Russian-Bulgarian energy relations near melting point

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Future energy relations between Bulgaria and Russia could be decided on 15 November, the deadline for Bulgaria to sign a deal to build the South Stream gas pipeline across its territory. European officials say they are closely watching the developments but don’t see South Stream as a priority. 

The verbatim transcript of a Bulgarian cabinet meeting held on 7 November shows that Bulgaria will pay Gazprom a heavy fine if it doesn’t sign a final investment decision to build the South Stream gas pipeline on its territory by 15 November. Bulgaria also wants its long-term gas import contract with Gazprom to be agreed before the South Stream deal is signed.

Bulgarian Energy Minister Delyan Dobrev says in the transcript that according to an agreement signed between the state-owned Bulgarian Energy Holding (BEH) and Gazprom, if a final investment decision is not reached by 15 November, BEH will own Gazprom $70 million (€55 million).

A Russian trap?

In April, Dobrev secured an 11% discount on the price Bulgaria pays for Russian gas, effective from 1 April to 31 December. The agreement, however, was linked to the country’s commitment to make the final investment decision on the construction of the South Stream pipeline this month.

Bulgaria is key to South Stream, as the offshore section of the pipeline under the Black Sea reaches the Bulgarian coast north of Varna (see map) and then runs across the country before splitting into two branches – one to the to the Baumgarten gas hub near Vienna, the other one through Greece and the Ionian Sea to Italy.

The transcript also shows Dobrev saying that if Bulgaria does not sign under satisfactory terms a new long-term agreement for Russian gas imports when the present agreement expires, there should be no signature on the final investment decision for South Stream.

Some facts finally emerge

Dobrev also said that the precise route of the South Stream pipeline across Bulgaria has been determined and that a business plan has also been completed.

According to the transcript, the total length of South Stream across Bulgaria is 535.7 km, the diameter of the pipe is of 140 cm, and the price tag of the construction on Bulgarian territory is of €3.3 billion. As the Bulgarian side has no funds available, its share will be funded by Gazprom, which in return will get all the transit taxes for the next 15 years. The entry point at the Black Sea is indicated at Galata, a cape South of Varna.

Data show that 17.8 billion cubic metres per year (bcm/y) of the pipeline total capacity of 63 bcm/y output will not be new deliveries, but a re-route of the normal supplies to Turkey (14 bcm/y), Greece (3 bcm/y) and Macedonia (0.3 bcm/y). Gazprom’s aim of building South Stream is to bypass Ukraine, the main gas pipeline hub to the EU.

Exemption from Third Energy Package to be sought

According to the transcript, Dobrev also discloses that Bulgaria has committed to request an exemption for South Stream from the EU’s Third Energy Package, which allows competitors access to the pipeline.

On 29 October, Energy Commissioner Günther Oettinger organised a meeting in Brussels with the EU countries participating in the South Stream project. According to the transcript, Dobrev says that the participating countries have agreed that a common EU policy should be applied to South Stream.

President calls for transparency

Bulgarian President Rossen Plevneliev voiced on 11 November strong criticism as to the handling of the gas negotiations with Russia. Quoted by Dnevnik, the EURACTIV partner publication in Bulgaria, Plevneliev said he had no information about the price of the gas to be agreed, and that he was lacking “sufficient information about what is going to be signed next week”.

No indication of the price of gas for the next long-term contract has been indicated publicly.

The president called for transparency and for a “common European position on South Stream”, with all the countries involved coordinating their positions before adopting decisions.

Mihail Andonov, chief executive of BEH, replied to this statement, stating that the information provided to the energy company to the press so far was “enough”.

“Nothing has been hidden. Everything that was possible to be said has been said,” he stated.

Abuse of dominant position?

EURACTIV asked the Commission if the linking of the gas price to Bulgaria’s South Stream commitment, as indicated by the transcript, was an abuse of Gazprom’s dominant position. Antoine Colombani, spokesperson to Competition Commissioner Joaquín Almunia, said the Commission had opened an antitrust case against Gazprom in September, but said that the EU executive would not comment if specific facts were parts of this investigation.

EURACTIV sources, however, confirmed that the linkage was indeed part of the Commission’s antitrust probe on Gazprom.

Commission: Final investment decision not in sight

Marlene Holzner, spokesperson for Oettinger, said there was no final investment decision on South Stream.

“What we are witnessing is a move from conceptual design and feasibility to a front-end engineering and design [FEED] phase, at which point all the information that the South Stream partners have generated have to be put together and the final route approved. In this sense, there is no final investment decision in sight, at least in the way that the term is normally used,” she said.

A final investment decision presupposes that a number of elements are defined, notably the establishment of a final route, the financing envelope and the necessary contracts. Environmental and social impact assessments also have to be completed.

 “The Commission is not aware that any of this has been defined, let alone accomplished,” Holzner stated. “According to the Commission’s information and as confirmed by Minister Dobrev, the southern corridor remains Bulgaria's priority. But it is not seen as a priority by the European Commission.”

South Stream is a planned natural gas pipeline running across the Black Sea to Bulgaria, with one branch going to Greece and Italy, and another one to Romania, Serbia, Hungary, Slovenia and Austria.

Russia recently announced that it would more than double its planned capacity from 31 billion cubic metres per year (bcm/y) to 63 bcm/y.

South Stream's website says the pipeline is "aimed at strengthening European energy security" by eliminating transit through Ukraine, as "another real step toward executing the Gazprom strategy to diversify the Russian natural gas supply routes."

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