Nord Stream to Seek Approval, Then Cash

Gazprom-led Nord Stream, a controversial pipeline that will ship Russian gas directly to Europe, can only seek financing once it gains environmental approval from neighboring countries, the consortium's financial director said Wednesday.

The consortium will approach up to 30 banks about financing 70 percent of the 7.4 billion euro ($11.6 billion) pipeline, Paul Corcoran said, one day after the European Parliament demanded the project undergo stricter environmental scrutiny before construction starts.

Gazprom says Nord Stream, which will ship Russian gas 1,200 kilometers under the Baltic Sea to Germany, is key to ensuring Europe's energy security, by filling rising demand and bypassing troublesome former Soviet transit countries.

Yet countries bordering the Baltic, including Poland, Estonia and Lithuania, as well as Denmark and Finland, have raised objections to the route on political or environmental grounds. About a dozen countries must approve an environmental impact assessment to be drawn up by the firm before it moves ahead with financing and construction.

"We can't start discussions [with commercial banks] until the EIA is in its final form, which we expect in the fourth quarter of this year," Corcoran said at the consortium's Moscow office.

Corcoran said the consortium, based in Zug, Switzerland, has begun preliminary discussions with export credit agencies in Italy and Germany. They would also approach Russia's state-run Development Bank, he said.

Dresdner Kleinwort, ABN Amro and Societe Generale are advising the consortium -- which is owned 51 percent by Gazprom, 20 percent each by Germany's E.On Ruhrgas and BASF Wintershall, and 9 percent by Dutch Gasunie -- on project financing, he said. The consortium's shareholders would provide pro rata financing for the additional 30 percent, and had already put forward 1.3 billion euros, he added.

Nord Stream is hoping to pump 27.5 billion cubic meters of gas per year from 2011 and 55 bcm from 2012, when a second branch is to come on line. Gazprom has long-term contracts for 21 bcm.

The consortium has faced delays and increased cost estimates on rising metals prices and environmental concerns. It has again pushed back its estimate of first gas delivery, from the second to the fourth quarter of 2011.

A tender for steel on the second pipeline branch has yet to be awarded, but Corcoran said rapidly rising prices for steel, iron ore and nickel had been figured into the budget.

He said the group already spent 100 million euros on environmental and scientific surveys of the Baltic and that the total bill could reach 150 million euros.

"We'll be in constant contact with the national governments [along the Baltic] -- ultimately they have to take the lead in dealing with such questions, for example munitions," Corcoran said.

He dismissed the European Parliament's approval Wednesday of a nonbinding report calling on the European Commission to open a new investigation into the pipeline's environmental impact.

"We don't believe it will have an impact on the approval process," Corcoran said.