Russia's presumed president travels to Serbia to sign pipeline deal

BELGRADE, Serbia - Russia solidified ties with Serbia on Monday, signing a deal that will direct a key gas pipeline through the Balkan country while promising to stand by Belgrade in its showdown with the West over Kosovo.

President Vladimir Putin sent his likely successor, Dmitry Medvedev, to watch over the signing in Belgrade, a deal potentially worth $1.5 billion, and to reassert Moscow's opposition to independence for Kosovo.

"Serbia needs support now," Medvedev said.

With Serbia as a political and economic partner in the Balkans, Russia secures a loyal ally in the heart of Europe and reaffirms its position as a key global player.

It may also further Russia's crucial influence as energy supplier to the continent.

Moscow's control of key energy routes has raised fears that it could use supply as political leverage: rewarding countries that support its policies and threatening hardship for those that do not.

Russia has threatened to cut off gas supplies to Ukraine citing unpaid bills, underlining Ukraine's dependence on Russia even as Prime Minister Yulia Yushchenko tries to move the country closer to the West.

Medvedev, however, said South Stream pipeline deal, and others pending with Serbia, "form the foundation of energy stability for all of Europe in the future."

Medvedev, Putin's chosen successor who is expected to easily win Russia's presidential election March 2, is the chairman of the board at Gazprom.

Gazprom would run the pipeline under the Black Sea from Russia to Bulgaria before it is extended to western Europe.

Few details about the deal were released and analysts suggest that Serbia is giving away some of its most valuable assets to Russia at a bargain basement prices.

Medvedev also toured Serbia's oil refinery in Pancevo, just outside Belgrade, where he said that a deal to buy Serbia's state oil company, NIS, will be signed soon.

Russia has offered $600 million for a controlling state in NIS and $730 million to modernize the run-down company. The offering price for a controlling stake, analysts say, is about one-fifth the company's market value.

"To say it is a sweetheart deal is an understatement," said James Lyon, the special Balkans adviser for the International Crisis Group. "Russia came knocking and said they wanted to collect the price for its support on Kosovo."

Sijka Pistolova, the editor of Energy Observer, a Belgrade-based trade online publication, said the lack of transparency has only added to the speculation.

"The deal itself has been shrouded in secrecy," she said. "We are in the dark."

A joint Russian-Serbian company will be formed to outline and co-ordinate the work in building the pipeline which could become operational in 2013, the Tanjug news agency reported.

Though the pipeline deal was at the centre of Medvedev's visit, the Russian leader also criticized Kosovo's declaration of independence from Serbia, as well as western support for the move. Medvedev said Kosovo's self-styled independence "absolutely" violates international rules.

Serbia's hardline Prime Minister Vojislav Kostunica demanded that the U.S. rescind its recognition of Kosovo and warned "there will be no stability" until the "fake state" is annulled.

Some Serbians do not welcome closer ties with Moscow, however, citing Putin's autocratic style and the refugee status given by Russia to the widow of former President Slobodan Milosevic. Mirjana Markovic and the couple's son, Marko, are both wanted in Serbia for embezzling millions. Milosevic died in 2005.

Although many Serbs refer to Russia as their "traditional ally," historians point out that Serbia has relied more on Austria and France in the 200 years since it freed itself from four centuries of Ottoman Turk occupation.

The Soviets, together with Britain and the United States, supported Yugoslavia's communist guerrillas in the Second World War. But by 1948, the Yugoslavs had broken with Moscow and incarcerated thousands of pro-Russian supporters in a penal colony on a remote prison island in the Adriatic.

Ties among the Orthodox churches remain strong, however, a point Medvedev highlighted when he joined President Boris Tadic for a visit to St. Sava Temple, the largest Orthodox Christian church in the Balkans.

The two lit candles in the Christian Orthodox tradition, and were greeted by local priest, Luka Novakovic.

"We see your arrival here as support to the Serbian nation and Serbian Orthodox Church at the time when there aren't many states and nations who support us and stand by us," Novakovic said.

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