South Stream Turns into Southern Dream

Stanimir Vaglenov Varna, Novi Sad, Ljubljana, Milan and Igoumenitsa

From Italy across the Balkans to Bulgaria, local communities appear eager to join Russia’s ambitious gas pipeline project, despite the risk of growing energy dependency on Moscow.

“We have enough ecological problems even now,” says Ivan Gebrev, an hotelier in Pasha Dere, near the Bulgarian Black Sea city of Varna. “If the South Stream pipeline is laid here, it will be the end of our business.”

A day earlier, the beach at Pasha Dere, near where the South Stream gas pipeline is expected to surface, was polluted by a spill. Although it had nothing to do with the South Stream pipeline, Gebrev sees it as ominous. “It’s not the first time this has happened,” he says, gloomily. “But no one is ever fined. Evidently our business is insignificant compared to the so-called strategic interests of the state.”

The object of Gebrev’s ire is a proposed gas pipeline that will transport natural gas from Russia to Italy via Bulgaria, Greece, Serbia, Hungary and Slovenia. The project dates back to June 2007, when the Italian energy company, Eni, signed a memorandum with Russia’s Gazprom.

While South Stream’s fate is discussed between European governments and relevant businesses, communities living along the route are slowly absorbing the implications. Some, like Gebrev, fear environmental damage and the wreckage of their livelihoods. But after traveling 5,000 km along the pipeline route, I discovered most people see it as an economic boon.

The project has strong political as well as economic connotations. For Russia, the driving force, South Stream is a counterweight to the Nabucco pipeline, backed by the United States and European Union, EU. This envisages the delivery of natural gas from the Caspian Sea to Europe, bypassing Russia.

Balkan countries find themselves caught between two geopolitical powers, both applying pressure to steer them towards one or other solution. Many Western experts and some Balkan politicians, too, say Russia has routinely threatened to alter the route to push hesitant governments into line. The current deadline for South Stream to come on stream is 2013-2014, which coincides with the planned launch of Nabucco.

Russia’s invasion of the Georgian province of South Ossetia in August 2008, has dealt another blow to Nabucco, because Georgia forms a key link in the Nabucco chain. Although the Russians were careful not to bomb the pipeline, the conflict exposed its vulnerability.

Indeed, some international analysts now argue that the main aim of Moscow’s operation in South Ossetia was not to punish the pro-Western Georgian government of Mikheil Saakashvili for bombing Tskhinvali, but to disrupt America’s and the EU’s preferred alternative pipeline project.

“After the military conflict with Russia, Georgia could not remain on the energy map as a reliable route for oil and gas transit,” Pavel Baev, of the International Peace Research Institute, in Oslo, says.

While the South Stream project, which at the beginning was defined as improbable, seems more and more likely to materialise, ordinary people, politicians and analysts along its route remain immersed in discussions about its benefits and disadvantages.
Bulgaria – Russia ’s Trojan Horse

My journey along the pipeline now took me 500 km west of Varna to Sofia, where the authorities solidly support Russia’s plans. Although the Bulgarian Institute for Market Economy revealed in 2006 that 90 per cent of Bulgaria’s gas supplies already depended on Gazprom, the President, Georgi Purvanov, committed Sofia to participating in South Stream in June 2007 and parliament ratified the agreement in July 2008.

The agreement states that Bulgargaz Holding, the state company established to run the project in Bulgaria, will own 50 per cent of the shares and cover 50 per cent of the costs of the technical and economic research in the country.

Opposition politicians accused the government of betraying the national interest. “This pipeline will be used as a political counter-weight to NATO’s defense shield,” Assen Agov, a deputy for the Democrats for Strong Bulgaria, complained.

Russia has not concealed its view of Bulgaria as a Trojan Horse in the EU. “Due to our traditionally good relationship with Bulgaria, the country is interesting to us as an EU member, and this interest is not solely economic,” the Russian ambassador to Sofia, Vladimir Chizhov, told the Bulgarian weekly Kapital in November 2006, a month before the country joined the EU. “Bulgaria is in a good position to be our special partner, a kind of Trojan Horse of our own in the EU, of course without the negative sense of this metaphor.”

The government, however, remains unapologetic. “If both the South Stream and Nabucco projects materialise, they will transport 62 billion cubic metres of gas every year through Bulgaria, which adds up to 12 per cent of all gas delivered to Europe,” the Minister of Economy and Energy, Petur Dimitrov, says. Unlike Nabucco, he adds, Russia is guaranteeing that the South Stream pipeline will be used to full capacity.

Supporters of the project in Bulgaria estimate an annual profit of more than 300 million euros in transit taxes, which will increase, “If Bulgaria hosts both pipelines; it will receive twice as much in transit taxes, as well as a lower price for the gas it uses, due to the competition,” says Mihail Korchemkin, of the US-based think tank, East European Gas Analysis.
For Vojvodina, its about survival

Some 500 km to the west, opinion in the northern Serbian province of Vojvodina is equally enthusiastic. “People here are poor,” says Vladimir Grigic, a local in Banatski Dvor, 80 km south-east of the provincial capital, Novi Sad. “They hope the project will be good for employment.”

Banatski Dvor is home to Serbia ’s largest gas storage facility, owned by Serbia’s energy company, Naftna Industrija Srbije, NIS. It is expected to become an important part of the South Stream project. At NIS headquarters in Novi Sad, no one is eager to discuss the South Stream in public. But local energy analysts are ready to speak about pros and cons.

“The project would make Serbia less dependent and better able to use its position in the Balkans,” Zorana Mihajlovic Milanovic, a former energy adviser to the government, says. “But the agreement between Russia and Serbia is less beneficial to us than the ones Moscow signed with other countries.”

On September 9, 2008, Serbia’s parliament ratified an agreement with Gazprom by which it acquired a 51 per cent stake in NIS. The Russian company committed itself to paying 400 million euros and investing another 500 million in NIS by 2012. But not everyone is impressed and some major parties describe the deal as unprofitable. The current pro-Western government tried, without success, to renegotiate the conditions.  

Following South Stream’s probable route to the west, crossing Croatia, we reach Slovenia, a country without strong ties to Russia. Yet, talks between the two have gone well and the head of Gazprom, Alexey Miller, won the support of Slovenia’s President, Danilo Turk, and former Prime Minister Janez Jansa, “If South Stream passes through Slovenia, it will increase the country’s importance [to the European energy infrastructure],” Manja Vidic, from the Institute for Strategic Studies, says.

Russia’s power of persuasion

From Slovenia, we head to Italy, headquarters of the other main player in the South Stream project, the oil and gas company Eni. From Ljubljana, we take the wrong direction and instead of crossing into Italy, enter the 12-km tunnel ending in Austria.

It appears there are a variety of routes to northern Italy, a fact Gazprom exploits, say some, to bolster cooperation with countries.

On April 14 this year, for example, Gazprom’s press service reported a possible new route for the pipeline following disagreements with Austria. Korchemkin, of East European Gas Analysis, says Gazprom’s relations with Austria’s national energy leader, OMV, worsened in January, after the companies signed a cooperation agreement.

Gazprom was to receive a 50 per cent stake in the Central European gas hub (Austria's gas trading floor) in Baumgarten and with OMV would jointly build underground gas depots in Austria and neighbouring countries.

However, a dispute erupted over Gazprom’s strategy of increasing direct gas sales to end consumers. "Gazprom discussed a new version of the pipeline route following  disagreements with Austria, which denied the Russian company rights to supply gas directly to users in the country," the Russian daily Nevskoe vremya, reported on April 14, 2008.

Despite speculation that a deal on Austria’s participation in South Stream will soon be closed, it has not been reached yet, and OMV’s press office insists they remain committed to Nabucco.

Bulgaria was prodded into line in July, after Russian media reported the pipeline might circumvent Bulgaria, passing through Turkey and Greece instead. Details of disagreements are vague but a dispute appears to have started between Bulgaria and the local Gazprom subsidiary over ownership of the pipeline in Bulgaria. More recently, in October, there were reports that Gazprom might include Romania in the project and exclude Bulgaria.

Sergei Blagov, an expert from the Jamestown Foundation, reports in Eurasian Daily Monitor on October 21, 2008: “Gazprom is tempting the maximum number of countries, playing them off against one another with the prospect of individual package deals around South Stream.” I sought an interview with Gazprom in Moscow and with the subsidiary in Sofia, Gazpromexport, to clarify its strategy in the Balkans, but my requests were declined.

Meanwhile, in Milan, Eni’s involvement in South Stream does not worry locals at its headquarters in San Donato Milanese. The company is well regarded as an employer. Renata Lunata, a housewife, says: “Eni owns a lot of properties around here and thanks to them we enjoy a good standard of living.”

Eni’s management declined to meet us and instead gave us a joint press release by Eni and Gazprom, underlining the project’s importance. Addressing ecological concerns, the press message stated: “Eni and Gazprom will carry out the project using the most advanced technologies in full respect of the strictest environmental criteria.”

Even the Italian branch of the environmental organisation Greenpeace has no objections to Eni’s South Stream plans. “I don’t think we have an expert engaged with this issue,” a spokeswoman, Maria Carla Guiliano, said.

The only negative comments about Eni’s activities come from green bloggers based in the southern towns of Brindisi and Taranto, where the south sleeve of the pipeline is expected to reach Italy. There, the coast is already polluted, they say. “I am not surprised Eni is so popular in San Donato Milanese, they see only their beautiful offices,” the Taranto blogger, Massimo Gepetto, says, sarcastically.

“Those people should come over and see what Eni does with its refineries and pipes.” Gepetto doubts ecological issues, or the strategic alliance with Russia, will rouse much discontent in Italy. “They are simply too big and financially strong and their influence is all around,” says Gepetto.

On a diplomatic level, tension between EU members regarding the project is palpable and while some states have threatened to review their relationship with Russia, its partners in South Stream have retained their friendship with the Kremlin.
Greece, delighted; America less so

Further along, in Greece, we arrive at the port of Igumenitsa, a small town on the west coast of the mainland. Met by milky fog and light clouds turning roseate in the dawn, we spot the dark silhouettes of oil cisterns on the hills around the harbour. This unlovely feature of the Greek landscape is bound to expand if and when South Stream arrives, but there doesn’t appear much concern locally.

“It is strange there was no public debate about the pipeline in Igumenitsa,” Yorgos Karagunis, a local hotelier says. But others say South Stream could help develop the region. “Only few people here have good positions in tourism, so we can’t rely on this alone,” says Sokratis Matreas, a car mechanic.

Athens ratified the South Stream agreement with Russia on September 3, 2008, triggering protests from the opposition but the main left-wing opposition PASOK party supports the project, along with the ruling New Democracy.

Greek enthusiasm, besides further subverting EU hopes of maintaining common policy on energy, perturbs the US. Recently, Matthew Bryza, Deputy Assistant of the Secretary of State, warned Greece it was heading towards total energy dependence on Russia. “Are we worried? No. Are we concerned for our common interest regarding the European gas market? Yes. And Greece is part of this process,” Reuters quoted him as saying.

If Russia’s plans go ahead, by 2014, from east to west and from north to south, the Balkans will be crisscrossed by a new gas infrastructure, exporting Russia’s energy to Europe.

Of course, it remains possible that South Stream will not materialise. According to Korchemkin, “It could be a game, intended to ensure Russia is brought into the Nabucco project.” But, on May 6 2008, the European Commission, EC, categorically excluded the possibility, citing its strategic goal of diversifying energy sources. “It is of great interest to stick to the strategic goal of diversification,” the Commissioner for External Relations and European Neighbourhood Policy, Benita Ferrero-Waldner, said.

She noted that while Russia would remain an important supplier of energy for the EU, other countries with potentially large reserves needed to be developed. On the same day, the EC discussed conditions for increasing gas supplies to the EU with representatives of Egypt, Jordan, Syria, Lebanon, Iraq and Turkey, promoting their role as potential suppliers of the EU-backed Nabucco project.

While American officials are cautious in their public statements, some US commentators openly describe the South Stream pipeline as a threat to Western and US interests. Steve Levine, a former Wall Street Journal correspondent and author of a book on Caspian Sea energy, The Oil and the Glory, told Radio Free Europe on September 2, 2008, that the US needed to lean harder on Serbia, Hungary and the rest. 

Levine said the West ought to “tell Russia we’re going to keep these [pipelines] on hold till we get a couple of things.” But, he added: “The problem is the West doesn’t know what it wants.”

Fellow Bio


Stanimir Vaglenov

Stanimir Vaglenov was born in 1967 in Stara Zagora, Bulgaria. He is an award-winning journalist with experience in economic and energy reporting


Topic 2008: Energy

Energy is a topic that preoccupies officials, politicians and citizens across Europe - and arguably one of the biggest challenges facing this continent and the international community.