International investment institutions Monday signed an agreement to start a process that will potentially lead to as much as EUR4 billion of financing for the planned Nabucco natural gas pipeline.
International investment institutions Monday signed an agreement to start a process that will potentially lead to as much as EUR4 billion of financing for the planned Nabucco natural gas pipeline.

The European Bank for Reconstruction and Development, the European Investment Bank, and the World Bank's International Finance Corporation signed a letter that "formalizes the conditions under which the three IFIs will conduct their appraisal of the Nabucco project, and provides an indication of the potential level of financing," the lenders and the Nabucco consortium said in a statement.

The EIB will provide up to EUR2 billion, the EBRD up to EUR1.2 billion and the IFC up to EUR800 million, according to the statement. Under the agreement, the international lenders will make an analysis of the Nabucco project and decide whether to give their financing by the end of next year.

Nabucco is a EUR7.9 billion, 3,300 kilometer long pipeline project that would bring Caspian gas to Austria across Turkey and Central Europe . Strongly supported by the European Commission, the project is seen as a way to ease the bloc's dependence on imports of Russian gas, which account for around 25% of the European Union's annual gas supplies.

Nabucco expects to start an open season to seek buyers for its capacity at the end of this year or early in 2011, said the project's Managing Director Reinhard Mitschek during a press conference after the signature Monday.

The pipeline project has wrestled for years with the problem of how to find reliable gas supplies to fill the expected annual 31 billion cubic meter capacity and ensure the project's long-term commercial viability.

The most likely first gas supplier would be an offshore Azerbaijani field in the Caspian basin, but competition for that gas is high and it would offer less than 10 billion cubic meters a year.

Another potential gas source is Iraq , but procedural, political and technical hurdles suggest that gas also won't be available quickly enough.

But Nabucco's top management said Monday that it counts on about eight billion cubic meters from Azerbaijan and another 10 bcm from Iraq to start up the pipeline, which is expected to carry the first gas in about five years.

"With the gas from Azerbaijan and Iraq we can make Nabucco happen," said Werner Auli, chairman of the Nabucco Steering Committee.

Austria's OMV AG (OMV.VI), Germany's RWE AG (RWE.XE), Turkey's Botas, Bulgaria's Bulgarian Energy Holding, Romania's Transgaz, and Hungary's MOL Nyrt. (MOL.BU) form the building consortium. Mitschek said Monday that it isn't seeking other shareholders.

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