Bulgarian Cabinet links South Stream investment decision to long-term gas deal

Written by on November 7, 2012 in Bulgaria, Business, News - No comments

Bulgaria’s Cabinet gave its approval to the signing of the final investment decision on the South Stream gas pipeline, with the proviso that state-owned gas company Bulgargaz and Gazprom reach a long-term gas deliveries deal that “satisfies Bulgargaz demands on key issues,” the Government media service said on November 7.

The decision paves the way for the signing of the final investment decision on November 9 – an event initially scheduled to happen with Russian president Vladimir Putin in attendance, although that visit has now been pushed back to December because of Putin’s health problems.

But while the Cabinet approved the draft final investment decision, authorising the Economy and Energy Ministry to allow state-owned Bulgarian Energy Holding to sign the document, the Government did not detail how it planned to tie the two agreements.

According to reports in Bulgarian media, citing sources familiar with the talks, while the framework of the gas contract has been agreed in principle, some key details remain to be decided – including the length of the contract, the price of deliveries and whether the contract will include a “take or pay” clause that has been one of the cornerstones of Gazprom’s price-formation policy in recent years.

Bulgaria’s Economy and Energy Minister Delyan Dobrev has previously said that the new deal would run for six years and would be signed with Gazprom Export, a fully-owned subsidiary of the Russian state-owned company. Two other current intermediaries, Overgas Inc and Wintershall (both partially owned by Gazprom), would be left out of the deal.

A major stumbling block during the protracted negotiations over the past year has been Bulgaria’s insistence that Gazprom offers guarantees in case of halted deliveries – as happened in the winters of 2006 and 2009, when price wars between Russia and Ukraine led to a stoppage of deliveries to Central and Eastern Europe.

The draft final investment decision envisions, as previously reported by local media, that Bulgarian Energy Holding will not spend any funds on the construction of the Bulgarian stretch of South Stream. Instead, the costs would be covered by Gazprom and Bulgaria will use the transit fees it will receive over the first 15 years of South Stream’s operation to pay for the construction costs.

The total bill for the construction of the Bulgarian stretch is estimated at 3.3 billion euro, but the final price will be determined as progress is made on the design and environmental impact assessment fronts, the Cabinet’s statement said.

(Photo: jarpur/sxc.hu)

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