“The Russian side will grant to Serbia an export credit of up to EUR 172.5 millions”, it is stated in the draft law, which arrived in the Serbian Parliament at the beginning of November this year.
The loan will be used to finance 75 percent of the value for the design and construction of railway infrastructure (Stara Pazova – Novi Sad – Valjevo – border with Montenegro), as well as for the construction of a single dispatch center for the territory of Serbia.
With this, it will be almost a decade since Serbia has started taking loans from the Russian Federation for railway infrastructure. Russia’s share in the works, goods and services performed will have to be at least 75 percent, and the practice will continue to pay neither VAT, customs, nor any other duties of the state of Serbia for all imported goods and services under the contract.
This practice will continue and what is noticed in the 2014 Gallup Survey, of which, among other things, Dimitar Bechev, a researcher at UNC-Chapel Hill and the Atlantic Council, is also writing in his 2017 book “Rival power – Russia’s influence in Southeast Europe”: the citizens of Serbia think that Russia is by far the largest donor of Serbia, well above the EU and the US.
“In reality, things are completely different. Together, the EU and its members have spent 3.5 billion euros in Serbia since 2000. Russia’s contribution is barely a tenth of that – mostly loans, not grants – and it lags behind the contribution of the US and even Japan”, Bechev writes in 2017.
For real, what is Russia’s investment in Serbia? What is the economic cooperation between the two countries and what is it based on? And where does this completely distorted picture of Russia’s assistance to Serbia come from?
It turns out that the answer to the first question is quite complicated to get. In January 2019, during the visit of Russian President Vladimir Putin to Belgrade, Serbia and Russia signed more than 20 agreements, memorandums and protocols. One of them was that of the Serbian Development Agency (SDA) with the Russian State Investment Fund RSIF – on that occasion, RSIF Executive Director Kirill Dmitriyev stated that the two countries could double their cooperation in the next five years.
It was logical to expect that the SDA would like to boast with the results of this collaboration so far. However, when asked from the “New Economy” what is the value of contracts signed so far between SDA and RSIF, whether it is loans or investments, under what conditions – the SDA legal service replied, saying that they understood these questions as a request for access to public information for which, by law, responses are waited for 15 days.
According to the Serbian Chamber of Commerce, the foreign trade of the two countries in 2018 amounted to about 3 billion dollars (an increase of 18,6 percent over 2017), of which Serbia exported one billion and imported two billion. Serbia exported most of its fresh apples, hosiery and car tires, with oil and gas accounting to 60 percent of Serbia’s imports.
With regard to investments, the SCC calculated that in the period 2010 to 2018, the total net investment of residents of the Russian Federation amounted to 1,47 billion euros, making Russia the fourth largest investment.
However, this does not fit any other information. In January, before his visit to Serbia, Putin said in an interview for Politika that Russia’s investments in the Serbian economy “exceeded 4 billion dollars.”
Also in October, Vadim Yakovlev, Gazprom’s first deputy general manager and chairman of the NIS Board of Directors, told Politika that “more than three billion euros have been invested in the development of NIS in the last decade.”
Different data may be due to the “Russian Federation residents” as NIS invests more than Gazprom in its own right. However, if there is doubt about the total level of direct investment from Russia, it is undoubted that NIS is by far the first in investment. According to the SCC list, Lukoil (which entered Serbia in 2003 with the privatization of Beopetrol, with Sinisa Mali in the lead role) came second, followed by the Vulcan Tire from Niš, and the fourth by Sogaz Insurance Company (51 percent owned by Sogaz from Moscow, 49 percent of Srbijagas).
In 2008, Gazprom acquired the Oil Industry of Serbia for 400 million euros, with a commitment to invest another 500 million – without any tender, through an interstate agreement. In the eyes of many, this was seen as giving NIS well below the real price, in order to secure the construction of the South Stream pipeline through Serbia.
As the Insider wrote, apart from selling the rights to explore and exploit domestic oil and gas reserves, the state did not actually know what it had sold for eight years after the sale of NIS, because no definitive list of the company’s assets was determined at the date of sale. In a well-known outcome, Putin announced in December 2014 that Russia was abandoning the construction of the South Stream.
On the other hand, before the sale, NIS was catastrophic. According to business data for 2009, NIS at the end of 2008 owed banks 947 million dollars, of which as much as 666 million short-term loans, with a total net loss of 90,3 million euros in the year of sale. Moreover, due to the impairment of fixed assets, the loss at the end of 2009 was as much as RSD 37,6 billion, or EUR 392,5 million.
And what exactly was Russia giving to Serbia?
Credit, mostly.
In April 2010, Serbia took a 200 million dollars loan from the Russian Federation, with a six-month LIBOR interest plus 2,95 percent.
Then, in January 2013, Serbia took out an 800 million dollars loan for railroad works, goods and services. Similar to the most recent loan, no VAT and customs duties were paid, and the interest rate – unlike the current 2 percent – was 4,1 percent annually. This loan has been “pulled” through several budgets – it was first planned at 600 million in the 2010 budget, in the following year the exact amount of 800 million was planned, the same was written in the 2012 budget, but the contract was signed only in 2013.
This loan is, among other things, used to build a section of the Stara Pazova – Novi Sad railway, which trains to Hungary will run as much as 200 kilometers per hour (the other two sections are built from Chinese credit). We remember Vucic’s ceremonial opening of the circa meter and a half, when he announced that the railway to Hungary would be completed by 2018.
Given that the Treasury was “in a hurry” at the time, the 2013 budget also provided 1 billion dollars in Russian credit for “program support to the budget,” however, in April 2013, Russia sent half of that credit – 500 million dollars, with an interest rate of 3,5 percent annually, but with the condition that it first be given 300 million, and the rest only after Serbia signs the agreement with the IMF.
On the same day as this loan of half a billion, an agreement on cooperation between the two countries in the field of rail transport was signed, in November of the same year an agreement on military cooperation, and in October 2014, an agreement on military technical cooperation was signed. And it is precisely these three areas – rail, military and budget support – that have been the main directions of Russian loans and co-operation between Serbia and Russia in the past. Looking at the republican budgets since 2014, it can be noticed that, apart from repayment of that large loan of 800 million (which, by the way, was renewed because Serbia did not withdraw all funds on time, and therefore paid penalties of four million euros – up to now about 70 percent has been withdrawn, with the state estimate that all funds will be withdrawn by the end of 2021), some funds from the budget will also go to subsidize rail works and services.
Thus, in the 2014 budget, out of a total of 21.5 billion dinars of subsidies to “public non-financial companies and organizations”, 630 million dinars (5.2 million euros) was earmarked “for the participation of AD Serbian Railways in the Russian loan to be used for delivery of goods, performance of works and provision of services in the field of rail “.
In the 2015 budget, RSD 1.42 billion (EUR 11.7 million) was earmarked for the same purpose, and then from 2017 everything would start to count: EUR 15.9 billion for railway companies. traffic, participation in the Russian loan to be used for delivery of goods, performance of works and provision of services in the field of railway and participation in the project of reconstruction of the Niš – Dimitrovgrad railway line in 2017, 14.7 billion in 2018, and 14.5 billion in 2019 .
The budget for the current year 2019 foresees the taking out of a loan of 610 million euros from the Russian Federation for the “realization of the railway infrastructure project.” In the budget proposal for 2020, it took the mentioned loan of 172.5 million, with another 340 million for the second phase of the project, but also mentions a loan of 200 million euros from the Russian state development corporation VEB.RF for the revitalization of the Djerdap 2 hydropower plant.
Of course, like many others, the details of these signed loan agreements and their annexes are unknown to the public. Thus, according to Radio Free Europe (RFE), in September last year, the Serbian state-owned company Serbian Railway Infrastructure Company refused to submit to the Fnews agency that loan agreement of 800 million, because it would “endanger international relations” and “by providing the requested information “severe legal consequences” would be outweighed by interest in access to information.
How much the public does not know what is written in these contracts was also seen in October this year, when two workers – Turkish nationals – died in an accident at the tunnel and railway construction site near Cortanovci. It is not known why the Russian partner hired Turkish workers, and who else besides them.
The RFE was also unlucky with the contract of selling military helicopters and MiGs – the Ministry of Defense told that “the value of the acquisition of the aforementioned aircraft is part of the contract that is confidential and a trade secret of the seller.” To recall, MiGs were Russia’s “gift” to Serbia in October 2017, and repairing and modernizing that gift cost Serbia, according to Vucic’s announcement, “between 180 and 230 million euros.”
Also wrapped in a veil of secrecy is this year’s agreement between the two governments “on co-operation in the use of nuclear energy for peacetime purposes.” Serbia signed an agreement with Russian state-owned company Rosat in January – unknown about what, given that in Serbia the construction of nuclear power plants is prohibited by law and “investment decisions, the preparation of investment programs and technical documentation for the construction of nuclear power plants, nuclear fuel production plants and spent fuel processing plants for nuclear power plants” are prohibited. But, as the director of Rosat Alexei Lihachov said, “a new era in nuclear energy in Serbia is beginning.”
President Vucic has repeatedly emphasized Serbia’s commitment to membership in the European Union, noting that the best possible relations with Russia should be maintained. In the wake of the 2014 Ukrainian crisis and Russia’s annexation of Crimea, Serbia has avoided aligning its foreign policy with that of the EU and imposing sanctions on Russia.
Such a seesaw – a verbal commitment to the European Union with slow, almost nonexistent progress in EU integration, with increasing cooperation with Russia and Putin’s media worship has been going on for years. However, as if in this year 2019, things started to accelerate, it seems as if for Serbia will be increasingly difficult to stand on both sides at once.
In October, Serbia signed a free trade agreement with the Eurasian Economic Union, consisting of Russia, Belarus, Armenia, Kazakhstan and Kyrgyzstan. This did not have overly practical consequences in Serbia’s trade, given that it already had a free trade agreement with Russia, Belarus and Kazakhstan, so the agreement with the Eurasian Union only replaced the already existing arrangement with these three countries and “added” Armenia and Kyrgyzstan, with which Serbia has no significant trade. We will see whether this will finally mean signing an agreement on exporting 10,000 Fiat 500L cars to Russia, which Vucic promised back in 2013.
However, there were some pretty sharp reactions from Brussels, with the warning – as if it was not clear for a long time that Serbia had to terminate all such agreements when it becomes an EU member.
Even more violent were reactions to a recent military exercise with Russian forces, the pull of Russia’s S-400 missile defense system (which Serbia will not buy) and the Panzer system (which it will buy) – the United States has threatened sanctions on Serbia.
A State Department spokesman told Deutsche Welle in early November that all US allies and partners should “give up on such transactions with Russia”, that “disobeying that warning poses a risk of triggering sanctions”, and that the to US “repeatedly high government Serbian officials have expressed concern over the acquisition of Russian military equipment that would entail the purchase of the Pancir system.”
The European Western Balkans portal indicated that, despite the strong impression that the joint military exercise of Russia and Serbia and the S-400 system had on the public, figures say that “in 2019, Serbia held 17 military exercises with other countries, from of which 13 are with NATO, while four are with Russia.”
In July 2019, the EU Institute for Security Studies (EUISS) writes (“Russia in the Western Balkans – Tactical victories, strategic failures”) that Russian policy in the region is the product of “a network of Russian state and non-state actors that blur the traditional boundaries between public and private domain, which allows the Kremlin to “use the resources of informal institutions and hide behind the fog of denial.”
“Russia has increased the cost of integrating the Western Balkans into the EU and NATO by exploiting the political and economic vulnerability of the region,” EUISS writes, adding that while Moscow has “slowed down the process”, it has not succeeded in changing the region’s path to Western institutions “at least for now.”
Dimitar Bechev accurately portrays Russia’s influence in the 2017 book: “The main achievement of Russia’s soft power is not so much its direct influence on political events – elections, energy or security policy – but its ability to shape discourse. Local MPs, both moderate and radical, play an important role in the spread of stories and messages from Moscow. It is about building a positive image of Russia, but also about undermining and discrediting the US and the EU. The Balkans have proven to be fertile ground for the growth of the anti-Western narrative, accepted by those who see Russia as a possible alternative. Russia is also shaping the most important media. For example, in Serbia and Bulgaria, Kremlin-leaning commentators are heavily featured in TV and radio shows, as well as in high-profile tabloid pages.
Bechev also recalls the October 2013 NSPM survey, where 67.5 percent of citizens supported the alliance with Russia, versus 53.7 percent committed to EU membership, and the December 2015 IPSOS survey, which saw 72 percent of citizens had a positive opinion of Russia, 25 percent of the EU, 7 percent of NATO, and that Putin was the most trusted politician at the time, even ahead of Vucic (36.1 percent to 34.6 percent).
Soft power, according to Bechev, is Russia’s most important means by which Russia conquers “hearts and minds.” However, Bechev does not see the return of the Cold War as Russia “has no permanent allies or a coherent ideology for export and maintenance.” “Russia, for its part, has perfected the art of insertion and interference, without attempting to establish its hegemony over parts of Southeast Europe, which would be a very costly endeavor in every sense,” Bechev concludes.
But after the “detonation” of French President Emanuel Macron in late October when he told the Economist in an interview that NATO was “clinically dead” and that the EU should reopen strategic dialogue with Russia, the question is whether all of these assessments continue as they are, especially given his clear views that the EU should pause with further enlargement. This brings an even darker tone to the already depressing and unpromising picture of the region.
