Economy and Energy Top Serbia-Russia Summit Agenda

Serbia’s desperate need for a major loan is likely to be a key issue at the talks, along with the future of the South Stream gas pipeline.

Dmitry Medvedev and his Serbian counterpart are expected to focus on a billion-euro-worth loan and the development of the South Stream gas pipeline during the Russian President’s eight-hour visit to Belgrade.

Serbia’s President, Boris Tadic, wrote to Medvedev in July, seeking a billion-euro loan to prop up Serbia’s finances in 2010 as the country faces economic recession.

More recently, the Serbian government said it planned to use some 350 million euro of the loan next year for macroeconomic support.

The remainder might be used to overhaul the dilapidated railway system, and complete an unfinished new railway station in Belgrade and the so-called Corridor 10 motorway, linking Serbia’s southernmost and northernmost borders.

Belgrade’s mayor, Dragan Djilas, has said they may also use the money to start building an underground railway in the capital, for which they might seek a Russian contractor.

Serbia needs to reduce its budget deficit in 2010 in order to comply with the terms of an IMF loan worth 3 billion euro.

The government of Prime Minister Mirko Cvetkovic has asked the IMF to let Serbia’s budget gap widen in 2010 to 4 per cent of GDP from the set limit of 3.5 per cent.

“Failure to comply with the IMF terms would have serious consequences, so we would like a Russian loan to avoid such problems,” a government official said.

In an interview with the Belgrade daily Vecernje Novosti, Medvedev placed economic issues at the top of the agenda. He said the projects up for discussion included “energy, transport, and cultural, humanitarian and scientific cooperation”.

However, up until the day of the talks, Serbia has remained uncertain about the precise terms of Russian loan.

At a Serbian-Russian business forum in Belgrade, Bozidar Djelic, Deputy Prime Minister, said the two presidents “will hammer out the final terms of the loan”.

Although the Russian economy has also suffered from the global economic downturn, it has reserves of about $400 billion and is in a position to lend money, Djelic said.

Russia, he added, “has plans to become a European leader and Serbia should become a part of that plan through energy deals”.

Last year, Serbia and Russia inked an energy pact authorizing the sale of 51 per cent of Serbia’s state-run oil importer and retailer Naftna Industrija Srbije, NIS, to Russia’s gazpromneft, an arm of the oil and gas giant OAO Gazprom.

The Russian partners paid NIS 400 million euro for the share and pledged to invest an additional 500 million in the overhaul of NIS’s two refineries and network of gas stations.

Gazprom also said it would build a 440 kilometre-long stretch of the South Stream gas pipeline in Serbia and complete an underground gas storage facility in Banatski Dvor, in Serbia’s northern province of Vojvodina.

The development of the pipeline will allow Russia to ship gas to Europe via Serbia and Bulgaria bypassing Ukraine, so ending persistent energy disputes with Kiev.

“Serbia will get a stable energy supply, which will make it more attractive to investors,” Petar Skundric, Serbia’s energy minister, said over the weekend.

At the business forum, Djelic said Serbia was also seeking to improve its trade balance with Russia, which reached 1.1 billion euro in the first eight months of 2009. and which is heavily in Russian’s favour, as Serbia imports most of its gas, oil and other industrial needs from Russia.

“We have to rectify some problems in that area … including exports of pharmaceuticals,” he said.

According to data from Serbia’s Chamber of Commerce, Serbia’s share in the trade is only a fraction of the total amount.

Over the past six years, Russia was only in 19th place in the list of investors in Serbia and was responsible for only a small fraction of the $12 billion of foreign direct investment.

Several minor privatization deals involving Russian partners have failed to come off, including the planned 7-million-euro sale of Belgrade’s bus producer Ikarbus to Russia’s Avtodetal Servis.

Medvedev and Tadic will also be discussing Serbia’s bid to join the European Union and Moscow is not expected to hamper Serbian efforts to join the 27-nation bloc. According to Djelic, “Serbia’s European integration is not in question.”

Serbia’s potential membership of NATO may also come up for discussion because Belgrade recently announced it would open a permanent office in the Alliance’s headquarters in Brussels.

As both Serbia and Russia are members of NATO’s Partnership for Peace Program, PfP, Belgrade’s links with the Western military alliance are also not an issue, an official said.

“Our impression is that Russia would even help us to get there sooner than we want,” the official added.

Although relations have improved with NATO since the fall of Slobodan Milosevic in 2000, Serbia – which battled NATO during the 1999 air war over Kosovo – declared its military neutrality two years ago.

Serbia’s Defence Minister, Dragan Sutanovac, recently said he could not see Serbia joining the Atlantic alliance any time soon.

Russia’s military ties with Serbia, and with the rest of the Balkans, its traditional sphere of influence, are diminishing, the official said: “Russia is no longer a giant that rolls around with tanks; it is more sophisticated now and it tries to dominate with money.”

Serbian military hardware is still based on Russian technology but experts say Belgrade is unlikely to seek significant improvement of such ties.

The Serbian military is trying to shed the legacy of its predecessor, the Yugoslav People’s Army, JNA, and make the new force more modern, professional and compliant with NATO standards.

Medvedev will also participate in ceremonies marking the anniversary of the liberation of Belgrade in 1944 from Nazi German occupiers by the Red Army and Yugoslav Partisans.

Djelic said the visit would send a signal to unnamed “revisionist forces” that the historical “anti-Fascist legacy of the Serbian and Russian peoples cannot be altered”.

Serbian rightist groups have sought to minimize the role of Communist Partisan forces in the Second World War and rehabilitate the commander of the royalist Chetniks, Dragoljub Draza Mihajlovic. He was executed in 1946.