Nov. 15 (Bloomberg) -- Bulgaria signed an investment agreement with OAO Gazprom, Russia’s gas export monopoly, to build the South Stream pipeline, which will ship natural gas across the Black Sea and Bulgaria to Europe.
Bulgaria also signed a new long-term gas-supply contract, which involves a 20 percent price cut from Jan. 1, Prime Minister Boyko Borissov told reporters in Sofia today.
Gazprom kept the link between oil and gas prices in the contract and will ship 2.9 billion cubic meters of the fuel a year, the Moscow-based company said in a statement today. Bulgaria has an 80 percent take-or-pay obligation, Energy and Economy Minister Delyan Dobreb said at the news conference.
“We’ve agreed on very preferential prices for Bulgaria,” Gazprom Chief Executive Officer Alexey Miller told reporters. “With South Stream, Bulgaria becomes the biggest transit country for Russian gas in Europe.”
The Bulgarian section of the pipeline, which will run through Serbia, Hungary, Slovenia and northern Italy with offshoots potentially to Greece, Croatia, Montenegro and Macedonia, will be 540 kilometers (335 miles) long and will cost 3.3 billion euros ($4.2 billion), according to the government.
Gazprom will lend to the Bulgarian Energy Holding, which groups state utilities, 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 agreement. The funds will be repaid by the venture’s dividends. The joint pipeline company will have a planned rate of return of 8 percent.
South Stream will carry 63 billion cubic meters of gas by 2019, when all four lines are operational, according to Gazprom. It will start underwater construction of the pipeline on Dec. 7, which will run from Russia along the Black Sea floor to Bulgaria and will finish the first line, which will be able to handle 15.8 billion cubic meters of a year, at the end of 2015, Miller said.
The link competes with the OMV AG-led Nabucco pipeline that would pump Caspian Sea gas to Europe via Turkey and Bulgaria.
Gazprom pumps 17.8 billion cubic meters of gas a year to Bulgaria. 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 a year on gas imports.
The Russian company is also interested in building a gas-fired power plant in the Balkan country, Miller said.
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