Strategic Analysis: Russian Business Activity in Macedonia (Abstract)

While Russian economic and financial activity in Macedonia has, traditionally, been somewhat limited, the country is among the primary targets of Russian efforts to establish support for its Turk Stream pipeline project that would traverse the country in the form of an extender pipeline being referred to as Tesla. Macedonia is highly susceptible to the lure of such a project and the financial prospects that it could bring due to severe challenges it has faced economically. Approximately one third of Macedonians live below the poverty line and the countrys unemployment rate, at 31.8%, ranks among the highest in the Western Balkans. Macedonian youth unemployment ranks the fourth highest in the world at 53.9%.

From a purely energy perspective, however, Macedonia is fairly insulated from shocks related to Russian natural gas cut-offs, unlike other countries in the region (although what gas it does use is largely purchased from Russia). In general, the country relies largely on coal and fuel oil (with a relatively new power plant, powered by Russian gas, being a notable exception) and has demonstrated the ability, at least temporarily, to substitute other forms of power generation for gas when necessary. Although this configuration makes the country less vulnerable to Russian pressure than certain other European countries, a number of new business propositions from Russian companies in the country involve putting in place the kind of infrastructure and natural gas delivery system that could change this and, in the name of progress, actually expose the country to a greater extent to the influence of Russian gas.

In general, it is fair to say that the attraction of a major natural gas pipeline traversing Macedonian territory on its way from Russia to Europe has the possibility to be a game-changer for the bilateral relationship, in a similar manner to the offers of trade and investment that accompanied South Stream in Serbia and Bulgaria (and, for that matter, in Macedonia as well). It is likely that the economic and financial dimension of the Russian footprint in the country will increase commensurate with Moscows broader efforts to make this project a reality.

Moreover, the Kremlin appears to feel it has a leader in Prime Minister Nikola Gruevski that is, at minimum, open to its overtures. The juxtaposition of Russian offers of trade and investment and the growing criticism Gruevski feels he is receiving from Western institutions (related to accusations of a growing authoritarianism) likely plays a role here. Moscow has seized on these openings, aligning itself over time with Gruevski and complicating the allegiances of this small Balkan country. The stalled progress toward Macedonias membership in the EU and NATO has given rise to an increase in Euro-skepticism within the country.

Other steps being taken to increase economic and financial ties between Skopje and Moscow include an initiative for preferential trade treatment between the two countries, which may include lowered customs rates for Macedonian produce and food product exports. A request to sign a bilateral free trade agreement is also still in play. Despite recent difficulties and scandals, however, Macedonia continues (at least publicly) to pursue a path that includes EU integration.


Excerpted Deals and Transactions:

  • In March 2015, StroyTransGas announced its plans to construct a 61 km section of a 96.6 km natural gas pipeline in Macedonia linking Klecovce to Negotino, running from near the northern border with Serbia to central Macedonia. StroyTransGaz was targeting a June 2016 completion date. A second section is to be built extending the pipeline to Macedonias southern border with Greece. As per Russian media reports, Moscows plan is eventually to link the pipeline with the Turk Stream project, using it to deliver Russian natural gas to Europe.
  • The proposed Turk Stream natural gas pipeline would transport Russian natural gas under the Black Sea to the Turkish-Greek border and then on to Europe via an extender pipeline, being called Tesla, that would traverse Greece, Macedonia, Serbia and Hungary. Despite considerable uncertainty related to the project, it has been anticipated that completion could occur sometime in the 2019 or 2020 timeframe.
  • Currently, Macedonia heavily relies on a pipeline running from the port of Thessaloniki in Greece to the OKTA refinery in Skopje, Macedonia for crude oil imports (which have traditionally been sourced 100% from Russia, with some recent diversification). OKTA is owned by Hellenic Petroleum. Greece is seeking to privatize Hellenic Petroleum as well as the port, itself, with Russian bidders already in the mix with regard to the latter.
  • The Sintez Group, a private Russian conglomeration of nine energy companies, is involved in power management, oil and gas and real estate development in Russia and elsewhere. The companys majority shareholder is reportedly Russian Senator Leonid Lebedev. Through several share purchases, Sintez Group acquired an 80% stake in TE-TO (a major new power plant in Skopje). At the time, there was strong public speculation that Gazprom was actually behind the investment.
  • The Balkan Energy Group was established in August 2012 as a joint venture by TE-TO and Russias Sintez Group. In late December of that year, the company was awarded licenses from Macedonias energy regulator to supply heating energy to most parts of Skopje, replacing the countrys state-owned heating utility Toplifikacija. It was selected by Macedonias energy regulator to receive all three licenses for the manufacturing, distribution and supply of energy.