Brussels plans €250m boost for pipeline

By Joshua Chaffin in Brussels and Ed Crooks and Thomas Escritt in Budapest

Published: January 27 2009 20:36 | Last updated: January 27 2009 20:36

The European Commission is planning to invest €250m ($330m, £233m) in Nabucco, the pipeline project that would bring gas from the Caspian region.

The sum would cover just 3 per cent of the expected cost, but would provide a capital base for further lending. It is one of the first signs of European Union action to diversify energy supplies following a Russia-Ukraine gas dispute that left thousands of people without power in the dead of winter.

The proposed EU funding for Nabucco is part of a €5bn stimulus package the commission will unveil on Thursday to use unspent funds for a variety of infrastructure projects.

Nabucco, a 3,300km route from eastern Turkey to Austria, would transport Caspian gas to western Europe, thereby reducing EU dependence on Russian gas – 80 per cent of which is transported via Ukraine.

Zsolt Hernadi, chairman of Mol, the Hungarian oil and gas company that is a member of the Nabucco consortium, said the dispute between Russia and Ukraine had transformed the debate over the project, which has made frustratingly slow progress since first being proposed in 2002.

“Three months ago, if there were a delay, nobody cared too much. Now it is totally different,” he said.

The European Investment Bank, the EU’s finance arm, on Tuesday said it was prepared to finance up to 25 per cent of Nabucco’s cost – which could mean a commitment of more than €2bn.

However, speaking at a summit in Budapest of countries involved in Nabucco, Philippe Maystadt, the EIB’s president, warned that the project needed political agreement before it could raise any money.

Andris Piebalgs, EU energy commissioner, said Nabucco faced a “moment of truth” over the next few weeks.

European officials say the sticking point in the talks between Turkey and the other countries involved in Nabucco – Austria, Hungary, Bulgaria and Romania – has been Turkey’s demand to secure supplies of cheap gas as part of the deal. Turkey’s gas consumption has been soaring – it has more than doubled in the past six years – making the country vulnerable to gas price rises.

The €5bn European Commission stimulus package includes €3.5bn for energy, which includes projects such as building cross-border gas and electricity interconnections between member states; €500m for six offshore wind-farm projects; and €250m each to five pilot projects to test new technology to capture and store carbon emissions from power plants.

An additional €1.5bn will be used to increase availability of broadband internet in under-served rural areas.

The proposal must still win approval from member states as well as from the European parliament.

Copyright The Financial Times Limited 2009