Russia and Serbia Tighten Their Ties With Multibillion-Dollar Energy Deal

MOSCOW, Jan. 25 -- Russian and Serbian officials signed a multibillion-dollar energy deal Friday that would make Serbia a key hub for Russian energy supplies and strengthen Russia's dominance of the European energy market.

The agreement includes building in Serbia a branch of a prospective $15 billion natural gas pipeline, as well as a huge gas storage facility. A separate agreement lays the groundwork for Russia's state gas monopoly, Gazprom, to acquire a controlling stake in Serbia's state oil company, NIS.

The pipeline project undercuts the prospective U.S.- and E.U.-backed Nabucco pipeline designed to ease Europe's reliance on Russia by carrying gas from the Middle East and Caspian Sea countries other than Russia via Turkey.

Serbia has turned increasingly away from the West and toward Russia, which has supported Serbia in its opposition to statehood for Kosovo. Leaders of the Serbian province, which has been administered by the United Nations since the 1999 war there, have said it will soon declare independence.

Serbian President Boris Tadic and Serbian Prime Minister Vojislav Kostunica were in Moscow for the signing Friday.

"This network will be long-lasting, reliable, highly efficient and, what is very important, help boost energy supplies to Serbia and the entire European continent," Russian President Vladimir Putin said after the signing.

But much of the talk in a meeting between the visiting Serbians and Putin concerned Kosovo.

"Serbia very deeply respects the position of Russia on Kosovo," Tadic told Putin. "We will defend our interests in Kosovo, operating on the basis of international law, and we will never do otherwise."

Putin reaffirmed his government's position. "Russia is categorically against a unilateral declaration of independence for Kosovo," he said, adding that it could "seriously damage the system of international law and have negative consequences for the Balkans and affect stability in other regions."

Russia threatened a veto last year in the U.N. Security Council to block a Western-backed plan for internationally supervised statehood for Kosovo. Officials have used the rift to strengthen business and diplomatic ties to Serbia, with which Russia has historical, cultural and linguistic ties.

Serbia endorsed the energy deal days after Putin won Bulgaria's support last week for the project, known as South Stream. The 550-mile pipeline would run under the Black Sea from Russia to Bulgaria, where it would branch off. The section through Serbia would carry at least 2.6 trillion gallons a year, Gazprom chief executive Alexei Miller told reporters after the signing.

Terms of the deal by which Gazprom would acquire a 51 percent stake in Serbia's state oil company were not announced, but Serbian Energy Minister Aleksandar Popovic has confirmed reports that Russia offered $600 million -- about one-fifth of the company's estimated market value -- and an additional $730 million to modernize the run-down company. He said Tuesday that Serbia would try to better the price in further negotiations.