Bulgaria Ties South Stream Agreement With Gas Supply Contract

Bulgaria’s Cabinet authorized Bulgarian Energy Holding to sign an investment agreement on constructing the South Stream pipeline with OAO Gazprom (GAZP) on condition gas prices are cut in next year’s supply contract.

The Holding, which groups Bulgaria’s biggest utilities, and Russia’s gas export monopoly agreed to sign in November a new gas-supply contract, which involves an 11 percent retroactive price cut for the second half of 2012, along with the South Stream investment agreement, Energy and Economy Minister Delyan Dobrev said on Aug. 28. Bulgarian and Russian officials are expected to meet later this month.

“The condition for the approval and signing of the investment agreement is the conclusion of a new natural gas supply contract for 2013 between Bulgargaz EAD and Gazprom Export, which is satisfactory for Bulgargaz in the critical issues,” the Cabinet in Sofia said in an e-mailed statement today.

Gazprom will lend to Bulgarian Energy Holding, an undisclosed amount of funds needed to cover its participation in the South Stream Bulgaria AD joint venture that will build the Bulgarian section of the pipeline, according to the draft agreement approved by the Bulgarian Cabinet today. The funds will be repaid by the venture’s dividends, the Cabinet said. The joint pipeline company will have a planned rate of return of 8 percent, the Cabinet said.

Gazprom said in August it will begin underwater construction on Dec. 1 of the pipeline, which will run from Russia along the Black Sea floor to Bulgaria. Gazprom will finish construction of the first line, which will be able to handle 15.75 billion cubic meters of a year, at the end of 2015, the Moscow-based company said.

South Stream, Nabucco

South Stream will carry 63 billion cubic meters of gas by 2019, when all four lines are operational, according to Gazprom. The link will run through Serbia, Hungary, Slovenia and northern Italy with offshoots to Greece and potentially Croatia, Montenegro and Macedonia, according to Gazprom. It competes with the OMV AG-led Nabucco pipeline which plans to pump Caspian Sea gas to Europe via Turkey and Bulgaria.

Gazprom pumps 17.8 billion cubic meters of gas a year to Bulgaria, about 2.8 billion cubic meters of which was consumed in 2011 there. The rest goes on to Turkey, Greece and Macedonia under a 30-year contract signed in 2006. Bulgaria spends as much as 1.4 billion euros ($1.8 billion) a year on gas imports.

To contact the reporter on this story: Elizabeth Konstantinova in Sofia at ekonstantino@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.