Bulgarian Agreement Just a Step

Not All Clear Sailing

The signing of a deal between Bulgaria and Russia doesn't mean that the South Stream pipeline project is off and running

It is early days says Valery Nesterov, an analyst at Russian investment company Troika Dialog.

The two countries will now have to move ahead with complex negotiations concerning the price on gas transit, Nesterov said to Russian daily Vedomosti.

Nezavisimaya Gazeta, another Russian newspaper, said that the creation of the joint venture that will be in charge of the Bulgarian section of the project still does not mean a green light to the start of construction.

"Making an investment decision will be a clear signal, but prospects at this stage are currently extremely difficult to predict," Exploration and Production magazine's analyst, Mikhail Krutikhin, said.

So What Does it Cost?

According to the Vedomosti, South Stream could emerge as Russian gas giant Gazprom's most expensive project, whose price, however, has never truly been unveiled.

In February 2009, Gazprom said that the 3000km route could be worth more than Eur 24 billion.  Later, the company's CEO Alexei Miller said that capital spending on the project would be Eur 8.6 billion. On Tuesday, project head Marcel Kramer said the total cost was likely to be more than Eur 10 billion. Previously, South Stream partner Eni SpA had previously evaluated the entire project cost at around Eur 19 billion.

The fact that many of the countries participating in the project were recently on the brink of default and may find difficulties in securing the necessary investments brings more uncertainty to the project, Krutikhin said.

A Conflict Brewing

The European Union has urged Bulgaria to amend its South Stream agreement with Russia to conform with EU law and make sure third parties are given access.

However, Bulgarian Energy Minister Traicho Traikov said shareholders in the South Stream project will demand an exception to EU rules aimed at liberalising the gas market by requesting Brussels to keep for themselves part of the pipeline's capacity.

According to Traikov, Bulgaria will request that 50-70% of the pipeline will be accessible only to the joint venture shareholders, while the rest be liberalized.

Traikov said that the European Commission had already made such an exception for Nabucco gas pipeline.

Source: Dnevnik.bg and other sources