Burgas-Alexandroupolis pipeline agreement allows parties to exit only after recoupment

The intergovernmental agreement on the construction of the Burgas-Alexandroupolis pipeline allows for the country participants to pull out of the project only after it has paid for itself, the Transneft report for 2011 says.

Transneft (RTS: TRNF) said Bulgaria last December decided to terminate its participation in the project and wrote to Russia about this. Bulgaria proposed ending the Burgas-Alexandroupolis deal "by mutual agreement." If such an agreement cannot be reached, Bulgaria would independently pull out after 12 months.

The Russian state company said the Russian government decided not to support the Bulgarian proposal about ending the agreement by mutual consent, because according to article 14 of the agreement any party can withdraw from the agreement only "after the pipeline has paid for itself."

"As the terms have not been implemented, if Bulgaria pulls out unilaterally it will mean a violation of its international commitments," the Transneft report says. The Russian government has, in accordance with a government decision, already switched the operator of the Trans-Balkan Pipeline project into sleep mode, while retaining it as the legal entity that owns the feasibility study of the project.

The Burgas-Alexandroupolis pipeline, which is to be laid through Greece and Bulgaria, will bypass the congested Bosporus and Dardanelles straits. It will be 300 kilometers in length and have the capacity to transport 35 million tonnes of crude per year with the opportunity to increase that to 50 million tonnes. Construction was estimated to cost around 1 billion euros.

The founders of Trans-Balkan Pipeline B.V. are Russia's TK-BA with 51%, Bulgaria's Project Company Burgas-Alexandroupolis BG with 24.5%, Helle C.A. - Traki C.A. of Greece with 23.5%, and the Greek government with 1%. The founders of TK-BA were Russian oil pipeline company Transneft with 33.34%, Gazprom Neft (RTS: SIBN) with 33.33%, and Rosneft (RTS: ROSN), also with 33.33%. An intergovernmental agreement was signed in 2007 between the governments of Russia, Bulgaria and Greece. After a long delay in the implementation of the project, Bulgaria paid of all debt and announced it planned to withdraw.

Russia continues to insist the project be implemented because it believes it to be the best option for shipments from Black Sea areas.

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