Energy Community questions legality of Serbia-Russia gas deal

Energy Community questions legality of Serbia-Russia gas deal
By bne IntelliNews January 12, 2017

The EU Energy Community warned on January 12 that Serbia’s 2012 natural gas supply agreement with Russia could have infringed European law. 

Serbia is an EU candidate country, and Prime Minister Aleksandar Vucic’s government has made entry to the EU its top priority. As a signatory to the Energy Community treaty, Belgrade is required to adopt core EU energy legislation. However, Serbia is also wholly reliant on Russian gas imports. 

In a letter to the Serbian government, the Energy Community secretariat expressed concern about the legality of an article of the agreement with Russia. The agreement concerns the supply of up to 5bn cubic metres (cm) of natural gas per year from Russia to Serbia between 2012 and 2021. The agreement is implemented through the conclusion of a contract between Gazprom Export and Yugorosgaz. 

The article in question provides that the natural gas supplied on this basis is intended for use in the Serbian market - a destination clause that the letter warned “infringes the competition acquis under the Energy Community Treaty.” This has raised concerns that the agreement distorts competition in the Serbian market. 

By sending the opening letter, the Energy Community secretariat said it had “initiated a preliminary procedure, the purpose of which is to give Serbia the opportunity to react to the allegation of non-compliance with Energy Community law within two months and to enable the secretariat to establish the full background of the case.”

According to Gazprom Export, as of January 1, 2016, a total of around 12.8bn cm of gas had been supplied under the contract with Yugorosgaz, a Russian-Serbian joint venture set up in 1996 to strengthen Gazprom’s position in the former Yugoslavia. While the agreement paved the way for exports of up to 5bn cm a year to Serbia, only 1.68bn cm was exported in 2015. 

Yugorosgaz is 50% owned by Gazprom. The other shareholders are Serbia’s state-owned gas monopoly Srbijagas (25%) and Central MEEnergy and Gas Vienna (25%), which is in turn 100% owned by Centrex Europe Energy & Gas AG, Vienna. Yugorosgaz also owns Yugorosgaz Transport.

The Energy Community is an international organisation dealing with energy policy, established by international treaty in October 2005. The treaty establishing the Energy Community brings together the European Union on the one hand, and countries from Southeast Europe and the Black Sea region on the other.