SERBIA "OPENS THE DOOR" TO RUSSIAN BUSINESS

The efforts of international mediators to ensure some progress on the Kosovo settlement have yet to yield results. Another round of direct negotiations between delegations from Serbia and Kosovo failed to bring their respective positions any closer. Indeed, the Serbian party even came into open confrontation with one of the mediators - the USA. Serbian Prime Minister Vojislav Kostunica criticized the policies of both Washington and NATO with regard to Kosovo, making his toughest statement in recent months on the actions and motives of the US administration and NATO command. According to Kostunica, the United States is "carrying out a heavy-handed policy and openly backing the dismantling of Serbia".

Meanwhile, there is little time left before the expiry of the UN deadline for the settlement of this problem. If no decision is made by 10 December a major international crisis could erupt, as ethnic Albanians, supported by the USA and most of the EU countries, demand full independence and intend to proclaim it unilaterally. Serbia, supported by Russia, has offered them autonomy. This situation is aggravated by the uncompromising position of the Washington administration. The USA has already said that it has no intention of continuing the negotiations after 10 December and is ready to recognize Kosovo's independence even if there is no positive UN resolution. In fact, this is a stalemate: delays in defining Kosovo's status will undermine trust in the UN administration in the region, and this could result in a return to regional instability.

For the time being, the only winner in this protracted process is Russia. Political support for Belgrade has paid Moscow real economic dividends. According to Russia's electronic media, Moscow's support on the issue of Kosovo's status will cost Serbia several strategic facilities, which will be sold off as part of the process of privatization in the country. Russian officials are denying any possibility of the "equity-for-support" deal. However, facts testify to the opposite - the more tense relations become between Serbia and the UN, the USA and the EU on the Kosovo problem, the happier Belgrade is to welcome Russian businessmen. 

It must be noted that negotiations between the Serbian authorities and Russian companies were preceded by a speedy political rapprochement between Russia and Serbia, following Russia's backing of the Belgrade position on the Kosovo problem. In June this year, Serbian Prime Minister Vojislav Kostunica visited an investment forum in St Petersburg, but did not immediately return home. He stayed in Russia for talks with President Vladimir Putin. "I am staying here in order to discuss how we can expand Russia's economic presence in the Serbian economy," the Serbian prime minister stated.

We did not have to wait long to see the results of this meeting. In mid-June, Russia refused to support a draft UN Security Council resolution on Kosovo and threatened to veto a resolution on the future status of the province if it did not have the support of both sides - Belgrade and Pristina. In June, the Serbian prime minister was visited by Oleg Deripaska, owner of the Bazovyy Element group of metallurgical companies. The meeting discussed the prospects of the Russian company's investments in Serbia, including in the RTB Bor copper mine.

It is significant that several months ago, Oleg Deripaska's company was excluded from the tender for RTB Bor. The contract was won by Cuprom Romania. However, the Financial Times reports that, citing protests from the trade unions and the company's inability to honour its obligations to the tune of 400 million dollars, the Serbian government cancelled the results of the tender in April and announced another round (to be held by the end of the year). Bazovyy Element is now more likely to win it. In any case, Kostunica has already said he hopes that "Russia's economic presence in Serbia will increase", the Financial Times reports.

In August, the Serbian prime minister was visited by the director-general of Aeroflot, Valeriy Okulov. The Russian company offered 400 million dollars for the national airline, Jat Airways. The company is on the verge of bankruptcy, however, the Russian company is attracted by the fact that Serbia will join "the open skies" system next year. For this reason, the takeover of Jat will allow Aeroflot to operate in the European market without hindrance.

And finally, there may be serious "takeovers" in the energy sphere which is most attractive to Moscow. Discussions are now under way that may lead to Gazprom taking over the Serbian energy holding Naftna Industrija Srbije (NIS) in the future. In early October, Gazprom chief Aleksey Miller visited Serbia to discuss the possibility of Gazprom's participation in the privatization of NIS with Serbian President Boris Tadic and Prime Minister Vojislav Kostunica. It was stressed that the issue of the Russian company's participation in the privatization of NIS should be considered part of "a single complex project" which also includes the development of a gas transport system in Serbia, as part of the Southern Stream project, and the creation of underground gas storage facilities. These projects should be implemented simultaneously, Gazprom said in a press release. According to the head of the Russian monopoly, a decision on this issue will be made within the next few months, during which time the parties will continue their negotiations.

The Russian news website NEWSru.com reports that Gazprom is currently implementing at least three major projects in Serbia. The main project is the joint venture YugoRosGas (Gazprom's share is 75 per cent) which, apart from transporting Russian gas through Serbia and selling it to Serbian consumers, is also engaged upon the construction of the gas pipeline Dimitrovgrad-Nis-Pojate. The pipeline will connect the gas transport systems of Serbia and Bulgaria. This pipeline, costing more than one billion dollars, might become an integral part of another Gazprom project - the Southern Stream gas pipeline (which will go to Austria via the Black Sea bed and the territories of Bulgaria, Serbia and Hungary). Another Gazprom project in Serbia is the construction of an underground gas tank. The Russian monopoly will implement this project together with the national gas giant Srbijagas. The gas tank will hold 800 million cubic metres of gas, which is about a quarter of annual gas consumption in Serbia. According to the Serbian media, which quote a source in the country's government, in exchange for a share in the project, Gazprom agreed to assume responsibility for Srbijagas's 370 million dollar debt to Kuwait.

On the whole, all these companies are the last of the "tasty morsels" of the Serbian economy which were not previously privatized for well-known domestic political reasons (the parliamentary elections in January and the lengthy process of government formation). Their takeover by Russian business (starting with the takeover by Lukoil of the controlling parcel of shares in the NIS energy company) may become not just an important factor in Russian-Serbian economic and political raprochement, but may also considerably strengthen Moscow's position in the Balkan region.