Oettinger: EU help in resolving South Stream’s legal problems is conditional

Günther Oettinger. Lauchringen, 2009. [Bernd Glasstetter/Flickr]

EU Energy Commissioner Günther Oettinger said the Commission-mediated talks to solve legal issues over the Gazprom-favoured South Stream gas pipeline could continue only if Russia adheres to international law in the context of the Ukraine crisis.

In an interview with the Frankfurt Allgemeine Sonntagszeitung, he said that the discussion had come to a standstill because Russia did not want to accept EU energy legislation and because the crisis in Ukraine had eclipsed everything.

“We will continue the talks if the Russian partners go back to adhering to international legal practice and if they are ready for constructive cooperation on the basis of our energy law” Oettinger said.

He made clear that contentious issues had been discussed on a working level.

“In the current situation, with civil war-like conditions in the eastern Ukraine and without Moscow’s recognition of the government in Kyiv, we will certainly not arrive at a political conclusion of our negotiations,” he stated.

The South Stream gas pipeline will run under the Black Sea, from Russia to Bulgaria, where it will go ashore, with one section going to Italy via Greece, and another section going to Austria via Serbia, Hungary and Slovenia.

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 in breach of EU law and need to be renegotiated [read more]. The Commission offered to help solve the legal problems.

On 27 May, Bulgarian Prime Minister Plamen Oresharski met bilaterally with Commission President José Manuel Barroso 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, whose owner is under US sanctions, will build the Bulgarian stretch of the pipeline [read more].

Later the same day, Barroso made it plain that the EU executive would impose infringements on Bulgaria regarding South Stream pipeline, whose construction, which is about to begin, is in breach of EU laws.

Infringements could concern not only the operation of the pipeline, but its construction, EURACTIV was told.

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.

On Saturday, Gazprom CEO Alexey Miller stated that the Commission could not stop the implementation of the South Stream gas pipeline, that the construction will start this summer and that the first gas supplies would reach Bulgaria via its sea section in December 2015.

He also said that Greece had requested a branch of the pipeline to link it to its grid.

In end-April, Russia filed a lawsuit with the World Trade Organisation (WTO) against the European Union over the EU’s Third Energy Package.

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.

A memorandum signed last April envisages a branch of the pipeline to reach the Baumgarten gas hub near Vienna [read more].

Subscribe to our newsletters