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Monday, January 28, 2008

Serbia, Austria Signed onto South Stream

Jan. 28, 2008 - Kommersant - Russia and Serbia have reached an agreement that will guarantee Gazprom an easy time in that country. It will buy into the state Naftna Industrija Srbije (NIS) cheaply and thus have an advantage in access to the Serbian portion of the coming South Stream Gas Pipeline, which Gazprom is implementing with Italian partner Eni. Gazprom has also received Austria's support, and half of one of Europe's largest gas markets with it. Now all Gazprom needs is Hungary. An interstate agreement on cooperation in gas and oil was signed on Friday during the visit of Serbian President Boris Tadic and Prime Minister Vojislav Kostunica to Russia. The agreement will be in force for 30 years, at which time it will be automatically renewed for five years unless one side breaks it off. Russian President Vladimir Putin reported that, in addition to that agreement, an agreement was signed on the purchase by Gazprom of 51 percent (4,158,040 shares) in NIS by the end of the year for €400 million. Under the interstate agreement, a gas pipeline with a capacity of no less than 10 billion cu. m. per year will be built across Serbia and an underground gas reservoir will be built. They will become part of the South Stream system. NIS, which produces 1 million tons of oil and refines 7 million tons per year, will be modernized. Gazprom will invest €500 million in NIS by 2012. Gazprom will have control of 78 percent of the Serbian retail market for petroleum products after the deal is completed. Russian business as a whole will control over 90 percent of that market, since LUKOIL is already the second largest presence there. NIS was estimated to be worth €1.9 billion at the end of last year. Also on Friday, Gazprom signed an agreement with the Austrian OMV for the transfer of 50 percent of the Central Europe Gas Hub, a subsidiary of OMV Gas International. U.S. officials are reported by Reuters to have expressed their dismay at the recent deals at a meeting between U.S. and Serbian officials in Belgrade, saying that the move increases Europe's dependence on Russia for gas. The U.S. expressed its preference for the Nabucco pipeline, which will run through Austria, Bulgaria, Romania and Hungary and will be completed in 2011, that is, two years ahead of South Stream. Gazprom has been unable to come to an agreement with the Hungarian MOL, which is eseential for the South Stream project. analysts say that Hungary will now be able to “name any price” for its cooperation.

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