South Stream Cancellation Causes Economic Loss in Balkan Nations

MOSCOW, December 12 (Sputnik) — After Russia’s leader Vladimir Putin cancelled the controversial ‘South Stream’ natural gas pipeline, the nations of Southern Europe are facing increased risks to their businesses, who contracted to participate in the project’s realization, as well as overall economic frustration, as the pipe, if constructed, would have brought plentiful gas transit money into the region’s emerging markets. The recent developments have sparked a discussion about possible compensation payments from Russia for its sudden unilateral decision.

The South Stream gas pipeline was designed as an alternative route for the Russia to supply Europe fuel, bypassing the Ukrainian pipeline, as Kiev has embroiled in war during the last year, adding to its already damaged reputation of an unreliable supplier, as a legacy of its mid-2000’s gas disputes.  The South Stream pipeline would link Russia through Bulgaria and Serbia to Hungary and Austria and many local construction firms were planning to participate in the infrastructure development, thus boosting their revenues.

In particular, in Serbia, the Gazprom subsidiary, Tsentrgaz, won a contract to build the Serbian part of the pipe on 8 July. The contract provided multiple job opportunities for Serbian construction workers, mechanics, welders, engineers and other related staff. Moreover, many local businesses were planning for possible outsourcing opportunities. According to a Reuters report, the region’s fragile economies were expecting a big influx of investment money, and for Serbia, the pipe would have been the biggest investment in 15 years, with the total cost of the ambitious pipeline project between 16.5 bln and 50 bln euros, according to the East European Gas Analysis.

"We thought we'd earn enough to sustain us for the next five or six years," one of Serbian developers told Reuters. "We lost not only potential profits but also references for future deals."

Gazprom, Russia’s gas giant, purchased a majority stake in Serbia’s carbohydrate provider, NIS, back in 2008 for some 400 mln EUR, according to some estimates. However, despite Gazprom owning several gas stations ad refineries, along with the exploration rights, it is not obligated to construct any new infrastructure by the 2008 treaty. In regard to the South Stream pipeline, Gazprom never provided any written guarantees to Serbia that the pipe would be built, meaning it will be extremely hard for Beograd to cover its potential financial losses of the project’s abandonment.

According to estimates by Serbian Infrastructure Minister Zorana Mihajlovic, the nation’s developers have lost an opportunity to earn up to 300 mln EUR. Had the South Stream pipeline been built, she said, Serbia’s GDP would have added 2% at least. Also, there is a lost opportunity to obtain cheaper gas, the total amount in lost earnings for Serbia reaching 700 mln EUR.

Bulgarian authorities said recently they have lost 3.5-4 bln euros in investment and $600 mln yearly in transit fees. In Hungary, experts say the nation has lost $400-600 mln in investment capital.

Slovenia’s situation is also frustrating, as the nation’s oil and gas companies have spent 150,000 EUR of their own money on ‘preparation works’. Ljubljana is intending to seek compensation payments from Gazprom.