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The European Commission has formally launched infringement proceedings against Bulgaria over its choice of a contractor to build the land section of the South Stream pipeline in the country, reports in Bulgarian media said on June 3.

The EC has redoubled its efforts, in recent weeks, to thwart the construction of South Stream – the Kremlin-backed pipeline meant to bypass Ukraine as a transit country – arguing that the intergovernmental agreements signed by member states with Russia to build South Stream were in contradiction with EU rules.

But the current infringement proceeding was opened on different grounds, namely suspicion that Bulgaria breached internal market rules on public procurement in picking Russia’s Stroytransgaz and a consortium of five Bulgarian firms to carry out construction of the Bulgarian section of the pipeline without a public procurement tender.

The reports quoted Chantal Hughes, spokesperson for European internal market commissioner Michel Barnier, confirming the launch of infringement proceedings. Hughes was quoted as saying that the EC asked authorities in Sofia to put the project on hold for the duration of the process.

The Commission first said that it would closely monitor Bulgaria’s choice of a contractor in January, when it emerged that interested parties were given less than three weeks to submit bids for the construction of the Bulgarian stretch of South Stream, much of it during the winter festive season. Under EU public procurement rules, the process would have required Bulgaria to publicise the tender in the EU as a whole and would have been subject to closer scrutiny, but also would have taken longer to complete.

Stroytransgaz, reportedly owned by Gennady Timchenko – a billionaire believed to be closed to Russian president Vladimir Putin and, as such, subject to US sanctions stemming from Russia’s annexation of Crimea – was formally announced as the winner on May 27, although reports in Bulgarian media had named it as such in March.

(Stroytransgazis one of Gazprom’s largest contractors. The company opened offices in several south-eastern European countries in 2013 with the express intention of bidding for the local construction tenders and was widely seen, in Russian media, as the clear favourite to win the contracts.)

Bulgaria has one month to answer the EC’s concerns, a deadline that Bulgaria intends to meet, Economy Minister Dragomir Stoynev told Bulgarian National Radio (BNR) on June 3.

Stoynev said that the South Stream Bulgaria project company, in which the state-owned Bulgarian Energy Holding and Russia’s Gazprom hold equal 50 per cent stakes, did not have a licence to hold a public procurement tender.

Regarding the infringement proceedings, Stoynev said that he saw “no reason for drama” and that any breaches of EU rules would be fixed following “dialogue with the European Commission.” He said that he did not expect any sanctions on Bulgaria as a result of the infringement proceeding.

His predecessor as economy minister in the GERB administration, Delyan Dobrev, said that “it is not the first time we hear different messages from the EC and the Bulgarian authorities,” as quoted by BNR. He said that the Bulgarian government consistently went against the Commission’s recommendations and that “we can expect more infringement proceedings [on South Stream].”

Dobrev’s certainty looks well-justified – last week EC president Jose Manuel Barroso had made the Commission’s intentions to begin infringement proceedings clear during a meeting with Bulgarian Prime Minister Plamen Oresharski. (After the meeting, Oresharski said that Bulgaria would uphold EU law and was prepared to implement the EC’s recommendations, but his words were undercut by the announcement of Stroytransgaz as South Stream’s contractor in Bulgaria, made in Sofia later on the same day.)

At the informal European Council meeting late on May 27, Barroso told EU heads of government that the Commission remained steadfast in its opinion that some of the intergovernmental agreement signed by member states with Russia to build South Stream were in contradiction with EU rules. A day later, the same message was delivered in the EC’s proposed new European energy security strategy, which, among other points, recommended that South Stream should not be built, echoing the recommendation of the European Parliament, adopted a month earlier.

The EC’s main objection, which European energy commissioner Guenther Oettinger has repeatedly stated over the past months (most recently in an interview with German newspapers this past weekend), is that South Stream does not offer any diversification of gas supply sources, only the transit routes.

The concern is that the pipeline would further increase Gazprom’s dominance in countries in south-eastern Europe, which are already heavily dependent on Russian gas. This is also the subject of an investigation by the EC, with Gazprom facing charges of abusing its dominant position in several Eastern European markets, which could result in a multi-billion fine if the company is found guilty. The results of the investigation, launched in 2012, are yet to be announced.

South Stream also breaches the EU’s Third energy package regulations, which prevent gas producers like Gazprom from also owning pipeline capacities and also requires giving access to the pipeline to third-party suppliers.

Moscow, for its part, views the regulations as squarely directed against Gazprom and maintains that the intergovernmental agreements on South Stream – signed with several EU member states including Bulgaria, Hungary, Slovenia and Austria, as well as EU aspirant Serbia – are above EU regulations. To that end, Russia has submitted the case to the World Trade Organisation, seeking arbitration, although analysts remain split over Moscow’s odds of success.

(Photo: gazprom.ru)

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