end of this year be split into two state-owned companies – for gas supplies and for transport, which would save up to 30 percent of money, while the company management is proposing rearrangement into a holding structure.

Speculation regarding relations within the ruling coalition over Srbijagas has gone so far that Prime Minister Ivica Dacic on May 20 denied allegations that the cabinet would collapse over the matter. “This issue is being politicized and artificial conflict is being created over it,” Dacic told the Serbian media at the time.

But that did not put a stop to the dispute. Minister Zorana Mihajlovic said on May 29 that Srbijagas “should be reformed as soon as possible, because that is in the interest of the state, citizens and the economy.” “All these years, Srbijagas has been a fortress and a state within a state, and all information has been unavailable. As soon as we finish reforming the company, we will analyze the management’s work and present our findings to the public,” she said.

The Russians, who have a partner in Srbijagas in the construction of a section of the South Stream pipeline in Serbia, have also gotten involved in the Srbijagas case. Bajatovic said that, according to the Energy Ministry’s plan, “the tutelage of the European Bank for Reconstruction and Development is introduced in all Srbijagas affairs, which also envisages certain political conditions.” “EBRD money is usually accompanied by political conditions. Some of those conditions could potentially jeopardize the South Stream. I am not sure the Russian partner Gazprom will look kindly upon such conditions,” Bajatovic said.

In Serbia, Gazprom is also the majority owner of insurance company Sogaz Serbia, the company for the construction of South Stream’s Serbian section – South Stream Serbia, and the Banatski Dvor subterranean gas storage facility. Srbijagas is the minority partner in those companies, with a 49 percent stake.

Some Belgrade dailies have reported that the Russians see Bajatovic as a guarantor of the matters agreed in the South Stream project, the construction of which in Serbia is to kick off late this year, having already been postponed in December 2012 for technical reasons. Moscow, according to those sources, allegedly does not trust Minister Mihajlovic, because of her earlier criticism of the agreement with Russia, when she said it could have been more favorable for Serbia. However, the minister denied all of that. She said the reform of Srbijagas certainly would not affect the South Stream, adding that such an important project does not depend on one person alone. “South Stream is not a national project and no laws and changes happening within a state can affect this project,” she said, adding that it is also in the Russian partner’s interest to cooperate with a stable company that can pay its dues.

Although, for the time being, the government has not made a decision on Srbijagas, Finance Minister Mladjan Dinkic said that the current situation was unsustainable and that Srbijagas was not repaying its debts to numerous companies, including the Serbian Oil Industry (NIS), majority owned by Russian Gazprom.

“Srbijagas has not paid NIS a single dinar for oil deliveries since Jan. 1, 2012. They are not paying for anything. Russian Prime Minister (Dmitry) Medvedev also addressed me and Prime Minister Dacic in Moscow, with the request that the problem be solved. Such a policy is unsustainable,” said Dinkic and added that Srbijagas was practically the biggest loss maker in Serbia, which is why its operations need to be changed completely. But it seems that this know cannot be cut so easily.

Igor Jovanovic