Bulgaria leverages South Stream haste to clinch discount on Russian gas

By bne IntelliNews April 2, 2012

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Russia agreed to lower gas prices for Bulgaria by 11.1%, a Bulgarian official announced on March 30, in return for helping accelerate the development of the giant South Stream gas pipeline project.

Bulgarian Economy, Energy and Tourism Minister Delyan Dobrev announced the discount as he returned from a trip to Moscow. It was a very different message than the one reporters were awaiting, as the minister had traveled to Russia just a day after Sofia said it was officially scrapping plans to build the Belene nuclear power plant. Russia, whose state nuclear champion Rosatom was contracted to build the facility, had sternly opposed the move.

However, rather than a bloody nose, Dobrev came back clinching a discount from Gazprom - a concession most of Europe has been chasing for four years or so. The 11% price cut is only for nine months - running from April 1 to the end of 2012 - but is still a surprising reward for Sofia's increasingly spiky relations with Moscow.

The pair spent much of 2011 bickering over a minor oil pipeline, and the Kremlin was notably irked when Bulgaira pulled out. The long-winded decision to cancel Belene was another that rocked the boat, as Sophia attempts to wean itself from almost total dependence on Russian energy.

However, Moscow has bigger fish to fry. Specifically, it's pushing to complete investment agreements with a number of EU countries on South Stream - which will carry Russian gas under the Black Sea to Turkey and on to southern Europe - before March 3, 2013, reports Euractiv. The haste is the result of its desire to beat the deadline on EU's Third Energy Package, which would force Gazprom to allow third-party suppliers access to the pipeline.

The huge leverage of Russia's energy resources has driven a successful strategy of picking off individual EU members to help it strengthen its grip on the European gas market, but it is seriously concerned by Brussels' latest batch of regulations, and the race is on.

That offers rare, and temporary, leverage to countries along the route, with Bulgaria the latest beneficiary. Flanked by Prime Minister Boyko Borisov, Dobrev discussed the results of his Moscow meetings with Russian deputy Prime Minister Igor Sechin, Energy Minister Sergey Shmatko and Gazprom CEO Alexei Miller at a news conference. The two sides agreed that a final investment decision on the Bulgarian stretch of South Stream will be taken by November 15.

Borisov rejected accusations that Sofia is selling out Brussels, claiming that the only condition for the discount was "honest and open relations." He stressed that Bulgaria's "full cooperation" for South Stream is equally as straightforward. "You bring in pipes, you bury them underground, you take [transit] taxes for many years, this is budget revenue for decades." he insisted.

The Bulgarian opposition criticized the deal, questioning whether it could cast doubt over Bulgaria's sovereignty over its existing gas pipeline network, through which up to 15bn cubic metres of Russian gas currently flow to Turkey, Greece and Macedonia.

For his part, Dobrev added that talks in Moscow had hardly even touched on Belene, despite reports on March 29 that Russia was ready to seek compensation for the cancelled contract. The minister said that the Russian side was aware that a political decision has been made by Prime Ministers Borisov and Vladimir Putin on an amicable exit, and only the details remained to be sorted. The two sides will conclude the cost to Bulgaria of the equipment already produced for Belene - which includes one reactor which Sophia has said it will install at the existing Kozloduy NPP - by the end of April.

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