As alluded to in previous analyses, there is a very diverse and intriguing picture behind the official results of the tender for engineering, procurement and construction of the Bulgarian section of Turkish Stream. A deeper look into the tender procedures would offer ample ground to reason that so far it has defied European standards for project development and management, being closer to the model Gazprom uses along the entire South Stream chain of projects from Anapa on the Russian Black Sea to the Baumgarten Hub.
The original idea of engaging a Saudi company rests on the premise that, as a strategic ally of the United States, a company from the Saudi Kingdom could potentially “shield” Gazprom’s operation from Western and US sanctions.
One can hardly anticipate that the Arkad company’s premiere in major energy infrastructure in the EU would be a project in Bulgaria, a country with which the desert state has only recently established diplomatic relations. After welcoming their selection to build and fund the extension of Turk Stream, the company’s representatives made odd statements that they will not use local labor or equipment – an assertion that has given rise to legitimate queries as pipeline construction is impossible withut local logistical support and subcontractors. Large EU contractors are aware how difficult and time consuming it is for non-EU foreign workers to obtain work permits, visas and other documents, including legalization of diplomas and professional certificates.
Nominally, the Arkad company could use its Italian affiliate to step in and fill the labor gap, but the scale of its other EU operations is nowhere near the size of the Bulgarian project. Therefore, the Italian EU base is a non-starter for the Saudi company, at least for now.
Comparing patterns used in other segments of the South Stream Lite in Turkey, Serbia and Hungary, one realizes that what Bulgartransgaz deems as a totally independent ‘national’ project follows the same design, being an inalienable part of Gazprom’s own southern gas corridor.
It is by no accident that the same Russian and Western companies are engaged in the respective national sections of the EU part of Turk stream.
Even less coincidental is that the Chelyabinsk pipe factory has been supplying pipes for Gazprom’s domestic section of Turk Stream, formerly part of South Stream. No wonder Putin’s closest circle of oligarchs is the usual beneficiary – a typical top-down corruption chain ending up with pre-selected private companies. Gazprom is the overall project integrator, aligning the different national segments into a general logistical scheme, implemented across Turkey, Bulgaria, Serbia and Hungary.
The public procurement law is ‘creatively’ interpreted; transparency and competition standards seem bent.
Gazprom and BTG coordinate the project details closely, including the response to the negative impact of the amendments to the EU Gas Directive.
The Russian pipe manufacturer, CHTPZ, can hardly afford an open auction as Russian companies are subject to sanctions and anti-dumping procedures in the EU and the US. In order to circumvent these barriers Prime Minister Medvedev, back in 2017, signed a decree allowing Russian companies engaged in major projects to not disclose “sensitive” information about subcontractors and suppliers and about participation in projects potentially subject to sanctions. This line in Moscow’s wish list fell on good ears in Sofia.
There is little doubt that once the names behind the project emerge, it might invite reviews for compliance with the Countering American Adversaries Through Sanctions Act – CAATSA. The US Congress made it clear that the legislation was meant primarily to halt Nord Stream-2 and Turk Stream.
Potential targets of US sanctions could be Bulgartransgaz (less likely), the Saudi company, the Russian pipe manufacturer and the financing institutions, if once revealed, they differ from the aforementioned and the subcontractors.
Russian companies, including Gazprom, have accumulated rich experience in working under sanctions and most notably in applying schemes incentivizing politicians to creatively interpretat EU legal and regulatory framework. Using intermediaries and undisclosed subcontractors is Gazprom’s routine approach.
The classic benchmark in this line of business is Rosneft’s failed attempts to sell a minority share worth $11 billion to a pre-designated ‘buyer’ funded by its own money, via a complex web of intermediaries – banks and companies – agents in the Gulf, Italy, Switzerland, etc. Everyone in the chain of intermediaries was carefully preselected in Rosneft’s Moscow headquarters. Mediation does not come cheap – something that repeats itself in our case with the hidden players in the Turk Stream extension project.
The role assigned to the Arkad Co. fits well into the intermediary and project integrator role – it will manage the project logistics and financial cash flows to and from sources, subcontractors and suppliers, sparing BTG the need to carry the brunt of an impossible mission to secure commercial funding for a 1.2 billion euro project.
It is theoretically possible for Gazprom to pull strings on funding behind the scenes, providing or underwriting credits for the purchase of pipes and securing financing for essential parts of the project. Transit fees would be used to settle loan repayments over time.
The participation of the Hungarian and Italian companies as competitors in the tender, given the essence of their bids, further boosts the impression of a pre-engineered scheme with Gazprom genesis and management of an encore of South Stream.
There is a striking similarity between the pattern used to circumvent the public procurement law for the Hemus Motorway using the Avtomagistrali state company as the middleman and a front for the backstage actors. BTG puts most of its bets on Arkad Co., as it will be spared the public scrutiny. And the public will not know who pays, who delivers, who finances, who commits – which will all be hidden behind the secure wall of a corporate trade secret.
If you wonder what is the source of funds used to back the cheap apartments scheme that has crushed the public and the political elite over the last month, the answer is quite simple. In most instances, the difference between the price declared for tax purposes and the substantially higher real price is covered by cash generated in public procurement-induced corruption.
There are early signs that the tender’s progress is being closely monitored in Brussels and Washington. The fate of Nord Stream reflects that of Turk Stream – recent news is not encouraging for either project.