Russia Mothballs Trans-Balkan Oil Pipeline Project

On February 17, the stakeholders and supervisory board of the Russian-led Burgas-Alexandropolis oil pipeline project shelved the project in all but name. The host countries, Bulgaria and Greece, had (each for its own considerations) recently suspended payments to the project company. The meeting decided to lay off staff and give up rented office space of the project company.  Moscow has not given up officially on this project, and has scheduled a follow-up meeting for June. But Moscow does plan a pipeline via Turkey (the Samsun-Ceyhan project) as an alternative option (Interfax, Novinite, February 17).

Led by a consortium of Russia’s Transneft, Rosneft, and Gazpromneft, the shelved project envisaged building a trans-Balkan pipeline from Burgas on Bulgaria’s Black Sea coast to Alexandropolis on the Greek Aegean coast. Vladimir Putin oversaw the launching of this project in 2006-2007 while president of Russia.

The line was intended for Kazakhstani and Russian oil, delivered by overland pipelines to Russia’s Black Sea coast at Novorossiysk, and requiring an outlet to the open sea. Those volumes are due to increase from production ramp-up in Kazakhstan and expansion of the Tengiz (Kazakhstan)-Novorossiysk pipeline. With the Turkish Straits already congested, and unable to accommodate more tanker traffic, the Burgas-Alexandropolis pipeline was planned as an extra outlet from the Black Sea, bypassing the Bosporus Strait.

The project envisaged moving at least 35 million tons of oil annually, on Russian medium-size tankers from Novorossiysk to Burgas, onward by pipeline from Bulgaria to Greece, and onto supertankers at the deep-water port of Alexandropolis.

This project would have resulted in the first-ever oil pipelines controlled by the Russian government in European Union countries. US and European companies, which account for most of oil production in Kazakhstan and have built the pipeline to Novorossiysk, would have depended on the Russian government for the terms of transit through the Burgas-Alexandropolis pipeline. Although situated in EU territory, this pipeline would have been immune to the EU’s legal and regulatory framework.

Greece eagerly cooperated with Russia on this project, but the financial crisis forced the Greek government in 2010 to suspend payments to the project company. Some in Athens, however, hold Bulgaria’s current government and the West responsible for the project’s demise. Greek Deputy Prime Minister, Theodoros Pangalos, speaking at a Greek-Russia Society conference last December, accused the Bulgarian government of deliberately stalling under “strong Western influence” and that of “international oil companies linked with the US government” (Theodore Tsakiris, “Burgas-Alexandroupolis: Death of a great pipeline project ?” European Energy Review, February 17).

Bulgaria’s right-of-center government of Boyko Borissov, which defeated the Socialist Party in July 2009, promptly suspended Bulgaria’s participation in all three Russian-led energy projects (Burgas-Alexandropolis oil pipeline, South Stream gas pipeline, Belene nuclear power plant project) pending detailed review. Of the three projects, Burgas-Alexandropolis is the most sharply questioned in Bulgaria. The anticipated transit revenue is deemed too small to justify hurting the tourism-based economy on the Black Sea coast, which is of national importance to Bulgaria. It is feared that oil tankers shuttling off the beaches could discourage tourism, even before oil spills or accidents that are believed to be “waiting to happen.” Burgas and other municipalities on the Black Sea coast have voted against the project in specially called referendums.

The Russian-led Trans-Balkan Pipeline Consortium prepared the requisite Environmental Impact Assessment Study during 2010. Bulgaria’s Environment and Water Ministry, however, found multiple deficiencies and omissions in the study, and returned it to the project consortium on November 10 for further work. A resubmission was expected, but is not known to have materialized (Novinite, BTA, February 16, 17; European Energy Review, February 17). According to Bulgarian experts, the country would not have to pay compensation if it withdraws officially from the project on the basis of the environmental impact assessment.

Moscow structured the project company so as to guarantee Russian control. In January 2007, the state-controlled Transneft, Rosneft, and Gazpromneft formed the “Pipeline Consortium Burgas-Alexandropolis,” to act as project conveners.  In March 2007, the intergovernmental agreement was signed in Athens, with Putin attending.  In December 2007, the “Trans-Balkan Pipeline Consortium” was formed, with the three Russian companies holding an aggregate 51 percent (coequally divided between them). Bulgaria took a 24.5 percent stake, the Greek joint venture Helpe Thraki (which includes Hellenic Petroleum) 23.5 percent, and the Greek government a 1 percent stake. Bulgaria’s right-of-center government transferred the Bulgarian stake from certain interest groups into the Finance Ministry’s jurisdiction.

The project envisaged transporting 35 million tons of oil annually in the first stage, to increase to 50 million tons per year in a follow-up second stage, from Burgas to Alexandropolis.  The line was to run for 280 kilometers, including 166 kilometers on Bulgarian territory. Project costs, initially estimated $900 million, rose to an estimated $1.5 billion (Novinite, February 9). The trans-Balkan project’s apparent demise should strengthen Turkey’s hand in negotiating the terms of the trans-Anatolian project, Samsun-Ceyhan, with Russia’s government and companies.