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Gazprom Renews Threat to Swap Bulgaria for Romania in South Stream
Date: 14/10/2010
Gazprom Renews Threat to Swap Bulgaria for Romania in South Stream

Russian energy giant Gazprom has practically renewed its threat to replace Bulgaria with Romania as the primary transit hub of the South Stream gas pipeline.

This view is expressed in an article of the Russian business newspaper RBK Daily entitled "Gazprom Threatens Bulgaria Again."

The paper points out that Wednesday's news of Gazprom signing a memorandum of mutual understanding with Romania's company Transgas are a clear sign that Russia could decide to go for picking Romania as a transit route over Bulgaria, whose new government has balked at putting teeth into three large-scale Russian-sponsored energy projects over the past year, including South Stream.

The news that Russia and Romania will be forming an expert group for an economic and technical feasibility study for the route of South Stream in Romania, which, if successful, should lead to an intergovernmental agreement to be singed in the first quarter of 2011, is construed as evidence that Gazprom is eying Romania as an alternative to Bulgaria.

As the talks for including Romania in South Stream first started in the summer, the pipeline was only supposed to have an extension which did not require an intergovernmental agreement. The first intergovernmental agreement that Russia signed for the realization of South Stream was with Bulgaria, as early as January 2008.

"When Boyko Borisov became Prime Minister, the Russian-Bulgarian energy projects (Belene NPP, South Stream gas pipeline, Burgas-Alexandroupolis oil pipeline) ground to a halt. The talks with Romania, which threatened to leave Bulgaria without gas transit fees, made Bulgaria more willing," says the RBK Daily, which also reminds that in July 2010, during talks between Borisov and Deputy Russian PM Viktor Zubkov, Gazprom agreed to certain concessions – reducing natural gas prices to Bulgaria and more favorable fees for transit to Greece and Turkey.

At the same time, however, Sofia has not been in a hurry to set up a joint project company with Russia for the construction of South Stream on its territory, the Russian paper says.

It cites Dmitry Abzalov, an expert of the Russian Center for Study of Political Situation, as saying that the renewed talks with Romania are a new attempt on Russia's part to overwhelm Bulgaria's unwillingness to speed up South Stream.

Abzalov is convinced that Russia has got the edge with South Stream over its EU-backed competitor Nabucco, and that it should not let that go.

"For Gazprom changing the transit country is also not the best option. First of all, the talks will have to start anew, and second, striking a deal with Romania will also be hard. There are political disagreements between Russia and Romania over Moldova. What is more, the Romanians will also try to wrest concessions from Moscow," Abzalov says.

"If the new threat does no work, it will also not be easy for Russia to strike a deal with Bucharest," points out the article.

Gazprom CEO Alexei Miller is expected to visit Bulgaria's capital Sofia on Friday.

Russia and Romania first started talks for that in June fueling fears in Bulgaria that Romania's inclusion into the project – combined with Macedonia's accession for which talks are under way - might allow the Russians to go around Bulgaria as a result of the Borisov Cabinet balking at two other large-scale Russian-sponsored energy deals – the Belene NPP and the Burgas-Alexandroupolis oil pipeline.

While Russia sought to refute such fears by saying that Romania will only be supplied with gas through South Stream, and most likely will not be a transit country, recent publications in the Russian media interpreting a statement by Italian PM Berlusconi that Bulgaria was creating difficulties for the project continue to fuel suspicions that Moscow might swap Bulgaria for Romania.

The South Stream gas transit pipeline is supposed to be ready by 2015. Its construction is expected to cost between EUR 19 B and EUR 24 B. It will be transporting 63 billion cubic meters of natural gas annually, or 35% of Russia's total annual natural gas export to Europe.

The South Stream pipe will start near Novorosiysk on the Russian Black Sea coast, and will go to Bulgaria's Varna; the underwater section will be long 900 km.

In Bulgaria, the pipe is supposed to split in two – one pipeline going to Greece and Southern Italy, and another one going to Austria and Northern Italy through Serbia, Croatia and Slovenia.

The project was initiated by Gazprom and the Italian company Eni, and the French company EdF is also planned to join as a shareholder. It is seen as a competitor to the EU-sponsored project Nabucco seeking to bring non-Russian gas to Europe.

As early as April 2010, Russian Prime Minister Vladimir Putin announced that the French company EDF will also become a partner in the South Stream project. Back then he said that EDF asked for a 20% share, which, if granted, will probably leave Gazprom and Eni with 40% each.

At their meeting on Saturday in St. Petersburg, Berlusconi and Putin welcomed the idea of having German companies join in as shareholders. There is no indication as to how the joining of RWE or some other German company would re-apportion the stakes.

Topic: Business

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