September 2012, Vol. 239 No. 9

Projects

Putin Pressuring South Stream Consortium

Russian President Vladimir Putin wants the South Stream consortium to make a final investment decision by November and insists that Gazprom start construction work by the same date on the pipeline’s section in the Black Sea.

However, the European geography of the proposed pipeline system remains undetermined and subject to constant modifications.

First announced in 2007, South Stream’s European geography has been reconfigured many times, ruling some countries in and others out, or changing the supply and transit offers to various countries, at Putin’s and Gazprom’s discretion. This process continues due to the project’s overall structure as devised by Gazprom, involving separate agreements with each target country, preventing any coordination between them, and playing off some countries against others.

Gazprom divides the project into separate country sections. The pipeline section in each country is conceived as a joint venture of Gazprom and the national gas company. Each joint venture is supposed to finance, build, and operate South Stream’s pipeline section in each country.

Gazprom retains in control of design, construction and (de facto) of operation on each country section, and retains commercial control of the overall project as its sole supplier with gas. Pipeline construction costs are supposed to be shared by Gazprom with each participant country (roughly on a 50-50 basis, with certain host countries having to borrow from Russia in order to cover their share). Thus, participant countries would themselves subsidize their own long-term overdependence on Gazprom.

It was also reported that Moscow is pushing Croatia to join before Croatia’s accession to the European Union takes legal effect in 2013. An internal analysis, prepared by Croatian government officials for senior decision-makers and leaked to the press, warns that yielding to Gazprom’s demands would compromise the country’s accession to the EU.