Bulgaria Bows To EU, Halts Work On South Stream

Bulgaria says it has not given up on the South Stream pipeline even though it has agreed to a request from the European Commission to stop work on the project for now.

Bulgarian Prime Minister Plamen Oresharski ordered the work stoppage on the Gazprom-led project on June 8 after meeting with U.S. Sens. John McCain (R-AZ), Christopher Murphy (D-CT) and Ron Johnson (R-WI).

The $45 billion pipeline's southerly route would bypass Ukraine, through which some 30 percent of gas destined for EU countries flows from Russia. State-owned Gazprom holds a 50 percent stake in the project.

Disputes between Kiev and Moscow over gas payments interrupted pipeline flows through Ukraine in 2006 and 2009, and Moscow has threatened to do the same if Kiev doesn't pay overdue gas bills worth billions of dollars.

The European Commission withdrew its approval of South Stream construction in March after Russia annexed Ukraine's Crimean peninsula. The EC also said Sofia had violated EC internal market rules concerning the awarding of public contracts.

Construction on the pipeline is being led by Russian engineering company Stroytansgaz, which is on a U.S. list of companies and individuals subject to economic sanctions as a result of Russia's actions in Ukraine.

Despite the work suspension, Bulgarian Energy Minister Dragomir Stoynev said June 9 that the completion of the South Stream gas pipeline is "irreversible."

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Stoynev, traveling in China, shrugged off the dispute. "If we look at the situation strategically and without emotions. The South Stream project looks irreversible and important for both Europe and Bulgaria," he said. "I am convinced that all pending issues will find a solution."

Russia denounced Bulgaria's decision to suspend work on South Stream, saying it was choosing to side with the EU despite its long relationship with Russia. Vladimir Chizhov, Russia's EU envoy, said June 9 in Moscow, "It is hard to shake off the feeling that the European Commission's blocking of the start of work on the construction of Bulgaria's key section of South Stream has been done for purely political purposes."

The move is having an effect beyond Bulgaria's borders. Serbia has also suspended work on the part of the pipeline that transits its territory. Belgrade said it could not continue work while construction in Bulgaria is stalled.

Serbia's Deputy Prime Minister of Transport Zorana Mihailovich said June 9, "Until Bulgaria finishes negotiations with Brussels and the European Union and Russia, the project is suspended. Or until Russia changes the route. Either way ... there will be a delay in construction in our country."

The pipeline's scheduled completion date is 2018.

By Andy Tully of Oilprice.com