Project with Unclear Fate

By Alexey Makarkin

The question on the fate of the “South Stream” pipeline remains one of the key ones for Russian policy within the gas sphere. The alternative European “Nabucco” project remains its competitor; the issue, which pipeline will be constructed, can be solved already by the end of this year (the beginning of the accomplishment of one project can make another one unclaimed). At the moment the organizers of the both projects hold tensed negotiations with the Parties involved. In case of the “South Stream” we are talking about transit states, among which Bulgaria is the one which is potentially able to play the kind of role not only for Russia-Italian project, but also for the “Nabucco”.

A tensed Russian-Bulgarian consultation this summer resulted into the decision to prolong the participation of Sophia within the “South Stream” project. In exchange Bulgaria will gain a discount on Russian gas, the amount of which has not yet been announced. Earlier Bulgarian Prime Minister Boyko Borisov claimed about the loss of interest of its Government to the “South Stream”, and “Gazprom” started demonstrative negotiations with Romania on its involvement into this project.
Tensed Bargain
Till the middle of last year Bulgaria was practically the most reliable Balkan participant of the “South Stream”. Then the left-wing Government headed by the socialist Sergei Stanishev, with whom “Gazprom” managed to establish constructive relations, although not without problems. Previous April Vladimir Putin even cancelled his visit to Sophia, as by this time they hadn’t managed to “settle” all the details of the agreement on the joining of Bulgaria into this project. But already next month, duringthe visit of Stanishev to Moscow, Bulgarian authorities agreed to join the “South Stream”. At the same time Moscow refused to accomplish the demands of Bulgaria to refuse of the intermediate between “Bulgargaz” and “Gazprom”.

Let’s note, that “Gazprom” is a monopolistic importer of natural gas to Bulgaria. 70% of Russian gas to Bulgaria is imported by Overgas Inc (JV “Gazprom Export” and the company Overgas Holding of the entrepreneur Sasho Donchev, established on the parity basis – the scheme reminding the famous “Rosukrenergo”), selling almost all the capacity of “Bulgargaz” company. Another intermediate WIEE (JV of “Gazprom” and German  Wintershall), and the volume of supplies on the first contract is 2,5 billion cubic meters, on the second – up to 700 million cubic meters. But last year because of the crisis the total capacity into this country was about 2,64 billion cubic meters. Except for that there is another link between “Gazprom Export” and intermediates – “Gazprom Germania”.

The situation within Russian-Bulgarian relations began changing in July 2009 after another Parliamentary elections, when was established the right-wing cabinet of Boyko Borisov, former police general, corruption fighter, Sophia Mayor and the founder of the Party “Citizens for European Development of Bulgaria” (CEDP), that gained about 40% of voters. Already then observers predicted that Borisov will try to review all the terms of “South Stream” agreement, in particular, to make the line on the intermediate issue more severe. Bargain, which was relatively calm by Stanishev, really became much more complicated character.

Right after the coming to power Borisov claimed about the need to stop the negotiations on common energy projects with Russia – construction of Bulgarian part of the“South Stream”, NPP “Belene” and thermal power plant in Skopje, and a conclusion of a new treaty on Russian gas supplies. Previous September Borisov paid a visit to Russia. But the negotiations didn’t clarify the relations. Vladimir Putin then let to understand that the line of Bulgaria is not that clear for Russia.

Borisov in his turn, then gave a careful positive answer to continue the cooperation on the “South Stream” and expressed doubts concerning another project – oil pipeline Burgas - Alexandroupoli. But the last subject didn’t really concern Russia – by that time it has been already negotiated with Turkey on joint participation within the construction of alternative oil pipeline Samsun-Ceyhan.

This summer a careful positive of Bulgarian Prime Minister have unexpectedly changed with harsh negative. On June 11th Borisov stated that Bulgaria withdrew from the project of the oil pipeline Burgas-Alexndroupoli construction (the project that also included Russian “Transneft” and Greece) and froze the construction of the NPP “Belene”. Although, later Energy Minister of Bulgaria Traycho Traykov stated that the authorities of the country hadn’t yet adopted official decisions on this subject. At first sight, it seems, that the case was about the classic scenario “kind and evil investigators”, but against this version there is a circumstance: contradicting statements were made during pretty short term, which wasn’t beneficial for the image of Bulgarian Government. It seems that if the Prime Minister made political statements, then the “field” Minister was responsible for real economy and a rigid line towards significant projects and potential investors wasn’t beneficial for him. Formally these issues had nothing to do with the “South Stream”, but it’s clear that it was about the common format of Russian-Bulgarian relations, directly influencing the prospects of the gas pipeline project accomplishment.

Moreover, already on June 12th the Deputy Head of the Ministry of Foreign Affairs of Bulgaria Marin Raykov said that the “South Stream” raised “many questions” and the competing European project “Nabucco” was more important for the country. In the beginning of July information appeared that Bulgarian Government initiated prosecutor’s inspection of gas agreements with Russia. It seems that exactly the last factor was a decisive one – Bulgaria let to understand that the issue of gas contracts was the key one. And it intends to achieve more serious results, than the Cabinet of Stanishev in the case of removal of undesired intermediate. Moreover, the severization of the line of Bulgarian authorities had also political-economic reasons: gas prices for Bulgaria of the third quarter grew on 25% together with the growth of the import production cost and the strengthening of dollar.

The number of “painful” issues within Russian-Bulgarian relations constantly grew. Russian aviation didn’t let to perform regular flights between Novosibirsk and Burgas and Varna. In its turn, Bulgarian Transport Ministry claimed about the readiness to cancel earlier issued license for the flights to the same resort cities to the Russian air company S7 Airlines (“Siberia”)

In reply “Gazprom” began its counter-game. On June 16th Aleksey Miller hold negotiations with the Minister of Economy, Trade and Business of Romania Adrian Vidyan. During the meeting they discussed a possibility of construction in the country of transit gas pipeline and gas holder within the framework of the project of the “South Stream” construction. Earlier the issue on Romania as a transit state hasn’t been observed – it was only about the plans of the dead-end gas pipeline – branch line construction. Now Romanian way began to be observed within a public area as an alternative to a Bulgarian one. Miller stated that during two-three months they will perform technical-economic analysis of the participation in the “South Stream”. And Romanian Ministry of Foreign Affairs claimed that this project had a support of Bucharest.

However, Romanian variant initially looked more dingy than a Bulgarian one. Political relations of Russia and Romania looked more complicated then in case of Bulgaria. The both states have different approaches to the situation in Moldova and Transnistria regulation; Romanian Government sympathizes to the current acting President of Moldova Mihai Ghimpu, which is considered to be the most negative Moldavian political leader towards Russia. Recent spy scandal (detention of Romanian diplomat in Moscow with a following exile and replying announcement as the “Person non grata” of an employee of the Russian embassy in Bucharest) confirmed complicated character of bilateral relations. It seems that having begun the demonstrative negotiations with Romania (the information about which immediately became the focus of Mass Media), Russia decided to “press” Bulgaria.
Contradictory compromise
The situation with the participation of Bulgaria in the “South Stream” remained frozen up to the middle of July, when the compromise was achieved. In the beginning ofJuly Bulgaria welcomed an official visit of Russian Vice Prime-Minister Viktor Zubkov, who managed to agree on the signing of the “road map” of the project, defining thedetails of its technical-economic substantiation. According to the “Kommersant”, gas-transporting system of Bulgaria will be included into the “South Stream”, by thisall already constructed pipes will remain in the ownership of this country. The pipes to be constructed will be owned by “Gazprom” and Bulgaria on parity rights. However, the issue of Russian gas prices, which Bulgaria related to the problem of the “South Stream”, remained unsolved.

> South Stream On The Map Of Europe
> Specifications of the South Stream Project
After the visit of Zubkov the negotiations activated, although they were complicated – on July 16th the session lasted all night, before they reached the compromise. Next day the “road map” was signed by the Ministers of the two states Sergey Shmatko and Traycho Traikov. The protocol on gas supplies to Bulgaria simultaneously was signed by the Deputy Chairman of “Gazprom” Alexander Medvedev and the Head of Bulgargaz Dimitar Gogov. Prime Minister Borisov visited the official ceremony. He reported that the talks with Russia turned out to be successful. According to Borisov, Sophia managed to gain the reduction of gas price from “Gazprom”, and also a total refusal of the intermediates by the gas selling to Bulgaria – now the contracts will be concluded directly with “Bulgargaz”. The size of the discount wasn’t sounded by the Prime Minister. By this Borisov stated that Bulgaria was still interested in the participation in the “South Stream”, and there is nothing unsolved on this issue between the two states.

On July 28th Bulgaria together with Greece made another step, emphatically favorable in the attitude of the “South Stream”. Following the results of the negotiations the Prime Ministers of Bulgaria and Greece Borisov and Georgios Papandreou a statement was adopted, which particularly stated that the main project of the highest priority for the European Union is the Russian the “South Stream”. In reply the EU Commissioner on Energy Gunter Ettinger claimed that the EU favors the “Nabucco”. He underlined, that the “South Stream” is an “interesting project” for the European Union, however it doesn’t guarantee direct supplies to Europe, that is why it can’t have a status of priority. The irritation of Europeans by the “separate” statement of the two leaders of the EU member-states is reasonable, that could be explained by the need to underline the proximity of the lines at least on one “pipeline” issue (for another oil pipeline Burgas-Alexandroupoli where there are much more divergences see further).

However, by the close analysis it turns out that the idyll is not that close. First of all, the JV of “Gazprom” and “Bulgargaz”, according to the “road map”, should be founded only in February of 2011, then the issue on investments into the “Nabucco” construction should be finally solved till the end of the current year. Thus, Bulgarian authorities reserve the right to give the preference to the European project. Moreover, in a few days after the signing of the documents with Russia Bulgarian Government approved the agreement on the participation within the “Nabucco”. According to the representatives of Bulgarian authorities, the agreement anticipates legal, regulatory and other terms of the gas pipeline construction within the territory of Bulgaria. “The approval of the agreement should attract private investors to the project, and also to promote the accomplishment of the project”, - stated in the official report of the Government of the state.

Secondly, unclear remains the issue, how much will be the price for Russian gas reduced for Bulgaria. Minister Shmatko only said that the agreements achieved will allow Bulgaria to buy gas on “preferential prices”. In its turn, his colleague Traykov claimed that the signed documents is only the beginning; Russia and Bulgaria should agree on definite details of new contracts on gas supplies by June 30th 2011. And the first draft of the direct agreement between “Gazprom Export” and “Bulgargaz” Russia will present to Sophia till August 10th of this year. Thus, intermediates will remain up to the next year. Only “Gazprom Germania” can become an exception: in June Alexander Medvedev promised that this company will be excluded from the scheme of supplies in the near future.

Thirdly, Bulgaria keeps on searching of the alternative to Russian gas. In particular, modern “shale” issue has also touched Bulgaria. American companies “Chevron” and “Integrity Towers” intend to produce shale gas in this country. Now Bulgarian authorities arrange tenders on the development of fields. Shale stocks in Bulgaria, under the assessment of the USA Embassy in this country, can cover 25 billion cubic meters. But this alternative can be urgent only in a long-term prospect – according to the estimation of Bulgarian Ministry of Economy, industrial production of shale gas can begin in the country only in five-ten years.
Project with Unclear Fate

As for the Bugras-Alexandroupoli project, then the reduction (but not the disappearance) of the interest to it from Russia resulted into that it obviously wasn’t discussed during the talks with Zubkov and Shmatko. Let’s remind that Trans-Balkan oil pipeline Burgas-Alexandroupoli with capacity of 35 million tons a year with a potential extension up to 50 million tons should go from the port Burgas in the Black Sea into the port Alexandroupoli in Aegean Sea. Oil pipeline Burgas-Alexandroupoli, as well as competing pipeline Samsun-Ceyhan, primarily is designed to transport oil by ground around overloaded Black Sea Straits Bosporus and Dardanelles.

However, the interest to the “orthodox oil pipeline” (as it was called a few years ago) is now revealed by Greece – its prime Minister Georgis Papandreou remains an upholder of this project. However, on July 22nd Vladimir Putin held phone talks with Borisov and Papandreou and agreed on the meeting with Greek Prime Minister – probably, there they will decide on the fate of the oil pipeline.

By this moment, following the results of the talks, held in Sophia on  July 22nd – 23rd, according to the information of the agency RIA “Novosti”, Bulgaria agreed to settle arrears on the project of the oil pipeline construction in the size of 4,88 million Euro. “Bulgarian partners keep on analyzing the content of the project from the point of view of benefits and ecologic risks, but according to our estimates, there is understanding from their side  that it’s inexpedient to withdraw from it”, - stated then Vice-President of “Transneft” Mikhail Barkov. But already on July 28th it became known that the Governments of Bulgaria and Greece didn’t manage to achieve an agreement regarding the oil pipeline construction. The line of Bulgaria towards the oil pipeline remained unchanged, claimed Borisov utterly. Ecology has always been for us at the first place, we expect ecologic assessment, but it also expensive, added Bulgarian Prime Minister. He explained that all the three Parties should pay for the ecologic assessment. Moreover, Borisov refuted the information of the RIA “Novosti” about the settlement of the arrear by Bulgaria, and noted demonstratively that he doesn’t read the news of Russian agencies, and he prefers the information of Reuters.

Then former Prime Minister Stanishev sharply criticized the line of Borisov: “We should search for the best ecologic guarantees for the oil pipeline Burgas-Alexandroupoli, but I really doubt that ecologic safety is a real reason, because of which the cabinet of Borisov freezes the project”. Stanishev clearly hints on political considerations of the current right-wing Bulgarian Government – it is about the intention of Bulgaria to underline its solidarity with the EU in the situation, when the country doesn’t exclude the possibility of participation in the “South Stream”, which can be perceived as a violence of European solidarity. According to Stanishev, the unwillingness of Bulgaria to construct oil pipeline will result into a lost benefit, as Russia can pipe a joint alternative oil pipeline Samsun-Ceyhan with Turkey.

Now Bulgarian delegation on September 8th – 9th will hold negotiations in Moscow on the project of the oil pipeline construction. “The representatives of Bulgaria will listen to the presentation on the project Burgas-Alexandroupoli”, - noted official representative of “Transneft” Igor Demin. According to his words, the delegation will be headed by the Vice-Minister, Minister of Finances of Bulgaria Simeon Dyankov – i.e. the consultations will be held at a pretty high level.

Still it seems that despite all the doubts and pretty restrained relation from the EU, Bulgaria observes the “South Stream” as a priority of the cooperation with Russia, and its loyalty to the “Nabucco” project underlines the insurances, if exactly “European” gas pipeline construction will be launched. As for the oil pipeline, then its prospects seem more doubtful – probably, considering that the strategic significance of this project for the both countries is not obvious.
Translated by EuroDialogue XXI from politcom.ru