EU demands Hungary clarify stance on South Stream

By bne IntelliNews November 5, 2014

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The European Commission on November 4 demanded that Hungary clarify newly-passed legislation that opens the way for it to sidestep EU oversight and push on with building the Russian-led South Stream gas pipeline. 

The Hungarian parliament approved an amendment on November 3 that allows any company to build pipelines. Currently, only certified transmission system operators (TSO) can construct international routes. However, such companies are subject to international approvals because of the need to harmonise development plans.

While the Russian pipeline is not named in the new legislation, Hungarian officials leave little room for doubt. "South Stream is going to be built, however, it would be important to enable as many firms as possible to compete for construction of its Hungarian segment," Antal Rogan, head of the Fidesz parliamentary group told Reuters on October 22. "That is because more companies are able to build pipelines than those that can operate pipelines."

The standoff between the West and Russia has provoked the EU to accelerate efforts to diversify away from Russian energy dependence. Brussels has ordered all work halted on South Stream, which is planned to bypass Ukraine's transit network to carry 63bn cubic metres of gas under the Black Sea and on to an Austrian hub. 

The Hungarian move therefore appears purposefully designed to provoke the EU and US, which have recently signalled their anger over Hungary's stance on the Ukraine crisis. After Prime Minister Viktor Orban met Gazprom CEO Alexei Miller on September 22, Hungary promptly halted reverse gas supplies to Ukraine, which is struggling to agree a deal with the Russian state giant following a cut-off in June. Meanwhile, Gazprom agreed to raise supplies to Hungarian storage facilities. 

Meanwhile, the EU will worry that Budapest's efforts to circumvent its juristriction on South Stream could open the floodgates. It has recently fought hard to block work on the pipeline in Bulgaria, and even non-member Serbia. 


European Commission spokesperson Ana-Kaisa Itkonen said that the EU executive is aware that the latest move in Hungary could open the way for it to continue with South Stream. Brussels is in contact with Budapest in order to seek further clarifications, she added.

Itkonen admitted separate authorization procedures for the building and operation of pipelines would not break EU rules. However, she also issued a thinly-veiled warning that Brussels is ready to continue to leverage its infamous web of bureaucracy and regulation in its fight against the Russian project. 

"In any event, it is crucial that in granting a licence to an undertaking to build a pipeline - which normally takes place after commitments have been made to book capacity therein - the strict provisions of the directive for operating a pipeline (becoming a Transmission System Operator) are not prejudiced, as well any public procurement rules", the spokeswoman stated, according toEuractiv.

The EU has used the bloc's Third Energy Package regulations, nominally aimed at ensuring liberalisation of the market, as its main weapon to push back South Stream. It demands that all contracts between Russian state-controlled Gazprom and host countries be redrawn in line with the regulations, which would take at least two years.

Andras Deak at the Hungarian Academy of Sciences suggested to Bloomberg that Hungary's Prime Minister Viktor Orban continues "testing the EU limits with Russian backing". However, he added that "the EU stopped Bulgaria, and it's going to stop us as well".

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