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Balkan Oil Pipeline Agreement Moves Project Closer to Reality

Prime ministers of three Balkan countries this week signed an agreement in Bulgaria to build an oil pipeline from the Black Sea to the Adriatic.

The rival proposal involves Romania, Serbia and Croatia. This pipeline would extend from the Romanian port of Constanta, across Romania to Serbia, where it would feed into an existing line that continues into Croatia. From there the Russian and Caspian Sea oil would flow northwest into Austria and Italy.

The competing southern route extends from the Bulgarian port of Bourgas, across the mountains of Macedonia to the Albanian port of Vlore where it would be transferred to tankers.

Each approximately 1,000-kilometer project would cost from $750 million to $1.5 billion. Each would transport about 750,000 barrels of oil per day. Each side is hopeful that construction can begin in 2005. Former U.S. government official and investment banker Henry Owen is involved in the northern project.

"It helps all three countries [Romania, Serbia and Croatia] because each of them gets more investment to build the pipeline and then get revenue from the pipeline, because obviously they're not in this for their health," he said.

Greece is backing the southern route but is interested in having the pipeline turn south to a Greek port instead of reaching the sea in Albania. Russia, which is the key player in both projects, has yet to make its preference clear. By flowing through the Balkans, Russian and Caspian Sea crude would not have to go by tanker through the crowded Bosporus Strait of western Turkey.

Henry Owen in Washington says he doubts the backers of the southern route will obtain the necessary financing. By contrast, he says, financing is nearly in place for the northern route.

"A good part of it will come from IFC [International Finance Corporation], the soft-loan window of the World Bank,” he added. “They're already financing the study, not the feasibility study but the follow-on study for the interstate committee, which is composed of the three countries that originally started this-Romania, Serbia and Croatia. And now we'll have added to it, Italy and Austria."

The southern route has been under consideration for 12 years. It is being promoted by a U.S. based company called AMBO (Albania Macedonia Bulgaria Oil).