In the last couple of years experts are talking more intensively about oil shale. With crude oil price higher than $60 and expectation that it will not get cheaper in the future, investment in oil shale exploration and production of shale oil is becoming more interesting.

Serbian oil shale story got a new spin when President Tadic announced in December 2011, that the Government of Serbia is considering tender procedure for oil shale exploration near Aleksinac. Based on research done more than 20 years ago Serbia has respective deposits of oil shale in central and southern part of country and it is estimated to approximately 5 billion tons of oil shale (out of which 2 billion is located near Aleksinac). Total global reserves of oil shale are estimated to be over 400 billion tones.

Extraction and processing

Oil shale is sedimentary rock which contains significant amount of kerogen from which shale oil (synthetic crude oil) can be produced. Although it is substitute for crude oil, extracting shale oil from oil shale is more costly than the production of conventional crude oil and it has higher environmental impact.

Oil shale is extracted through surface mining and underground mining.

In places where the oil shale is not very deep below the surface (up to 30 meters) it is mined in quarries. In surface mining it is possible to use more powerful and larger mining machines which make extraction more efficient comparing to underground mining.

Underground mining of oil shale is performed in situations where oil shale lies deeper than 30 meters under the surface. So called room-and-pillar method is used and it is supported by system for transporting oil shale to the surface.

The extraction of the useful components of oil shale usually takes place above ground (ex-situ processing), although several newer technologies perform this underground (in-situ processing). In either case, the chemical process of pyrolysis converts the kerogen in the oil shale to gas, condensable oil, and a solid residue by applying extreme heat (450°C and 500°C) without the presence of oxygen. This process is called retorting. The oil-like substance that emerges can be further refined into a synthetic crude oil.

Government officials

Following President Tadic, Minister of Environment, Mining and Spatial Planning (hereinafter referred to as “Ministry”) Mr. Dulic announced in January 2012, that the Government expects annual extraction of 5 million tons of oil shale and production of 500,000 to 600,000 tons of shale oil which should satisfy domestic demand of oil of 10% to 15%, thus decreasing importation of crude oil. Furthermore, he pointed out that beside oil production a power plant would be constructed which would produce electricity (100MWh) and provide heating to Aleksinac. The investment should amount to €1 billion based on preliminary calculations by the Ministry.

However, one of the most important messages from the Ministry is the expectation that the Government should be partner with a foreign investor in newly established company through publicly owned company (company in state ownership) which would have more than 50% of shares. The Government would participate in the new company by contributing exploitation rights and a foreign investor should contribute know-how, technology and necessary funds for operations.

Current business environment in Serbia

Analysis of current business environment in Serbia cannot skip the fact that 2012 is election year. In the following couple of months date for parliamentary elections should be determined and they may be held together with presidential elections. Taking this political schedule into consideration any progress with respect to strategic partner in oil shale exploitation may be subject to post-election questioning.

On 12 January 2012, the Government of Serbia decided to prepare tender in order to choose an advisor which would suggest procedure, the best business model and which would run the process for selection strategic partner in oil shale exploitation, preparation, processing and production of oil and oil derivatives from Aleksinac location. Although the Government decided to start tender procedure it has not been announced nor prepared.

Furthermore, the economical situation in Serbia is becoming more challenging with high volatility of exchange rate of local currency, unemployment, higher budget deficit and low growth expectation. This economical uncertainty is additionally fueled by lack of agreement with IMF regarding the first review of the precautionary Stand-By Arrangement due to different economical growth expectations and budgeted public spending for 2012 calendar year.

However, taking into consideration the value of investment and long time presents it is important to highlight uncertainty in different levies and taxes. Namely, the Law on Financing Local Government (hereinafter referred to as “LFLG”) determines sources of local municipality financing. Following the provisions of LFLG, a number of local municipalities enacted local decisions in order to introduce new duties or to influence the tax base calculation. As an example, in Batocina municipality local duty was increase by 345%.

Furthermore, Mining Law which governs oil exploitation has been changed twice in 2 years. First amendment was enacted in December 2009 and it made a change in definition of taxable base for oil extraction. However, more important change was in November 2011, when the Parliament enacted new Law on Mining and Geological Exploration which sets higher tax rate for oil extraction. Namely, the rate is increased from 3% to 7%.


Due to the high price and diminishing reserves of crude oil and economic growth in developing countries which boosted oil consumption, it led to significant interest in the possible wider use of oil shale. Countries like Estonia, the USA, Brazil and China recognized the economical potential behind oil shale and they increased investments and exploitation of oil shale.

When it comes to South East Europe, Serbia has done several important steps in pioneering oil shale exploitation. In particular, the Government focused on the largest oil shale reserve at Aleksinac region and determined business model which would be preferable. However, in order to attract investors with know-how and technology necessary to exploit oil shale efficiently and environmentally sustainable it should tackle the biggest issue – legal uncertainty.


Location http://bit.ly/wPslkR

Aleksinac is a small town in central Serbia which has approximately 16,000 inhabitants and it is center of municipality which in total has around 51,000 inhabitants. It is well connected with European corridor 10 (highway E-75 and railway Nis-Belgrade).

From economical point of view, Aleksinac had important role in Serbian history. Coal exploitation started in 1880s with initial investments made by two local businessmen. In 1902, rights to exploit coal reserves were sold to Belgian investors which boosted production and in 1905 Serbia was listed as 12th producer of coal in Europe, based on quantities.

Mines in Aleksinac were the most profitable mines in Yugoslavia between two World Wars and in 1963 they set record by excavating 444,000 tons of coal. The whole region was specialized in mining with several schools focused on mining training.

However, in November 1989 accident occur when 90 miners died due to CO intoxication and mines were closed. Company “Aleksinac mines” started in 1990 supporting activities in sub-surface coal mining.

By Stanko Dimitrijevic,
iMBA, FT14