Since the end of March, NATO has widened its air-strike target list to include power plants throughout the country.

This month, the attacks have intensified, causing major blackouts that disrupt hospitals, electronic media and traffic, and often leave Serbia's population in the dark. In response, Unified Energy Systems Chief Anatoly Chubais maintains that Russia should be allowed to export electricity to Serbia, at the very least for humanitarian purposes.

At different times, power cuts have affected 60 to 70 percent of the country. Beta, an independent news agency based in Belgrade, recently reported that an official from the Serbian utility company EPS asked citizens to "switch off all electric appliances that use a lot of electricity and leave on just one electric bulb, as that will enable the voltage levels to rise in the Serbian energy system."

Although NATO military officials have only released limited details for obvious security reasons, they have said they are using "soft bombs" to hit power plants. Unlike conventional explosives, these bombs explode in the air above the power plants, showering splinters of graphite onto electrical transformers below.

Graphite, the main ingredient in ordinary pencils, is a conductive form of carbon. As shards fall on switches and power lines, they cause short-circuiting, trip safety devices and burn out equipment. NATO has focused on causing short-circuiting rather than severely damaging plants, to reduce the cost of rebuilding Serbia's infrastructure after the conflict, which is likely to depend on western cash.

In addition to inconveniencing Serbs, the destruction of Serbian power plants and distribution networks also constitutes a setback for Russia. Since the end of 1998, UES has focused on exporting electricity to Europe, a particularly profitable venture given the recent state of electricity deregulation in Western Europe. Russian energy officials had hoped that by tapping Serbian power assets, Russia would be able to export electricity not only to Balkan countries, but-more important-to Italy. This UES export strategy must now be postponed in light of the current situation.

Serbia has approximately 12 gigawatts of installed electrical capacity, three times more than the capacity of some other Balkan countries. Serbia's electricity, like Russia's, is 68 percent thermal, but unlike in Russia, the major fuel for thermal plants in is coal. With proven coal reserves of 18.2 billion short tons, Serbia is the only Balkan country with significant coal deposits. The remainder of Serbia's installed capacity is hydro generated .

Even before NATO attacks began, Serbia said it would turn to China and Russia for assistance in financing its power projects. But because of economic sanctions against Serbia, power companies and other investors have not been able to participate in any investment projects in the troubled Balkan state. Before the air-strikes, Serbia had envisioned that it needed at least $1.7 billion in investment in the power sector until 2005. EPS had planned to import 1.8 terrawatts of electricity in 1999, approximately equal to a 300 megawatt installed capacity deficit.

A $150 million loan from Russia was to fund the increase, and Russia planned to release at least $90 million this year. Tekhnoprom Export, a Moscow-based technology export company, was to finance $55 million of the loan. This part of the loan would have purchased equipment and services to upgrade and repair a 110-megawatt unit in the thermal plant Kolubara and a 125-megawatt unit of another thermal plant in Kosovo. A second loan deal of $7 million with Energomashinostoyitelyna has been postponed until 2000.

Although a number of foreign power companies have been bidding for projects in Balkan countries such as Albania and Bosnia, Russian power and construction companies are in an advantageous position to compete for projects in Serbia following the conflict's resolution. Russian fees are likely to be much lower than those of western companies, and western companies will probably focus their attention on Balkan pipeline projects in countries where multilateral entities such as the EBRD have already done significant work.

That will leave Serbian projects open to Russian entities, and EPS has already signed a contract with Russia to refurbish part of its Kostolac power plant.