Despite the final investment agreement for the gas pipeline South Stream, signed late last year, Bulgaria and Russia still have quite a lot of details to clear around the project. This is the conclusion from the brief but indicative visit of the Chairman of the Board of Directors of Gazprom Alexey Miller to Sofia last week. The senior Russian official was literally for a few hours in Bulgaria, during which he met with Prime Minister Oresharski and Minister of Economy and Energy Dragomir Stoynev. The warning that
between the two countries there are certain frictions
beamed after the visit when the officials made only brief statements, and journalists were not given the opportunity to ask questions about the South Stream.
According to the BANKER, the most serious conflicts around the pipe are coming from the claims of Gazprom to retain 100% of its capacity for itself. This is directly against the rules of the European Union and its requirements for energy market liberalization. Although created with the mandate of the pro-Russian socialist party, the current Bulgarian Government also understands this.
It is important to establish the regulatory regime of the project, that is – concrete results of the negotiations between the European Union and Russia, Minister Stoynev hinted in his statement after the meeting. He added that the Government of Bulgaria has always observed in their work a fundamental principle – the national interest – both economically and in a regional and European context.
Another very sensitive issue, which was again passed over rather light-heartedly is
the still unclear construction price
for the section of the South Stream on Bulgarian territory. At the signing of the investment agreement, it was announced that the project will cost 3.309 billion euros, as the track will be longer than 900 km. and includes three compressor stations and a reception station.
In Sofia Alexei Miller said something different: The investment that we put in Bulgaria come to 3.1 billion euros. The share of the Bulgarian side will be paid through the transit fees during the operation of the pipeline. Bulgaria does not assume any risks associated with the financing of the construction of the South Stream in the country, said the head of Gazprom. He added that the construction of the pipeline in the country will be commissioned to local businesses as far as possible.
The official website of the Kremlin-controlled company lists a third – a different amount. During the talks between the two parties (Editor’s note: In Sofia) the common opinion was formed that the project in Bulgaria will lead to increased economic growth in the country. In particular, the construction of the new gas transmission infrastructure in Bulgaria will attract about 2,500 qualified experts and about 3.5 billion euros in direct investment.
Such fluctuations of 200 million are by no means unimportant, as the funding provided by the Russians will be paid by the transit fees that the country will receive in the coming years, as the route becomes operational (early in 2017). That is, the greater the amount of the project financing is,
the longer Bulgaria will remain without profit
from the project.
What is more – it is not at all guaranteed that Bulgaria will get large enough and stable over time income for a sufficiently long period to repay its debt. Upon the signing of the South Stream Economy Minister in the Cabinet of GERB Delian Dobrev explained that the deadline for payback is 15 years and in the following 20-30 years of the life of the pipe the country will receive revenue.
South Stream is expected to transit the initial 30 billion cubic meters of gas per year, and the maximum capacity of the pipe should reach 63 billion cubic meters by 2025
This scenario, however, is idealistic. What will happen if the demand for gas is less than the planned by Gasprom?
Moscow can provide gas, but will anyone buy it? One should not forget that besides the South Stream on the horizon already emerges the Trans-Adriatic Pipeline (TAP), which will carry Azeri gas from the field Shah Deniz to the Old Continent. It will depart from Turkey through Greece and Albania along the Adriatic Sea reaching southern Italy and is rising to be a real competitor to the Russian project.
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