Commission urges Bulgaria to change Gazprom clause

Putin with dog.jpg

The European Commission has asked Bulgaria to change a 2008 bilateral agreement with Russia, providing for full and unrestricted transit of Russian gas across the EU newcomer, a spokesperson for the EU executive told the press today (15 November).

As Russian Prime Minister Vladimir Putin visited Bulgaria over the weekend to seal a joint venture, which will build and operate the Bulgarian section of the South Stream gas pipeline, questions emerged regarding the compatibility of the agreement with EU law.

Marlene Holzner, spokesperson for EU Energy Commissioner Günther Oettinger, said Bulgaria had asked the Commission to provide assistance in helping negotiate the agreement. Consequently, a number of amendments were made to the accord, signed in Sofia on 13 November.

The draft initially said South Stream shareholders would enjoy exclusive gas transportation, while a sentence has since been making such a possibility conditional upon the Commission's approval, Holzner explained.

2008 agreement still a problem

However, the biggest problem was an intergovernmental agreement on building South Stream, signed in 2008 between Russia and Bulgaria, she explained.

"This intergovernmental agreement needs to be changed," Holzner said.

The agreement, signed in January 2008 by the previous Socialist-led government of Prime Minister Sergei Stanishev, states that the Bulgarian government will ensure full and unrestricted transit of Russian gas. The agreement was ratified by the Bulgarian parliament in July 2008.

Under EU law, the principle of third party access allows pipelines like South Stream or Nabucco to be used by other companies, Holzner said.

Asked by EURACTIV to explain how Bulgaria, which became an EU member on 1 January 2007, had been allowed to sign in 2008 an agreement that was incompatible with EU law, Holzner said that the EU had no legal competence to check beforehand ahead of such agreements being signed.

April letter unanswered

Back in April, the Commission sent the Bulgarian authorities a letter asking questions regarding the 2008 agreement. These questions were never answered, Holzner said.

She explained that in the meantime Commission services had spoken to the Bulgarian authorities, which assured the EU executive that they would change the intergovernmental agreement in line with EU law.

Exclusivity only on Commission's approval

Holzner explained that the EU had wanted to encourage the construction of a new gas pipeline infrastructure and was ready to grant exemptions to the exclusive use of sections of pipelines, according to strict procedures.
"You can have part of [the pipeline] for your exclusive use, but this must be made by an official request, put forward to the national regulator, which the Commission must approve," she said.

Putin sceptical about small players

In Bulgaria, Putin complained of EU legislation which in his words was allowing small players to threaten security of supplies and causing gas prices to increase. He said that while big players such as Gazprom would be forbidden to build gas infrastructure, small and inexperienced companies would put at risk huge investments like South Stream.

"The Commission proposals aiming to liberalise gas transportation networks are well-intended. But it is difficult to estimate the consequences of their implementation," he stated.

Transparent talks

As Bulgaria's increasing dependence on Russian energy is heavily criticised by the centre-right Blue Coalition (see 'Background'), Borissov and his Russian host agreed that to make public a verbatim record of their talks.

In the 13-page text, Putin links the future of the South Stream pipeline to a possible doubling of the capacity of the Nord Stream pipeline – designed to bring Russian gas directly to Germany under the Baltic Sea – and for which construction began last April.

"We already have proposals to build a parallel pipeline […] But if we bring South Stream to success, then we would refrain from carrying out the second stage of Nord Steam," Putin said.

Should something prevent stakeholders from undertaking the South Stream project, Putin reconfirmed earlier plans for a gas pipeline running parallel to an already existing Blue Stream gas pipeline to Turkey across the Black Sea. The planned pipeline is known as 'Blue Stream 2'.

From the Turkish port of Samsun, the gas would proceed to Greece and Italy, he said.

Nuclear ambitions

Putin also touched upon his country's plans to build nuclear power statiobs across the world. "In the nearest future in Russia, we plan to build as many nuclear reactors as during the whole Soviet period," he said.

Putin added that during Soviet times, Moscow had built 30 nuclear reactors, and now the plans stood at 28 new reactors. He mentioned Turkey, India and China as countries where Russia was going to build nuclear power plants. Sixteen of the reactors will be in China, he further elaborated.

"Of course our competitors are American, Japanese and French companies. However, they cannot propose a better product in terms of quality and low price. That's why we win the tenders," he said.

No price tag for Belene

But Putin refrained from putting a price tag on the Belene nuclear power plant in Bulgaria. Bulgaria's Economy Minister Traycho Traykov was quoted as saying that the Russian quotation was 6.3 billion euros. He added that from his country's point of view, the price should be five billion.

The new plant, which is only Bulgaria's second and comes 20 years after the construction of the first in Kozloduy, is expected to become operational in 2013-2014, at an estimated cost of four billion euros.

Wrong numbers?

The press in Sofia widely reported that Putin had said during the talks that Bulgaria would receive as transit taxes from South Stream 2.4 billion euros every year. However, these numbers appear to be wrong, reported Dnevnik, EURACTIV's partner in Bulgaria.

At present, Bulgaria receives some 100 million euros for the transit of 17 billion cubic metres (bcm) of Russian gas. The planned capacity of South Stream is 63 bcm, and if the same rates were to apply, the amount would be 400-500 million euros, to be divided between Bulgarian energy holding BEH and Gazprom, Dnevnik calculates.

Putin also raised doubts concerning the price of gas. Asked by journalists to comment on the high prices charged by Gazprom, he said that the Russian monopolist usually obtained between 30% and 50% of the gas price charged to clients, with the remaining difference profiting intermediaries.

Priority remains Nabucco?

Speaking to the Bulgarian press, Bulgarian Prime Minister Boyko Borissov said that his country's priority still remained Nabucco. However, he indicated that he saw the South Stream deal as highly profitable.

According to Borrisov, Bulgaria's participation in South Stream would cost 400-500 million euros, while the negotiations so far had allowed his government to buy gas at a price that was 5-7% lower.

Borissov also said that South Stream would not use the existing pipelines in Bulgaria. "We will not cut forests. We will lay down new, bigger pipes next to the existing pipes," Borissov said.

According to the verbatim record, it becomes clear that the South Stream pipe will reach Bulgarian territory not at the port of Varna, but the port of Burgas instead.

Puppy diplomacy

TV footage showed Putin hugging and kissing a two-month old puppy of the unique Bulgarian shepherd species Karakachanska ovcharka, offered to him by Borissov.

This is not the first time that Borissov has given other heads of state and government dogs of the same species from his own breeding centre.

A puppy from the same centre was offered to George W. Bush during Bulgarian President Georgi Parvanov's visit to the US in 2005, and recently the Bulgarian press reported that another dog of the same breed was going to be offered to Barack Obama.

Thanks to the agreement signed in Sofia, South Stream, which is expected to come on-stream in December 2015, may be launched four months earlier, Gazprom head Alexei Miller was quoted as saying.

He also said reaching the agreement with Bulgaria was significant because Bulgaria would be the first country that South Stream hit after its undersea segment, the Moscow Times wrote.

Bulgaria is key to the South Steam gas pipeline project, which is planned to run from the Black Sea's Northern Caucasus shore to the Bulgarian port city of Varna.

The Gazprom-ENI South Stream project is seen as a rival to Nabucco and its commissioning term is also nearly identical to the EU-favoured project. Bulgaria is also a key stakeholder in Nabucco (see map).

When the centre-right government of Boyko Borissov replaced the previous Socialist-led cabinet, the new prime minister said he needed time to re-assess his country's large energy projects.

Borissov's party, GERB (the acronym stands for 'Citizens for the European Development of Bulgaria'), has 117 seats in the 240-seat parliament, falling short of an absolute majority. Borissov leads a minority government tacitly supported by the nationalist Ataka (21 MPs) party and the 'Blue Coalition' (14 MPs).

The Borrisov-led government first challenged the previous energy agreements with Moscow. Russia reacted nervously. Gazprom conveyed the message that for South Stream, it does not need Bulgaria, saying the pipeline could equally run through Romania.

In a telephone conversation on 21 October, Putin and Borissov agreed to establish a Russian-Bulgarian joint venture by 15 November that will conduct a feasibility study for the Bulgarian section of the South Stream pipeline.

The two leaders also confirmed their commitment to completing construction of the Belene Nuclear Power Plant (NPP) and discussed the possibility of attracting third countries to the project.

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