Kosovo - the state it's in

By bne IntelliNews February 18, 2008

Dominic Swire and Beth Kampschror in Pristina -

As expected, Kosovo's parliament unanimously backed independence on Sunday, February 17 to wild celebration among ethnic Albanians, outrage by Serbs, dark warnings from Belgrade's ally Russia and, typically, division within the EU.

Tens of thousands of ecstatic people braved sub-zero temperatures on the streets of Kosovo to celebrate an independence that ethnic Albanians have been waiting centuries for. Cars with blaring horns travelled around the centre of major towns, some with people hanging out of windows or standing on the roof waving flags. Bars across the newly formed country were doing a roaring trade in local beer Peja and traditional hard liquor raki.

The declaration will affect not only life in the mud-streaked rubbish heap that has become Europe's newest country, but will also reverberate throughout the region and the rest of Europe EU, and in the halls of the UN in New York.

A UN plan created after nearly two years of fruitless Albanian-Serb talks calls for EU police and ministers to take over from the UN in the event of independence. While the UN secretary-general won't endorse independence, and Serbia has been in a snit for months about what they call the "illegal" EU mission, the UN has already been planning for the transition, and the EU planning team has been ensconced for months in its enormous, shiny headquarters in Pristina.

Sunday's declaration had for months been opposed by Russia and other states that fear secessionist movements within their own borders, but has been backed by the US, the UK and most other EU countries. The latter have noted that the eight-year limbo that Kosovo has suffered under UNSC 1244 is untenable both socially and economically; two types of posters appeared prior to the declaration in Pristina emblazoned with either the Stars and Stripes or the Union Jack, with the phrase "Thank you" printed on them in capital letters. Kosovo leaders have closely coordinated with both the US and the EU over the independence declaration, timing the declaration with an EU foreign ministers meeting in Brussels on Monday morning, at which most of the bloc's countries would recognise an independent Kosovo, though certainly not all.

In return, Serbia's ally Russia has called another emergency meeting of the UN Security Council, at which it will argue that Resolution 1244 assured Serbia's sovereignty over Kosovo until a political settlement had been reached. Moscow is likely to argue that Kosovo's declaration was a unilateral move, not a political settlement.

The US and other countries may be able to block Russia's moves in the Security Council. The real wild card is what Serbia will do once they lose this chunk of territory. While Montenegro's 2006 split from Serbia was met with rueful jokes (How is Serbia like Nokia? Every year a new model, and every year smaller), the loss of Kosovo - home to both an epic 14th century battle with the Ottoman Turks and also some of the region's oldest and most stunning Serbian Orthodox monasteries - will not be taken lightly. What Serbia has assured the world is that there will be no military action following Kosovo's declaration. But Foreign Minister Vuk Jeremic told the UN Security Council on February 14 that Serbia would take economic and diplomatic measures against Kosovo. He refused to specify whether Serbia's measures would include the trade and travel ban that other Serbian leaders have mentioned, but told the press, "I can just say that each and every measure is fair play." Luckily, Kosovar economists note, Serbia sells just €90m worth of products to the province per year, of a total of some €2bn worth of goods imported by the province - and none of the Serbian products are staples like bread, milk or cooking oil.

Other neighbourhood reaction is likely to be positive, at least in three out of four of the countries in the neighbourhood. Albania, Macedonia and Montenegro are keen to recognise the new state. Bosnia-Herzegovina, on the other hand, governed by the shaky post-war ethnic power-sharing complication called a constitution, will be unlikely to recognise Kosovo. Nearly half the country are Bosnian Serbs, some of whom have called for their own independence referendum if Kosovo declares independence. Bosnian Serb Prime Minister Milorad Dodik, however, in a series of interviews in 2007, repeatedly denied press speculation he would plan a Serb referendum

After the bickering and the celebratory parties are over, however, Kosovars and the rest of the world will wake up to the realization that the world's newest country is in dire need of help.

Power to the people

Aside from the highest levels of poverty in the former Yugoslavia, rife corruption, and an unemployment rate of over 50%, Kosovo - home to Europe's third-biggest coal reserves - faces the immediate challenge of simply producing enough energy to keep it's lights on.

Despite being under UN administration since the end of the Balkan War in 1999, electricity cuts are still considered the norm, with blackouts occurring at an increasingly frequent rate in the run-up to the declaration of independence due to a damaged generator at one of the plants. It's a problem that touches everyone. In a well-stocked corner shop across the road from the graveyard of former President Ibrahim Rugova the female shopkeeper draws attention to the small mountain of milk cartons by the fridge.

"In the winter electricity cuts don't affect us so much because the temperature is cold, but in the summer it's a big problem. If the fridge stops all this stuff goes off very quickly and we have to throw it out. But we have to stock it because it's what people need," she said standing in front of a rack of Gillette razors half covered by an Albanian flag.

The simple fact, according to Nazir Sinani, manager of corporate communications at state-run energy company KEK, is that Kosovo is unable to meet the energy demands of the population. Kosovo currently uses two power plants that produce a combined output of 750 MW, yet demand is over 1,000 MW. KEK attempts to bridge the gap through buying energy, but recent price increases following the closure of two units of Bulgaria's Kozloduy nuclear power plant have had a huge impact, says Sinani. Before the closure KEK was paying around €50 / MW, compared to over €100MW today. This, coupled with an antiquated transmission network make 24-hour energy supply virtually impossible, The reason, according to Sinani, stems from the period between 1990-1999 when Kosovo was part of Yugoslavia and under the iron grip of Slobodan Milosevic when not one investment was made in the energy sector in Kosovo.

"The distribution network is in an even worse situation because it was completely degraded during the 1990s," Sinani says. "Even from 1999 to today, KEK has been unable to make all its requested investments because of a lack of funds."

It's a fundamental problem, says ex-World Bank economist Shpend Ahmeti who now heads the Pristina-based think tank GAP. According to Ahmeti, the poor energy situation is hindering foreign direct investment. Over 80% of potential investors in Kosovo that GAP has contacted say a guaranteed, secure energy supply is the biggest concern they have about investing in Kosovo. "The problem is higher than taxes, higher than everything else," says Ahmeti.

Kosovo's energy problems are highly ironic considering the country is sitting on top of an estimated 14bn tonnes of coal lignite reserves, the third biggest in Europe. At current prices this is worth approximately €112bn.

In order to tap this potential, KEK needs to generate money, but Sinani says this is almost impossible because such a large proportion of the population do not pay their bills and the legal system in the country is incapable of making them. Since 2003, only 1,200 of the 3,000 cases of nonpayment KEK has brought to the courts have been processed. Of these, only 3.5% of cases have resulted in prison sentences, usually of around three months, way below the maximum five years. The rest of the guilty cases tend to receive a low level fine. Sinani blames corruption for the poor figures. According to KEK estimates, 30% of all energy produced is unbilled, which exacerbates the problem as it increases demand.

"We strongly believe that if this electricity was billed and paid for, electricity demand would decrease and KEK would be able to provide a 24-hour supply to all customers," says Sinani.

One initiative KEK is employing to solve the problem is the installation of digital meters in every household that will enable the energy company to deal with each customer individually. The World Bank has also sponsored plans for a $4bn new plant due to come online in 2014. However, both measures are long term solutions. For the time being Kosovars are likely to be eating in the dark for a few more meals yet.

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