Europe’s energy under threat

In times of global challenges in many respects – from climate change to economic and political uncertainty, Southern Europe is facing another serious threat. It is a threat to its energy security, which may lead to serious cross-national tensions and dramatic consequences for Europe.

One of key contributors to this threat is the political and economic crisis in Ukraine. This country, riddled by endemic corruption, political division and a raging war in its rebellious region of Donbass, is in the process of forming a new government in the aftermath of parliamentary elections held in mid-July.

Ukraine is of crucial importance as an energy corridor for Europe. Its inability to deal with domestic problems and guarantee its role as reliable transit hub, together with an uncertain future facing its contractual obligations with Russian supplier Gazprom, present a real threat for the coming winter months.

The scourge of Ukrainian corruption and private interests of oligarchs that have taken precedence over public interests seem to be spreading to other countries of Europe. Bulgaria is yet another fresh victim of such corruption.

The reason why these irregular activities have taken root, is because the Bulgarian leg of the Turkish Stream natural gas pipeline extension was supposed to become one of the main routes for gas supply to Southern Europe, contributing to the diversity of gas supplies to Serbia, Hungary, Croatia and other countries of the region.

The 480km pipeline will run between Turkey and Serbia across Bulgaria, offering an efficient route for gas transit and reducing the dependence of the region on transit of gas from Ukraine.

However, its quite possible that this particular pipeline will not see completion until 2021-2022. The reason for the delay is continued and bitter legal disputes between Bulgartransgaz and the ARKAD consortium, led by Arkad Engineering from Saudi Arabia.

The story behind this lawsuit is quite a peculiar one. ARKAD won the tender for construction by offering the lowest price, which came as a surprise to ARKAD’s opponents from the Gas Development and Extension in Bulgaria (GDEB) consortium. ARKAD had offered to build the 474,7km expansion for 1,1 billion euro by the end of 2020, compared to 1,6 billion euro offered by its rival.

The most likely reason for ARKAD’s victory was assistance from politically connected Bulgarian oligarchs. Despite the success of the tender, Bulgartransgaz and Arkad Engineering were unable to sign a contract because the Saudi firm did not provide all the paperwork required by law, despite several postponements granted by Bulgartransgaz.

In the meantime GDEB told Bulgartransgaz that it was prepared to offer a 31,1 percent discount on the price it originally offered to match ARKAD’s price. Given those factors and the importance of the project, Bulgartransgaz said that it was amending its initial decision and awarded the construction contract to the Bonatti-Max Streicher consortium.

ARKAD acted quickly and filed a complaint against Bulgartransgaz’s decision to disqualify it as winner to the Bulgarian competition authority.

CPC, the anti-monopoly body tasked with ruling on public procurement disputes, said that Bulgartransgaz’s decision was unlawful because it did not meet the legal requirements necessary for the company to modify its tender award decision.

In early July, the GDEB Consortium appealed the CPC’s decision before the Supreme Administrative Court, reopening the legal dispute. As result, the construction will be delayed. The delay on the Bulgarian section means Gazprom will only be able to use TurkStream to ship its gas to Bulgaria and from Bulgaria to Greece, Macedonia and Romania via the existing network.

For the time being, Serbia, Hungary, Bosnia and Herzegovina and Croatia will therefore still remain entirely reliant on the Ukrainian route. Lack of transparency in the tender process have left many wondering what happened to a clear and transparent project that was supposed to deliver gas to their homes and keep them warm in winter.

The bigger strategic issue is however whether the EU is indeed committed to diversifying its energy supply routes in order to reduce dependence on unreliable political factors. One would expect that the EU’s new leadership will take corruption in the energy sector very seriously and adopt a position of zero tolerance against insider shady deals, which negatively impact the lives millions of Europeans.