Gazprom Negotiates with Romania to Pressure Bulgaria on South Stream

On October 13 in Bucharest, Gazprom CEO Aleksei Miller held talks with Prime Minister Emil Boc, Economics Minister Ion Ariton, and other officials, on Romania’s possible participation in Gazprom projects. Adriean Videanu, economics minister until six weeks ago and (unusually in Romania) an active proponent of ties with Gazprom, attended the October 13 talks in his new capacity as first vice-chairman of the governing Liberal Democrat Liberal Party.

Gazprom’s offer to include Romania in South Stream topped the agenda of Miller’s visit. To keep South Stream politically in play, Moscow seeks to enlist additional interested parties, despite the lack of resources behind this project, and hoping against hope to obtain EU support for it. The proposal to Romania is one move in this game.

Gazprom is also using the talks with Romania for leverage against Bulgaria. The Bulgarian government suspended its participation in South Stream when it took office in July 2009, citing the project’s disadvantages. Moscow promptly entered into talks with Romania about redirecting South Stream toward that country, instead of Bulgaria. Twelve months afterward, Sofia began re-negotiating the terms of its possible return to the project (“road map”). Gazprom’s new overtures to Romania are designed to increase pressure on Bulgaria, ahead of Miller’s scheduled visit there.

Romania seems to be playing along in order to pursue its own objectives with Gazprom, which include (Mediafax, Bursa, October 13, 14; Adevarul, Evenimentul Zilei, October 14):

1) Removing the two Gazprom-appointed intermediary companies and switching to direct contractual relations with Gazprom, hoping thereby to reduce the price of Russian gas forRomania “as soon as possible;”

2) Building and financing a gas storage site in northeastern Romania jointly with Gazprom;

3) Building electrical power plants with Gazprom in Romania;

4) Unspecified “cooperation regarding crude oil and petroleum products” with Gazprom. This latter point in Romanian press releases might imply the oil pipeline route from Romania’s Black Sea port of Constanta to GazpromNeft’s two oil refineries in Serbia (the Constanta-Pancevo route, a shortened version of Romania’s earlier-proposed Constanta-Trieste route).

Miller gave vague and dilatory answers in Bucharest to these proposals. Most likely, Gazprom is holding out for a package deal. It would probably negotiate on those proposals, if and when Romania enters into negotiations on joining South Stream. This seems more valuable to Gazprom politically, compared with the business value of Bucharest’s four proposals. Moreover, Romania needs Gazprom’s cooperation, rather than the other way around, on those proposals. Thus, Gazprom may well use linkage tactics in the upcoming negotiations with Bucharest.

During discussions held since July 2009, Gazprom has suggested two possible forms of Romania’s participation in South Stream. Under one version, Romania would replace Bulgaria outright, as Gazprom’s pipeline on the seabed of the Black Sea would run from Russia to Romania and continue into Central Europe. Under the other version, the seabed pipeline would run to Bulgaria as originally envisaged, adding however a branch-off from Bulgaria to Romania. The Russian side has been hinting all along that its ultimate decision would mainly depend on Bulgaria’s negotiating position.

In Bucharest, Miller signed a memorandum of understanding (MOU) with Romanian Transgaz CEO to conduct a technical-economic analysis of building a section of South Stream in Romania, and establish a joint expert group for that purpose. The separate Russian and Romanian communiqués converge on this point, but diverge on the follow-up.

According to Gazprom, the expert group is to report the results to the two governments by the first quarter of 2011. If the results are positive, Russia and Romania would sign an inter-governmental agreement as a political and legal framework for building a section of South Stream in Romania. The inter-governmental agreement would be followed by a corporate agreement between Gazprom and Romanian Transgaz about implementation of the project. According to the Romanian government’s press release, however, the Russian side should first present the feasibility study for the overall South Stream project to the Romanian side, whereupon the two sides would examine the joint expert group’s report on a Romanian section. Bucharest’s communiqué attributes the entire initiative to Gazprom (Interfax, Agerpres, October 13).

In the visit’s runup, Miller had publicly reported to Russian Prime Minister Vladimir Putin that Romania is interested in joining South Stream. The claim looks exaggerated in the form reported (Interfax, RIA Novosti, October 8). It came amid equally public Russian entreaties to Electricite de France and Wintershall of Germany to accelerate their entry into the South Stream project. Visiting with Putin in Russia, Italian Prime Minister Silvio Berlusconi promised to intercede with one or two [unnamed] countries that are reluctant to participate in South Stream, presumably meaning Romania and/or Bulgaria (Corriere della Sera, October 10).

In Bucharest at his concluding news conference, Miller used Putin’s brazen-out method of responding to questions about South Stream’s resources. There would simply be “no problem” with the project’s estimated cost of $ 30 billion, Russia has the funding, construction would commence in 2013 and the first gas would be delivered by 2015 to participant countries. Miller did not identify any source of gas, in Russia or elsewhere, to supply the project’s promised capacity (as he restated it) of 63 billion cubic meters per year (Mediafax, Bursa, October 13, 14; Adevarul, Evenimentul Zilei, October 14).