UPDATE 3-Bulgaria signs up for Russian natural gas project

Fri Jan 18, 2008 4:02pm GMT

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By Tsvetelia Ilieva and Oleg Shchedrov

SOFIA Jan 18 (Reuters) - President Vladimir Putin on Friday secured Bulgaria's participation in a 10-billion-euro pipeline that is intended to meet demand for natural gas in central and southern Europe and tightens Russia's hold on European energy supplies.

The signing of a deal on the South Stream project followed talks between Putin's team and Bulgarian leaders torn between Moscow's lucrative offer and loyalty to the European Union's drive to ease dependence on energy supplies from Russia.

"Thanks to this project, Bulgaria becomes one of the key links in the European energy chain," Putin told a news conference in Sofia after signing the agreement, which would bring Bulgaria 1.4 billion euro a year in cash.

Under the project involving Russian gas export monopoly Gazprom and Italy's Eni, the pipeline will take 30 billion cubic metres of gas under the Black Sea and re-emerge on Bulgaria's coast before following one of several possible routes to Italy.

The pipeline could pass through Greece and reach Italy, or go through Romania, Hungary, the Czech Republic and Austria. It is expected to meet all demand for natural gas in central and southern Europe by 2013.

Gazprom CEO Alexei Miller told reporters after the signing that a feasibility study of the pipeline was expected to be completed by 2008, and the whole project could take off in 2013.

The deal could upset the European Union, which sees South Stream as a rival to its own Nabucco project which is intended to bring Caspian and Central Asian gas to the EU.

"This kind of deal with Gazprom is something the European Union would prefer not to happen as in perception, if not in reality, it would seem to make things harder for Nabucco," said Charles Esser, an energy analyst with the Brussels-based International Crisis Group think tank.

ENERGY SECURITY ISSUES

Nabucco is equally owned by oil and gas companies in the transit countries: Austria's OMV, Hungary's MOL, Romania's Transgaz, Bulgaria's Bulgargaz and Turkey's Botas.

Nabucco is central to EU efforts to diversify gas supplies away from Russia after a political dispute between Moscow and Kiev cut exports in 2006. Russia supplies a quarter of the EU's gas and four-fifths of the exports travels via Ukraine.

But Putin said South Stream meant energy security in Europe, whose gas and oil needs are growing.

"The construction of new pipelines will ensure stable energy supplies for Europe, the Balkans and Bulgaria," Putin told a news conference. He said there was strong competition among European countries to join Russian gas pipeline schemes.

The outcome of talks on South Stream had been uncertain until early on Friday.

Officials said the stumbling block had been Sofia's desire to win at least 51-percent ownership of the pipeline on its territory. Under the final deal, it will get 50 percent.

But ahead of Putin's visit, Russian officials accused the West of putting pressure on Bulgaria to give up or at least delay joining South Stream for political reasons.

Winning the battle was a boost for Putin, who wants to keep influence when he steps down as president after an election in March in which he cannot run.

To reinforce his negotiating position, Putin included in his delegation First Deputy Prime Minister Dmitry Medvedev, Gazprom's chairman and the man Putin wants to succeed him.

The breakthrough in talks came after Putin and Medvedev met Bulgaria's Stanishev and President Georgi Parvanov late on Thursday to discuss the South Stream project. (Writing by Oleg Shchedrov and Anna Mudeva; Editing by Stephen Weeks)

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