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Despite Nabucco Funding Plan, EU's Intentions Remain Muddled

Nabucco is still far short of the $12 billion needed to get the pipeline built.
BRUSSELS -- The European Commission has announced plans to give 250 million euros ($330 million) to the European Investment Bank to help it secure loans for the Nabucco pipeline.

Intended to provide direct access to the natural-gas reserves surrounding the Caspian Sea, the 3,300-kilometer pipeline project shot up the bloc's agenda after the Russian-Ukrainian pricing dispute earlier this month left a number of EU member states with little or no gas.

The commission proposal to spend a total of 3.5 billion euros ($4.7 billion) on Nabucco, new gas interconnections, electricity links, and alternative energy projects is the bloc's first reaction to the gas crisis.

But Nabucco will only get a fraction of the estimated 10 billion euros it is reckoned to cost. Also, the commission is making it clear Nabucco is seen as a purely commercial enterprise. Both facts suggest the EU is not yet ready to make the kind of political commitment that most experts and many officials privately believe is needed to get the project off the ground.

Commission energy spokesman Ferran Tarradellas made it quite clear the EU is planning to make no direct contributions to Nabucco, saying the money "is not to be given to Nabucco," but rather that it will "be given to the European Investment Bank to generate funds, to give loans to Nabucco afterwards."

The rest of the money will have to be found by the Nabucco consortium -- comprising large Turkish, Austrian, Bulgarian, Romanian, Hungarian, and German energy companies.

Apart from the EIB, the consortium can also turn to the European Bank of Reconstruction and Development, as well as other lenders and national governments.

Nabucco's 'Strategic' Value

At this week's Nabucco summit in Budapest, Hungarian Prime Minister Ferenc Gyurcsany called for direct EU funding for the project. His Czech counterpart, Mirek Topolanek, said Nabucco "is a strategic project crucial for the economic prosperity and political independence of the whole of Europe" -- and suggested the EU should make it a priority.

This amid further evidence of the EU's continued vulnerability on energy issues, with Poland complaining on January 28 that its gas supplies from Russia have been cut by 25 percent.

Gazprom's deputy chairman, Aleksandr Medvedev, told EU Energy Commissioner Andris Piebalgs and the chairman of the European Parliament's Foreign Affairs Committee, Jacek Saryusz-Wolski, that Poland -- together with Hungary -- must renegotiate their delivery contracts with the Russian gas-export monopoly.

Both countries have so far bought Russian gas through middlemen that Gazprom now intends to freeze out of the market. The first to go was RosUkrEnergo, a shadowy company registered in Switzerland and linked to Ukrainian President Viktor Yushchenko. As of 19 January, it no longer controls Russian gas transit via Ukraine.

Behind the scenes, many EU officials and politicians concede that the bloc needs to do more to cut its dependency on Russia.

In Brussels on January 28, the president of the European Commission, Jose Manuel Barroso, issued a statement saying the EU needs to "learn the lessons of the recent gas crisis and invest heavily in energy."

Hopes now rest with the member states and the European Parliament, which must all endorse the European Commission's 3.5 billion-euro spending plan -- and can, should they so choose, force the commission to redistribute the funds.

No United Stand

But there is skepticism in Brussels that such a thing would happen, as there is no long-term political consensus among the member states. Both foreign policy and energy policy -- increasingly more interlinked -- remain national matters over which Brussels exercises very little influence. And member states' views on Russia vary widely.

Germany continues to support Nord Stream, a planned pipeline linking it directly to Russia through the Baltic Sea. Some governments in Southeastern Europe would like to go ahead with South Stream, a direct gas link to Russia crossing the Black Sea. Both pipelines would be controlled by Gazprom.

Czech Prime Minister Topolanek spoke for many member states at the Nabucco summit in Budapest when he called both routes "a direct threat to the Nabucco project."

The absence of EU-wide political unity also weakens the hand of the Nabucco consortium in its dealings with Central Asian countries, which will have to fill most of the pipeline's projected 31-billion-cubic-meter annual capacity.

Before Turkmenistan or Kazakhstan commit themselves to Nabucco -- an act which Russia would inevitably regard as hostile -- they need political guarantees from the EU and its larger member states to mitigate the risks involved.

Turkey has emerged as another potential spoiler, dropping heavy hints in recent weeks that its cooperation is conditional on progress in its EU entry talks. Ankara also wants to keep some of the transit gas at cheaper rates -- something which would cut into the Nabucco consortium's profit margins.

As a result, support is growing in Brussels for the White Stream project, which would link Georgia directly to Ukraine through the Black Sea.

In the end, some politicians and officials are arguing, the EU should simply consider offering a massive financial incentive to whichever project manages to make what has become known as the "Southern Corridor" a reality first.

Factbox: Russian Gas Export Pipelines, Projects

Pipelines & Projects

A factbox on how gas gets to Europe from Russia and some of the new pipeline projects aimed at bringing more Russian gas to Europe and diversifying supplies. More

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