South Stream Route Raises Questions In The Balkans

By Drazen Remikovic and Svetla Dimitrova

Russia’s Gazprom concluded deals with Bulgaria and Hungary for the South Stream gas pipeline to pass through their territories, but the route will bypass Croatia.

The 3,600 kilometre pipeline route will start in Russia, go along the Black Sea bed to Bulgaria, then to Serbia, Hungary, Slovenia, and it will end in Italy, Pravda reported Tuesday (November 20th).

“At present, we can only say Croatia is considered as an option for building a gas lateral to organise the supply of prospective customers,” the Gazprom information directorate office told SETimes in a statement.

The government of former Prime Minister Jadranka Kosor rejected a Gazprom offer for a 270 kilometre main route and showed only interest for a connecting leg the main pipeline, according to Radimir Cacic, Croatia’s former deputy prime minister.

“The new government reopened this issue, pointing to the benefits of Croatia having the pipeline’s main route. Unfortunately, because of Russia’s obligations to Hungary, nothing changed,” Cacic told SETimes.

Croatia imports nearly 70 percent of its energy and is vulnerable to price fluctuations. Electricity and gas rates increased in May by 20 percent and 22 percent, respectively.

The end result spells an economic loss for Croatia, said Branko Blazevic, economic analyst and member of the Croatian Association of Economists.

“The public is not presented what we would actually get with South Stream and perhaps that is also one reason why the work failed,” Blazevic said.

Croatia would have earned estimated 50 million euros annually from transit fees, according to experts.

“The Croatian government set its own requirements, did nothing and waited for Gazprom to create all the solutions,” Aleksander Gorbunov, director of Creatio Realisatio Consulting, a Zagreb-based agency that deals with Russian investments in Croatia, told SETimes.

The 540 kilometre-long stretch through Bulgaria, which will cost 3.3 billion euros, has also raised questions.

The proceeds from the transit fees Bulgaria will collect during the first 15 years of the pipeline’s operation will reportedly be used to repay Gazprom’s construction costs.

“Bulgaria will not receive any revenues from this pipeline” during that period, the opposition Bulgarian Socialist Party (BSP) said in a statement, though it reaffirmed it categorically supports the South Stream project.

“What will happen if the joint company’s profits prove insufficient for servicing the credit from Gazprom? Could Gazprom use the debt for [an] equity scheme to become a majority holder, or could it be that Bulgaria will need decades to pay it back, with the state receiving no dividends meanwhile?” BSP asked.

Finance Minister Simeon Djankov said there will be no state guarantees or any state funding for the project.

“It is for economists and energy experts to decide whether South Stream is good [for Bulgaria], but not a single penny of state budget money will be spent on it,” Djankov told SETimes.

About 18 billion cubic metres of the Russian natural gas, which enters Bulgaria’s grid at Negru Voda in southeastern Romania, are delivered to Macedonia, Greece and Turkey annually.

Once South Stream becomes operational, the gas will be transported via a 900 kilometre-long offshore section on the Black Sea seabed from Anapa in Russia to Varna in Bulgaria, and will enter the existing grid at Provadia.

The pipeline is expected to begin operating at the end of 2015. At full capacity, it will carry 63 billion cubic metres of Russian natural gas to Europe annually.