Serbia hosts South Stream ‘first welding’ ceremony

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Serbia hosted a ceremony symbolically marking the beginning of work on South Stream, the Gazprom-favoured planned pipeline project, designed to bring Russian gas to the Balkans and to the EU, bypassing Ukraine. EURACTIV Serbia reports.

Constructors broke ground in the village of Šajkaš, Vojvodina, late on Sunday (24 November), marking the start of the construction of the Serbian branch of South Stream, an investment estimated at €1.9 billion. Its construction is expected to take two years.

The South Stream international gas pipeline, a project launched by the Russian state-owned Gazprom company, is designed to bring Russian natural gas to Western Europe through an offshore section underneath the Black Sea and by land through Bulgaria, Serbia and Hungary.

The project will bypass Ukraine, a former Soviet republic with which Russia has had difficult relations in recent years.

A similar South Stream ‘first welding’ ceremony took place on 4 November in the village of Rasovo in the Montana municipality of Bulgaria, near the border with Serbia. When the welding ceremony took place in Bulgaria, observers said this was a public relations stunt, intended to impress Kyiv.

Many uncertainties over the project remain and the Commission says it has not yet seen any blueprints.

Where are the other pipes?

Both in Bulgaria and Serbia, photographs and television footage released by Gazprom only show two short pipes being symbolically welded, with no other pipes in sight.  

Now that Ukraine-Russian have relations warmed after the decision of Kyiv to put on hold the country’s EU association and revive economic relations with Moscow, commentators say that the future of the South Stream is even more uncertain.

The pipeline’s total estimated cost of over €16 billion raises doubts about its cost-effectiveness. Speakers at a recent energy conference in Belgrade said that planned LNG terminals on the Adriatic cost could satisfy the region’s gas needs at lower cost.

The Serbian stretch of the South Stream pipeline will have a total length of 421 km, while the job also includes the construction of two separate branches, a 52-km section leading to Croatia, and another 105-kilometre-long arm which will connect to Republika Srpska, the Serbian entity in Bosnia and Herzegovina.

Plans are also being drawn up for a southern route to Macedonia. The pipeline is expected to provide Serbia with a new source of gas, as a pipeline from Hungary was previously the sole source of piped natural gas.

The South Stream Serbia joint venture company will oversee construction. The company has its headquarters in Switzerland and is 49%-owned by Srbijagas, with the remaining 51% held by Russia's Gazprom.

Serbian President Tomislav Nikoli? has said that the company will hire 2,500-or-so workers for direct work on the Serbian section, with 100,000 more doing indirect work.

Prime Minister Ivica Da?i? called South Stream Serbia's largest infrastructure and energy project.

Gazprom managing board chairman Alexey Miller stressed that South Stream, which is designed to carry at full capacity roughly 63 billion cubic meters per year (bcm/y), would change the energy situation and turn into a keystone of European energy security.

The Srbijagas public company has announced that it is about to receive a €175 million loan from Gazprom which will cover the cost of building South Stream in Serbia, while the interest rate on the loan is 4.25% a year, with a grace period extending until the pipeline is launched.

Criticism

The deputy director of the Secretariat of the Energy Community, Dirk Buschle, told BETA agency on 18 November that the agreement on the construction of the South Stream gas pipeline in Serbia contradicted many European rules.

The members of the Energy Community, a EU-supported organisation, are Serbia, Montenegro, Kosovo, Bosnia and Herzegovina, Macedonia, Albania, Moldova and Ukraine.

The lack of harmonisation is reflected primarily in the fact that third parties do not have the right to use the capacities of the gas pipeline, and that the transportation and supply activities are not separated.

Buschle also said that Srbijagas and Yugorosgaz, a Gazprom subsidiary in Serbia, must separate the activities of transportation and the sale of gas. He also recommended that the separation of activities in terms of ownership should also be carried out immediately, because this will be Serbia’s obligation in 2015 and it would be the most efficient to finish this job at the same time.

Buschle also explained that as of 1 January 2015, as a member of the Energy Community Serbia will have to implement the rules from the Third Energy Package, estimating that it is pointless to make the same effort twice.

The official offered the services of the Energy Community to find a way, in talks with the Serbian government and the management of Srbijagas, for the separation to be performed in a way that was in accord with the rules of the Third Energy Package of the EU.

Serbia is not a member of the EU but, as a member of the Energy Community of South East Europe, it has the obligation to be in harmony with the energy regulations of the Union.

The construction of the South Stream through Serbia is being realised by the joint company South Stream Serbia, with the head office in Switzerland, in which the Serbian state gas company Srbijagas has a 49% stake, while Russia’s Gazprom owns 51%.

Yugorosgaz is the intermediary company in gas trading between Gazprom and Srbijagas. It is majority owned by Russia.

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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