New Serb government eyes big energy projects, sell-offs

BELGRADE – Serbia is hoping to attract some -3 billion of investment into the energy sector over the next four years, and eventually become an energy hub in the Balkans, its new prime minister said last week. Presenting the program of his coalition government, Prime Minister Vojislav Kostunica singled out big energy projects as a top priority. «The main foreign investment is expected to come in the energy sector,» Kostunica said. «The government plans to ensure at least 3 billion euros ($4.08 billion) over the next three years, especially in the gas and oil sectors. The government will build a 400-kilometer gas pipeline, worth around 1 billion euros,» he added. He also pledged to press ahead with the privatization of oil monopoly NIS, saying the government will «complete the staged privatization, ensuring NIS’s value rises several times.» The sell-off, slated for 2006, was postponed as Serbia went into early elections in January, and over three months of coalition talks. A government was agreed 10 days ago under European Union pressure, and sworn in late on Tuesday. A proposal by advisers Merrill Lynch and Raiffeisen sees a phased sale, with 25 percent of the firm sold initially and more parcels offered later on fulfillment of certain conditions. The price tag for the 25 percent stake was to be $300 million, based on NIS’s $1.2 billion nominal total value. Firms that have so far expressed interest include Hungary’s MOL, Austria’s OMV, Poland’s PKN Orlen, Greece’s Hellenic Petroleum, Russia’s Lukoil and Gazprom Neft and Romania’s Rompetrol. Key hub The new government will have among its main tasks the restructuring of big, socialist-era utilities, most of which are still in state hands, such as power company EPS. «We plan to see more investment both locally and from abroad in new power production facilities,» Kostunica said on Tuesday. «Financially stronger, EPS would be able to invest outside Serbia.» «The ultimate goal of the government is to make Serbia a regional leader in the sector,» he added, noting that Serbia’s position ensured a key role in the transit of power, natural gas and crude oil. Serbia, along with Slovenia, Italy, Croatia and Romania, has signed a deal to build a 1,400-kilometer-long pipeline connecting Constanta in Romania with Trieste in Italy, supplying refineries in Italy and Central Europe with crude from the Caspian Sea. Kostunica said he saw the natural gas sector as the most attractive for investors especially after a memorandum between the Serbijagas monopoly and Russian gas giant Gazprom on a study for a pipeline going from Bulgaria, through Serbia and Croatia, to Italy. S&P’s: Ratings will depend on policy response to the fiscal and external challenges Standard & Poor’s Ratings Services said last week that the formation of a new coalition government in Serbia by the main pro-reform parties would not have an immediate impact on the sovereign credit ratings on the Republic of Serbia (BB-/Positive/B). Instead, Standard & Poor’s emphasizes that the policy response of the new government to the sovereign’s fiscal and external challenges will be of crucial importance for the ratings. Standard & Poor’s revised the outlook on the ratings on Serbia last year on February 28, reflecting sovereign’s strong real GDP growth, buoyant foreign direct investment, a broadly balanced budget, and the declining government debt ratio. «The positive outlook hinges not only on a timely formation of a reform-minded government, but also on the government’s passing and implementing a prudent and credible 2007 budget in a broadly balanced position. Similarly, an upgrade would be precluded if the resolution of the Kosovo situation, or the lack thereof, were to jeopardize Serbia’s political and economic stability,» said S&P’s.