The Bourgas-Alexandroupolis oil pipeline is an example of an energy infrastructure project that has gradually muscled through towards a successful resolution thanks to multilateral pressure. Yet the process proved cumbersome and fraught from the outset.

It took Bulgaria, Greece and Russia, the three parties to the project, 10 years to strike an inter-governmental agreement on the pipeline project. Discussions on the main parameters for the future 280km long pipeline project stumbled as respective sides feuded over the ownership share-out of the pipeline. Politicians also equivocated. Initially, Russia’s request for a majority stake in the pipeline met staunch resistance from Bulgaria and Greece.

Later, when the two smaller partners accepted Russia as the majority stakeholder – with 51 per cent of the shares, leaving them with a 24.5 per cent stake each – the issue of all stakeholders contributing to the pipeline proved a potential stumbling block. The Russian side insisted that all parties procure oil supplies commensurate to their stakes in the project or have their ownership rights restricted. Lengthy negotiations saw a reversion to the original idea, namely Russia remaining in charge of the entire oil supply. The parties are still debating the percentage of votes necessary to pass important decisions.

The path to implementation was also marred by vocal environmental protests, especially in Bulgaria and Greece. Protests in Bulgaria reached fever pitch, so much so that Bourgas, a venue for one of the pipeline’s terminal, held a regional referendum on the issue in February. The Bourgas municipality sought the public’s opinion on hosting yet another oil terminal and whether they viewed the new project as a pollution hazard.

Although turnout was derisory and the plebiscite irrelevant to governmental policy-making (referenda in Bulgaria do not influence important issues), it attracted national interest and embroiled politicians, experts and the public in a bitter pre-referendum dispute.
The upshot is that, despite sluggish progress, the one billion euro project is now bearing fruit. In March 2007, the respective parties signed an inter-governmental co-operation agreement on construction and implementation. Parliaments in all three countries ratified the document later in the year.

The agreement on the formation of the International Project Company (IPC), the entity in charge of the pipeline’s construction and operation, was signed in December 2007. The company itself was registered in the middle of January in the Netherlands. The company will be in charge of collecting the transit fees.

As entered in the inter-governmental agreement, the three parties to the project are Russia’s OOO Bourgas-Alexandroupolis pipeline consortium, whose participants Transneft, Rosneft and Gazprom Neft jointly own a 51 per cent stake; Bourgas-Alexandroupolis-BG oil pipeline project company, comprising state-run Bulgargaz Holding and Technoexportstroy, which holds the Bulgarian allocation (24.5 per cent); and Greece is represented by the HELPE S.A. THRAKI S.A. joint venture (23.5 per cent) and Hellenic Petroleum and by the Greek state (one per cent). Company stakeholders also appointed managing and supervisory boards.

Company shareholders agreed that the Bulgarian section of the project is set to serve half the cost of the planned investments, or 500 million euro. The cost of the two facilities in the Bourgas Bay alone is estimated at 110 million euro. It was also agreed that two tankers would transport oil from the Russian port of Novorossiisk to Bourgas at an approximate cost of $200 million each. Those Bulgarian and Greek landowners whose plots occupy the pipeline’s route will receive equal indemnities on expropriation.

Bulgaria and Greece will also receive similar dues from the pipeline. Annually, both countries should reap $35-50 million in transit fees. The project’s co-signatories also agreed to appoint a body to conduct the project’s feasibility study by April this year. The firm, most likely to be German company ILF, should come up with several provisional designs.

Within six months the company is due to choose the technology for constructing the pipeline. Those involved, however, are yet to decide when construction will begin.

Parameters of the project

The inter-governmental agreement, signed by Bulgaria, Greece and Russia in March 2008, sets the main parameters for the construction and operation of the Bourgas-Alexandroupolis pipeline.

All three countries agreed that all land included in the pipeline’s route should be expropriated. They also agreed to fix all kinds of tax and non-tax payments, as well as fees and compensations, that Bulgaria and Greece need to provide to ensure transportation of oil through their territories.

The agreement appoints Russia’s oil transportation company OAO Transneft as the company to administer oil procurement and transportation.

IPC is the company in charge of setting oil transportation tariffs.

IPC will also appoint contractors, suppliers of materials and equipment through open tenders, where priority will be given to companies based in Bulgaria, Greece or Russia. In addition, all three governments are obliged to provide the most beneficial tax terms to IPC, namely to allow VAT waivers on materials and equipment imported for the construction of the pipeline and fast VAT refund for materials, services and activities related to the project’s construction and operation.

All post-agreement tax and duty legislation signed after the agreement in any of the three participating countries will be immaterial when it comes to supplies and equipment necessary to build and operate the project.

The agreement is not exclusively binding, hence any of the countries involved may launch similar projects.