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South Stream hindered by EU legal restrictions

European Union rules are calling into question the legality of agreements signed between member states and Russian energy monopoly Gazprom relating to the South Stream natural gas pipeline set to deliver fuel to Europe. Member states in the east of the bloc are actively lobbying in order to allow the investment to progress.

Nabucco is out of the picture, giving all the more impetus to its Russian-backed rival, South Stream. Construction is being launched in those countries involved, but Hungary and its partners along the route within the EU are raising concerns that the bloc’s energy regulations might possibly prevent the project. 

Serbia was the latest country to announce it had started construction of the South Stream natural gas pipeline, a project backed by Russian energy giant Gazprom. The news follows a similar announcement from Bulgaria at the end of October, while Turkey announced it would be launching work on its own territory in 2014.

The pipeline is planned to be 2,385 kilometers long, realized in partnership with nine countries, including Bulgaria, Serbia, Hungary, Italy and Russia, and has already called for far-reaching agreements between national governments as well as private sector participants involved in the implementation. The total investment required would be €17 billion, and it will provide a total annual capacity of 63 million cubic meters of gas.

It is planned to be up and fully operational by 2017. However, the European Union’s Third Energy package has raised concerns about the viability of the investment on legal grounds. Many of the numerous bilateral and multilateral agreements related to South Stream have come under scrutiny by the European Union on grounds that they do not comply with the package, which is meant to unbundle ownership of natural gas production and transmission, something that very much applies to Gazprom.

Plea for a waiver
Gazprom and its partners in the venture from both the government and private sectors are hopeful that an agreement for derogation can be reached considering the weight and significance of the project.

“Natural gas today represents the most important source of energy in the European Union,” said Alexander Syromyatin, deputy head of Gazprom’s project management department. “Demand in the near future will quickly overtake supply, because of the falling extraction capacity in Europe. The South Stream project will solve the problem of this deficit for the future,” he added underlining hopes of an agreement.

The affected EU countries are aiming to intensify lobbying on the matter and to exert pressure on EU decision makers.

“Slovenia’s discussions with the European Commission are extremely intense. Everyone should realize that Slovenia is part of the EU and it is in our interest to complete this investment project,” the country’s Minister of Infrastructure and Spatial Planning, Samo Omerzel said late October, reaffirming his government’s strong desire to participate.

Hungarian Prime Minister Viktor Orbán recently met with his counterparts from Slovenia and Bulgaria, Alenka Bratusek and Plamen Oresharski, and one of the key issues they agreed on was continuing with coordinated efforts to push through legal rectifications that would allow the pipeline venture to progress.

Right on track
Meanwhile, Hungary’s government is adamant that, although there have been no pipes installed thus far, the preparatory works along its stretch of the route are well under way and running at full speed.

“The plan for the construction of the South Stream is unique among the numerous ideas with similar goals as regards both the strong political support for it and the commitment of the participating companies. I am glad to establish that the preparations for the section of the pipeline in Hungary have proceeded at the right pace,” Development Minister Zsuzsa Németh said recently.

With a view to accelerating implementation, the Hungarian government has declared the project to be a high priority national economic investment, Németh said, also highlighting the need to coordinate attempts to achieve a resolution to its future.

Németh urged “joint efforts so as to surmount the obstacles to the implementation of the project together, as soon as possible, work out a solution acceptable for all and aligned with the EU energy policy and establish close and permanent partnership”.