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24/07/2016

Hungary attempts to bypass EU law on South Stream

Central Europe

Hungary attempts to bypass EU law on South Stream

Planned South Stream pipeline route. [Wikimedia]

Hungary’s parliament Monday (3 November) approved amended legislation aimed at circumventing EU law, opening the way for the construction of the Russian-backed South Stream natural gas pipeline on Hungarian territory. The Commission said it was in contact with Budapest for further clarifications.

The bill proposed by Antal Rogán, the head of the ruling Fidesz party’s parliamentary group, makes it possible for any gas company that is not a certified transmission system operator, to build a gas pipeline. 

According to the Hungarian press, the only requirement that the pipeline construction company would need is approval of the Hungarian Energy Office. In this case, international coordination bodies, including the EU, would have no jurisdiction, the Fidesz legislators believe. 

The law reportedly does not identify a specific pipeline project, but it is obvious that it concerns South Stream, the Kremlin-backed project that would allow Russia to pump natural gas under the Black Sea to Europe, bypassing Ukraine.

The European Commission has said that all the bilateral intergovernmental agreements regarding South Stream, including those signed by Hungary, are in breach of EU law, because they violate the EU’s Third Energy Package, which states that pipelines in the EU cannot belong to natural gas extractors, so as not to distort competition.

>> Read: South Stream bilateral deals breach EU law, Commission says

The EC insists that other gas suppliers should have access to South Stream. But Gazprom has refused to comply with the demand. Gazprom controls 50% of the entire planned South Stream project.

If the Hungarian bill succeeds in bypassing EU legislation, it is likely that the precedent could open the way for similar legislation to be adopted in the other countries across which the pipeline will run.

Everyone works for Russia. Germany, 2008. [George Carty/Flickr]

However, Bulgaria, the first country on the European route of the planned pipeline, is a specific case, because it’s the only country against which the Commission has opened an infringement procedure related to  South Stream.

>> Read: Barroso warns Bulgaria on South Stream

The infringement procedure against Bulgaria addresses the Bulgarian-Russian bilateral agreement on South Stream, which gives preference to companies from those two countries, which is against EU competition rules.

Asked to comment, European Commission spokesperson Ana-Kaisa Itkonen said that the EU executive was aware of  the Hungarian amendment, and was in contact with Budapest in order to seek further clarifications.

Reading from a written text, Itkonen said that separate authorization procedures for the building and operation of pipelines, as such are not contrary to the provisions of the EU Gas Directive. She added that it was important, however, to emphasize that such authorizations have to be based on objective and non-discriminatory criteria which are published and made transparent.

Itkonen also said that from the law amendment, it was unclear according to what criteria such authorizations to build pipelines could be granted by the Hungarian National Regulatory Authority.

“In any event, it is crucial that in granting a license to an undertaking to build a pipeline – which normally takes place after commitments have been made to book capacity therein – the strict provisions of the directive for operating a pipeline (becoming a Transmission System Operator) are not prejudiced, as well any public procurement rules”, she stated.

Bloomberg quoted Andras Deak, a Budapest-based analyst at the Hungarian Academy of Sciences, on the issue. Deak said that Hungary’s Prime Minister Viktor Orbán was “testing the EU limits with Russian backing”.

“But the EU stopped Bulgaria, and it’s going to stop us as well,” Deak said.

Background

South Stream is a Russian sponsored natural gas pipeline. As planned, the pipeline would run under the Black Sea to Bulgaria, and continue through Serbia with two branches to Bosnia and Herzegovina and to Croatia. From Serbia the pipelines crosses Hungary and Slovenia before reaching Italy [see map]. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia's Gazprom in the South Stream project is Italy's largest energy company, ENI.

Russia signed intergovernmental agreements with:

  • Bulgaria – January 18, 2008;
  • Serbia – January 25, 2008;
  • Hungary – February 28, 2008;
  • Greece – April 29, 2008;
  • Slovenia – November 14, 2009;
  • Croatia – March 2, 2010;
  • Austria – April 24, 2010.

Further Reading