Gazprom, Srbijagas Venture to Finance South Stream in Serbia

Russia’s OAO Gazprom (OGZD) and Serbia’s state gas utility Srbijagas JP will invest in building the Serbian section of the South Stream pipeline and plan to open it in 2015.

The 470-kilometer pipeline, with offshoots to Croatia and Bosnia-Herzegovina, will cost about 1.7 billion euros ($2.2 billion), said Srbijagas Chief Executive Officer Dusan Bajatovic at a press conference in Belgrade today. The work will start in December, as the two companies’ Switzerland-registered joint venture made the investment decision today, he said.

The South Stream project, whose stakeholders are Gazprom, Italy’s ENI SpA (ENI), Germany’s Wintershall AG and Electricite de France SA, is designed to ship up to 63 billion cubic meters of Russian gas across the Black Sea to southeastern and central Europe, without going through Ukraine. It’s a rival to the Nabucco project that plans to ship Caspian gas via Turkey.

Gazprom formed joint ventures for all countries where South Stream is planned to pass, and the one with Serbia is the first to confirm it would go ahead, Chairman Leonid Chugunov said. The ventures for Hungary, Slovenia and Bulgaria are expected to make similar decisions for respective territories by Dec. 15, he said.

Financing details for the Serbian section are to be determined with the help of a consultant, Chugunov said. without elaborating. Serbia’s state-owned Srbijagas, a 49 percent stakeholder, will seek to be “burdened as little as possible, without losing or decreasing our stake,” Bajatovic said.

Pipeline Capacity

The Serbian part of the pipe will be able to carry as much as 40 billion cubic meters a year. It will stretch from the country’s southeastern border with Bulgaria to far northwest, extending to neighboring Hungary, Bajatovic said. It will require as much as 450,000 tons of steel tubes, for which a tender will be called, he said.

The offshoot to Croatia will have annual capacity of 2.7 billion cubic meters, while the link to Bosnia will carry 1.2 billion cubic meters a year, he said. Links to neighboring Macedonia and Montenegro may also be considered, he said.

Serbia expects to make 200 million euros from transit fees a year, according to the executive.

To contact the reporters on this story: Misha Savic in Belgrade at msavic2@bloomberg.net; Ladka Bauerova in Prague at lbauerova@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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