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Central Europe: Agreement reached on Bosporus bypass

RUSSIA, Bulgaria and Greece have finalised an agreement to build a crude-oil pipeline across the Balkans to the Mediterranean. The link will bypass Turkey's crowded Bosporus straits, which provides the main highway for Russian and Caspian crude exports from Black Sea ports.

An agreement signed in Athens in March is the fruit of a memorandum of co-operation drawn up by the Russian, Bulgarian and Greek governments two years ago. It approves the construction of a 285 km pipeline, with a capacity of 35m tonnes a year (t/y), from the Bulgarian port of Burgas to Alexandroupolis, on Greece's Mediterranean coast. Capacity may later be expanded to 50m t/y, which would be sufficient to handle all the crude moved out of the Black Sea port of Novorossiysk, Russia's second-biggest crude-export terminal.

Speaking at the signing ceremony, Vladimir Putin, the Russian president, said: "This is a really serious investment in energy development ... allowing for the diversification of supplies to world energy markets."

Around one-third of Russian crude exports move to world markets through Black Sea ports. Growing export volumes in recent years, combined with increased deliveries to the Black Sea by Caspian oil producers, has worsened congestion in the Bosporus. Turkey has complained that the queues of oil tankers passing through the winding straits pose an unacceptable environmental risk to the city of Istanbul. New regulations limiting the volume and frequency of traffic in the straits have slowed delivery schedules and pushed up the cost of Black Sea oil transport.

Russia will own a majority 51% stake in the Burgas-Alexandroupolis pipeline, although the new system will not cross its territory and capacity will not be reserved exclusively for Russian crude.

Three state-controlled companies will hold the Russian share: Transneft, the crude-oil pipeline operator; Gazprom Neft, the oil division of the gas monopoly; and Rosneft. Remaining shares will be divided equally between Greece and Bulgaria. Hellenic Petroleum, the Greek refining company, and Prometheus, a joint gas-marketing venture between Gazprom and a Greek trader, will hold the Greek shares. Bulgargaz, the state-owned gas company, and Technoexportstroy, a construction company, will have title to Bulgaria's shares. Bulgaria has considered selling part of its equity to a Caspian producer. KazMunaiGaz, Kazakhstan's state-owned oil company, has shown interest in joining the project.

Some analysts doubt whether the Burgas-Alexandroupolis will be realised, given contractual and logistical difficulties associated with trans-national pipelines. But Simon Vainshtock, president of Transneft, says: "Transneft does not have unlucky projects. I do not admit thought of unlucky projects. We are doomed to succeed."

Construction of the line will begin as soon as the project has been ratified by the parliaments of all three participating governments, says Transneft. Vainshtock insists the pipeline will be built at break-neck speed: "It won't take a year or two, but much, much less." Transneft has established a reputation for timely implementation of far more technically demanding pipeline projects than Burgas-Alexandroupolis. Transneft will not invest its own funds in the project. The consortium will finance construction by borrowing internationally, according to Vainshtock.

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