Serbia Seeks to Save Sole Refiner NIS Hit by US Sanctions

(Bloomberg) -- Serbian President Aleksandar Vucic called a US decision to sanction Naftna Industrija Srbije, the country’s sole refiner that’s controlled by Gazprom, very harsh and said “some kind of transaction” will be needed to ensure its functioning.

“It’s not an easy situation for Serbia,” Vucic told Bloomberg in an interview in Belgrade on Friday, shortly after the US imposed its most aggressive sanctions on Russia’s oil industry yet. “As a small country, we’re up against the wall because of interests of big” states.

Serbia has 45 days, or until Feb. 25, to negotiate whatever solution is viable for NIS, and another 15 days for a possible payment “if there’s anything to be paid for,” he said. 

Vucic warned last month that the company may come under sanctions, urging his government to prepare for any punitive measures that could hurt the economy. A compulsory takeover of the Russian stake would be the last option, Vucic has said, as he seeks to balance Serbia’s ties with Western powers, Russia and China. 

Serbia’s president reiterated his stance on Friday.

“I’m not in favor of nationalization,” he said. “We’re not communists here. I don’t want to take anyone’s assets for free.”

Serbia sold a majority stake in NIS to Gazprom Neft PJSC, Gazprom’s oil arm, in 2008, keeping just under 30% ownership in the Balkan nation’s top-traded company and sole refiner vital for its fuel market.

The Russians have since invested extensively in the production and refining facilities, but NIS remains dependent on crude imports that come through the Janaf oil pipeline via western neighbor and EU member Croatia. Plans to build an alternative route, via northern neighbor Hungary, are years away.

Almost Certain

As Serbia has 45 days before the sanctions fully kick in, there is time to “take measures that would allow disinvestment and support a secure supply of crude to Serbia,” a representative of Janaf’s pipeline operator said. 

The latest sanctions package is designed to be very tight “without any possibility to avoid or bypass” the measures, Vucic said. Any attempt to obscure or reformulate the ownership structure between the sanctioned entities would be promptly refused by the US Treasury’s Office of Foreign Assets Control, the Serbian leader told Bloomberg. 

“I’m almost certain that Great Britain will follow United States on this, and most EU companies as well,” said Vucic, adding that unless a solution in accordance with the sanctions is found, the facility will be unable to operate.

The US decision comes at a particularly delicate moment for the Balkan country as it also needs to negotiate new gas imports with Moscow, after the current, three-year deal with Gazprom expires in a few months. 

“We’ll have to speak to the Russians to make an arrangement as soon as possible,” he said.

(Updates with more quotes, background, from seventh paragraph)

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