Contributed by JPM & Partners.
- Summary
The Republic of Serbia became a member of the Energy Community by signing the Treaty Establishing Energy Community in 2006. As a member, the Republic of Serbia undertook the obligation and is devoted to legally complying its energy sector with the Energy Community acquis. Therefore, while drafting the Energy Law (Official gazette of the RS no. 145/2014, 95/2018 – other law and 40/2021, 35/2023 – other law and 62/2023), Directive 2009/73/EC of July 13, 2009, concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC as well as Regulation 715/2009/EC of July 13, 2009, on conditions for access to the natural gas transmission networks and repealing Regulation 1775/2005/EC were adopted. Furthermore, in the field of oil, Directive 2009/119/EC of September 14, 2009, imposes an obligation on member states to maintain minimum stocks of crude oil and/or petroleum products is implemented.
Additionally, in 2022, the Government adopted five regulations by which implemented the following natural gas rules i.e., Energy Community acquis communautaire: i) Regulation 703/2015/EU of April 30, 2015, establishing a network code on interoperability and data exchange rules, ii) Regulation 2017/459/EU of March 16, 2017, establishing a network code on capacity allocation mechanisms in gas transmission systems and repealing Regulation 984/20131/EU, iii) Regulation 2017/460/EU of March 16, 2017, establishing a network code on harmonized transmission tariff structures for gas, iv) Regulation 312/2014/EU of March 26, 2014, establishing a network code on gas balancing of transmission networks and v) Annex 1 to the Regulation 715/2009/EC governing transparency and congestion management mechanisms. Currently, the transmission system operators are in the final stage of implementing the above-mentioned regulations in their network codes.
Additionally, the Serbian energy sector, including the oil & gas sector as well as renewable energy sources, is in expansion and open to investments.
At the end of 2023, the construction of a new part of the transmission system in the ownership of JP Srbijagas was finished and put into operation. The length of the pipeline is 109 kilometers and it is connected with the Bulgartransgaz transmission system. It is agreed that natural gas from Azerbaijan will be imported in the Republic of Serbia, in the amount of 400 million cubic meters during 2024.
Currently, the Republic of Serbia is negotiating with Romania on signing a memorandum of understanding for the construction of a gas interconnection with Romania, through which the interconnector Republic of Serbia may be supplied with Romanian natural gas which should be cheaper than Russian.
Gas interconnection with North Macedonia is also in consideration.
Speaking of the oil industry, as Republic of Serbia is supplying oil through only one oil pipeline (JANAF). To diversify routes of supplies, the Government of the Republic of Serbia announced the project of a new oil pipeline Hungary-Serbia as a project of importance for the Republic of Serbia. The length of the pipeline will be 128km and it is expected to connect with the Russian oil pipeline Druzba to secure a new route of supply.
- Overview of the Country’s Oil & Gas Sector
2.1. Legal framework – a brief outline of your jurisdiction’s oil & gas sector
2.1.1. The Law on Mining and Geological Exploration
The Law on Mining and Geological Exploration (Official gazette of the RS no. 101/2015, 95/2018 – other law and 40/2021) recognizes oil and natural gas as mineral resources of strategic importance to the Republic of Serbia and their exploration and exploitation are considered to be in the public interest. The said law sets out conditions for oil and natural gas exploration, in which exploration may be undertaken by a domestic company, other legal entity, or an entrepreneur.
Additionally, foreign investors may participate in the exploration as well as in its exploitation, but not directly. Namely, for foreign investors to perform exploration/exploitation of oil and natural gas, they must incorporate a branch office and register it before the Business Register Agency of the Republic of Serbia. When conditions for exploration are met (see Section 3.1.), the competent body of the Republic of Serbia shall issue an exploration permit to the eligible entity.
When the exploration phase is conducted, the entity may submit a request for an exploitation permit. The exploitation of mineral resources is considered the performance of works in the exploitation of oil and natural gas and works in the separation of oil and natural gas, the preparation of oil and natural gas for transport and storage, as well as the extraction of LNG in appropriate facilities.
2.1.2. Energy Law
2.1.2.1. Production and import/export
From the point of view of the Energy Law, the production of natural gas is not considered an energy activity for which an energy license is required. However, for the production of oil derivates, it is necessary that the entity, before the commencement of production, obtains a license. Otherwise, such an entity commits a commercial offense.
As for the import of oil and natural gas, the Energy Law stipulates that an entity must have a license for conducting energy activity oil trade, i.e., energy activity natural gas supply. The energy license is issued upon the request of the interested party by the Energy Agency of the Republic of Serbia (AERS). However, in case oil, i.e., natural gas is imported for its own needs, such a license is not legally required. On the other hand, it is required to have a license for oil trade in the case of oil, LNG, and compressed natural gas exports.
2.1.2.2. Transmission/distribution
Regarding the energy activities of natural gas transmission i.e., distribution, the Energy Law sets out as a mandatory condition to have a license for the respective energy activity.
Furthermore, in line with the EU Third Energy Package, it is mandatory that the energy activity of natural gas transmission is unbundled from the activities of natural gas production and natural gas supply, meaning that the energy entity transporting natural gas is not allowed to be involved in the natural gas production or to conduct energy activity natural gas supply.
As for oil transport, this activity is also recognized as energy activity and thus a license is required.
Currently, in the Republic of Serbia, three natural gas transmission system operators conduct energy activities being Gastrans doo Novi Sad, Transportgas doo Novi Sad, and Yugorosgaz-transport doo Nis. Gastrans and Yugorosgaz-transport have their own transmission system network and Transportgas is using the transmission system of JP Srbijagas. As per distribution, thirty distribution system operators are licensed. On the other hand, only one operator for oil transport is licensed being Transnafta ad Pancevo and it transports oil via pipeline from Pancevo to the border with Croatia where it connects to the JANAF oil pipeline.
Furthermore, the transmission of natural gas/oil and distribution of natural gas are recognized as activities of public interest.
2.1.2.3. Storage
Natural gas storage and oil storage are also energy activities for which conduction is required to have a license pursuant to the Energy Law. Same as for the operator of a natural gas transmission system, the operator of natural gas storage must be unbundled from the energy activities of natural gas transmission, production, and supply. In the Republic of Serbia, only Banatski Dvor has a license for natural gas storage.
However, a license is not legally required when oil is stored for its purposes in a storage facility. In case the facility has a capacity of over 5 tons, approval from the Ministry of Mining and Energy (Ministry) must be obtained.
2.1.2.4. Energy permit
For the construction of a natural gas transmission system, natural gas distribution system, natural gas storage, oil transportation system, and oil storage, it is mandatory to obtain an energy permit. The Ministry is authorized to issue energy permits upon request of the interested party.
2.1.3. Recent Trends
In the oil sector, only one producer of crude oil is operating – Naftna Industrija Srbije. Simultaneously, Naftna Industrija Srbije is also the dominant player in oil trade, trade on gas stations as well as importer of oil, which is mainly imported from the Russian Federation.
Same as in the oil sector, in the natural gas sector the only producer is Naftna Industrija Srbije. On the other hand, the main supplier of natural gas is JP Srbijagas which is 100% state-owned.
Regarding other market participants gas sector in the Republic of Serbia, currently license for energy activity of natural gas transmission currently holds one company (Gastrans), for natural gas distribution thirty companies, for energy activity natural gas storage performs only one company and for supplies, sixty-four companies are licensed.
In the field of oil, only one company is licensed for oil transportation, 29 companies perform oil storage, 64 are licensed for wholesale oil trade, and 426 for oil trade on gas stations.
As already stated, the Energy Law was drafted in line with the EU Third Energy Package, and unbundling of certain energy activities is required as a consequence. JP Srbijagas, being one of the major players in the Republic of Serbia’s natural gas market, commenced a long and complicated process of unbundling. As JP Srbijagas is the biggest supplier of natural gas, and thus cannot conduct energy activity of natural gas transmission, the company Transportgas doo Novi Sad was incorporated for conduction of natural gas transmission. Transportgas doo Novi Sad is in 100% state ownership.
A major recent investment in the gas sector was the construction of the new part of the transmission system of JP Srbijagas which was finished and put into operation in 2023. The length of the pipeline is 109 kilometers and it is connected with the Bulgartransgaz transmission system. It is agreed that natural gas from Azerbaijan will be imported in the Republic of Serbia, in the amount of 400 million cubic meters during 2024. Also, the Republic of Serbia has 300 million cubic meters of LNG in the Alexandropoulos terminal. Constructing this interconnector, the Republic of Serbia has three natural gas supply routes, which represent part of the strategy of natural gas diversification.
Furthermore, as the north of the country is mainly gasified, the south still lacks a developed gas network. JP Srbijagas announced further investments in gasification estimating five to seven years to achieve complete gasification of the Republic of Serbia. For the time being, cca 40% of Serbia's territory is gasified and covers 55% of the population.
2.2. Domestic oil & gas production and imports/exports
2.2.1. Natural gas
A major characteristic of reserves of natural gas is that the Republic of Serbia from its own reserves can cover only a small part of domestic needs for natural gas. The production of natural gas is conducted only in the area of Vojvodina (north part of the Republic of Serbia) with Naftna Industrija Srbije as the only producer of natural gas.
Having in mind that during 2022, in the Republic of Serbia, approximately 28,203 gigawatt-hours of natural gas and at the same time was produced 2,070 gigawatt-hours of natural gas were consumed, it may be concluded that its production of natural gas can satisfy about 7.5% of domestic needs for natural gas. For that reason, the Republic of Serbia is mainly oriented toward importing natural gas, and in 2022 were imported 31,827 gigawatt-hours of natural gas, out of which 23,786 gigawatt-hours were imported from the Russian Federation and 8,041 gigawatt-hours from other sources. Import of natural gas is conducted via gas pipeline.
On the other hand, natural gas is not exported from the Republic of Serbia. However, the Republic of Serbia is a transit country through which natural gas is transported to Bosnia and Herzegovina as well as to Hungary.
2.2.2. Oil
As for natural gas, in the Republic of Serbia, the production of crude oil is conducted by only one company Naftna Industrija Srbije. The total consumption of crude oil and semi-finished products from domestic production, imports, and stocks in 2022 was about 4,087 million tons. In 2022, Serbia produced about 0,824 million tons of crude oil (20.20% of total consumption), and 3,263 million tons (79.80%) was provided from imports, out of which half of the crude oil originates from Iraq, and the rest from Russian Federation and Kazakhstan.
As per export, in 2022 the Government of the Republic of Serbia prohibited the export of oil due to the political situation in the EU caused by conflict in Ukraine.
2.3. Foreign investment and participation
The Republic of Serbia does not impose restrictions on foreign companies in relation to acquisitions of interest in the Serbian energy sector.
2.4. Protection of investment
The most important international treaties in the energy sector are i) the Stabilization and Association Agreement, entered into force on September 1, 2013, granting the Republic of Serbia the status of an associated country to the European Union, by which agreement the Republic of Serbia, inter alia, undertook the obligation to be as much as possible harmonized with EU energy sector. At the end of 2021, the Republic of Serbia has fulfilled initial requirements in the energy sector (restructuring of the gas sector and creating an action plan on mandatory oil reserves) and therefore has opened an energy chapter in negotiation with the EU, and ii) the Treaty establishing Energy Community, which the Republic of Serbia become party to during 2006. Pursuant to this Treaty and decisions of the Energy Community bodies, the Republic of Serbia has concrete obligations to undertake certain legislative steps in order to comply with EU energy regulations, including in the field of oil and natural gas. Thus, when adopting laws and regulations, the Republic of Serbia takes into account EU regulations to the most extent possible.
A major bilateral treaty in this sector is the Agreement between the Government of the Republic of Serbia and the Government of the Russian Federation on Cooperation in the Fields of Oil and Natural Gas, which was executed in 2008. This Agreement envisages several energy projects: i) the construction of the South Stream, which was stopped, ii) the construction of the natural gas Underground Storage Banatski Dvor, which was constructed and put into operation as of 2012, and iii) the acquisition of Naftna Industrija Srbije by Gazprom. A stability clause and protection from expropriation and similar acts are stipulated.
With regard to bilateral agreements, the Republic of Serbia executed numerous agreements on mutual incentives and investment protection, with over twenty such agreements with EU countries (inter alia United Kingdom, Germany, France, the Netherlands, etc.). The majority of the agreements are executed for ten years with the automatic extension for the same period or indefinite period.
Apart from the said, the Law on Investments of the Republic of Serbia (Official gazette of the RS no. 89/2015 i 95/2018) lists benefits to foreign investors, such as the right to transfer profit, protection from expropriation, or similar acts, stability clause, national treatment, etc.
- Exploration of Oil & Gas
3.1. Granting of oil & gas exploration rights
The main law governing the exploration of oil and natural gas is the Law on Mining and Geological Explorations. As already said, the exploration of oil and natural gas is not an energy activity for which a license is needed, and such activity is in the public interest of the Republic of Serbia. For any entity to commence work on exploration, it is mandatory to obtain an exploration permit.
The process of issuing exploration permits is initiated by the Ministry by publishing public tender for the exploration of oil, i.e., natural gas. Announcement of the public tender is published in the Official gazette of the RS as well as in the Official gazette of the EU. In the announcement is stated, inter alia, that mineral resources are subject to exploration and exploration field.
Within the exploration phase, it is allowed to take oil, i.e., natural gas when testing exploration well, for a duration of up to one year to test the production and technical characteristics of discovered oil, i.e., natural gas deposits, and define the parameters of their possible exploitation. For such obtained oil, i.e., natural gas, it is necessary to pay royalties as determined by the law governing royalties for usage of public goods.
Additionally, the holder of the exploration permit may submit a request to retain the right to the exploration area in order to prepare documentation for the exploitation permit, i.e., the exploitation field and exploitation area permit, no later than 30 days before the expiration of the exploration period. The exploration area for oil and natural gas cannot exceed 5,000 square meters.
The holder of an exploration permit is obliged to prepare a yearly report on the results of geological exploration, which report shall cover all findings in the last 12 months. When the exploration phase is over, the holder of an exploration permit must prepare a final report on the results of geological exploration as well as elaborate on resources and reserves of oil/natural gas. Both yearly and final reports must be delivered to the Ministry.
The main characteristics of reserves of oil and natural gas in the Republic of Serbia are the small volume of conventional resources and balance reserves, a relatively high level of performed exploration, and a limited exploration area. Most oil and natural gas deposits have a relatively high utilization rate, which has caused a natural decline in production. Consequently, when drafting action plans and energy strategies, not much space is dedicated to the exploration and exploitation of oil and natural gas. However, the main strategic documents in this regard are i) the Energy Development Strategy of the Republic of Serbia until 2025 with Projections until 2030; ii) the Regulation on Determining the Program for the Implementation of the Energy Development Strategy of the Republic of Serbia until 2025 with Projections until 2030 for the period from 2017 to 2023 and iii) the Strategy on Management of Mineral Resources of the Republic of Serbia until 2030.
Additionally, the Ministry is currently drafting two new energy-significant documents: i) the National Energy and Climate Plan for a period until 2030, with Projections until 2050, and ii) the Energy Development Strategy for a period until 2040, with Projections until 2050.
3.2. Foreign exploration
In the Republic of Serbia, foreign companies are entitled to conduct exploration of oil and natural gas. However, they cannot directly be the holder of an exploration permit, but first, they must incorporate and be duly registered in the Republic of Serbia branch office, through which all necessary legal and factual actions may be done.
Foreign investors may obtain exploration permits in two ways: i) by filing a request for an exploration permit to the ministry (see Section 3.1.), and ii) by transfer. Namely, a domestic public or private company may transfer an exploration permit to another entity, including a foreign branch office. Such transfer is initiated by the holder of an exploration permit filing a request for transfer to the Ministry, and if all conditions set out by the Law on Mining and Geological Exploration are met, the transfer shall occur. The foreign investor shall have the same scope of rights and obligations, regardless of the manner of obtaining an exploration permit.
Additionally, from the law perspective, there are no differences in legal treatment between domestic companies and foreign investors, as well as no difference in the manner of obtaining exploration.
3.2.1. Investment protection by law
Last but not least, the latest amendments to the Law on Mining and Energy introduced the possibility for the Republic of Serbia and the investor who is the holder of an exploration permit may execute an investment agreement. This agreement shall govern the construction of missing infrastructure, environmental protection, financial benefits as well as other important issues for the realization of the project. However, up to now, no such agreement has been executed between the Republic of Serbia and any investor.
3.3. Stages of the exploration process
Please see Section 3.1.
3.4. Obligatory state participation
All findings of the exploration phase must be documented in the relevant reports and elaborate on resources and reserves of oil/natural gas (see Section 3.1.), and these reports and elaborate must be submitted to the ministry. Additionally, the ministry is authorized to forward certain data from the reports and elaborate to the Serbian Geological Institute and Republic Geodetic Institute, who must treat such data as a business secret.
Furthermore, if the holder of the elaborate reserves and resources does not submit a request for an exploitation permit within six years, the Republic of Serbia shall become the holder of such elaborate reserves and resources of oil/natural gas and thus acquire all rights they derive from.
Last but not least, the holder of the exploration permit must pay royalties to the Republic of Serbia for exploration as well as for taking the oil and natural gas during the exploration phase, as set out by the law governing fees for usage of public goods.
3.5. Risks to be considered
As already mentioned, resources of oil and natural gas in the Republic of Serbia are, to a great extent, already explored and exploited. Thus, potential investment in this regard is accompanied by the risk of possible scarce findings.
- Production of Oil & Gas
4.1. Granting of oil & gas production rights
The main laws regulating the production of oil and natural gas are the Law on Mining and Geological Exploitation and Energy Law. As per the first law, it is envisaged that the holder of a certificate on reserves and resources is entitled to submit a request for obtaining an exploitation permit, which permits the ministry issues in the administrative proceedings. Please note that the process of obtaining a complete exploration permit is divided into three parts.
First, it is necessary to obtain a permit for the exploitation field. In this permit is determined, inter alia, the type of resources subject to exploitation the deadline for commencement of preparatory works, and the deadline for obtaining a permit for the construction of mining objects and conduction of mining works. Therefore, when the permit for the exploitation field is obtained, the holder may commence on preparatory works (clearing the terrain and removing facilities in order to provide space for the construction of future mining objects and performing mining works) and should commence on drafting necessary documents (see below paragraph) for obtaining next permit.
Second, holders of a permit for exploitation field may submit a request for obtaining a permit for the construction of mining objects and the conduction of mining works. To obtain this permit, it is necessary to prepare investment-technical documentation consisting of among others: i) a feasibility study for the exploitation of mineral resources, ii) a long-term exploitation program, iii) a yearly operation plan, and iv) the mining project. The mining project represents a set of the following projects: main mining project, supplementary mining project, technical mining project, and simplified mining project. The mining project is subject to technical control. When the Ministry issues this permit, the entity is entitled to commence construction of mining objects in line with the mining project.
Third, in case mining objects are constructed in compliance with the mining project, a usage permit for mining objects may be obtained, and exploitation commences.
From the Energy Law’s perspective, the production of natural gas does not represent licensed activity. Production of crude oil is also a license-free activity. However, for the production of oil derivates, i.e., unleaded motor gasoline, aviation gasoline, jet fuel, gas oil, heating oil, marine fuels, liquefied petroleum gas, and similar, a license is mandatory. AERS is authorized to issue licenses for energy activities, upon the request of the interested entity. The license is issued for 10 years, with the possibility of extension.
Additionally, as a precondition to commencing the construction of objects for oil production, the Energy Law envisages obtaining energy permits as well. The ministry is authorized to issue an energy permit.
Incentives
Currently, the Republic of Serbia is more devoted to granting incentives for renewable energy sources. However, the Regulation on Conditions and Criteria of Harmonized State Aid for Environmental Protection and in the Energy Sector (Official gazette of the RS no. 99/2021) envisages the possibility of state aid for investment in energy infrastructure. State aid may be granted for energy infrastructure located in the area of level two of the nomenclature of statistical territorial units whose GDP per capita is less than or equal to 75% of the EU-27 average. Under energy, infrastructure is considered any physical equipment or facility located in the Republic of Serbia or connecting the Republic of Serbia with at least one country and is classified as infrastructure natural gas or oil infrastructure. The amount of state aid may not exceed the difference between the eligible costs and the operating profit of the investment, whereby the operating profit is deducted from eligible costs in advance or through a refund mechanism, up to a maximum of EUR 50 million per market participant per investment project.
Pursuant to the Law on State Aid (Official gazette of the RS no. 73/2019), state aid can be granted through the following instruments: 1) subsidy (grant) or subsidized interest rate on loans, 2) fiscal relief (reduction or exemption from taxes, contributions, customs duties, and other fiscal duties), 3) a guarantee from the state, any legal entity that disposes of and/or manages public funds or another state aid provider, given under conditions more favorable than market ones, 4) waiver of profits and/or dividends of the state, local self-government or legal entity that manages or disposes of public funds, 5) write-off of debt to the state, local self-government or a legal entity that manages or disposes of public funds, 6) sale or use of the publicly owned property at a lower market price, 7) purchase or use of the property at a price higher than the market price by the state, local self-government or a legal entity that manages or disposes of public funds.
4.2. Foreign production
Pursuant to the Law on Mining and Geological Exploration, when the holder of certification on resources and reserves is the Government of the Republic of Serbia, it may transfer such certificate to another entity in two ways: i) through a public auction, on which most appropriate entity shall be chosen, and with such certification, it may commence the procedure for obtaining exploitation permit (see Section 4.1.) or ii) by executing PPP or concession agreement.
Furthermore, if the holder of an exploitation permit (i.e., permit for exploitation field, permit for construction of mining objects and conduction of mining works, and permit for the usage of mining objects) is a public company, it may, under the same conditions as a private entity, submit a request to the ministry to transfer relevant permit to another eligible entity. If all conditions for the transfer of the permit, as set out by the law, are met, the ministry shall render a resolution on the transfer of the relevant permit.
Additionally, if the holder of the exploitation permit is in the process of privatization, the buyer of the holder’s property which is used for exploitation may obtain the holder’s exploitation permit as well, by an agreement executed between the holder, the buyer of property, the ministry, and the Privatization Agency. The government of the Republic of Serbia must give its consent to such an agreement.
4.3. Stages of the production process
Oil
For the sake of a better understanding of the regulatory part, please take into consideration two different stages of oil production: the production of crude oil and the production of oil derivates.
With respect to the production of crude oil, it is necessary to obtain an exploitation permit. This permit may be obtained by domestic companies as well as foreign entities. However, a foreign entity cannot directly perform this activity, but only through its branch office duly registered with the Business Register Agency of the Republic of Serbia. For this activity, no energy license is needed.
Regarding the production of oil derivates, Energy Law stipulates mandatory licenses for this energy activity, which license is issued for a validity period of 10 years. However, please note that energy activity production of oil derivates may be performed only by a domestic company.
Natural gas
In respect of natural gas production, Energy law considers this activity as a license-free activity. However, from the point of Law on Mining and Geological Exploration, an exploitation permit must be obtained.
Export
Regarding oil and natural gas export please see Section 2.1.
4.4. Obligatory state participation
The Republic of Serbia has an interest in and benefits from the exploitation of oil and natural gas to the same extent from the domestic as from the foreign companies. As already said, the Law on Investment envisages national treatment of investors meaning that foreign investors shall have the same position as domestic companies.
The Law on Fees for Usage of Public Goods envisages a list of royalties connected with the production of oil and natural gas. The most significant one is the fee for usage of oil and natural gas in the amount of 7% of acquired income from selling goods. Furthermore, producers of oil and natural gas must pay a fee for the environment, as such production is classified as a high-risk activity for the environment.
Concerning oil production, energy entities conducting the production of oil derivates are obliged to pay a fee for establishing and maintaining mandatory reserves as well as fees for energy efficiency.
In relation to the export of natural gas and oil, the Republic of Serbia envisages no specific restrictions. For detailed export information, please see Section 2.1.
4.5. Risks to be considered
As already said, the Republic of Serbia does not have a sufficient amount of oil and natural gas reserves, which may attract major investments in this sector (see Section 2.2.).
- Termination of Production of Oil & Gas
5.1. Abandonment and decommissioning
Pursuant to the Law on Mining and Geological Exploration, it is possible to i) temporarily suspend production and ii) abandon production.
Temporary suspension occurs due to unforeseen circumstances (gas or water burglary, problems with mountain strikes, pit fires, disturbances on main ventilation routes, passage, drainage, transport, landslides, eruptions, etc.) or due to force majeure. In such an event, the holder of exploitation shall notify the mining inspector of the reasons for the suspension.
Prior to the planned suspension of works, which will last longer than 30 days, the holder of the exploitation permit is obliged to perform the necessary measurement, draft supplement mining projects and plans, and make a record of the reasons for the suspension of works, indicating hazards for the reopening of the oil, i.e., natural gas field. During the temporary suspension of works, facilities in the oil, i.e., natural gas fields must be maintained in such a condition that they do not represent danger.
On the other hand, if the holder of an exploration permit wants to abandon the production of oil, i.e., natural gas, it must notify the ministry.
In case of abandonment, the holder of exploitation is obliged to undertake all measures to protect the mining facility and land on which the works were performed and measures to protect and rehabilitate the environment to ensure the life and health of people and property, all in line with the mining project. The rehabilitation works must be undertaken within one year of the abandonment, and the ministry must be informed of the results of the rehabilitation of the environment and conservation of the abandoned mining facilities.
Additionally, when applying for an exploration permit, it is necessary to submit security for the rehabilitation of the environment. Such security may be in the form of either a bank guarantee, promissory notes, or corporate guarantee. If the holder of an exploration permit does not undertake necessary measures of environmental rehabilitation, the costs of rehabilitation shall be collected from the provided security.
5.2. Environmental and HSE consideration
Please see Section 5.1.
- Safety of oil & gas exploration and production
6.1. International treaties to which the jurisdiction is a party
The Republic of Serbia is a party to no international treaty governing the safe exploration and production of oil and natural gas.
6.2. Offshore Safety Directive
Having in mind that the Republic of Serbia has no exit to the sea, the Offshore Safety Directive is not implemented, nor any similar rule.
- Import, Export, and Sales of Oil & Gas
7.1. Import and Export of oil & gas
7.1.1. Oil
Subjects wanting to import oil in order to sell it in the Republic of Serbia must have an energy license (see Section 2.1.). But in case of import for own needs, please have in mind that license is not needed.
When exporting license is also needed, regardless of the purpose of export. Having in mind that an energy license may be obtained only by a domestic company (save for wholesale supply of natural gas), this means that the import and export of oil may be performed only licensed domestic company.
Additionally, producers and importers of oil are obliged to pay excise tax as well.
The Republic of Serbia does not envisage additional authorizations/permits to conduct these activities.
7.1.2. Natural gas
In the field of natural gas, the situation is less complex. Namely, for the import of natural gas with the purpose of selling it in the Republic of Serbia, an energy license is mandatory. Foreign companies may directly (not through the branch office) obtain a license for wholesale supply of natural gas. The same applies to exports and transit through the Republic of Serbia.
Contrary to oil, natural gas is not subject to excise tax, but it may be changed as of January 1, 2025.
7.2. Transportation
Transmission of natural gas and oil is regulated by the Energy Law. Taking into account that transmission of both, natural gas and oil, is a licensed activity, only a domestic company may conduct it.
7.2.1. Natural gas
In the Republic of Serbia exists only three transporters of natural gas, Gastrans doo Novi Sad, Transportgas doo Novi Sad, and Yugorosgaz-Transport doo Nis. As the Energy Law is drafted in compliance with the EU Third Energy Package and EU Directive 2009/73 concerning common rules for the internal market in natural gas, transmission of natural gas must be completely unbundled from the energy activities of natural gas distribution, natural gas storage, supply of natural gas and natural gas production, meaning that the same person cannot have directly or indirectly control over the transmission of natural gas and any of the said three activities.
In order to prove to unbundle from related energy activities, TSO, prior to licensing, must be certified. The administrative procedure of certification is conducted before AERS. Additionally, in the case when the TSO is controlled by a third person from a foreign country, such a TSO must also be unbundled from related energy activities. Upon obtaining certification, the TSO may submit a request for issuing a license for energy activity transmission of natural gas.
In addition to the regulatory part, pursuant to the Energy Law before obtaining a construction permit for the commencement of construction of a transmission pipeline, it is necessary to obtain an energy permit for such a facility.
In relation to access to the transmission system, the TSO is obliged to enable users of the system access to the transmission system on the principle of transparency and non-discrimination. Gastrans doo Novi Sad, for example, uses the Regional Booking Platform for the allocation of transmission capacities to the users. Transportgas plans also to use the Regional Booking Platform.
Regarding the terms of transmission, such terms must be agreed upon in the gas transmission agreement. Pursuant to the Energy Law, the gas transmission agreement must include, inter alia, data on the delivery point, capacity on the delivery point, and calculation period.
Price for access to the system is regulated, meaning that AERS renders methodology for establishing prices and each TSO is obliged to form its prices to access to the system in line with methodology. Such formed prices are subject to the approval of the AERS before they may be applied. Each of the TSOs publishes its prices on its website.
The only exception regarding the unbundling obligation and access to the transmission system is an exemption from such obligations. Pursuant to the Energy Law (same stipulated in the EU Directive 2009/73), new gas pipeline infrastructure may be exempted from said obligations if such exemption, inter alia, does not prevent competition, improves the security of supply, users of new infrastructure object shall bear costs for it using, etc. The exemption is granted by the AERS. In the Republic of Serbia, only one TSO, Gastrans doo Novi Sad, is exempted and operates under an exemption regime.
7.2.2. Oil
As for the transmission of natural gas, oil transportation is a licensed energy activity, and thus only domestic companies may conduct it. Access to the transportation system is free and based upon principles of transparency and non-discrimination. Prices for access to the system are, the same as for natural gas, regulated.
7.3. Land rights
Acquisition of land may be obtained through an agreement with the landowner. In case it is not feasible, the Law on Mining and Geological Exploration envisages the possibility for expropriation of land for the benefit of the entity that is the holder of either an exploration or exploitation permit.
The process of expropriation is conducted before the administrative body on which territory the land is situated. Within this process, agreement on the fee for the expropriation of land may be achieved between the beneficiary of expropriation and the landowner. If this agreement omits, in the administrative procedure only expropriation of land will be conducted, and land will be transferred to the beneficiary. However, in such a case, a separate procedure for determining of expropriation fee has to be conducted before the competent court.
7.4. Access and integration
For access to the transmission system by users, please see Section 7.2.
On the other hand, in the case of the interconnection of transportation pipelines, an interconnection agreement has to be executed between the respective TSO, or the TSO and distribution system operator/storage operator, by which agreement parties shall regulate their relations.
7.5. Gas transmission and distribution
For transmission of natural gas please see Section 7.2.
The sector of natural gas distribution is quite similarly regulated as the transmission of natural gas. Namely, the Energy Law envisages mandatory energy licenses for the conduction of activity distribution of natural gas. Therefore, only domestic companies may conduct this energy activity.
The distribution system operator must be unbundled from the related energy activities (transmission, supply, and production of natural gas) meaning that it must be independent in the legal form, organization, and decision-making from the vertically integrated undertaking. However, the distribution system operator does not need to undergo a certification process before licensing.
Regarding access to the distribution system, access must be on the principles of transparency and non-discrimination. Same as for natural gas, prices for access are regulated, meaning that the AERS renders methodology on the basis of which distribution system operators form their prices. Such prices are subject to approval by the AERS.
- Trading
- Trading license
With respect to the supply of natural gas, the Energy Law envisages three kinds of supply: i) supply, ii) public supply, and iii) wholesale supply.
The supply of natural gas means to supply to the consumers on the free market under market-based prices. Currently, 63 energy entities have licenses for natural gas supply and six for public natural gas supply, out of which only 23 were active in 2022 (mostly JP Srbijagas with a market share of 88,88%).
Public supply may be performed only by public suppliers and, in this case, natural gas is sold under regulated prices to households and small customers. Regulated prices mean that public suppliers form them in line with the methodology rendered by AERS. Regulated prices are subject to approval by AERS. Additionally, JP Srbijagas is designated as a supplier of public suppliers, by the decision of the Government of the Republic of Serbia. When a regulated natural gas market is established, public suppliers will buy natural gas on a regulated market (see Section 8.2.). Currently, 32 energy entities have a license for the public supply of natural gas.
Wholesale supply means selling natural gas to the customers, but not to final customers (customers buying only for their own needs). Currently, no energy entity has a license for wholesale supply of natural gas.
According to the Energy Law, all three kinds of supplies are energy activities for which a license is needed, but a foreign entity may obtain a license only for wholesale supply.
- Products
The Republic of Serbia, for the time being, is not an established regulated market of natural gas. By the latest amendments of the Energy Law, it is envisaged that the TSO with the most exit points on its transmission system shall be responsible for the management and administering of the regulated market of natural gas. The government of the Republic of Serbia shall designate such a TSO.
So far, trade with natural gas is conducted on a bilateral market, meaning that trade is conducted directly between market participants based on executed supply agreements. Prices are based on market principles. The only exception is regulated prices for public supply, which are determined by the public supplier. For the year 2022 average regulated price was 3,46 RSD per kilowatt-hour.
- Competition
- Authorities
In the Republic of Serbia's energy sector, monitoring over competition field conducts is done by the AERS and Anti-Competition Agency. In this respect, according to the Energy Law suppliers of natural gas and wholesale suppliers of natural gas are obliged to deliver to the AERS and Anti-Competition Agency, as well as to the competent body of the Energy Community, data in connection with the transactions from supply agreements. Such data encompass, inter alia, duration, rules on delivery of natural gas and settlement of obligations, data on quantities, prices, and manner of the identification of users. Suppliers and public suppliers are obliged to keep a record of this data for at least five years.
- Anti-competitive actions
Please note that the AERS is authorized to monitor competition in the oil and natural gas market in the Republic of Serbia. In case irregularities are detected, necessary anti-competitive actions are undertaken by the Competition Agency.
Pursuant to the Competition Law (Official gazette of the RS no. 51/2009 i 95/2013), acts and actions of market participants with a consequence of significant restriction, distortion, or prevention of competition are deemed anti-competition actions.
Furthermore, in case of acquisition, it is necessary to notify the Competition Agency on concentration to obtain approval on concentration, in line with the law.
If during the monitoring of the energy market, the AERS detects any action that may be considered to prevent or restrict competition, it is obliged to notify thereon the Competition Agency which shall conduct the administrative procedure in order to determine whether a breach of competition occurs or not. In case of a positive answer, the Competition Agency shall render a resolution in which it may determine measures aimed at eliminating the established violation of competition, i.e., preventing the possibility of the same or similar violation, by issuing an order to undertake certain behavior or prohibiting certain behavior.
- Stability clause and dispute resolution
- Stability clause
The Law on PPP and Concession (Official gazette of the RS no. 88/2011, 15/2016 and 104/2016) envisages a stability clause in a way that after execution of PPP or concession agreement change of law occurs, which leads to deterioration of the position of the public or private partner, the agreement may be amended in order to put public or private partner in the same position as was before the change of law. This law applies to all public or private partners of the state which have PPP or concession agreements.
Additionally, the Agreement between the Government of the Republic of Serbia and the Government of the Russian Federation on Cooperation in the Fields of Oil and Natural Gas contains a stability clause, and therefore NIS as a producer of oil is obliged to pay a fee for exploitation in the amount of 3% of income, instead of 7% as it is now prescribed by the law.
- Compulsory dispute resolution procedure
Dispute resolution between energy entity and their users initially shall be resolved between involved parties. Namely, energy entities are obliged to adopt network codes, within which is regulated right of users to submit objections/appeals to the respective energy entity in case of any breach to the detriment of users. Energy entities are obliged to undertake necessary actions in order to resolve such objections/appeals. If through this internal mechanism, it is not possible to resolve the dispute, the interested party may initiate a procedure before the competent court. Furthermore, it is allowed to be included in the agreement between the energy entity and user arbitration for dispute resolution.
Additionally, suppliers of natural gas are obliged to make a report on resolving objections/appeals of its users and to submit it to the AERS.
As per dispute resolutions between energy entities and state authorities, in case the energy entity is not satisfied with the rendered resolution (on energy licenses, energy permitting, and exploration and exploitation permits) it is possible to initiate a procedure before the Administrative Court. A judgment of the Administrative Court is final and binding for all parties.
- International treaty protection
The Republic of Serbia is a contracting party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards as of 1981 as well as a contracting party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States as of 2006.
In addition, when an investor wants to initiate court procedures against a state or any state authority, there are no special conditions that have to be fulfilled. Law on Civil Procedure (Official gazette of the RS no. 72/2011, 49/2013 – CC decision, 74/2013 – CC decision, 55/2014, 87/2018, and 18/2020) provides the possibility for, before filing a claim against the state, to submit a proposal for a peaceful settlement of the dispute to the Republic Public Attorney's Office. If the Republic Public Attorney's Office does not respond within 60 days, it is considered that the proposal was not accepted, and the claim may be submitted to the competent court.
