Burgas – Alexandroupolis: Realias and Perspectives

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17.07.2009 17:29
Maulen Namazbekov

PROJECT OF BURGAS – AlEXANDROUPOLIS OIL PIPELINE IS ONE OF THE ADVANCED TRENDS OF KAZAKHSTAN OIL EXPORT. THE PROJECT OF BuRGAS – AlEXANDROUPOLIS PIPELINE IS ONE OF THE MOST UPCOMING TRENDS FOR KAZAKH OIL EXPORT. WHEN KAZAKHSTAN DECIDED IN LAST DECEMBER TO EXPAND CASPIAN PIPELINE CONSOR­TIUM (CPC),IT HAS A REAL CHANCE TO PROVIDE ADDITIONAL APPROACH TO SOUTHERN EUROPEAN MARKET OF HYDROCARBON MATERIAL VIA THAT PROJECT, MOREOVER DO­MESTIC OIL MAY HAVE A DOMINANT ROLE FOR FILLING THE BURGAS – ALEXANDROUPOLIS PIPELINE.
Idea of Burgas – Alexandroupolis project implementation oc­curred as early as 1994, in the period when there was found confrmation of data about considerable hydrocarbon reserves in the Caspian Sea basin. Initially it was considered in unique linkage with the project of Caspian Pipeline Consortium which was deemed at the moment as the main potential trend of oil export from the Caspian Sea basin.
But after implementation of CPC project Burgas – Alexandroupolis faced a series of political and economic problems which created signifcant obstacles to its fastest placing into commission. Many experts stated that in this context about its inviability or considered it as a long-term project with indefnite dura­tion of its implementation.
All that leaded to that intergovernmental agreement about construction of oil pipeline from Bulgarian Burgas to Greek Alexandroupolis had been signed on 15th of March, 2007. However, the unique period of project “renewal” was started thereafter and gradually assumed real outlines. It is true that global economic crisis, which has already caused delay in project commissioning, may affect its implementation period. Beginning of construction of Burgas – Alexandroupolis oil pipeline was projected for the midyear 2010, commissioning – for 2012. Presently, operations may suppos­edly be begun this day year – in the second quarter of the year 2010, while upside case of construction works completion is scheduled as of the end of 2010 – beginning of 2013.
   
burgas1.jpgAccess to Oil: CPC will Give Assistance
The key problem of the project was lack of oil volumes required for its fll-ing. Russian companies which initially lobbied the project in association with the Government of the Russian Federation, were not able to totally ensure flling of the phase one of oil pipeline, aside from its further implementation phases.
The problem was that volumes of Russian oil production increase along with growth of export obligations to “traditional” importing countries, made independent participation of Russia without participation of other resource countries in pipeline flling actually low practicable, if at all viable. The maximum potential in this context belongs to Kazakhstan, which, con­sidering rate of national oil production build up, is the practically the only resource country able to provide suffcient oil volumes for the project Burgas – Alexandroupolis.
But everything clogged in connection with unwillingness of Russia to expand CPC. Though Burgas – Alexandroupolis was viable provided that there would be adequate transit-pipeline capacities from Kazakhstan and Russia to the Black Sea coast. This role should be performed by CPC oil pipeline, which, according to plan, should be expanded up to transmission capacity of 67 mil­lion tons in a short time after its commissioning. Current oil transit capacity through CPC system at the level of 28-30 million tons does not allow using it for “support” of other infrastructure projects, Burgas – Alexandroupolis in particular.

Nevertheless, the process was delayed up to 2007-2008, when negotiations concerning expansion of Caspian Pipeline Consortium entered their deci­sion stage. Hitherto, in connection with CPC running at a loss, differences between parties in regard to tariff rates, signifcant quantity of shareholders frequently carrying counterpositions, negotiation process did not lift a foot actually. It was not possible to assure successful implementation of Burgas – Alexandroupolis project in such a situation.
Upon reaching a consensus regarding expansion of CPC up to 67 million tons in December, 2008 the problem with its flling was virtually removed from agenda. It should therefore be noted that Kazakhstan will most probably provide 17 million tons for Burgas – Alexandroupolis project, while Russian companies will provide 18 million tons. But Caspian Pipeline Consortium rise to new capacity is expected in 2013, prompting suggestions regarding “co­ordinated” implementation of Burgas – Alexandroupolis project with stated period too.

Burgas – Alexandroupolis: Oil Geopolitics

Burgas – Alexandroupolis project is considerably “tied-up” on geopolitical issues. Many experts consider it in the sense of Russian effort to ensure retaining control over oil supply from Caspian region round about so-called pro-Western projects, like Baku – Tbilisi – Ceyhan (BTC). Burgas – Alexan-droupolis project as well as actually any major international pipeline project, anyhow depends on geopolitics, but its economic expediency, in particular also for Kazakhstan, is also practically assured.
During the recent years, geopolitical struggle of EC, Russia and USA for regional oil was intensifed materially. States participating in new pipeline projects have to follow not only strictly economic reasons, but also make a unique geopolitical choice which outweighs other circumstance in some instances. But in many ways the role of geopolitical factor is amplifed pri­marily in connection with availability of massive competition for “control” over pipeline capacities.
None of geopolitical force present in Black and Caspian Sea basins has mo­nopoly on building positions of other countries – this is an essential condition enabling implementation of alternate pipeline projects. Oftentimes geopoliti­cal reasons are purposefully “stirred up” by countries implementing pipeline projects, for their market rivals headhunting.
During the last years the Black Sea route of oil transit has become such supercompetitive vector, especially after commissioning of BTC. Moreover, the competition is realized not only at national, but also at cor­poration level which is presented by big oil-gas and service companies opponent in the economic feld. Appearance of new oil pipeline, Burgas – Alexandroupolis pipe in such circumstances may certainly induce cautious and depressant reaction on the part of alternate market participants, as it produces additional pressure on other existing or designed transit routes with all ensuing consequences, fnancial frst of all. Particularly, Burgas – Alex-androupolis pipe objectively conficts with long-term interests of at least two countries – Turkey and USA.
Nevertheless, Burgas – Alexandroupolis serves the interests of European Community, as it allows enhancing and diversifying security of energy supply for Southern European countries and reducing transit monopolization on the part of Turkey, that latterly cause serious concern of Brussels. Apparently, it is one of principal points which will not allow geopolitics become decisive factor for the project under consideration.

Project Implementation

According to the agreement signed in 2007 on construction of Burgas-Al-exandroupolis project, there was established the International Project Com­pany for the project realization, including the following interests in share capi­tal IPC: Russian “Pipeline Consortium Burgas – Alexandroupolis” Ltd. owns 51% in the project, Bulgarian “Burgas – Alexandroupolis Project Company-BG” S.A. owns 24.5%, Greek parties (“Helpe S.A. – Thraki S.A.” joint venture owns 23.5%, and Greek State – 1%). That company bears responsibility for design project administration and its direct implementation. But, for a number of data, operation of the above consortium met some limit­ing points. The following points may be marked out as focal. First, fnancial uncertainty of the project related to continuing global eco­nomic crisis that confnes its parties to revise time of its commissioning for the purpose of operating cost saving. At the same time, that condition is typical for majority of large infrastructure projects being implemented during the recessionary period.
Furthermore, economic crisis may well cause revision of consortium share­holders. For example, Bulgarian power holding BEH which controls principal energy assets of the country decided to withdraw from the project. After BEH secession from the project there will be the only Bulgarian representative – state-owned company Technoexportstroy, and, taking into account that Bulgarian share was split between BEH and Technoexportstroy, then the last one has to buy out BEH’s share for BGL 2.9 mio (approximately, EURO 1.5 mio). While Russian companies participating in Burgas-Alexandroupolis proj­ect realization may lower its priority in comparison with expensive projects like ESPO pipeline.
Secondly, existence of certain disagreement between parties of consortium implementing the project, particularly regarding repayment of fnancial losses incurred prior to signing the intergovernmental agreement. That problem may be of special urgency for business entities involved in project realization under current economic conditions. Thirdly, there was not made fnal decision regarding oil transport through the Black Sea to Bulgaria for flling the future Burgas – Alexandroupolis pipe­line.
According to intergovernmental arrangements, the International Project Company will conclude correspondent commercial contracts for oil transport services from the places of its extraction to Alexandroupolis. It is understood that Russian party will have a dominant role, in particular “Transneft” com­pany in association with “Sovkomfot”, that allows Russia fguring rate of tariff by itself practically. It is diffcult to suppose how the other project parties will accept that fact.
But the specifed problems are hardly able to affect seriously the progress of the project implementation. It will possible to state appearance of new Kazakh oil transport route to world markets in the foreseeable future.
   

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