South Stream: Corporate Agreement Between Project Shareholders Consistent with EU Law

The corporate agreement between the shareholders in the South Stream gas pipeline project is fully consistent with EU law, Economy, Energy and Tourism Minister Traicho Traikov said, answering a journalist's question on Tuesday.

He said the most sensitive point is access to the pipeline for third parties who are not shareholders. Traikov quoted a transcript of the shareholder agreement which says that the joint venture will ask the EU for a derogation of the absolute obligation laid down in the third EU's third energy liberalization package to give access to the pipeline to third parties. The Energy Minister said that when such an exception is requested, it means the European Commission allows Bulgaria to have 50, 60 or 70 per cent of the pipeline's capacity reserved, with 20, 30 or 40 per cent fully liberalized.

The shareholders agreement also says the company will turn to the European Commission for this exception for a certain percentage, the Minister said. The same applies to the Nabucco gas pipeline project, where a certain percentage is reserved forthe six shareholders, and the rest is designed for the free market, Traikov said. The problem is that the intergovernmental agreement of 2008 stipulates that 100 per cent of the capacity will belong to the shareholders in the South Stream project company, Traikov said. Since this was not on the agenda of Russian Prime Minister Vladimir Putin's visit on November 13, the sides agreed that this would be a subject for further discussion.

Traikov added that the intergovernmental agreement would not hamper the implementation of the project because the pipeline would operate according to EU rules. There is concern that if some conflict arises, one of the participants in the agreement may cite the intergovernmental agreement and say that according to it 100 per cent of the pipeline belongs to him. Traikov said this was just a potential, theoretical risk because the companies have vowed they will not resort to it. If everything is to be proper, this part of the intergovernmental agreement should also be changed, Traikov said. The clause which says that in the event of a conflict international law takes precedence should incorporate the addition "including EU law".

Foreign Ministry Spokesperson Vessela Cherneva said that when the Bulgarian-Russian intergovernmental agreement on the South Stream project was signed back in 2008, the European Commission made remarks about its consistency with EU law.

Talking at a regular briefing, Cherneva said the Bulgarian government was permanently in contact with the European Commission about all energy-related intentions, including South Stream. A Commission representative attended the final stage of the negotiations in Sofia and the Commission's proposals for amendments to the agreement about establishing a company under Bulgarian law were backed by the Bulgarian side and accepted by Gazprom.

Since this is about corporate agreements, it is the intergovernmental agreement that should be changed. Russia has been informed that such changes are needed and negotiations are expected to start quite soon. Afterwards they should be ratified by the Bulgarian Parliament, Cherneva said.

Bulgaria is not the only country to have signed such an agreement, in a sense it has stated most categorically its intention to align this agreement with EU law, Cherneva said.

She added that the agreements on the South Stream Bulgaria company signed on November 13 envisage analysis of details of the project. Depending on the findings, Bulgaria will decide whether it will participate in it.

The Nabucco project still is a priority in light of the diversification of energy sources, and the government will continue working for its implementation to the best of its ability, Cherneva said.

As to possible sanctions on Bulgaria about the agreement of 2008, Cherneva said that Bulgaria is 100 per cent committed to seeing to it that changes in the intergovernmental agreement would rule out sanctions. "Bulgaria is not considering sanctions as an option for now because by the time possible sanctions could take place, we will have solved this problem," the Foreign Ministry Spokesperson said.