From Financial Times

Bulgaria's prime minister has halted work on a new Russian-led pipeline that would provide a route around Ukraine for Russian gas into Europe, dealing a setback to Kremlin efforts to strengthen its hold on EU energy supplies.

The pipeline project, known as South Stream, would bring Russian gas from the Black Sea to Austria through Bulgaria, circumventing the substantial Ukrainian pipeline network that serves as the conduit for most of the gas sent to Europe by Russia's state-controlled Gazprom.

Brussels, which has long viewed South Stream as at odds with its efforts to diversify the bloc's gas supplies, last week launched an investigation into the project, citing questions about how public contracts were awarded.

Meanwhile, EU and US officials have raised geopolitical concerns about Sofia moving ahead with the project at a time when Ukraine crisis has heightened tensions between Moscow and the EU over Russian gas.

South Stream would increase Moscow's leverage over Kiev by allowing it to threaten a shut-off without the risk of imperilling supplies to customers in central Europe. Construction on the Bulgarian branch of South Stream was to begin this month.

"[This] shows that we mean business," said Jos? Manuel Barroso, the European Commission president, in announcing the inquiry.

Plamen Oresharski, Bulgaria's Socialist prime minister, said he would suspend construction to ensure the plan complies with EU law. "We have received a request from the European Commission, after which I ordered the works suspended," Mr Oresharski said, according to Russia's Itar-Tass news service. "Further actions will be clear after additional consultations with Brussels."

US diplomats have expressed particular concerns over the use of Russia's Stroytransgaz as a contractor on the project; the consortium is controlled by Gennady Timchenko, a Russian businessman sanctioned by the US after Russia's incursion into Ukraine. The announcement came after Bulgarian officials met a US delegation led by Republican Senator John McCain.

"The political pressure is intense," said one EU official. "It's not a surprise this was announced after a meeting with McCain and a few other Americans."

Sabine Berger, a spokesperson for EU energy commissioner G?nther Oettinger, said Brussels welcomed the Bulgarian decision and was ready to discuss the project with authorities in Sofia. "This is an important step in response to the concerns raised by the commission last week," Ms Berger said.

Still, Bulgaria's energy minister, Dragomir Stoynev, said he believed the project would eventually move forward.

"If we look at the situation strategically and without emotions, the South Stream project looks irreversible and important for both Europe and Bulgaria," Mr Stoynev told Bulgarian state radio. "I am convinced that all pending issues will find a solution."

The decision to suspend the project came ahead of another round of negotiations over the price Kiev must pay Gazprom for Russian gas. Talks were set to resume Monday night. Gazprom has threatened to disrupt supplies until Ukraine's state-controlled Naftogaz pays off its arrears.

Before the current crisis, Ukraine was given deep discounts on gas prices to as low as 8 per thousand cubic metres; soon after Russia annexed Crimea in March, it ended price subsidies and Gazprom subsequently demanded 5. Officials are hopeful a compromise price can be reached in Monday's talks, before a Gazprom-set deadline of Tuesday.

Bulgaria, which joined the EU in 2007, has emerged as a flashpoint between Russia and the west because it is the only EU country to allow construction on South Stream to proceed on its soil. That decision has divided the government, with some in the Socialist party urging closer ties with the Kremlin while others, including small coalition partners, urging compliance with Brussels.

"The premier made a political statement to appease his foreign and domestic critics but he still needs cabinet approval before he can freeze the project," said Ilian Vassilev, a former Bulgarian ambassador to Moscow and an energy consultant. "A lot of the country's political and business interests are reliant on South Stream going ahead, so the government is looking very fragile over the issue."

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