Barroso warns Bulgaria on South Stream

South Stream pipeline map, 2012. [Think Defence/Flickr]

Speaking after the EU summit held yesterday (27 May), Commission President José Manuel Barroso made it plain that the EU executive would impose infringements on Bulgaria regarding the Gazprom-favoured South Stream pipeline, the construction of which is about to begin in breach with EU laws.

Bulgarian Prime Minister Plamen Oresharski met bilaterally with Barroso yesterday and assured him that the South Stream pipeline will be build according to EU law.

But as the two were meeting, it also became known that a Russian firm, who’s owner is under US sanctions will build the Bulgarian stretch of the pipeline.

Russian Stroytransgaz consortium will build the Gazprom-favoured South Stream gas pipeline, the Bulgarian daily Capital revealed yesterday.

A major shareholder (63%) in Stroytransgaz is Volga Group, owned by Gennady Timchenko, who was placed on the US’s sanctions list against Russia in mid-March. He is believed to be the 6th richest man in Russia, according to Forbes, and with close ties to President Vladimir Putin.

The total value of the construction works on Bulgarian territory will be 3.5 billion Euros, with 20 to 30% of the implementation being sub-contracted to Bulgarian firms.

Capital reported earlier this year that Stroytransgaz has expressed interest in building the pipeline, but official confirmation came on Tuesday by Vladimir Inkov, executive director of South Stream Bulgaria.

The decision about the implementation of the project has been taken one hour before Oresharski met Barroso in Brussels, reassuring him that Bulgaria will abide by EU law.

The Commission has objected precisely on the grounds that the Bulgarian-Russian bilateral agreement on South Stream gives preference to companies from Bulgaria and Russia, which is against EU competition rules (see background).

Despite the Commission’s position that the IGA violates EU law, Gazprom CEO Alexey Miller confirmed last month that the building of the Bulgarian and Serbian portions of the pipeline will begin in July.

Asked by EURACTIV to comment, Barroso said that at the EU summit that he had made it “very clear” that it was “critically important that the Union remains united on the issue of energy security”. “Nobody contradicted this around the table,” he added.

Barroso also said he had expressed to the European Council members the opinion of the European Commission that some of the agreements that are being negotiated on South Stream are in conflict with EU rules.




“So we will act in this regard,” he said.

“In fact today I informed the [Bulgarian] Prime minister of the intentions of the European Commission. We have to make sure that the rules of the internal market are respected, not only because it’s our duty, but because the Bulgarian energy security and European energy security would be at risk if these rules are not observed,” Barroso said.

“We are fully aware of the situation, we are following closely for several months now,” he added.

Bulgaria faces an infringement procedure over South Stream, as well on the issue of opening of procedures by the State Commission for Energy and Water Regulation (DKEVR) to withdraw licences to the three public suppliers of electricity in Bulgaria, Czech firms ?EZ, and Energo-Pro and Austria’s EVN. 

The centre-right opposition in Bulgaria has called a non-confidence vote over the energy policy of the Socialist-led government, denounced as pro-Russian. A debate in the Bulgarian Parliament will take place today.

Speaking to EURACTIV, MEP Vladimir Uruchev from the centre-right opposition party GERB said that it was hardly a surprise that Timchenko’s company Stroytransgaz would build South Stream in Bulgarian territory.

He regretted that for such a “giant contract”, a transparent tender had not been held and that major European companies had not been invited to participate to the competition.

“The intention of the government is clear: they wanted the Russian company to get the contract”, he said.

Asked what the motivation of the government was: pro-Russian sympathies or corruption, Uruchev said he didn’t think it was about sympathies. 

Last December, the Commission said that all bilateral agreements (IGAs) for the construction of South Stream gas, signed between Russia and Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria, are all in breach of EU law and need to be renegotiated from scratch [read more].

EURACTIV has seen a letter sent by the Commission to the Bulgarian authorities, dated 14 August 2013, which analysed the Bulgaria-Russia agreement in great detail. The six-page document, addressed to the Bulgarian deputy energy minister, Evgenia Haritonova, has never been made public, despite pressure by some MPs in the Bulgarian Parliament to disclose it.

Apart from breaches to EU energy market rules forbidding energy producers from simultaneously owning transmission networks (so-called ownership unbundling), which are common to all seven agreements, the letter identifies the following grievances:

  • Bulgaria committed to provide the most favourable tax regime to Gazprom, which according to the EU Commission is in breach of the EU's state aid rules;
  • At one point, the inter-governmental agreement (IGA) stipulates that Bulgarian and Greek companies would be subcontracted, and at another, that preference would be given to companies from the states of the Parties (Bulgaria and Russia), which is against EU competition rules;
  • The IGA stipulates that tariffs for using the pipeline would be established "by the Company", which is in contradiction with the powers of the national regulator to approve transmission tariffs in accordance with EU law.

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