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Burgas-Alexandroupolis project getting underway
But many questions remain

A Russian-Bulgarian-Greek working group on the Burgas-Alexandroupolis pipeline project has agreed the wording of an intergovernmental agreement on the pipeline construction. The final document will be signed on 21 or 22 February (or on 6 March at the latest) in Athens, representatives of the working group told reporters after its meeting on Tuesday.

The pipeline construction, which had been discussed for almost 14 years, could start in 2008. But experts say the project will face new problems.

The Burgas-Alexandroupolis pipeline project (280km long, capacity of between 35m and 50m tonnes a year, estimated at $1 billion) was initiated by Russian and Greek companies back in 1994. The pipeline, which will transport Russian oil from the Bulgarian Black Sea port of Burgas to the Greek Aegean port of Alexandroupolis, will be an alternative route for Russia and other countries of the Caspian region, allowing them to transport oil to Europe bypassing the Bosporus and the Dardanelles.

Russias national oil pipeline operator Transneft, state-owned oil company Rosneft and Gazprom Neft, an oil division of Russian gas giant Gazprom, will have a 51 percent stake in the international company that will oversee the implementation of the project. Russias shareholder interests will be represented by the newly-created Burgas-Alexandroupolis Pipeline Consortium. Gazprom Neft and Rosneft have 33.3 percent each, and Transneft has 33.34 percent.

Bulgaria and Greece will each have 24.5 percent in the international operator. Their stakes can be sold to foreign investors, Chevron, TNK-BP and KazMunaiGaz seen as potential bidders.

Some experts say that, despite political agreements, the project will face economic problems. A source close to the Burgas-Alexandroupolis Pipeline Consortium told RBC Daily that the investment scheme had not yet been agreed, and it remained unclear how the new pipeline will be filled. A source in one of foreign companies interested in the project confirmed this information. He said it was unclear on what terms bidders for a 49-percent stake in the international operator will be allowed to participate in the project.

Meanwhile, other potential shareholders are considering another alternative to the Bosporus and the Dardanelles the Samsun-Ceyhan Turkish pipeline, which could be built ahead of the Burgas-Alexandroupolis pipeline.

Alexander Ershov, chief of the Argus Moscow bureau, believes that the problem of filling the Burgas-Alexandroupolis pipeline remains urgent as it is unclear on what terms and in what proportions companies will get oil pumping quotas. He thinks Russian companies might have insufficient oil to fill the pipeline.

Mikhail Krutikhin, partner at the RusEnergy consultancy, also thinks that finding oil for the new pipe could be a problem. Rosneft is building a pipeline to transport oil products from its Tuapse oil refinery. And potential foreign investors such as KazMunaiGaz are more likely to consider ways of transporting Kazakh oil through Ukraine than through the Greek-Bulgarian pipe.

Analytical department of RIA RosBusinessConsulting

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