By Dušan Janjić
At the end of the last century, a real geo-political storm shook the world, and in particular Europe and its former Communist states. The conditions, consequences and, in particular, the effects of this storm are still not fully understood, but its influence on global politics is becoming ever more obvious. At the centre of this storm stood the need to provide energy as a basis of life and the development of a modern society.
Its main dynamic power was ethnicity, in the guise of the awakened potency of national identification and ethno-nationalistic movements. Old, impermissible state borders revealed themselves to be a static element and ended up as losers of this shift. Instead of inviolable borders, the crucial issue became the question of porous or weak external borders delineating states versus strong resistant internal borders, delineating ethnicity and the ethnic divisions of society (for example, Bosnia and Herzegovina, Kosovo or Macedonia in the Western Balkans, Israeli-Palestinian borders in the Middle East, Turkish-Greek borders in Cyprus, etc.).
Due to instability in the Middle East, wars in Afghanistan and Iraq, and a potential war against Iran, the issue of ‘energy security’ has become one of the most significant questions in contemporary international relations. This is especially evident from the impact of the rise of the price of oil, which tripled in the period 2005-2008. In this context, the role of Russia, the biggest energy exporter in the Group of 8 (G8) most industrialised nations is crucial. The West is extremely worried by Russia’s readiness to use energy as a weapon of foreign policy, as was the case in 2006 when Russia briefly suspended natural gas deliveries to Ukraine in response to its neighbours perceived pro-Western policies.
Vladimir Putin’s Russia has become a global economic challenge, which has a strong influence on the foundations of international trade. It is certain that the Putin’s decision of 2002 – to change the strategy on relations with the West in the energy sector – was significantly influenced by Mikhail Khodorkovsky’s decision to sell his oil company, Yukos, to American buyers, as well as the appearance of “colour revolutions” in Georgia and Ukraine; two important countries of Russian energy supplies to the EU, and two countries considered by Moscow as its sphere of influence.
Putin’s Russia is trying to remove the negative legacies of the period of the planned economy of the USSR. At that time, the state separated what nature brings together – oil and gas – by forming two separate ministries and two management systems for these resources. This gave a strong seal to post-Soviet Russia. When it comes to gas, Russia inherited a centralized system controlled by Gazprom. Oil production, however, was managed by several entities, with central entities primarily dealing with accomplishing goals and local leaders managing production. Companies like Lukoil were formed at the level of local resources gathered around refineries. At the same time, transport, infrastructure and the export of oil were in the hands of the central government, which acted independently from the producers. In such circumstances, it was relatively easily to privatize oil production. For almost four years, over 65% of supplies, production and processing of oil went to the private sector.
The US is putting pressure on its NATO allies to take a leading role in securing energy transport routes and, above all, the security of approximately 5,200 km of pipelines, which transfer fuel from Eastern to Western Europe. The Baltic countries – feeling endangered as a consequence of Russian power in the field of natural gas – favour the American project. On the other hand, Paris, Berlin, Moscow and Oslo opposed this American project. They felt that such a role for NATO would overly extend the scope of the Alliance’s missions, potentially giving further scope to unchecked military intervention by the US.
Finding themselves at a particular crossroads between the Caucuses and Europe, and bordering the Middle East and North Africa, the Western Balkans are – by virtue of their geo-strategic position – a crucial element in Europe’s energy security dilemma. Peace and stability in this region, which has been affected by ethnic conflict at the end of the last century and which still face several threats, is essential in order to guarantee the security of oil and gas supplies for the EU.
1. Energy and Security in the Twenty-First Century
The World Energy Assessment defines energy security as ‘the availability of energy at all times in various forms, in sufficient quantities, and at affordable prices’.1 The four listed elements of energy security – availability at all times, in all forms, sufficient quantity and affordability – represent the very core of stability, and if all of these factors are not satisfied the immediate result is volatility. Nevertheless, there are a number of issues and challenges that also have to be satisfied, such as the diversification of supply, an undisrupted stream of supply (i.e. physical security of the shipment and the infrastructure), satisfactory supply infrastructures and reliable transport corridors.
While the question of energy security has been a policy concern in the past, only recently has the question of energy become a very publicly debated question; often disputed not only in expert circles and socio-political and economic forums, but as part of the general public discourse. Certainly, the energy question has been always at the very top of the political and economic agenda of every state administration, but never before has this issue provoked such a global stir and unease as in the early twenty-first century. National, international and intergovernmental organizations and bodies around the world positioned the issue of energy security as their top priority. Even NATO is being seriously pressured by some of its members to include energy security into its mandate and to devote part of its capacities to this significant task. At the Bucharest Summit in April 2008, representatives of member states noted a report on “NATO’s Role in Energy Security”, which identifies guiding principles and outlines options and recommendations for further activities.
About 40% of EU gas needs are met by Russia, which is two-thirds of total Russian gas exports. Russia is the source of almost one-third of oil and one-quarter of coal imports into the EU. Companies from the EU are the largest foreign investors in the Russian oil, gas and electricity sectors. This strong links between the EU and Russia in the energy sector are an integral part of political, economic and security relations which are becoming ever more complex and difficult. This encourages awareness about the need to diversify the EU’s energy resources. This was clearly seen in the winter of 2006 and 2009 when Russia temporarily suspended gas deliveries through Ukraine, in an effort to exert pressure on Ukraine to settle its debts, but also to demonstrate its power to the EU and the United States; that is, that the EU is connected with Russia, almost like in the Cold War-era.
However, the EU is still struggling to achieve this, in part due to its lack of a common energy policy. For the most part, EU states are struggling to avoid becoming heavily reliant on Russian oil and gas, investing and working on developing a channel for providing Caspian resources, looking into OPEC possibilities, as well as assessing the possibilities of the African continent. A whole array of energy projects such as the Nabucco pipeline, PEOP, INOGATE, the future European electricity grid, the EU-supported programme for developing Renewable Energy Sources, Spain’s project to bring on-stream Europe’s largest thermo-solar station, among other initiatives, portray Europe’s desperate need to diversify not only the source of energy but also the type of energy as well. Therefore, the policy of diversifying goes well beyond energy security and becomes an essential part of (inter)national security.
2. Energy Security in the Western Balkans
In the Western Balkan region, news of a resurgent and returning Russia – this time through energy deals – was received with great caution and attention. It was not the fear of awakening ‘the Russian bear’, since there is a common perception that a) ‘the bear’ is still too exhausted from the recovery of the USSR ordeal and b) Southeast Europe and the Western Balkans are out of reach of its claw, but rather fear from its indirect influence. Moreover, this Russian return to Europe is seen as a cunning and perfidious political tool, part of its hidden agenda to re-establish its economic and political influence in the region, particularly when it is widely known that the Russian energy trade functions with a political logic and not that of the market.
Reactions to the Russian move in the Western Balkan region have been even more flustered. News about the Serbia-Russia energy agreement, as well as the deal with Bulgaria have been received with great forethought and analysed from the point of view of the Kosovo crisis. It is believed that the Russian presence in the region is the beginning of “an entirely new phase in the resolution of the crisis, in which Serbia is again attempting to destabilise the situation by stirring up new violence and threatening new conflicts, even against UN forces in the northern part of Kosovo, believing even that it could thereby draw Russia into the conflict more directly on the ground”.
The fear that the Russian energy establishment in Southeast Europe, and chiefly in Serbia, goes well beyond its economic and political feasibility, and that it will undoubtedly end-up provoking serious security problems, latent conflict(s) and potential border changes became even greater after the conflict in Georgia. After analyzing the possibilities of the deal, calculating its costs and benefits, a number of experts strongly questioned the feasibility of the Russian deal with Serbia, whilst objecting to the perceived under-valuation of the Petroleum Industry of Serbia (hereinafter, NIS), and the unclear process through which Gazprom would invest in the modernization of the energy sector.
The Western Balkans energy security predicament is similar and, to an extent, influences that of the EU. There is a significant reliance on Russian oil and gas. In 2006 alone, the Russian Federation supplied some 73 billion cubic meters of gas and 59 million tonnes of oil to South-Eastern Europe. The main natural gas distributor for Serbia is Russia, whilst smaller quantities are imported from Ukraine and Germany. Due to the frequent theft of natural gas which transits from Russia, Ukraine is considered unreliable in terms of timely and uninterrupted supplies, increasing the risk to energy availability. Russian gas comes through the gas pipelines over Hungary, making it more expensive as it is based on an agreement from 1977 which increases the price for transit. It is expected that the completion of the South-Stream gas pipeline will significantly reduce the cost of gas for Serbia.
Energy sector development is often perceived as zero-sum game in the region, and the increased and more aggressive presence of Russia could exacerbate tensions that already exist. In particular, Russia’s support for Serbia and its decision to invest heavily in Serbia’s energy sector, provokes fear the this might make Serbia more aggressive in its dealings with its neighbours, as well as less open to cooperation.
3. Energy Security and Challenges to Peace and Stability
There are two major potential challenges to energy security and stability in the region;
– the perception of Russian presence in Serbia and its implications as well as its possible rapid growth, and;
– the crisis of Kosovo’s status, which will endure.
The news about the Russian-Serbian energy agreement came as a shock more than a surprise. It was not so much the content and the volume of the deal as much as the announcement of Russia’s indirect presence in the region that caused great attention. After the agreement was announced in Moscow, the ratification process lingered, and not only due to early elections in Serbia and post-electoral bargaining that stalled the process. The fact that the Serbian side – or to be more precise, part of the new Serbian government – undertook the endeavour of revising the agreement only after it was signed brought about a great political debate in Serbia, considerable dissatisfaction in Moscow and significant hope in the majority of Western Balkan countries that the deal might turn sour. The political response of Moscow was manifested through numerous visits of politicians.
Russia – suspicious that the possible change of heart of the Serbian side might be caused by the possibility of another possible energy arrangement – reacted immediately. The comprehension that the energy dispute with the Russians over the energy agreement could now lead Serbia down the same path of ‘energy discipline’ – like so many of Russia’s neighbours, such as Ukraine, Poland, Georgia, Belarus etc. – convinced the government to push the energy agreement for ratification.
The issue of Serbian instability became an issue that concerns the EU, not only from the point of view of regional stability, hard security and politics but also from the point of view of energy security. The fact that Serbia stalled the process of South Stream gas pipeline planning provoked great unease in the EU, particularly Italy, considering that its energy giant, ENI, is one of the Russian partners in the South Stream project. The concerns were that Serbia, as a non-EU country, represents a great liability for such a critical energy project. The considerable amount of political instability, the Kosovo status issue and a number of other internal potentially problematic issues made Serbia a potentially undesirable participant in this sensitive project for the majority of international actors.
Looking at it from the regional perspective, there was great concern that a considerable imbalance would be created through this energy deal, consequently pushing Serbia to the position of a leading country in the region, reducing its trade deficit with Russia and enhancing Serbia’s economic development. Fears that Serbia might rebound from the rest of the region too fast and too far worries international policy-makers as well. The possibility that Serbia will have all the required finances and conditions to finish Corridor 10, optimize its energy sector, fully develop the Danube river corridor VII, privatize the mining and smelting basin of Bor, successfully launch the agreement with Fiat, and implement many other strategic development projects causes caution rather than satisfaction that the country is pulling out of the abyss of the last decade of the twentieth century. Serbia’s strong growth is best stimulated alongside that of its neighbours, with due caution not to create disparities in the region.
Kosovo, due to the dispute over its status, is in a very delicate position. It faces a dire situation due to its energy frailty, inability to produce sufficient electricity and the forthcoming months of restrictions in 2008.
Kosovo’s mineral reserves have long been a subject of speculation. According to a joint survey conducted in 2005 by the Kosovo Directorate for Mines and Minerals and the World Bank, Kosovo mineral resources are estimated to be worth some €13.5 billion, thus potentially making it a relevant regional energy resource. In that respect, such a figure represents an additional reason for Serbia not to back down from its claims on Kosovo, particularly considering estimates that energy reserves in Central Serbia are running out. Nevertheless, Kosovo has a major problem of how to develop its energy potentials due to the very bad conditions of its existing infrastructure, significant investments that have to be made as a prerequisite for the existing energy resources, and the uncertain legal status of almost all locations. Nevertheless, there is some interest from foreign companies to develop its mines, whilst Macedonia offered to exchange Kosovo’s coal for electricity.
A development plan was created in order to improve Kosovo’s existing energy sector, with a solution envisaged in the privatization of the energy sector, which was started in late-2006 with the announcement of an international tender. The project’s total estimated cost for the construction of a new power station with an estimated 2,100MW, the reconstruction of an older plant and the development of lignite production to feed these power plants is expected to be in the region of €3 billion. The costs are expected to be recouped from the export of electricity to Albania and Montenegro, as well as potentially to Bosnia and Herzegovina.
The large reserves of lignite found in Kosovo (up to 12 billion metric tones according to some estimates) are cheap to exploit and provide an easily obtainable and accessible source of power for thermo-electric power plants. The presence of these reserves forms a solid basis for the development of Kosovo’s energy sector, with the potential of making it a regional player on the energy market. Kosovo now has two thermal power-producing blocks, “Kosovo A” and “Kosovo B”, built between 1960 and 1984, with respective capacities of 800 MW and 678 MW, whose combined output cannot exceed 640 MW, due to physical deterioration.
Notwithstanding the fact that the status of Kosovo is perceived by many as a fait accomplis, one has to acknowledge that as long as there is a dispute amongst the global and regional actors over the status of Kosovo there cannot be considerable progress in the energy affairs of Kosovo and consequently its immediate surroundings. Even with the scenario of a highly-successful privatization of the Kosovo energy sector, the high investment risks are considerably slowing down all options for restructuring, developing and optimizing the energy sector. One of the most visible current problems is the lack of electricity, whereby the Kosovo Energy Corporation (hereinafter, KEK) is not able to meet the demands of the residential sector. This inability stems from several reasons such as:
Poor production of electricity;
Poor electrical infrastructure prone to breakdown and possible sabotages, due to years of mismanagement and under-investment;
A majority of the population in Kosovo for a long time never paid their electricity bills;
KEK’s inability to import/export electricity due to Serbia’s refusal to pay internationally set tariffs when sending electricity to other countries of the region through Kosovo;
Corruption and financial frauds in KEK management, which included internationals and locals.
Kosovo has suffered several years of power restrictions, with the situation reaching critical levels during the winter months, with certain areas deprived of electricity for over ten hours. This problem has been highly-politicized and misused by KEK, Belgrade and Pristina. KEK officials, together with Kosovo Albanian political leaders, denied the accusations that the power cuts were introduced as a retaliatory measure on an ethnic basis but rather on the basis of unpaid bills, infrastructure breakdowns and insufficient production. On the other hand, Belgrade and Kosovo Serb leaders claim that such an explanation could be valid for certain cases, but could not justify the power cuts for Serbian enclaves which, due to their personal insecurity and restriction of movement, cannot work or cultivate their properties and consequently can not earn enough for their living expenses and electricity cost. The agony continues for several years as Belgrade is negotiating with KEK and UNMIK a possible solution to the problem. The entire situation runs a security risk, exacerbating ethnic tensions and preventing a normalization of living conditions throughout Kosovo.
4. Recommendations and Conclusions
Energy security has become the central issue of international relations in the past decade. While there is growing awareness about the issue of energy security, there is a need to implement a set of measures that would ensure better regional and international cooperation, while diversifying sources, both in terms of kind and geographical location. Regional cooperation in the elementary aspects of energy security, meaning providing secure routes for transport, is essential. Climate change, combating terrorism and secure energy supply – these are all contemporary global challenges to which no state can respond to alone, thus cooperation is essential. Pan-European cooperation is of utmost importance.
Hence, the main recommendations of this paper are:
- In the first instance, energy security should be addressed by each country individually through a domestic policy framework and contingency planning. This should be not only focus on the security of energy supply but also on the organization of business and corporate strategies of their respective energy sectors in the region, with due consideration for both the long-term and short-term impact and effect. Therefore, developing such a domestic policy framework demands a wider perspective seen against a wide canvas of the entire region.
- The Western Balkan states should design, finance and undertake research and pre-feasibility studies that would asses their capabilities to develop, produce and utilize renewable energy sources such as wind, solar and hydro-electric energy. Through the use of renewable energy sources, states would be granted a possibility to diversify their sources, thus meeting one of the first requirements of energy security, increase their energy efficiency and contribute to climate change mitigation.
Even though there are no grounds for concern about the possibility of large-scale hostilities in the region, considering the strong NATO presence, it would be prudent for all relevant actors to develop a comprehensive contingency plan in case of terrorist or other non-state actors’ hostile actions (i.e. organized crime syndicates, terrorist groups or questionable tycoons, etc.) against key energy assets. In order to avoid serious repercussions in this respect, all relevant actors would have to adopt an adequate and effective intelligence and security response, which would include a comprehensive early warning system.
- Exchange of critical security information and intelligence data related to energy security on the regional level should be made a priority. Establishing joint regional meetings of the representatives of the security services, together with relevant ministries and energy sector representatives, in order to discuss the regional energy security situation, should be a first step in information sharing.
- There should be more effort to improve the Athens Process of building a common energy market in South-eastern Europe. This effort should be more robustly integrated into EU programmes and the accession process. A streamlined system that allows better exchange and joint efforts at production and storage should be encouraged through conditionality and financial aid.
- Enlargement as a measure of stability – “the more, the securer”. In order to secure stability and energy security in the Western Balkans, the EU will have to encourage regional energy cooperation as a prerequisite for accession.
There is a need for states to undertake co-ordinated action between the government and the private sector in developing alternative energy sources. In the case of the Western Balkans, this recommendation should be carefully assessed considering the weakness of the institutions, a feeble market economy and the transitional difficulties faced by each one of these countries. It should be addressed as part of a wider effort to consolidate democracy through a drive against corruption and increased accountability in the energy sector.
- A series of multilateral meetings which would result in an accord should be launched so as to secure regional cooperation, assess potential risks and vulnerabilities, create an action plan that would mitigate those threats and propose solutions that will meet the interests of all regional parties involved. This initiative should be advocated and led by the EU. It should have small permanent coordinating body, such as a regional energy agency.
- States in the region should negotiate a joint multilateral agreement that would prohibit any intentional misuse of energy resources in order to coerce the behaviour or policy of the depending/recipient state(s). Such an agreement can be stipulated under the auspices of the “Energy Community” or a separate legal document. It would have a verification mechanism.
- European neighbourhood policy is a crucial instrument in promoting energy security in Europe and consequently in the Balkans. Its measures should not only stabilize its immediate surroundings or expand the market for EU products, but also provide energy security – the security of energy routes coming from or through these countries. The EU’s interest in stabilising the Balkans and the interdependence in terms of energy security, make the EU the ideal vehicle for developing efficient and appropriate energy security policies.
Energy security therefore has the potential to play a major role as a confidence building measure in the Western Balkans. With assistance from the EU and the political will to work towards common solutions, cooperation in the field of energy would allow for improved and diversified supply; whilst at the same time helping to alleviate some of the lingering ethnic tensions that remain.
Dr. Dušan Janjić is a senior researcher at the Institute for Social Sciences in Belgrade and the coordinator of the Forum for Ethnic Relations.
This article is published as part of TransConflict’s newly-launched initiative, TransEnergy, which aims to stimulate debate and discussion around energy security issues, particularly as they pertain to the Balkans.
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1 World Energy Assessment. UNDP, UN Department of Economic and Social Affairs, and World Energy Council, New York, 7 December 2001, 11.