UPDATE 3-Serbia will allow payments, transactions for Russian oil firm NIS this week

Serbia's President Aleksandar Vucic said on Tuesday the government would allow payments and transactions for the U.S.-sanctioned Russian-owned oil company NIS until the end of the week, despite the risk of secondary sanctions. NIS said it began a shutdown of its refinery, Serbia's only one, due to the lack of crude oil and U.S. sanctions. "The activities ...

Serbia's President Aleksandar Vucic said on Tuesday the government would allow payments and transactions for the U.S.-sanctioned Russian-owned oil company NIS until the end of the week, despite the risk of secondary sanctions. The temporary measure aims to help NIS pay workers and make other transactions after the U.S. Treasury Department imposed sanctions on NIS in October. Those were part of wider sanctions against Russia's energy industry in the wake of its invasion of Ukraine, after a series of waivers since January. NIS said it began a shutdown of its refinery, Serbia's only one, due to the lack of crude oil and U.S. sanctions.

"The activities ... during the shutdown procedure are organised in such a way to allow the restart of the refinery facilities as soon as ... an information about the availability of crude oil is received," it said. Last week the NIS refinery in Pancevo, near the capital Belgrade, ended production and entered the so-called idle mode which precedes a shutdown. Russia's Gazprom Neft and Gazprom, which own a majority stake in NIS, must dispose of their ownership in the company, which is under U.S. sanctions because of its Russian ownership. RISKING SECONDARY SANCTIONS

Serbia risks secondary sanctions if its banks, including the central bank, maintain payments with NIS, but Vucic said these payments would continue until Monday. "We have agreed, at the risk of Serbia, to ensure payment transactions with NIS until the end of the week ... to allow NIS to pay workers, make due payments," he said after meeting energy officials.

The shutdown of the refinery, which has an annual capacity of 4.8 million tons, would affect the country's economy as NIS, which employs around 14,000 people, contributes around 5% of Serbia's GDP and around 10% of budget revenue. Serbia has enough short-term reserves and currently imports most of its needs from neighbouring Hungary.

Vucic warned that the logistics, including distribution of fuel to fuel stations across the country, would be strained due to limited storage and offloading capacities. Last week, Vucic said Belgrade would give Gazprom Neft and Gazprom 50 days to sell their stake in NIS or the government would take over operations and make an offer to buy them out.

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