Gazprom Vows to Build South Stream as EU Says Deals Breach Law

OAO Gazprom, Russia’s natural gas export monopoly, vowed to continue the construction of its South Stream pipeline to Europe, saying the European Union’s legal concerns can be clarified as the project moves ahead.

The European Commission, the regulatory arm of the 28-nation EU, called on member states including Bulgaria, Hungary, Greece and Austria, to renegotiate their intergovernmental deals with Russia on South Stream. The agreements breach the EU law on pipeline management, access for third parties and pricing, according to the commission.

“The construction of South Stream will proceed as scheduled and in full compliance with local laws and international standards,” Gazprom said today in an e-mailed statement. “Remaining regulatory questions concerning the application of EU energy law can be clarified in parallel.”

Gazprom has pushed ahead with the pipeline from the Black Sea region as Europe seeks to diversify its energy supplies and cut dependence on Russia, which provides a quarter of its gas. Russia has said South Stream will improve the EU’s energy security as it bypasses transit countries, such as Ukraine, where price disputes have disrupted exports during freezing weather.

Gazprom and partners Eni SpA (ENI), Wintershall AG and Electricite de France SA started work last year on the pipeline, which will run to eastern and southern Europe. The project is scheduled to start delivering gas at the end of 2015 and reach capacity of 63 billion cubic meters a year in 2019.

Unilateral Move

The commission, which scrutinized the six agreements between its member states and Russia, had until Aug. 16 to analyze them, and it informed member states on amendments needed to align the deals with EU law before the deadline, according to Marlene Holzner, energy spokeswoman for the commission. Countries that signed the South Stream agreements didn’t formally ask for any exemptions from the EU rules, she said.

“They have made intergovernmental agreements not respecting the EU legislation,” Holzner told reporters in Brussels today. “It’s a unilateral move.”

Russia has a copy of a European Commission letter alleging the violations and will talk with its partnering countries, Deputy Energy Minister Minister Anatoly Yanovsky told reporters today in Moscow. Accords have been signed with EU members Bulgaria, Greece, Hungary, Croatia, Slovenia and Austria, as well as EU candidate Serbia.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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