By Clive Leviev – Sawyer of The Sofia Globe
Outgoing European Commission president Jose Manuel Barroso said that the EC was planning to begin infringement proceedings against Bulgaria for breaching EU laws in its agreements on the Kremlin-backed South Stream gas pipeline, Bulgarian National Radio (BNR) reported on May 28.
At the informal European Council meeting late on May 27, Barroso told EU heads of government that the EC remains steadfast in its opinion that some of the intergovernmental agreement signed by member states with Russia to build South Stream were in contradiction with EU rules, BNR said.
The Commission was prepared to “take corresponding measures”, according to Barroso, who made the same point earlier on May 27 during a meeting with the Bulgarian Prime Minister Plamen Oresharski, the report said.
“I informed the prime minister of the EC’s intentions in this area. We must guarantee that the internal market rules are being observed, because we believe that in this case we are risking the energy security of Bulgaria and the energy security of Europe,” Barroso was quoted as saying.
After his meeting with Barroso, Oresharski said that Bulgaria would uphold EU law and was prepared to implement the EC’s recommendations.
However, on the same day that Oresharski was meeting Barroso, South Stream Bulgaria announced that it picked Russian company Stroygazmontazh and a consortium of five Bulgarian firms to carry out construction of the Bulgarian section of the pipeline.
Stroygazmontazh is believed to be controlled by Russian billionaire Gennady Timchenko, one of the businessmen targeted by US sanctions as a result of the Russian annexation of Crimea (and also, reportedly, a close associate of Russian President Vladimir Putin). The exact value of the contract was not announced, but previous estimates of the construction costs in Bulgaria were in the range of 3.5 billion euro.
This is the first time that Stroygazmontazh has been officially confirmed as the South Stream subcontractor, although reports in Bulgarian media claimed the decision has been made as early as March. That was the second tender called by the project company, with the first one – which gave interested parties less than three weeks to submit bids, much of it during the winter festive season – having to be scrapped after the EC said it was looking into the matter.
The planned EU infringement proceedings against Bulgaria are unlikely to put a halt to the pipeline’s construction – despite a European Parliament resolution that said that South Stream should not be built (the resolution does not have binding power), the EC cannot prevent South Stream from being built. It can, however, ensure that the pipeline observes EU law, specifically Third energy package regulations, which prevent gas producers like Gazprom from also owning pipeline capacities and also requires giving access to the pipeline to third-party suppliers.
Moscow views the regulations as squarely directed against Gazprom – the company is also under investigation by the EC on charges of abusing its dominant position in several Eastern European markets and could face a multi-billion fine if it is found guilty – and has maintained that the intergovernmental agreements are above EU regulations. Russia has also submitted the case to the World Trade Organisation, seeking arbitration, although analysts remain split over Moscow’s odds of success.