Security of Supply Statement of the Republic of Serbia

SECURITY OF SUPPLY STATEMENT OF THE REPUBLIC OF SERBIA

Prepared by the Ministry for Infrastructure and Energy

Belgrade, September 2011

1 Security of Supply Statement of the Republic of Serbia

TABLE OF CONTENTS

1. ELECTRICITY...... 3 1.1. Key market participants and their responsibilities...... 3 1.2. Regulatory framework for production, transmission and distribution investments. 4 1.2.3. Institutional Structure and Responsibility for Energy Policy ...... 4 1.3. Public service obligation...... 6 1.4. Production capacities ...... 6 1.4.1. Existing power plants...... 6 1.4.2. Operational security...... 8 1.4.3. Construction of new production facilities and rehabilitation of existing facilities...... 9 1.4.4. Incentives for new production capacities (RES and EE)...... 10 1.5. Power grid capacities ...... 11 1.5.1. Transmission network...... 11 1.5.2. Distribution network ...... 15 1.6. Electricity production and system peak load ...... 16 1.7. Electricity supply ...... 18 2. NATURAL GAS ...... 20 2.1. Key market participants and their responsibilities...... 20 2.2. Regulatory framework ...... 21 2.3. Public service obligation...... 23 2.4. Production, import, storage and transit of natural gas ...... 24 2.5. Natural gas network capacities ...... 25 Natural gas network capacities are presented on the Figure 12...... 25 2.5.1. Transmission network...... 25 2.5.2. Distribution network ...... 25 2.6. Natural gas energy balance ...... 27 2.7. Construction of new facilities ...... 30 3. OIL SECTOR...... 32 3.1. Key market participants and their responsibilities...... 32 3.2. Regulatory framework ...... 33 3.3. Production, import, storage and transit of oil and oil products...... 34 3.4. Energy Balance of Oil...... 35 3.5. Construction of new facilities ...... 37

2 Security of Supply Statement of the Republic of Serbia

1. ELECTRICITY

First chapter describes key electricity market participants and their responsibilities relating to security of supply and present regulatory framework for electricity production, transmission and distribution investments. Public service obligation is treated with special attention. This is then followed by description of existing and planned production capacities, incentives for new production capacities construction, existing, and planned electricity network capacities with particular reflection on the cross-border transmission capacities and transmission network access and management. Finally there is a presentation of achievements and planned methods to satisfy electricity demand needs in the Serbian system.

1.1. Key market participants and their responsibilities The market participants in Serbia are producers (power generators), distributors, traders and one independent transmission system and market operator:

Power generation Five generation companies are operating in Serbia, all subsidiaries of Public Enterprise “Elektroprivreda Srbije (EPS) - HPP Djerdap llc, HPP Drinsko- Limske llc, TPP Nikola Tesla llc, TPP Kostolac llc and CHP Panonske llc. They are 100% state owned companies.

Currently there are no independent power producers in Serbia.

Distribution and Five distribution companies (legally independent in relation to generation supply activities) are operating in Serbia, all subsidiaries of EPS - “Elektrovojvodina” llc, “Elektrodistribucija Beograd” llc, “Elektrosrbija” llc, ED “Jugoistok” llc., ED “Centar” llc. They are 100% state owned companies.

Within the distribution companies, unbundling in terms of accounting of distribution and supply activities is underway. The new Energy Law sets the obligation for companies to unbundle distribution system operation and supply also in terms of legal form (the deadline for this unbundling is 1st October 2012).

Trade The EPS parent company performs wholesale trade for captive customers (at regulated prices), wholesale trade for the open market and common corporate functions.

Beside EPS, 45 companies have been issued licenses for electricity trade (including wholesale, retail, import and export) on the electricity market in Serbia by the end of 2010.

3 Security of Supply Statement of the Republic of Serbia

Transmission Public Enterprise Elektromreža Srbije (JP EMS) is the independent (in terms of ownership) transmission system and market operator in Serbia, dealing with grid O&M, system operation (including managing cross- border trades of electricity and capacity allocation on the interconnection lines) and market operation. It is 100% state owned company.

1.2. Regulatory framework for production, transmission and distribution investments

The Energy Law, which was adopted in August this year (“Official Gazette RS” No. 57/11) and the Energy Sector Development Strategy of the Republic of Serbia by 2015 for the period 2005-2015 (“Official Gazette RS” No. 44/05) stipulate the fundamentals of the energy policy of the Republic of Serbia.

1.2.3. Institutional Structure and Responsibility for Energy Policy

Institutional framework for the energy sector has been adapted by the Constitution, the Energy Law and the Law on Ministries (“Official Gazette RS”, No. 16/11).

National Assembly of the Republic of Serbia shall adopt the laws concerning the energy sector and pass the Energy Sector Development Strategy at the proposal of the Government for a minimum 15-year period;

At the proposal of the Ministry, the Government shall propose and monitor the implementation of the Energy Sector Development Strategy, pass the Strategy Implementation Program, pass the Energy Balance. The Government shall stipulate the conditions for the delivery and supply of electricity and natural gas to consumers, as well as the measures to be taken in cases of the threatened safety of electricity and natural gas delivery to consumers due to disruptions in the operation of electric power system or energy market, pass national action plans, define the conditions for granting the status of privileged electricity producer, prescribe the incentive measures for electricity generation with the use of renewable energy sources, and for buying up that energy, and pass the act determining the amount of incentive fee. In addition, the Government shall prescribe the share of biofuel in the traffic sector and the measures for achieving this share, incentive measures for biofuel production, as well as the criteria for sustainable biofuel production; prescribe the criteria, protection mode, conditions, deadlines and procedure for establishing the status of vulnerable, i.e. protected customer with regard to energy supply; The Government shall determine another energy entity to perform the energy activity of general interest in the area where the energy activity has been performed by an entity

4 Security of Supply Statement of the Republic of Serbia whose license has been permanently withdrawn, and define the rights and responsibilities of that energy entity; The Government shall prescribe the method for determining the highest prices for the main oil products in order to prevent disruptions in the oil and oil products market; pass the Preventive Action Plan and the Crisis Plan referred to in Article 161. Para. 2. and 3. of the Energy Law and adopt measures in case of general shortage; The Government shall select a public supplier and last resort supplier pursuant to the provisions of this law; invite to a public tender for the construction of power generation facilities; create conditions for investing into the energy sector of the Republic of Serbia and stimulate transparency and non-discrimination based competition;

In addition, the Government shall appoint the president and the members of the Management Board, Supervisory Board and the director of the Energy Efficiency Agency; approve the Statute of the Energy Agency and the Energy Efficiency Agency, define organizational principles for the public companies in energy sector by adopting their founding act, adopt the founding act for public companies performing the activity of transmission system operator, electricity market operator, wholesale provider of public electricity services for tariff customers and wholesale provider of public natural gas services for tariff customers.

Pursuant to the Law on Ministries, the Ministry for Infrastructure and Energy shall conduct the activities of governmental administration related to:

• Energy sector; • Energy balance of the Republic of Serbia; • Oil and gas economy; • Safe pipeline transport of gaseous and liquid hydrocarbons; • Taking measures to provide the conditions for the functioning of public companies in the areas for which the Ministry is established; • Supervision in the domain of the Ministry, as well as other activities specified by law.

Regulatory body – the Energy Agency of the Republic of Serbia (AERS) was officially established in June 2005, based on the Energy Law of 2004. The Law granted a series of authorities to AERS. The main activities performed by the Agency are related to price regulation, issuing the licenses for conducting energy activities, deciding appeals concerning energy facilities and customers, monitoring energy markets and implementing international agreements; it also gives consents to the market and technical rules, specifies the methodologies for the determination of prices and tariffs (for the calculation of electricity and natural gas for tariff customers, access to transmission, transport or distribution networks) and adopts the tariff systems for electricity and gas.

The Energy Efficiency Agency of the Republic of Serbia was founded in 2002. by the Government of the Republic of Serbia, whereas its current legal status is defined by the Energy Law which entered into force in 2004. The Agency, which has the capacity of a

5 Security of Supply Statement of the Republic of Serbia legal person, has been established as an organization for conducting professional activities on improving the conditions and measures for the rational use and savings of energy and energy generating-products. Besides the Energy Efficiency Agency, in the Republic of Serbia, 5 regional energy efficiency centers have been established, located in 5 university centers (Belgrade, Novi Sad, Nis, Kragujevac and Kraljevo), which are to ensure the implementation of regional energy efficiency programs and application of renewable energy sources.

In the Serbian power system there are three adopted tariff methodologies. Tariff system for the electricity transmission system access and utilization (Official Gazette RS 1/07 and 31/07), Tariff system for the electricity distribution system access and utilization (Official Gazette RS 1/07 and 31/07) and Tariff system for electricity settlement for tariff buyers (Official Gazette 1/07, 31/07, 50/07, 81/07, 21/08, 109/09 and 100/10) are targeted to guarantee adequate level of system security and supply quality.

1.3. Public service obligation

As of February 23, 2008, according to the Decision of the Energy Agency of the Republic of Serbia any non-household customer may acquire the status of an eligible electricity customer regardless of the annual consumption. These customers can freely choose their electricity suppliers. This decision opened around 47% of the electricity market. Previous eligibility threshold amounted to 3GWh annual consumption qualified 350 large electricity customers. However, up to date no qualified electricity customers applied for eligible customer status due to low electricity price provided by PE EPS. With previous decision the Agency met its obligations from the Energy Community Treaty (all non-household customers shall receive eligible customer status as of 2008). Following the provisions of the Treaty, household customers will acquire eligible customer status as of 2015. The new Energy Law (Official Gazette RS 57/2011) prescribes that for all customers, except households and small customers, the right to be supplied at regulated tariff prices shall cease successively, starting from January 1, 2013, whereas for the customers being connected to the transmission system, the right to this supply shall cease to exist as of January 1, 2013, and for the customers being connected to the distribution system, as of January 1, 2014. From January 1, 2015, based on the right to universal service – public supply, only households and small customers shall be entitled to the supply at regulated prices in cases where they have not selected another supplier in the market .

1.4. Production capacities

1.4.1. Existing power plants Existing capacities for electricity production in Serbia include: • Hydro power plants, • Thermal power plants (coal, heating oil, natural gas), • Combined heat and power plants,

6 Security of Supply Statement of the Republic of Serbia

• Small hydropower plants, • Industrial power plants and District heating CHP. Due to lack of independent producers, Serbian electricity market is dominantly supplied by Public Enterprise “Electric power industry of Serbia” (PE EPS). PE EPS was established by Decision of the Government of Serbia which entered into force on 1 July 2005. PE EPS is divided in two Economic Associations (EA): EA for coal and electricity production and EA for electricity distribution. The total capacity of nine hydro power plants (HPPs) with fifty hydro units is 2,831 MW, which makes almost 34% of EPS's total electric power potential. All HPPs are organized in two EA: EA HPP Djerdap: • HPP Djerdap I (with 6 units)-1.058 MW • HPP Djerdap II (with 10 units)-270 MW • HPP Pirot (with 2 units)-80 MW • HPP Vlasina (with 10 units)-129 MW EA HPP Drinsko-Limske: • HPP Bajina Basta (with 4 units)-364 MW • RHPP Bajina Basta (with 2 units) – reversible HPP-614 MW • HPP Limske (with 8 units)-211 MW • HPP Zvornik (with 4 units)-92 MW • HPP Elektromorava (with 4 units)-12.8 MW

The aggregate capacity of eight thermal power plants (TPPs) with 25 blocks is 5,171 MW, using lignite as a fuel. Similarly all TPPs are organized in three EA: EA TPP Nikola Tesla: • TPP Nikola Tesla A (with 6 units)-1.502 MW • TPP Nikola Tesla B (with 2 units)-1.160 MW • TPP Kolubara (with 5 units)-245 MW • TPP Morava (with 1 unit) -108 MW EA TPP and mines Kostolac: • TPP Kostolac A (with 2 units)-281 MW • TPP Kostolac B (with 2 units) -640 MW TPP Kosovo (As of 1 July 1999, EPS does not operate its facilities on the territory of Kosovo and Metohia) • TPP Kosovo A (with a total of 5 units)-617 MW • TPP Kosovo B (with a total of 2 units)-618 MW

Total capacity of all CHP Plants is 353 MW organized in single EA CHPP Panonske: • CHPP Novi Sad (with 2 units)-208 MW • CHPP Zrenjanin (with 1 unit)-100 MW

7 Security of Supply Statement of the Republic of Serbia

• CHPP Sremska Mitrovica (with 3 units)-45 MW

Geographical distribution of existing power plants is presented on following figure (Figure 1):

Figure 1. Existing power plants in Serbian Power System

1.4.2. Operational security In Serbian power system 33% of installed power is in hydro power plants (some with daily regulation, some with seasonal regulation and one reversible hydro power plant). Around 62% of installed capacity is in lignite-fired thermal power plants. Due to lack of

8 Security of Supply Statement of the Republic of Serbia regular maintenance during period 1990-2000, TPPs were main threat of power system operational security. However, reliability of Serbian thermal power plants is significantly improved in last 4-5 years. Significant utilization improvement is achieved on TPP Kolubara (from 19.9% to 50.8%) and TPP Kostolac A (from 15.6% to 75.8%) which is presented on Figure 3.

Figure 3. TPPs utilization factor

1.4.3. Construction of new production facilities and rehabilitation of existing facilities

Thermal Power Plants:

Since 2012 following rehabilitation and modernization activities are foreseen: • rehabilitation and modernization of TPP Nikola Tesla A6 (continuation of started activities) • rehabilitation and modernization of TPP Kostolac B (on 2010) • non-standard overhauls in TPP Nikola Tesla B2, TPP Kolubara A3, TPP Kolubara A5, TPP Nikola Tesla A3-A5and TPP Kostolac A Also since up to 2025 some oldest TPPs will be removed from normal operation (TPP Kolubara A1, A2, A4; TPP Kostolac A1, A2; TPP Nikola Tesla A1,A2; TPP Morava) from environmental and operation costs reasons.

Finally, construction of new thermal power plants is foreseen: • TPPs that will utilize Kolubara open mine (necessary documentation prepared, approved decision for projects construction, expected finalization on 2015) o TPP Kolubara B (2 x 350 MW), o TPP Nikola Tesla B3 (new 744 MW unit in existing TPP Nikola Tesla B)

9 Security of Supply Statement of the Republic of Serbia

• TPP Kostolac B3 (350 MW - new unit in existing TPP Kostolac B) • CCGHTP Novi Sad (450 MWe + 300MWt - strategic partner will be selected by tender)

Conventional hydro power plants

Planned or started revitalization and modernization of existing conventional hydro power plants will increase annual energy production for 250 GWh. Most important foreseen activities are: Revitalization • Revitalization of the HPP Djerdap 1 (all units) • Revitalization of the HPP Djerdap 2 (all units) • Revitalization of HPP Ovcar Banja and Medjuvrsje • HPP Bajina Basta – revitalization already started (all units) Planned upgrade: • HPP Pirot (increasing of available water accumulation) • HPP Bajina Basta (installation of new unit) • HPP Zvornik (installation of new unit)

Construction of new hydro power plants is planned: • HPP Velika Morava (150 MW) • HPP Ibar (103 MW) • HPP Upper Drina (250 MW) • HPP Middle Drina (320MW) • Reversible HPP Bistrica (680 MW) • Reversible HPP Djerdap3 (600 MW)

1.4.4. Incentives for new production capacities (RES and EE)

In December 2009 Serbian Government adopted Decree on incentive measures for electricity generation using renewable energy sources and for combined heat and power generation. Adopted tariffs are valid on 12 years time horizon with fixed amount in Euros.

Along with feed-in tariff preparation, standardized long-term power purchase agreement and methodology for granting the status of privileged energy producer is developed too.

10 Security of Supply Statement of the Republic of Serbia

1.5. Power grid capacities

1.5.1. Transmission network

Public Enterprise for electric energy transmission and transmission system control ''Elektromreza Srbije'' as the Serbian Transmission System and Market Operator was established by Decision of the Government of the Republic of Serbia, as an independent public enterprise on July 1, 2005.

Main activities of the company are: • Electric energy transmission • Transmission system control • Organization of electric energy market.

Figure 5. Serbian transmission network

11 Security of Supply Statement of the Republic of Serbia

Transmission network in Serbia incorporates entire 400 kV and 220 kV (presented on Figure 5) and the majority of 110 kV grids. Lines lengths and transformation capacities owned by PE EMS are depicted within table 2 and 3 respectively.

Table 2. Transmission lines in PE EMS

Transmission Line 10kV Lines 35 kV Lines 110 kV Lines 220 kV Lines 400 kV Total Unit single double single double single double single double (km) (km) (km) (km) (km) (km) (km) (km) (km) (km) Beograd 3.98 39.4 732.1 504.0 230.8 82.4 336.0 17.0 1945.6 Bor 27.7 35.6 426.6 43.8 236.7 770.3 Valjevo 27.0 707.6 225.0 942.0 15.4 1917 Krusevac 4.0 107.9 1209.1 35.2 305.3 436.9 2098.3 Novi Sad 1309.5 61.5 306.1 484.5 2.8 2164.4 Obilic (EMS) 49.8 49.8 Obilic (UMNIK) 563.2 14.5 285.10 9.9 179.6 1052.3 EMS without Kosovo 4.0 166.6 75.0 4.434.6 869.5 1784.1 97.8 1494.0 19.8 8945.4 Total 4.0 166.6 75.0 4997.8 884.0 2069.2 107.7 1673.6 19.8 9997.7

Table 3. Transformer stations in PE EMS

400/X kV/kV 220/X kV/kV 110/X kV/kV Total # of # of Installed # of # of Installed # of # of Installed # of # of Transmission Installed stations transform. power stations transform. power stations transform. power stations transform. Unit power (MVA) (pieces) (pieces) (MVA) (pieces) (pieces) (MVA) (pieces) (pieces) (MVA) (pieces) (pieces) Beograd 6 7 2.600 5 12 2300 19 39 1695.5 30 58 6595.5 Bor 2 2 450 11 26 714 13 28 1164 Valjevo 4 7 1050 10 20 526.5 14 27 1556.5 Krusevac 4 7 2200 2 6 900 19 35 983 25 48 4083 Novi Sad 4 7 2300 2 6 1050 1 20 6 14 3370 Obili ć 1 2 800 3 4 600 3 6 183 7 12 1583 Total 17 25 8350 16 35 6150 62 127 4122 95 187 18622

Transmission network is adequate to present generation and load demands. Also, Serbian network is hosting high transits, therefore meeting demands of the regional market and supporting adequacy of adjacent power systems (Electricity balance is shown on Figure 6a).

Moreover, transmission network is continuing to improve its efficiency, which is shown in steady decrease of losses (Figure 6b). This fact is mainly the consequence of the commissioning of several transmission facilities in the last years, such as SS 400/110 kV Jagodina 4, SS 400/110 kV Pec 3 (Kosovo region) and OHL 400 kV Nis 2 – Leskovac 2.

The system reliability is close to 99.995%, while annual average interruption time is between 20-30 minutes. In this respect, critical networks elements are SS 110/x kV, and partially 110 kV lines, while outages of 400 kV and 220 kV elements have almost no impact on interruptions.

In order to keep high operational performances, PE EMS produces Transmission Development Plan, each year for the forthcoming 5 year period. In Table 4, data regarding load forecast are extracted from this plan.

12 Security of Supply Statement of the Republic of Serbia

a) TPP and TPP-HP Net Generation 30 028

HPP Net Generation

Imports 5887 Net Generation 41 122 Available Electric Energy 47 009

Delivered Electric Energy 45 903

Delivery for PC Serbian generation Railway auxiliaries 163 495 Distribution Pumping 37 587 914

Export 6744

b )

Figure 6. a) Serbian electricity balance in 2010 (GWh), b) Delivered energy and transmission energy losses

13 Security of Supply Statement of the Republic of Serbia

Table 4. Load forecast 2011-2015

GDP Annual Net Annual Gross Load factor Peak Net Load Peak Gross [рu Load [GWh] Load [GWh] [%] [MW] Load [MW] ‘02] 2011 1.395 39562.358 41026.166 0.603 7490 7767 2012 1.464 40256.846 41746.349 0.605 7601 7882 2013 1.545 41084.315 42604.435 0.606 7736 8023 2014 1.630 41949.374 43501.501 0.608 7878 8169 2015 1.719 42836.153 44421.090 0.610 8023 8320 On the ground of input data, the plan determined several major investments aiming to meet network users and regional market needs, which are enumerated in Table 5.

Table 5. Major investments in transmission system up to 2015

Commissioning Investment date Construction of 400 kV line SS Leskovac 2 – Macedonian border 2011 Construction of SS 400/110 kV Belgrade 20 2012 Construction of 400 kV line SS Kragujevac 2 – Kraljevo 3 2013 Upgrading of SS 220/110 kV Kraljevo 3 with 400 kV 2013 Upgrading of SS 400/110 kV Jagodina 3 from 300 MVA to 600 MVA 2013 Construction of SS 220/110 kV Bistrica 2013 Construction of SS 400/110 kV Vranje 4 2014 Upgrading of SS 220/110 kV Smederevo 3 to 400/110 kV 2014 Upgrading of SS 220/110 kV Srbobran 3 to 400/110 kV 2014 Upgrading of SS 400/110 kV Bor 2 from 450 MVA to 600 MVA 2015 Construction of 400 kV double line SS Pancevo 2 – Resita (Romania) 2015

The transmission system is preparing for the integration of renewable energy, as well, mostly wind parks. So far, PE EMS has received more than 20 wind park projects with aggregated power exceeding 2500 MW. The bulk of these are located in the region of south Banat. Therefore, PE EMS finished study which provided connection points and assessed necessary network reinforcements. Besides, the study estimated that under present technical and market condition, transmission system can integrate and efficiently control approximately 1000 MW of installed power in wind parks.

14 Security of Supply Statement of the Republic of Serbia

1.5.2. Distribution network

Economic Association (EA) for Electric Energy distribution is integral part of Serbian Power System Company EPS. EA for electricity distribution is divided into 5 distribution companies, presented on the Figure 7.

Figure 7. Distribution companies in the Republic of Serbia

Basic information about distribution facilities (transformer stations and lines) are shown on Figure 8.

Figure 8. Distribution facilities

15 Security of Supply Statement of the Republic of Serbia

1.6. Electricity production and system peak load

The balance of electricity production and system peak load will be evaluated on the ground of ENTSO-E methodology for generation adequacy (Table 6). This methodology is adopted for transmission system operators aiming to assess electricity balance in open market environment. Presented figures reflect winter peak hour.

For the very beginning, data related to production is to be delineated. So, in Serbia there is 8.16 GW of net installed power capacity (equals to gross capacity minus auxiliary supply of power plants) of which 0.13 GW in not used (in TPP Kosovo A) and 0.27 GW is overhauled (one generator in HPP B. Basta and other one in HPP Djerdap 1). Therefore, net generating capacity equals to 7.76 GW.

Table 6. Generation adequacy for winter 2011/2012 period

Net generating capacity: GW 1 hydro power stations 2.91 2 nuclear power stations 3 fossil fuel power stations 5.25 4 renewable energy sources 4a of which wind power 5 not clearly identifiable energy sources 6 Net generating capacity (6 = 1+2+3+4+5) 8.16 7 non-usable capacity at peak load (all power stations) 0.13 7a of which mothballed plants 0.13 7b of which wind power 8 overhauls (all power stations)) 0.27 9 Available capacity (9 = 6 - (7 + 8)) 7.76 10 outages: average expected value (all power stations) 0.00 11 system services reserve (one hour ahead of real time) 0.60 12 Planned reliably available capacity (12 = 9-10-11) 7.16 13 weekly peak load for normal conditions (unrestricted) 7.44 14 load reduction available at normal peak load 0.15 15 Net weekly peak load for normal conditions (15 = 13-14) 7.29 16 Remaining capacity for normal conditions (16 = 12-15) -0.13 17 weekly peak load for severe conditions (unrestricted) 7.66 18 load reduction available at severe peak load 0.15 19 Net weekly peak load for severe conditions (19 = 17-18) 7.51 20 Remaining capacity for severe conditions (20 = 12-19) -0.35 Transportable capacity 21 simultaneous importable capacity 2.40 22 simultaneous exportable capacity 2.00 23 firm import contracts (if any exist) 0.34 24 firm export contracts (if any exist) 0.12 25 Remaining capacity including import/export (25 = 16+23-24) -0.09

16 Security of Supply Statement of the Republic of Serbia

This capacity has to be further decreased for system service reserve (0.6 GW which is capacity of the biggest generating unit in Serbia – TPP Nikola Tesla B). As this is very high in comparison with generating net capacity of all units, it is considered that all outages shall be cover by this reserve. Consequently, zero is put in for average expected value of outages. This can be done for small power systems, for ENTO-E methodology for determination of system reserve is adopted mainly for much larger systems. Otherwise, figure 0 should be replaced by 0.25 GW which is real data, but keeping all time such high reserve would be very expensive. Finally, we can count on 7.16 GW of reliably available capacity.

Before we switch to load data, it is important to point to the fact that the last power plant was commissioned more than 30 years ago. On the contrary, since 2000 mayor efforts and investments were spent on reconstruction and rehabilitation of generating unit, so Generation Company EPS managed to increase annual generation up to the level of 36 TWh, but it appears to be the limit in absence of new commissionings. Therefore, in the near future, there will be only slight increase in capacity of HPP Djerdap 1 and HPP B. Basta of 0.11 GW due to ongoing refurbishments.

On the other hand, electricity consumption in Serbia permanently grows (data for annual gross consumption in the period 2008-2010 covering the period after the last Security Supply report and related to economical crisis environment: 39357 GWh, 40264 GWh and 41213 GWh respectively). It is important to highlight that households covers more than 50% of consumption, that electricity heating is still widely used due to regulated low electricity price, causing big difference between summer and winter consumption (Figure 9).

Hourly Load MW

8000 7448 MW December 31,2009 Monday at 18h

7000

6000

5000

4000

3000

2000

2318 MW May 25, 2009 Monday at 5h 1000

0 I II III IV V VI VII VIII IX X XI XII Months

Maximum mean hourly load in the month Minimum mean hourly load in the month

Figure 9. Maximum and minimum of average hourly load during 2010

17 Security of Supply Statement of the Republic of Serbia

Weekly peak loads are estimated on 7.44 GW for normal conditions (average temperatures) i.e. 7.66 GW for severe conditions (extreme low temperatures), whereby reduction of 0.15 GW is available through voltage reduction of 5% in distribution grids. As a result, remaining capacity is equal to -0.13 GW i.e. -0.35 GW, which means that system needs import of electricity. As firm contracts, Serbian power system has possibility of import of 0.34 GW and obligation of export of 0.12 GW, which reduces generation inadequacy down to -0.09 GW.

Having in mind that generation in the period 2008-2010 was 34988 GWh, 36014 GWh and 35731 GWh respectively, we might say that this methodology gives a picture which is close to the reality, as there is a gap between generation and load demand that have to be covered by electricity import. In the forthcoming years, the load will continue with steady growth, so the gap will rise. Transportable capacity of Serbian transmission system is high (2.4 GW for import and 2.0 GW export) to meet these import needs, but commissioning of new power plants beyond 2015 is of crucial significance for security of supply in the future.

1.7. Electricity supply

Table 5. Tariff system for tariff (non-eligible) consumers (valid from April 1, 2011)

Consumption Tariff elements Unit Daily (CSD/unit) Category tariff rate Metering point fee 119.07 Peak power kW 485.894 Excessive peak power kW 971.788 High voltage kWh higher 3.996 Active energy kWh lower 1.332 Reactive energy (cos φ ≥ 0.95) kvarh 0.198 Excessive reactive energy (cos φ < 0.95) kvarh 0.396 Metering point fee 119.07 Peak power kW 583.073 Excessive peak power kW 1166.146 Medium voltage kWh higher 4.396 Active energy kWh lower 1.465 Reactive energy (cos φ ≥ 0.95) kvarh 0.416 Excessive reactive energy (cos φ < 0.95) kvarh 0.832 Low voltage Metering point fee 119.07

18 Security of Supply Statement of the Republic of Serbia

Peak power kW 704.546 Excessive peak power kW 1409.093 kWh higher 5.794 Active energy kWh lower 1.931 Reactive energy (cos φ ≥ 0.95) kvarh 0.911 Excessive reactive energy (cos φ < 0.95) kvarh 1.822 Metering point fee 119.07 Accounting demand kW 31.583 Active energy: Green zone kWh 4.386 For consumers with single-tariff metering Blue zone kWh 6.578 Red zone kWh 13.157 kWh higher 5.012 Green zone kWh lower 1.253 kWh higher 7.518 For consumers with two-tariff metering Blue zone kWh lower 1.880 Residential sector kWh higher 15.036 Red zone kWh lower 3.759 kWh higher 5.012 Green zone kWh lower 1.253 kWh higher 6.390 For consumers with controlled metering Blue zone kWh lower 1.598 kWh higher 12.781 Red zone kWh lower 3.195 Green zone kWh 1.253 For consumers with controlled metering Blue zone kWh 1.880 and special metering Red zone kWh 3.759 Metering point fee 119.07 Public lighting Public lighting kWh 5.150 Active energy Neon signs kWh 7.725

Last tariff system considerably supports energy efficiency measures for all consumption categories: • Peak power shaving – block tariff for monthly peak power for categories high voltage, medium voltage, and low voltage. • Reactive energy compensation – block tariff for reactive energy consumption depending on power factor for same categories. • Load shifting – daily tariff rates (lower 0:00 – 8:00 and higher 8:00 – 24:00) for all categories except street lighting which is already active during nigh (period of lower consumption) and residential sector with single-tariff metering and special metering. • Energy saving in residential sector – block tariff for active energy consumption o Green zone for consumption block up to 350 kWh/month o Blue zone for consumption block between 350 and 1,600 kWh/month o Red zone for consumption block above 1,600 kWh/month

19 Security of Supply Statement of the Republic of Serbia

2. NATURAL GAS

In this chapter key market participants and their responsibilities are analyzed, as well as the relevant regulatory framework and public service obligation. This is followed by a presentation of import, storage, existing and planned capacities of the gas network. In conclusion data is presented about the energy balance and natural gas supply.

2.1. Key market participants and their responsibilities

Legal and regulatory framework for natural gas market has been evolving. The Energy Law came into force in August 2011. The Ministry for Infrastructure and Energy is the responsible body granting authorization for all natural gas facilities construction and refurbishment. The entire gas infrastructure is regulated except from transit to the Bosnia and Herzegovina.

Concerning key market players, TSO are the Public Enterprise SRBIJAGAS, and Yugorosgaz.

The Public Enterprise (PE) SRBIJAGAS which owns 97% of gas transport network is an undertaking engaging in natural gas transmission, distribution, storage and trade. Today, it is the leader in the Serbian gas market, a gas company the strength of which rests upon several decades long tradition and experience, extensive human and asset resources, expertise and resolution to further develop and modernize Serbian gas infrastructure and interconnect it to the gas infrastructures of other countries of the region.

Considering the fact that PE SRBIJAGAS engages in activities of public and state interest, its main obligations include: • Secure supply of natural gas to the market • Development and safe operation of the gas transmission, distribution and storage systems • Enabling diversification of gas supply routes and sources by interconnecting the Serbian gas transmission system to the gas transmission systems of other countries in the region • Implementation of the principle of rational and efficient natural gas utilization, adhering to the principles of environment protection and sustainable development

Yugorosgaz, a joint venture of PE SRBIJAGAS (25%), CENTRAL ME ENERGY & GAS GmbH Vienna, Austria (25%) and Gazprom (50%), owns 67.5km of high pressure pipelines in southern part of Serbia, i.e. the remaining 3% of transport network.

Concerning distribution, 72% of the market is served by PE SRBIJAGAS and 28% by 35 other distribution companies with different kind of ownership (private and public) responsible for distribution and supply of natural gas in northern part of Serbia.

20 Security of Supply Statement of the Republic of Serbia

Regarding trade, PE SRBIJAGAS performs wholesale and retail trade for captive customers (regulated prices) and wholesale trade for the open market, whilst 30 DSOs have been issued licenses for trade for eligible customers in Serbia by the end of 2007.

TPA is regulated according the Energy Law for transmission, storage and distribution and the network code is under preparation. There is negotiated TPA in upstream pipeline network.

2.2. Regulatory framework

In the Serbian gas sector there are three adopted tariff methodologies. Tariff system for natural gas transport system access and utilization (Official Gazette RS 001/2007), Tariff system for natural gas distribution system access and utilization (Official Gazette RS 001/2007) and Tariff system for natural gas settlement for tariff buyers (Official Gazette 001/2007, amended in Official Gazette 021/2008) are targeted to guarantee adequate level of system security and supply quality. The new price regulation framework for electricity and natural gas sectors set by Energy Agency (Regulatory body) is implemented. • Natural gas transmission prices o for PE Srbijagas: in force as of October 2008 o for Yugorosgaz A.D: in force as of February 2009 • Natural gas distribution prices o for PE Srbijagas: in force as of October 2008 o for 23 privately or municipally owned distribution companies: in force as of April 2009 • Natural gas prices for tariff (final) customers: o for PE Srbijagas: in force as of October 2008; o for 29 publicly, privately or municipally owned suppliers of tariff customers: in force as of April 2009

Legislation under preparation:

• Network codes for transmission and distribution - in preparation process (to involve congestion management methodology)

The secondary legislation is mostly completed and nonetheless, the new structure is seen to be mostly compatible with 2009/73/EC Natural Gas Directive.

By the Energy Law ( ″Official Gazette RS ″, No. 57/2011), which entered into force in August this year, the second package of EU regulations was fully implemented, while the third package of EU regulations was only partially implemented. This Law shall regulate the following:

21 Security of Supply Statement of the Republic of Serbia

LICENSES

Energy entity can begin conducting energy activity on the basis of a license issued by the Energy Agency of the Republic of Serbia , as a regulatory body .

The Agency shall conduct the activities established in the article 46. of the aforementioned Law, and among other things, the activities related to the determination of the price for access to natural gas transport system, determination of the price for access to natural gas distribution system, determination of the price for access to natural gas storage. The aforementioned prices are regulated, and as of October 1, 2012 the Agency shall approve these prices.

MARKET OPENING

Articles 113 to 118. of the Energy Law regulate the mode of conducting purchase and sale in the natural gas market, natural gas market participants, balance responsibility, keeping the registry of balance responsibility, whereas article 118 stipulates that a natural gas transport system operator shall provide natural gas for balancing and maintaining safe system operation from the market participants by using natural gas from the storage and linepack.

Article 140 of the Energy Law stipulates that the right to free choice of a supplier in the market shall be exercised by the final customers of natural gas , where the households shall be granted such right as of January 1, 2015.

Supplying natural gas to final customers can be performed by an energy entity having a license for conducting the activity of supply or public supply.

Public supplier shall be selected by the Government in the manner and procedure stipulated by law.

Article 206 of the Energy Law stipulates that the final customer of natural gas, who has selected its supplier in the market by the effective date of this law, shall be supplied by the same supplier pursuant to the provisions of the aforementioned law.

Final customers of natural gas, who have not selected their suppliers by the effective date of this law, shall be supplied by the energy entities that supplied the tariff customers until such time, under regulated prices, until they select the supplier of their choice, but not later than December 31, 2012.

The final customers of natural gas, whose facilities are connected to the distribution system, shall be entitled to public supply as of January 1, 2013, while as of January 1, 2015 only the households and small customers of natural gas shall be entitled to public supply.

22 Security of Supply Statement of the Republic of Serbia

SEPARATION OF SYSTEM OPERATORS AND ACCOUNTS

Provisions of articles 15-20 of the Energy Law stipulate the obligation of the system operator being a part of a vertically or horizontally organized company to be independent, in terms of legal form, organization and decision making process, of other activities not related to the management of transport or distribution system, or natural gas storages, where the ownership over the assets of the transmission, transport or distribution system does not have to be unbundled from the vertically integrated company.

In addition, the manner of achieving that independence shall be determined, and among other things, it shall be specified in which case a parent business company can approve annual financial plans to the operators of transport and distribution system and natural gas storage, and establish the limits of their indebtedness, but not giving instructions for their daily operation .

Cross-subsidies shall not be allowed between the entities conducting regulated activities and those entities conducting market activities within a vertically or horizontally integrated company, for the purpose of enabling competition and avoiding discrimination of system users.

The system operator operating within a vertically integrated company shall be obliged to pass the Program for the provision of a non-discriminatory behavior, including measures preventing non-discriminatory behavior, to determine special duties of employees in implementing the Program’s objectives, as well as to appoint a person responsible for this Program implementation.

It is stipulated that the provisions of these articles shall not be applied to a natural gas distribution system operator with less than 100.000 final customers connected to its system .

2.3. Public service obligation

Pursuant to the provisions of the new Energy Law, the Government shall invite the public tenders for wholesale public supplier who is to supply other public suppliers, but only until a competitive natural gas market is established . After meeting this condition, public suppliers shall independently choose their gas supplier in the market .

Public suppliers shall be obliged to supply ″small customers ″. These are households and legal persons whose total annual revenue is up to EUR 10 million , who have less than 50 employees, and whose facilities are connected to the natural gas distribution system.

The new Law also anticipates the existence of ″last resort supplier ″. That is an energy entity that shall be obliged to supply, for maximum of 60 days, the customers not being entitled to public supply, but not having a supplier. They must use this 60-day period to

23 Security of Supply Statement of the Republic of Serbia conclude the agreement with a new supplier. ″Last resort supplier ″ shall be also designated by the Government based on the public tender procedure.

2.4. Production, import, storage and transit of natural gas

At the moment the only available gas sources in Serbia are: • Production on local gas fields in Vojvodina • Import from Russia via Hungary and Ukraine (Beregovo and Kiskundorozma metering station) • UGS Banatski Dvor

Local production

Local production satisfies max 10 % of Serbia need. There is no available data on domestic natural gas reserve and it’s hard to expect that existing production could be significantly increased.

Import

In 2010, import of gas amounted to 84% of the total consumption, almost all of which originates from Russia (Gazprom), while a small part (about 8%) is imported from Hungary in order to meet the peak consumption.

The capacity of the interconnection is 10+1 Mcm/day, with maximum contracted capacity being 11 Mcm/day for Serbia and 1.5 Mcm/day25 firm and 0.35 Mcm/day interruptible reserved for transit to BiH. Capacity utilization was in the range of 52-54% during 2006 and 2007. There are difficulties in using more due to upstream congestion in Ukraine-Hungary border as well as lack of flexibility tools so that capacity usage is much lower in summer. Operating capacity of USG Banatski Dvor implies the possibility of injecting 2.9Mm3/day and production of 5Mm3/day.

The contract on transit through Hungary is a long term contract, which expires in 2017, but the needed capacity is defined every year. Allowed flexibility is ± 10%. Necessary capacities in winter period are additionally charged. Srbijagas has a long term contract for transit to BiH (1998-2017), but modifications are being made every year. Capacity arrangements currently in place are: • Contracted capacity = 1.1 x Qyear / 365(366), ship or pay obligations. Qyear should be defined 5 years in advance. Value of Qyear is 2.4 Bcm for 2010/2011, thus contracted capacity is 7.53 Mcm/day. • Guaranteed capacity (from contracted capacity to 10 Mcm/day), higher price than contracted capacity should be nominated in April for next year on a monthly breakdown • Additional capacity (from guaranteed capacity to 11 mcm/day) used for peak supply. Sources of gas are Austian-Hungarian border, UGS in Hungary, production in Hungary. This part corresponds to 0.5 Mcm/day as firm and 0.5

24 Security of Supply Statement of the Republic of Serbia

Mcm/day as interruptible capacity. Two contracts with MOL Production were signed to import gas to cover peak demands in last two winter seasons.

Storage

For many years there has been no gas storage facility in Serbia. However, underground gas storage in Banatski Dvor is under construction. The aim of this installation is to hold about 1/3 of annual demand as storage and allow a flat import profile during the year and therefore decrease import and transit costs. Maximum storage capacity is expected to be 800 Mcm.

In terms of the progress of this project, injection capacity is 2.7Mm3/day with compressors and withdrawal is proven at 2Mm3/day and we expect it to be 3Mm3/day.

In addition, the production line for preparation, drying and dispatch of the stored natural gas into the gas transmission system is under construction (5 Mcm/day planned capacity).

Also the 42 km long double gas pipeline Gospodjinci - Banatski Dvor is finished

2.5. Natural gas network capacities

Natural gas network capacities are presented on the Figure 12.

2.5.1. Transmission network

The gas transmission system comprises a grid of high pressure gas transmission pipelines operating at 16 - 50 bars, with a total length of 2,193 km, laid at a depth of about one meter below ground. Most important data are presented in the Table 6.

2.5.2. Distribution network

The distribution system of PE Srbijagas comprises a grid of middle pressure gas pipelines operating at 6 to 16 bars, with a total length of about 576 kilometers, and a grid of low pressure gas pipelines operating at 6 bars, with a total length of 4965 km (Table 7).

25 Security of Supply Statement of the Republic of Serbia

Figure 12. Serbian natural gas network

26 Security of Supply Statement of the Republic of Serbia

Table 6. Description of the Serbian transmission gas network

MAIN FEATURES OF THE GAS TRANSMISSION SYSTEM Capacity 540.000 m3/h (13 mio m3/day) Pressure 16 up to 50 bar Length 2.193 km Diameters from DN 150 to DN 750 Age 25 years (average) Compression Station 4.4 MW Inlets Imported gas 1 (Horgos) -14 (NIS – Naftagas ) Domestic gas -UGS Banatski Dvor Outlets Main Metering & Regulating Stations 167 Gate stations 2 (Zvornik to BIH, Pojate to JUGOROSGAZ)

Table 7. Description of the Serbian distribution gas network

MAIN FEATURES OF THE GAS DISTRIBUTION SYSTEM Middle-pressure 6 up to 16 bar Length 576 km Low-pressure up to 6 bar Length about 4965 km Age 10 years (average) Inlets Main Metering & Regulating Stations 167 Domestic gas 6 Outlets Other consumers 3597 Households About 190.000

2.6. Natural gas energy balance

There is considerable seasonal variation in demand, and the swing on Russian contracted imports is used for balancing demand and supply. There is no Take or Pay penalties, only Ship or Pay for transit. 110% is the swing on domestic production. Additional swing is provided through peak supply contracts with MOL in Hungary (Figure 13)

27 Security of Supply Statement of the Republic of Serbia

Figure 13. Variations of local production, import and demand

Interruption of 5 major industrial consumers is the second step in periods with peak demands (usually in winter days with temperature below 0°C). Line-pack variation is used mostly for balancing on an hourly level. Volume at operating pressure of line-pack is 240.000m3/bar. Possibility to increase domestic production is to 1.2 Mcm/day. The new storage facilities greatly improve and add to balancing options.

Natural gas balance for the last years is presented in the Table 8 and Figure 14.

Table 8. Production, import and delivery of natural gas (10 6 m 3) 2004 2005 2006 2007 2008 2009 2010 DOMESTIC PRODUCTION 236 193 193 186 208 269 353 IMPORT (WITH TRANSIT) 2,587 2,635 2,454 2,487 2514 1821 2217 UGS PRODUCTION 1 15 29 TRANSIT FOR BIH 323 386 369 319 31 237 249 CONSUMED IN SERBIA 2,500 2,442 2,278 2,355 2692 1869 2350

28 Security of Supply Statement of the Republic of Serbia

3000

2000

1000

0 2004 2005 2006 2007

-1000

-2000

-3000

domestic production Import (with transit) transit for BIH consumed in serbia

Figure 14. Balance of natural gas in Serbia

Structure of natural gas consumption is presented in the Table and on Figure 15.

Table 9. Structure of natural gas consumption (10 6 m 3) CONSUMPTION 2004 2005 2006 2007 ELECTRICITY PRODUCTION 66 70 44 136 DISTRICT HEATING 449 428 474 418 INDUSTRY 1,326 1,301 1,166 1,225 SCHOOLS AND HEALTH CENTERS 32 34 34 35 HOUSEHOLDS 348 358 397 381 FOOD PRODUCTION 154 155 117 115 PHARMACY 14 14 13 13 SELF CONSUMPTION AND LOSSES 105 78 27 27 OTHERS 5 5 5 5 TOTAL 2,500 2,442 2,278 2,355

29 Security of Supply Statement of the Republic of Serbia

3000

2500

2000 Others Self cons. and losses Pharmacy Food production 1500 Households Schools and health cent. Industry District heating Electricity production 1000

500

0 2004 2005 2006 2007

Figure 15. Structure of natural gas consumption

2.7. Construction of new facilities

Several projects are financed from National Investment Plan. Following table summarizes development of projects (GL – gas line, MRS – Metering and Regulation Station).

Table 10. Facilities under construction Facility Level of completion (%) 1 GL i MRS Uzice 100 2 GL 08-02/2 Batocina – Cvetojevac 98 3 GL 09-04 Krusevac-Trstenik-Vrnjacka Banja 100 4 GL 09-04-1 Vrbnica-Aleksandrovac 100 5 GL 08-17 Paljevsko polje-Kosjeric 90 6 GL 08-17 Pozega – Arilje 90 7 GL and MRS Markovac 100 8 GL and MRS Milosevac 100 9 GL and MRS Pozega 100 10 GL 08-19 Uzice –Cajetina- Zlatibor 90 11 GL Underground storage Banatski Dvor,42km 100

30 Security of Supply Statement of the Republic of Serbia

The Republic of Serbia and the public company SRBIJAGAS work intensively on creating the conditions for the construction of new natural gas supply route.

In that sense, the participation of Serbia in the implementation of the South Stream Project is of primary importance. Accordingly, JP SRBIJAGAS, together with the Russian partner, has completed the Preliminary Feasibility Study for the Construction of Gas Pipeline South Stream in the territory of the Republic of Serbia. The project includes a section of around 400km trunk gas pipeline and around 180 km export gas pipelines for supplying the Republic of Srpska and Croatia.

At the same time, under the coordination of EC DG Energy, the preparation of the Feasibility Study is in progress, along with the elements of environmental protection and impact assessment on the social environment, interconnection of the gas pipeline system of Serbia and Bulgaria. Preparation of the Study for the Serbian part of the gas pipeline is financed by WBIF. Common efforts are currently made by EC, the Government of the Republic of Serbia and JP SRBIJAGAS to find an appropriate financing model for this pipeline construction.

From the aspect of gas pipeline system in the territory of the Republic of Serbia, primary gas pipeline structure shall be constructed, intended for the supply to 60 municipalities in Serbia, which implies the construction of around 1400km of high- and medium-pressure gas pipeline, and around 50 main measuring-control stations.

Natural gas volume is measured with validated and checked metering devices. At most places metering data are corrected to standard conditions by the metering device itself. Final data from some (a minority) of the metering stations are transferred to central control location by telemetry, which cover about 70% of quantity/year. There is lack of meters in several Main Metering and Regulation Stations (MMRS). There is a program to install meters at those points and the problem is expected to be resolved by 2012. New SCADA system for commercial purposes is expected to be implemented with funds from IPA in 2012-2013. The IT systems are planned to be in place by 2013.

Historically transmission and distribution were vertically integrated and meters were not installed at the all off-takes and losses have been determined based on quantities estimated by gas transmission and metered quantities at appropriate medium pressure networks. According to estimations by PE SRBIJAGAS, the losses of natural gas transmission in 2010 amount to 0.2%. The program to install meters is in hand and close to being completed. 90% of daily meters will be installed until the end of 2013.

In view of the fact that the energy sector and infrastructure projects cannot be confined to one country boundaries, and that those strategic issues must be planned and implemented in regional and wider terms, PE SRBIJAGAS has made plans to connect its system to the systems of other countries in the region: • Connection to the Romanian system via the Arad-Mokrin route • Possible additional connection point with Bosnia and Herzegovina via the Novo Selo-Bijeljina route

31 Security of Supply Statement of the Republic of Serbia

• Connection to Bulgarian system via the Niš-Dimitrovgrad route • Connection with Croatia via the energy corridor at Sotin at the Danube.

3. OIL SECTOR

In this chapter key market participants and their responsibilities are analyzed, as well as the relevant regulatory framework. This is followed by a presentation of refinery capacities, storage capacities and capacities of oil network. In conclusion data is presented about the energy balance in oil sector (i.e. production and import of crude oil, production and import of oil products, energy consumption).

3.1. Key market participants and their responsibilities

By 2005, Serbian national oil company Oil Industry of Serbia (NIS) was the vertically integrated oil company carrying out oil and gas exploration, oil refining, transport and distribution. Pursuant to the Decision of the Government of Serbia, the following companies became operational on 1 October 2005: Joint stock company for research, production, processing, distribution and trade in oil and oil products and research and production of natural gas production and marketing of liquefied petroleum gas “Naftna industrija Srbije” – NIS A.D; public company for transport of oil by oil pipelines and transport of oil products by product lines “Transnafta” and public company for transport, storage, distribution and trade in natural gas “Srbijagas”.

According to the Agreement on sales of “Oil Industry of Serbia“, signed in 2009, Company “Gazprom” became a shareholder of 51% of shares. The Russian partner undertook the obligation to invest in the Company more than EUR 550 million in order to reconstruct and modernize refineries. The works in the Oil Refinery Pancevo started and should be completed by the end of 2012. Following the completion of the construction of this complex, NIS refineries will produce Euro 5 fuel with minimum sulfur content, which is fully in compliance with the energy requirements of the European Union.

Established in 2006 with a staff of 70 public enterprise Transnafta is managing the eastern leg of the former Yugoslav Oil Pipeline (started-up in 1979), from the River Danube on the border with Republic of Croatia to Pancevo, in the total length of 154 km.

Serbia has a developed retail network with 1,441 retail facilities. There are six oil company brands known in Serbia (NIS Petrol, Lukoil, OMV, AVIA, EKO YU, MOL and Petrol). For the Oil sector in Serbia the main characteristics are: It is mostly private-owned, it has been constant investing in retail sector, enhancing the competition by assuring high quality services; the commencement of huge investment activities (more than half billion euro) in NIS oil company in order to revive capacities to reach EU standards for production of oil products.

32 Security of Supply Statement of the Republic of Serbia

3.2. Regulatory framework

Activities in the oil sector such as oil products production, oil transport via oil pipelines, oil products transport via product pipelines, oil and oil products storage, oil and oil products trade, oil products retail (gas stations), in accordance with the Energy Law, are considered to be energy activities. In order to perform those activities, companies must obtain a license issued by the national regulatory authority of Serbia.

Furthermore, in accordance with the Energy Law, oil can be transported via oil pipelines and oil products via oil product pipelines, by public companies, or other forms of companies entrusted by the state with conducting these activities.

The database of companies which obtained license for oil and oil products trade, may be found at the website http://www.aers.org.rs/.

Pipelines are considered as natural monopolies. The third-party access to the pipeline is possible. In accordance with Energy Law, transport of crude oil and oil products is regulated energy activities. The Tariff System for Access and Utilization of the System for Oil Transport via Oil Pipelines is adopted in January 2007.

In accordance with Energy Law, prices for oil and oil products are free and determined by market. The final price of oil products for ultimate consumers includes also the prescribed amount of excise tax and Value added tax (VAT).

The Law on Value Added Tax (“Official Gazette of the RS” No. 84/04, 86/04 - amended, 61/05 and 61/07) specifies the general VAT rate for taxable turnover of goods and services or imports of goods, amounting to 18%. Apart from the general rate, in accordance with the Law on Value Added Tax, there is a special VAT rate of 8 %. In the field of energy, the 8 % rate is used to tax the turnover or import of natural gas and firewood, and the 18 % rate is used for turnover and import of electricity and coal.

The Law on Excises (“Official Gazette of the RS” No. 22/01, 73/01, 80/02, 43/03, 72/03, 43/04, 55/04, 135/04, 46/05, 101/05 - ot. Law, 61/07, 5/09 and 31/09) prescribes that excises shall be applied to oil product as follows: 1) All types of motor gasoline; 2) All types of diesel fuel; 3) Other oil products received from oil fractions with a distillation range of 380°C; 4) Liquid petroleum gas for motor vehicle propulsion. This law prescribes the amount of excises on oil products and that the amount of excises shall be harmonized with the annual growth rate of retail prices for the calendar year proceeding the year of harmonization, according to the data of the national body responsible for statistical affairs.

In 2009, the Law on Technical Requirements for Products and Compliance Assessment was adopted. Based on this Law, a new Rulebook on Technical and other Requirements for Liquid Fuels of Oil Origin was adopted. So as to harmonize the Rulebook with the

33 Security of Supply Statement of the Republic of Serbia following directives: DIRECTIVE 1999/32/EC relating to a reduction in the sulfur content of certain liquid fuels and amending Directive 93/12/EEC, as amended by Regulation (EC) 1882/2003 and Directive 2005/33/EC and DIRECTIVE 98/70/EC relating to the quality of petrol and diesel fuels and amending Council Directive 93/12/EEC as amended by Commission Directive 2000/71/EC and Directive 2003/17/EC and Regulation (EC) 1882/2003, Institute for Standardization of Serbia adopted a set of standards in the field of fuel quality and measurement i.e. analysis methods. Apart from technical and other requirements for liquid fuels of oil origin, the method for compliance assessment of products and documents accompanying the product during market placement of goods are stipulated in one of the sections of the Rulebook.

In accordance with Energy Law, which are in force since August 9, 2011 biofuels are recognized as energy sources and thus their production and sale are regulated as energy activities. This provision of the law created the basis for the adoption of by-laws which will govern the distribution and consumption of biofuels in transport.

3.3. Production, import, storage and transit of oil and oil products

The company Naftna Industrija Srbije, a.d. Novi Sad (NIS) performs the activity of exploration, production and refining of crude oil and natural gas, as well as with the sales of a broad range of petroleum products which takes place in two refineries in Pancevo and Novi Sad. Pancevo is designed for a throughput of max. 4.8 million tons/year, while Novi Sad is designed for a throughput of max. 2.3 million tons/year which used to exceed the demands of domestic market. Presently, less than 50% of capacities are used. The Serbian domestic production in 2010 was around 875.000 tons. Imports were around 2.04 million tons, mainly from Russia. Annual domestic petroleum products procession is around 2.1 million tons (diesel accounts for 33% of this figure, whereas the motor gasoline is around 21%). Imported petroleum products are around 1.2 million tons with Evro Gasoil accounting for more than 50%. Total sale of petroleum products was 2.6 million tons. The data about production, import and consumption of oil and oil products for year 2005 – 2009 are give in the next chapter. Public Enterprise Transnafta performs the activity of oil pipeline transport and oil products pipeline transport. Currently there is only one pipeline for crude oil in place, with a total length of 154.4 km (Sotin-Pancevo). Oil pipeline capacity - Installed capacity (x1000t/god.) 9000 - Quantities of oil transported in 2007 2901 (x1000t/y) - Quantities of oil transported in 2008 2916 (x1000t/y) - Quantities of oil transported in 2009 2587 (x1000t/y)

34 Security of Supply Statement of the Republic of Serbia

There is no pipeline for the transport of petroleum products, but it is foreseen that one will be built (around 400 km), mainly for motor fuels (gasoline and diesel). Oil reserves in Serbia are regulated by the Commodity Reserves Law and by the Energy Law. In accordance with the Commodity Reserves Law, the Directorate for Commodity Reserves takes care of all commodity reserves including oil reserves. The new Commodity Reserves Law will regulate these activities in line with the EU acquis .

Altogether storage capacities in Serbia amount about 1.4 million m 3 supplied by rail, road and river.

3.4. Energy Balance of Oil

Oil balance includes the production and net import of crude oil, processing in refineries and production, net import and consumption of oil products. Table 11 gives an overview of the total domestic production and total import of crude oil in the period 2005-2009. Table 11. Total domestic production and total import of crude oil in the period 2005-2009

Total domestic Total import of crude oil (tons) production of Year crude oil NIS a.d. Others Total 2005 649.823 2.248.540 825.300 3.073.840 2006 655.019 1.939.559 647.370 2.586.929 2007 640.807 1.838.469 730.605 2.569.074 2008 638.517 1.984.585 592.278 2.576.863 2009 662.728 2.048.000 231.724 2.279.724

Table 12 gives an overview of the structure and volume of the production of oil products in the country in the period 2005-2009:

Table 12. Structure and volume of the production of oil products

2005 2006 2007 2008 2009 LPG 71.129 95.254 97.962 119.416 117.308 Propylene 18.249 23.280 19.715 3.196 Crude oil 274.290 227.961 252.491 254.442 144.108 Motor gasoline 687.960 637.393 624.132 615.433 569792 Aviation fuel 40733 49239 57031 68625 52323 1.048.68 1001000 Diesel fuel 1213505 1082781 1065863 1 Heavy oil 798835 695925 652439 571570 625468 Refined products and 5427 12393 6 2650

35 Security of Supply Statement of the Republic of Serbia

distillates Bitumen 176967 198287 192168 220288 126551 Other oil products 164998 -31166 62520 51682 3.452.09 2.991.34 3.024.32 2.955.98 2.636.55 TOTAL PRODUCTION: 3 7 1 3 0

Table 13 gives an overview of the structure and volume of the export of oil products in the period 2005-2009:

Table 13. Structure and volume of the production of oil products

2005 2006 2007 2008 2009 LPG 99.057 186.325 243.403 257.469 257.000 Motor gasoline 122 26 0 0 0 Aviation gasoline 6.324 16.746 47 0 5.000 Light diesel fuel 123.546 69.255 5 0 Euro diesel 58.606 231.407 428.253 584.330 540.000 Heavy oil 29.256 226 54.268 9.142 22..504 Bitumen 28.839 25 6.267 18.029 20.335 Lubricants 23.917 37.675 25.462 26.305 34.963 Other 41.633 18.176 15.329 10.931 256.198 Total 411.300 559.561 773.033 906.206 1.136.000

Table 14 gives an overview of the structure and volume of the consumption of oil products in the period 2005-2009:

Table 14. Structure and volume of the consumption of oil products

2005 2006 2007 2008 2009 LPG 166.699 277.577 336.521 357.790 395.000 Propylene 18.196 32.187 37.194 27.068 Crude oil 445.120 487.455 509.152 472.007 308.000 Motor gasoline 669.301 614.022 616.627 564.258 522.000 Aviation fuel 48.098 56.582 46.265 46.987 39.000 Diesel fuel 1.291.220 1.387.068 1.495.364 1.614.248 1.468.000 Heavy oil 697.426 669.523 628.622 555.778 542.000 Aviation fuel 601 471 1.470 1.699 Diesel fuel 188.375 194.603 196.366 220.873 134.000 Lubricants 57.040 62.405 56.586 48.796 55.000 Other oil products 64.635 22.005 17.446 11.030 Total 3.646.711 3.803.898 3.941.613 3.920.534 3.463.000

36 Security of Supply Statement of the Republic of Serbia

3.5. Construction of new facilities

The following oil related projects are being developed: • Modernization of existing refinery capacities • Building an oil products pipeline system through the Republic of Serbia • Building the Pan-European oil pipeline and • Building necessary storage capacities.