Ruble Pipeline* Mind the horns!

On December 1, speaking in Ankara, Vladimir Putin announced that Russia was giving up its project to build the gas pipeline “South Stream”. “If Europe does not want it, we will not proceed with it,” said the President. “There is no going back to this project,” confirmed Alexei Miller, who was accompanying Putin in his visit to the capital of Turkey. This decision should not have been unexpected for the President of the Board of Directors of Gazprom. But why has the project operating company South Stream Transport paid 120 million US dollars for a coastal terrain Bulgaria, through which the pipeline had to pass, only two months before the complete retracting of the project? The transaction price exceeds almost six times the value of the land. Why has Gazprom paid so much?

The sites in question are located in the area of Galata, near in the Black Sea city of Varna, in the vicinity of the beach Pasha Dere. As soon as negotiations between Russia and Bulgaria on the construction of South Stream started on a more or less official level, it became obvious that the beach Pasha Dere is the perfect place for the exit of the gas pipeline from sea on land – in these locations the shore is sloping.

In 2005, as Bivol reported, Bulgarian private lender First Investment Bank (FIB) has given a loan to the company Shangri-La to buy the land. The land, included in the contract, was appraised at 5.1 million levs (about 3 million US dollars).

Russia and Bulgaria signed an agreement for the construction of the “South Stream” in 2008, which immediately led to an almost twofold appreciation of the land.

Nobody had doubts that “South Stream” should go precisely through these sites. For example, in the accounts of South Stream Transport company Shangri-La and FIB are listed as owners of the land through which the pipeline will pass.

“The journalists from Bivol suggest that FIB’s owners could have had insider information about the construction and therefore have expressed such an interest in the lands around Pasha Dere even before the implementation of the gas pipeline project.”

On June 14, 2013, FIB bought out part of land from the company Shangri-La for almost 22 million US dollars (32 million levs – editor’s note). The construction of “South Stream” became the key driver of growth in prices of these land plots. The closer the pipe to the Black Sea, the more expensive the land became.

However, everything changed after the beginning of the Ukrainian crisis and the accession of Crimea to Russia. On April 17, 2014, the European Parliament voted to ban the construction of “South Stream”. After that, on June 8, 2014, the then-Prime Minister of Bulgaria Plamen Oresharski said that Bulgaria was stopping work on the project “South Stream” until the removal of the objections of the European Commission (formally the project is in breach of the “Third Energy Package” of the EU).

Thus, in the summer of 2014, the fate of the project was already under a big question mark. But on October 1, 2014, the operator of the pipeline, the company South Stream Transport, purchased the same land plots from FIB for over than 120 million US dollars.

One more time – in June 2013, FIB purchased the land for 22 million US dollars (and all were confident that South Stream will be built); in October 2014 the company South Stream Transport bought the same land for 120 million US dollars, almost six times more expensive (and everyone knew that the project is “frozen”).

A representative of South Stream Transport explained for Novaya Gazeta that the company acquired the land because “the land is located on the route and the construction site of the planned pipeline”. Regarding the price, according to the representative of South Stream Transport, it was agreed between his company and FIB in the negotiation process.

The Permanent Representative of Russia to the EU, Vladimir Chizhov, said in an interview for the channel “Russia-24” that for experts working in the energy sector, the decision to give up on “South Stream” has been “sufficiently predictable.” In addition to Russian authorities, that decision should have been predictable for Gazprom’s experts as well. Why then did they spend 120 million US dollars for land through which a pipe would not pass, and two months after the purchase, they completely withdrew from the project?

There are two assumptions for this. Either someone was desperately trying to rescue the project and to negotiate with the Bulgarian side; or someone, who already knew that there would be no project, has tried to negotiate with itself.

The representative of South Stream Transport does not agree with these assumptions. “Regarding the status of the project, it should be noted that the company South Stream Transport B.V. is a joint venture of four shareholders. Only the shareholders can decide whether to amend the project’s plan or on its possible cancellation. Therefore, the company South Stream Transport is not empowered at present time to make statements.”

Roman Anin, Novaya Gazeta

Atanas Tchobanov, Bivol

*The title has been changed by Bivol. The Russian title “Dengoprovod” has no currency connotation. The cooperation of Bivol with Novaya Gazeta is under the Organized Crime and Corruption Reporting Project (OCCRP)

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