Serbia Rocked by Gas Price Scandal

Belgrade _ A major scandal is brewing in Serbia after a group of pro-western parliamentary parties revealed evidence of monopolies in the imports and sales of Russian natural gas.

Last week, deputies of the League of Social Democrats of Vojvodina, LSV, and the Liberal Democratic Party, LDP, claimed the state-operated Srbijagas natural gas utility had made damaging contracts with Russia’s energy giant Gazprom that had ultimately led to a 60 percent rise in prices.

Nenad Canak, the head of the LSV who accused gas suppliers of assuming a monopolist position on the market said that “the matter is so important it requires immediate government action.”

‘Tens of thousands are using gas for heating and this is no joke. This testifies to monopolies, fraud, cronyism and all sorts of wrongdoings,” Canak told reporters.

On October 15, Srbijagas announced it will increase monthly fees by up to 59.9 percent to compensate for the rise in raw material costs and transport costs, as well as the strengthening of the US dollar against the euro. 

The current price of gas, mainly imported from Russia, is based on import costs of $250 (€194) per 1,000 cubic meters. "That price has doubled," the statement said.

Individual comsumers account for 10 percent of Serbia's total imports of natural gas; the remainder goes to heating utility companies and industrial facilities.

Canak said that in 2006, during the tenure of former Prime Minister Vojislav Kostunica, Srbijagas sold 25 percent of its stakes in the Moscow-based Jugorosgas, a joint venture with Gazprom. The move allowed a Gazprom subsidiary to become the majority owner in Jugorosgas, which serves as an intermediary for securing Serbia’s gas supplies.

 “That was clearly damaging but although we were in the government back then, we did not know all the details about that,” Suzana Grubjesic of the G17 Plus party said.

In the document presented to reporters earlier this week, Canak also said that only nine out of 37 Serbian gas suppliers have a proper license from the government's Energy Agency.

"Combined they annually make as much as €200 million on various, basically illegal and unauthorised fees," he said.

Serbia and Russia are currently negotiating the sale of the Naftna Industrija Srbije, NIS, oil giant to Gazprom’s oil arm, Gazpromneft. The Russian company offered €400 million for NIS and another €500 million in investments.
 
Although the government said it wants to renegotiate the deal and raise the price, Gazpromneft officials flatly dismissed the demand as unacceptable.

The government of Mirko Cvetkovic is also negotiating the development of the Gazprom’s South Stream gas pipeline that will be delivering Russian supplies to European markets via Romania, Serbia and Croatia. The development of the €1.2 billion 400 kilometre stretch of the pipeline through Serbia is tentatively slated to begin in 2013.

In a bid to renegotiate the NIS deal, Cvetkovic’s government asked for an increase of the gas flow in the future pipeline that will secure long-term gas supplies and income for transfer fees. 

Meanwhile local media reported that Sasa Ilic, the acting director of the Srbijagas signed a €700 million contract on the purchase of 2,390 million cubic meters of gas with Jugorosgas, in violation of provisions allowing him to make deals of no more than €2 million. 

The deal which secured the entire 2009 gas supply, also envisioned a 5 percent commission fee to Jugorosgas as an intermediary for gas supplies for as much as €35 million, reports said. 

Predrag Grgic, the head of the Srbijagas board said that “the deal will be valid only after the board verifies it” but added that neither he nor the board “knew about the deal or Ilic’s intentions.”

“We will seek the government’s opinion about this, if they say the deal was good we will verify it,” he said. 

A government official said “Ilic will be sacked at the next Cabinet’s session.”

“The government will appoint Dusan Bajatovic of the Socialist party as the new Chief Executive of Srbijagas,” the source said on condition of anonymity. 

In an interview with Belgrade’s daily Blic, Ilic denied the charges and insisted Serbia’s Energy Minister Petar Skundric “was duly informed about the Jugorosgas deal.”

Ilic said that the price of gas initially set at €700 million “can be altered in accordance with fluctuations on the global market.”

“At the beginning of 2008, the price was some $280 (€218) for 1,000 cubic meters of gas. It is $455 (€354) now as prices have gone up,” he said.

Serbia’s President Boris Tadic meanwhile said authorities are “carefully monitoring gas suppliers as there is information about monopolies.”

He assured the state will “do its utmost to help people who are using gas for heating” but that “despite our good will we are importing gas at the prices which are going wild throughout the world.”