Recently presidents of Libya and Montenegro, Moamer El Gadafi and Filip Vujanovic respectively, talked on the project of export of fresh water from Skadar Lake in exchange for Libyan oil. Although the project requires considerable initial investments, due to construction of pipeline towards the littoral, it is not impossible that in a few years it comes to life, experts assess. Rich Ulcinj flora is a proof that Montenegro is an ecological state. More in our ECONOMIC REVIEW by Milena Milivojevic.

Montenegro has considerable quantities of fresh water that Libya needs. Skadar Lake is the biggest reservoir of fresh water in the Balkans. Therefore, Libya has secured oil, which, once sold, would secure funds, some 50 million Euro, for construction of regional pipeline from Skadar Lake to coastal towns of Herceg Novi and Ulcinj. This would resolve an issue of drinking water supplies in the Montenegrin littoral, from where it would be shipped to Libya. Skadar Lake has only one river, the Bojana, which connects it with the Adriatic Sea. In addition, the lake is filled with clean and quality water, besides tributaries of several rivers and from its own springs.

As of next year, certain regions in Montenegro - Solana, Sasko Lake, and the Great Beach in the vicinity of Skadar Lake, will find their places in the major European guides for birds watching. The area of Ulcinj, in the south of Montenegro, is one of the richest Mediterranean marsh regions in Europe. Six types of pelicans, registered in this area, are threatened by extinction, and they are on the world Red List of Endangered Species. Thanks to this, numerous bird lovers - ornithologists from Germany, Switzerland, France, Italy, Austria, and Slovenia visited Montenegro last year. Luke Hoffman, the owner of pharmaceutical company La Roshe, will secure major donations for protection of nature in this very region. Delighted with the richness of Ulcinj, bird lovers from Germany have published a brochure ORNITHOLOGY PARADISE ON THE ADRIATIC. After more than one century, this is the first time that foreigners publish such a book on Montenegro. Judging by all, this will contribute to development of this eco-zone and tourism.



The US will continue to support economic reforms in Serbia and Montenegro, but it is necessary that Serbia forms the stable and democratic government, the State Department Undersecretary for Economy and Farming Alan Larson assessed during his recent visit to Belgrade. Larson specified that the cooperation with The Hague Tribunal was an obligation, which, as expected by the US, should be fulfilled by all states of former Yugoslavia. The confidence and image which Serbia and Montenegro is to have in the world, its development tempo, and accession in all integration processes depend on this. This week’s International Economic Review is dedicated to prospective development of economic relations between Serbia and Montenegro and the US. Prepared by Zorica Mijuskovic.

The US wants to remain a strong foreign trade partner to Serbia and Montenegro, to broaden and strengthen the cooperation, particularly in economic field, the State Department Undersecretary Allan Larson stated in Belgrade. This high US official positively assessed measures undertaken by the State Union in terms of greater influx of foreign investments. Serbia and Montenegro could be successful as Czech Republic, Hungary and Poland were during the transition, providing it frees itself of heavy burden of the recent past. It is of crucial importance that political leaders overcome divisions, which have jeopardized the flow of economic reforms, Larson said. He added that the next step was the constitution of the government of democratic bloc parties, which, at the special parliamentary elections won confidence of majority of voters.

Possibilities of investments in Serbia and Montenegro are much greater than the current ones. The US investors are aware of this, although they are hesitant when it comes to the Serbian market, due to present political crisis. The US investors, who, in the course of 2003 invested over one billion dollar in Serbian economy, have expressed their readiness to support development of private entrepreneurship in Serbia by new resources through the International Corporation for Private Investments and the US Exim Bank. The normalization of bilateral trade relations between the two countries was an important step, which opened possibilities for further broadening of their economic cooperation.

According to Larson, Bush’s Administration is considering Belgrade’s request that Serbia and Montenegro are allowed greater exemptions within the General System of Preferentials and the status of a most favoured nation in terms of trade with the US. This would help the reforms process and directly influence improvement of Serbia and Montenegro citizens’ living conditions, Larson specified. He stressed that the main obstacle for speedier influx of foreign investments was insufficiently developed financial system, corruption and political instability.

During his one-day stay in Belgrade, Larson met Prime Minister Zoran Zivkovic and the expert team of the Serbian Government, as well as leaders of the Democratic Party of Serbia and the G17 Plus, Vojislav Kostunica and Miroluljub Labus respectively, participating in negotiations on the forming of the new government. According to Minister for Economy and Privatisation Aleksandar Vlahovic, the essence and the message of the meeting with the US Undersecretary is an urgent need for constitution of the stable government of the democratic bloc. This would secure full stability of the government, continuation of economic transition, as well as full cooperation with all international institutions. Any other option, the former regime parties’ support to the minority government, is unacceptable to either Washington or Brussels. This is the message the US clearly conveyed to Serbian officials, Minister Aleksandar Vlahovic told the International Radio of Serbia and Montenegro.



Developed and developing countries are increasingly using geothermal energy. Its use decreases production cost, as well as the price of the final product as well. The use of all geothermal capacities in Serbia saves some 5,000 tons of crude oil per year. That, however, is not much, as real capacities of geothermal energy are much greater. Only some 9% of available capacities of this energy are being used in Serbia today. Prepared by Zorica Mijuskovic.

Serbia has favorable conditions for the use of new and renewable forms of energy, especially the geothermal one. Its potential is reflected in numerous spas and natural springs. The entire Serbia is located in the region of good geothermal potentials and resources, which spreads from Hungary, across Serbia and Macedonia, all the way to Greece and Turkey on the south.

The exploration of geothermal energy in Vojvodina, the northern Serbian province, as well as in wider region of the Republic, is organized and realized by the NIS Naftagas company. Since its establishing up to this day, Naftagas has opened more than a thousand drilling sites on the territory of Vojvodina. Systematic explorations began way back, in 1969. That is when the first hydrothermal drilling site was opened in Subotica, near the Hungarian border. So far, all the results of those explorations have indicated that a larg part of Vojvodina has a very good prospective for the use of geothermal waters, with a temperature of up to 90 degrees Centigrade. That water, according to experts, is equally good for the use both in the industry and households. Some 112 hydrothermal, oil and gas drilling sites have been tested so far. 24 of those are used to the great extent, half of which are hot water springs, used to heat facilities, especialy in the towns of Kikinda, Kanjiza and Apatin. Besides that, this resource is used in Vojvodina for heating cattle farms, green-houses and technical waters as well.

Almost all the drilling sites opened by Naftagas are still in function today. This company has also spread its activity outside the Province. In the past period, its experts were very active on the territory of Serbia, southwards of the Sava and Danube rivers. 241 locations with hot and mineral water springs have been registered in that region. All exploration so far have shown that the most perspective regions are parts of Macva, the Morava and the Danube region, and regions of Vranje and Toplica.

As a renewable energy source, the geothermal energy is to a small extent harmfull for the environment. Therefore, power plants based on geothermal energy are very popular in the world lately, since the level of harmful gas emission is very low with them. There are projects for buliding such power plants in Serbia. The most serious issue of the planing of these plants are investments. The cost of plants themselves is relatively high, but maintenance cost is very low, and there are no expenditures for the fuel. The projects are done in such a way that investments would be returned in less than 15 years. In that period, the cost of the delivered energy would be up to 70% less. According to the plans of Naftagas, the leading company in this area, and in cooperation with domestic and foreign institutions, we can expect the realization of projects based on greater use of geothermal energy. The goal is to increase the production of electric power, which Serbia is importing at the present time.



The European Union has stated decisively to Serbia and Montenegro many times that it would support its rapprochement to the community of 'European nations' in any way possible. Official Brussels is especially interested in political stability in Serbia, because this is very important for the entire region. Since the special parliamentary elections, the pro-democratic parties bloc has tried to constitute a new government. If it lasts, the absence of a political agreement on the constitution of a new government could unfavorably be reflected on foreign investments, financial aid Serbia receives from abroad, as well as support to economic reforms. This topic will be in focus in this week's International Economic Review prepared by Zorica Mijuskovic.

Several important financial arrangements are waiting for political parties, which won at the December elections, to reach an agreement on the forming of a new government. The latest installment of financial aid of the International Monetary Fund to the Serbian budget is at issue. The same situation is with the third installment of the EU macro financial support of 96 million dollars. Serbia and Montenegro is also in danger of losing World Bank credit in value of 140 million Dollar, unless a ratification of those agreements is completed in the State Union Parliament by June 30. These are credits, approved under the most favorable IDA conditions, with no interest rate with a 20-year repayment deadline and a 10-year grace period.

Regardless of the current political situation in Serbia foreign investors believe that Serbia and Montenegro is still attractive for foreign investment. The US firm BALL PACKAGING EUROPE has invested considerable funds in the building of a can factory in Belgrade. Japanese partners, such as Toyota and Mitsubishi, are also planning to expand their business in Serbia. Of course, all of them are closely watching the Serbian political scene, expecting the new government, formed by the democratic bloc parties, to continue reforms and further integration processes.

Judging by signals coming from the EU, Brussels will not condition its aid directly as the USA is doing now. Official Brussels is, namely, determined to fulfill its obligation towards the West Balkans. This means that, by 2006, the EU would invest the unrefundable amount of some 5 billion euro in the development of this region within the macro financial support. At the same time, more resolutely than ever, Brussels asks of these countries to establish balanced public spending and continue with reforms, above all, the complete rule of law and creation of conditions for foreign investment. As far as Serbia and Montenegro is concerned, it is certain that official Brussels expects that during 2004 a unified market be formed in accordance with the Action Plan. The adoption of the Action Plan is only the first important step on Serbia and Montenegro’s path to the EU. A great task has yet to be done, as Belgrade and Podgorica should harmonize their economic systems as soon as possible, because duties on 56 agricultural products still have not been harmonized. One of the latest conditions, official Brussels set to Belgrade, is that Serbia and Montenegro must be a functional country in all respects and only under this condition can there be negotiations on its accession to the EU. This stand was confirmed at the recently ended meeting of Assembly Speakers of the EU and the West Balkans in Budapest. Presidents of European parliaments supported the request that Serbia and Montenegro be on the list of countries with which Brussels will, during this year, speed up negotiations about joining the EU.



In mid-2003, Serbia adopted a new law on concessions. Modernized and enacted in the spirit of top world experience, this law is very important to the influx of debt-free foreign investments. Dajana Velickovic Sabotic has more.

Already burdened by the law of numerous credits, threatening to lead it into a debt crisis, Serbia is attempting to bridge the problem of the lack of fresh capital. One of the most favourable and attractive forms for foreign investors, but also for national economy, are concessions with traditional entitlement to natural assets and resources and particularly in the fields of services, research and large-scale construction projects. Big towns in Serbia, such as Novi Sad in the north, Nis in the south-east, Kragujevac in central Serbia and the capital, Belgrade, are certainly the most attractive destinations for foreign investors. All these towns, however, are deficient in modern infrastructure, much has been destroyed in the NATO bombing and the years-long absence of maintenance due to poor economic circumstances has also taken its toll. Town and suburban bridges, waste water recycling plants, marinas, car parks, road by-passes and infrastructure and as for Belgrade, the underground as well, represent just part of the investment challenge. On the eve of the European Basketball Championship, which is to take place in Belgrade in 2005, sports facilities and hotel capacities are also becoming the subject of interest of international business circles.

The new law on concessions is very stimulating, both for ordinary concessions and for the so-called boot arrangements, on the principle of construction, use and return. Concessions will be offered at a public tender, for a 30-year period.

On the other hand, concessions of domestic companies abroad also represent a significant potential for future economic development. Here, one can perceive the possibility of reduction of foreign trade deficit. The strngest Serbian companies, such as NIS or EAST POINT, already have concessions abroad. They count on compensating debts in Russia through concession-based transactions. Such an approach to the issue of solving foreign trade deficit has already been supported by the National Council for Competition and the Chamber of Commerce, which is also expected of the future government.

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