Russia & Bulgaria Ink the Pipeline Deal

SOFIA, Bulgaria -- Bulgarian and Russian officials signed a deal Friday to build a natural-gas pipeline that would undercut a rival project backed by the U.S. and European Union and strengthen the Kremlin's dominance over EU energy supplies.
[Vladimir Putin]

The agreement came after visiting Russian President Vladimir Putin pushed hard to secure Bulgaria's crucial participation in the proposed South Stream pipeline that would cross from Russia under the Black Sea to Bulgaria and then branch off for delivery deeper in Europe. The deal required last-minute negotiations late Thursday, amid tough bargaining by Bulgaria and wariness about Russia's clout. The Bulgarian cabinet approved the deal at an extraordinary meeting only a few hours before it was signed.

"Bulgaria's interests are fully protected, because the company which will be set up to construct and run the pipeline on Bulgarian soil will be with 50% Bulgarian and 50% Russian ownership," Bulgarian Prime Minister Sergei Stanishev said.

Russia's state-controlled gas monopoly, OAO Gazprom, had previously been offering Bulgaria a minority stake in the part of the pipeline that would run through Bulgaria. "Until yesterday, the Russian side insisted on holding a 51% stake," Mr. Stanishev said. He said Mr. Putin deserved most of the credit for progress in the late-night negotiations.

Despite the concession, the imminent deal was a victory for Mr. Putin and Russia, which is already Europe's dominant gas and oil supplier and is seeking to increase its control over westward routes for its energy supplies from the former Soviet Union.

"It's very important that the parties have shown their ability to compromise, and the draft that has been prepared reflects a balance of interests," Gazprom chairman Dmitry Medvedev, who is likely to succeed Mr. Putin after the March 2 presidential election, said after meeting with Mr. Stanishev.
[Dmitry Medvedev]

Mr. Medvedev said agreements on South Stream "will work for decades and make it possible to ensure stable conditions for future energy deliveries for Bulgaria, Russia and EU nations."

Gazprom has set up a parity joint venture with Italy's ENI SpA to develop a feasibility study for the 550-mile, $10 billion pipeline. The project is a direct rival to the Nabucco pipeline, sponsored by the U.S. and the EU, which would also come through Bulgaria.

Taking advantage of the clashing pipeline offers, Bulgaria has bargained with the Kremlin. On Thursday, Bulgarian President Georgi Parvanov underlined his nation's support for the EU's efforts to diversify energy supply routes -- and for Nabucco -- in a speech at a ceremony marking the opening of a Russian cultural festival in Bulgaria.

After Mr. Parvanov had spoken, a clearly annoyed Mr. Putin, standing next to him, said Bulgaria was free to choose its direction but warned it to make sure it "works to its benefit." South Stream would undercut Nabucco and dash the EU's hopes of reducing its growing reliance on Russia, which now supplies up to 40 % of Europe's gas and up to a third of the oil imports of some European countries. South Stream would have an estimated annual capacity of 1.15 trillion cubic feet, roughly equivalent to 60% of the natural gas consumed annually in the Netherlands.

Earlier in the week, Mr. Stanishev said that South Stream would enhance his country's standing, but that "it is important for Bulgaria to see a clear economic interest, besides the geostrategic interest." The Kremlin's plans have upset opposition parties and nongovernmental organizations in this former Soviet satellite. They fear Bulgaria's increasing dependence on Russian energy supplies and criticize Moscow's human-rights record.

About 100 demonstrators protested Mr. Putin's visit in downtown Sofia Thursday. They were watched closely by police, who have mounted a huge security operation. The protest was organized by the Anna Politkovskaya Association for Freedom of Speech, named after the Russian journalist who was murdered in 2006.

"Putin is coming to Bulgaria to sign Bulgaria's total economic dependence on Russia," the group said in a statement.

With Messrs. Putin and Parvanov looking on, officials also signed a €4 billion ($5.9 billion) contract to build Bulgaria's second nuclear plant near the northern town of Belene. An agreement for a joint company, with Greece, to build the Burgas-Alexandroupolis oil pipeline, which will channel Russian oil from the Black Sea to the Aegean bypassing Turkey's busy Bosporus, was also signed.

As part of its energy blitz, Russia has promised to extend South Stream into Serbia and build a huge gas storage facility there -- moves that would turn the Balkan nation into a major hub for Russian energy supplies to Europe. Belgrade has turned increasingly away from the West and toward Russia, which has supported Serbia in the debate over independence for Serbia's Kosovo province.