The Council of Ministers adopted the draft of the Final Investment Decision on South Stream on the Bulgarian territory
The Government authorized the Minister of Economy, Energy and Tourism to grant permission to “Bulgarian Energy Holding” EAD to make Final Investment Decision (FID) on “South Stream” project on the Bulgarian territory. A precondition for the adoption and the signing of the FID is the conclusion of a new contract between “Bulgargaz” EAD and “Gazprom Export” on natural gas supply to Bulgaria starting from 2013, meeting the requirement of “Bulgargaz” on the key (according to the state company) issues.
The parameters of the FID were discussed during the Government meeting.
According to the gas pipeline configuration the length of the main pipe is about 540 m with a branch to Provadia of 59 km and three compressor stations – Varna, Lozen and Rasovo, with respective looping to the main pipeline, with a total technical capacity of 63 bcm of gas per year. The receiving terminal and the compressor station “Varna” are situated within one site. The total indicative construction cost of the project is 3 308.65 billion euro, which is subject to further specification and updating together with the advancement of the design and EIA activities.
The target pay-back period is set to be no longer than 15 years, effective from the start of the commercial operation of the pipeline on the Bulgarian territory, i.e. this is the time period during which all project capital costs will be recovered. Regarding the base period for reaching the necessary level of the internal rate of return of the own funds, the parties agreed it to be 25 years, starting from the issuance of the operation permit. The internal rate of return, set in the Protocol, is 8% (nominal) from the parties’ own funds invested in the project.
Observing the requirements concerning the project financing and failing to entirely ensure it, OAO “Gazprom” will provide the funds covering the own contribution of “BEH” EAD to the construction, not changing the equal share of “BEH” EAD as a shareholder. The funds provided to cover the contribution of “BEH” EAD will be repaid by the dividend of the “South Stream Bulgaria” AD operation. The specific conditions regarding the financing will be set in an Addendum to the Shareholder Agreement. It is envisaged a text to be included in it, defining that no state guarantees will be provided to the project and that “BEH” EAD on a corporate level will not provide any guarantees, collaterals and alike in any form, including no shares of “South Stream Bulgaria” AD will be put in pledge to OAO “Gazprom” or its affiliates as a collateral to ensure its own contribution.
The agreement on the financing is of great importance to the country of Bulgaria, as during the pipeline preparation and construction phases there is no need to spent or risk a substantial amount of investment funds.
The construction of “South Stream” pipeline complies with the priorities set in the Program of the Government of the European Development of Bulgaria for development of the energy sector through increased security of energy supply to the Bulgarian industry and the population, by diversification of the sources and the routes of supply of natural gas. The international energy project is supported by the Strategy for National Security of Republic of Bulgaria, adopted by the Parliament in the beginning of the last year.
The participants in the “South Stream” project are state institutions and state and private companies from Austria, France, Germany, Italy, Greece, Bulgaria, Serbia, Hungary, Slovenia and Russia. Its main objective is while achieving a reasonable profitability for the investors, to provide natural gas from Russia and meet the growing demand for natural gas in Europe. The project will boost the economic growth, creating new jobs in Bulgaria and increasing the flexibility and security of supply to our country and Europe.
Concerning Bulgaria, the project starts with the ratified from the Parliament Intergovernmental Agreement between Bulgaria and Russia, Shareholder Agreement and adoption of the Statutes of the joint project company “South Stream Bulgaria” AD, with shareholders “BEH” EAD and OAO “Gazprom” with 50:50 share ratio. A Feasibility Study Agreement is signed in October 2010 and a Protocol on the Implementation of the Project on the Bulgarian Territory is signed end August this year, providing for the Final Investment Decision on the project to be made in November 2012.
