Serbian Prime Minister Backs South Stream Pact

BELGRADE -- Serbian Prime Minister Vojislav Kostunica on Friday publicly backed a Russian offer of an energy pact that could see Serbia included in the South Stream pipeline in return for Gazprom getting a stake in Serb oil monopoly NIS.

The plan, first discussed in December, has caused a rift inside Serbia's fragile coalition. Those who oppose it say the 400 million euros ($586 million) that Gazprom offered for 51 percent of NIS was nowhere near enough.

Analysts say the pact is largely politically motivated due to Russian support of Serbia over its breakaway Kosovo province.

"The main goal of the government is to secure the economic future and growth of Serbia," Kostunica said in a statement to the local media.

"That's why I am convinced the Serbian and Russian governments will reach an agreement on strategic cooperation in the energy sector, and everything is going in the right direction," he said.

Serbian sources speaking on condition of anonymity said an agreement to the Russian proposal was by no means a done deal and would involve major political horse-trading.

But Gazprom CEO Alexei Miller, speaking in Sofia where he was accompanying President Vladimir Putin in a visit that secured Bulgarian participation in South Stream, sounded very assured of Belgrade's agreement.

"As of today talks with the Serbian party have been completed and the draft inter-government agreement is ready," Miller told reporters.

South Stream, a 10 billion euro joint project by Gazprom and Italy's Eni, will carry gas under the Black Sea and through Bulgaria, to eventually reach Italy.

Belgrade, which gets some 90 percent of its gas supply from Russia, hopes having the pipeline branch into Serbian territory will mean cheaper power, resulting in faster economic growth.

If other Balkan countries join, Serbia would also earn transit taxes to the tune of $200 million a year.

Critics of the deal say that aside from setting a bargain price for NIS, the energy pact does not guarantee Serbia the status of a transit country, and the pipeline could end up being a blind alley for purely domestic use.

They warn that Serbian acceptance of the offer could be the economic payback for Moscow's political support in the issue of the breakaway Kosovo province. Russia has backed Serbia's quest to block the Western-backed independence drive of the territory.

The partial sale of NIS, one of the most eagerly anticipated privatizations in Serbia, was first discussed in 2005 but has been delayed by political infighting over the size and price of the stake that will be put up for sale.

Mostly regional companies such as MOL, OMV and Hellenic Petroleum have expressed interest.

The European Commission also tacitly echoed analyst concerns the deal was politically motivated, calling earlier this month for the sale to be "open and driven by objective commercial and economic issues."