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Russian PM approves draft deal for South Stream gas line offshoot to Macedonia

Moscow (Platts)--5 Jul 2013 714 am EDT/1114 GMT


Russia's Prime Minister Dmitry Medvedev has approved the draft agreement with Macedonia to build an offshoot from the South Stream gas pipeline to the Balkan country, according to the government website.

Under Medvedev's orders published Friday, Russia's energy ministry and the ministry of foreign affairs have been asked to hold talks with Macedonia regarding the draft agreement.

Should the draft be approved by Macedonia, the two countries will carry out a feasibility study, according to the website. The route for the offshoot, its entry point and capacity is to be determined in the feasibility study.

Export volumes as well as the terms and conditions of the Russian gas supplies are to be determined by a separate contract, according to the draft agreement.

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If the offshoot is considered viable, the two countries are to set up a 50:50 joint venture to complete the project. Financing of the project will be proportional to the stakes held by both countries, the draft agreement said.

Russia will retain the right to use the capacity of the offshoot line in full, it added.

The joint venture will be the operator of the offshoot pipeline and will set the transportation tariff, under the draft deal.

Macedonia is to provide all the required approvals for construction of the offshoot and give it the status of a national project.

Other interested parties may become shareholders in the project, provided that Russia and Macedonia still hold equal stakes, the draft deal added.

The agreement is to remain in force for 30 years, with the possibility of extending it in the future for five-year periods.

Russia's Gazprom officially inaugurated the start of the South Stream project in December last year, and construction of the underwater section across the Black Sea to Bulgaria is expected to start in 2014.

From Bulgaria, the pipeline will go to Serbia-Hungary-Slovenia and on to northern Italy. Two offshoots could be built -- to Bosnia and Herzegovina, and to Croatia.

The project will include four parallel lines, each with a capacity of 15.75 billion cubic meters/year, and first commercial deliveries are scheduled for late 2015.

Gazprom expects to build the second and third lines by the end of 2016, with a fourth line scheduled to be built by the end of 2017.

--Dina Khrennikova, dina.khrennikova@platts.com
--Edited by E Shailaja Nair, shailaja.nair@platts.com

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