Tag Archives: South Stream

Russia is aggressively zeroing in on a tiny state’s political turmoil over gas


Russia’s taken an aggressive interest in a tiny Balkan state’s political turmoil — and it’s connected to Moscow’s latest gas pipeline agenda.

Last weekend the Republic of Macedonia was rocked by anti-government protests and pro-government counter-protests following the release of covert recordings that allegedly show the government planning to rig votes and covering up a murder.

The still-in-charge Prime Minister Nikola Gruevski is openly Moscow-friendly. He’s has taken a stance against the Western sanctions on Russia and supports the proposed Russian gas pipeline that would probably go through Macedonia.

Against this backdrop, it looks like Russia’s worried about the possibility of a new anti-Moscow government, which could potentially weaken the Kremlin’s position. (Especially because Moscow has traditionally used its arsenal of gas pipelines as tools of coercion in Europe.)

On Wednesday Russia’s Foreign Minister Sergei Lavrov stated that “the Macedonian events are blatantly controlled from the outside,” according to Russian state-controlled media outlet TASS.

Sergey Lavrov

“They are trying to accuse Gruevski’s government of not fulfilling its obligations to the population.

“However, the reason behind this is a desire to influence it in connection with its refusal to join anti-Russian sanctions, support of the South Stream and willingness to be involved in the implementation of other options of fuel delivery, including the so-called Turkish Stream,” he said.

“I don’t have any hard-line facts, but it’s a logical suspicion,” Vladimir Chizhov, the Russian ambassador to the EU, told Bloomberg TV in an interview when asked about the claims.

“If you look at the geography of the region, Macedonia is the best place for constructing the extension of the newest energy infrastructure project in the region, the so-called Turkish Stream,” he added.

europe gas

The Turkish Steam, an OAO Gazprom project, was announced back in January after the company abandoned the $45 billion South Stream project in December.

The key geopolitical takeaway regarding both projects is that they’re supposed to bypass crumbling Ukraine — which would allow Russia to both maintain its gas leverage over the EU and to hurt Kiev.


“To help Gazprom reach Central European markets, Russia has advocated the construction of a pipeline that would run from Greece to Macedonia, Serbia and Hungary,” analysts from Texas-based consulting firm Stratfor wrote in a report, according to Bloomberg.

“These four countries are at the center of a Russian diplomatic offensive.”

Although some analysts have expressed doubts over the projects, “the Russians seem determined to let their transit contract with Ukraine expire by 2019 in favor of the alternative route under the Black Sea.

Gazprom has already laid 472 kilometers (293 miles) of the so-called Southern Corridor, the onshore part of the pipeline in Russia, in anticipation of the deal,” according to Bloomberg.

In any case, it looks like Russia might be closely monitoring the political conflict in Macedonia with the goal of avoiding another Ukraine circa 2013-2014, when pro-Kremlin Yanukovych’s regime was kicked out by the masses.


Hungary Seeks to Avoid International Isolation in 2015


Next year will bring a number of complications for the Hungarian government, both at home and abroad. For the first time since taking power in 2010, Hungarian Prime Minister Viktor Orban is dealing with persistent opposition from social groups and trade unions. Budapest is trying to reduce its fiscal deficit and, in pursuit of this goal, will continue to apply special taxes to some sectors of the economy, including supermarkets and tobacco companies, while making spending cuts. These changes will lead to further protests, though they will not threaten the Orban government’s hold on power.

Abroad, Hungary’s relations with the United States will continue to cool off because of accusations of internal corruption and Hungary’s political and economic ties with Russia. Budapest must also deal with its increasingly distant relationship with the European Union, which comes at a time of growing uncertainty over Russia’s future moves. Hungary cannot afford to completely sever ties with its Western partners, and its main challenge for 2015 will be to maintain its current domestic and foreign policy trajectories without completely alienating these allies.


The final two months of 2014 have proven particularly difficult for the Hungarian government. Several groups, from civic organizations to trade unions, have taken to the streets to protest a series of government decisions. In late October, a demonstration of around 100,000 people forced Budapest to cancel plans to introduce a tax on Internet use. The cancellation, however, did not appease the groups and protesters broadened the scope of their criticisms to include allegations of corruption and opposition to reforms in education, health care and other areas.

Over time the protests began to shrink, bringing out between 2,000 and 10,000 people depending on the issue, but they did not stop. Separate demonstrations mobilized teachers who rejected education reforms and opponents of Budapest’s plan to nationalize the remaining funds available in the private pension system.

Trade unions, too, have been active in recent weeks, protesting government plans to phase out an early retirement scheme and to raise taxes on food vouchers for workers. They have also demanded an amendment to the strike law to include constitutional safeguards for protesters. On Dec. 15, workers blocked highways in different Hungarian cities and slowed down traffic.

Typically, unions in Hungary are not particularly combative and tend to negotiate with the government. Now, however, many resent the fact that Budapest did not consult its union partners about recent economic measures.

In spite of this opposition, the Hungarian Parliament approved most of the controversial measures Dec. 15. The reason was simple: Budapest needs to increase its available funds to keep the deficit under control.

While the nation’s budget deficit is still below the ceiling of 3 percent of GDP requested by the European Union, it has risen from 2.4 percent in 2013 to an estimated 2.9 percent in 2014. Next year, Budapest will try to reduce its deficit, and the budget is based on a 2 percent increase in state revenue and only a 0.03 percent increase in state expenditures.

In addition, the Hungarian government predicts that economic growth will slow down in 2015. Budapest expects Hungary’s GDP to grow by 2.5 percent next year, down from 3.3 percent in 2014. Several independent think thanks and research groups believe that the country’s economic performance will be lower.

The measures planned for 2015 will hurt some more than others. The Hungarian Parliament has introduced higher taxes on media and energy-trading companies as well as investment funds. Foreign-owned retail chains, however, will be among those harmed the most. Most of Hungary’s largest retail chains are British, German or French.

The budget includes both a hike in fees for food retailers and a shift from a flat tax rate to a progressive tax rate. In addition, Budapest plans to introduce a law requiring that, starting in 2018, retail chains with high annual turnover must close if they do not turn a profit for two years.

The government contends that many foreign-owned retailers accept losses to weaken their Hungarian competitors. Representatives from the sector said that, taken together, these policies would first push the retailers into a loss and then penalize them for that loss.

Tobacco manufacturers and traders will also see negative effects as a result of the new laws. They will be required to pay a one-off health care contribution fee, which will be calculated as a percentage of their revenue.

Hungary’s parliament has also created a state tobacco wholesaler that will act as an intermediary between producers and retailers. Tobacco producers, mainly U.S. and British firms, have said the new rules will lead to job cuts.

At the same time, Hungary’s municipalities are still dealing with more than $4 billion in debt in spite of a relief program recently approved by Budapest. As a result, the national government will push local governments to introduce their own taxes in 2015.

The Foreign Front

The past two months have been complicated on the foreign front for Hungary as well. In October, the U.S. government introduced a visa ban on six unnamed Hungarian officials, most of who are believed to work for the National Tax and Customs Administration. The institution’s president, Ildiko Vida, is the only official who has admitted to having been included on the list.

But Budapest’s public position on the issue is that the United States has not provided enough evidence to back the allegations of corruption used to justify the ban. On Dec. 15, the Hungarian government announced that the U.S. charge d’affaires in Budapest is facing an investigation by Hungary’s Central Investigation Bureau based on libel charges brought against them by Vida.

The U.S. push against Hungary over alleged corruption at the National Tax and Customs Administration comes as the result of two factors. First, two U.S. agribusinesses reported that they were losing money because of value-added tax fraud. Between late 2012 and mid-2014, the U.S. Embassy in Budapest formally discussed the issue of valued-added tax fraud with the Hungarian government on several occasions.

At the same time, the U.S. government is using these cases of alleged corruption as a way to pressure Hungary into continuing to follow the common European policy of sanctions against Russia. So far, Budapest has reluctantly supported the successive rounds of sanctions, but the United States is concerned about Hungary’s recent rapprochement with Russia and joint plans to expand Hungary’s nuclear plant in Pecs.

The United States is also troubled by Hungary’s temporary suspension of natural gas flows to Ukraine and, until it was canceled, the construction of the South Stream natural gas pipeline.

Hungary’s relationship with the European Union is equally complicated. For some time, Budapest has leveled criticism against the European Union and has demanded that powers be given back to national governments. Hungary’s policies under Orban have hurt European companies, targeting Austrian banks, German media companies and others.

These policies have left Orban relatively isolated from Western European governments. Orban will have the opportunity to improve ties with Germany in February 2015, when German Chancellor Angela Merkel will visit Budapest. The meeting likely will focus on Hungary’s treatment of German companies and its ties to Russia.

Hungary in 2015

Next year will be the most complicated year that Orban has faced since he became prime minister in 2011. Opinion polls show that the popularity of his ruling Fidesz party has dropped and different groups have openly expressed their opposition to the government. Orban’s government, however, is not at risk of collapse.

Despite falling approval ratings, Fidesz is still the most popular party in the country by a large margin, and Orban’s alliance retains comfortable control of the Parliament.

Protest groups will continue to be active in 2015 but have yet to evolve into a coherent opposition. Their differing agendas will make it difficult for a single, large group to form and capitalize on social discontent. More important, no significant elections are scheduled for 2015 in Hungary. However, popular discontent with the government will continue to create fertile ground for the emergence of protest groups.

At the international level, Budapest will struggle to maintain its current policies without completely alienating its partners. Hungary can afford to keep itself at a relative distance from the European Union.

It cannot afford, however, to completely sever ties with Brussels — Hungary still needs investment and funding from the European Union and its core member states. More important, the suspension of South Stream will push Hungary to seek cooperation with other regional players to diversify its energy supply, although most projects are still in their early stages.

Budapest is not interested in a permanent conflict with the United States either. While Hungary’s domestic policies will continue to irritate the United States and Europe, Orban’s administration will be careful not to completely alienate Washington.

The Hungarian government will continue using anti-American rhetoric because it plays well to a domestic audience, but it will not lead to concrete action. As the United States desires, Budapest will continue to support the sanctions regime against Russia, wagering that the European Union will ease its stance toward Moscow by mid-2015, when sanctions start to expire and will require unanimity for renewal.

In the wake of the crisis in Ukraine, Hungary sought to balance between an apparently re-emerging Russia and a weakening NATO. This position was part of a broader strategy of balancing between a fragmenting European Union to the west and a more assertive Russia to the east while increasing national control of the Hungarian economy.

But U.S. pressure on Hungary, Germany’s decision to back sanctions against Russia and Moscow’s recent cancellation of the South Stream project have begun to show the limits of Budapest’s strategy. In 2015, the Hungarian government’s main challenge will be to assuage domestic dissent and prevent its own international isolation.

Hungarian PM Viktor Orban hits back at John McCain’s ‘fascist’ accusation

Hungarian prime minister Viktor Orban (Reuters)

Hungarian Prime Minister Viktor Orban has hit back at John McCain’s accusations of facism(Reuters)

Hungarian Prime Minister Viktor Orban has hit back after US senator John McCain branded him a fascist, claiming that the country’s independence was “under attack”.

Speaking on public radio, Orban called McCain an “extremist” and said that the comments “reflect the person who said them”.

On Tuesday, Republican senator and former presidential candidate McCain criticised the appointment of Hollywood producer Colleen Bell as new US ambassador in Budapest.

Hungary, he said, “is on the verge of ceding its sovereignty to a neo-fascist dictator getting in bed with Vladimir Putin, and we’re going to send the producer of The Bold and The Beautiful as the ambassador.”

The US has barred six Hungarian officials from entry over corruption allegations.

Western officials have criticised Orban for weakening the independence of the country’s judiciary, press freedoms and democratic checks and balances, and attempting to forge closer economic ties with Russia.

The Hungarian Foreign Ministry summoned the top US diplomat in the country following McCain’s remarks.

In his speech on Friday, Orban pledged to safeguard the country’s national sovereignty.

“Hungary’s independence is under threat here,” he said, reports Hungary Today.

He said “the country’s independence in terms of energy, finances and trade relations is unappealing to those who profited from Hungary’s dependence prior to 2010″.

Orban has tried to forge closer economic ties with Moscow, which has drawn criticism from Washington and Brussels.

Officials argue that Hungary, an EU member, shouldn’t be making energy deals with Putin, who they accuse of backing separatist rebels in east Ukraine who are battling government forces, after a popular uprising saw Ukraine’s pro-Moscow government toppled.

Budapest is also in negotiations with Russian company Rosatom over a multi-billion dollar nuclear energy deal.

In yesterday’s speech, Orban blamed the EU for the cancellation of the South Stream project, that would have seen gas pumped from Russia under the Black Sea and into central Europe, bypassing Ukraine.

He added that the “the file on the South Stream gas pipeline is now closed” but Hungary’s interest has remained “to have a gas pipeline that arrives in Hungary avoiding Ukraine”.

He said that he “would not be a viceroy in Hungary commissioned by some foreign state”.

Plunging Energy Prices And The Ukraine Crisis Killed Russia’s $40 Billion Gas Pipeline Project

Russia's President Vladimir Putin, accompanied by his Turkish counterpart Tayyip Erdogan (not pictured), attends a news conference in Ankara, December 1, 2014. REUTERS/Mikhail Klimentyev/RIA Novosti/Kremlin

SINGAPORE/LONDON (Reuters) – Russia’s $40 billion South Stream gas pipeline project has fallen victim to plunging energy prices, stalling European demand and the political standoff between the European Union and Moscow over the crisis in Ukraine.

Russia on Monday said it had scrapped the project to supply gas to Europe without crossing Ukraine, citing EU objections, and named Turkey as its preferred partner.

South Stream planned to supply 63 billion cubic meters (bcm) of natural gas a year, equivalent to more than 10 percent of European demand, from Russia via the Black Sea into the EU toward the end of this decade, cementing Russia’s role as the region’s dominant supplier.

But it came under increasing fire this year. The crisis over Ukraine led to Brussels freezing its approval process, and the pipeline also hit trouble over weak European gas demand and energy prices, undermining its economics.

“I think the likelihood of South Stream being built is now is close to zero,” said Pierre Noel, senior fellow for economic and energy security for International Institute for Strategic Studies (IISS).

South Stream would need to be marketed at an equivalent of $9.50-$11.50 per million British thermal unit (mmBtu), including a 30 percent export duty, estimates have shown. The average European spot gas prices have ranged between $6-$9 per mmBtu this year.

“Decreasing oil-indexed prices for gas and lower sales are likely to drive Gazprom to the red this year,” said Mikhail Korchemkin of East European Gas Analysis, forcing the firm to reduce its investment program.

Russian state-controlled Gazprom sells most of its gas under oil-linked contracts. With oil prices tumbling 40 percent since June and European gas demand down 10 percent since 2010, Gazprom’s gas revenues have plunged.

“Cancellation of the project can reduce Gazprom’s negative cash flow in 2014-2017”, Korchemkin added.

Gazprom meets almost a third of Europe’s demand, which in turn makes up 80 percent of its revenues.

“It (scrapping South Stream) reflects internal Russian pressure on where it is going to invest limited resources at a point in time when sanctions are hitting,” said Carlos Pascual, a fellow at Columbia University’s Center on Global Energy Policy, referring to Western sanctions over Ukraine.

“It’s harder, more expensive to access capital and the fastest growing gas markets in the world are in Asia, and Russia has virtually no export capacity to the Asian market,” he added.



The announcement on scrapping South Stream came during a visit by Russian President Vladimir Putin and Gazprom chief executive, Alexei Miller, to Turkey, during which Putin proposed building it to Turkey instead, offering its gas at a discount.

“I don’t think Putin is bluffing. I think he’s really adapting to a fundamentally new geopolitical situation in Europe,” the IISS’ Noel said.

Yet the notion of running South Stream to non-EU member Turkey is not new and is seen by some as a political ploy by Russia to win the support of those EU members in favor of the pipeline.

South Stream exposed cracks in EU strategy as Hungary, Austria, Serbia and Bulgaria among others saw it as a solution to the risk of supply disruptions via Ukraine, which have occurred three times during the last decade. Brussels, on the other hand, saw it as entrenching Moscow’s energy stranglehold on Europe.

“The alternative to Turkey is even more doubtful than the direct option to Europe,” one financial adviser who has dealt with the matter said on condition of anonymity.

The gas discount offered to Turkey casts further doubt over a project that was already economically doubtful, and would be far too big for Turkey alone to receive all the gas, supplying four times its annual demand.

“Even if it went to Turkey, most of its gas would end up in Europe, so it begs the question why introduce a transit risk instead of attempting to solve Russia-EU differences and run it directly to Europe as initially planned,” the adviser added.

Foreign Ministers of Serbia, Hungary Cite South Stream as Project of Mutual Interest

Bulgaria: Foreign Ministers of Serbia, Hungary Cite South Stream as Project of Mutual Interest

Serbian Foreign Minister Ivica Dacic and his Hungarian counterpart Peter Szijjarto have agreed that the South Stream gas pipeline is a project of mutual interest for the two countries.

Speaking after Friday’s meeting with his Serbian counterpart, Szijjarto called on Russia and the European Union to resume a dialogue on the South Stream project aimed at ensuring that the investment was compatible with EU rules.

Dacic emphasized that infrastructure projects such as Pan-European Transport Corridor #10, the Belgrad-Budapest railway line, and the South Stream gas pipeline project were points of mutual interest for Hungary and Serbia.

Szijjarto, as cited by Tanjug and the Bulgarian Telegraph Agency, argued that Hungary was convinced that the South Stream gas pipeline would substantially increase the security ofgas supply to Central Europe, meaning that the project was important for the whole of Europe.

Dacic reminded that the cost of the construction works for the Serbian section of the South Stream gas pipeline amounted to over EUR 2 B, while Serbia was expected to receive hundreds of millions of euro a year from transit fees.

Commenting on the dispute over the compatibility of the South Stream gas pipeline with the EU’s Third Energy Package, Dacic insisted that the EU had to treat all projects equally and refrain from applying double standards.

US diplomat tells Hungary to back EU, criticizes PM Orban over Russia stance

Prime Minister of the Republic of Hungary Viktor Orban (RIA Novosti / Aleksey Nikolskyi)

A US diplomat visiting Hungary has criticized its PM’s policies towards Russia and stated that he believes Budapest should back the EU in its policy of imposing sanctions on Russia.

On Friday, US Chargé d’Affaires André Goodfriend made the condemnations of Hungarian of Prime Minister Viktor Orban’s policies, particularly in regards to Hungary’s decision to grant Russia a contract to expand the Paks nuclear plant and over its support for the South Stream gas pipeline.

Meanwhile the US denied entry to six Hungarian public officials on Monday in the light of corruption allegations. According to Goodfried, their being banned was related to actions specific to each individual, however, rather than Hungarian politics on the whole.

Goodfried criticized Hungary for how it was veering away from the rule of law which was consolidated after its switch to democracy in 1989 and how it was not a good time to be debating the protection and autonomy of Hungarians in Ukraine.

Orban has been calling for the autonomy of some 200,000 Hungarians who currently reside within Ukrainian borders.

Particularly with calls for autonomy among Hungarian ethnic nationals in Ukraine… this is not the time to have that discussion,” Goodfriend said.

Hungary should “stand firm with the EU, with EU sanctions” he added and should “understand the sensitivities on the ethnic nationalism question”.

The country has been critical of EU sanctions on Russia. Goodfriend stated that it was not the time for Hungary to “break with its EU partners to criticize so publicly the approach that the partners have taken”.

Hungary, however, is very much dependent on Russian gas supplies and says that the South Stream pipeline would actively aid its energy security.

Earlier in August Orban condemned the EU sanctions against Russia likening them to “shooting oneself in the foot.”

Russia is Hungary’s largest trade partner outside of the EU, with exports worth $3.4 billion in 2013.

Hungary set to bypass EU over South Stream with law amendment

A Déli Áramlat útvonala (Forrás: Wikimedia Commons)

Ever since Hungary’s Prime Minister Viktor Orbán sat to the negotiating table with Gazprom’s CEO Alexei Miller, the number of Hungarian steps putting the Russian gas giant in an advantageous position and supporting Russian interests have oddly increased.

First Hungary shut down reverse gas flow to Ukraine, then allowed Gazprom to stash its gas in local gas storage units. The latest measure is a law amendment proposal submitted by parliament’s economic committee chaired by Fidesz caucus chief Antal Rogán that would give Hungary the green-light to start building the South Stream pipeline. Despite all reservations and obstructions by the European Union, local news portal index.hu reported on Wednesday.

How to make the USA more angry with Hungary, we asked our readers on Tuesday, but we did not have the faintest idea that the government has been holding the best answer to that and it beats every idea we have ever had.

Parliament’s economic committee helmed by Antal Rogán, the head of the ruling Fidesz party’s parliamentary group, has submitted an amendment proposal to a bill submitted by Fidesz MP Roland Mengyi that would practically make it possible for Hungary to start building the South Stream pipeline without consulting either the European Union or other international organisations.

Could build however it wants

As the rationale of the document says, the amendment would facilitate any gas company to construct the pipeline that is not a certified transmission system operator, i.e. it would not have to comply with any rules under which TSOs must operate.

What regulations are we talking about? For instance, a TSO cannot just decide on a whim to start building a pipeline without international approvals as the national development plans need to be harmonised and controlled. The TSO may start development projects that are included in an approved 10-year development plan. Moreover, once that plan is approved, the development projects must be carried out.

This rule was made not by chance, but because large natural gas transmitting pipelines are always cross-boarder, giant and vastly expensive projects that shape the geopolitical situation therefore it is crucial for the participating countries to be in appropriate harmony.

With the approval of the above amendment proposal any gas company would be able to build gas pipelines in Hungary on a simple nod from the Hungarian Energy Office. In that case the different international co-ordination bodies would have no jurisdiction.

Although the amendment proposal does not specify any pipeline construction project, the only one on the agenda right now is South Stream. This happens to be the pipeline which Hungary would be able to start building only if it bypassed international organisations.

According to plans

If the planned modification of the law is indeed aimed at this, we can expect both the European Union and its ally, the United States, which have implemented sanctions against Russia for its conflict with Ukraine, to be furious.


The EU is against Moscow’s endeavours to expand its imperial reach, a tool of which is the South Stream pipeline in its current form. It has taken up a rigorous stance on this issue, declaring that it would not negotiate on the building of the pipeline until the Russia-Ukraine conflict is settled.

Irrespective of the fact that officially the project is in a standstill, Russian President Vladimir Putin has called his allies into action behind the scenes.

Gazprom CEO Alexei Miller met Hungarian PM Orbán on 22 September in Budapest and the company said in a statement that the subject of their discussion was gas supply in Hungary in the winter and the South Stream project which “is progressing according to plan”.

Odd timing

A few days after the Orbán-Miller meeting Hungary’s gas pipeline network operator FGSZ announced it was indefinitely suspending gas supply to neighbouring Ukraine for technical reasons. Ukraine was fuming over the move and interpreted it as the outcome of the Russian-Hungarian meeting.

It was in the open for some time now that Moscow does not take it well that the “enemy” Ukraine is receiving gas from Hungary. The explanation Budapest delivered was that filling up the gas storage units for the winter was the priority therefore it had to halt reverse gas flow to Ukraine.

Let’s admit, it was more than a lame excuse. The depleted storage units indeed had to be filled back up, as the turning off of the gas tap seemed to be a realistic risk due to the Russia-Ukraine conflict.

However, there were interesting developments also during the filling up process, for instance, a proposal submitted by Fidesz MP Roland Mengyi a few days after the Orbán-Miller meeting.

The MP, who is a stranger to energy issues, proposed the amendment of the gas law, as a result of which Gazprom was allowed to transmit natural gas into Hungarian storage facilities without obtaining a trade permit.

On paper it will have several hundreds of millions of cubic metres of gas abroad so it will not have to pay taxes until it sells this volume to a Hungarian company.

If it wants to sell it that is. In case the flow of Ukrainian transit gas is stopped neighbouring countries could also be queuing up for this stashed gas reserve.

And now there is Rogán’s amendment proposal to top this off nicely.

Hungary’s Foreign Minister Péter Szijjártó will meet Victoria Nuland, the Assistant Secretary of State for European and Eurasian Affairs at the United States Department of State, and special energy envoy Amos Hochs in Washington on Wednesday. South Stream is likely to be discussed there.