A Saudi Company May Build Gazprom Route Through East Europe

(Bloomberg) -- Bulgaria picked a Saudi company to build a 474-kilometer (295-mile) natural gas pipeline, part of a grid upgrade designed to help transfer Russian gas from Turkey to central Europe.

Bulgaria, which imports all of its gas from Russia, plans to connect its grid to a potential second leg of the TurkStream link between Russia and Turkey and transfer gas to Serbia. It seeks to lock in new routes and remain a transit country amid concerns that the Kremlin may cancel shipments through Ukraine once TurkStream becomes operational. It also wants to avoid the supply disruptions seen in past years during spats between Russia and Ukraine.

Bulgartransgaz, the state-owned gas grid operator, picked a consortium of Arkad Engineering & Construction Co. Ltd. and an Swiss-based unit, Arkad ABB SpA, it said in a statement Wednesday. The group offered to build the pipeline for as much as 1.3 billion euros ($1.5 billion), depending on the construction timeline. Gazprom Export and Switzerland’s MET Group have booked capacity through the new route for 20 years, according to Bulgartransgaz CEO Vladimir Malinov.

Al Khobar-based Arkad is Saudi Arabia’s largest energy services company. It has embarked on an "aggressive global expansion strategy" in Europe, Asia, the Americas and Africa, according to its website. Bulgartransgaz is considering a deferred payment scheme for the project, Malinov told reporters last week. If completed, the upgrade will be the country’s most expensive in decades.

“This pipeline will guarantee that TurkStream won’t bypass Bulgaria,” Valentin Nikolov, the deputy chairman of the parliament’s Energy Committee, told lawmakers in Sofia. “Bulgaria has the best-developed infrastructure in the Balkans, which makes it a highly valued transit country.”

The builder will receive 250 million lev ($144 million) in advance and will then get payments from transit fees, estimated at an annual average of 340 million lev over the next 20 years. The upgrade, estimated at a total of 2.8 billion lev without VAT, includes also two compressor stations and an 11-kilometer link to the Turkish border.

About 10 percent of the total 17.9 billion-cubic-meter annual capacity will be available for short-term booking to meet the European Union’s competition rules, Energy Minister Temenuzhka Petkova said last month. Bulgaria seeks to avoid a repeat of an earlier project called South Stream, which ran into European regulatory hurdles.

©2019 Bloomberg L.P.