Bulgaria, Commission, lost in translation over South Stream

South Stream map

South Stream map

Bulgarian Energy Minister Dragomir Stoynev met with the EU’s Energy Commissioner Günther Oettinger Thursday (24 April) to discuss the future of the Gazprom-sponsored South Stream gas pipeline. But the two sides offered a widely diverging interpretation of the exchange.

Speaking to journalists after the meeting, Stoynev said South Stream will not be stopped and rejected calls from the European Parliament to freeze the project.

In light of the Ukraine crisis, Parliament took the view that the South Stream pipeline should not be built and that the EU should buy its gas from suppliers other than Russia [read more].

But Stoynev, an economist close to the leader of the Bulgarian Socialist Party Sergei Stanishev, insisted that the construction of South Stream will begin in June as planned. He blamed the centre-right opposition for having misinformed the European Commission about the pipeline, in an attempt to “sabotage” its realisation. The Socialist-led government is an enthusiastic promoter of South Stream.

The Bulgarian minister said that the first onshore station of South Stream would be built 2 kilometres from the Black Sea Coast, and not at 20Km, as the opposition had told his Oettinger’s services. This made a “huge difference”, he said.

Stoynev explained that EU energy liberalisation directives could not apply to an offshore gas pipeline but only to the onshore section. The Bulgarian minister promised that Sofia would inform the Commission of the amendments to a controversial law concerning South Stream before it is passed in second reading, “if any”.

On 4 April, the Bulgarian parliament passed on first reading amendments to the country’s energy law, according to which South Stream will be considered an interconnector, and not a pipeline. Thus, the Gazprom-favoured project would be exempted from the EU’s so-called Third Package of energy liberalisation directives [read more].

Stoynev also told Bulgarian national radio that the construction of South Stream could begin, even though legal problems involving the intergovernmental agreement between Bulgaria and Russia were not yet solved. One issue is construction, another the operation of the pipeline, he said.

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].

‘Sea gas pipeline’

But Stoynev’s explanations do not appear to have reassured the Commission. Oettinger’s spokesperson, Sabine Berger, told EURACTIV that the Commission’s concerns as regards the proposed amendment of the Bulgarian energy law relate to the explicit exclusion from the Third Energy Package of what Bulgaria calls the “sea gas pipeline”, defined as an off-shore pipeline with some on-shore section and installations as well.

She insisted that EU law applied to infrastructure under EU jurisdiction, including Bulgarian territorial waters and Bulgarian exclusive economic zones.

“The length of the on-shore section of the “sea gas pipeline” is irrelevant for the Commission’s assessment of the proposed amendments as regards their compatibility with the gas directive”, she said, apparently referring to the issue of the 2Km versus 20Km distance, raised by Stoynev with the press.

Berger added that the Commission was also concerned about the broader Bulgarian Inter-Governmental Agreement (IGA) with Russia on South Stream, which the Commission considers in conflict with EU law, like other IGAs on South Stream.

Commission letter of ‘grievances’ to Sofia

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.

”If the South Stream pipeline will be built in violation of EU laws, including on public procurement, or if it will be operated in violation of EU laws, the Commission will take the necessary steps to ensure EU legislation will be applied”, Berger said.

South Stream is a Russian project for a 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.

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