Hungary and Russia agree deal on South Stream pipeline

Business Materials 26 February 2008 01:43 (UTC +04:00)

( dpa ) - Hungarian Prime Minister Ferenc Gyurcsany on Monday said that Hungary and Russia had agreed to enter into a joint partnership to build a section of the South Stream gas pipeline through Hungary.

Gyurcsany, speaking after meeting Russian Deputy Prime Minister Dmitry Medvedev, said that the deal was part of efforts to diversify energy supplies.

" Hungary needs more gas from more sources and from more routes," he said. "Today only one pipeline feeds Hungary, through Ukraine."

The 50-50 deal, which will likely be signed in Moscow on Thursday, will also see a 1 billion-cubic-metre storage facility built in Hungary, Gyurcsany said.

Medvedev, who is expected to become Russian president in March after being given President Vladimir Putin's blessing, is also chairman of Russian energy giant Gazprom.

Hungary, which receives 80 per cent of its gas from its former overlord, was one of the countries most affected by the gas outages in January 2006, which occurred when Russian gas deliveries through Ukraine were disrupted.

Since then, it has attempted to diversify supplies, but has faced accusations of still backing Russia far too closely.

In particular, the government's support for the Russian project has been seen as throwing into doubt its commitment to the European Union-backed Nabucco pipeline, which aims to reduce Europe's reliance on Russian gas by bringing in Middle Eastern gas through Turkey.

Hungary's oil and gas group MOL is one of the shareholders in the Nabucco pipeline.

Gyurcsany said that the deal did not pose any threat to Nabucco, as the two pipelines could exists side-by-side.

However, opposition party Fidesz said that signing on with Russia would make Nabucco impossible and Hungary too reliant upon Russia.

"It is in Europe's long-term interest to diversify its energy sources and Nabucco means real diversification," Zsolt Nemeth, Fidesz's foreign policy expert. "The South Stream pipeline will bring in the same Russian gas that we get now, with Ukraine cut out."

The South Stream pipeline will bring Russian gas in under the Black Sea and is expected to end in Italy, with a branch to Austria.