Gazprom Goes South The monopolist steps up construction of the South Corridor gas pipeline network

By Lada Ponomareva, June 4, 2014

The execution of Gazprom’s project to build the South Stream gas transportation system designed to supply additional volumes of natural gas to Europe via the Black Sea is in full swing. Today, the project is at the stage of holding tenders and signing contracts with pipeline construction contractors and equipment suppliers. Recently, it grabbed the headlines again when Russia’s Federal Anti-monopoly Service (FAS) intervened to review the outcome of the bid for construction of the 191.5-kilometer section of the Pochinki-Anapa gas pipeline, which is part of the future South Corridor pipeline network designed to ensure continued supply of natural gas not only to the South Stream, but also to central and southern regions of Russia. 

The government regulator had to intervene after receiving a complaint from Stroigazkonsalting, the company owned by businessman Ziyad Manasir, which bid for the Pochinki-Anapa construction job and lost. Commenting on the results of the tender, Stroigazkonsalting’s spokesman told OGE that, based on the criteria listed in Gazprom’s bidding requirements, Stroigazkonsalting was ahead of its opponent Stroitransgaz on a number of points, including staff qualification, the level of technical and technological equipment, experience in pipeline construction, as well as the cost of work. Stroigazkonsalting offered to build the pipeline for 16.989 billion rubles (around $468.3 million, while Stroitransgaz’s price tag stood at 17.685 billion rubles ($490.1 million). Nevertheless, on March 25 Stroitransgaz was declared winner of the tender.

FAS press service told OGE that bidding documents weren’t in full compliance with legislation and that they “lacked the procedure of comparison of bids in regard to purchasing deals, thus violating the law regulating purchases of goods, work and services by separate legal entities.” Moreover, an investigation by FAS revealed that Gazprom had been evaluating bids in a manner that violates the law (Federal Law #223 – OGE). Ultimately, the watchdog annulled the results of the tender and ordered Gazprom to rectify violations and extend the bid submission deadline. Stroigazkonsalting representatives assure that their company would bid again despite having had their bids rejected a number of times before to make way for Stroitransgaz. 

Meanwhile, most industry analysts believe that even after rectifying violations Gazprom is highly unlikely to award the contract to Manasir’s company. “Certain problems between the two companies arose in 2013 when Ziyad Manasir filed a complaint to the Presidential Commission on Fuel and Energy Sector, asserting that Gazprom, according to Manasir, had begun significantly delaying the financing of new projects creating a bad situation for the contractor,” experts at Investkafe independent analytical agency told OGE. About the same time Gazprom’s Dept. for Corporate Expenses Management proposed to CEO Alexei Miller to award all contracts for maintenance of the gas transportation network to four companies: Stroigazmontazh, Stroitransgaz, Gazprom Tsentrremont and Salavatneftekhimstroi. Stroigazkonsalting, which used to be a major Gazprom contractor, didn’t make the list. 

Sources at Gazprom don’t comment on the choice of contractor, but do assure that Gazprom will deal with all received complaints, though this process could extend the South Corridor execution deadlines.