Russia loses Serbia

On the 20th of May, the government of Serbia has signed a contract with the European Investment Bank (EIB) to get a €25 million loan for building of gas interconnector between Bulgaria and Serbia, with total length of 170 km. The €25 million loan from the bank of the European Union will enable the diversification of Serbia’s energy supply and strengthen energy networks in South East Europe, will support rapid integration of the region into the EU energy market, and, finally, improve competition and attract more investments.

Lilyana Pavlova, EIB Vice-President, responsible for lending operations in Serbia, positively assessed the reached deal, saying that the EIB was “pleased” to provide €25 million for the construction of the Serbian part of this interconnector, as a part of priority project for the European Union and for the High Level Group on Energy Connectivity in Central and South-East Europe (CESEC), established by the European Union, Croatia, Greece, Romania, Slovakia, Slovenia, Italy, Austria, Bulgaria and Hungary in 2015, – “since it contributes to a strong, prosperous and developing Serbia.”

The Deputy Prime Minister and Minister of Mining and Energy of Serbia Zorana Mihajlović stated: “Signing the loan agreement with the EIB, along with the previously approved EU grant, practically finalises the financial framework for the construction of the Serbia-Bulgaria gas interconnection. After the diversification of gas routes, Serbia’s goal is to also achieve the diversification of suppliers. The Niš-Dimitrovgrad gas pipeline, for which construction should start this year so that the pipeline can become operational by 2023, will enable Serbia to be supplied with natural gas from other suppliers – from LNG terminals in Greece, from the TAP and TANAP gas pipelines that are part of the Southern Gas Corridor, and possibly from the Eastern Mediterranean gas pipeline, with gas from the Leviathan field [Cyprus and Israel]. The construction of the Niš-Dimitrovgrad gas pipeline will significantly increase the energy security of not only Serbia, but also the whole region.”

Back at the beginning of February, Zorana Mihajlović said the authorities of Serbia are looking for contractor to build gas interconnector which will transport natural gas from Azerbaijan through the territory of Bulgaria, and liquified natural gas from LNG terminal in Greece. The Niš-Dimitrovgrad interconnector will have a length of 170 kilometers from the city of Novi Iskar, the Republic of Bulgaria, to the city of Niš, in Serbia. 62 km of length will be laid in Bulgaria and 108 km – in Serbia. The IBS pipeline (interconnector Bulgaria-Serbia) will have a diameter of 28in and operate at a working pressure of 55 bar. The promoters of the project are Serbian gas company Srbijagas (RS) and Bulgarian independent gas transmission operator Bulgartransgaz EAD (BG). The capacity of the pipeline will reach 1.8 bcm/year in Bulgaria-Serbia direction with the possibility of reverse flow.

The interconnector will also supply gas for citizens of Dimitrovgrad, Bela Palanka, and Pirot – the three cities that previously have not had access to gas.

Moreover, Zorana Mihajlović is well known for her negative attitute towards the participation of Serbia in Russian energy projects. And being a member of the G17 Plus party, a minor partner in a governmental coalition of Serbia, she openly criticized the sale of state oil company NIS a.d. to Russian Gazprom in 2008 for miserable €400 million.

The Serbian politician has repeatedly expressed the opinion that for energy security, it is necessary that gas comes from different suppliers. Then, in her opinion, Serbia will have an argument in negotiations on the gas price with Russia.

Now Russia is actually the only natural gas supplier to Serbia, which has received over 2 billion cubic meters of Russian gas in recent years. The official launch of Russian fuel into the Serbian gas transmission system through Bulgaria, from the Turkish Stream gas pipeline, took place in early 2020.

The current price for natural gas supplied by Gazprom is the highest in Europe, according to Zorana Mihajlović. Until now, the construction of the Niš-Dimitrovgrad gas pipeline has been successfully blocked by “friends of the Kremlin” both in Belgrade and in neighboring Sofia.

The building of IBS allows to resolve the problem of industrial pollution which results from the consumption of coal in Serbia. The country has a high share of consumption of low-calorie coal – lignite in electricity production. This contributes significantly to heavy air pollution around urban centres. Natural gas has smaller environmental impact. The consumption of natural gas is considered as transition phase before the shift to the green energy.

It is assumed that the construction of the IBS will take several years. But it is already obvious that after its completion, the interconnector will compete with the Turkish Stream and gas supplies through it. The construction of systems parallel to the Turkish Stream creates additional economic difficulties for the Russian gas giant.

For Serbia, which receives gas only from Russia, IBS will be a great opportunity to play for lower prices. After the completion of construction, Serbia may raise the issue with Gazprom.

For Bulgaria, this project is also attractive from an economic point of view, since it will provide a direct connection of its gas networks with other SEE countries. Bulgaria will obtain access to the gas hub in Austria, as well as Hungarian gas storage facilities. In addition, operators will be able to balance their transmission capacity and use underground gas storage facilities to regulate supplies.

The energy sectors of many states are among the main targets of the Russian influence abroad. Seeking out weaknesses in the energy sector, the Kremlin, with the help of Gazprom and its pipes, is tying a “victim” to itself. Serbia is indeed a good example of this strategy in Balkans. This situation suits neither the EU, where Serbia plans to integrate, nor the United States, which wants to deprive Moscow of its key leverage over Belgrade and the Balkans as a whole. IBS could be a great opportunity to limit the Russian monopoly in Serbia.