The signing of the South Stream deal is under threat as Russia’s Atomstroyexport demands compensation of EUR 1 billion for the abandoned Bulgarian nuclear project Belene. However, at this moment it seems that Bulgaria has the upper hand.
“If Putin does not honour his visit on the 9 November, I will not participate in the South Stream negotiations”, said Bulgarian Prime Minister Boiko Borisov for Presa newspaper.
Russian President Vladimir Putin is expected to visit Bulgaria, which is heavily dependent on Russian energy supplies, on 9 November to sign a deal for the construction of South Stream, a pipeline planned to transport 63 billion cubic metres of gas each year from the Black Sea to southern and central Europe.
The South Stream project is of critical importance to both countries. For Russia it diversifies gas supply routes to the EU, ensuring that Gazprom maintains its monopoly position before the enactment of the EU Third Energy package. In addition, South Stream directly competes with rival EU-backed Nabucco pipeline project which aims to bring Caspian gas supplies to Europe in order to reduce dependence on Russian gas imports taking a northern route from the Turkish-Bulgarian border to Austria.
For Bulgaria, the biggest gain is not economical from pipeline rents but political. As a key transit country it leverages its geopolitical position to drive a hard bargain on other energy related issues. With Gazprom and Italy’s Eni due to start construction in December of the offshore South stream section, Moscow is under pressure to be on schedule with signing of contracts. Therefore earlier in the year, Russia gave Bulgarian consumers 11 percent discount on gas supplies in order to ensure a smooth path to the deal signing later on.
What it did not pre-empt is the national outrage that would follow when Atomstroyexport filed a lawsuit at the International Court of Arbitration in Paris for EUR 1 billion. The Bulgarian Prime Minister dubbed this absolutely “treacherous” and many believe that he is using his newly acquired bargaining clout over South Stream to reduce the EUR 1 billion sum, which if not negotiated down will undoubtedly dent government finances.
Simeon Djankov, Minister of Finance, emphasised that the current situation with Atomstroyexport will not negatively influence the future trading relationship between Bulgaria and Russia. Nonetheless, it does market a shift in bargaining powers between the nations and at this moment in time it seems that Bulgaria has the upper hand.