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. Last Updated: 07/27/2016

Gazprom Seeks Tax Breaks for Pipeline




Less than a month after energy giants Shell and PSG announced they were combining to push ahead with a Trans-Caspian gas pipeline, Russian behemoth Gazprom is rushing to speed up its own Blue Stream pipeline project as competition for the South Europe natural gas markets heats up.


"The one who begins construction first, wins," Gazprom chief executive Rem Vyakhirev said Thursday in an address to members of the State Duma, the lower house of parliament.


Blue Stream is an ambitious project that turns on building a gas pipeline across the floor of the Black Sea to link Russia's pipeline system with that of Turkey.


But before Gazprom - Russia's wealthiest company - moves ahead with the $2.5 billion plan, it needs a helping hand from the Duma, Vyakhirev said.


"Without tax breaks, Blue Stream becomes a money-losing project," he said.


Duma deputies were apparently won over. They approved a recommendation for the Duma to amend the relevant tax legislation. It also urged President Boris Yeltsin to set up a legal framework to defend Russia's economic interests abroad.


Gazprom was given fresh motivation to push ahead with Blue Stream last month when Shell and PSG pledged to raise half the $2 billion to $3 billion needed to build a Trans-Caspian pipeline to carry gas from Turkmenistan to Turkey via Azerbaijan and Georgia.


Shell and PSG also agreed to share the operators' duties and signed agreements with the Turkmen government.


Turkmenistan, Azerbaijan, Georgia and Turkey had been due to sign a pipeline agreement Thursday during festivities that were scheduled to mark the 700th anniversary of the Ottoman empire.


However, those celebrations were postponed indefinitely after the earthquake that rocked Turkey last month.


Vyakhirev said Thursday the two projects are mutually exclusive because the Turkish gas market is too narrow for both Russia and Turkmenistan.


Both sides have been calling on every trick they can think of to win the race for the lucrative Turkish gas market and the even more important link to southern Europe.


The United States has declared that the hydrocarbon reserves of the Caspian zone are an area of strategic interest for Washington. PSG president Edward Smith wrote in a report sent to the U.S. Senate this summer that the Blue Stream project would harm those interests.


PSG was created last year as a joint venture between General Electric Co. and construction giant Bechtel Enterprises Inc.


On Aug. 14, Russia's Foreign Ministry invited top officials from the U.S. Embassy to its headquarters and warned that Washington had violated ethical norms and was involved in unfair competition, Russian First Deputy Foreign Minister Alexander Avdeyev told Thursday's committee meeting.


Gazprom hopes that Blue Stream will bring in $25 billion over the planned 25-year life of the project, supplying 365 billion cubic meters of gas to Turkey.


Avdeyev said implementation of Blue Stream would also strengthen Russia's geopolitical interests in the Balkans, Turkey and other parts of south Europe.


At the same time, the United States is seeking to sideline the capacity of Iran and Russia to exert influence in Central Asia, Reuters reported recently.


But this time it looks like Russia could tap the Turkish market ahead of its competitors.