US-sanctioned Russian co Stroitransgaz to build Bulgaria's South Stream gas pipeline section

By bne IntelliNews May 28, 2014

A consortium led by Russia's Stroitransgaz (also spelled Stroytransgaz), majority owned by sanctions-hit businessman Gennady Timchenko, has won the tender for the design, equipment supplies and construction of the estimated EUR 3.5bn South Stream natural gas pipeline section in Bulgaria, South Stream Bulgaria said on May 27. The move was not a surprise, as rumours that Stroitransgaz will win the deal have been circulating in the media for some time.

Timchenko, who who holds a 63% stake in oil and gas engineering and construction company Stroitransgaz, was penalised by the US Treasury in March due to his links to Russian President Vladimir Putin, following Russia’s annexation of Crimea.

The consortium also includes Bulgarian Gazproekt Jug, which groups five Bulgarian companies - Industrial Construction Holding, Technoexportstroy, Glavbolgarstroy, Ponsstroy Engineering and PST Holding. A total of 11 bidders participated in the tender that was launched in December 2013.

South Stream Bulgaria is a joint-venture company established to manage the project in Bulgaria, owned equally by Russia's Gazprom and the state-run Bulgarian Energy Holding (BEH).

South Stream, expected to become operational in 2015, is to deliver 63bn cubic metres of Russian gas annually to south and central Europe, diversifying Russia's gas routes away from transit countries such as Ukraine.

The planned initial annual flow of 15.6bn cubic metres will be divided between Bulgaria and transit aimed for Greece and Turkey. In 2016, the quantities will be increased to 45bn cubic metres, reaching the planned maximum capacity of 63bn cubic metres in 2018.

The European Commission launched earlier in May an EU Pilot procedure against Bulgaria over proposed amendments to the country's energy legislation relating to the South Stream natural gas pipeline. The bill, which was adopted on first reading in April, excludes the Bulgarian offshore section of the planned South Stream gas pipeline from the scope of the EU's Third Energy Package. The South Stream project is not consistent with the EU's goals to reduce reliance on Russian gas.

Gazprom has a 50% stake in the project, Italian Eni – a 20% stake, German Wintershall Holding and French EDF hold 15% stakes each. The overall value of the pipeline is estimated to cost around USD 21bn.

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