Nabucco pipeline likely to get 4 billion euros

07/09/2010

Three key international financial institutions signal their support for the Nabucco gas pipeline.

(Reuters, Bloomberg, AP, DPA, Euobserver, Zaman, Hurriyet, Sofia News Agency, Xinhua, Upstream Online, Nabucco-pipeline.com, European Investment Bank - 06/09/10)

The Nabucco pipeline project may receive 4 billion euros from EIB, EBRD and the World Bank. [SETimes photo illustration]

Plans for the Nabucco gas pipeline took a further step forward Monday (September 6th), when three key international financial institutions (IFIs) agreed to start due diligence on loans totalling up to 4 billion euros for the project.

The mandate letter signed with the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and the World Bank Group's International Finance Corporation (IFC) marks the start of the appraisal process, the Nabucco consortium said in a statement.

The agreement, signed in Brussels, specifies the conditions under which the due diligence will be conducted and the potential financial support from each of the three IFIs, the six-company Vienna-based group further explained. During the appraisal process, the lenders' experts will conduct a thorough assessment of the commercial, social and environmental aspects of the project.

Under the deal, the EIB would lend up to 2 billion euros for the Nabucco project. The EBRD and IFC, half of whose contributions would be syndicated to commercial banks, would provide 1.2 billion euros and 800m euros, respectively.

"The involvement of the three IFIs is a demonstration of global and European support for the project and represents an important milestone in ensuring the overall financing of Nabucco," the consortium noted. "The early involvement of the IFIs will support Nabucco in meeting the highest standards in environmental and social risk evaluation and procurement."

A final decision on the lenders' potential contributions to the project is expected some time next year.

"Following the successful conclusion of the appraisal, the financing will need to be approved by the relevant governing bodies of each IFI," the Nabucco consortium said. "Export credit agencies and international banks are expected to commence their appraisal of the Nabucco project soon after the IFIs."

The shareholders, who are expected to cover 30% of the total financing for the trunk line themselves, would then seek commitments from other potential lenders in 2011.

While any future funding would depend on the results of the due diligence, the three banks made it clear that they would not embark on it if they were not ready to commit funding.

"The fact that we're willing to identify at this point financial potential of up to 4 billion euros from the three institutions together can be interpreted as a very serious remark," Thomas Barrett, director of the EIB, said at a briefing in Brussels.

The European Commission, which has set aside 200m euros for the first phase of construction, welcomed Monday's deal, viewing it as an important step towards the realisation of the project.

"The Nabucco project enjoys the Commission's full support as a strategic contribution to the Southern Gas Corridor and Europe's energy security," the EU executive arm said in a statement.

The 3,300km pipeline will run from eastern Turkey to the Baumgarten gas hub in Austria via Bulgaria, Romania and Hungary and is designed to carry 31 billion cubic metres of natural gas from the Caspian region and the Middle East to Europe annually.

Construction of the project, aimed at reducing Europe's dependence on Russian gas supplies, was scheduled to begin by the end of next year. But the Nabucco consortium, which includes Austria's OMV, Bulgaria's Bulgargaz, Hungary's MOL, Romania's Transgaz, Turkey's Botas and Germany's RWE, said on Monday that this would start in 2012.

"The operation of the pipeline will start in 2015," instead of 2014 as previously envisioned, Nabucco Gas Pipeline International GmbH Managing Director Reinhard Mitschek was quoted as saying at the briefing in Brussels.