SOUTH STREAM: STOP WORK

The European Union has demanded Bulgaria suspend construction work on Russia's South Stream natural-gas pipeline project while it investigates the way contracts were awarded.

With a design capacity of 63 billion cubic meters a year, the South Stream pipeline would carry around 12% of Europe's current annual gas consumption via the Black Sea. It is due to be completed by 2018. The pipeline would bring Russian gas to Europe largely circumventing Ukraine.

The EU executive warned last year that South Stream couldn't proceed before it complied with EU legislation, including rules that limit pipeline ownership and require that other firms be permitted to distribute the gas.

The EU wrote to Bulgarian authorities on Monday formally requesting information on how contracts were awarded for the pipeline work, a spokesman said Tuesday. The request is the start of a so-called infringement process that could eventually result in fines on Bulgarian authorities.

Chantal Hughes, spokeswoman for Internal Markets Commissioner Michel Barnier said in a written statement that the EU's executive has "grounds to believe" that the bloc's internal market rules, "in particular those related to the award of public contracts are being breached."

While discussions are taking place, and "until there is full compliance with EU law, we have also asked the Bulgarian authorities to suspend the project," Ms. Hughes said. Bulgaria has a month to reply.

There has been growing EU resistance to South Stream in recent months as the crisis in Ukraine has intensified. In March, Brussels froze high level political talks between the EU and Russia aimed to resolve concerns over the approval of the project.

However, the EU's move against Bulgaria will be a test-case for how much sway the bloc has in persuading its own member states to slow work on the project. Bulgaria, which joined the EU in 2007, has close ties with Russia and there have been concerns among EU diplomats in recent weeks about some actions taken by Bulgaria's coalition government.

The EU had already made warnings to Bulgaria about an April legislative package allowing Russian natural-gas exporter Gazprom  to circumvent EU competition regulations for the Bulgarian section of the South Stream pipeline.

In a statement, Bulgaria's economy and energy ministry said it would comply with the deadline set by the EU to respond to the letter. The ministry said the way contracts were awarded for the design, construction and commissioning of the Bulgarian section of the pipeline followed "legally conforming procedures which are justified" in Bulgarian and EU law.

"Comprehensive information on these procedures will be made available to the commission," the ministry said.

On Tuesday, EU spokesman Antoine Colombani gave more detail on the EU's concerns about the Bulgarian contracts.

One is that South Stream Bulgaria, the 50%-50% joint venture between the Bulgarian government and Gazprom,  was awarded a contract to design, finance, construct and operate the pipelines without a competitive tender process. The EU also has concerns that under the agreement between the Bulgarian and Russian governments allows South Stream Bulgaria to show preference to Russian and Bulgarian firms in sub-contracting out work on the pipeline.

"Work was about to start so it was urgent to act," he said.

Mr. Colombani said the EU is looking at the situation in other member states involved in South Stream. Russia signed contracts with Bulgaria, Greece Croatia, Slovenia, Hungary, Austria and EU-candidate country Serbia for South Stream.

wsj.com