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Bulgaria halts South Stream construction following EC request

The European Commission argued that Bulgaria had not complied with EU market rules in the construction contracts

Bulgaria has halted construction of its section of the South Stream pipeline following a request from the European Commission. Plamen Oresharski, Bulgaria's prime minister, said on 8 June: "I have ordered all work to be stopped. We will decide on further developments following consultations with Brussels." Bulgaria is heavily reliant on Russian gas and stands to benefit from the South Stream pipeline transiting onshore. 

At the beginning of June, the commission began an infringement procedure against the Balkan nation, arguing Bulgaria had not complied with European Union (EU) market rules for awarding public contracts for construction of the pipeline. "The commission welcomes the announcement of the Bulgarian prime minister to suspend the construction of South Stream in Bulgaria. This is an important step in response to the concerns raised by the commission last week," an EC spokesperson said. "The commission has made clear that it stands ready to meet with the Bulgarian authorities and other member states to ensure that EU legislation is fully respected."

A spokesman for South Stream Transport, which is building the offshore section of the pipeline, said the decision to suspend construction of the Bulgarian sector will not affect construction of the subsea section of the pipeline. 

Gazprom declined to comment on the possible impact Bulgaria's announcement could have on the onshore section of the pipeline. 

In May, the commission published an updated energy security strategy because of concerns over the tendering process for South Stream. The strategy called on the EU to reduce its reliance on Russian energy supplies by increasing gas storage levels, improving energy efficiency and increasing the use of alternative fuels.  

The South Stream pipeline is designed to carry Russian gas across the Black Sea to southern and central Europe. The project is of huge strategic importance for Gazprom as it seeks to bypass Ukraine as a transit route for its gas supplies to Europe. Gazprom holds a 50% stake in the consortium developing South Stream. Italy's Eni (20%), Germany's Wintershall (15%) and France's EdF (15%) are the other shareholders.

The developers plan to build four pipelines, transporting up to 63 billion cm a year (cm/y) of Russian gas to central and southern Europe. The planned route begins at the Russian Black Sea town of Anapa, crossing the Black Sea to Varna, in Bulgaria. The onshore porion of the pipe travels from Varna to Serbia, Hungary and Slovenia, before terminating in Austria. Gazprom wants to pump first gas via South Stream in 2015, with full capacity scheduled for 2018.  

Gazprom still hasn't received all the onshore permits it needs for construction of the pipeline or an exemption from the EU's third-party access rules. These rules, which are part of the EU's third energy package, state that competing companies must have access to 50% of any gas infrastructure - even if they didn't pay for its construction. They are aimed at increasing competition and liberalising energy prices in European energy markets. 

The commission put its approvals process for South Stream on hold following Russia's annexation of Crimea in March. Brussels is using its decision over whether to approve the pipeline as political leverage in the West's dispute with Russia. Thus, in mid-March, EU energy commissioner Ganther Oettinger said he would delay talks with Gazprom over the South Stream pipeline following Crimea's plebiscite to join Russia.

In mid-May, in an open letter to world leaders, Russian president Vladimir Putin said that state-controlled gas exporter Gazprom could halt supplies to Ukraine unless the country pays off a fuel bill put at $3.51bn and makes pre-payment for gas supplied after 2 June. Gazprom says Ukraine owes it for gas supplied in 2013 running through to May this year.  

At the end of May Naftogaz paid Gazprom $786 million for gas supplies delivered to Ukraine in February and March. This paved the way for talks to try and resolve the long-standing gas-supply dispute between Russia and Ukraine. Russia claims Ukraine still owes almost $4bn for gas which has been already delivered.

On 2 June, Oettinger, Russian energy minister Aleksandr Novak and Ukrainian energy minister Yuriy Prodan met in Brussels. At the meeting Russia and Ukraine agreed that there would be no interruption of Russian gas supplies to Ukraine, no prepayment for deliveries for June and that no party would enter international arbitration procedures over the issue. The EU, Russia and Ukraine are scheduled to meet again in Brussels on 9 June to discuss the issue. 

Dragomir Stoynev, Bulgaria's economy and energy minister has said while there is no question that the South Stream pipeline will be built, uncertainty remains on the terms. Stoynev added that he was convinced disputes between Bulgaria and the EU would be resolved. 

On 9 June local press reported Serbia has also halted construction of its onshore section of South Stream. This was later denied by prime minister Aleksandar Vucic.  

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