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South Stream project scrapped

Interview: Nikolai Tsekov, Alexander Andreev / cjc
December 2, 2014

The reason for Moscow's sudden cancellation of the controversial gas pipeline project South Stream is Russia's current economic predicament, Bulgaria's former ambassador to Russia, Ilian Vassilev, tells DW.

Bulgarien South Stream Pipeline
Image: picture alliance/ZUMAPRESS.com

Russia has scrapped its plans for the construction of the South Stream pipeline, which would have supplied southern Europe with natural gas. The European Union's intransigence had rendered the project pointless, Russian President Vladimir Putin said on Monday in Ankara, Turkey.

Putin singled out Bulgaria as the biggest obstacle to the project's completion - and the country with the most to lose from its failure. But there is speculation that the crisis in Ukraine as well as Russia's current economic plight played major roles in the decision to cancel South Stream.

The EU, meanwhile, said on Tuesday that Russia's decision to halt the project showed that the bloc had to step up efforts to reduce its reliance on Russian gas.

Russia has not yet officially communicated its decision to the companies involved in the project.

DW: Iliyan Vassilev, what do you perceive as the real reasons for this surprising construction freeze?

Iliyan Vassilev: The real reason Russia pulled the plug was its current economic situation and the falling oil prices. The sharp drop in value of the ruble make it impossible to finance a project as expensive as South Stream. At the same time, Russia received money from China for joint energy projects and wants to focus its investments in the "Altai" and "Power of Siberia" projects.

Wirtschaftsexperte Ilian Vassilev
Ilian VassilevImage: BGNES

Another important factor were Gazprom's financial difficulties. The truth about Russia's current financial predicament is slowly coming to light despite all of the Kremlin's geopolitical efforts.

Putin has claimed that South Stream's demise would cost Bulgaria 400 million euros ($496.5 million) a year in lost revenue. Is that true?

That's rather dubious. Just six years ago, Putin had estimated Bulgaria's expected revenue at around 2 to 3 billion euros a year. But they're all imagined figures. Gazprom made no binding commitments to the government in Sofia. It guaranteed nothing in terms of quantity nor prices.

The halt in construction won't lead to losses for Bulgaria - quite the contrary. Until now, Bulgaria imported Russian gas via an existing pipeline for which it didn't have to pay. For the South Stream pipeline, on the other hand, it would have had to pony up massive investments. Bulgaria had even already invested a pretty penny in the project.

The European Commission criticized the planned South Stream pipeline because it said the project wasn't in line with EU rules and violated the EU's Third Energy Package. Now Moscow is lamenting what it sees as European intransigence.

Moscow had never intended to build South Stream in accordance with EU rules. For that reason, Russia never appealed to have South Stream excluded from the European rules and standards.

Compare that to Moscow's approach to the Opal pipeline, the overland portion of the North Stream conduit via Germany. For that section Russia sought to have EU law repealed. With that in mind, it becomes clear that Russia only ever intended South Stream to be a means of applying pressure on Europe rather than an economically sound project.

There's speculation now that Russia will try and circumvent Bulgaria and build a pipeline through Turkey and Greece. Are these plans realistic?

No, that's nonsense. It's naïve to believe that Gazprom will be able to get around the Third Energy Package in Greece. In addition, Greece doesn't have any sizeable gas depots where deliveries can be stored and redirected. The financing of the Adria pipeline to Italy is still up in the air.

The reasons for South Stream's cancellation cited by Putin and Gazprom chief Alexei Miller are only a pretext. Their aim is to justify another fiasco by a Russian concern to the Russian public. From the very beginning, South Stream was based on false economic and political calculations.

Putin always has a hard time admitting to political miscalculations. In those instances, he always looks for a way out in fanciful alternatives that give him the impression of being a strong, wise and invincible statesman.

He took a page from this playbook yesterday when he pointed a finger at Bulgaria, saying it had the most to lose from the project's failure, which he pinned on Brussels. And at the same time, he portrayed Turkey and Greece as winners. The Russian president follows an old pattern: His motto is "divide and conquer." He's simply trying to play off individual states against each other.

Ilian Vassilev is an energy and financial expert in Sofia. From 2000 to 2006, he was the Bulgarian ambassador to Russia.

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