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AM BO

Albanian Macedonian Bulgarian Oil Pipeline Corporation

Book 1 Project Reference Documents May 2000


This report was funded by the U.S. Trade and Development Agency (TDA), an export promotion agency of the United States Government. The opinions,
findings, conclusions, or recommendations expressed in this document are those of the author(s) and do not necessarily represent the official position or policies of TDA.
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Feasibility Study Volume I, Introduction

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AMBO Pipeline Consortium May 2000

AMBO
TRANS BALKAN CRUDE OIL PIPELINE FEASIBILITY STUDY VOLUME I PROJECT REFERENCE DOCUMENTS

TABLE OF CONTENTS

1.0 1.1 1.2 1.3 1.4 2.0 3.0 4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 5.0 5.1 5.2 5.3

INTRODUCTION .............................................................................................................. 1 New Oil in the Black Sea................................................................................................ 1 The World Market........................................................................................................... 5 The Export Route.......................................................................................................... 10 The AMBO Solution..................................................................................................... 19 SUMMARY...................................................................................................................... 23 PROJECT DEVELOPMENT PHILOSOPHY ................................................................. 26 PRINCIPAL COMPONENTS OF THE PIPELINE SYSTEM........................................ 29 Offshore Unloading At Bourgas ................................................................................... 31 Bourgas Storage And Metering Facility ....................................................................... 31 Cross-Country Pipeline................................................................................................. 31 Pipeline Sectioning ....................................................................................................... 32 Let Down Station .......................................................................................................... 32 Surge Protection Systems ............................................................................................. 32 Leak Detection System ................................................................................................. 32 Vlor Storage And Metering Facility ........................................................................... 32 Offshore Loading At Vlor........................................................................................... 32 Pump Stations ............................................................................................................... 33 PROJECT IMPLEMENTATION AND SCHEDULES ................................................... 34 Project Implementation................................................................................................. 34 Schedule........................................................................................................................ 34 Project Costing.............................................................................................................. 36

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5.4 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 8.0 8.1 8.2 9.0 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8

Pipeline Tariff ............................................................................................................... 36 OPERATING COMPANY ORGANISATION................................................................ 40 Introduction................................................................................................................... 40 Project Ownership Structure ......................................................................................... 40 Creation of NewCo ....................................................................................................... 42 Equity Participation of Majors...................................................................................... 42 Three countries included against land grants................................................................ 42 Management Philosophy............................................................................................... 43 Project Operating Entities ............................................................................................. 43 PIPELINE ECONOMICS: TARIFFS; COMPETITIVE POSITION.............................. 44 Discussion Bosphorus versus transit within the Black Sea ....................................... 44 Cost of transit to Western Markets ............................................................................... 44 Cost Of Oil To Western Europe And USA From Other Sources ................................. 45 Balkan Consumption..................................................................................................... 45 Eastern Europe/ Black Sea consumption ...................................................................... 47 The Ambo Project And The Petrol Economy Of The Balkan Region.......................... 49 Turkey Supply............................................................................................................... 61 Oil Trading and Shipping.............................................................................................. 61 LEGAL & REGULATORY ISSUES ............................................................................... 69 Overview Of Legal Framework .................................................................................... 69 Applicability of International Agreements ................................................................... 72 UNITED STATES FOREIGN POLICY CONSIDERATIONS....................................... 77 Introduction................................................................................................................... 77 U.S. Policy Towards the Balkans ................................................................................. 78 U.S. Policy Toward the Caspian Sea Region................................................................ 80 U.S.-Turkey Relations .................................................................................................. 81 U.S. Pipeline Politics .................................................................................................... 82 The Viability of a Southern Route ................................................................................ 83 Pipeline and Project Competition ................................................................................. 83 Policy Road Map........................................................................................................... 84
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10.0 10.1 10.2 10.3 10.4 11.0

ENVIRONMENTAL CONSIDERATIONS .................................................................... 87 Introduction................................................................................................................... 87 Environmental Sensitivity of the Proposed Route ........................................................ 87 Construction Phase........................................................................................................ 89 Operating Phase ............................................................................................................ 89 CONCLUSIONS & RECOMMENDATIONS................................................................. 91

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Feasibility Study Volume I, Introduction

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AMBO

TRANS BALKAN CRUDE OIL PIPELINE FEASIBILITY STUDY

VOLUME I PROJECT REFERENCE DOCUMENTS

1.0
1.1

INTRODUCTION
New Oil in the Black Sea

The Great Game between Victorian Britain and Tsarist Russia was fought across desolate terrain from the Caucasus to China, over the lonely passes of the Pamirs and Karakorams, in the blazing Kerman and Helmund deserts, and through the caravan towns of the old Silk Road. Both powers scrambled to control access to the vast riches of India and the East. Back then the problem was to establish transportation routes into and out of the region. The power and majesty of this era in world history is charted in several wonderful writings, both fiction and non-fiction1. It is a story of growing awareness of a region that was, and still is, little known or even thought about strategically. But todays Central Asia is no longer just a trade route to riches it is the source of energy for the 21st Century. Its vast wealth lies in the oil and gas fields in Kazakstan, Turkmenistan, Azerbaijan and the Caspian Sea. Most of Central Asia and much of Siberia are rich in oil and gas and await development. However, the problem of establishing export routes remains the same. The presence of oil and gas fields in the region is a well-known fact today. However, little, integrated strategic thinking has been applied to developing reasonable approaches to accessing these fields and transporting the products to willing buyers. There is no coordinated, published plan that would ensure that this region does not become a major battlefield in the next great resource war of our generation. In part, this is because oil and gas are left to the business community when international strategic thinking is addressed. In part, it is because there has been no well-laid out economic framework in which to place the issue. The questions that need to be addressed are:
1

How much oil and gas exists in the region? Who owns access to the oil and gas? Who is interested in accessing the resources?

See; Capt. Frederick Burnaby, ON HORSEBACK THROUGH ASIA MINOR, Oxford University Press, London, 1996, 1st printed 1898; Hopkirk, Peter THE GREAT GAME, Oxford University Press, London, 1996.

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What routes can be developed for exit of the resources? What are the economic implications over access?

The Central Asian nations are all making progress in marketing access to western oil and gas companies wanting to develop new fields. Kazakstan began the Central Asian process of auctioning off access to fields for joint participation of western and international oil companies. Azerbaijan has also been quite successful in generating western interest in developing local fields with the state owned oil company (in this case, offshore in the Caspian). The winners of these auctions tend to be multiple company consortia. In some cases a Russian oil company is a participant. The new republics are making sure that Russia sees, clearly, that it is benefiting from whatever rewards come from developing the new fields. These auctions usually contain production sharing or other forms of profit sharing with the CIS country involved. Todate $30-50 billion dollars has been pledged for development costs. The actual dollars expended have been significantly less, however. Still upset at the loss of its jurisdiction over much of the Caspians oil, Russia would like to reclaim its power by having most new pipelines travel through its territory to the Black Sea -- an option that upsets Turkey, which is worried about the traffic through the narrow and crowded Bosphorus. But Moscow is keen not to be ousted from the region altogether. Having lost ownership of huge oil and gas wealth effectively overnight when the Soviet Union fell apart, Energy Minister Nemtsov saw the best way of wielding power in the Caspian as pipelines.2 We must in no way allow our influence in the Caspian region to weaken. We need to win the right to transport main Caspian oil against international competition. Russia relies heavily on exporting its oil, oil products and natural gas west to Europe, where competition is intensifying. Russias major exit route for this oil is the Black Sea port of Novorossysk. The current flow through this port is 30 mta. Russia, Kazakstan, and several western oil partners are aligned as the Caspian Pipeline Consortium (CPC) to develop a new export pipeline of 50-mta capacity to a new port at Novorossyk by 2002. This would put 80 mta out of Novorossyk. The Russians want the ability to control oil. Russia could only watch with envy as international oil companies preferred to spend their billions in the resource rich Caspian region. To-date this has meant that the Caspian is the most interesting development arena in the region. The Caspian Sea is bordered by four former Soviet Republics: Russia, Azerbaijan, Kazakstan and Turkmenistan and by Iran. Since 1991, these five countries have not been able to agree on how to share control of the sea. Russia and Iran have consistently argued that since the Caspian is an inland body of water not connected to any open seas, it should be defined legally as a lake, meaning that all littoral countries should govern it in common. Azerbaijan and Kazakstan -- the latter less vehemently than the former -- instead point to the Caspians size and the fact that it contains salt water, saying that marks it out as a sea, which should be split

Ibid.

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between the riparian states along international border lines. Turkmenistan has adopted an unclear stance somewhere in between. According to a report from Russia, experts have discovered a large amount of oil at the Volodarskaya exploration well in the Astrakhan region.3 The oil, which is located at a depth of 5,900 meters, was found after a five-year study.4 The first 20 metric tons of crude obtained from the well are currently being subjected to chemical analysis. No precise figures have been released, but some experts told the newspaper that the deposit might contain as much oil as Kazakstans super giant Tengiz field. The Astrakhan region does not have the funds to develop the deposit on its own and is likely to seek out foreign investors. The deposit was described as attractive because of its apparent size, its proximity to an oil processing plant and the fact that there are also large quantities of sulfur-free natural gas in the region. It is easy to establish that there are potentially great deposits of oil and gas in the region. Thus the stakes in the race for control over the Central Asian oil and gas deposits are high, but the rules shaping the contest are unclear. The jockeying for leverage in the region is one of the 21st centurys more complex commercial and political tangles, involving oil majors from Texas to Tokyo, the wounded pride of fallen empires and the varied interests of superpowers and the worlds newest states. This is the arena of high stakes poker at its best. Caspian oil reserves may, by some reckonings, total up to 200 billion barrels, an amount second only to those in the Middle East and a key source of energy for the new millennium.5 One of the difficult issues is that very little oil is in proven reserve estimates. The unproven reserve estimates vary widely. This variation has a lot to do with the price of oil and the estimated cost of development of some of the more expensive export pipelines. Companies investing in the Caspian seem to be balking at paying large amounts of money to build pipelines, which may appeal more to governments than to shareholders, however. And even in Russia, there are disagreements between the Foreign Ministry, Transneft, and domestic oil firms over strategy in the region. The interest is in making money, but with a good deal of concern over the safety of expenditures of $2-$4 billion dollars for a pipeline. The Wests big integrated oil companies are desperate for low-risk growth opportunities. In one sense this is impossible with Russia. This study examines the business case for a pipeline from Bulgaria to Albania. The pipeline will originate at the Bulgarian Port of Bourgas and terminate at the Albanian Port of Vlor crossing three countries; Bulgaria, Macedonia and Albania. The design throughput is 750,000 bpd. The entire pipeline system is to be designed to a 600 ANSI system. The pipeline size is 36  7KH SUHOLPLQDU\ IHDVLELlity study, conducted by the Energy Services Division of the American engineering company of Brown &
3 4 5

Izhenerskaya Gazeta,

ibid

Russia: Caspian Oil Contest A Commercial & Political Tangle: 27 Aug 97; By Lynnley Browning MOSCOW, Aug 27, 1997 (Reuter)

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Root (a subsidiary of Halliburton) has determined that a pipeline from Bourgas, Bulgaria to Vlor, Albania is economically viable and competitive. The primary reason for this is due to the favorable economies of scale, which are created when supertankers are used to shuttle crude oil from the proposed pipeline terminus at Vlor in the Adriatic. These savings simply do not exist for the small size of tanker, which currently carry oil out of the Black Sea and through the dangerously narrow Bosphorus Straits. Furthermore, the feasibility study clearly demonstrates that this pipeline will be both economically competitive and complementary with other proposed pipelines in the region.
Figure 1

As figure one shows, current flows via the Russian pipeline to Novorossysk are about equal to the maximum throughput for the Bosphorus. Some have argued that 50 million tons could exit the Bosphorus, annually. This is probably true. But new oil from either the CPC pipeline or the AIOC fields offshore from Baku would add at least another 50 million tons over the current flows. A Turkish route from Baku to Ceyhan would help with the diversion of AIOC oil when it comes on line in the 20052010 time frame. But there is still the Kazak oil from Tengiz and Karachaganak, and Russian oil via the Black Sea Pipeline originating in Samara via Tirkhoretsk to

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Novorossysk, which flows into the Black Sea via the CPC route. This new oil will begin flowing early 2002 and will have no exit routes. AIOC is not yet destined for the envisioned Ceyhan pipeline and it cannot exit at the Bosphorus. A pipeline such as AMBOs with the capacity of delivering 750,000 bpd to the Adriatic for the same price as exiting the Bosphorus would be ideal. Such a pipeline would not be competing with the Ceyhan route, as it would address only oil in the Black Sea. It would mean an export route for oil in the Black Sea that could not exit via the Bosphorus. It would also mean VLCC transport for oil from the Black Sea to major markets in Europe and North Americas eastern seaboard. Expected crude oil flows: Current Novorossysk Tuapse Supsa Bosphorus Ceyhan 50 mta 8 mta 6 mta 40 mta6 0 2004 80 mta 12 mta 25 mta 50 mta 0 2010 100 mta 15 mta 15 mta 50 mta 25 mta

It is clear from these figures that Ceyhan and Bosphorus will not provide enough throughput capacity to exit the expected flows.
1.2 The World Market

Figure 2 shows that oil consumption for the US and northern Europe is expected to remain constant over the near and medium term future. The major increases in oil demand will come from Asia and a recovery in the consumer markets of Russia and CIS.

Figures taken from CERA report at Eurasia Transportation Forum, Houston Texas, Feb 10, 2000

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Oil: Consumption by area


Million tonnes
1100 1000 900 800 700 600 500 400 300 200 100
0
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

North America

Europe

Former Soviet Union

Asia Pacific

Rest of World

What was originally standard OECD sources of oil and gas is quickly broadening as the Asian giants (Japan, China, India, and Korea), in need of increasing supplies of oil and gas, begin to see the region east of the Caspian as an important source which is no longer tied up by USSR spheres of influence. The region west of the Caspian is also becoming more important in Asian calculations as sources for oil and gas investment. Japans Sumitomo Corporation has signed an agreement to build an oil refinery in Bishkek and has also promised long-term loans to the Kyrgyz government when President Askar Akaev met with a group of Sumitomo executives.8 The Itochu Corporation of Japan signed a memorandum on building an oil refinery at the Georgian Black Sea port of Supsa.9 Georgian officials said they hoped the refinery would be incorporated into the program of oil exports from offshore oil fields in Azerbaijan.10 A new oil terminal at Supsa has been built and commissioned by AIOC to export their Azeri offshore oil. Itochu is a 3.9 percent shareholder in AIOC, which
7 8

Taken from BP AMOCO web page report on the status of oil RFE/RLs Bishkek bureau reported on 16 September, 1997. 9 (the Caucasian Institute for Peace, Democracy, and Development reported, citing the 12 September 1997 issue of Kavkasioni) 10 (Reuters)

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is developing the Azeri, Chirag, and Guneshli oil fields, and has already invested 26 billion in the consortium. The Japanese are actively buying data on most of the future oil fields with a view to bidding on several tender opportunities. Officials from Japans Itochu Corporation announced that they would work together with Mitsui Engineering and Shipbuilding Co. to build oil rig facilities at two offshore oil fields in the Caspian Sea. The two Japanese companies will be building the facilities under a contract with the State Oil Company of Azerbaijan (SOCAR). The contract calls for the construction of a compressor station worth 13 billion at the Bakar field and four power generators worth 7 billion at the Neft Dashlar field. The compression station is expected to raise oil extraction levels at Bakar, and the 10,000 kW generators will supply electricity to an oil rig at Neft Dashlar, where existing equipment is expected to sink beneath the sea as the level of the Caspian rises. An Itochu spokesman noted that the contract was the first large Azerbaijan plant order won by Japanese companies. These business opportunities also provide an opportunity for influence. At this stage, it would appear that the Asians are interested in the area west of the Caspian as a business opportunity and for influence. The areas of oil flow east of the Caspian are seen as direct sources of oil for home demands. Turkish Petroleum, Japan National Oil Corporation (JNOC), Italys Agip SpA and several US companies including ExxonMobil, UNOCAL and Shell, the US unit of Royal Dutch/Shell, have already purchased data on the Turkmenistans part of the Caspian shelf. This is indicative of the keen competition developing between several of the major economic powers from around the globe and significant data for filling out the potential scenarios alluded to in the introduction. The exit of this Caspian oil will have to be north to the CPC, south through Iran, east to China, or west, across the Caspian. We suspect that ultimately some of it will flow through all options. Members of the Turkish-Japanese Business Council visited Baku and Tbilisi in early September to discuss projects connected with the export of Azerbaijans Caspian oil, according to Nezavisimaya gazeta on 4 September, 1998. In 1998 the China National Petroleum Corporation (CNPC) made the countrys single largest foreign investment ever when it acquired 60% of the stock of Kazakstans Aktobemunaigazs oil company. China beat out Texaco and Amoco among others for access to the companys proven reserves of 600 million tons of Kazak oil and 220 billion cubic meters of gas. Beijings bid also included plans for a joint project with Japan and South Korea to build a 3,000-kilometer (1,800 mile) oil pipeline from Kazakstan to Karamai in Xinjiang. Charging transit fees to Japanese and South Korean customers will help China finance badly needed improvements to its existing pipeline from Xinjiang toward the East China Sea.

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The China-Kazak oil deal was only the most dramatic sign of a strategic drift that has been under way for several years now; first westward and now in the other direction as well. In April, 1998, for instance, Uzbekistan and Kyrgyzstan signed an agreement with China to build a highway and rail corridor through the two Central Asian states to Kashgar. The great game, as the race for new fields and transit routes for oil and gas is often called in this region, reflects the complexity of a struggle for trillions of dollars worth of oil -- a struggle which those involved say is entering a pivotal stage. The United States, mindful that 60 percent of its oil imports could come from the Middle East by 2010 without the expanded Caspian supplies, wants multiple routes so no one nation has a stranglehold on supply. The oil companies desiring that this oil come in large shipments (VLCCs) are looking for a price competitive alternative supply to replace Persian Gulf oil (which should increasingly flow east) with Black Sea oil from southern Russia and the Caspian region. They are not looking forward to being limited to 150,000 dwt shipment volumes, mandated by Bosphorus constraints. Our particular concern has been the growing reliance on the Persian Gulf, and we think that with the development of the Caspian area, this will add another major source to the total world supply of oil, which will add to everybodys security needs, U.S. Energy Secretary Federico Pena said in a interview during a visit to Moscow.11 Some observers have been seized by the idea of the Caspian as the next Arabian Gulf, even going so far as to suggest that the area will become a convenient alternative to the troubled Gulf area, now the worlds main source of oil. This is unrealistically optimistic. However, the scenario of the Caspian Basin as a backup source waiting to be tapped whenever the Gulf states get too feisty for consumer countries taste is, also, an unlikely one. All of the former Soviet republics in the area (even Russia) need cash, and they need it fast. Their economies contracted alarmingly over the first half of the past decade and are only now beginning to rise back up by modest measures. Oil represents their best hope of making money, and they will try to sell as much as possible. They are not likely to be content to serve as an emergency supply source, to be tapped in times of need. They have made it clear that they do not want to sit on the sidelines. Kazak President Nursultan Nazarbayev, for example, said he wants to see his country becoming the worlds sixth largest oil producer by the year 2010. Meanwhile, half of Russias foreign currency revenues come from sales of oil and gas. Moscow is unlikely to consent to having its own, admittedly small Caspian production or, more importantly, the oil volume Russian companies extracted from other parts of the sea languish unsold until the next crisis in the Middle East.

11

Russia: Caspian Oil Contest A Commercial & Political Tangle: 27 Aug 97; By Lynnley Browning, op cit.

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But even if one sets aside the desires of states in the Caspian Basin, there are serious problems with the alternative-supply scenario. There is next to no chance that world oil demand will remain at current levels. The clamor for oil is growing ever louder, and efforts to reduce dependence on hydrocarbon fuels remain, unfortunately, modest at best. Dependence, in turn, means that consumer countries will not want the price to rise too much as demand soars, so new sources will have to come into play while old sources continue producing. All this oil will have to come from somewhere, and exploration is booming more in the Caspian than it is anywhere else in the world. This said, however, it needs to be remembered that the Caspian remains a long-term play with the first priority of proving-up reserves stalled or delayed by low oil prices in 1999. This has certainly changed in early 2000!
Figure 312

Figure 3 lays out the international flow of oil. It shows 319 mta moving from the Middle East, Persian Gulf to northern Europe and the Americas. Much of this oil will need to flow, through demand, towards the East in the long term. Oil from Siberia will also be expected to flow to Asia to satisfy growing demand. The key to understanding the likely flows lies in the distance and cost of transport between the Mediterranean and the Gulf to specific destinations. The European and American markets will want to replace Persian Gulf oil, if they can find oil that is cheaper to ship to market. It will probably come from the Caspian area via a pipeline from Baku, Azerbaijan to Ceyhan,
12

From BP Amoco World Energy Statistical Review for 1999.

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Turkey, from the Bosphorus, and from the AMBO pipeline from Bourgas, Bulgaria to Vlor, Albania. What is for sure, however, is that the USA and Western Europe will have to replace falling domestic production and distance and costs are key.
1.3 The Export Route

New pipelines to reach Western markets need to take oil coming into the Black Sea and get it into the Mediterranean without going through the Bosphorus. There are new pipelines bringing crude oil into the Black Sea, but as yet, no new opportunities for exiting the region. Contenders include routes through Georgia to Turkey and down to the Mediterranean; to Russias Black Sea port of Novorossyk and out through the Bosphorus; and through Iran to the Gulf. Other options include hooking into the Druzhba pipeline, the old Soviet-Eastern Europe link that is now under utilized; transporting oil from Novorossyk to the Albanian outlet of Vlor via Bulgaria and Macedonia; a route from Bourgas to Alexandroupolis; or using Romanias port of Constanza linked through new and existing pipelines to Trieste. Pipelines could go through Russia, under the Caspian, or avoid Russia altogether. They could stand alone or be used in conjunction with rail and sea tankers.
Figure 4

LEGEND
EXISTING OIL PIPELINES
RUSSIA POLAND GERMANY

PROPOSED OIL PIPELINES

KAZAKHSTAN

UKRAINE SLOVAKIA AUSTRIA

TENGIS

EK UZB IKS

TRIESTE

HUNGARY ROMANIA

ODESSA

TAN

SEA OF AZOV

NOVOROSSYISK
BOSNIA ITALY

CASPIAN SEA
AKTAU SUPSA BATUMI
ARMENIA GEORGIA

CONSTANSA

ADRIATIC SEA

TUAPSE
AZ ER BA IJ AN

YUGOSLAVIA SERBIA BULGARIA

BLACK SEA
BOURGAS SAMSUN

TURKMENISTAN

BAKU

MACEDONIA

TYRRHENIAN SEA
SICILY

VLOR

ALB A

NIA

GREECE

ALEXANDROUPOLIS

TURKEY

NEKA

CEYHAN
CRETE SYRIA CYPRUS IRAQ
ISRA EL

IRAN

MEDITERRAINEAN SEA

JORDAN

KHARG ISLAND

OIL EXPORT ROUTES AND PORTS

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Near term export routes will not be able to facilitate the quantity of new exports to the West and in turn will not accelerate production. The U.S. Embassy in Almaty issued a 1997 report containing details on Kazakstans oil pipeline systems. The oil pipeline network, which is run by the state concern Kazaknefteprovod, consists of three major lines and handles 95% of all crude extracted in the country. The main western pipeline, Uzen-Atyrau-Samara, is 3,000 km long and can transport 10-11 million metric tons of oil per year, or 75 percent of current total oil production. It has been in operation for more than 25 years and is mainly used for export oil. The Kenkyak-Omsk pipeline stretches 400 km and is used to export oil from the Aktyubinsk fields north, to the Omsk oil refinery in Siberia. This line can transport 6.7 million metric tons of oil per year. The 2,045-km eastern Kazakstan and Central Asia pipeline is used to import 23 million metric tons of west Siberian oil per year into Kazakstan for processing at the Pavlodar and Chimkent refineries.13 The current flow of crude oil into the Black Sea (from Russia) comes through the ports of Novorossyk, Batumi, Supsa, Odessa, and Tuapse. Unfortunately, very little Western oil production exits via these ports. We currently have been able to get three million tones of capacity on (Russias) Transneft system a year, Richard Matzke, President of Chevron Overseas Petroleum Inc., told reporters in 1998. If we dont get any additional capacity on the Transneft system, we will have to continue the search for alternatives, Matzke said. He said Tengizchevroil (TCO) -- a $20-billion joint venture grouping Kazakstan, Chevron and Mobil and tapping the onshore Tengiz deposit -- would produce 7.5 million tones (150,000 barrels per day) of oil this year and 11 million tones (220,000 bpd) by late 1999. 14 This is the major reason for a CPC pipeline being constructed to Novorossyk with an expected 50 million ton per annum capacity beginning in 2002. This increase in oil flow into the Black Sea is more than can be exported via the Bosphorus. It is also oil that is not projected for a Baku to Ceyhan pipeline.
1.3.1 Early Oil Outlets Rail shippage via Georgia

According to a July 22, 1997 report from Itar-Tass, the first regular shipments of crude oil extracted from the Tengiz field arrived at oil terminals on the Black Sea in 1997. A senior official from TengizChevroil (TCO), the US-Kazak-Russian venture developing the giant oil field in western Kazakstan, told the news agency that 100,000-150,000 barrels of Tengiz crude per day were arriving at the Russian port of Novorossyk and the Georgian port of Batumi. The oil is being shipped to world markets by tanker through the Bosphorus Straits, he said. TCO began making test shipments of its output through Azerbaijan and Georgia in 1997. The oil was shipped across the Caspian Sea by tanker to Baku and then sent by rail across Azerbaijan and Georgia to
13 14

With information from U.S. embassy report distributed by BISNIS; first printed in New Europe, p. 41, Aug 10-16 97. Ibid., p. 17, Aug 17-23 97.

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Batumi. There were some delays in carrying out the test shipments, but the effort was overall a successful one and it has been working well ever since. The decision to send some oil to Novorossyk has not been as well publicized, however. Oil associated with SOCAR and AIOC has been regularly shipped north although in sporadic volume, depending upon political/security issues of the pipeline. TCO officials say that until the Caspian Pipeline Consortium (CPC) finishes its work in 2002, they will continue sending oil to Black Sea ports under present arrangements and also pump some of their output through Azerbaijan and Georgia as pipeline networks in the south Caucasus are built up. The joint ventures managers say these routes are the cheapest transport options available as efforts to increase production at Tengiz from the current 100,000 barrels per day get underway.15 Turkmen oil is being shipped across the Caspian to Baku and then via rail to the Black Sea at Batumi.16. Estimates are that the Turkmens will ship 30,000 metric tons of its crude in 2000 and gradually increase its exports to 600,000-700,000 metric tons per year.17 Most of this oil will flow into the Black Sea via Supsa or Batumi. AIOC decided to use both the Baku-Grozny-Novorossyk and Baku-Supsa lines. The former pipeline was filled in November/December, 1998, with oil produced by the State Oil Company of Azerbaijan (SOCAR). But, quarrels between Russia and Chechnya raised the question of just how stable this line would remain. It is anticipated that the flow of oil north from Baku will indeed continue to grow as the solutions to security of that pipeline are addressed in the region. Russia has completed the Baku-Novorossyk oil pipeline bypass around Chechnya. This new section is currently ready for operation, the Fuel and Energy Ministry press service said. It also noted that Russia is ready to provide additional capacities for the transportation of Azeri, Kazakh and Turkmen oil. The completion of the 312-kilometer bypass means the restoration of Azeri oil exports through Russia. The construction of a link between the oil terminal at the Makhachkala port on the Caspian Sea and the Baku-Novorossyk pipeline is drawing to an end. It will provide additional capabilities for the transportation of oil from Kazakstan and Turkmenistan. The bypass will be able to transport at least 5 million tons of oil annually, which will meet Azerbaijans needs. In the future, the pipeline will handle 17 million tons of oil a year. The Fuel and Energy Ministry believes it inexpedient to use the Chechen section of the Baku-Novorossyk pipeline because its restoration would require significant funding and would basically be tantamount to building a new pipeline.18 Meanwhile, the line to Supsa was commissioned when the Australian company McConnell Dowell finished reconstructing the Georgian section of the pipeline after winning a tender held by the GIOC. A separate effort to construct a buoy-type oilloading terminal at Supsa able to load tankers with a capacity of up to 200,000 metric tons has also been completed. Chanturia, the director of the Georgian pipeline
15 16

(With report from Itar-Tass; first printed in New Europe, p. 41, Aug 3-9 97.) Interfax reported on 6 November, 1997 17 Ibid.
18

Material taken from Intercons Daily Report on Russia and the Former Soviet Republics, April 11, 2000

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consortium, said that the total cost of building the Azerbaijan and Georgian sections of the Baku-Supsa line came to US$330 million. Chanturia was confident that the BakuSupsa pipeline offered more benefits than other early oil routes. Our big advantage (over Novorossyk) is that Supsa will be open 365 days a year, he told the Moscow Times in 1997. The Russian port is frequently closed down by storms for days at a time. The Supsa port is completely operational and has increased the flow of oil into the Black Sea. The AIOC has been forced to think beyond early oil pipelines because neither the Baku-Supsa nor the Baku-Grozny-Novorossyk line will be able to handle the AIOCs expected peak yields of 35-40 million metric tons per year by 2008.19 It has chosen to focus upon both a Northern solution, the CPC route and a southern solution, the Ceyhan route through Turkey. At the same time, other fields associated with Caspian States are coming on line and these ventures are also looking for an export solution. A senior engineer at Azerbaijans trunk pipeline group told the Assa-Irada news agency in 1997 that 4.3751 million metric tons of crude oil had been transported through the countrys pipelines in the first six months of the year. About one eighth of this amount -- 530,665 metric tons --consisted of oil extracted in Kazakstan and Turkmenistan and brought into Azerbaijan.20 Thus, there has been a gradual build up of oil into the Black Sea. As the CPC pipeline becomes operational in 2002, this build up will become a flood. Equally important the sources of oil for the Black Sea will increase as more Kazak and Turkmen fields become fully functional and look for export opportunities. Much of the AIOC oil may be moved from the short term export route to the Baku Ceyhan route, but other consortiums in the Caspian and other national oil fields from the eastern side of the Caspian will fill the Baku to Supsa or Batumi lines. Azerbaijan, Turkey and Georgia opened financing talks for the Baku-Ceyhan pipeline April, in Washington. A source in the Azeri State Oil Company SOCAR said, The delegations of Turkey, Azerbaijan and Georgia are holding meetings with international financial institutions to get financing for the project. Analysts are still skeptical as to whether the one million barrel per day (bpd) US-backed pipeline is commercially viable. The pipeline still lacks the necessary volumes of oil. Julian Lee, senior Caspian analyst at the Center for Global Energy Studies in London said, Azerbaijan, Turkey and the US will continue to back the project verbally, but without any substantial oil discovery to add to fields already being developed, it will be hard to find the funding to build it. The Azerbaijan International Operating Company (AIOC) will be producing only around 500,000 bpd, or half the amount needed to fill the pipeline when it is supposed to come on stream in mid-2004. According to the BP Amoco-led consortium, the pipeline needs to find the missing 500,000 bpd for 17 years of the lines existence for it to be commercially viable. Kazakstan President Nursultan Nazarbayev declared supported the Baku-Ceyhan project, but was not yet willing to
19 20

(With report from the Moscow Times; first printed in New Europe, p. 42, Aug 17-23 97.) (With report from Assa-Irada as monitored by the BBC; first printed in New Europe, p. 42, Aug 17-23 97.)

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commit any volumes of Kazak crude to it. Azerbaijan had been counting on third party oil to make the Baku-Ceyhan pipeline a reality21. A revised CPC will relieve the medium term problems but will add yet again to problems in the Bosphorus. Like all of its Central Asian neighbors, Kazakstans future as an oil and gas player is closely tied to its ability to build export pipelines. Again, some progress has been made. The Caspian Pipeline Consortium (CPC) signed an agreement in May 1998 to build a 1,500-km pipeline from Tengiz to a new Russian Black Sea oil export outlet west of Novorossyk, with planned maximum capacity of 1.34 million bpd.22 In May 1999, CPC said it expected the pipeline to be completed by September 2001. Initial capacity will be about 28 million tons a year (560,000 barrels per day), rising eventually to 67 million tons (1.34 million bpd) by 2012-2014. This will place significant volumes of new oil in the Black Sea. An important contribution to the build up of the 67 mta is the new production and pipeline associated with the Kazak, Karachaganak field. This pipeline will link into the CPC and is due to be operational by 2002. Chevron Corporation has a 15 percent stake in CPC, other shareholders include: ExxonMobil, BP Amoco, Lukoil, Italys ENI and BG Plc., Russia, Kazakstan and the Oman State oil Company.23 Kazakstan is counting on receiving a total of US$11 billion in income over a 40-year period from oil revenues through the Kazak section of the CPC line, which will run between the giant Tengiz field and a new terminal near Russias main oil export port of Novorossyk. The transit fees are expected to account for only 9-12% of this sum, with the bulk of income to come from selling the oil directly rather than trading it in the region. The CPC pipeline should carry 28 million metric tons of crude per year in its first years of operation, with 20 million metric tons of that amount to come from Tengiz. As stated earlier, the lines capacity is expected to peak at 67 million metric tons a year.24 Though the CPC line will be able to transport a large amount of oil, it will not suffice to handle even a third of the 170 million metric tons of crude per year Kazakstan hopes to produce by 2010. Kazak President Nursultan Nazarbayev has said that other export options must be developed, and Almaty has considered nine alternatives to the CPC pipeline.25 Estimates are that the CPC will not handle the expected oil output of Kazakstan. It will certainly not be able to handle the increases in AIOC oil and the
Reuters, April 12, 2000. This is a higher throughput figure than we have been using in earlier discussions. Those estimates were based upon near term judgments, not total capacity. 23 As reported by Judith Robinson, BISNIS. 24 ANS-PRESS reported on 22 October, quoting the president of Azerbaijans Transchart company, Fuad Rasulov. 25 Sept 10, 1997 (Reuters).
22 21

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Turkmen oil exports as well as the Kazakstan oil. These other oil exports will either come through the Baku to Ceyhan or the Baku to Supsa lines previously discussed. Nurlan Balghymbaev, who heads Kazakstans state oil company Kazakoil, told Turan on 10 April, 2000 that Kazakstan considers the Caspian pipeline across the Russian Federation to Novorossyk to be the priority route for oil exports. That pipeline is due to be completed next year. He added that Kazakstan has reached agreement with Russias Transneft to export approximately 1 million tons of crude via the BakuNovorossyk pipeline. Balghymbaev said that Kazakstan would not produce enough oil to require access to the planned Baku-Ceyhan export pipeline before 2008. He said only oil from offshore deposits where extraction has not yet begun would be exported by that route. Many experts believe that Azerbaijan alone cannot extract enough crude to render Baku-Ceyhan commercially viable. Kazakstans President Nursultan Nazarbaev said in Baku on 8 April that Kazakstan will export no more than 2 million tons of oil by rail from Baku to Batumi in 2000 because Azerbaijans rail transport tariffs are too high, according to Caucasus Press.26 The results of this review point to one conclusion: Near term Caspian region crude oil exports terminate in the Black Sea and have only one exit the Bosphorus.
1.3.2 Alternative Options How much oil can safely transit the Bosphorus Straits

According to a report from Reuters, the Turkish government has expressed objections to proposals made by the Russian delegation at a recent International Maritime Organization (IMO) meeting. Mithat Rende, the Turkish delegate to the IMO, said that the measures proposed by Russia would only serve the acceleration of traffic, not the enhancement of safety in the Bosphorus Straits.27 Rende pointed out that 50,000 vessels pass each year through the Bosphorus, which is only 700 meters wide at its narrowest point and runs right through the city of Istanbul. Reuters quoted him as saying that Moscows hopes of increasing oil tanker traffic through the straits once offshore deposits in the Caspian Sea come on stream could lead to calamity and disaster even though Ankara has worked hard to increase safety in recent years. He said that the number of accidents in the Bosphorus had fallen sharply since new rules were introduced after several seamen were killed and 20,000 metric tons of oil was spilt in a disaster in 1994.28 Rende said Turkey was willing to respond to all constructive proposals and that the talks had not reached a stalemate. He said, however, that Ankara was not interested in political and economic point-scoring. He also commented that other countries or organizations could not impose their will since the Bosphorus is entirely within Turkish territorial waters. Reuters noted that

26

Material taken from Intercons Daily Report on Russia and the Former Soviet Republics, April 14, 2000 Jennifer DeLay Pipeline News: No. 69, August 04, 1997 Turkey Objects To Increased Bosphorus Straits Tanker Traffic 28 op. Cit.
27

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under the 1936 Montreux Convention, sea traffic through the Bosphorus and the Dardanelles is unrestricted for commercial vessels except in times of war.29 The number of ships coming through the straits has skyrocketed in the last 60 years, and tanker traffic is expected to jump even higher once big oil fields in Kazakstan and Azerbaijan begin producing over the next decade. Much of the oil from these deposits looks set to be piped to terminals on the Black Sea coast, meaning it will have to pass through the Black Sea to reach markets in the Mediterranean. Ankara is pressing for the oil companies involved to avoid the Bosphorus by pumping their main output through a pipeline to the Turkish oil terminal of Ceyhan on the Mediterranean. According to research undertaken by the Chambers of Maritime Trade, there have been in total 174 accidents in the Bosphorus from 1990 to the end of 1996. It is reported that on average 2,597,504 vessels pass through the Bosphorus yearly including 4,248 tankers. Since only 19 % of these vessels had pilots on board, many accidents occurred.30
Regional Demand

Certainly regional demand will increase in the Black Sea region. Local sale of oil throughout the region is expected to account for some of the new inflow of oil into the Black Sea. There will be sales for Turkey, Romania, Bulgaria, Ukraine and Greece. These will not account for a significant percentage of the new oil coming into the Black Sea by 2002 however. New oil, beyond 2002 is expected to double the amount of oil seeking a route out of the Black Sea. Several options are being considered for pipelines built to supply oil to refineries in southeastern Europe. These pipelines would be a mix of existing and new built pipeline. These proposed pipelines are discussed later in this volume. Several new tankers have been ordered by shippers in the Black Sea. This would imply that there is heavy expectation on both shippers and oil companies to seek to find a transit strategy of the Bosphorus for large loads of oil. Since Mediterranean ports are well served currently, such a flow of oil would mean an interest in shipment to major markets in northern Europe and or the east coast of the US. The current exit routes are not likely to allow such traffic. The maximum tonnage of tankers currently transiting the Bosphorus is 150,000 tons. For the long haul a VLCC of 300,000 tons capacity would be a better economic option. To achieve this, a new by-pass of the straits is necessary for any long haul strategy.
A bypass of the straits is at best five years away

There is growing uncertainty over how various companies and countries, each with their own agenda and budget, will cooperate to bring oil to world markets. Its not just hegemony-building and its not just the interest of states, said Laurent Ruseckas,
29 30

Ibid. Hurriyet; 12 Aug 97

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a Caspian specialist at Cambridge Energy Research Associates in Boston. Its the difference between the mid-19th century and the 20th century, and this time, the companies are playing the leading role.31 The debate over the route of a main export pipeline (MEP) out of the Caspian basin began several years ago, after the Azerbaijan International Operating Company (AIOC), the working arm of a 13-member consortium that is developing Chirag and two other offshore deposits in the Azerbaijan sector of the Caspian Sea, began looking for a way to send its main output to world markets. The consortium partners decided in the end either to enlarge an existing trunk pipeline that ran from Baku to the Russian oil terminal of Novorossyk via Chechnya, construct a new high-capacity pipe from Baku to Supsa on the Georgian Black Sea coast or build a new line from Baku to Ceyhan via Georgia and eastern Turkey. Because the AIOC will be the first Azerbaijan group to send big oil through a main pipeline -- and because it will probably finance the construction of the pipeline -- it has been able to determine the course of the debate over MEP routes. As a result, even companies that are not involved in the AIOCs Azeri-Chirag-Guneshli project are anxious to hear which pipeline route will be built. Washington has in the past been reluctant to throw its support behind any one of the consortiums proposed routes, saying instead that it hoped to see multiple pipelines built in the region. But Pena stated that a Baku-Ceyhan pipeline could satisfy the needs of all companies producing oil in the area, saying it could easily be connected to oil-producing regions on the other side of the Caspian Sea. We also support proposals for trans-Caspian oil and gas pipelines that could link up with the Baku-Ceyhan route. Development of trans-Caspian and trans-Caucasus pipelines will ensure that Azerbaijan, Kazakstan, Uzbekistan, and Turkmenistan have reliable outlets for their resources and help the Eurasian Transport Corridor realize its full potential, he said in Baku.32 It is not clear exactly what route a Baku-Ceyhan MEP would follow. Some have suggested building it as an extension of a Baku-Supsa pipeline, others have suggested that it pass through Georgia without approaching the Black Sea Coast. Still others believe it should pass through both Georgia and Armenia on its way to eastern Turkey. Interfax noted that Pena had not specified through which countries the U.S. government wanted the MEP to pass. The Turkish government has long argued that the other suggested routes posed unacceptable environmental risks because they terminated at the Black Sea and would therefore entail a huge increase in oil tanker traffic across the sea and through the Bosphorus Straits. The Russian government and other critics have accused Turkey of exaggerating the ecological threat to the Straits and have pointed out that building a line from Baku to Ceyhan could be expensive and prove to be uneconomic.

31 32

as quoted in Browning, op cit. Op cit.

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Logistics for a new pipeline is a formidable issue

Specification of steel, manufacture and production of the almost 1200 miles of pipeline for the MEP is a task in itself. The scope of the project includes new pipelines, new pump stations, remote power stations, mainline block valve stations, cathodic protection, supervisory control and data acquisition (SCADA), telecommunications, storage tanks, metering and custody transfer facilities, internal and external power supplies and tanker mooring and loading facilities and the rehabilitation and upgrading of existing pipeline facilities. The Alaska pipeline took 2-1/2 years to manufacture and as long to stockpile pipe in order to initiate the project with enough assurances that there would be supply for continued work without costly delays. The situation will be similar in the Central Asian region as transportation lines are very difficult and costly. Western interests in supplying material and supplies will increase as the availability of capital for paying for equipment materializes. To date, there have been a number of AID supported funds available for equipment supplies, but nothing in the order of funds needed for these large pipeline projects.
When?

U.S. Ambassador Wolf has continued to reiterate the U.S. Government commitment to a pipeline from Baku to Ceyhan. Oil companies have been less supportive of such a route at this stage in the production of oil from the AIOC fields in the southern Caspian offshore region. Until the production of oil in that region reaches enough volume to warrant such a major pipeline, it is unlikely that the financing can be secured. It will await commitments from the Major oil shippers to specific amounts shipped through the pipeline per annum. Such commitments can be either in the form of equity investment directly in the pipeline or take or pay contracts for use of the pipeline. Thus the expected date of commencement for the Ceyhan pipeline cannot be predicted easily. In any case, the completion of such an export pipeline is seven to ten years away; perhaps 2008 or even 2010. The timing will depend upon the drilling of new wells in the Caspian basin and the results of these drillings. Very few new wells have been announced as either beginning or being planned over the last eighteen months.

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The AMBO solution seeks to provide several advantages to oil shippers: It is a deep-water, VLCC solution allowing large tanker delivery strategies. It provides 750,000 bpd for delivery to major markets. Since it relies upon new oil arriving in the Black Sea, it is not a competitor of or an alternative to a Ceyhan route through Turkey. It is cost effective when compared with the Bosphorus for delivery to Europe or the Americas.
Figure 5

With the newly-established world standards for oil tankers which make them increasingly expensive to build, insure, and operate, AMBOs TransBalkan Oil Pipeline will bring oil directly to the Southern and Western European regional markets and will sharply reduce tanker traffic through the ecologically-sensitive waters of the Aegean and Mediterranean Seas.

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This project gives investors an excellent opportunity to benefit from the crude oil being exported from the Southern Russia/Central Asia region to the Black Sea by the consortia of large oil companies. International oil companies which are exploring and developing prospects in the greater Caspian Sea region are seeking multiple export routes; however, recent decisions made by investors in Kazakstan, Turkmenistan, and the AIOC (Azerbaijan International Operating Company) will result in at least 40 MTA arriving in the Black Sea by the year 2002. This volume is expected to double over the next five years. With limited access to the Bosphorus Straits, the most practical transport route to exit the Black Sea will be through AMBOs proposed Trans Balkan oil pipeline. Our project will help bring economic prosperity and increased political stability to the Balkans by providing both a reliable supply of oil and a regular payment of hard currency transit receipts to each country.
Technical Prospects:

A 36-inch diameter pipeline is proposed with four pumping stations and a length of approximately 570 miles. When fully operational, each pumping station will eventually consist of four duty pumps that will raise throughput to 750,000 barrels/day. By contrast, this is roughly half the ultimate capacity of the pipeline proposed by the Caspian Pipeline Consortium (CPC). There will be catenary anchor leg mooring (CALM) offloading and loading systems in the ports of both Bourgas and Vlor, respectively. Additional technical information is presented in Volume IV.
Economic Prospects

It is expected that the CPC pipeline be fully completed and operating by 2002 in time to carry crude oil originating from the Central Asian Republics. Using the Tengizchevroil joint venture in Kazakstan as an example, by the year 2010, they plan to pump 700,000 barrels/day which will generate about $4 billion revenue a year.33 As of late 1997, this consortium was producing over 170,000 barrels/day and plans to increase production steadily with each successive year. In the latter part of the year 2000, they are reported to be producing about 250,000 barrels/day. Initially, the Balkan Pipeline Consortium is exploring a transit price per barrel of USD $1.30. This means that once the line scales up to the expected transit capacity of 750,000 barrels a day, a gross revenue in excess of $300 million per year will be generated. This pipeline project will be of significant benefit to all three countries as they have attracted relatively little investment since the collapse of Communism and they are desperate to do so. Bulgaria has made large strides in this regard in the past year. In 1997, Macedonia ranked dead last in terms of direct foreign investment in the entire region. All three countries are net importers of oil and the existence of the pipeline would add greatly to both economics and political stability in the regionan
33

Ibid

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important goal of the U.S. Government. Should this goal not be achieved in the near term, the resulting consequences from a regional destabilization would be nothing short of catastrophic. Ambassador Richard Armitage reviews the political situation and the relevance of the AMBO pipeline for U.S. foreign policy objectives in Appendix A of this volume. Bulgaria benefits because the pipeline would provide for an even distribution of crude oil across the country and would allow for the establishment of a mini-refinery between Sofia and Plovdiv, which are the main population centers of the country. This means far fewer inefficient trucks carrying refined oil product back and forth across the nations road system. Macedonia would benefit tremendously because the pipeline would free it of the need to depend on its southern neighbor for the expensive importation of oil by rail34 and it helps to solidify the East-West Corridor No.8 project which provides an important cross-axis to the existing North-South corridor running through the country. The completion of the pipeline would also complement Albanias plans for the overhaul of her two deep-water ports as well as providing a lighter crude oil feed to its refineries, which Albania currently imports.
Financial Prospects and Rights-of-Way Discussion

According to the initial estimates, 51% of the project will be built in Bulgaria. This will include two offshore offloading buoys at the Port of Bourgas for our purposes. As much as 83% of the right-of-way in Bulgaria will parallel the existing Russian Gas Pipeline, AMBO will only have to build a new primary right-of-way on the segment that brings the crude oil from Bourgas to Zimnitsa. Approximately 27% of the project will be built in Macedonia. The pipeline segment in Macedonia should be fairly straightforward to construct since it will parallel first the Russian Gas Pipeline and later, the route of existing and future major roads (including toll roads). The pipeline route in the vicinity of Lake Ohrid requires special attention and study, to be conducted in the next phase. The remaining 22% will be built in Albania, including a new oil terminal in the Bay of Vlor. This part of the project provides challenging construction aspects at the border with Macedonia because of the heavy mountainous terrain that this pipeline will need to cross. The pipeline company will not need to buy land in each of the countries. The right of way will provide the basis of an equity stake for the host countries in the pipeline operation. Operations of the pipeline company will be protected by a tripartite agreement among the three countries, Albania, Macedonia, and Bulgaria. The rational for this approach and the legal implications are covered in the legal appendix
Brown & Root informally estimates that the Macedonians could cut their oil transport costs by roughly 40% if they used our oil pipeline versus using the railroad from Greece. They pay roughly $25/ton currently.
34

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(Appendix B). The pipeline is estimated to take between two and three years for completion of construction. At this stage, all financial estimates are given subject to a margin of error of +20%10%. It is anticipated that further studies would provide a more accurate price estimate. The capital cost of the pipeline is projected to be $1.13 billion. This is an estimate based upon current estimates of material and labor costs, taking into account all the information we have from the terrain and environmental challenges of the route. The final actual costs of construction will depend upon negotiations over cost with suppliers in a competitive environment. If the pipeline charges a transit tariff of $1.30 per barrel, the complete cost of construction could be paid off well within the first 3 years of pipeline operation. These calculations assume an interest rate of 9% and that the pipeline would operate at 400,000 bbl/day for the six months, 600,000 bbl/day for the next six months and then operate at full capacity (750,000 bbl/day) thereafter. It is assumed that the pipeline would operate 356 days of each year with an average loss factor of 1%. As long as the oil in the greater Caspian region makes its way to the Black Sea, we will have no difficulty in making this project financially viable. Annual operating costs should be in the $40 to $50 million-dollar range depending on the amount of oil to go through the pipeline. Trained pipeline construction labor is readily available in Bulgaria and Macedonia as this sector was highly developed in these two countries. There is approximately a 35% unemployment rate in the region so the construction efforts should be a significant employment boost for each country.

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2.0

SUMMARY AMBO LLC seeks to develop a 570-mile crude oil pipeline for the transport of crude oil from the Bulgarian Black Sea port of Bourgas across Bulgaria, Macedonia, and Albania to the Adriatic Sea port of Vlor. Oil originating in Southern Russia and Central Asia that has been transported to the Black Sea via pipelines to the Russian ports of Novorossyk and Tuapse; the Georgian ports of, Supsa and Batumi would be shuttled, via tanker across the Black Sea to the Port of Bourgas. Expected increases in oil flows into the Black Sea via these ports will quickly surpass the safe capacity of the Bosphorus as a shipping lane for such oil. Given the cost of loading and offloading tankers in the Black Sea versus transiting the Bosphorus, the costs of the AMBO pipeline would be offset by the economic advantages of VLCC loaded at Vlor. Successive governments, since 1994, from all three Balkan countries have given their full written approval and support for this project. From their prospective the revenues from the AMBO pipeline would generate significant new income flows and provide the governments with direct investment opportunities in their own economies. It should also advance the privatization aspirations of the US government in the region by providing work opportunities for new industries in support of the maintenance of the pipeline and the downstream industries of oil refining.
Financial returns from the AMBO pipeline

When we put together the financials on the pipeline we assumed 356 days per year throughput (average down times were estimated at 10 days annually). The first two years were figured in such a way to bring on full throughput and full impact of financing and operating costs so they are slightly different than the regularized annual estimates. Just to keep things simple, the full throughput figures are based upon a 750,000-bbl/day estimate at a throughput tariff of $1.299/barrel. Throughput bpa (mils)- @356 days Tariff Revenue ($millions) Operating Costs ($millions) NOI (Net Operating Income) 85cts/ton tax ($millions) Harbor fees/ton ($millions) After tax cash flow ($millions) 267 385 41 315 30 12 280

There is then a lot of detail with regard to debt servicing which is presented in Section 6.0. It shows a positive return to equity investors in year two forward with Equity finance investors resulting IRR at more than 20%.

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Impact of the pipeline upon local economies:

During construction, the actual dollars for local labor is more difficult to estimate at this stage, but if we take the standard Ex/Im estimates of 15% for debt and 50% for third party equity; from this, the local expenditures on salary and equipment would be $120,000,000. This would cover the three-year construction period and not include per diem for U.S. company expenses in region. Given the length of the pipeline in each country; Albania and Macedonia should receive 25% of these expenses and Bulgaria 50%. When the pipeline is operational, there are several direct income flows for all three countries. In order to make sense of these flows, a twenty-five-year period was employed. The return on equity for Bulgaria would be $412,000,000; for Macedonia and Albania, $206,000,000, each (their equity positions are less as the length of pipeline is shorter in both cases). Operating expenses for the 25 years are estimated to be $1,186,000,000 and about half of that would include salary and service (electricity) supplied from the region, about $593,000,000, or about $59,000,000 per year would stay in the region. Again the divisions ought to be about the same as above: 25%, 25%, and 50%. The local tax was estimated at $940,000,000 for transit fees over the 25 years or about $38,000,000 per year divided among the three countries. In Albania and Bulgarias case, there would be harbor fees as well. These would amount to $387,000,000 over the 25-year period, or $15,480,000 per year for each. Thus the total over 25 years return to Albania, for instance would be $1,006,250,000. The annual amounts would average $40,250,000. $40 million per year for investment in Albanian infrastructure or economic recovery would help the government meet its development plans.
Returns to Western Investors

This 36-inch diameter pipeline has a nominal throughput capability of 750,000 barrels per day. The resulting USD billion dollar pipeline will become a part of the regions critical East-West Corridor 8 infrastructure, which includes highway, railway, gas, and fiber-optic telecommunications lines. This transportation corridor was approved by the Transport Ministers of the European Union in April 1994 and has been aggressively supported by the United States Government through its South Balkan Development Initiative. Additional support has been received through the European Unions PHARE program and through the British, French, and German Governments. The East-West corridor begins in the Ports of Varna and Bourgas on the Black Sea; crosses through Bulgaria, Macedonia, and Albania; and ends in the Albanian ports of Durres and Vlor.

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By providing for the daily delivery of 750,000 barrels of crude oil to VLCCs in a deepwater, all-weather port at Vlor, this strategic transnational infrastructure project has several important implications on international markets: It will give European nations access to a significant alternative source of crude oil. It will provide a consistent source of crude oil to American refineries along the East coast at a time when more than half of the oil required by the United States is imported through foreign markets. It will build a foundation for healthier economies through the Balkans and facilitate rapid integration of those nations with Western Europe. It will permit governments in the Caspian Sea region to employ long-term planning to achieve the enormous economic potential associated with these new fields in the region. It will provide American companies with a key role in developing the vital East-West Corridor.

The Value to Oil Companies

There are several advantages to the oil companies that involve picking up oil outside of the Black Sea in very large quantities, 750,000 bpd. They avoid the environmental danger of trying to push too much oil through the Bosphorus. They have turnaround times of four to five days shorter than trying to come through the Bosphorus. The availability of ships from nearby deliveries provides the opportunity to reduce tanker charter costs. The total cost of these ships (with world scale multipliers) is reduced. Since the delivery times are 5 6 days shorter than from a port on the eastern side of the Black Sea, the actual purchase price risk until delivery is much less.

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3.0

PROJECT DEVELOPMENT PHILOSOPHY


AMBO LLC is a U.S. company supported by private investors

AMBO was created to develop a transit pipeline for Black Sea oil across Bulgaria, Macedonia, and Albania. It is to be supported by private investors and justified on its return to investors.
Project initiator and developer

The project initiator and developer was Vuko G. Tashkovich, a Macedonian-American who moved to the U.S. and became a successful designer-builder of contemporary residences. He remained committed to helping his native land develop. The prospect of a pipeline through the region would free Macedonia from its dependence on crude oil imports from Greece and help finance development throughout Southeastern Europe. His familys historical contacts in the region helped him to work with the three governments to secure commitments for right-of-way and support to develop the concepts seen here. Sadly, he died before he could realize his dream. AMBO is committed to fulfillment of his objective to develop a fully self-sufficient commercial enterprise in the pipeline.
Host Countries expert groups determined the route

One of Vuko Tashkovichs many contributions to the development of the project was to work with the governments of the three countries who appointed cross-ministerial committees of experts to determine the economic and environmentally safest route for the pipeline. These committees have met throughout changes in government and have worked closely with AMBO to ensure that the route was optimally tuned to the local needs of each of the three countries. In most instances the line follows the right of way route for Corridor Eight, the EU-designated transportation route for the region. More importantly, the route through Bulgaria and part of Macedonia follows the new Russian-funded gas pipeline. The route has the full support of the expert groups and their governments in all three countries.
AMBO is founded on the premise that new crude oil production from the Caspian region cannot transit the Bosphorus

Current flows via the Russian pipeline to Novorossyk are about equal to the maximum throughput for the Bosphorus. Some have argued that 50 million tons could exit the Bosphorus, annually. This is probably true. But new oil from either the CPC or the AIOC fields offshore from Baku would add at least another 50 million tons over the current flows. A Turkish route from Baku to Ceyhan would help with the diversion of AIOC oil when it comes on line in 2005. But there is still the Kazak oil from Tengiz and Karachaganak, which flows into the Black Sea via the CPC route. This oil will begin early 2002 and will have no exit routes. It cannot go into the envisioned Ceyhan pipeline and it cannot exit at the Bosphorus. A pipeline such as AMBOs with the capacity of delivering 750,000 bpd to the Adriatic for the same price as exiting the

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Bosphorus would be ideal. Such a pipeline would not be competing with the Ceyhan route, as it would address only oil in the Black Sea. It would mean a route for oil in the Black Sea that could not exit via Bosphorus. It would also mean VLCC transport for oil from the Black Sea to major markets in Europe and North Americas eastern seaboard. 1. AMBO has support from international finance institutions (IFIs) AMBO has met with representatives of the EBRD on numerous occasions in London, Sofia, Skopje, and Tirana. They have expressed strong interest in debt financing and perhaps taking a small equity stake as well. AMBO has also met with various organizations within the World Bank; the International Bank for Reconstruction and Development (IBRD), and the International Finance Corporation (IFC). The IFC has discussed the possibility of assisting with an A loan (from their own internal funds or even a B loan which is a syndicated arrangement with outside private banks. Ex/Im Bank in Washington is committed to helping develop finances for private initiatives in the Southern European community. They have also expressed strong interest in this project. OPIC and MIGA have been approached to secure insurance policies to mitigate risks in the political or nonbusiness arena. Project registration forms (for insurance purposes) were filed with OPIC in early 1997. CS First Boston is supporting AMBO to develop a strategy for debt financing. It is anticipated that 30 40 percent of the financing will be equity financing, principally from oil companies choosing to make use of the pipeline. Approximately 60 percent will be debt financing, which will be raised principally from the private sector with help and support from the international financial community. Timely realization of the loans is the guiding principal here. 2. Political support comes from the host countries, U.S.A. and E.U. From the commencement of the project, Vuko Tashkovich sought and secured complete commitment from the three governments involved. To this day AMBO has received full support of each successive government as new administrations succeeded previous ones. We have signed commitments from all three governments supporting AMBOs right to develop and seek financing for the construction of the pipeline. The three countries have secured all necessary rights of way and are assisting AMBO with environmental issues and assessment. As the financing is realized other contractual agreements on tariffs, right of way access for construction and maintenance will be required. AMBO has been assured of quick response and full support. The relationship of the pipeline to U.S. foreign policy is reviewed in Ambassador Richard Armitages memo immediately following this section.

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Feasibility Study Volume I, Introduction

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AMBO Pipeline Consortium May 2000

3. AMBO provides a new energy source to the region, new wealth and adds value to the Balkans corridor. Bulgarias Bourgas Refinery, rated at 12MTA would benefit from competitively priced Crude Oils and a different slate of crude. Bourgas Petrochemical Complex would also benefit from having an option of different Crude Oils to that of Urals Blend. Overall Bulgaria will benefit greatly from the new Russian supply of gas and a new supply of Crude Oil transiting the country. Macedonias Skopje Refinery, rated at 2.5MTA is currently totally reliant on rail-supplied Crude Oil from Thessaloniki. A direct off-take from the AMBO pipeline would transform the economics of this Refinery. Similarly the Chemical Complex - OHIS would be economically transformed with the combination of New Russian Gas Supply and the AMBO pipeline. Albania with its own crude oil production has attracted Western investment. The investments to date, however, are insufficient to support the level of infrastructure improvements to pipelines and terminal that is needed. The AMBO pipeline provides the synergy that Albania needs to, in particular, develop a world-class crude oil export terminal. Albanias Ballshi refinery has a need for imported crude oil. The construction of a Trans Balkan Crude Oil Export Pipeline could not be justified solely on Balkan infrastructure needs. However, given the need of Western Shippers to exit the Black Sea to a deep water, all season export terminal in the Mediterranean, the added benefit of off-takes en-route which will bring growth and prosperity in the Balkans does indeed add real value for investors. The development philosophy is founded upon alleviating the problem of congestion in the Bosphorus by transporting some 30% of the anticipated new oil terminating in the Black Sea via a cost-effective and secure route.

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Feasibility Study Volume I, Introduction

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4.0

PRINCIPAL COMPONENTS OF THE PIPELINE SYSTEM

AMBO PIPELINE
HYDR1.PPT Date: 2/1/2000

Pump Sta. 3

Bourgas Pump Sta. 1 Pump Sta. 2

Bulgaria
Pump Sta. 4

Macedonia
Pressure Reducing Sta.

Vlore Note:

Albania

Station Boundary

AMBO OIL BALKAN PIPELINE SYSTEM - PRELIMINARY SCHEMATIC SHEET 1


File: SCHEM1 Date: Mar. 28, 2000

ONSHORE

OFFSHORE

1,067 mm x 19.1 mm

1,067 mm x 19.1 mm

OFFSHORE UNLOADING BUOYS (2)

FENCE FENCE 914 mm x 14.3 mm

PUMP STATION 1 13,806 KW PIG LAUNCHER

BOOSTER METERING STATION PUMPS

BOURGAS TERMINAL STORAGE 8 x 95,400 cu. meter (600,000 barrels)

CONTINUED ON SHEET 2

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AMBO OIL BALKAN PIPELINE SYSTEM - PRELIMINARY SCHEMATIC SHEET 2


File: SCHEM2 Date: Feb. 17, 2000

PUMP STATION 3 PUMP STATION 4 11,377 KW 11,959 KW

PUMP STATION 2 16,422 KW PIG RECEIVERR

CONTINUED ON SHEET 1

PIG RECEIVER

PIG RECEIVER

PIG LAUNCHER

PIG LAUNCHER

PIG LAUNCHER

FENCE

PIG RECEIVER

CONTINUED ON SHEET 3 VLORE TERMINAL STORAGE 8 x 95,400 cu. meter (8 x 600,000 barrels) PIG RECEIVER 914 mm x 8.7 mm PIG LAUNCHER PRESSURE REDUCING STATION

AMBO OIL BALKAN PIPELINE SYSTEM - PRELIMINARY SCHEMATIC SHEET 3


File: SCHEM3

Date: Feb 3, 2000

FENCE OFFSHORE ONSHORE

1168 mm x 19.1 mm

CONTINUED ON SHEET 2

OFFSHORE LOADING BUOYS (1)

METERING STATION

LOADING PUMP

Bulgarian Macedonian Albanian Oil Pipeline

The pipeline will originate at the Bulgarian Port of Bourgas and terminate at the Albanian Port of Vlor crossing three countries; Bulgaria, Macedonia and Albania. The transportation of oil takes places in a mountainous region. The design throughput is 750,000 bpd. The entire pipeline system is to be designed to 600 ANSI system. The pipeline size is 36 

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The unloading facilities at Bourgas include 2 CALM buoys at a suitable location with 42 steel pipelines to shore. The loading facilities at Vlor include a 42 VWHHO SLSHOLQH with one CALM type buoy system for tankers loading at a suitable location in Vlor bay. Oil will be metered and stored at the new terminal tankage located inshore from Bourgas. The design philosophy is to maximize the pipeline asset utilization and system availability to transport oil from Bourgas to Vlor. Earthquake hazard assessment will be carried out assuming earthquakes occur randomly as independent events. The magnitude of earthquakes will be taken from the Map of Natural Hazards. The design earthquake magnitude must be the maximum probable magnitude determined for each location. Station trips, ESD valves closure etc. will require some special attention to avoid surge waves of unacceptable magnitude. This will be carried out to determine the pressure surge relieve facilities at each location along the pipeline, unloading and loading facilities.
4.1 Offshore Unloading At Bourgas

Consists of two CALM type buoy systems for tankers unloading at a suitable location north of Bourgas port. There will be two 42 XQORDGLQJ SLSHOLQHV EHWZHHQ HDFK Catenary Anchor Leg Mooring (CALM) buoys and the onshore terminal.
4.2 Bourgas Storage And Metering Facility

This facility will be located close to the offloading pipelines landfall, which consists of 8 x 600,000 barrels storage tanks, office and main communication and control facilities, booster pumps, pump station and fiscal metering system. The storage tanks sized to hold a minimum of two tanker loads each of 2 million-barrel capacity. The oil pumped onshore will be metered to keep an accurate record of oil transferred from the tank(s) to the crude oil terminal. The metering system will be supplied as a packaged unit on a skid. This will be the principal operating location in Bulgaria, with full communications and monitoring systems for all locations in the system in Bulgaria, Macedonia and Albania.
4.3 Cross-Country Pipeline

The purpose of the pipeline is to transport oil from Bourgas storage terminal to Vlor storage terminal. A 36 SLSHOLQH LV proposed, with a total of four pump stations. The overall length of the pipeline is about 898 km. With three duty pump sets per station and one stand by, the system will have a high level of availability and a throughput of 750,000 barrels per day.

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Feasibility Study Volume I, Introduction 4.4 Pipeline Sectioning

AM BO

AMBO Pipeline Consortium May 2000

Mainline isolation valves will be strategically placed to protect the spillage of oil from the pipeline into the environment. The pipeline sectioning system aims to contain the damage to the environment by closing the main pipeline valves upstream and downstream of the ruptured section. The sectioning will be a function of the location, sensitivity to oil spillage, hazard and local regulation. These valves will close automatically upon a sudden loss of pressure, such as in a major line rupture.
4.5 Let Down Station

The operating pressures entering the Vlor terminal will be below 300 psi maximum. A let down station is therefore required to reduce the pressure of the crude oil before entering Vlor storage terminal to avoid vibration and cavitation shock waves.
4.6 Surge Protection Systems

Adequate skid mounted surge relief systems will be placed along the pipeline where necessary to protect the pipeline and associated facilities from excessive pressure surges that exceed the pipeline Maximum Allowable Surge Pressure (MASP). Surge protection systems will be designed to relieve excessive line pressure into surge tanks.
4.7 Leak Detection System

The monitoring of leaks is of major importance in this pipeline. The pipeline will include a leak detection system that analyses real-time flow and pressure measurement data and determines whether a leak and/or rupture has developed, estimates the leak size and location to prevent major spillage and disasters.
4.8 Vlor Storage And Metering Facility

This facility will be located close to the loading pipeline landfall, which consists of 8 x 600,000 barrels storage tanks, booster pumps and fiscal metering system. Before the oil is pumped offshore, it needs to be metered. The main objective of the metering is to keep a record of oil transferred from the main crude oil terminal to the loading tankers. The metering system will be supplied as a packaged unit on a skid complete with prover/testing facilities.
4.9 Offshore Loading At Vlor

Consists of one CALM type buoy system for tankers loading at a suitable location in Vlor port. There will be one 46 ORDGLQJ SLSHOLQH EHWZHHQ &$/0 EXR\ DQG WKH onshore terminal.

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4.10

Pump Stations PS/1, PS/2 PS/3 are located in Bulgaria. PS/4 is in Macedonia. Stations are provisionally sited at 0 km, 154 km, 300 km and 540 km. Each station will consist of a pump house, office and store buildings, workshop, vehicle shelters and control room. Pipeline pig launchers and receivers will be provided.

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5.0
5.1

PROJECT IMPLEMENTATION AND SCHEDULES


Project Implementation

Immediately upon official commencement of the project, AMBO will prepare specifications and contracts to begin the necessary surveys. The design activities will be initiated and manpower resources assigned to both the home office work and incountry offices. Project procedures for reporting, controls and execution of the work will be developed as a priority activity. Work will progress to meet the key dates and project milestones, which will be agreed as part of the project commencement.
Key Dates

The following key dates have been derived from the information available and reflect what is considered a workable overall schedule. Project Commencement: Formal Approval of Route and Site Locations: All Required Construction Permits issued/approved Construction Commencement (Pipeline Sections and both Tank Sites): All Pipeline Construction Complete: All Site Construction Complete: All Testing and Commissioning Complete (system ready to accept oil):
Oil Export Capability 5.2 Schedule 4Q 2003

4Q 2000 1Q 2001 3Q 2001 4Q 2001

2Q 2003 2Q 2003 3Q 2003

The following is a preliminary project schedule. It is included as preliminary indication of the project activity durations.

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Table 1

2000
DESCRIPTION OFFICIAL PROJECT COMMENCEMENT PROJECT MANAGEMENT DETAIL DESIGN SURVEYS,: OFFSHORE, SOILS,PRELIM.ROUTE CONDUCT ENVIRONMENTAL INVESTIGATIONS PRELIMINARY ROUTE & SITE APPROVALS COMMIT LONG LEAD MATERIALS (PIPE, COATING, TANKS) FINAL ROUTE APPROVAL FINAL ROUTE SURVEY OBTAIN ALL PERMITS & AUTHORISATIONS SITE CONSTRUCTION ONSHORE PIPELINE CONSTRUCTION OFFSHORE CONSTRUCTION TEST & PRECOMMISSION PIPELINE COMMISSION TERMINALS/PUMP STATIONS INITIAL PIPELINE FILL BEGIN OIL EXPORT NOTES
START FINISH
MILESTONES 0 1 2 3 4 5 6 7 8

2001

2002

2003

A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Sep-00 Sep-00 Sep-00 Oct-00 Oct-00 Oct-00 Feb-01 Apr-01 May-01 Jan-01 Nov-01 Feb-02 Jan-03 Jun-03 Jul-03 Sep-03 Oct-03

Oct-03 Jan-02 Apr-01 Apr-01 Apr-00 Jul-01 Jun-01 Oct-01 Jul-03 Jul-03 Jul-03 Sep-03 Aug-03 Oct-03

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Feasibility Study Volume I, Introduction 5.3 Project Costing

AM BO

AMBO Pipeline Consortium May 2000

The estimated costs for the capital installation as well as operating costs are included in this section. We have provided a model for financing the complete project. The materials, equipment and installation costs are presented in the Volume II, later on in the report.
5.3.1 CAPEX

The CAPEX includes surveys, inspection and verification costs, the project management works including detail design and construction management and a project contingency. The accuracy of these costs is +20%-10%, at this stage of project definition. Total CAPEX then comes to $1,130,000,000
5.3.2 Operating Expenditure (OPEX)

Operating costs include payroll, supplies, consumables and spare parts, plus a fund to accrue resources to replace/update equipment in later years. Annual overall system operations and maintenance costs are estimated as 4% of the capital cost presented above. OPEX does not include any profits on payments to governments for rent or royalties. These are covered in the model as separate items. Total OPEX then comes to $45,100,000.00 @ 750,000 bbl/day.
5.4 Pipeline Tariff

In the financial volume of this study calculations are made, to find a pipeline tariff, expressed in $ per barrel, that would make the pipeline the preferred means of moving oil from Novorossyk to the Mediterranean and beyond. The following model takes into account all known factors including the costs of financing the project. It is a complete financial model.

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AMBO Pipeline Economics


Performance Summary:
Scenario No. Project IRR before Financing (13yr DCF) Project IRR after Financing (13yr DCF) Equity Investors Resulting IRR (13yr DCF) 1 16.88% 24.36% 20.73%

Assumptions:
Operations: Daily Throughput: 1st six months @ 2nd six months @ Full Capacity Capacity after added Cap.Ex. Throughput Tariff /barrel: Tariff Annual Escalation: Operating Days per Year: Barrels per Ton Lossage Factor Operating Costs(%ofCap.Ex.): OE $amount Yearly Cost Escalation (cpi) Tax per Ton (Transit Fee) Harbor Fee/Ton (input only) Financing: (1,000s) Total Cost Before Financing (Cap.Ex.) Cost including construction period interest Debt Financing Financed portion of Cap.Ex. Financed portion including interest Interest accumulated during construction Debt Interest Rate (Take Out) Debt Repayment Term (yrs) Equity Financing Total Equity Construction Schedule: Number of Quarters LIBOR Spread Rate (/360*365: Effective) Financing Fee Financing Fee $amount: Quarterly Cost Distribution: Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Total 400,000 600,000 750,000 750,000 $1.2999 3.00% 356.00 7.9 1.0% 4.00% $45,200,000 2.50% $0.85 $0.35 bbl/day bbl/day bbl/day Cap. Ex. (to add capacity): Year: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 $3,000,000 1.00% No. Pumps OE inc. 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0.00% Output 500,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000

@Full Capacity

$1,130,000 $1,206,379 60% $678,000 $754,379 $76,379 9% 10 40% $452,000 Cost per Pump: OE Cost inc./pump:

12 * 6.45% 3.00% 9.58% 1.0% $6,780,000 0.11% 0.57% 2.06% 5.72% 6.86% 10.30% 17.18% 19.45% 14.87% 11.44% 9.15% 2.29% 100.00%

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AMBO Pipeline Financing Summary:

Debt Coverage Ratio (DCR): is anticipated to be 1.46 in year 1 of the operating projection. The DCR is calculated by dividing cash flow by the annual debt repayment obligation, thus indicating that year 1 of the operating cash flow will produce close to one and a half times cash flow needed to make payment on its debt obligation. The DCR increases to 2.27 in year 2 and will continue to grow to 2.90 in year 10. Cash Flow Sweep: Based on Scenario No. 1, the debt obligation will be $754.38 million after the three-year construction period. This amount includes financing fees and PIKD interest, or carrying cost, during the construction period. Based on the operating projection there will be enough cash flow generated in the first ten years of operating cash flow to pay off the entire debt obligation. This situation would require that all of the initial cash flow be swept to the debt holders before any dividend or repayment would occur to the equity participants. In addition, note that the entire cost of the project could be paid off by year ten (first year of cumulative positive cash flow). Financing Fee: a financing fee of 1% is included in the financing calculation of this model. Interest is 9.58% in Scenario No. 1. This includes the assumption that interest is grossed up from 360 to 365 days and is based on a 3% spread over the benchmark. The benchmark used in this analysis is the London Interbank Offered Rates, or LIBOR, and is assumed to be 6.45% (as of this writing, LIBOR was below 6%). Loan to Value (LTV): is 60% in Scenario 1. This ratio is assumed to reflect a conservative estimate, as the long-term commitments by a major oil distribution concern should provide for an investment grade credit rating.

The results of making individual changes in each of the major components from the base case values are represented in the enclosed Volume II. From the preliminary financial evaluations it would appear that the pipeline is an economically attractive investment on the basis of 750,000bbl/day throughput with a tariff of $1.29 per barrel. We conclude that the AMBO pipeline is a solid financial investment, highly competitive to any other export solution for crude oil from the Black Sea. This is especially true for export of VLCC sized volumes to markets in Europe and the United States.

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6.0
6.1

OPERATING COMPANY ORGANISATION


Introduction

The owning and operating organization for the proposed Bulgaria, Macedonia, and Albania pipeline is a key aspect that needs to be considered to ensure that the best interests of the various project stakeholders are met. This includes developing structures that ensure that the following key elements are adequately addressed:
Ownership Organization Requirements

Ensure that the project sponsors are adequately rewarded Ensure that the financiers exposure is protected Ensure that the producers interests are recognized Ensure that each of the host countries are adequately involved

Operating Organization Requirements


6.2

Ensure that the different elements of the system operated as a single unit Ensure that adequate security arrangements are provided Ensure that the pipeline integrity is maintained and the environment protected Ensure that the supply and take-off contract volumes are matched Ensure that each of the host governments are adequately involved

Project Ownership Structure

There are essentially three basic alternative ownership structures that can be considered: A single ownership company that owns the complete pipeline asset through all three countries. Separate ownership companies in each of the three countries. Single ownership with three operating/management companies.

Each alternative structure has some positive and some negative aspects. The form of structure will of course have a bearing upon -- and to a large extent is likely to be dictated by -- the project financing structure. The advantages and disadvantages of each structure that will have to be considered are as follows: Single Ownership Company

Advantages: Single company for establishment of contracts

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AMBO Pipeline Consortium May 2000

Financing contract Construction contract Potentially less complicated legal interface structure Simpler flow of funds and accounting requirements Political risk insurance potentially easier to arrange Potentially greater comfort to project lenders Increased integration between separate country activities

Disadvantages: Larger more complex ownership structure with potentially different multiple interests (where registered ?) More difficult to accommodate separate host Government interests, potentially requiring different levels of participation in the project

Separate Ownership Companies in each Country

Advantages: Greater potential of establishing separate (and hence different) financing packages in each country (though must obviously still be interlinked) Separate Government interests more easily accommodated Greater local integrity in each country Disadvantages: Need for contractual, legal and financial interfaces between separate ownership companies Need for simultaneous interlinked pipeline operating function between separate entities Potentially increased costs as a result of duplication of functions in each separate country.

Single offshore holding company with local operator/management companies

Advantages: Single company for establishment of contracts Potentially less complicated legal interface Political Risk Insurance potentially easier to arrange Potentially greater comfort to project lenders Separate government interests more easily accommodated Disadvantages: Need for contractual, legal and financial interfaces between separate management companies. Need for simultaneous interlinked pipeline operating function between separate entities.

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Evaluation of the various advantages and disadvantages will have to be carried out by the project developer, particularly in consultation with a nominated financial advisor. Equity shares in the company(s) could end up being held by a variety of interests, including: 1. 2. 3. 4. 5. Project sponsors Senior debt providers Host Governments 3rd party equity investors Contractors / equipment suppliers (in lieu of cash reimbursement)

The ability (and willingness) of each of the parties to accept the risks associated with the equity position will depend upon the anticipated return on equity.
6.3 Creation of NewCo

AMBO is the company that will develop the project for construction of a pipeline from Bourgas, Bulgaria to Vlor, Albania. In the process of financing that project equity financing will require that a new company be formed made up of the equity partners in the project. This setup should include the principal investors from the oil companies, the three countries and AMBO. The NewCo will negotiate the rights of way with each of the countries in exchange for equity participation. It will manage the construction and operation of the pipeline. All liabilities created via financing will rest in NewCo.
6.4 Equity Participation of Majors

Approximately 40 percent of the financing will come in the form of equity financing. The major oil companies who choose to use the pipeline should supply the majority of equity financing. It is anticipated that one or more of the oil companies will wish to take a major stake in the NewCo and manage the construction and operation of the pipeline. Alternatively, the majors might choose to supply Take or Pay contracts for extended use of the pipeline. Under this scenario equity investors may not be Majors, directly.
6.5 Three countries included against land grants

NewCo will negotiate long term lease agreements for rights of way contracts with each of the three participating countries; Albania, Macedonia, and Bulgaria. Rather than pay a one-time fee for these ROWs, the three countries will be offered equity in the operation of the pipeline. AMBO regards this as a superior financial position for each of the participating countries.

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Feasibility Study Volume I, Introduction 6.6 Management Philosophy

AM BO

AMBO Pipeline Consortium May 2000

NewCo is envisioned to be a shipper-friendly pipeline. The maximum annual downtime for the pipeline is expected to be ten days. The pipeline philosophy is to provide 750,000 barrels of oil a day at the exit port in Vlor. This means that the whole effort is to supply daily volumes for shipping for destinations in for Western European and Eastern United States. The pipeline is not developed to supply Mediterranean or local southern European markets, although it may well do that as well. The unique capability for this pipeline is that it can deliver oil regularly for VLCC shippage to more distant markets. The intent of a pipeline in this area is to take advantage of tanker routes (VLCCs in particular) in the Adriatic and to provide a low risk port for the exit of oil from the Black Sea. To do that, NewCo will need to keep the cost of tariffs as low as possible. It is certainly possible to keep tariffs below $1.30 per barrel.
6.7 Project Operating Entities

Regardless of the final ownership structure, (i.e. single overall company or separate companies in each county), separate Operating Entities are likely to be established in each country. It is envisaged that these Operating Entities would be form NewCo pipeline operating company in each country respectively, together with the respective owning entities. Day-to-day operation of the export system would then be carried out by each pipeline operating company, under contract to, and overseen by, the joint board of the Operating Entity. It is further envisaged that the major oil producers who have oil being transported in the system, would hold an executive board position within each Operating Entity. This would provide for a management involvement in the operation of the pipeline system to ensure that the oil company interests are being fully considered in the functioning of the system. Such positions would provide a right of interrogation and hence an appropriate degree of control in the system operation. Of key interest to the project sponsors, equity holders, financiers, and oil shippers will be the confirmation that the system is operated and maintained to recognized international standards. This includes issues with respect to system integrity, security and environmental protection. The ability to establish the correct operating procedure for the project will be a major factor in the viability of the project and realizing its outcome. Achieving this should, however, be perfectly possible by employing a sufficiently high degree of experienced pipeline operating personnel and/or third party expertise.

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7.0

PIPELINE ECONOMICS: TARIFFS; COMPETITIVE POSITION In a recent study on oil company exploration and production (E&P) expenditure, the Lehman Brothers Original Exploration & Production Spending Survey indicates that the 320 oil and gas companies surveyed plan on a 10.2% growth in their worldwide E&P expenditures in 2000.35 The market investors had expected at least 15%, so this is disappointing news. Actual declines in spending were planned by ExxonMobil, TotalFina Elf, Statoil, Petronas, and BP Amoco to be offset by healthy gains by Petrobras, Conoco, Texaco, Occidental Petroleum and ENI. Oil and Gas companies are basing their budgets on an average oil price of $19.25 per barrel (West Texas Intermediate). When distinction is made between investment in U.S. and Canada versus the rest of the world the international expenditures are expected to be up only by 5.7%. The primary reason that international expenditures are projected to be up only a modest amount is that the three large companies who have just completed or are just going through mergers are focused upon consolidation. But all who were interviewed expressed concern about the availability of transit and the rising cost of drilling in new distant fields as hampering the E&P planning in the short run (2-5 years). We interpret these results as meaning there will not be a rush to drill significant new wells in the Caspian, until the finances of export and exploration are more clearly identified.

7.1

Discussion Bosphorus versus transit within the Black Sea

The issue is not whether to exit via the Bosphorus, but how much can exit this route. We have documented the risks and the limits both in amount and in size of tankers that control this exit route. The issue is when will the Bosphorus limits require an alternative exit route for Black Sea crude. This seems to be clearly dependant upon the expected completion of the CPC pipeline (and other shipping strategies for Caspian oil). The best current estimates are late 2002.
7.2 Cost of transit to Western Markets

The most striking advantage of a tanker port for crude in Vlor is its position of access to the open Mediterranean. A tanker returning from a delivery anywhere west of Greece would have a three to four day advantage on a round-trip over either Alexandroupolis or Ceyhan. This would have a direct effect upon shipping costs and would reduce them by a very real amount. More significantly, however, the three to seven days advantage would enable windows of opportunity to supply more distant markets such as the U.S. and Northwestern Europe on a much more frequent basis than is currently possible, through the Bosphorus today.

35

The Original E&P Spending Survey, Lehman Brothers December 15, 1999.

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Cost Of Oil To Western Europe And USA From Other Sources

As mentioned above, the supply by VLCCs would dramatically reduce freight costs to the United States and Western Europe, making the opportunity window not only more frequent but longer lasting. The relative prices of Urals crude oil to the benchmark crude of Brent for North Western Europe and West Texas Intermediate for the U.S. fluctuate throughout the year. This fluctuation could not be taken advantage of by crude in the Black Sea because of the long supply route from the Black Sea, unreliability of loading, and relatively small size of shipping vessels used. A VLCC harbor in Vlor means four days less time, a reliable availability of 750,000 barrels of oil per day, and quicker access to empty, large ships.
7.4 Balkan Consumption Figure 6

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Bulgaria benefits because the pipeline would provide for an even distribution of crude oil across the country and allow for the establishment of a mini-refinery between the cities of Sofia and Plovdiv, which are the main population centers of the country. This

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means far fewer inefficient trucks carrying refined oil product back and forth across the nations road system. The Bourgas Refinery rated at 12mta would benefit from competitively priced crude oils and a different slate of crude. Bourgas Petrochemical Complex would also benefit from having an option of different crude oils to that of Urals Blend. Overall, Bulgaria will benefit greatly from the new Russian supply of gas and a new supply of crude oil transiting the country.
Macedonia Figure 7

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Macedonia would benefit tremendously because the pipeline would free it of the need to depend on its southern neighbor for the expensive importation of oil by rail and it helps to solidify the East-West Corridor project which provides an important crossaxis for the existing North-South corridor running through the country. The Skopje Refinerys 2.5mta is currently totally reliant upon rail-supplied crude oil from Thessaloniki. A direct off-take from the AMBO pipeline would transform the economics of this Refinery. There are contract relations with the Greeks that may make this difficult in the short run, however. In the end it is, of course, a business decision of the Macedonian government. OHIS, the chemical complex would be economically transformed with the combination of new Russian gas supplies and the AMBO pipeline.

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Feasibility Study Volume I, Introduction Albania

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Figure 8

0217(1(*52 )5<8*26/$9,$

SHKODRA

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ALBANIAN ENERGY INFRASTRUCTURE

DURRESI
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PROPOSED GAS PIPELINE


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REFINERY

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ALBANIA ENERGY INFRASTRUCTURE

*5((&(

Albania with its own crude oil production has attracted Western investment. The investments to date, however, are insufficient to support the level of infrastructure improvements to pipelines and terminal that is needed. The AMBO pipeline provides the synergy that Albania needs to develop a world-class crude oil export terminal. Albanias Ballshi refinery has a need for imported crude oil. The construction of a Trans-Balkan Crude Oil Export Pipeline could not be justified solely on Balkan infrastructure needs. However, given the need of Western shippers to exit the Black Sea to a deep water, all season export terminal in the Mediterranean, the added benefit of off-takes en-route which will bring growth and prosperity in the Balkans does indeed add real value for investors.
7.5 Eastern Europe/ Black Sea consumption

Refineries in Eastern Europe have traditionally depended on Soviet crude as the primary source of supply. In the late 1980s the degree of this dependence varied from

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55 percent in the case of Yugoslavia to 90 percent in the case of Hungary.36 Following the dissolution of the Soviet Union, most Eastern European states diversified their supplies to reduce this dependency. In spite of that, Russian crude remains the most economically viable option for the region. Russian producers consistently sell their crude into Eastern Europe at below-the-market prices. Thus most refineries in Eastern Europe runs on Urals Blend, turning to alternative sources only when the Russians cannot deliver. In fact this tendency to rely upon Russian crude is increasing as Russian oil companies (Lukoil and to a lesser degree Yukos) have been winning the competition over privatization tenders for stakes in refineries in the region. Ownership in refineries comes with long-term supply guarantees, which means even closer ties with and heavier reliance on- Russia.
Figure 9

RUSSIAN POLAND GERMANYE

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TYRRHENIAN SEA
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IA

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EUROPEAN REFINERIES & PORTS MAP


Cambridge Energy Resources Associates have analyzed the situation in the region. CERAs conclusions are as follows:

36

Trabarovsk, Izabella, 2000, paper presented at the CERA conference on Southern Europe, January, p1.

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East European refineries are likely to continue to rely heavily on Russian crude in the foreseeable future, despite the availability of alternative sources of supply. Russian companies will continue to compete vigorously for ownership stakes in Eastern European refineries. Caspian crude delivered via newly-built infrastructure will be hard put to compete with Russian volumes in Eastern Europe. The necessity (based upon Eastern European demand) for a new pipeline bypassing the Bosphorus is not yet clear.37

While agreeing with the CERA analysis, it is important to point out that refineries along the proposed Constanza Trieste route may well, in time, be capable of consuming as much as half of the projected crude oil thoughput. However, paying hard currency for the crude is another matter. Supplying the Trieste pipeline distribution system by pipeline may be attractive. But the quantities needed to reach that point and its attendant cost may prove problematic. Dramatic changes in business culture and political will are necessary for these issues to be affected. AMBO offers a more secure solution as well as representing a genuine export pipeline route.
7.6 7.6.1 The Ambo Project And The Petrol Economy Of The Balkan Region38 Introduction

Besides the significance which AMBO project has in the transport of crude oil from the Caspian Basin to the world markets, undoubtedly this project will also have positive influence upon the petrol economy of the countries of the southern part of the Balkan foremost of Bulgaria, Macedonia and Albania, the countries through which this oil pipeline is planned to run. In this text making an overview of the current situation in the petroleum sector of this region, we make also a comment of the development tendencies and possibilities with special attention to the development possibilities of the pipeline transport infrastructure.
Liquid Fuels Demand

The former politics of emphasized development of basic and energy intensive industrial capacities and at the same time maintaining unreal low prices of the energy, for the countries in the southern part of the Balkan Peninsular (Greece is an exemption) has had two global consequences. First, unjustified high total needs of energy and second, consumption of energy per GDP much higher than that of the developed countries. Having in mind that it is a region with extremely modest energy
Trabarovsk, op. cit. p 2 The following review is by Boris Rekalovski, former Economics minister to Macedonia and a leading light in the development of OKTA Refinery.
38 37

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resources, it is quite certain that the adequate development and optimization of the energy sector will continue to be one of the highest priorities of the economic development of these countries. The highest level of energy consumption in the Balkan countries was reached at the end of 1980-ies. The fundamental economic and political changes which occur in these countries after 1989 (except in Greece which was the only country with market economy in the region), had as a consequence abrupt fall of the economic development. By that, in most of these countries occurred significant decrease of the total volume of energy consumption. With the economic recovery of these countries, a trend of increase of the energy consumption is started again. As an example, on the Chart 1 are presented the consumption trends of the liquid fuels in ten years period for Albania, Bulgaria and Macedonia, countries in which the above mentioned consumption characteristics are particularly noted.

90 80 70 60 50 40 30 20 10 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr


Source: 1- Black Sea Regional Energy Center Sofia, Black Sea Energy Review 2- European Commission-DG XVII, Balkan Energy Interconnection Task Force, October 1997 3- Ministry of Economy of Republic of Macedonia

East West North

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The consumption of liquid fuels in Greece whose economy has been developing without the impacts, which happened in the neighboring countries, in the last ten years has been relatively stable and is around 15-16 million tons per year. The Yugoslav economy, from the already known reasons, for a longer period has been in a specific situation. Because of this, it is hard to define a regular pattern in the analysis of its current energy consumption, as well as to estimate the future needs of liquid fuels with acceptable precision. But, with great certainty it can be concluded that regarding the efficiency of the energy consumption, as well as its structural characteristics, Yugoslavia is not significantly different from its neighbors. As it can be seen from the given data, the lowest level of petroleum products consumption in the mentioned Balkan countries has been achieved in the middle of the last decade, i.e. in the beginning of the transition years. During the last period, two factors have had a crucial influence on the level and structure of the consumption of liquid fuels in the Balkan countries in transition, namely: 1. Prevalence of basic industrial capacities and 2. Limited type and quantities of energy resources These factors and some other characteristics of the economic development of the mentioned countries have had as a consequence high participation of liquid fuels in the total energy consumption. The biggest were the needs for fuel oil, which was for a long time not only an irreplaceable fuel in most industrial capacities, but in a large scale it was used for electric power production for the needs of the public power systems. For this dominant position of the fuel oil in the consumption structure of liquid fuels in these countries a big influence has the relatively undeveloped transportation sector, including the small number of vehicles per citizen compared to that in the developed countries. In future, special efforts will be made towards the rationalization of the energy consumption and adjustment of its structure according to the new development goals of their economies. As a result of these efforts and the existence of vast space for energy efficiency improvement, we should expect relatively lower increase of the consumption of primary energy in relation to GDP increase. But, because of the slow and long-term process of changes in the existing economic structure, it is hard to expect that in a relatively short period of time it can be achieve the existing ratio in the developed countries. In other words, these countries besides the certain improvements will continue to have relatively high- energy intensity, i.e. relatively high-energy consumption per each increased percentage of GDP.

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Countries in the southern part of the Balkan Peninsular satisfy the biggest part of their needs for liquid fuels by refining the crude oil in their own refineries whose nominal capacities cover their needs for a longer period of time.
Table 1: Number of Refineries and Their Capacities

Number of Refineries Albania Bulgaria Greece Macedonia FRYugoslavia39 Total 4 3 4 1 2 14

Capacity Mil.t/year 2.5 14.0 19.0 2.5 8.0 46.0

Picture1: Positioning of the Refineries in South Balkan Countries

39

Former Yugoslavia

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From these reasons, in near future there should be no expectation of increase of their number. However, we should have in mind that most of the refinery units in these countries (exception is Greece where the situation is more favorable) are technically and technologically old and in many cases it is not possible to be used with their nominal capacities. Thus, in Albania from four existing refineries, only that in Ballshi is working (capacity of 1 million tons per year), and the refinery in Fieri, which has a capacity of 0.5 million tons per year is used on standby basis. In Bulgaria, in a relatively good condition is only the refinery in Bourgas (12 million tons per year). Most probably, in future we cannot count on the refineries in Pleven and Ruse. The Yugoslav refineries in Pancevo and Novi Sad that were seriously damaged during the bombardments in 1999 are only partly recovered for exploitation. It will take couple of years for these relatively modern refinery plants to be fully operational.
Chart 2:Refinerys Capacity Distribution
5% 17%

5%

31%

Albania Bulgaria Greece Macedonia SRYugoslavia

42%

Nevertheless, it is very unlikely that in a near future there will be any investments in expanding the refinery capacities. The preliminary demand forecasts indicate that the expected medium to long-term demand increase for crude oil and for refined products will be moderate in quantitative terms but with considerable change of the products structure and quality specifications. Because of this, the investments will be directed towards the technical refreshment of the plants and inevitably, investments for improvement of their efficiency and adjusting the technological structure in order to provide the growing demands for light products and to satisfy the more and more strict qualitative and ecological standards. In the meantime, some of these countries should solve the shortage of light products by importing them. Today, this is most extremely felt in Albania where the current utilization rate of the largest refinery (Ballshi) is less than 40% because the products mix no longer matches the structure of the domestic demand which has been significantly shifted to lighter products. Because of this, in the years to come we should expect increased import and regional exchange of oil

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derivatives especially of diesel fuels and gasoline, for which, of course, there is also a necessity to provide adequate transportation infrastructure.
Crude Oil Availability

The oil balance analyses indicate that the regional demand for crude oil cannot be satisfied by the regions own oil resources. From the three countries through which the AMBO oil pipeline is supposed to run, Macedonia has no production of crude oil. Although its territory has not been explored enough, however on the basis of the known geological structure with great certainty can be concluded that this country has no crude oil reserves. From these reasons, Macedonia is and will be forced to provide the liquid fuels exclusively from import.
Table 2: Forecast- Liquid Fuel Demand

1995
1.Albania40 2.Bulgaria 3.Macedonia Total 1-3 4.Greece 5.FRYugoslavia Total 1-5 1.10 5.60 0.75 7.45 14.10 -

..
.. .. .. .. .. ..

2000
1.0 6.5 1.2 8.7 15.0 6.0 29.7

2005
1.3 8.2 1.5 11.0 17.3 6.6 34.9

2010
1.70 10.00 1.85 13.55 21.00 7.10 41.65

Bulgaria belongs to the countries which produce crude oil (it has four oil fields). But its modest reserves and symbolic level of production (c/a 1000 bbl/day) lead to a conclusion that this country cannot count on its own potential in supplying liquid fuels. Opposite to Macedonia and Bulgaria, Albania has relatively big reserves of crude oil (cc 400Mt proven reserves). But, since the most part of these reserves are heavy oil which recovery is difficult, the recoverable reserves are considerably lower. The oil production in this country has reached its peak of about 2Mt in 1974, which was significantly above the domestic consumption. After that period there began production decline which in 1998 reached the lowest level of only 0.38 Mt. In order to interrupt the decline of production in the most important energy sector that has a significant influence on the countrys budget balance, the Government of Albania has encouraged foreign participation in oil exploration and production. In such way, it is expected to provide modern technical equipment and sophisticated drilling and extracting technologies. In that sense, licenses have been granted to seven foreign companies.
According the active scenario Sources: 1,2,4 - Black Sea Regional Energy Center, Sofia, Black Sea Energy Review 3,5 - Ministries of Economy of the Respective Countries
40

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Although there have been no newly found oil fields lately, by implementing modern technological solutions and equipment they plan to start a trend of production increase. In 2001 it is expected to reach the level of about 0.650Mt. But, that is only 60% of the planned consumption of liquid fuels in the country according to the active, and about 40% according to the passive scenario. According to this, it is obvious that Albania in near future will have to provide a considerable part of its demand for liquid fuels by importing crude oil. Greece and FRYugoslavia, although they have their own production of crude oil, it is far from the quantities which can cover their present and future demands for liquid fuels. Thus, the annual production in Greece of about 0.450Mt covers only less that 5% of the countrys demands. The present level of Yugoslav crude oil production (about 0.850 mil.t./year) can not cover more then 15-20% of the future country needs. It is to expect that without significant investment in this sector the production will continue to decrease. Globally taken, it is obvious, that the countries in the Balkan region in a long run, if not permanent, will be forced to provide their demands for liquid fuels by import. Taking into account the fact that almost in all of them these fuels are basic part of the energetic structure, it is evident that one of the high priorities of the economic development of these countries is the rationalization, i.e. optimization of crude oil and oil derivatives supplies, especially their transport.
7.6.3 Pipeline Transport Infrastructure

The current situation with the transport of crude oil and petroleum products is far from being rational. All international transport to and from the Balkans is done by ship. There is no interregional pipelines network. The existing pipelines are exclusively providing domestic links from ports to refineries or from refineries to consuming centers. In some cases, as is that of the OKTA refinery in Skopje, Macedonia, from the nearest sea port the oil is transported by railway, which of course is expensive and ecologically risky way of transport.

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Picture 2: The existing crude and product pipelines

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The only positive exception from this situation is the oil pipeline Adria (previously known as YUNA), which was built with intention of connecting and providing economic transport of crude oil to the refineries in the northern part of ex-Yugoslavia. Today, this pipeline connects the refineries in Croatia, Slovenia, Republic of Srpska (Bosnia and Herzegovina) and FRYugoslavia. With its connection through Hungary and the Czech Republic with the pipeline Druzba and the possibility of reversible oil pumping, we can say that this pipeline is part of the Central European oil pipeline network.
Picture 3: Adria Pipeline Route

In order to expand and branch this pipeline through the rest of the Balkan Peninsular, from the very beginning of the exploitation of this oil pipeline, there is an idea for its connecting to the Mediterranean basin (Aegean Sea), which is still not realized from several reasons. The above mentioned unfavorable situation with the oil transport for some refineries on the south of the Balkans, as well as the interruption in oil supplying of the refineries which were out of the conflict zone during the all known war clashes in Croatia and Bosnia and Herzegovina, show truly the justifiability of this idea. It is obvious that the present pipeline transportation infrastructure in the Balkan region is not developed enough to provide economically rational way of transport of the required quantities of crude oil and oil derivatives. Objectively speaking, this situation

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can be a real limiting factor of the entire economic development in the region as a whole, especially its southern part. From these reasons, it is more than necessary a realization of new investment projects and solutions on regional level, which should quickly improve the current unfavorable situation. Important contribution in this direction are the results of The Balkan Energy Interconnection Task Force organized by the Directorate General For Energy (DG XVII) of the European Commission in the period1996/1997 and supported by the governments of the countries of the Black Sea Region, which has identified the interconnection projects of common interest. The listed common interest pipelines projects of the Task Force, which includes the AMBO project, too, would mainly benefit just the Southern part of the Balkan region.

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Picture 4: Proposed pipeline interconnection project

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However, according to the conclusions of the mentioned Task Force, decisive influence to the future development of the transport infrastructure of the crude oil and key petroleum products will have not only the general demand development of the Balkan countries but also the demand of other world regions which can be delivered through Trans-Balkan routes. Obviously, speaking in general terms, more significant contribution in the transport infrastructure development may have the pipelines projects, which can integrate both the regional needs and the supra-regional interest of the consuming and supplying regions. AMBO pipeline is exactly such kind of project. Passing through the central part of the south of the Balkan Peninsular, with its route and capacity capabilities, in a true sense of the word can be the backbone of a future developed pipeline network in the broader region. It will not only contribute to the extremely successful solution of the crude oil transport for the needs of the countries it passes through (Bulgaria, Macedonian and Albania) and bringing closer the crude oil from the oil fields around the Caspian Sea to the western consuming regions, but also with its location will create real possibility for future branching of the pipeline network towards north, i.e. south. With its possible connection to the Adria pipeline network for which one stretch (leg) of about 380 km will be needed, not only a pipeline ring will be created in which all Balkan countries will be connected, but also it can establish a connection between powerful oil pipeline systems in the central and southern part of Europe. In this way, the pipeline Thessaloniki-Skopje that according to the Macedonian media is already under construction (it is announced to be finished in the next year), will not be isolated regional connection, but it will become a part of the integrated European oil pipeline system. This pipeline should substitute the present railway crude oil transport from the Thessaloniki port to the Skopje OKTA refinery. After the construction of the AMBO project it is quite sure that this pipeline could not supply the OKTA refinery with crude oil under competitive conditions. In such a case the pipeline could be adapted for transport of petroleum products from south to north and/or vice versa. Under certain conditions one can suppose that it could be feasible the pipeline to be used even for delivery of crude oil to the Thessaloniki refinery. From environmental point of view both solutions will represent a significant contribution in improvement of the situation in the Thessaloniki Bay which today is highly endangered and potentially loaded with serious ecological risks.
7.6.4 Conclusion

As conclusion we can say that the AMBO project, besides its basic purpose; transportation of considerable quantities of crude oil to the central part of the Mediterranean, bypassing the Bosphorus and the Dardanelles, will have extremely positive influence on the development of the transportation infrastructure of the south part of the Balkan Peninsular. This project creates real potential conditions for development and integration of the regional infrastructure with that of the broader

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European space. That will undoubtedly have significant positive reflection on the economic development, the security and political stability of the entire region.
7.7 Turkey Supply

Turkey is caught between three volcanoes: the Balkans, the Middle East and the Caucasus. All three of them are erupting and Turkey has had to exert the utmost effort to extinguish the fires. In the Balkans, in Bosnia-Herzegovina and Kosovo, Turkey has tried hard to achieve peace. In the Middle East, her efforts are ongoing just as they are in the Caucasus. However, it is very hard to obtain positive results from the initiatives being undertaken in these regions where there are such massive conflicts of interest. The major oil project for Turkey is a crude oil pipeline from Baku to Ceyhan. It is important because of Turkeys Central Asian perspective and the strategic importance it will confer on Turkey as an energy corridor. It will also show that the Central Asian Republics can stand on their own feet without leaning upon Russia, and this will put an end to Russian authority over them. This project will supply local oil needs to several refineries in Turkey. The off-take will have the same impact upon the financial calculations as off-take possibilities do for the AMBO pipeline. The longterm oil needs of Turkey will require the Ceyhan line. While the off-take is not an essential component of the calculations of the IRR for either project, it is an important driver for development in the region. While Russia is exerting every effort to impede the agreement on the Baku-Ceyhan scheme, all reviews of the political situation for the Baku-Ceyhan line suggest that Russia has accepted the inevitability of such a line.
7.8 7.8.1 Oil Trading and Shipping Tanker Demand

As the development of oil resources around the world continues, the demand for tankers in the 80,000 to 150,000 dwt capacity has risen. The increased export of oil from the Black Sea will require an increase in the number of tankers transporting through the Bosphorus. The current Black Sea tanker fleet is mainly 60-80,000 dwt vessels, with few up to the Bosphorus maximum of 160,000 dwt. This apparently is highlighting a shortfall in the availability of modern L2 size (150,000 dwt) tankers.
7.8.2 Bosphorus Vessel Traffic

With the increase in oil export from the region, the general level of the economies of the countries involved will rise. This will cause an increase in vessel traffic carrying non-oil imports and exports, further increasing the number of ships using the Bosphorus. Opinions differ on the increased volumes, but it could be significant even within the next few years.

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The capacity of the pipeline at 750,000 bpd is equivalent to 2 vessel passages per day through the Bosphorus, or over 700 vessel movements per year. Russian and CPC volumes alone in 2002 may well require 6 vessel movements per day, every day.
7.8.3 AMBO from a crude oil traders viewpoint41

Todays year 2000 oil trader needs to operate with very tight margins and a high level of timing and precision. A day or twos slippage in loading a cargo can turn a winning deal into a massive loser. A crude oil trader nowadays makes money from careful planning, successful conclusion of a supply contract, sensible selection and execution of commercial hedges, and finally, seeing the operational side of the deal go smoothly and without a hitch. Competition is so fierce in the commercial world of crude oil that margins are small, and a tiny operational problem in the supply process can kill the economics of a deal. Cargoes are bought and sold on specific date ranges, often over five days around the bill of lading date. Prices vary enormously from day to day, and slippage of a loading can create enormous problems for cargo pricing. Weather delays, a feature of Black Sea loading, can turn a profit into a huge loss. This is easily demonstrated by looking at closing market prices over a period in March 2000. Illustrated below are the relative prices for the marker crude oil Brent for forward lifting in May (commodity Brent used for speculation and hedging), compared with physical Brent for prompt lifting, and Urals in the Mediterranean originating from the Black Sea, loading at Novorossysk. The Brent prices are FOB Sullom Voe, while the Urals prices are CIF Augusta in the Med:
Brent and Urals Prices 9th-22nd March 2000

30.00
Price ($/barrel)

28.00
May Brent Price

26.00 24.00 22.00 09/03 10/03 11/03 12/03 13/03 14/03 15/03 16/03 17/03 18/03 19/03 20/03 21/03 22/03

Physical Brent Med Urals

Date

During the 10-day trading period, forward May Brent fell in price by $2.60, from $28 to $25.40. However, over the same period, physical Brent for prompt lifting fell by $4.70, and Urals fell even more, by a massive $5.60 per barrel. Taking 5-day averages for cargo pricing, a cargo sold on an originally-scheduled loading date of 9th
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The following review is by Phillip Wiper, a crude oil trader with the leading brokerage firm, PVM Oil Associates, London.

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March 2000, delayed by bad weather and finally loading on the 16th March would bring to the seller $24.12 and not $27.46 if the cargo had loaded on time. This is of course a simplistic example of what might happen, during a particularly volatile price period. Nevertheless, it demonstrates the principle involved. Loading delays can be expensive.
7.8.3.1 The Export Terminal

We can see clearly, therefore, that a crude oil traders desired requirements for a supply route are not only cheapness and speed, but also reliability of the operational process. The final oil loading terminal should ideally: a) be close to oil markets/refineries b) be capable of loading any size of tanker c) be unaffected by bad weather Let us look at how a proposed terminal at Vlor might compare with its potential competitors, Ceyhan, Alexandroupolis, and Trieste with respect to each of the above criteria. The map below shows the relative position of the potential export terminals and supply routes, existing and proposed, from the sources of oil. Vlor is the furthest west of the potential terminals for export of oil out of the Black Sea, with the exception of Trieste.

LITHUANI K.P. RUSSI

LEGEND
EXISTIN OIL PROPOSED PIPELINE

GERMAN POLAN

BELARU

KAZAKHSTA CZECH . UKRAIN SLOVAKIA AUSTRI U Z B E KI K

TENGIS

TRIESTE

SLO

HUNGAR ROMANI

ODESSA

SEA OF AZOV

NOVOROSSYISK
BOSNIA ITALY

CASPIAN SEA
AKTAU SUPSA BATUM
ARMENI GEORGIA AZERBAIJA TURKMENISTA

CONSTANSA

TUAPSE

ADRIATIC SEA

YUGOSLAVIA SERBI BULGARI

BLACK SEA
BOURGAS SAMSUN

BAKU

MACEDONI

TYRRHENIAN SEA
SICIL

VLOR

A L B A GREEC

ALEXANDROUPOLIS
TURKE

NEKA

CEYHAN
CRET SYRI CYPRU

IRA

MEDITERRAINEAN SEA
IS R A JORDA

IRAQ

KHARG ISLAN

OIL EXPORT ROUTES AND PORTS

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Closeness to markets/refineries

The map below illustrates the distribution of refineries around Europe, and the potential export terminals positions relative to them.

HOLLAND POLAND BELGIUM


LUX

BELARUS RUSSIA

GERMANY

UKRAINE SLOVINIA FRANCE SWITZ.

AUSTRIA HUNGARY ROMANIA


TRIESTE ODESSA

SEA OF AZOV
NOVOROSSYISK TUAPSE

CROATIA BOSNIA
CONSTANSA

ITALY SPAIN CORSICA

YUGOSLAVIA

BLACK SEA
BULGARIA
BOURGAS SAMSUN

GEORGIA SUPSA
BATUMI

ADRIATIC SEA

SERBIA AL B MACEDONIA A NI GREECE

SARDINIA

TYRRHENIAN SEA
SICILY

VLOR

ALEXANDROUPOLIS

TURKEY

CEYHAN

ALGERIA TUNISIA CRETE CYPRUS IS R A EL SYRIA

LEGEND REFINERY

MEDITERRANEAN SEA

JORDAN

EUROPEAN REFINERIES & PORTS MAP


The most striking feature illustrated by this map is the obvious advantage of Vlor in its position of access to the open Mediterranean. A tanker returning from a delivery anywhere west of Greece would have a three- to four-day advantage on a round-trip basis over either Alexandroupolis or Ceyhan. This would be directly reflected not only in flexibility but also in shipping costs.

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If we look at the comparative costs of shipping from Vlor and other ports, the savings can be summarised in the following table. Here Augusta in Sicily is used as an example of the discharge port, but the saving will be similar for all ports west of Greece: Voyage Novorossysk-Augusta Ceyhan-Augusta Alexandroupolis-Augusta Trieste-Augusta Vlor-Augusta *Worldscale 10042 $4.98/tonne $3.71 $2.92 (estimated) $2.61 $2.05 (estimated) W110 for LR2 $5.48/tonne $4.08 $3.21 $2.87 $2.25 W70 for VLCC Cant do $2.60 Cant do Cant do $1.43

Vlors freight saving over Novorossyssk could therefore be as much as $4 per tonne, or 55 cents per barrel. Over Alexandroupolis the saving could be $1.78/tonne, or 24 cents per barrel. Over Ceyhan, the saving could be $1.17/tonne, or 16 cents/barrel. However, this cost reduction would not be the only or even the most significant advantage for Vlors location. The three to four days advantage would enable windows of opportunity to be taken to supply more distant markets such as the U.S. and North-West Europe on a much more frequent basis than currently possible. Vlors location is better than Trieste for export of oil. We mention this in the context of possible reversal of the crude oil import pipelines into central Europe and link-up with the Druzhba pipeline for export of Russian oil (as opposed to Black Sea oil). U.S. and North-West European markets will become vitally important to Black Sea exports in the future. The current levels of exports from the Black Sea through the Bosphorus are roughly 3 million tonnes/month from Novorossysk, 1 million from Odessa, and 0.3 million from Tuapse. In a few years time this 4-4.5 million tonnes will increase dramatically to 1113 million tonnes a month. Much of this will enter the Mediterranean refining system, and displace other crudes. The Meds ability to absorb all this oil, however, is limited, and to make the most of Black Sea origin crude oil commercially, there should be an ability to supply in large ships at short notice to distant markets. To illustrate the importance of this point, the chart below shows relative prices of Med Urals crude oil to the benchmark crude West Texas Intermediate for the U.S. As a rule
42

Worldscale is an index used by shippers to calculate freight costs. W100 is the index for a load port to discharge port. The ship owner and charterer will negotiate a rate e.g. W110 for a specific voyage. Bigger ships usually cost less, hence typical W70 for a VLCC.

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of thumb, taking costs and crude oil market values into account, Urals can be sold into the U.S. when its normal index (CIF Augusta) falls $2.80 below WTI. The times when this happened represent commercial windows of opportunity for Urals crude to have been moved across the Atlantic. These are rare events, but in the past almost impossible to capture without risk taking, because of the long supply route from the Black Sea, unreliability of loading, and relatively small size of shipping. In reality, Urals crude moves across the Atlantic in quantities of three or four cargoes a year.
NYMEX WTI 2nd month vs. Urals (MED)
5.5

4.5

3.5
2.8

2.5

1.5

0.5

-0.5

-1.5 27- 19- 11- 04- 26- 20- 12- 04- 27- 21- 14- 06- 29- 23- 15- 07- 30- 22- 17- 09- 01- 24Mar- Jun- Sep- Dec- Feb- May- Aug- Nov- Jan- Apr- Jul- Oct- Dec- Mar- Jun- Sep- Nov- Feb- May- Aug- Nov- Jan00 99 99 99 99 98 98 98 98 97 97 97 97 97 96 96 96 96 95 95 95 95

Supply in VLCCs would dramatically reduce freight costs to the U.S. and Northwest Europe, making the opportunity windows not only more frequent but longer lasting. Supply from Vlor in particular would add 3-4 days of additional time over Alexandroupolis and Ceyhan to take advantage of such a window, and could easily make the difference between success and failure of a long distance movement. Such improved access to other markets would always tend to increase the basic value of Black Sea/Caspian crude oil.
7.8.3.3 Capability of loading any size of tanker

Both Vlor and Ceyhan have deepwater loading capabilities. Alexandroupolis loading would be restricted to LR2 shipping of a similar size to the current shipping out through the Bosphorus unless there is an acceptance by the major oil companies that VLCCs can safely operate in Aegean waters. There is an obvious concern about the loading and movement of significant numbers of VLCCs in the Aegean Sea, and the
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potential restrictions that could be imposed in the future by the Greek Government or by political tensions. If there are environmental concerns over oil movements, they will be far greater for the Alexandroupolis-Aegean movement than for either of the alternatives.
7.8.3.4 Weather conditions at the terminals

The weather conditions at Novorossyk and their effect on loading are notorious and detrimental to the current commercial value of Urals crude. Traders and refiners alike have to build into every movement a flexibility factor, which inevitably costs money. There always has to be a solid contingency in place in case of supply or loading disruption. The Bosphorus itself is not without its weather constraints; fog and poor visibility cause problems from time to time. With new Caspian crude oil from the CPC terminal west of Novorossyk and the AIOC terminal at Supsa, the need for secure, consistent outlets to the Mediterranean is accentuated. Vlor, with its capability of supplying 750,000 b/d every day, meets that requirement. Again, its location adjacent to tanker routes and traffic adds value to the supply process. Vlors weather in tanker loading terms, can genuinely be described as benign when compared to Supsa and in particular, to Novorossyk. Vlor Bay offers a sheltered, year-round mooring and loading location with only moderate winds and a maximum of 1 metre waves compared with extreme winds and 6metre waves at Novorossyk. Supsa is less extreme but not nearly as benign as Vlor.
7.8.3.5 Summary and Comparison of supply routes

Tanker costs and time of travel from Black Sea Ports to the Mediterranean are well known and are discussed above, as are the constraints in vessel numbers and capacity able to transit the Bosphorus Straits. These limitations require alternative routes to be found to bypass the Straits in order to get the huge quantities of oil expected from the Black Sea to market.. The two direct routes mooted to date to exit the Black Sea are Bourgas Alexandroupolis and Bourgas Vlor. All other routes proposed involve connecting existing pipelines, crossing several borders, and traversing long distances with multiple take-off points to reach export ports. All of these factors contribute to the requirement for a complex inventory control system. It can be argued that these proposals are for supply pipelines rather than for export pipelines. It is certainly true that the capital and operational costs of pipelines terminating in Trieste, Poland, or the Baltics will require significant tariffs and result in lengthy transport time as well as high inventories. The overall economics of these supply/export routes are difficult to quantify without certain data; however, they are very unlikely to compare favorably with the Bourgas Vlor route.

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The comparison with the Alexandroupolis route is easier to assess, and shows that shipping costs alone can save close to $2/tonne. The further advantages of deep water, benign weather, reliable transit and consistently larger volumes delivered to Vlor contributes to the economic superiority that the Bourgas Vlor route has over Alexandroupolis and all other proposals.

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8.0

LEGAL & REGULATORY ISSUES

This Due Diligence Review, as to matters of local law, has been prepared based on information obtained from local counsel to AMBO. Local counsel in relation to matters of Bulgarian law is Legacom, in relation to matters of Macedonian law is the Polenak Law Office, and in relation to matters of Albanian law is Boga & Associates. These firms have reviewed the Due Diligence Review and provided comments in respect of the matters governed by the laws of their respective countries. We do not purport to give advice on matters of Bulgarian, Macedonian or Albanian law and have not independently verified any of the information contained in this report with respect to matters of local law; we express no view and assume no responsibility for the accuracy or completeness of such information. In addition, this report does not purport to address all issues relevant to a potential investor or lender in its evaluation of the project and certain local law issues will require further discussion with local counsel as the project structure is more fully developed. Each potential investor and lender should perform its own independent investigation and analysis of the legal considerations relating to the project. This report is not a substitute for such independent evaluation.
8.1 Overview Of Legal Framework

AMBO, LLC (AMBO) is proposing to develop a pipeline to transport oil from the Black Sea port of Bourgas, through Macedonia, to the Albanian Adriatic Sea port of Vlor. AMBO and foreign sponsors with experience in the development, ownership and operation of oil transportation systems will implement the project through companies to be established in each of Bulgaria, Macedonia and Albania. In Bulgaria and Albania, it may be that the pipeline and port facilities will be owned by separate project companies. The design, engineering, procurement and construction of the pipeline and port facilities will be financed with equity contributions and loans obtained on a project finance basis. While the laws of Bulgaria, Macedonia and Albania would permit 100% foreign ownership of the respective project companies, we understand that it is expected that each host country will take an equity interest in the project. To the extent there are common shareholders in the respective project companies, such ownership interests could be held by one or more holding companies established in other jurisdictions. The equity investment of each country could be made through such an offshore holding company or directly in the project company established in such country, but there apparently is no precedent in the region for a state equity investment to be made through an offshore holding company. The owners of each of the project companies would enter into a shareholders agreement to set forth their understandings concerning, among other things, capital
43

This section was written by Hank Amon and Steve Payne of the Law firm White & Case LLC. There full report can be reviewed as Vol. I.A

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contributions, voting rights, management, distributions and transfer of ownership interests. In addition, the project companies would enter into an agreement among themselves to document arrangements regarding, among other things, borrowings, security arrangements for borrowings, tariffs and tariff structures, throughput assurances, maintenance and repairs. Basically, even though the proposed pipeline will run through three countries and involve three project companies, the project will be documented to the maximum extent possible so that, substantively, it will be as if the pipeline is located in only one country and is built and operated by only one project company. The laws of each of Bulgaria, Macedonia and Albania require that the project obtain the rights to use the land comprising the pipeline route, and, in the case of Bulgaria and Albania, rights in respect of the port facilities, by means of a concession agreement. The concession agreement will provide that either the host country or the project company owns the pipeline and port facilities located in such country. Under a so-called BTO model, the project company would build the facilities, transfer ownership to the host country and then operate the facilities under a long-term concession agreement. Alternatively, under a so-called BOOT model, the project company would build, own and operate the facilities and then transfer the facilities to the host country at the end of the term of the concession agreement. The land route along which the pipeline will be constructed in each country corresponds to a large degree to the proposed Trans-Balkan highway network, called Corridor VIII, of the Pan European Transport Corridors. To the extent the land route in any of the three countries is not part of the land designated for Corridor VIII or otherwise state property, it will need to be expropriated or otherwise made available to the project company by the host country. In addition, we note that while negotiations to establish Corridor VIII apparently are underway based on a preliminary memorandum of understanding, there is no definitive agreement at the moment with respect to this highway network. The structure of the project company or companies and the ownership of the project facilities in each country will depend ultimately on legal, tax and political considerations in that country and on the terms of the concession agreement negotiated with the host country. Each country has a legal framework consisting of a constitution and specific legislation and regulations, which include laws intended to promote foreign investment, particularly in the energy sector. In addition, each country follows the customary international law practice of giving precedence to treaties over national laws and is a party to the European Energy Charter Treaty. The European Energy Charter Treaty provides for the protection of foreign investment in the energy sector and the cross-border transit of energy products, including the throughput of oil in pipelines. Despite the existence of this legal framework, we recommend that AMBO secure a tripartite agreement or convention among the three host countries to provide a governing legal framework for the project based to a large extent on the principles of

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the European Energy Charter Treaty with respect to the protection of foreign investment, transit or throughput of oil and dispute resolution. In this way, any inconsistent national laws will be superseded and as much legal uniformity and predictability as possible will be injected into the overall project. This tripartite agreement or convention would support the agreement envisaged among the three project companies. National laws that will be of particular concern to potential international investors and lenders and that should be addressed either in the tripartite agreement or through separate negotiations with the relevant host country government include the following: i. Host Country Equity Interests. While the laws of Bulgaria, Macedonia and Albania would permit the project company to issue nonvoting preferred shares to a state shareholder participating in the project in each country, if Macedonia acquires more than 10% of the total outstanding shares of the Macedonian project company (including common and preferred shares), it would be entitled to be represented on the board of directors in proportion to its equity interest. We understand, however, that it is expected that Macedonia will own less than 10% of the equity of the Macedonian project company. In any event, a minority shareholder in Macedonia (which would include the state) has the right to require any purchaser of a majority interest in the company to purchase the minority interest at the majority interest price. ii. Concessions. The general rule in each of Bulgaria, Macedonia and Albania is that concessions must be awarded based on a competitive tender, except for projects of so-called national importance for which the government is authorized to negotiate a concession directly. The criteria in each country for determining which projects are of sufficient national importance to justify application of this exception appear to be relatively subjective but, at a minimum, require that the project be identified in the development plan approved by the Council of Ministers and Parliament. In the course of attempting to negotiate an exclusive agreement with each country, we would recommend that AMBO explore this issue further with the competent government authorities. iii. Expropriation. Macedonian law will require the project company to fund any expropriation of private property necessary for the pipeline, and Albanian law may require the project company to obtain all required governmental consents prior to seeking the expropriation of any private property for the pipeline. iv. Security Interests. Project lenders will expect to receive security interests in all project assets to secure their loans, including real and other immovable property, equipment other personal property and intangible property, such as bank accounts, contract rights and receivables. Bulgarian law, however, does not permit concession agreements to be assigned, which would prevent the project company from assigning its rights thereunder to lenders as security for their loans. It may be possible, however, in Bulgaria for the lenders to obtain

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effective control of the concession through a pledge of the shares in the Bulgarian project company. v. Withholding Taxes. Standard gross up provisions included in international loan documentation to compensate lenders for any taxes withheld from or imposed on interest payments may be not be valid under Bulgarian law. vi. Foreign Exchange Controls. Each country imposes various restrictions on foreign exchange transactions: Bulgaria requires that offshore foreign currency transfers in excess of 20,000 leva be registered with the Central Bank; Macedonian prohibits holding foreign currency in bank accounts for longer than 90 days; and Albania requires that offshore foreign currency accounts be approved by the Central Bank. vii. Dispute Resolution. There is no formal requirement under Albanian law that an Albanian court recognize the choice of foreign law as the governing law of a contract by the parties to the contract, and Albania is not a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Albania, however, is a party to the Geneva Convention. In addition to a tripartite agreement among Bulgaria, Macedonia and Albania, each country should provide (ideally in the concession agreement) negotiated protection against country risk, including political force majeure and changes in the application or interpretation of laws that increase the cost of or frustrate the realization of the expected economic benefits of the project.
8.2 Applicability of International Agreements

Bulgaria, Macedonia and Albania each follow the customary international law practice of giving treaties precedence over national law provided the treaty is ratified in accordance with the constitution of the country. As a result, not only existing treaties ratified by each country but also any tripartite agreement entered into with respect to the project will supersede, in theory, any inconsistent national law with respect to the project.
8.2.1 8.2.1.1 Pipeline Route and Ports Corridor VIII

We understand that it is proposed that a substantial portion of the pipeline will be constructed along a highway network known as Corridor VIII, which is one of 10 PanEuropean transport corridors proposed in 1994 at the Pan-European Conference held in Crete and updated in 1997 at the Pan-European Conference held in Helsinki. Corridor VIII is the only Pan-European transport corridor located exclusively in the territory of the Balkan regionit starts in Bari, Italy, and runs through Durres, Tirana, Skopje, Sofia, and Varna. A preliminary Memorandum of Understanding among Bulgaria, Macedonia, Albania, Italy, Greece, and the European Commission was

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drafted in 1995 and is the basis for negotiations currently underway for a final Memorandum of Understanding. The preliminary Memorandum of Understanding, however, remains confidential and unavailable to the public and no binding international agreement exists with respect to Corridor VIII. In addition, although the legal and regulatory framework for the PanEuropean corridors will most likely be patterned upon the legal and regulatory framework of the existing Trans-European network, we are not aware of any agreements in connection with the Trans-European network relating to rights of way for pipelines or other equipment (such as cables) running beneath, over or parallel to the highway network.
8.2.1.2 Law of the Sea

Macedonia and Bulgaria are States Parties to the United Nations Convention on the Law of the Sea (Law of the Sea Convention), but Albania is not. i. Territorial Waters. The Law of the Sea Convention specifically permits States Parties to set the route for and regulate cables and pipelines within their territorial waters. The Law of the Sea Convention provides that the sovereignty of a coastal country extends up to a limit not exceeding 12 nautical miles from its coast, including permanent harbor facilities (but excluding offshore installations) that form an integral part of the harbor and are regarded as forming part of the coast. ii. Landlocked Countries. The Law of the Sea Convention also grants specific rights to land-locked countries, such as Macedonia. Land-locked states are entitled to transit goods through the territory of transit countries (which includes coastal states and states without coasts situated between landlocked states and coastal states) based on the principle of national treatment. The Energy Charter Treaty, to which each of Bulgaria, Macedonia, and Albania are parties, provides for similar treatment.
8.2.2 8.2.2.1 Project Construction and Operation The Energy Charter Treaty

Bulgaria, Macedonia and Albania each have ratified the Energy Charter Treaty, which entered into force as an instrument of international law in 1998. There is no deadline for Contracting Parties to adopt legislation that would bring their national laws in line with the Treaty. In theory, however, the treaty should supersede inconsistent legislation in Bulgaria, Macedonia and Albania because each country follows the customary international law practice of giving treaties precedence in such circumstances. As a practical matter, however, we would recommend the negotiation of a tripartite agreement among the three countries based largely on the principles set forth in the Energy Charter Treaty to introduce a binding, uniform legal framework for the project.

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The Energy Charter Treaty provides principally for (i) the non-discriminatory treatment (better of most favored nation or national treatment) of foreign investments in the energy sector, (ii) free trade in energy products based on World Trade Organization (WTO) rules even by Contracting States that are not members of the WTO, (ii) uninterrupted transit of energy products and (iv) binding international arbitration in the case of disputes between States or between investors and States as follows: i. Protection of Foreign Investment. Contracting States agree to apply the more favorable of either most favored nation treatment or national treatment to all foreign investors in the energy sector. The concept of most favored nation treatment is derived from the WTO and generally means that the terms of access to the domestic market of any country provided to another must be at least as favorable as the most favorable terms provided to any other country. The treaty also contains specific provisions requiring Contracting States to (i) permit investors from other signatory countries to employ key expatriate personnel, (ii) provide compensation on a non-discriminatory basis to such investors for losses arising from certain political force majeure events, such as war and civil riots, (iii) provide fair market value compensation in freely convertible foreign currency for expropriation of investments by such investors, and (iv) to permit the repatriation in freely convertible foreign currency of capital and profits by such investors. ii. Trade. Even if they were not parties to the GATT and/or not members of the WTO, Contracting States are required to apply WTO rules to imports of energy-related materials and products. Bulgaria is a member of the WTO, but Albania and Macedonia are not members. It is not clear, however, whether pipeline equipment is considered an energy-related product subject to these undertakings. iii. Transit of Energy. The principal transit requirement relevant to the project is the requirement that Contracting States do not interrupt the transit (e.g., throughput of oil) of energy from other Contracting States. Contracting States must submit to mandatory conciliation procedures for a period of up to 16 months in the event of any dispute regarding energy in transit, including any dispute over tariffs. In the event of a dispute over tariffs, Contracting States are required to accept an interim tariff pending the outcome of conciliation. The treatment of energy in transit, including tariffs, is required to be nondiscriminatory as to the ownership, origin or destination of the energy and to be no less favorable than the treatment afforded to energy originating in the transit country. iv. Dispute Resolution. The Energy Charter Treaty also provides that where disputes between an investor and a Contracting State country are not settled amicably within three months, the investor has the option to submit the dispute to binding International Arbitration either (a) pursuant to the KSID

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Convention; (b) under the Additional Facility Rules of ICSID; (c) under the UNCITRAL Arbitration Rules or (d) under the auspices of the Stockholm Chamber of Commerce. Disputes between Contracting States (including a Contracting State on behalf of its investors) may be resolved by ad hoc arbitration in accordance with UNCITRAL Arbitration rules.
8.2.2.2 The World Heritage Convention and Lake Ohrid

The Convention concerning the Protection of the World Cultural and Natural Heritage (World Heritage Convention) was adopted in 1972 to protect cultural and natural sites possessing universal value. Each party to the Convention is responsible for ensuring the identification and protection of sites in its territory that are designated as a World Heritage Site. More than 150 States and parties to the World Heritage Convention, including Bulgaria, Macedonia and Albania. Lake Ohrid, which is located in Macedonia and Albania, is one of the largest biological reserves in Europe and the portion of the Lake located in Macedonia has been designed as a World Heritage Site, and thus, is subject tot he protection of the Convention. The part of the Lake located in Albania is not so designated. The World Bank recently approved a Global Environment Facility for Lake Ohrid with respect to which Macedonia and Albania have agreed to cooperate in spending a US$4.1 million grant to protect the natural resources and biodiversity of Lake Ohrid. Thus, the bilateral Lake Ohrid Management Board was established by the two countries to monitor and guide the design and implementation of projects concerning protection of Lake Ohrid. The World Heritage Convention permits States to take whatever legal, financial, administrative, technical or scientific steps are necessary to ensure that World Heritage sites that are located within their territories are protected from the threat of destruction by natural forces or development projects. We are unaware of any specific legislation in Macedonia or Albania that provides any substantive protection pursuant to the World Heritage Convention against developing pipelines or similar projects that might affect the World Heritage site. Individuals, non-governmental organizations and other groups, however, may alert the World Heritage Committee to any potential dangers that a site might face as a result of development projects.
8.2.3 8.2.3.1 Dispute Resolution New York Convention

Bulgaria and Macedonia are parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, popularly described as the New York Convention. It is the most significant international commercial arbitration agreement. The text of the New York Convention may be found in five languages, English, French, Spanish, Russian, and Chinese, which are all equally authentic. The New York Convention establishes the standards governing the recognition and enforcement

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of both agreements to arbitration as well as the resulting arbitral awards in States Parties to the Convention. The three main features of the New York Convention are its requirements that (i) national courts recognize the validity of arbitration agreements; (ii) where parties have entered into valid arbitration agreements that are subject to the Convention, national courts refer disputes between the parties to arbitration; and (iii) national courts recognize and enforce foreign arbitral awards, subject to the following principal exceptions: (A) parties to the agreement were under some incapacity or the agreement is otherwise invalid under the governing law of the agreement; (B) the party against whom the award is invoked was unable to present his case because of improper notice of the arbitration proceedings or the appointment of an arbitrator; (C) the award addresses a dispute that falls beyond the scope of the submission to arbitration; or (D) the composition of the arbitral authority or arbitral procedure was not in accordance with the agreement of the parties or absent such agreement, inconsistent with the law of the country where the arbitration took place. The New York Convention is implemented through national legislation, thus its interpretation is largely a function of national legislatures and courts.
8.2.3.2 Geneva Convention

Bulgaria, Macedonia and Albania each are parties to the Geneva Convention, which was concluded in an effort to promote trade among European countries by eliminating, to the extent possible, impediments to international commercial arbitration. The authentic texts of the Geneva Convention are English, French, and Russian. The main features of the Geneva Convention are: (i) it endorses the principle of freedom of contact with respect to choice of law provisions; and (ii) it places an obligation upon State Parties not to set aside or suspend awards on grounds other than those enumerated in the New York Convention.
8.2.3.3 ICSID Convention

Macedonia and Albania are parties to the ICSID Convention. Although Bulgaria signed the ICSID Convention in March 2000, it has not as yet ratified it. ICSID is a member of the World Bank group. It provides facilities for the arbitration of investment disputes between a Contracting State and nationals of another Contracting States. The principal benefit of arbitration under the ICSID Convention is that Contracting States Parties agree enforce ICSID awards as binding and to enforce the pecuniary obligations imposed by that award as it were a final judgment of a court in that state.

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9.0

UNITED STATES FOREIGN POLICY CONSIDERATIONS44 Subject: Political Assessment: U.S. Caspian Energy and Balkans Policies and Its Meaning for the Albania-Macedonia-Bulgaria Oil (AMBO) Pipeline Project The following memorandum provides analysis of current U.S. foreign policy vis-a-vis the Balkans, the Caspian Sea Region and Turkey in order to frame the present discussion of the political viability of the AMBO pipeline. This memorandum also examines other potential political pitfalls to include competing pipelines, environmental considerations, and the likelihood of transporting Caspian resources through Iran. It is our hope that this piece serves as a guide through the often contradictory morass of U.S. energy diplomacy as you guide the AMBO project through to its successful conclusion.

9.1

Introduction

What appears to be technically and commercially feasible is often times politically implausible. This was certainly true concerning the failed Unocal Corporation-led consortium to construct a Central Asian Pipeline through war-torn Afghanistan to a receptive market in Pakistan. The Central Asian project was engineered for success but had little hope of coming to fruition politically. Conversely, one can point to the development of the much-touted Baku-Ceyhan pipeline as a project which holds the promise of enormous political and geo-strategic benefit but is presently commercially and economically unattractive. Where does one find the right combination whereby a pipeline project is both politically and commercially attractive? We would argue that such a combination is found in the AMBO pipeline. Our sources tell us that while there are no particular difficulties with the AMBO pipeline per se, the project does fall squarely between two contradictory U.S. policies: the desire for multiple pipelines from the Caspian region and the mandate that a pipeline from Baku, Azerbaijan to Ceyhan, Turkey be constructed. The Clinton administration has painted itself into a rhetorical corner from which it will have great difficulty extracting itself. This is not AMBO Pipeline Corporations problem; this is the U.S. governments problem. Unfortunately, the AMBO project is a reminder of the hollowness of U.S. policy in this area. In an effort to predict issues that may arise during your discussions with financial institutions and government officials and in order to combat these issues effectively, we have attempted to articulate the U.S. governments policy toward both the Balkans and the Caspian region in order to illustrate that the AMBO project is, in fact, completely consistent with and, in fact, fully supportive of U.S. policy in meeting the U.S. governments political, economic and environmental objectives for the region.

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This section supplied by Ambassador Richard Armitage.

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U.S. Policy Towards the Balkans

It has been over one year ago that NATO initiated its bombing campaign against Serbia as the international community dealt with a massive outward migration of ethnic Albanian Kosovars from Kosovo to neighboring countries. Although western aid organizations attempted to respond swiftly to the humanitarian crisis, the magnitude of the crisis economically crippled the surrounding countries of Albania, Bulgaria and Macedonia and destabilized them politically. For example, the Kosovo crisis cost Bulgaria approximately $90 million in direct economic losses due to transportation disruptions along the Danube River. In what one could term a bombing dividend or a quid pro quo to the support provided by these surrounding states to NATO during the Kosovo conflict, Albania, Macedonia and Bulgaria now seek economic compensation from the west for their support. On February 9 of this year, Macedonian President Boris Trajkovski stated that he expected a large influx of Western assistance following Macedonias support for NATO during the 1999 Kosovo conflict. He noted that Macedonia accepted 360,000 refugees at the cost of $660 million. In a speech to the Aspen Institute, on August 24, 1999, Deputy Secretary of State Strobe Talbott stated that Macedonia deserves special care and attention. Its a brave, young, independent state that has made a real and promising effort at establishing multi-ethnic democracy and thus, so far, escaping the worst pitfalls of the nation-state. Albania absorbed the greatest numbers of refugees fleeing the violence in Kosovo in 1999 while coping with its own internal political turmoil. However, as one of, if not the poorest country in Southeast Europe, Albania has had difficulty shedding its Communist past and fully embracing market economic reforms. The U.S. government, however, views Albania as a critical link in resolving many of the problems which plague the Balkans. On February 19th of this year while addressing the Albanian Parliament, Secretary of State Madeleine Albright urged Albanian to shun violence, corruption and the absence of the rule of law. She stated that the U.S. looks ahead to a new and brighter future for Southeast Europe. We look to Albania to help lead the way. In fact, Albania, Macedonia and Bulgaria have all made great strides in stabilizing their somewhat tenuous domestic political situations as all three governments are considered to be pro-Western and pro-NATO. The primary strategy of the U.S. government, and that also of the European Union, towards Southeast Europe has been one of regional integration and continued reform. The U.S. seeks to advance the integration of several new democracies in Southeastern Europe, specifically Albania, Bosnia, Bulgaria, Croatia, Macedonia, Romania, and Slovenia, into the European mainstream. President Clintons Action Plan for Southeast Europe is designed to promote further democratic, economic and military reforms in these countries, to encourage greater regional cooperation, advance common interests, such as closer contact with NATO, and increased law enforcement training and exchanges to assist in the fight against organized crime. The U.S. is also working with the region, the EU and others to strengthen overall democratization,

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economic development and security through the Stability Pact for Southeastern Europe, an effort initiated by the EU and launched by President Clinton and other leaders at Sarajevo in July 1999. One example of a by-product of this strategy has been the creation of the Southeast European Cooperative Initiative (SECI), an entity designed to encourage cooperation among its participating states and facilitate their integration into European structures. The main goals of SECI are to emphasize and co-ordinate region-wide planning and provide for better involvement of the private sector in regional economic and environmental efforts. The participating states of the SECI are: Albania, BosniaHerzegovina, Bulgaria, Macedonia, Greece, Hungary, Moldova, Romania, Turkey, Croatia, and Slovenia. Moreover, programs such as the Regional Steering Committee for Trade and Transportation Facilitation in Southeast Europe (TTFSE), under the auspices of the World Bank, are also designed to link economic projects regionally in order to reduce the costs of trade and transportation in the region. Within the framework of the TTFSE, the U.S. government, EU and World Bank provide funds to the TTFSE to improve border crossings and expand information sharing between agencies and the business community. Such a strategic regionally integrated approach for Southeast Europe has been emphasized repeatedly by the U.S. government and the countries themselves. For example, on March 25, the finance ministers of Albania, Bulgaria and Macedonia agreed to support each countries request for financial aid to support infrastructure projects. All three countries strongly believe that by working together they will be able to achieve more than by working independently. In addition to the AMBO pipeline, one important regional transportation project which has received frequent mention by these countries is the east-west highway linking Albanias Durres with Istanbul via Macedonia and Bulgaria. Projects such as the SECI, TTFSE and others fall within the broader mandate of the Stability Pact for Southeastern Europe, which seeks to deepen regional cooperation and draw those countries closer to the rest of Europe and the United States, thereby giving them an opportunity to demonstrate that they are ready for integration into Euro-Atlantic institutions. The Stability Pact is chaired by a special coordinator appointed by the EU to mobilize the capabilities and resources of the EU, the OSCE, the Council of Europe, the UN, NATO, the OECD and the WEU with effective coordination between the World Bank/EU-chaired donor process. Clearly, regional economic integration of Southeast Europe to that of greater Europe is a major strategic goal of the U.S. government. Projects which promote this type of integration, like the planned Transportation Corridor #8 project, fit perfectly within this strategic framework.

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U.S. Policy Toward the Caspian Sea Region

When the Clinton administration speaks of the Caspian Region, it is frequently referring to the development and transportation of the regions energy resources due to the impact that these resource will have on both the long-term economic development and political viability of these newly independent states. In a policy address before the Senate Appropriations Subcommittee on Foreign Operations on March 31, 1998, then Under Secretary of State, Stuart Eizenstat outlined the U.S. governments three strategic concerns as they relate to the routing of pipelines from the Caspian Sea. It is essential to the independence and sovereignty of the newly independent states of the Caucasus and Central Asia to avoid a monopoly on export routes from the region. Caspian energy will diversify world energy supplies. In order to have such diversification, pipelines across Iran must be avoided from an energy security standpoint. Bottlenecks in the Bosphorus must be avoided. Environmental and safety considerations are paramount and long-term solutions must be developed to avoid putting large volumes of oil through the narrow Bosphorus.

Returning once again to the theme of regional cooperation, integration and stability, in a speech on December 7, 1998, Ambassador Dick Morningstar, then Special Advisor to the President and Secretary of State for Caspian Basin Energy Diplomacy, stated that, The fundamental objective of U.S. policy in the Caspian is not simply to build oil and gas pipelines. Rather, it is to use those pipelines, which must be commercially viable, as tools for establishing a political and economic framework that will strengthen regional cooperation and stability and encourage reform for the next several decades. Ambassador Morningstar outlined five Caspian pipelines which the U.S. government has formally endorsed. They are: the Caspian Pipeline Consortium (CPC) (Tengiz, Kazakhstan to Novorossiysk, Russia), Baku, Azerbaijan -Novorossiysk, Russia pipeline (recent Chechnya bypass line now completed), Baku, Azerbaijan -Supsa, Georgia pipeline, the Trans-Caspian Pipeline (TCP - Turkmenistan-Azerbaijan) and, of course, the Baku, Azerbaijan -Ceyhan, Turkey line.

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The Baku-Ceyhan pipeline obviously has been greatly discussed in the context of U.S.-Turkish relations. During this same speech on December 7, 1998, Ambassador Morningstar stated the following regarding Turkey. Turkey will play a critical role, serving as the geographic, commercial and cultural bridge between the Caspian region and Europe.Baku-Ceyhan will ensure that Turkey remains an integral player in the development of Caspian energy resources. Turkey can play a stabilizing role in the volatile regions of the Caucasus and Central Asia. Encouraging Turkey to do so is important not only from the U.S. foreign policy perspective...but also to secure the immense investments now under consideration by private companies. In a broader policy context, the U.S. Ambassador to Turkey, Mark Parris, in a speech on June 21, 1999, outlined three U.S. foreign policy goals vis-a-vis Turkey. They are: A democratic, stable Turkey with its territorial integrity uncompromised in any way. A prosperous, dynamic Turkey that will be an engine for economic development in the region. A country firmly grounded in the West and that will play a responsible, constructive role in a turbulent, vitally important region.

In addition to these goals, the U.S. government has developed a five-part agenda in cooperation with Turkey which focuses upon: energy issues, economic reform and trade, regional cooperation, security cooperation and issues related to Cyprus and the Aegean. As a key member of NATO, Turkeys role at the crossroads of the Eurasian landmass historically has been very critical to the formation of U.S. policy in the Middle East and Europe. Throughout Operation Desert Storm, the Gulf War and Operation Provide Comfort, Turkey played and continues to play a key role in supporting U.S. military forces in the region. However, Turkey continues to pay an economic price for its support of U.S. policy toward Iraq as Turkey continues to lose transit tariff fees due to the almost complete closure of the Daurah-Baiji-Dortyol pipeline network. Turkey was also called upon in its NATO capacity to assist its allies in the 1999 Kosovo bombing campaign and subsequent humanitarian mission. Turkey has also played a significant role in reintegrating Kosovo and the rest of Yugoslavia into a broader Southeast European framework. Despite some difficulties over the treatment of Turkish minorities in Bulgaria and elsewhere, Turkey enjoys fairly positive bilateral relations with its Southeast European neighbors.

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Turkey also serves as the historical and cultural gateway to the Central Asian Republic and the Caucasus while encouraging the economic development and independence of these states. Turkeys strong bilateral relationship with Georgia, in particular, has served as a surrogate for a more involved U.S./NATO military and political presence in the region. It is interesting to note that the Turkish Defense Minister met with his Georgian counterpart as recently as March 25 to discuss ways that Georgia can standardize its armed forces in line with NATO requirements. Over the past several years, Turkey has provided $10 million for the construction of a military hospital, firing range and the purchase of communications and computer equipment while also provide training for Georgian military personnel. Turkey and Azerbaijan also maintain strong bilateral relations. What perhaps makes Turkey stand apart from its neighbors is the strength of its bilateral relationship with Israel. This relation has also served as a catalyst for Israel to establish good relationships with the Central Asian Republics and the Caucasus. Finally, regarding Turkeys complex relationship with Russia, it appears that Turkey and Russia have found stable footing on the commercial front, particularly related to energy issues. The so-called Blue Stream pipeline project will transport natural gas from Russia to Turkey. This large and technologically challenging project is in direct competition with the U.S.-backed Trans-Caspian Pipeline (TCP). It was recently announced that Italian financing was identified for this project. The U.S. government has not been pleased that the Turkish government has gone forward with this project as the U.S. continues to push for development of the TCP. The U.S. government denies Russian claims however that it is actively working against the Blue Stream project.
9.5 U.S. Pipeline Politics

As previously noted, one principal objective of U.S. foreign policy concerning the transport of Caspian energy resources is environmental and safety considerations in the Bosphorus Straits. Not only do both the U.S. and Turkish governments emphasize environmental concerns as they relate to increasing oil tanker traffic from the Caspian to western markets, but recent events have underscored the danger of increasing tanker traffic through the very narrow Straits. For example, at the end of last year a Russian tanker ran aground in waters off Istanbul, spilling 800 tons of fuel oil into the Sea of Marmara. Maritime traffic was disrupted for two days. This incident was the fifth event in a time span of two weeks, two incidents of which involved tankers. However, this incident paled in comparison to a 1994 accident where a tanker collided with a freighter causing the deaths of 29 crewmen and spreading a massive, burning oil slick. According to the Turkish Maritime Organization (TMO), 51,000 international freight vessels passed through the Straits in 1998, with an average rate of 198 vessels per day. In April 1999, Turkish Foreign Minister Ismail Cem stated that the Straits should not become a supertanker expressway. Clearly, the construction of the Baku-Ceyhan pipeline would avoid increasing tanker traffic through the Straits. What is equally

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true, but not openly stated, is that tanker traffic across the Black Sea, from the Georgian port of Supsa or the Russian port of Novorossiysk to points north and west, such as Odessa, Ukraine (Odessa-Brody pipeline) or Bourgas, Bulgaria (the AMBO pipeline) would also not increase tanker traffic through the Straits and thus fulfill an important criteria for U.S. government support. There is also a need to increase the existing pipeline system for Caspian energy resources. Presently, the existing system has a capacity of 500,000 barrels per day although it is anticipated that between 3,500,000 and 5,000,000 barrels per day will be needed by 2010. Although final construction of the CPC line and eventual expansion of the Baku-Supsa and Baku-Novorossiysk pipelines may alleviate the Caspians pipeline capacity problem in the short-term, these pipeline options do little to resolve the issue of increased tanker traffic through the Bosphorus. Clearly, environmental considerations in the Bosphorus Straits serve as Turkeys trump card to force development of the development of the Baku-Ceyhan pipeline. Although Turkey must tread lightly around the 1936 Montreux Convention which requires it to grant free passage to commercial vessels with no requirements, Turkey believes that it can exert sufficient political pressure on the affected countries to initiate change to present maritime law.
9.6 The Viability of a Southern Route

Another U.S. objective concerning Caspian energy is to diffuse the concentration of energy resources traveling through the Persian Gulf. However, the Iranian government has different designs. On March 14th, Iran announced that it had obtained funding for the construction of an oil pipeline from Neka on the Caspian Sea to Rey, a suburb near Tehran. It is anticipated that the Neka-Rey pipeline would have a capacity of 370,000 barrels per day. Iran plans to implement an oil swap program whereby Caspian oil would be used by Iran and an equivalent amount would be shipped from its southern fields through the Gulf. Some argue that, with the addition of the Neka-Rey pipeline, the existing early oil pipelines from Baku-Novorossiysk and Baku-Supsa, the soon-to-be completed CPC line, and the existing Atyrau, Kazakhstan -Samara, Russia pipeline, there already exists a sufficient number of pipelines to handle the anticipated energy resources of the Caspian region until 2010. In fact, some energy experts believe that these pipelines may already represent more capacity than the region will require.
9.7 Pipeline and Project Competition

Another factor which may complicate AMBO efforts is the development of a rival pipeline from Bourgas, Bulgaria to Alexandroupolis, Greece, led by a Greek consortium. It is interesting to note that the Bourgas-Alexandroupolis project had also applied to the U.S. Trade and Development Agency for funding but was turned down because the project was not consistent with U.S. government policy. Clearly, a complete analysis and status report regarding the Bourgas-Alexandroupolis project

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must be provided to U.S. government officials, oil companies and financial institutions so that a determination can be made that the project will not directly compete with the AMBO project. We would also caution that separate bilateral initiatives, such as the U.S.-Greek Initiative for Technology Cooperation in the Balkans, may support various aspects of transportation and energy programs under which the BourgasAlexandroupolis project may fall. It was reported on March 7 that the Russian Government is developing an alternative east-west transportation corridor to the EUs TRACECA project. Known as Transcam, Russia envisions linking China, Japan and the Russian Far East with the Near East and Caucasus by rail and road networks. The Russian government also seeks to link ports on the Black Sea, the Mediterranean, and the Persian Gulf with the Far East via the Russian North Caucasus and Southern Caucasus states. It is estimated that the project would cost $4 billion over 10 years and would create an international free economic zone in North (Russia) and South (Georgia) Ossetia. If realized, such a plan would be in direct competition with EUs Transport Corridor #8 Plan and a challenge to the United States and the European Unions desire for an east-west transportation corridor.
9.8 Policy Road Map

Having said all this, where does one go from here? As we sifted through the substantial amount of information regarding U.S. policy vis-a-vis Southeast Europe, the Caspian Sea region, Turkey, multiple pipelines and various other influential political factors, we developed a list of potential political challenges which AMBO must overcome in order to be successful as well as a list of those issues which favor implementation of the AMBO project. While this list is by no means exclusive, we felt these issues would be the most relevant to AMBOs immediate policy discussions.
Challenges to Overcome

Caspian Energy Capacity. If the predictions are true that the Caspian region will produce 5,000,000 barrels of oil per day by 2010 and, if the AMBO pipeline is constructed in addition to existing pipeline systems and the recently proposed Neka-Rey pipeline, would the development of the AMBO pipeline reduce the regions overall pipeline capacity requirements, thus negating the necessity of Baku-Ceyhan? Can the U.S. government support both BakuCeyhan and AMBO? Put another way, by supporting AMBO, would the U.S. government be reducing its level of commitment to Turkey and Baku-Ceyhan? AMBO must be able to answer this question. It will be interesting to observe how Lukoils recent discovery in Russias Caspian Sea sector will play into the regions energy capacity requirements. U.S.-Turkey Relations in the Wake of a Failed Baku-Ceyhan. While this is not AMBOs problem in any way, the realization of the AMBO project may very well challenge the U.S. government long-held belief that construction of the Baku-Ceyhan pipeline is an essential component of the U.S.-Turkey

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relationship. Because Turkey is so instrumental to U.S. policy in many important areas (i.e., Iraq, the Balkans and Central Asia), what can the U.S. government do to support the Government of Turkey in lieu of Baku-Ceyhan? Some observers have posited that Turkey will demand advanced military equipment at reduced prices from the U.S. It is also highly probable that Turkey will seek the end of UN sanctions against Iraq so that Iraq can once again export oil via the Daurah-Baiji-Dortyol pipeline so that Turkey can regain lost transit tariffs. Simply put, those in the Clinton administration who have interests in U.S.-Turkish policy will likely be strongly against the realization of the AMBO project. Losing The Great Game Some policy circles have already begun to advance the argument that the United States has lost the diplomatic and commercial race for the Transcaucasus and Central Asia to Russia. We would argue that, unless the U.S. government was willing to financially back the development of Baku-Ceyhan, its policy and subsequent rhetoric regarding the necessity of an east-west transportation corridor has been fatally flawed from the start and now lacks complete credibility. Unfortunately, the casualty of this flawed policy will be the U.S.-Turkey relationship. This issue may become politically charged during the U.S. presidential election season as Vice President Gores office has taken the lead in the coordination of U.S. pipeline policy for the Clinton administration over the past several years. Certainly, overall U.S.Russia policy will be closely scrutinized, particularly Vice President Gores role in the U.S.-Russia Bilateral Commission forums. Although we do not anticipate any political backlash against AMBO, support of the project may be a reminder to the administration of the perceived failure of its policies in this area. Perception of Instability in the Balkans. Although Albania, Bulgaria and Macedonia are perceived now to be relatively stable following the outbreak of hostilities in comparison to present day Kosovo and Serbia, AMBO will need to persuade potential investors and government officials alike that these three governments are capable of handling the related political, economic and commercial issues related to such a large infrastructure project.

Factors Which Support the Development of the AMBO Project:

Meeting U.S. Foreign Policy Objectives in the Balkans. Clearly, the AMBO project meets U.S. foreign policy criterion vis-a-vis Southeast Europe. The AMBO project promotes the economic and regional integration of Albania, Macedonia and Bulgaria for a specific commercial endeavor, thus encouraging all three governments to implement favorable commercial and economic policies to attract such private investment. The AMBO project will also aid all three countries by providing direct economic benefit through the collection of transit fees. Auxiliary benefits to the AMBO project include downstream activities such as increased refinery capacity in Macedonia. The AMBO project is a clear win-win for U.S. political and economic policy in

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Southeast Europe. Champions of U.S.- Balkans policy will eagerly support AMBOs efforts. Meeting U.S. Foreign Policy Objectives in the Caspian Region. U.S. policy has long sought multiple pipelines to transport Caspian energy resources to new markets. The AMBO Pipeline is certainly one such multiple route. The AMBO project further maintains the desired east-west transportation corridor, giving neither Russia or Iran undue influence over Caspian energy resources. Finally, unlike Baku-Ceyhan, the AMBO project is commercially viable and a feasible alternative to the construction of a $3 billion pipeline over undeveloped terrain with little pre-existing infrastructure as is the case with the Baku-Ceyhan pipeline. Meeting U.S. Foreign Policy Objectives Concerning the Environment. Development of the AMBO Pipeline would avoid increasing the tanker traffic through the Bosphorus Straits, an important element of both U.S. and Turkish energy policies. Although questions may be raised regarding the environmental impact of increased tanker traffic across the Black Sea (a project could be developed whereby an emergency spill clean-up and recovery program could train regional officials, perhaps under the auspices of the Black Sea Economic Cooperation (BSEC) organization), the AMBO project is completely in line with U.S. policy in this regard. Increasing U.S. Jobs and Exports. Unlike the Baku-Ceyhan pipeline, the AMBO project will contain a certain percentage of work for U.S. companies and thus, a direct benefit to the U.S. economy. It has always been unclear how involved U.S. companies would be in the actual construction of the BakuCeyhan pipeline.

In Sum

The fundamental objective of U.S. policy in the Caspian is not simply to build oil and gas pipelines. Rather, it is to use those pipelines, which must be commercially viable, as tools for establishing a political and economic framework that will strengthen regional cooperation and stability and encourage reform for the next several decades. We thought the quote bears repeating while noting that the AMBO project falls completely within the mandate of this U.S. policy objective. President Clintons Action Plan for Southeast Europe is designed to promote further democratic, economic and military reforms in these countries and to encourage greater regional cooperation. The AMBO project certainly promotes regional cooperation and encourages improvements in policies and laws designed to attract international investment.

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10.0

ENVIRONMENTAL CONSIDERATIONS As the environmental issues regarding the construction and operation of an oil pipeline may be the subject of some concern, AMBO has included below and in the Environmental Volume an initial indication of these concerns and mitigating measures envisaged to counter potential problems. The subject matter covered includes both design aspects as well as construction and operation risks.

10.1

Introduction

Environmental management through the life cycle of the project will provide benefits by minimizing environmental risks, decreasing scheduling delays and engineering redesign, and reducing adverse third party comment and interference. To achieve these objectives the environmental systems are contained in a Project Environmental Management Plan, and Environmental Risk Management Plan and On-site Environmental Supervision during construction and commissioning. The aim of the Environmental Management Plan is to provide a consistent set of procedures to monitor and control environmental performance and systematically implement cost effective activities during the Design, Construct and Commission phases of the project. An international environmental engineering company will be responsible for the development and management of the Project Environmental Plans and the On-site Environmental supervision. It is expected that local environmental subcontractors will make a large contribution to the development and implementation of the work. The proposed Environmental Plans will satisfy existing national and international legislation and regulations and funding agency guidelines. As the project develops, different aspects of the systems and plans will be implemented and at each stage there will be a tie-in between the Environmental Plans and the engineering of the project. The Environmental Plans should be reviewed at the commencement of each phase and revised as appropriate.
10.2 Environmental Sensitivity of the Proposed Route

The proposed route crosses significant areas of forest and through Conservation protected areas. The proposed route also passes near European Union CORINE sites (similar to international Sites of Special Scientific Interest). There are internationally important ecological sites on the coasts close to the proposed terminals. The wetlands are under threat from inappropriate farming practices, aquaculture and pollution. Endangered marine species in the area include the Loggerhead and Green Turtle, the Harbor Porpoise and the Mediterranean Monk Seal. There is the potential for the project to provide significant environmental improvements by introducing improved environmental management practices.

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These internationally important ecological sites are expected to provide feeding and nesting grounds for endangered and threatened birds and mammals, and to provide significant stopover for migrating birds. Detailed safeguards would be provided for the protection of the individual sites and along the routes through forest areas. Additional forest clearing along the Right of Way would be avoided. There are a significant number of globally threatened and CITES listed plants within Bulgaria, Macedonia and Albania. Most species are expected to occur in the mountainous regions, along river corridors or in wetlands. It is not known how many internationally protected plant species exist along the proposed Right of Way, but a botanical survey would be undertaken prior to construction as part of the Environmental Impact Assessment. (EIA). It is unlikely that the proposed route will significantly affect endangered terrestrial animals, provided best construction practices are followed. This would be confirmed prior to construction. While the Right of Way follows a road alignment, it is not likely that there would be disturbance to archaeological sites or significant environmental impacts during the construction phase. Where the Right of Way is not alongside a road, archaeological sites would be located if possible as part of the EIA and the pipeline route would be modified to avoid them. There would be on-site environmental supervision during the construction phase and any additional archaeological sites found would be investigated. At this writing we have identified the area in Macedonia around Lake Ohrid and four smaller sites in Bulgaria: Reserve Atanasovo Lake Nature Park Vitosha Reserve Ostrica National park Rila

The envisioned route of the AMBO pipeline has been identified by a group of experts appointed by the government of each of the three countries. In the case of Bulgaria the route passes near, but not with the four ecologically restricted areas. For the Lake Ohrid ecological area, the route of the pipeline was chosen by the Macedonian team of experts to minimize environmental impact. As AMBO progresses with the FEED study, we will review the planned route with the group to make sure it is still the most environmentally sound route.

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THE WORK BELOW IS DIVIDED INTO THE CONSTRUCTION AND OPERATIONS PHASE. 10.3 Construction Phase

During the construction phase, other actions are expected to mitigate any residual impacts. They focus on phasing construction activities in order to control interference with local communities and include: noise control; limitation of land occupation; limitation of interference with existing facilities and infrastructures, maintaining native ground cover. It is noted that onshore pipeline will be underground along most of the route, and laying will be implemented by trench excavation. Where there are concerns for safety, the pipeline will be kept above ground so that inspection can be accomplished much easier. A positive, yet temporary, impacting factor is related to the need of local laborers for pipeline installation (job opportunities). We are optimistic that we will be able to man a solid crew that are familiar with the local terrain and environmental concerns. Potential positive impacting factors on surface disturbance, habitat disturbance and interference with human activities are expected from cleanup and landscaping operations, aimed at reducing any affects on surface environment along the route.
Offshore pipeline Installation

Installation of the pipeline in the offshore route section will involve laying the pipeline on the bottom, except at the landfall and nearshore area, where trenching and erosion protection measures are envisaged. In the offshore area, laying may temporarily impact the marine environment, resulting in the loss of benthic and bottom-feeding organisms
10.4 Operating Phase

Marking and mapping of the location of buried pipeline and sea line will be adopted at the starting of operating phase, as well as appropriate procedures and measures to prevent accidental spills and leaks and to contain impacts and clean up in case of such an accidental event. Environmental monitoring and leak monitoring, as well as training of staff are also included. These measures are part of the Environmental Rehabilitation Plan for the oilfield redevelopment, which will be implemented by AMBO. Mitigation of indirect impacts is primarily related to the implementation of the mitigating measures envisaged to control direct impacts. However, AMBO is implementing compensatory actions for potential economic losses due to construction, and is currently investigating the proposed route, preparing an inventory of potentially impacted landowners, farmers, and residents. It is noted that the selected route should not require any potential resettlements. Most of it is along the currently envisioned Corridor Eight project, which has already been acquired by the three governments.

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During the operating phase, specific activities that may result in potential impacting factors are: materials handling and transportation; oil storage operations; loading operations; maintenance and checking of equipment (pipeline, terminals, loading facility); periodic route inspections; pigging operations to scour or clean paraffin and scale the pipeline inside.

Potential impacts may originate from accidental events (from catastrophic ruptures or long-term phenomena, such as corrosion due to aggressive environment), which are typically associated with oil pipelines and oil storage and loading facilities, such as: accidental leaks or ruptures along the pipeline which may result in onshore or offshore oil spills, and transport of oil compounds to groundwater or seawater; accidental spills in the terminal facilities.

Potential positive impacting factors at a larger scale are related to up-to-date installations, which will be characterized by high environmental control and U.S. or European design standards will be employed throughout the construction and operation phases of the project. In addition, the new development may generate potential job opportunities and will be conducive to environmental benefits due to improvement of manpower skills for future projects in the region. These are the issues discussed in Volume III, The Environmental issues. There, the issues are discussed in detail, the current legal regulations effecting construction and maintenance for each country are reviewed and the monitoring and abatement strategies are identified.

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11.0

CONCLUSIONS & RECOMMENDATIONS 1. The proposed crude oil pipeline from Bourgas to Vlor is a feasible project to design and construct in compliance with internationally recognized codes and standards and accepted industry practice. The outline design put forward in this study should be based on a throughput of 750,000bbl/day from the start. The pipeline tariff should be a function of certain shipping costs. The study finds conclusively that tariffs can be set low enough to make the route an attractive conduit for oil from Black Sea ports going to Europe and the U.S. east coast. Based on 1999 shipping costs a tariff of less than $1.30 per barrel would attract shippers. At this tariff level the pipeline is an attractive economic proposition at a throughput of 750,000bbl/day. A preliminary study of economic impact upon Bulgaria, Macedonia, and Albania suggest that construction and operation of the pipeline would have a large, favorable bearing on the economics of the region as well as providing a muchneeded source of energy. This project, as much, if not more than any other supports the multiple initiatives of Washington and Brussels to bring infrastructure projects and in turn new income to the region. This pipeline contributes directly to relieving congested shipping lanes in the Bosphorus Straits, removes the potential for environmental catastrophes in the Straits and the Aegean Sea, and. in turn, provides a safe, economic export route to western markets.

2. 3.

4.

5.

6.

7.

It is recommended that this project proceed to implementation, as described in these documents, capturing the window of opportunity presented at this time. The window allows for the construction of the pipeline, before the anticipated congestion in the Bosphorus, and thereby avoids many inherent environmental dangers and the attendant economic penalties.

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TRANS BALKAN CRUDE OIL PIPELINE FEASIBILITY STUDY VOLUME II ECONOMIC AND FINANCIAL ANALYSIS

TABLE OF CONTENTS

1.0 1.1 1.2 1.3 1.4 1.5 2.0 2.1 2.2 2.3 2.4 3.0 4.0 4.1 4.2 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 6.0 6.1 6.2

INTRODUCTION .............................................................................................................. 1 Project Viability .............................................................................................................. 1 Financiers Involvement ................................................................................................. 2 Project Contracts and Agreements.................................................................................. 3 Country Perspective ........................................................................................................ 5 Project Financing Implementation.................................................................................. 5 CAPITAL COSTS (CAPEX) ............................................................................................. 6 Surveys............................................................................................................................ 6 Third Party Inspection..................................................................................................... 6 Verification Requirements .............................................................................................. 6 Project Management ....................................................................................................... 6 OPERATING COSTS (OPEX) .......................................................................................... 6 PIPELINE TARIFF ............................................................................................................ 7 AMBO Pipeline Financing Summary:.......................................................................... 10 Projection Summary: .................................................................................................... 11 PROJECT FINANCE: Principles, Definitions and Assumptions for Financing.............. 15 Finance Definitions ....................................................................................................... 15 Immediate Finance........................................................................................................ 15 Long-term Finance Documentation .............................................................................. 16 Ex-Im Banks Approach to Project Finance ................................................................. 18 EBRD FINANCING..................................................................................................... 24 IFC Financing ............................................................................................................... 26 OPIC Funding ............................................................................................................... 26 POLITICAL RISK and GUARANTEES ......................................................................... 27 Overseas Private Investment Corporation (OPIC)........................................................ 27 MIGA............................................................................................................................ 28

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ECONOMIC AND FINANCIAL ANALYSIS 1.0


1.1

INTRODUCTION
Project Viability

A project the size of the proposed Bulgaria - Macedonia - Albania crude oil pipeline is clearly a major financial undertaking which will require the raising of substantial external funding in addition to significant shareholder equity investment. From a financing perspective, the project is particularly complicated by multiple interests that have impact or influence. The pipeline passes through three separate sovereign countries, relies upon its product input from producers in a fourth country (Russia, Kazakhstan, etc.) and requires off-take by international shippers/traders to world markets. The complications of this structure are further increased by the fact that there is little, if any, precedence established involving major projects and trading agreements with the involved countries. Legal, contractual and guarantee aspects of the project financing may therefore prove to be difficult, time consuming and costly to put together. Political risk insurance (including economic loss) may also be more difficult or expensive to obtain. OPIC insurance cover is already in place for all three countries along the pipeline route. One of the key factors influencing the ability to finance the project is its economic robustness. The project needs to be able to demonstrate its investment attractiveness in order to attract the necessary financing. This will include establishing the resilience of the project against fluctuations in selected economic parameters such as capital cost, operating and maintenance costs, an oil throughput, and tariff revenue. The feasibility study that has been undertaken indicates that the total cost per barrel of transporting oil from the Black Sea to international markets via the proposed pipeline, is more economically attractive than the alternative method of tanker shipment via the Bosphorus Straits. The proposed pipeline has additional substantial environmental benefits (which are of interest to international producers) arising from a reduced risk of tanker collisions operating in confined water spaces and substantial tanker flexibility not offered in many other alternatives. In evaluating the project, the financiers will also consider the potential impact of other competing schemes. AMBO is aware that an alternative Bosphorus bypass pipeline scheme has been proposed, taking oil over a route from Bulgaria (Bourgas) to Greece (Alexandroupolis). Although this scheme is of shorter length and hence potentially lesser cost than the proposed pipeline to Albania, it has a much more restricted off-

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take location which is likely to be less attractive to oil shippers, and the involved governments, for similar environmental reasons as noted above.
1.2 Financiers Involvement

Even once the economic robustness of the project has been satisfactorily proven to potential project lenders, the ability to raise the necessary finance will be dependent upon negotiating and obtaining various supply contracts and agreements against which the project financiers can obtain contractual security. Since these financing institutions place a substantial degree of reliance upon the performance of the project, they will need to concern themselves closely with the feasibility of the project (both technically and economically) and its sensitivity to the impact of potentially adverse factors. A specialist team of independent engineers is often assigned by the financing institutions, which will particularly undertake to assess the technical risks of completing the project within the defined cost and schedule, as well as the ability of the system to function as designed. The most critical aspect of the project financing is establishing a structure that will provide a mutually satisfactory and economic allocation of project risk amongst the various interested parties. This will generally be shared between the project sponsors (i.e. equity investors) and the senior lenders, (i.e. commercial syndicated banks), but may also include other parties involved in the project such as equipment or material suppliers, contractors, product suppliers or purchasers, insurers, or government agencies (such as export credit agencies). The extent or willingness of any of these other parties to provide funding (either directly or indirectly such as through extended credit terms), will largely depend upon the return which each party is anticipated to receive weighed up against the risks which they expected to undertake. The extent to which this is available from each party will generally be a function of individual circumstances, and significant shopping around may be necessary in order to obtain the best overall commitments that best serve the financing needs of the project. It is, however, extremely unlikely that any potential senior lenders will wish to support the project unless there is a substantial form of financial commitment on the part of the project sponsors. In its simplest form, this may involve direct financial equity investment in the project company, and/or (alternatively) may involve arrangements, whereby, tangible credit support collateral is provided which is not directly dependent upon the performance of the project itself. Although this would not amount to outright on-balance sheet guarantees, the willingness of the lending banks to accept this form of collateral will vary considerably depending upon their view of project sponsors financial standing and the amount of collateral sought. As an alternative to equity, the project sponsors may be able to arrange and provide subordinated loans that are acceptable to the senior debt lenders.

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Ultimately the project financing arrangement will probably prove to be relatively expensive and time consuming to arrange. This will be as a result of
1.3

time spent by the lenders, their technical experts and lawyers in evaluating the project and contractual documentation negotiating mutually agreeable positions for each of the parties related to the project insurance cover, particularly consequential loss and political risk cover which may be required the ongoing cost of managing the loan and cash flow allocations the charges made by the lenders (and possibly other parties) for assuming above normal risks

Project Contracts and Agreements

In addition to confirming the technical integrity and the economic robustness of the project, a number of contracts and agreements will need to be established in order to secure the project financing funds. These include the following.
1.3.1 Supply and Tolling Contract

A strong supply and tolling agreement with the oil producer(s) that provides for guaranteed volumes of oil to be provided at Bourgas in a regular and timely manner will be required. This will be coupled with an agreed tariff rate for the shipment of oil to its point of off-take/sale at Vlor. This contract would be expected to be on a take or pay basis, such that some minimum transportation revenues are received regardless of interruption of supply, which would clearly be beyond the control of the Project Company or its financial backers. In real terms, this form of contract can be considered as an availability charge to the oil producers, regardless of whether they use the facility or not. Ideally, this contract should be established for a period equivalent to the project payback. However, given an economical payback period of 10 years, obtaining this contract with the required degree of assurances (or at least a satisfactory compromise) may prove to be difficult. Some form of commitments to a tolling agreement may, therefore, be required to be undertaken in lieu. It is anticipated that the contract should at least match the maturity of any project financing.
1.3.2 Political Risk Insurance

Full and comprehensive political risk insurance cover for the full life of the loan will undoubtedly be required. Such insurance may be available either fully independently or associated with loan or equipment provisions (e.g. Export credits).

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The intent of this insurance is to provide the project lenders with some form of long stop compensation in the event of political events interfering with the project cash flow. The extent to which this is likely, and hence the fee which will be payable, is primarily dependent upon the prevailing view of the political stability of the involved countries. The forms of political insurance, which will be required to satisfy the lenders of the financing for the project, are as follows: Currency convertibility - this is not envisaged to be a problem for this project since the product (oil) has an internationally established market price and the purchasers of the oil are international buyers external to the involved countries. Expropriation - which includes the nationalization, confiscation or expropriate of the facility. Although difficult to quantify the risk, all three countries are in the process of actively privatizing state controlled corporations, thus minimizing the likelihood of expropriation. Political violence - as the name implies is the interruption of the facility operation resulting from violent acts undertaken for political purposes. This can cover both the asset itself as well as income loss resulting from the nonability to operate the pipeline. Financing of the project without the provision of comprehensive political risk insurance cannot realistically be contemplated.

1.3.3

An Off-Take Contract(s)

An off-take contract(s) for the purchase of oil at Vlor also needs to be put into place. This would identify the terms and frequency on which the oil would be lifted and, although it is envisaged that the ownership of the oil would not at any time transfer to the pipeline operating company, that the agreements are in place to ensure the correct flow of funds to an operating (escrow) account.
1.3.4 Take or Pay Contracts

One basis for financing the pipeline would be to base the ability to repay any debt upon major oil company shippers, or traders with existing multiple year contracts with the same oil companies to contract with the pipeline company to take a certain volume commitment for throughput or pay the equivalent amount should they choose another route or be unable to supply crude oil for the length of the debt commitment of the pipeline company. Variations on this theme are quite common. In todays extremely dynamic financial world, this alternative may prove quite attractive as a means of spreading out the total debt guarantee strategy.
1.3.5 Government Agreements

Government agreements and concessions for the construction and operation of the pipeline will need to be established with each of the three host nations. This will include items to facilitate the development of the pipeline, such as rights of way,

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wayleaves, operating licenses, etc., together with any form of transit fee compensation. These agreements should also include political assurances as to the independence of the project and the non-interference of the project by the Government.
1.3.6 Construction Contract(s)

The establishment of robust construction contract(s) with an internationally credible contractor also, would be required to be put in place prior to the provision of funds. This contract would particularly aim to secure guarantees for performance of the completed pipeline, as well as assurances as to the timely completion and out-turn cost of the project.
1.4 Country Perspective

In addition to the technical and economic profile of the project, it is important to establish a perspective of each of the three countries through which the pipeline will be routed. Although the project financing will be based upon the ability of the project to achieve an acceptable payback, the ability to raise the necessary finance and in particular the alternative avenues which may be open, are largely dependent upon the international financing communitys view of the respective countries. All three countries are viewed by the financial markets as being in their very early stages of development. Limited export cover is available but shows signs of increasing particularly in Bulgaria.
1.5 Project Financing Implementation

As stated previously, financing for this project is a major undertaking requiring substantial syndicated bank lending. The objective of this section of the report is to highlight the key issues to be addressed in establishing a mutually acceptable project structure. This will clearly require substantial effort and review of the project from both a technical and an economic perspective, in order to ensure that the risks are acceptable from an investment perspective. Directly associated with this is the need to put in place the various contracts and agreements that will ensure that the project can be built and that there will be a flow of oil through the system sufficient to payback the investment. Having established the feasibility of the project, the next steps would be to structure a project business plan, which can be presented to potential project lenders. It may be advantageous to mandate, as an advisor / lead arranger, a professional financial institution which is experienced in projects of a similar nature and understands the dynamics of the countries and parties involved. They would take responsibility for detailed financial modeling and should be able to interface between the project sponsors and senior lenders, with the aim of securing a successful project financing.

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2.0

CAPITAL COSTS (CAPEX) The CAPEX includes surveys, inspection and verification costs, the project management works including detail design and construction management and a project contingency. The accuracy of these costs is +20%/-10%, at this stage of project definition.

2.1

Surveys

A number of different types of surveys will be required to be undertaken, beginning at the outset of the project. These include: Offshore Bourgas and Vlor bathymetry, soils and conditions (wind, wave and current). Onshore Sites topography, soils, corrosivity, resistivity, and property ownership. Overall System environmental impact assessment (including archaeological, geological and seismic surveys.

These surveys will have the participation of local and technical service companies.
2.2 Third Party Inspection

Independent NDE inspection of welds, witness testing of equipment manufacture and final field- testing will have to be carried out.
2.3 Verification Requirements

International requirements for design verification via national bodies or independent third parties have to be allocated.
2.4 Project Management

Project management activities, to include the scope set out in the Project Development Philosophy have been estimated at a percentage of the expected costs for survey, material, equipment, installation, third-party inspection and verification activities. Total CAPEX then comes to $1,126,930,000.00 3.0 OPERATING COSTS (OPEX) Operating costs include payroll, supplies, consumables and spare parts, plus a fund to accrue resources to replace/update equipment in later years. Electrical power from existing utility sources has been included as a separate item. OPEX does not include any profits on payments to governments for rent or royalties. These are covered in the model as separate items.

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Total OPEX them comes to $45,100,000.00 4.0 PIPELINE TARIFF In order to calculate a reasonable tariff, we have put together a model that will account for CAPEX, OPEX, and debt financing. This is done that with three different assumptions on CAPEX. The CAPEX assumptions are the $1,130,000,000 discussed above and a $1,017,000,000 floor and $1,356,000,000 ceiling to reflect the windows of the CAPEX estimates in Volume IV. Discussion will follow.

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AMBO Pipeline Economics


Performance Summary:
Scenario No. Project IRR before Financing (13yr DCF) Project IRR after Financing (13yr DCF) Equity Investors Resulting IRR (13yr DCF) 1 16.88% 24.36% 20.73%

Assumptions:
Operations: Daily Throughput: 1st six months @ 2nd six months @ Full Capacity Capacity after added Cap.Ex. Throughput Tariff /barrel: Tariff Annual Escalation: Operating Days per Year: Barrels per Ton Lossage Factor Operating Costs(%ofCap.Ex.): OE $amount Yearly Cost Escalation (cpi) Tax per Ton (Transit Fee) Harbor Fee/Ton (input only) Financing: (1,000s) Total Cost Before Financing (Cap.Ex.) Cost including construction period interest Debt Financing Financed portion of Cap.Ex. Financed portion including interest Interest accumulated during construction Debt Interest Rate (Take Out) Debt Repayment Term (yrs) Equity Financing Total Equity Construction Schedule: Number of Quarters LIBOR Spread Rate (/360*365: Effective) Financing Fee Financing Fee $amount: Quarterly Cost Distribution: Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Total 400,000 600,000 750,000 750,000 $1.2999 3.00% 356.00 7.9 1.0% 4.00% $45,200,000 2.50% $0.85 $0.35 bbl/day bbl/day bbl/day Cap. Ex. (to add capacity): Year: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 $3,000,000 1.00% No. Pumps OE inc. 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0.00% Output 500,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000

@Full Capacity

$1,130,000 $1,206,379 60% $678,000 $754,379 $76,379 9% 10 40% $452,000 Cost per Pump: OE Cost inc./pump:

12 * 6.45% 3.00% 9.58% 1.0% $6,780,000 0.11% 0.57% 2.06% 5.72% 6.86% 10.30% 17.18% 19.45% 14.87% 11.44% 9.15% 2.29% 100.00%

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AMBO Pipeline Financing Summary:

Debt Coverage Ratio (DCR): is anticipated to be 1.46 in year 1 of the operating projection. The DCR is calculated by dividing cash flow by the annual debt repayment obligation, thus indicating that year 1 of the operating cash flow will produce close to one and a half times cash flow needed to make payment on its debt obligation. The DCR increases to 2.27 in year 2 and will continue to grow to 2.90 in year 10. Cash Flow Sweep: Based on Scenario No. 1, the debt obligation will be $754.38 million after the three-year construction period. This amount includes financing fees and PIKD interest, or carrying cost, during the construction period. Based on the operating projection there will be enough cash flow generated in the first ten years of operating cash flow to pay off the entire debt obligation. This situation would require that all of the initial cash flow be swept to the debt holders before any dividend or repayment would occur to the equity participants. In addition, note that the entire cost of the project could be paid off by year ten (first year of cumulative positive cash flow). Financing Fee: a financing fee of 1% is included in the financing calculation of this model. Interest is 9.58% in Scenario No. 1. This includes the assumption that interest is grossed up from 360 to 365 days and is based on a 3% spread over the benchmark. The benchmark used in this analysis is the London Interbank Offered Rates, or LIBOR, and is assumed to be 6.45% (as of this writing, LIBOR was below 6%). Loan to Value (LTV): is 60% in Scenario 1. This ratio is assumed to reflect a conservative estimate, as the long-term commitments by a major oil distribution concern should provide for an investment grade credit rating.

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The results for the floor and ceiling estimates from Vol. IV are as follows:

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5.0
5.1

PROJECT FINANCE: PRINCIPLES, DEFINITIONS AND ASSUMPTIONS FOR FINANCING


Finance Definitions

Short Term Finance will be used to fund activities of AMBO, its advisors, NEWCO and other third parties to be agreed. These activities will include establishing the project technical and financial feasibility as well as providing funds for AMBO to continue certain activities associated with the project development.

Immediate Finance will be the first phase of the Short Term Finance. It is intended that $8-$10 million dollars will be obtained. Interim Finance will be second phase of the Short Term Finance. It is intended that $30-$40 million dollars will be obtained.

Long Term Finance will be the finance raised to fund detailed engineering, procurement, construction and operation of the initial phase of the pipeline.
5.2 5.2.1 Immediate Finance Use of Funds

The Immediate Finance Funds includes payment for work incurred in respect to implementation of the AMBO investment program. Funds will be used for:
5.2.2

Refinancing and/or repaying existing debt of AMBO Financing ongoing work performed either by AMBO, affiliates, appointed subcontractors or third party organizations Financing project development work performed by the NEWCO or its appointed agents

Assumptions and Conditions

Immediate Finance will be secured by a Sovereign Guarantee or by an equity participant (major oil company) guarantee, and will not be disbursed until: The Preliminary Agreement between NEWCO participants has been signed. Clarification Agreement between AMBO and the equity partner and NEWCO has been signed. Due diligence has been completed to establish that the Interim Finance can be raised either by:

Take-or-Pay Contract(s) Oil company Guarantee

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5.2.3

The Interim Finance loan will be refinanced either by:

long term finance repayment by AMBO or NEWCO.

Lenders will be arranged by syndication dependent upon the amount of the Interim Finance required. The intention is that lead arrangement banks will be chosen, who will fund not only the Interim, but also the Long Term Finance packages.
5.3 Long-term Finance Documentation

We set out below the indicative pricing for various facilities. Please note that these are best estimates for the present and more precise pricing can only be defined nearer the time of syndication and following discussions with the ECAs and MLAs (if applicable).
5.3.1 Immediate Finance

Fee/Margin Financial Advisory fees Participation Fee Interest Rate

Amount $200,000 estimate $60,000

Basis of calculation per diem rate 1% flat on the amount of facility 6-8% p.a. over LIBOR

Recipient payable to Bank payable upfront to participants pro-rata payable in arrears to participants

5.3.2

Interim Finance

Fee/Margin Financial Advisory fees Participation fees Commitment fee Interest Rate

Amount $300,000 estimate $104,000

Basis of calculation per diem rate 1% flat on the amount of facility 0.5% p.a. on the underutilized amount 6-8% over LIBOR

Recipient payable to Bank payable upfront to participants pro-rata payable in arrears to participants payable in arrears to participants

5.3.3

Long Term Finance

The Long Term Finance is likely to include a package of ECA financing and a commercial loan amounting to c. $600 million. Participating banks will be offered a portion of the commercial loan and a package comprising of the US EX/IMBANK, COFACE or HERMES Facilities. The purpose of the commercial loan is to fund the 15% of the down payment not covered by the export credit facilities and local

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procurement (in the event this is not covered by the export credit agencies). Given our recent discussions with the EBRD, it is currently envisaged that they would provide part of the commercial loan under broadly the same terms as indicated below.
5.3.3.1 Fees For Arranging The Total Financing Package

Fees Financial Advisory Fee

Amount $500,000-700,000 estimate

Success fee Management Fees Agency fees

Basis of calculation per diem rate as per mandate letter, but offset against success fee 1% flat on total finance package c. $5.5-6.0 million See below c. $250,000 -$300,000 See below p.a. (guesstimate)

Recipient payable to agent Bank as agreed in mandate letter payable to Bank, upon finance close See below payable to Agent Banks annually in advance

5.3.3.2 Commercial Loan Facility

Fees/Margin Management Fee (already included in (a) above) Participant fee

Amount to be negotiated

Basis of calculation Recipient c.2-3% flat on payable Payable to the to the Arranger arranger Payable to the Participants pro-rata, out of the commercial loan Management Fee Payable to Agent Bank Payable annually in advance to the agent bank

To be negotiated

Commitment fee Agency Fee (already included in (a) above) Interest Rate

To be negotiated p.a. on utilized portion To be negotiated

Likely to be 0.5% participants arrears 0.20% flat on the facility amount 4-6% pa over LIBOR

Contracts and documentation required by the financiers may include and will not be limited to: Take or Pay guarantees from Majors until the long term finance is paid. Pledge of shippers to use the pipeline against existing crude shipping contracts to OECD, U.S. or local, regional ports. Completion guarantees to engineer and construct all facilities. Engineering contract to perform the design, procurement and construction of the pipeline and associated Facilities Adjustment of offshore escrow account, pledged to the lenders

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5.4

Yield Consultants report required by US EX-IM. Independent bank project finance report (required by US Ex-Im) Loan agreements in respect of each of the US, German, French or Norwegian export credits, together with their accompanying guarantees EBRD, Commercial and domestic loan agreements Inter-creditor agreement Central Bank approvals for the borrowings and pledges Possible additional independent technical report for the lenders Brokers assessment of insurance arrangements

Ex-Im Banks Approach to Project Finance

Ex-Im Bank established the limited recourse project finance or project finance program as developing nations turned away from sovereign-guaranteed borrowing for large infrastructure projects. The program helps U.S. exporters compete in the development of private infrastructure and in the extraction of natural resources.
5.4.1 Program Description

The term project finance refers to the financing of projects that are dependent on project cash flows for repayment, as defined by the contractual relationships within each project. By their very nature, these types of projects rely on a large number of integrated contractual arrangements for successful completion and operation. The contractual relationships must be balanced with risks distributed to those parties best able to undertake them, and should reflect a fair allocation of risk and reward. All project contracts must fit together seamlessly to allocate risks in a manner that ensures the financial viability and success of the project. Appropriate project finance candidates include greenfield projects and significant facility or production expansions. These projects do not rely on the typical export finance security package, which provide lenders recourse to a foreign government, financial institution or an established corporation. While Ex-Im Banks analytical approach for project finance is different from the traditional export finance approach, many of Ex-Im Banks requirements remain the same. Ex-Im Banks project finance program has several financing options that project sponsors can utilize to develop an appropriate financing plan. During construction and operations, political risk and comprehensive guarantees are available. Ex-Im Bank has no dollar limits based on project size, sector or country. While there is no minimum transaction size, the applicant should carefully consider the costs associated with a limited recourse project financing approach. Generally, Ex-Im Bank utilizes financial, legal, and technical advisors for project finance transactions.

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However, for small project finance transactions, Ex-Im Bank may consider, on a caseby-case basis, not utilizing financial advisors, and relying instead upon internal due diligence as well as the due diligence of an arranging bank (or other major project lender).
5.4.1.1 Flexible Coverage

Where appropriate, Ex-Im Bank offers the maximum support allowed under the rules of the OECD Arrangement, including: Financing of interest accrued during construction related to the Ex-Im Bank financing. Allowance of up to 15 percent eligible foreign content in the U.S. components. Financing of host country local costs of up to 15 percent of the U.S. contract value as long as it is part of the scope of the U.S. contract.

On September 1, 1998, new rules were implemented for project finance transactions for Participants to the OECD Arrangement. The new rules allow Ex-Im Bank to provide more flexible loan repayment terms to match a projects revenue stream. Thus, project finance transactions can be structured with tailored repayment profiles, more flexible grace periods, and more flexibility on total repayment terms. Ex-Im Bank implements the new flexibilities on a case-by-case basis for qualifying project finance transactions. Generally, extended grace periods or repayment terms must be justified by project cash flows or project considerations specific to certain industry sectors. For example, extended grace periods and back-ended repayment profiles may be justified for telecommunications projects but are likely not appropriate for power plants. The new flexibilities are in effect for a three-year trial period, which began on September 1, 1998. The new rules allow for the following: Full flexibility for setting a projects grace period, repayment profile, and maximum repayment term, subject to a maximum average life of 5.25 years; or The extension of a projects average life up to 7.25 years, subject to constraints for setting a maximum grace period of 2 years and a maximum repayment term of 14 years.

The new flexible terms are subject to the following additional constraints and/or considerations: If the projects repayment term extends beyond 12 years, 20 basis points are added to the CIRR Rate for direct loans. Interest cannot be capitalized post-completion.

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The flexible terms are only offered in High-Income OECD markets with additional constraints. The average life allowed under the new flexible terms will be taken into consideration when meeting the Minimum Premium Benchmark fees required as of April 1, 1999.

5.4.1.2 Project Criteria and Application Information Requirements

5.4.1.2.1 General Project


The project should have long-term contracts from creditworthy entities for the purchase of the projects output and the purchase of the projects major project inputs such as fuel, raw materials, and operations and maintenance. Such contracts should extend beyond the term of the requested Ex-Im Bank financing. In sectors such as telecommunications and petrochemicals if longterm contracts are not available, Ex-Im Bank will evaluate the transactions on a case-by-case basis, looking for economically compelling business rationale. The project should contain an appropriate allocation of risk to the parties best suited to manage those risks. Sensitivity analysis should result in a sufficient debt service coverage ratio to ensure uninterrupted debt servicing for the term of the debt. Total project cost should be comparable to projects of similar type and size for a particular market. Product unit pricing and costs should reflect market- based pricing. Devaluation risk needs to be substantially mitigated through revenues denominated in hard currencies, revenue adjustment formulas based on changing currency relationships, or other structural mechanisms.

Information Required 1. Summary of all aspects of the project, as contained in an independently prepared feasibility study and/or a detailed information memorandum, prepared by a qualified party. The study or memorandum should include the project description, location, legal status, ownership, and background and status of key elements of the project structure, such as agreements, licenses, local partner participation and financing. Agreements for key elements of the project. Ex-Im Bank considers key agreements to include all contracts necessary for the project to be built and operate. This includes contracts relating to infrastructure as well as supply and off-take agreements. These agreements should be in substantially final form. ExIm Bank will not accept summaries or outlines of these agreements. A breakdown of anticipated project costs through commissioning, including interest during construction and working capital requirements, by major cost
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category and country of origin. This information should also include a breakdown of any soft costs such as development costs, development fees, owners contingencies and other similar items. A breakdown of the proposed coverage for interest during construction and the method of calculation should also be included. 4. A summary of the anticipated project financing plan and security package, including the proposed source, amount, currency and terms of the debt and equity investments; the sources of finance in the event of project cost overruns; and description of escrow accounts. Information on the terms, security requirements, and status of financing commitments of other lenders to the project, if applicable, should be provided. All other sources approached for financing (multinational development banks, other export credit agencies, commercial banks, capital markets and private investors) must be disclosed. Projected annual financial statements covering the period from project development through final maturity of the proposed Ex-Im Bank financing, to include balance sheet, profit and loss, source and application of funds statements, and debt service ratios. Projections should include a sensitivity analysis for not only the expected scenario, but pessimistic and optimistic cases as well. This information should also be provided on a 3-1/2 computer diskette with the projects financial model in Lotus 123 or Excel. The structure of the financial model should be in a format that is user friendly. Ex-Im Bank must be able to review and adjust the assumptions in the model. 6. Assumptions for the financial projections, including but not limited to the basis for sales volume and prices; operating and administrative costs; depreciation, amortization and tax rates; and local government policy on price regulation. Market information to include ten years of historical price and volume data; present and projected capacity of industry; product demand forecast with assumptions; description of competition and projected market share of the project as compared to the shares of the competition; identity and location of customers; and marketing and distribution strategy. A description of the principal risks and benefits of the project to the sponsors, lenders, and host government. A description of the types of insurance coverage to be purchased for both the preand post-completion phases of the project.

5.

7.

8. 9.

10. Information on infrastructure required for the project to operate, specifically information pertaining to the timing, status and developmental plans must be provided. 11. A clear articulation of the need for Ex-Im Bank coverage.

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5.4.1.2.2 Participants
Project sponsors, off-take purchasers, contractors, operators, and suppliers must be able to demonstrate the technical, managerial and financial capabilities to perform their respective obligations within the project.

Information Required 12. Sponsors must provide in English a brief history and description of their operations, a description of their relevant experience in similar projects, and three years of audited financial statements. 13. If the sponsors are part of a joint venture or consortium, information should be provided for all the participants. A shareholders agreement should also be provided. All documents pertaining to this area (joint venture agreement, management and service agreements) should be in substantially final form. 14. Off-take purchasers and suppliers should provide in English a history and description of operations, at least three years of audited financial statements, and a description of how the project fits in their long-term strategic plan. If the project utilizes raw materials (oil, gas, coal, ethane, etc.) copies of contracts that have been reviewed by legal counsel for appropriateness and in adherence with local law should be provided. 15. Contractors and operators must provide resumes of experience with similar projects and recent historical financial information.

5.4.1.2.3 Technical
Project technology must be proven and reliable, and licensing arrangements must be contractually secured for a period extending beyond the term of the Ex-Im Bank financing. A technical feasibility study or sufficient detailed engineering information needs to be provided to demonstrate technical feasibility of the project.

Information Required 16. Technical description and a process flow diagram for each project facility. 17. Detailed estimate of operating costs. 18. Arrangement for supply of raw materials and utilities. 19. Draft turnkey construction contract and description of sources of possible cost increases and delays during construction, including detailed description of liquidated damage provisions and performance bond requirements.

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20. Project implementation schedule, showing target dates for achieving essential project milestones. 21. A site-specific environmental assessment, highlighting concerns, requirements and solutions. These documents should demonstrate compliance with Ex-Im Banks environmental guidelines. All applicants must submit a Preliminary Environmental Assessment report conducted by a third party expert prior to an application for final commitment.

5.4.1.2.4 Host Country Legal/Regulatory Framework and Government Role


Host government commitment to proceeding with the project needs to be demonstrated. Legal and regulatory analysis needs to demonstrate that the country conditions and the project structure are sufficient to support long-term debt exposure for the project through enforceable contractual relationships. Ex-Im Banks relationships with the host government will be addressed on a case-by-case basis. An Ex-Im Bank Project Incentive Agreement (PIA) with the host government may be required. The PIA addresses certain political risks and Ex-Im Banks method of resolution of conflict with the host government pertaining to these issues. Only certain markets will require a PIA.

Information Required 22. A description of the host governments role in the project, and progress made toward obtaining essential government commitments, including authorizations from appropriate government entities to proceed with the project. Copies of all permits, licenses, concession agreements and approvals are required in addition to a description of all permits necessary to complete the project and their status. This information is critical for Ex-Im Bank application consideration. 23. A definition of the control, if any, that the government will have in the management and operation of the project, and status of any assurances that the government will not interfere in the projects operation. If the government is also a project sponsor, these issues will be of particular importance. 24. Evidence of the governments current and historical commitment and policies for availability and convertibility of foreign currency. 25. Status and strategy for obtaining government undertakings to support any government parties involved in the project, to the extent that such undertakings are needed to provide adequate credit support for such entities

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Feasibility Study Volume II, Finance 5.5 5.5.1 EBRD FINANCING Loans

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The EBRD provides loans which are tailored to meet the particular requirements of the project. The credit risk may be taken entirely by the Bank or partly syndicated to the market. A loan may be secured by a borrowers assets and/or it may be converted into shares or be equity-linked. The Bank lends (and therefore requires payment) in any hard currency, principally the US dollar, the Deutschmark and the ECU; it has started to fund or facilitate loans in certain local currencies. When lending to private commercial enterprises the Bank does not normally require guarantees from the host government and loans are typically without recourse to foreign sponsors, once a project is up and running. The basis for providing a loan is the cash flows of the project and the ability of the project to repay that loan over the agreed period. Loans by international institutions such as the EBRD have been traditionally excluded from sovereign debt reschedulings and have therefore enjoyed preferred creditor status. Banks that participate in loans to private sector borrowers made by the EBRD, where the EBRD remains the lender of record, may share in the benefit of this preferred creditor status.

5.5.2

What makes an EBRD project?

With limited resources relative to the scale of need in the region, the EBRDs funding can have only limited impact. The Bank relies largely on the quality of its projects, and on its ability to bring additional value to them. The Bank must constantly ensure its projects have a multiplier effect, such as demonstrating additional benefits to the local economy, mobilizing co-financing or relieving infrastructure bottlenecks. Foreign joint ventures are one of the EBRDs main vehicles for financing; joint ventures offer partners an effective way to gain access to foreign and domestic markets, encourage foreign private investment in the region, reduce risk, and facilitate the transfer of technology and management skills. While the Bank seeks to provide the form of financing that best matches the project, certain guidelines apply: The EBRD funds up to 35 per cent of the total project cost for a greenfield project or 35 per cent of the long-term capitalization of an established company. Significant equity contributions from other investors are required, in particular from industrial sponsors in the case of greenfield projects or new joint ventures, where special technical and management skills are needed. In such
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cases, industrial sponsors are expected to have a majority shareholding or adequate operational control. Typical private sector projects are based on no more than two-thirds debt financing and at least one-third equity. Additional funding by other co-financiers is typically required. The Bank will not normally provide financing to an investor for the funding of the purchase of existing or new shares. Equity from sponsors need not be exclusively in cash but can be in the form of equipment, plant machinery, etc.

Each project is assessed according to the appropriate country strategy. These are approved by the EBRDs shareholders and provide a framework for the banking operations as well as placing priority on certain areas.
5.5.2.1 Illustrative Capitalization Structure

EBRD loan Foreign sponsor equity Local sponsor equity Syndicated loan Other lenders
5.5.3 Financing Instruments

35 per cent 25 per cent 15 per cent 15 per cent 10 per cent

The EBRD provides project-specific direct financing for private sector activities, restructuring and privatization, or financing of infrastructure that supports these activities. Joint ventures have been major beneficiaries of Bank lending, particularly those with foreign sponsors. The Bank offers a wide range of financial instruments and takes a flexible approach in the structuring of its financial products. Its requirements are outlined in What makes an EBRD project?. As a guideline, the standard minimum involvement for the Bank is ECU 5 million, though this can be flexible if the project has fundamental benefits for the country. In practice, the average amount of the Banks involvement is around ECU 22 million (1997 average: private sector ECU 19 million; state sector ECU 36 million). While the Bank does not primarily provide direct funding to small and medium-sized enterprises (SMEs), it does have a number of instruments to reach private SMEs. Information on the EBRDs financing instruments can be found via the topics listed below: loans equity

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5.6

guarantees financing through intermediaries

IFC Financing

The International Finance Corporation (IFC), a member of the World Bank Group, shares the primary objective of all Bank Group institutions: to improve the quality of the lives of people in its developing member countries. Today IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. IFC finances and provides advice for private sector ventures and projects in developing countries in partnership with private investors and, through its advisory work, helps governments create conditions that stimulate the flow of both domestic and foreign private savings and investment. Its particular focus is to promote economic development by encouraging the growth of productive enterprise and efficient capital markets in its member countries. IFC participates in an investment only when it can make a special contribution that complements the role of market operators. It also plays a catalytic role, stimulating and mobilizing private investment in the developing world by demonstrating that investments there can be profitable. Since its founding in 1956, IFC has committed more than $21.2 billion in financing for its own account and has arranged $15 billion in syndications and underwriting for 1,852 companies in 129 developing countries. IFC coordinates its activities with the other institutions in the World Bank Group the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA) and the Multilateral Investment Guarantee Agency (MIGA) but is legally and financially independent, with its own Articles of Agreement, shareholders, financial structure, management and staff. Its share capital is provided by its 174 member countries, which collectively determine its policies and activities. Strong shareholder support and a substantial paid-in capital base have allowed IFC to raise most of the funds for its lending activities through its triple-A rated bond issues in the international financial markets.
5.7 OPIC Funding

On July 30, 1999, during the Stability Pact Leaders Conference in Sarajevo, President Clinton announced a set of trade and investment initiatives aimed at stabilizing, transforming, and integrating the countries of Southeast Europe into the transatlantic community. OPICs role in this initiative includes: Providing a $200 million investment credit line for companies or commercial partnerships with significant U.S. participation; Establishing a regional presence to serve as a resource for the U.S. investment community;

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Working with other agencies to lead a delegation of American business leaders to Southeast Europe to meet with regional government officials and business leaders; Creating a $150 million investment fund or funds that will target the investment needs of the region.

OPICs insurance, finance, and investment funds programs support U.S. businesses of all sizes, advance U.S. foreign policy, encourage economic development in emerging markets, and generate U.S. jobs and export growth. OPIC is prepared to support U.S. companies of all sizes in Southeast Europe. These funds are newly being developed and implemented. They may be useful in terms of the short term or intermediate funding discussed above. 6.0 POLITICAL RISK AND GUARANTEES There are two different risk guarantee programs that AMBO and NEWCO will work with to seek protection: OPIC and MIGA
6.1 Overseas Private Investment Corporation (OPIC)

The Overseas Private Investment Corporation (OPIC) is an independent, selfsustaining U.S. Government agency that encourages private sector U.S. investment overseas by providing investment finance and insurance to American businesses large and small making long-term investments. OPIC services are available in some 140 developing nations and emerging markets worldwide, including all of the countries of the New Independent States. OPIC has provided more than $3.5 billion in combined project financing and political risk insurance to American companies sponsoring projects in Armenia, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Ukraine, and Uzbekistan.
6.1.1 Project Financing

OPIC offers direct loans and loan guarantees that help American companies open new businesses or expand existing ones overseas. OPICs long-term, limited-recourse project financing is available to ventures involving significant equity participation by U.S. businesses. Loan guarantees range in size from $10 million to $200 million and are typically used for larger projects, while direct loans are reserved for small businesses and cooperatives and generally range from $2 million to $30 million. Loan packages are individually structured for each project, and OPIC looks for repayment from the revenues generated by the project itself.
6.1.2 Political Risk Insurance

OPIC protects U.S. investors against political risks overseas by offering insurance for American investments that covers companies against expropriation, political violence, and currency inconvertibility. OPICs policies are available with terms up to twenty
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years and for amounts up to $200 million per project. OPIC has special programs for infrastructure development, financial institutions, leasing, natural resources, and oil and gas projects. For the coverage, companies pay market-based fees and premiums.
6.1.3 Investment Funds

OPIC provides loan guarantees to support privately owned and managed investment funds that make equity investments in new, expanding, or privatizing enterprises around the world. OPIC funds are currently operating in nearly every region of the world, including six concentrating their investments in the NIS. The investment funds are privately owned, privately managed, and make their own commercially based investment decisions. Sponsors seeking long-term growth capital for their projects should approach the appropriate fund directly. Contact the OPIC Information Officer at (202) 336-8799 for a list of these funds.
6.1.4 General OPIC Requirements

OPIC-financed projects must demonstrate a potential for positive effects on the U.S. economy. Assistance will be denied to projects that are likely to have a negative effect on U.S. employment or trade. U.S. procurement, net financial flows, and net project exports to the United States are considered. OPIC does not participate in projects subject to performance requirements that would substantially reduce the potential U.S. trade benefits of the investment. Of particular concern are trade-related performance requirements of host governments to ensure local content and minimum export levels. OPIC has a statutory mandate to support projects that are responsive to host country development needs, and which foster private initiative and competition. The contribution of the proposed project to the host countrys economic and social development is closely examined. Monopoly rights or concessions (over five years) will require special justification. OPIC is required by statute to decline to support projects that would have an unreasonable or major adverse impact on the environment of the host country. OPIC will conduct an environmental assessment of every project proposed for financing and insurance. OPIC is prohibited by statute from supporting projects that contribute to violations of internationally recognized worker rights. The investor must sign a contract with OPIC pledging to respect these rights, including the rights of association, collective bargaining and acceptable working conditions.

6.2

MIGA

In September 1985 the World Bank Board of Governors began the process of creating a new investment insurance affiliate by endorsing the MIGA Convention that defined its core mission:

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to enhance the flow to developing countries of capital and technology for productive purposes under conditions consistent with their developmental needs, policies and objectives, on the basis of fair and stable standards for the treatment of foreign investment. MIGA was also created to supplement national and private agencies supporting foreign direct investment through their own investment insurance programs. The Agency was designed to encourage foreign investment by providing viable alternatives in investment insurance against non-commercial risks in developing countries thereby creating investment opportunities in those countries. MIGAs multilateral character and joint sponsorship by developed and developing countries were seen as enhancing confidence among investors with different nationalities seeking to invest jointly in an investment project in a developing country. The MIGA Convention also gives the Agency a technical assistance mandate to carry out research, undertake activities to promote investment flows and disseminate information on investment opportunities in developing member countries, with a view to improving the environment for foreign investment flows to such countries. MIGA has carried out this mandate through provision of programs, dissemination of information on investment opportunities, and technical assistance that enhances national investment promotion capabilities in an increasingly competitive environment. MIGA is a member of the World Bank Group. Membership is open to all World Bank members. The Agency has a capital stock of SDR1 billion. The Council of Governors of MIGA on March 29, 1999 adopted a resolution for a capital increase for the Agency of approximately US$850 million. In addition US$150 million has been transferred to MIGA by the World Bank as operating capital. Some of MIGAs niches in the global market for investment insurance were foreseen as: augmenting the capacity of other public or private insurers of political risks through coinsurance or reinsurance; insuring investment in countries restricted or excluded by the policies of other national insurers or through specific policies adopted by governments; serving investors who do not have access to other official political risk insurers; providing coverage to investors of different nationalities in a multinational syndicate, thereby affording convenience in insurance contracting and claims settlement, and

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providing coverage of forms of investment not offered by other insurers and on terms designed to be more effective in encouraging investment.

MIGA provides investment guarantees against certain non-commercial risks (i.e., political risk insurance) to foreign investors in developing member countries. MIGA offers long-term (up to 15, sometimes 20, years) political risk insurance coverage to eligible investors for qualified investments in developing member countries. MIGA insures against the following risks: Transfer Restriction Expropriation Breach of Contract War and Civil Disturbance

MIGA can insure new cross-border investments originating in any MIGA member country, destined for any developing member country. New investment contributions associated with the expansion, modernization, or financial restructuring of existing projects are also eligible, as are acquisitions that involve privatization of state-owned enterprises. New investments are those that have neither been made nor irrevocably committed on the date of submission to MIGA of a Preliminary Application for Guarantee signed by the investor. In keeping with MIGAs objective of promoting economic growth and development, investment projects must be financially and economically viable, environmentally sound, consistent with the labor standards and other development objectives of the host country. MIGA insures investments in a wide range of industries. Types of foreign investments that can be covered include equity, shareholder loans, and shareholder loan guaranties, provided the loans have a minimum maturity of three years. Loans to unrelated borrowers can be insured, provided a shareholder investment in the project is insured concurrently or has already been insured. Other forms of investment, such as technical assistance and management contracts, and franchising and licensing agreements, may also be eligible for MIGA guarantees. An eligible investor is a national of a MIGA member country other than the country in which the investment is to be made. However, under certain conditions, investments made by nationals of the host country are also eligible. A corporation is eligible for coverage if it is either incorporated, and has its principal place of business, in a member country or if it is majority-owned by nationals of member countries. A stateowned corporation is eligible if it operates on a commercial basis. The program also complements national and private investment insurance schemes, through coinsurance and reinsurance arrangements to provide investors more comprehensive investment insurance coverage worldwide. The Agency recently

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revised its brokers program to encourage closer cooperation between investment brokers and MIGA.

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Feasibility Study Volume III, Environment

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AMBO
TRANS BALKAN CRUDE OIL PIPELINE FEASIBILITY STUDY VOLUME III PRELIMINARY ENVIRONMENTAL ASSESSMENT

TABLE OF CONTENTS

1.0 1.1 1.2 2.0 2.1 2.2 3.0 3.1 3.2 3.3 3.4 3.5 4.0 4.1 4.2 4.3 5.0 5.1 5.2 6.0 6.1 6.2 6.3 6.4 7.0 7.1 7.2 7.3 7.4 7.5 8.0 8.1 8.2 8.3 8.4 9.0

Introduction............................................................................................................. 1 Environmental Sensitivity of the Proposed Route .............................................. 1 Legislation and Regulation Review .................................................................... 3 Environmental Audits and Reviews........................................................................ 5 Waste Management............................................................................................. 5 Contingency Planning......................................................................................... 5 PROJECT ENVIRONMENTAL MANAGEMENT PLAN................................... 6 Environmental Effects and Public Concerns ...................................................... 7 Environmental Performance Monitoring ............................................................ 7 Auditing of Environmental Plan Procedures ...................................................... 7 Contractor and Supplier Control......................................................................... 7 Quality Assurance............................................................................................... 7 Summary ................................................................................................................. 7 Identification of Potential Impact Factors........................................................... 7 Construction Phase.............................................................................................. 8 Operating Phase ................................................................................................ 12 IDENTIFICATION OF POTENTIAL IMPACTS ............................................... 13 Potential Environmental Impacts ...................................................................... 13 Methodology for Assessment of Impacts ......................................................... 15 Environmental Baseline Conditions ..................................................................... 16 Identification of Study Area.............................................................................. 16 Route Construction Characterization................................................................ 25 Pipeline Facilities Locations ............................................................................. 27 Pipeline Construction Methods......................................................................... 27 Coastal Erosion and Sea Conditions ..................................................................... 35 Coastal Management......................................................................................... 35 Coastal Erosion ................................................................................................. 36 Sea Conditions .................................................................................................. 37 Bourgas Harbor................................................................................................. 38 Vlor Port.......................................................................................................... 42 Environmental Management & Risks ................................................................... 43 Identification of Mitigatory Measures .............................................................. 43 Environmental Management ............................................................................. 45 Aquatic Environment ........................................................................................ 47 Waste Characterization ..................................................................................... 47 Project Environmental Management Plan ............................................................ 48

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9.1 9.2 9.3 9.4 9.5 9.6 9.7

Offshore Unloading at Bourgas ........................................................................ 48 Bourgas Storage and Metering Facility ............................................................ 48 Cross-Country Pipeline..................................................................................... 48 Vlor Storage and Metering Facility................................................................. 49 Offshore Loading at Vlor ................................................................................ 50 Power Supply to Facilities Along the Route..................................................... 50 Pump Stations ................................................................................................... 50

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LIST OF TABLES

Table 3.1 ........................................................................................................................... 51 Table 3.2 ........................................................................................................................... 53 Table 3.3 ........................................................................................................................... 56

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AMBO TRANS BALKAN CRUDE OIL PIPELINE FEASIBILITY STUDY VOLUME III PRELIMINARY ENVIRONMENTAL ASSESSMENT 1.0 INTRODUCTION As the environmental issues regarding the construction and operation of an oil pipeline may be the subject of some concern, AMBO has included below an initial indication of these concerns and mitigating measures envisaged to counter potential problems. The subject matter covered includes both design aspects as well as construction and operation risks. Environmental management through the life cycle of the project will provide benefits by minimizing environmental risks, decreasing scheduling delays and engineering redesign, and reducing adverse third party comment and interference. To achieve these objectives the environmental systems are contained in a Project Environmental Management Plan, and Environmental Risk Management Plan and implemented by on-site environmental supervision during construction and commissioning. The aim of the Environmental Management Plan is to provide a consistent set of procedures to monitor and control environmental performance and systematically implement cost effective activities during the Design, Construction and Commissioning phases of the project. An international environmental engineering company will be responsible for the development and management of the Project Environmental Plans and the On-site Environmental supervision. It is expected that local environmental subcontractors will make a large contribution to the development and implementation of the work. The proposed Environmental Plans will satisfy existing national and international legislation and regulations and funding agency guidelines. As the project develops, different aspects of the systems and plans will be implemented and at each stage there will be a tie-in between the Environmental Plans and the engineering of the project. The Environmental Plans should be reviewed at the commencement of each phase and revised as appropriate.
1.1 Environmental Sensitivity of the Proposed Route

The proposed route crosses significant areas of forest and runs through Conservation protected areas. The proposed route also passes near European Union CORINE sites (similar to international Sites of Special Scientific Interest).

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There are internationally important ecological sites on the coasts close to the proposed terminals. These wetlands are under threat from inappropriate farming practices, aquaculture and pollution. Endangered marine species in the area include the Loggerhead and Green Turtle, the Harbour Porpoise and the Mediterranean Monk Seal (in the case of the Albanian coast). There is the potential for the project to provide significant environmental improvements by introducing improved environmental management practices. These internationally important ecological sites are expected to provide feeding and nesting grounds for endangered and threatened birds and mammals, and to provide significant stop-overs for migrating birds. Detailed safeguards would be provided for the protection of the individual sites and along the routes through forest areas. Additional forest clearing along the Right of Way would be avoided. There are a significant number of globally threatened and environmentally listed plants within Bulgaria, Macedonia and Albania. Most species are expected to occur in the mountainous regions, along river corridors or in wetlands. It is not known how many internationally protected plant species exist along the proposed Right of Way, but a botanical survey would be undertaken prior to construction as part of the Environmental Impact Assessment. (EIA). At this stage, we do not expect any problems and we have not been informed of any potential threats. It is unlikely that the proposed route will significantly affect endangered terrestrial animals, provided best construction practices are followed. This would be confirmed prior to construction. While the Right of Way follows a road alignment, it is not likely that there would be disturbance to archaeological sites or significant environmental impacts during the construction phase. Where the Right of Way is not alongside a road, known archaeological sites would be located as part of the EIA and the pipeline route would be modified to avoid them. There would be on-site environmental supervision during the construction phase and any additional archaeological sites found would be investigated. At this writing we have identified the area in Macedonia around Lake Ohrid and Prespa and four smaller sites in Bulgaria: Reserve Atanasovo Lake Nature Park Vitosha Reserve Ostrica National park Rila

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The envisioned route of the AMBO pipeline has been identified by a group of experts appointed by the government of each of the three countries. In the case of Bulgaria the route passes near, but not within the four ecologically restricted areas. For the Lake Ohrid ecological area, the route of the pipeline was chosen by the Macedonian team of experts to minimize environmental impact. As AMBO progresses with the FEED study, we will review the planned route with the group to make sure it is still the most environmentally sound route.
1.1.1 Environmental Management

The work is divided into three major sections, the development of the Environmental Risk Management Plan, the development of the Environmental Management Plan and On-site Environmental supervision during the construction and commissioning phases. The Environmental Risk Management Plan contains all the procedures for assessing and controlling the environmental risks and liabilities. The results of this work would be integrated with the engineering work during the design, construction and commissioning phases. The Environmental Management Plan will provide the framework for controlling the environmental performance and will demonstrate that the project meets the compliance standards set by the European Union and the individual countries.
1.1.2 Environmental Risk Management Plan

The Environmental Risk Management Plan provides the detailed procedures to assess the risks and liabilities to the environment and includes:
1.2

Environmental Legislation, Regulations and Performance Standards Environmental Screening Environmental Impact Assessment Environmental Audits and Reviews Waste management Contingency planning

Legislation and Regulation Review

The environmental standards to be adopted for the project would be established following a review of environmental legislation and regulations for each country and also of pertinent international agreements. The standards adopted will be the same for the whole project, in Bulgaria, Macedonia and Albania.

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Environmental Screening will identify significant environmental issues and risks as the project develops through defined engineering phases. It will also be used to focus the EIA work effort on the significant issues and sensitive locations.
1.2.2 Environmental Impact Assessment

The EIA would be performed to meet the defined requirements set out in the latest European Union Directive and would include appropriate issues addressed in The Environmental Assessment Guidelines of the World Bank. The effects of permanent and temporary installations and use of existing facilities (e.g. access roads, port facilities) would be included together with the consequences of indirect impacts such as those arising from the supply of power, for example. Temporary installations would include construction camps and storage depots. The EIA would identify waste materials and chemicals used in the construction and commissioning of the pipeline and their means of disposal. The EIA would include the following major tasks amongst others: Baseline survey - offshore and onshore data collection to be conducted together with a survey of the pipeline route. This survey would record existing environmental and social conditions. The environmental recording would include: ecological studies (flora, fauna, habitat etc) benthic surveys assessment of existing pollution (water quality, contaminated land) soil erosion surface water (flows, abstraction points, runoff/sedimentation) ground water (abstraction points) seismic activity land use population

Fishing resources survey - review of fishing resources in the rivers and near each of the terminals (by country, breeding and fishing grounds, economics, existing resource use etc.) with the intention of reducing liabilities.

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Archaeological survey review of the terminal sites and pipeline route to identify locations of archaeological sites in order to prevent damage or loss during construction. Socio-economic survey - assessment of the effects of the project, including industrial development, water resources etc. Production of Environmental Impact Statement (EIS) - the EIS is the formal report incorporating all the previous tasks. It would identify impacts and mitigation options. 2.0 ENVIRONMENTAL AUDITS AND REVIEWS A schedule of environmental audits/reviews will be developed during the initial phase of the project to monitor site activities and the effectiveness of the Project Environmental Management Plan and associated procedures. Reviews and audits will be carried out during the execution of the project, including reviews of drawings, specifications and other documents to verify that environmental objectives and requirements have been satisfied, and audits of site operations at key stages and locations during the construction phase will be conducted to ensure procedures are followed in the field. Particular emphasis will be placed on reviewing activities carried out in environmentally sensitive areas.
2.1 Waste Management

The Waste Management Plan defines the waste and potential discharges to air, ground and aquatic environments. The wastes for all stages of the project would be characterized, quantified and disposal routes identified. The aim would be to reduce costs and liabilities associated with all kinds of waste from the project. Procedures would be developed to ensure compliance with statutory and good practice requirements relating to the production, handling, transport, storage, treatment and disposal of waste. Wastes to be generated during the course of the project will be identified during the initial phase of the project and procedures will be implemented to ensure the appropriate handling of these wastes. In addition, waste management records would be maintained including the types and volumes of wastes generated, duty of care transfer notes, special waste consignment notes, copies of the registration documents of all carriers used and copies of waste disposal site licenses.
2.2 Contingency Planning

The contingency plan would be developed by Environmental and Safety specialists to ensure that the procedures are developed and implemented so that there is an adequate and acceptable response to any uncontrolled leak from the

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pipeline or associated facilities. Different integrated plans would be developed for each installation and location including the offshore loading, terminals, and pipeline and intermediate pump stations. The contingency plans would contain procedures identifying the action to be taken in the event of an environmental pollution incident including whom to contact, location of oil spill response equipment and actions to be taken. Particular attention will be given to the protection of the aquatic environment during operation. Oil will be removed from waterways and other liquids used in the pipeline commissioning will not be directed to any waterway unless toxicological reviews show the liquids to be harmless to biological organisms. 3.0 PROJECT ENVIRONMENTAL MANAGEMENT PLAN The aim of the Project Environmental Management Plan is to ensure that not only are legal requirements met, but that all measures necessary to protect the environment are documented and undertaken. The Environmental Management Plan will effectively set the environmental standards for the project and will address the following components: Environmental Effects and Concerns Environmental Performance Monitoring Auditing of Environmental Plan Procedures Contractor and Supplier Control Quality Assurance

The Environmental Management Plan ensures that environmental concerns are addressed at all stages of the project activities. During the design phase, there would be close collaboration between the environmental and engineering design teams. The Environmental Screening procedures and EIA would be used to ensure the design meets the required environmental performance standards. This would reduce costs by decreasing redesign and contributing to optimizing the route. The Environmental Plan provides the procedures for the monitoring and auditing of environmental performance during the construction phase. These procedures are linked with those in the Environmental Risk Management Plan which sets out how the different environmental liabilities would be managed during the project. In the construction phase, there would be on-site supervision to ensure that environmental standards in the Plans are met and the potential liabilities are controlled and minimized.

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Environmental Effects and Public Concerns

A Community Liaison Plan would be developed to provide pro-active consultation between the Project and the public. Procedures would meet the requirements of national and local governments and funding institutions.
3.2 Environmental Performance Monitoring

A monitoring program would be undertaken to ensure that environmental objectives were being met. The program would be focused on important issues and concerns identified in the Environmental Risk Management Plan.
3.3 Auditing of Environmental Plan Procedures

To ensure that the specified project procedures are being followed, a number of audits would be performed at key milestones covering the high-risk locations and activities.
3.4 Contractor and Supplier Control

AMBO has procedures for the assessment and monitoring of supplier and subcontractor environmental performance. Environmental questionnaires will be sent to subcontractors and key suppliers requesting information on their environmental performance. All suppliers and subcontractors would work to a common AMBO environmental policy and project environmental requirements. Any deficiencies in performance standards would be corrected before the subcontract begins.
3.5 Quality Assurance

All environmental work would be supervised by an Environmental engineering company and subject to the Quality Assurance procedures. All work done by the contractor or subcontractors would be to the British Standard of BS5750, or its equivalent, the IS09000 standard. 4.0
4.1

SUMMARY
Identification of Potential Impact Factors Selected Route of the Pipeline

The pipeline will originate at the Bulgarian Port of Bourgas and terminate at the Albanian Port of Vlor crossing three countries; Bulgaria, Macedonia and Albania. The transportation of oil takes place in a mountainous region. The design throughput is 750,000 bpd. The entire pipeline system is to be designed to 600 ANSI system. The pipeline size is 36 

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The unloading facilities at Bourgas include 2 CALM at a suitable location with 42 VWHHO SLSHOLQHV WR VKRUH 7KH ORDGLQJ IDFLOLWLHV DW 9ORUs LQFlude a 46 VWHHO pipeline with one CALM type buoy system for tankers loading at a suitable location in Vlor bay. Oil will be metered and stored at the new terminal tankage located inshore from Bourgas. The design philosophy is to maximize the pipeline asset utilization and system availability to transport oil from Bourgas to Albania. Catastrophic failure could take place due to the fact that the pipeline passes through high intensity earthquake zones.
4.2 Construction Phase

During the construction phase, other actions are expected to mitigate any residual impacts. They focus on phasing construction activities in order to control interference with local communities and include: noise control; limitation of land occupation; limitation of interference with existing facilities and infrastructures, maintaining and reinstating native ground cover. In this section the main phases of the pipeline construction are described, with the aim of pointing out possible interactions with, and alterations of, the environment. The impacting factors related to the construction phase are identified and summarized.
4.2.1 Onshore Pipeline Installation

It is noted that onshore pipeline will be underground along the route, and laying will be implemented by trench excavation. During onshore pipeline installation the following operations will be conducted, which may originate potential environmental impacts: surveying right-of-way (ROW) clearing and site preparation ditching or trench excavation laying, including lining-up and welding backfilling cleanup and landscape reinstating

A positive, yet temporary, impacting factor is related to the need of local laborers for pipeline installation (job opportunities).
4.2.1.1 Surveying, ROW Clearing and Site Preparation

A working Area (WA), i.e. a strip on the ground on the horseback of the pipeline axis, will be prepared for construction activities. Typical Right-ofWay (ROW) width will be 15 - 20 meters. Within the WA all the construction activities for the pipeline assembly will be developed. WA width will also

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include the area for the storage of excavated material, and the slope side cut and fill. Geological and topographical surveys will be conducted. Other existing structures within WA (electric power, telephone or other distribution lines, above or below ground; lamp post, traffic signposts and panels; cables, etc.) will be identified. Impacts may be potentially generated from the following factors1: surface disturbance due to WA grading different from original profile dust production due to earthworks hydrologic interactions, due to trenching and water stream and channel crossing. Pipeline crossing in main water streams and channels will require increased depth of cover (minimum depth of 3 meters) and reinforced coating. Pipeline crossing of secondary channels will be performed through horizontal drilling, with a minimum allowable depth of 1 meter under the channel, and with mechanical protection up to 1.5 meter depth road transportation (traffic of heavy-duty machinery and pipe) and temporary road diversions, road downtime due to pipeline sections installed across communication ways waste production and dumping of excess material from trench excavation interference with human activities, due to accidental breakage or damage of underground services (electrical or telephone cables or other underground facilities) interference with human activities, due to temporary interventions for keeping all sewers, drainage and other natural water courses open and functional.

The following impacting factors are related to laying: noise emissions hydrologic interactions, due to creation of a physical barrier and/or preferential drainage route;2 road transportation (traffic of heavy-duty machinery) and temporary road diversions, road downtime due to pipeline sections installed across communication ways

While we are listing all of these possibilities, we believe that they are very unlikely to occur with sound construction precautions and careful monitoring of activities. 2 These should, of course, be designed out of the construction phase.

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Backfilling, Cleanup and Landscaping

As indicated above, the onshore pipeline will be buried. Trench backfilling may result in adverse impacts due to the necessity of using proper sand gravel instead of the excavated material, for trench padding. If the excavated materials do not meet the requirements for backfilling, the subsequent excess material will need to be disposed of properly. Main potential impacting factors of backfilling are the following: dust production due to earthworks noise emissions due to heavy-duty equipment and operations not compatible soil cover for replanting native vegetation3 traffic generation due to operations

Potential positive impacting factors on surface disturbance, habitat disturbance and interference with human activities are expected from cleanup and landscaping operations, aimed at reducing any affects on surface environment along the route. Cleanup may generate waste to be disposed of.
4.2.2 Offshore Pipeline Installation

Surveying for offshore pipeline installation should have no environmental impact upon local activities, fishing, or marine habitat. Installation of the pipeline in the offshore route section will involve laying the pipeline on the bottom, except at the landfall and near-shore area, where trenching and erosion protection measures are envisaged. Laying may temporarily impact the marine environment, resulting in the loss of benthic and bottom-feeding organisms. Laying and trenching may originate the following impact factors: surface disturbance for trenching operations which may determine temporary impact due to re-suspension and subsequent re-disposition of bottom sediments habitat disturbance, which may determine temporary habitat and organism loss interference with human activities (mainly fishing)

Most of these impacts should be minimal, however. A positive, yet temporary, impacting factor is related to the need of local workers for pipeline installation (job opportunities).

This is easily handled by replacing with top soil.

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Feasibility Study Volume III, Environment 4.2.3 Terminal Construction

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The construction activities of the Bourgas Terminal and the Vlor Terminal may originate potential impacting factors for the surrounding environment. Specifically, they will comprise the following; surveying operations site preparation tank and facility construction cleanup and landscaping

Surveying for terminal installation may originate the following impacting factors: disturbance of terrestrial habitat interference with human activities (mainly agriculture at the two Terminals)

Site preparation activities will generate the following impacting factors: surface disturbance due to site grading different from original profile particulate and noise emissions from operations and heavy-duty equipment terrestrial habitat disturbance traffic generation interference with human activities, such as agriculture and operations at the two terminals

The potential impacting factors due to facility construction at the two terminals are the following: particulate/dust emissions noise emissions waste production from construction operations, to be disposed of traffic generation due to influx of construction crews

As indicated for the pipeline installation, potential positive impacting factors on surface disturbance, habitat disturbance and interference with human activities are expected from cleanup and landscaping operations, aimed at reducing any localized effects on surface environment. Cleanup may generate waste to be disposed of.

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Feasibility Study Volume III, Environment 4.3 Operating Phase

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Marking and mapping of locations of buried pipelines and sea lines will be adopted from the start of the construction phase. Appropriate procedures and measures to prevent accidental spills and leaks and to contain impacts and clean up in case of such an accidental event. Environmental monitoring and leak monitoring, as well as training of staff are also included. These measures are part of the Environmental Rehabilitation Plan for the pipeline system development, which will be implemented by AMBO. Mitigation of indirect impacts is primarily related to the implementation of the mitigating measures envisaged to control direct impacts. The impacting factors related to the operating phase are identified and summarized in a specific matrix of project activities and potential impacting factors (Table 3.1). During the operating phase, specific activities that may result in potential impacting factors are materials handling and transportation oil storage operations loading operations maintenance and inspection of equipment (pipeline, terminals, loading facility) periodic route inspections pigging operations to clean the pipeline internal surfaces

Potential impacting factors during operations are the following: noise emissions from daily operations and material transportation. It is expected that these emissions are limited habitat disturbance due to loading operations with visiting tankers, and period route inspections waste production from pigging. This will also include run-off drainage at the terminal areas, potentially contaminated by oil traffic generation due to influx of workers to terminals, material transportation, and periodic route inspections interaction with human activities (fishing near the sea line route)

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Potential impacts may originate from accidental events (from catastrophic ruptures or long-term phenomena, such as corrosion due to aggressive environment), which are typically associated with oil pipelines and oil storage and loading facilities, such as accidental leaks or ruptures along the pipeline which may result in onshore or offshore oil spills, and transport of oil compounds to groundwater or seawater accidental spills in the terminal facilities

Potential positive impacting factors at a larger scale are related to up-to-date installations, which will be characterized by high environmental control and European design standards. In addition, the new development will generate job opportunities and will be conducive of economic benefits due to improvement of general oil related activities. In the nearshore and offshore areas respectively, the planned erosion protection structures and the unburied pipeline will likely create habitat for marine organisms attracted to the new artificial reefs. 5.0 IDENTIFICATION OF POTENTIAL IMPACTS This section is devoted to the identification and assessment of the positive and adverse impacts (direct and indirect) likely to result from the proposed pipeline project, based on available environmental data and project design information. Potential impacts are categorized as significant and minor, as well as shortterm and long-term impacts.
5.1 Potential Environmental Impacts

Offshore, nearshore, and onshore oil pipelines may have different potential environmental impacts. Their magnitude is predicted based on the type and size of the pipeline installed; their significance is discussed based on the degree to which natural and social resources are affected. Potential adverse impacts of onshore installations (pipeline and terminals) may include the following aspects: impacts on air quality, due to temporary dust production and traffic generation during construction, and due to controlled gaseous emissions from power generators increase of ambient noise levels, due to construction operations and traffic generation habitat and organism loss, due to habitat disturbance during construction and operations

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erosion in the vicinity of the pipeline ROW and impact on water quality due to runoff and sedimentation, during pipeline installation alteration of hydrological patterns due to earthworks during construction, and due to creation of a preferential drainage route temporary loss of land use, due to ROW clearing, and route and terminal construction increased vehicular traffic, due to traffic generation for construction activities and influx of workers potential contamination of soils, surface water and groundwater, due to waste production (excess excavated materials to be disposed of during construction, and waste produced by pipeline operations and maintenance) potential contamination of soils, surface water and groundwater, and ambient air due to accidental ruptures and leaks during operations minor, temporary impacts of communities and residential areas, due to surface disturbance and interference with important social (including agricultural) and cultural land uses

Potential adverse impacts of the offshore installations (pipeline and loading facility) may be temporary re-suspension of common sediments and/or toxic sediments in contaminated areas, during construction loss of benthic and bottom-feeding organisms impairment of the water quality immediately above the pipeline or due to shipping operations impairment of fishing activities obstacles for shipping during operations potential contamination of sea water and coastal environment due to accidental ruptures and leaks during operations

Potential positive impacts from the new development are the following: local economic improvements and secondary development due to creation of job opportunities during construction and operations containment and minimization of environmental contamination due to construction of up-to-date facilities indirect impact on local communities in terms of improved environmental, safety and health protection

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Relevant mitigating measures have been screened and identified. Most of the significant potential impacts of the pipeline will be reduced or contained by route selection. The residual potential impacts are considered acceptable, provided that appropriate environmental management and protection are implemented. Some of the mitigating measures have been already incorporated in the basic design; other measures, such as minimizing corridor requirements, laying pipeline versus burying pipeline in offshore areas to minimize re-suspension of sediments, burying pipeline in upland and near-shore areas, minimizing use of fill, minimizing offsite land use impacts during construction, restoring disturbed land along the corridor, installing cathodic protection, will be identified during the environmental assessment, then discussed and agreed with the design development team. Additional mitigating measures have been identified and they will be fully developed in the detailed design: they include all the measures to minimize gaseous emissions from facilities, as well as the definition of the most appropriate clearing technique to maintain native vegetation near the onshore corridor, and final landscaping.
5.2 Methodology for Assessment of Impacts

An environmental impact is defined as a change in one or more of various socioeconomic and biophysical characteristics of the environment. Environmental impact assessment is, therefore, a prediction of the probably changes which may result from the proposed action. Potential impacting factors may arise from facility construction and pipeline installation, which in upland areas may involve right-of-way (ROW) cleaning, ditching, pipe preparation, placement in ditch, backfilling and cleanup. The installation of pipeline in offshore areas will involve laying the pipeline on the bottom, or trenching and pipeline burial. The identification of the specific problems that may arise from the project construction and operation phases, and the range of interventions and proposed actions, was therefore conducted. The results are presented according to appropriate checklists of project activities and potential impacting factors in Table 3.1 in the back of this volume, which are related in a matrix to identify the specific relationships.

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6.0

ENVIRONMENTAL BASELINE CONDITIONS For the study area, where the alternative routes are located, a detailed analysis of the environmental baseline conditions is developed in this section based on available, data and information. Specifically, the following environmental aspects and components are described:

site description and study area meteo-climatology and air quality landform (topography, geology, soils) hydrology, water quality and groundwater resources ecologyflora and fauna water resource uses
population cultural and archaeological sites

6.1 6.1.1

coastal erosion and sea conditions

Identification of Study Area Bulgaria Routing

Climate Considering its small area, Bulgaria has an unusually variable and complex climate. The country lies between the strongly contrasting continental and Mediterranean climatic zones. Bulgarian mountains and valleys act as barriers or channels for air masses, causing sharp contrasts in weather over relatively short distances. The Balkan Mountains just to the north of the pipeline routing are the southern boundary of the area in which continental air masses circulate freely. The Rhodope Mountains just to the south of the pipeline routing mark the northern limits of domination by Mediterranean weather systems. The area between, which includes the pipeline routing along the Thracian Plain, is influenced by a combination of the two systems, with the continental predominating. This combination produces a plains climate along the pipeline route in central Bulgaria that resembles that of the Corn Belt in the United States, with long summers and high humidity. The climate in this region is generally more severe than that of other parts of Europe in the same latitude. Because it is a transitional area, average temperatures and precipitation are erratic and may vary widely from year to year.

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Average precipitation in Bulgaria is about 630 millimeters per year. The Black Sea coastal area and parts of the Thracian Plain usually receive less than 500 millimeters. The rest of the Thracian Plain gets less than the country average and is often subject to summer droughts. Higher elevations, which receive the most rainfall in the country, may average over 2,540 millimeters per year. The mountains are covered by heavy snowfalls in winter. The many valley basins scattered through the uplands have temperature inversions resulting in stagnant air. Sofia, which is located in a basin along the pipeline route, has an elevation (about 530 meters) that tends to moderate summer temperature and relieve oppressive high humidity. The city also is sheltered from the northern European winds by the mountains that surround its troughlike basin. Temperatures in Sofia average -1 degrees C in January and about 19 degrees C in August. The citys rainfall is near the country average, and the overall climate is pleasant. The coastal climate is moderated by the Black Sea, but strong winds and violent local storms are frequent during the winter. The temperate climate produces warm, dry summers. The reader is referred to Volume IV, Table 4-1 which gives temperature and rainfall data for the following Bulgarian cities along the pipeline route: Bourgas, Sliven, Plovdiv, and Sofia. Terrain and Crops Available references indicate that the cross-country pipeline begins at the Bourgas Terminal in an area of wine and grape production along the routing. After the pipeline turns west, southwest at Karnobat, the route again passes through wine-grape and grain production areas on the Thracian Plain for significant distances all along the way to and past Plovdiv. As the pipeline route approaches and passes Sofia, significant grain production areas are found along the pipeline routing. Overall terrain along the pipeline routing is delineated in Section 6.2. Geology The predominant surface geological structure around the Bourgas Terminal is marine deposits. Proceeding along the pipeline alignment toward the Bourgas area, sections of Holocene solid and Eocene and Paleocene are encountered. As the route passes northwest towards Karnobat, Eocene and Paleocene and "Pleistocene inferior and Rumanian Apcheronien and Akchagylien are encountered along with a small length of Sedimentary rock with insertions of volcanics and pyroclastics. The main geological structure from Karnobat southwestward along the route to the Nova Zagora area and on to Stara Zagora is Pleistocene inferior and

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Rumanian Apcheronien and Akchagylien. To the southwest of Stara Zagora, the pipeline alignment again encounters sedimentary rock with insertions of volcanics and pyroclastics. Proceeding from Stara Zagora to the Plovdiv area the pipeline route is in either the Holocene solid or Tertiaire - Neogene essentially continental geological structures. These structures dominate along the route on past Pazardzik. The geological structure becomes considerably more varied along the pipeline route from just past Pazardzik as it proceeds to and around Sofia. A considerable length of Granite and quartz is first encountered and then Ultra basic rock. The structure becomes even more varied leaving Sofia and headed south westward past Kjustendil and on to the Macedonia border. The following type geological structures are found along this segment of the route: Tertiaire Paleogene, essentially continental, Tertiaire Neogene essentially continental, and Precambrien superior, partly marble. Logistics The new Bourgas Terminal is located on the coast near established port facilities that can be utilized to import required equipment and materials for the Trans Balkan Crude Oil Pipeline Project. Also, from the above description, the reader will note that the proposed pipeline route in Bulgaria follows established transportation routes within the country. Major railways and highways/motorways are generally in close proximity to the route throughout its length. However, the magnitude of materials and equipment to be transported to the Terminal and pipeline right-of-way is very large with respect to the expected capacity of these transportation facilities. Therefore, this project will place a significant stress on the local transportation facilities. Brown & Root's pipeline construction cost estimating computer program requires a ranking for project logistics and accessibility. The possible rankings are: Poor, Moderate, and Good. For purposes of this study, Bulgaria will have an overall ranking of Good.

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Crossings Available information resources were used to estimate the number of river, railroad, and bored highway crossings along the pipeline route in Bulgaria: Crossing Type River Minor Moderate Major Railroad Bored Highway 79 16 3 13 34 Number

6.1.2

Macedonia Routing

Climate A large part of Macedonia is a high plateau 600 - 900 meters above sea level, the rest is mountainous. The climate is continental. Rain is heaviest in the summer and there are significant snow falls in winter. The reader is referred to the Table 4-1, Volume IV for specific weather conditions at Skopje - Petrovec, Prelip, Bitola, and Ohrid. Terrain and Crops As the pipeline route enters Macedonia from Bulgaria, land use is classified as Pastures and Valley Farming for approximately 33% of the distance to Kumanovo. As the route nears Kumanovo, the land use classification changes to Field Crops such as wheat, corn, and sunflowers. Cotton and rice are found along the route in the Vardar River valley. Field Crops are found along the route past Veles and approximately 25% along the route to Prilep. Approximately, 20% of the proposed route between Veles and Prilep is Forest. Most of the proposed routing between Prilep and Bitola is classified as Field Crops (as defined above). Between Bitola and Lake Ohrid along the proposed pipeline route, the predominant land use classification is Pastures and Valley Farming. The reader is referred to Section 6.2 for a further description of the terrain in Macedonia.

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Geology Geological references classify the pipeline segment entering Macedonia to be in General rock for a relatively short distance before transitioning into Marine sedimentary rock for a longer distance. As the route continues south westward north of Highway E871 Granite is encountered and also a segment of General rock (tuffs, ignimbrites, pyroclastites). The route turns generally southward before reaching Kumanovo and encounters Basalt; basic rock and alkalines and Marine rock in the Vardar River area before nearing the city of Veles. As the route continues south past Veles and proceeds to Bitola, Marine rock is first encountered along with a narrow strip of Granite and finally a large region of Essentially non-divided river sediments. These River sediments continue as the pipeline turns westward from Bitola proceeding to Ohrid. Around Lake Ohrid, considerable sections of the route are in Marine sedimentary rock and Marine sedimentary rock with insertions of basic rock (basalt, lava). Logistics From the above description, the reader will note that the proposed pipeline route in Macedonia follows established transportation routes within the country. Major highways/motorways are generally in close proximity to the route throughout its length. There is also some moderate amount of rail access to the general pipeline right-of-way. However, the magnitude of materials and equipment to be transported to the pipeline right-of-way is very large with respect to the expected capacity of these transportation facilities. Therefore, this project will place a significant stress on the local transportation facilities. It should also be remembered that any materials/equipment transported to Macedonia must first pass through other countries (Albania, Bulgaria, etc.) over considerable distances and, in the case of Albania, difficult terrain. Brown & Root rank the geography in Macedonia as good to moderate.

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Crossings Available information resources were used to estimate the number of river, railroad, and bored highway crossings along the pipeline route in Macedonia: Crossing Type River Minor Moderate Major Railroad Bored Highway 47 7 3 5 19 Number

6.1.3

Albanian Routing

Climate Albania's climate is mild temperate with cool, cloudy, wet winters and a January low of 5 degrees C. Summers are hot, clear, dry with July highs of 28 degrees C. The interior of the country is cooler and wetter. With its coastline facing the Adriatic and Ionian seas, its highlands backed upon the elevated Balkan landmass, and the entire country lying at a latitude subject to a variety of weather patterns during the winter and summer seasons, Albania has a high number of climatic regions for so small an area. The coastal lowlands have typically Mediterranean weather; the highlands have a Mediterranean continental climate. In both the lowlands and the interior, the weather varies markedly from north to south. The lowlands have mild winters, averaging about 7 degrees C. Summer temperatures average 24 degrees C, humidity is high, and the weather tends to be oppressively uncomfortable. In the southern lowlands, temperatures average about five degrees higher throughout the year. The difference is greater than five degrees during the summer and somewhat less during the winter. Inland temperatures are affected more by differences in elevation than by latitude or any other factor. Low winter temperatures in the mountains are caused by the continental air mass that dominates the weather in Eastern

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Europe and the Balkans. Northerly and northeasterly winds blow much of the time. Average summer temperatures are lower than in the coastal areas and much lower at higher elevations, but daily fluctuations are greater. Daytime maximum temperatures in the interior basins and river valleys are very high, but the nights are almost always cool. Average precipitation is heavy, a result of the convergence of the prevailing airflow from the Mediterranean Sea and the continental air mass. Because the convergence usually comes at the point where the terrain rises, the heaviest rain falls in the central uplands. Vertical currents initiated when the Mediterranean air is uplifted also cause frequent thunderstorms. Many of these storms are accompanied by high local winds and torrential downpours. Lowland rainfall averages from 1,000 millimeters to more than 1,500 millimeters annually, with the higher levels in the north. Nearly 95 percent of the rain falls in the winter. Rainfall in the upland mountain ranges is heavier. Adequate records are not available, and estimates vary widely, but annual averages are probably about 1,800 millimeters and are as high as 2,550 millimeters in some northern areas. The seasonal variation is not quite as great in the coastal area. The higher inland mountains receive less precipitation than the intermediate uplands. Terrain differences cause wide local variations, but the seasonal distribution is the most consistent of any area. Terrain and Crops In 1991, cultivable land in Albania amounted to about 714,000 hectares, about 25 percent of the countrys total area. Arable land and permanent croplands totaled about 590,000 hectares and 124,000 hectares, respectively; permanent pasturelands accounted for another 409,528 hectares. More than 100,000 hectares of the cultivable land had a slope greater than 30 percent and was allocated almost entirely to permanent tree crops such as olives. Forests and woodlands covered more than 1 million hectares, or 38 percent of the total land area. The soils of the coastal plain and eastern plateau are fertile, but acidic soils were predominant in the 200,000 hectares of cropland in hilly and mountainous areas. Large scale drainage projects begun after World War II turned marshes into fertile fields in Albanias lowlands, and the countrys Mediterranean climate offers ideal conditions for cultivating fruits and vegetables. The proposed pipeline route from the Vlor Port area to the city of Elbasan is in an area classified as the Albanian Southern Coastal Plains and Associated Hills. This area has plains and low hills with moderate slopes and elevation ranging from 0 - 600 meters. As stated above, former marshes and swamps were reclaimed in the 1950s and are now under intensive cultivation. The only

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remaining swamp of any importance is Kuna near Lezha, which is now a nature park. A wide range of cereals, forage, vegetable, oil crops, and tobacco are cultivated in flat areas; and olives, vines, and fruit trees, on the hills. The Vlor area is famous for its wine and olives. Fier is an agricultural center surrounded by fertile plains. Elbasan is located in the plain of the Shkumban River and is known for its olives, oranges, persimmons and figs. This is the most important agricultural area of the country, however, low lying land is subject to flooding if the drainage systems do not operate. Soil erosion is now rampant on sloping land. The average rainfall in this region is 900 - 1100 mm, with 80% falling from October to March and a dry season for about three months in the summer. Summers have a mean temperature of 26 degrees C and mean humidity of 60 percent, while winters are cool and wet with mean temperatures in December and January of 9.8 degrees C to 11. 8 degrees C. The dominant soils in sloping areas are Haploxerolls and Haploxeralfs. Flat areas are covered by deep soils of heavy texture: Xerochrepts, Endoaquerts, Haploxererts, and Haplosalids. Fibric Medisaprists have also been identified within this region. Xeropsamments occupy the beaches and sand dunes. The soil temperature is thermic and the soil moisture regime is xeric. The proposed pipeline route from Lake Ohrid westward then northwestward (before turning southwestward) is in a region classified as Southeastern Mountains. In this region, natural vegetation is made up of beech, pine, and oak forests. They are intensively exploited by the timber industry and therefore reforestation is urgently needed. Annual precipitation is 1000 - 1100 mm. Most of the rainfall is from late fall to early spring. Heavy snow is also common. The driest months are July and August. Maximum summer temperatures are below 25 degrees C while minimum winter temperatures may reach -20 degrees C. The majority of upland soils are shallow and heavily eroded with Ochrepts, Lithic Haplumbrepts and Lithic Cryumbrepts. Different soils are found in the valleys with Rhodustalfs typically in the valley of Shkumbin in Librashd. The soil moisture regime is ustic and udic and the soil temperature is mesic and frigid. The proposed pipeline route segment running southwestward along the Shkumban River valley into Elbasan is classified as Albanian Southern Steeplands and Associated Valleys. Generally in this area, slopes are steep to moderately steep with some mountains with small valleys, where farming takes place. Main crops are cereals, beans, forage, and vegetables. Sloping lands are used for fruit trees, olives, and vines. Forests occupy the higher elevations. The average elevation varies from 600 to 1000 meters. Average annual rainfall is 600 - 1000 mm, with a dry season of two to three months with much of the precipitation occurring from October to March. Summers are hot and winters mild. Shallow residual soils are found on the hills, with colluvial soils on the side slopes of the mountains. Erosion is often more severe than in other regions. Generally, reforestation and appropriate land management is urgently needed in this region to avert degradation of the soil resources. The dominant

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soils found on slopes are shallow Ochrepts or bare rock. Intermediate valleys have Fluvents, Aquents, Ustalfs, and Ustolls, and they have a finer texture and granula structure. The soil moisture regime is ustic and the soil temperature regime is thermic. In the Vlor Port area, land use is classified as Permanent Crops (olives, grapes, and citrus) for approximately twenty (20) percent of the way along the pipeline route to Lushnje. The other eighty (80) percent of the distance to Lushnje is classified Mixed Farming (grains, potatoes, vegetables, and livestock). Cotton and tobacco are also shown as crops. Between Lushnje and Elbasan, along the pipeline route, the land use is again classified as Mixed Farming with the same meaning as delineated above. Another concentrated area of Permanent Crops is found immediately around the city of Lushnje. Along the pipeline route from Elbasan up the Shkumban River valley to Lake Ohrid, land use is classified as Forest with "Cultivation In The Valleys. Geology According to available geological maps, the routing between Elbasan and Lake Ohrid has 30% marine sedimentary rock, 35% "ultra basic rock", and 35% marine sedimentary rock with segments of lava basalt.. The routing landscape between Lushnje and Elbasan is made up of various forms of marine sedimentary rock. Finally, the pipeline segment landscape between the Vlor Terminal and Lushnje is made up of marine sediments and essentially non-divided river sediments. Logistics The new Vlor Terminal is located on the coast near established port facilities that can be utilized to import required equipment and materials for the Trans Balkan Crude Oil Pipeline Project. Major railways and highways/motorways are generally in close proximity to the route throughout its length. However, the magnitude of materials and equipment to be transported to the Terminal and pipeline right-of-way is very large with respect to the expected capacity of these transportation facilities. Therefore, this project will place a significant stress on the local transportation facilities. A 1995 Albanian travel guide gives some indication of complications that could arise when the large quantity of project materials and equipment impact the existing transportation systems. The guide mentions that already the roadway between Elbasan and Lake Ohrid (essentially along the pipeline route) is heavily traveled by trucks from Turkey and Bulgaria. Also, at Elbasan the roadway along the Shkumban River valley is described as having no guardrails with people, cows and goats also utilizing the road. The construction team will have to design a plan that accounts for access roads in the region. It is noted that the roads now carry heavy traffic without

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difficulty and we expect that proper planning will ensure safe transport of construction material and equipment. Brown & Root give the Albanian geography a moderate rating. Crossings Available information resources were used to estimate the number of river, railroad, and bored highway crossings along the pipeline route in Albania: Crossing Type River Minor Moderate Major Railroad Bored Highway 33 12 2 9 16 Number

6.2

Route Construction Characterization

In order to estimate pipeline construction costs in the three countries along the pipeline route, each country was analyzed to have the following breakdown in terms of type of terrain, percentage of rock, and clear/grade type:

Bulgaria
Type of Terrain Level to Rolling Choppy, very hilly Rough, small mountains Very rough, major mountains Totals % Rock No rock Rippable rock Solid rock Totals Clear/Grade Type Light Kilometers 199 130 94 50 473 Kilometers 327 93 53 473 Kilometers 236 % of Bulgerian Routing Distance 42 27 20 11 100 % of Bulgarian Routing Distance 69 20 11 100 % of Bulgarian Routing Distance 50

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Medium Medium Heavy Heavy Totals

102 123 12 473

21 26 3 100

Macedonia
Type of Terrain Level to Rolling Choppy, very hilly Rough, small mountains Very rough, major mountains Totals % Rock No rock Rippable rock Solid rock Totals Clear/Grade Type Light Medium Medium Heavy Heavy Totals Kilometers 61 82 80 52 275 Kilometers 124 99 52 275 Kilometers 138 49 55 33 275 % of Macedonian Routing Distance 22 30 29 19 100 % of Macedonian Routing Distance 45 36 19 100 % of Macedonian Routing Distance 50 18 20 12 100

Albania
Type of Terrain Level to Rolling Choppy, very hilly Rough, small mountains Very rough, major mountains Totals % Rock No rock Rippable rock Solid rock Totals Kilometers 80 35 6 25 146 Kilometers 81 30 35 146 % of Albanian Routing Distance 55 24 4 17 100 % of Albanian Routing Distance 55 21 24 100

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Clear/Grade Type Light Medium Medium Heavy Heavy Totals


6.3

Kilometers 103 22 8 13 146

% of Albanian Routing Distance 70 15 6 9 100

Pipeline Facilities Locations

A hydraulic analysis has been conducted to properly locate and size the required pump stations and pressure reducing station for the cross-country pipeline. Results are shown in Appendix 2, Volume IV. The reader will note that four (4) pump stations are required at the following kilometer posts (kmps): 0, 181, 372, and 604. The pressure reducing station is at kmp 765. The first mainline pump station (PS1) is located at kmp 0 within the Bourgas Onshore Terminal Complex. This site is approximately 10 kilometers north of the small coastal city of Pomorie. Good access is provided from the larger city of Bourgas via an approximate 20 km trip via the coastal highway. The second mainline pump station (PS2) is located at kmp 181 just to the southeast of the city of Stara Zagora, Bulgaria (see Appendix 1). The site has good access via Highway E85 running north-south and Highway 66 running east-west. PS3 is located at kmp 372 which is just southeast of the Sofia, Bulgaria metropolitan area near the major Al Motorway. PS4 is located to the south of Veles, Macedonia, and north of Prilep, Macedonia, along Highway 27 at kmp 604. This is generally in the Vardar River valley. The Pressure Reducing Station (PRS) is located in a relatively isolated area at kmp 765. This location is in the upper reaches of the Skhumbin River valley just west of Lake Ohrid. The PRS will be near the established roadway, railway, and electrical powerline passing between the lowlands of Albania and Lake Ohrid.
6.4 Pipeline Construction Methods

Appendix 3, Volume IV contains a rather comprehensive Pipeline Construction Specification that is general and would apply to the entire length of the pipeline route. The following subsections give further discussions on special methods of construction that are applicable to the Trans Balkan Crude Oil Pipeline.

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River Crossing Locations And Strategies

Appendix I, Volume IV provides information on river crossing locations along the pipeline route. Other sources have been used to supplement this information and the following estimate of required river crossings has been developed (river width < 50 meters = minor crossing; 50 < width < 100 meters = moderate crossing; and width> 100 meters= major crossing): Bulgaria

Minor Crossings = 12 Moderate Crossings = 12 Major Crossings (Tundzha, Stijama, Iskur) = 3

Macedonia

Minor Crossings = 15 Moderate Crossings = 7 Major Crossings (Vardar, Blato, Cmi Drin) = 3

Albania

Minor Crossings = 14 Moderate Crossings = 4 Major Crossings (Seman, Vijose) = 2

The above Major River Crossings are located at the following kilometer posts along the proposed pipeline route: River Tundzha Stijarna Iskur Varda Kilometer Post 114 246 374 573 River Blato Crin Drin Seman Vijose Kilometer Post 655 731 855 875

Sections 15 and 16 of Appendix 3, Volume IV; Pipeline Construction Specification present procedures for pipeline crossing of water courses, including rivers, and gives a more detailed discussion on Horizontal Directional Drilled (HDD) crossings of rivers. The HDD technique will be the

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technically preferred method for the major, significant river crossings on the Trans Balkan Crude Oil Pipeline Project. Dredging may also be considered. The "open cut method" will be considered for minor creek and smaller river crossings. Depending on details, either the HDD, the open cut method, or dredging may be used for the moderate crossings. As stated above, depending on the exact circumstances, ability of local contractors, and exact costs, consideration may be given to dredging as a crossing technique for significant rivers. Dredging requires that a ditch be excavated across the river and into the banks using draglines and clamshells. These crossings are installed in low water/low flow seasons of the year as much as possible. Spoil is placed temporarily on the banks in the right-of-way (ROW) and subsequently returned as backfill after the pipe has been installed. The trench would be excavated to a depth and contour such that the pipe is level beneath the river. The pipe would be assembled, welded and coated on one of the banks as a complete unit or in sections. It is pressure tested, then pulled into position along the trench by a cable stretched across the waterway to a pulling winch mounted on the other side. The pipe may be walked into the water by sidebooms or carried by track-mounted dollies. The pipeline section would be weighted. If the water flow is sluggish, the trench would be backfilled near the banks as much as possible, if required. Otherwise, the natural current would be allowed to fill or heal the ditch. Minimal silting of the stream is the goal. If required, backfilling can be accomplished by bargehauled materials such as clean bank sand. River bank cuts should be replaced with wet or damp spoil in the reverse order in which it was removed so that the top soil is returned to the top of the excavation. All dry bank material would be placed further back on higher ground. When hydraulic dredging is required for wide rivers, the spoil is transported to containment levees on highland areas on the ROW away from the river banks. The containment areas should have spillways and weirs that prevent erosion and excess solids from returning to the stream. Hydraulic spoil should not be placed into the rivers, and spoil should not be placed in another stream or wetland.
6.4.2 Seismic Fault Crossings

Past records have shown that buried pipelines have been damaged by earthquakes, especially for those crossing active faults. Therefore, it is essential to design the Trans Balkan Crude Oil Pipeline to adequately accommodate the anticipated fault movements. The reader is referred to an extended discussion of the technical aspects of designing for this issue to Volume IV. Researchers have investigated the effect of stress in the pipe versus soil/pipe friction angle and found that the axial pipe stress at fault location increases tremendously with increase of friction angle. Therefore, the pipeline can, if necessary, be coated with epoxy, etc. to reduce the frictional forces that may be built up by the soil on the pipeline. The concept will be for the pipe to move
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easily without undue restraint. The intent is to use the same wall thickness and grade of steel at the fault crossing as is used in the standard sections of pipeline. For particular situations where the development of compression in the buried pipeline is impractical or uneconomic to avoid, special design is required and will be implemented. To ensure no adverse effect to the environment, the following procedures, in addition to the analysis procedures described above for pipelines subject to tension, will be utilized for a pipeline crossing a reverse slip active fault: 1. The orientation of the pipeline will be carefully determined. The tension from the lateral strike slip will be utilized to compensate for the compression caused by the slip. A stress analysis of the buried pipeline will be performed to check and see if the induced stresses when combined with other applicable stresses are within the allowable limits. If the stresses exceed the allowable limits, flexible pipe, or ball joints may be inserted at the fault location to absorb the predicted displacements across the faults. Cut-off valves may be installed to completely shutoff the oil flow inside the pipe, in case of a sudden pressure drop indicating a pipe break.

2.

3.

4.
6.4.3

Blasting Procedures

Section 4.7 of the Appendix 3, Volume IV; Pipeline Construction Specification discusses blasting procedures that are to be used for trenching in rock. Such blasting will be needed along the Trans Balkan Crude Oil Pipeline route where "solid rock" is found that is not rippable. The estimated distances for such rock, in each country, has been estimated and can be found in Section 6.2 above. During blasting, Contractors will take precautions to minimize damage to adjacent areas and structures. These precautions include: Installing blasting mats (or backfilling with subsoil) in congested areas, in shallow waterbodies, or near structures that could be damaged by flying rock Posting warning signals, flags, and barricades Following procedures for safe storage, handling, loading, firing, and disposal of explosive materials Manning adjacent pipelines at valves for emergency response

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Any and all regulations required by local authorities

In all cases, the Contractors blasting standards should meet or exceed applicable Bulgaria/Macedonia/Albania requirements covering the use of explosives. Excessive vibration should be controlled by limiting the size of charges and by using delays, which stagger each charge in a series of explosions. All landowners having structures, structure foundations, and wells that are located within 60 meters of the blast site should be offered pre-blast tests. Owners having septic systems directly abutting the construction area would also be offered preblast tests. Upon request by a landowner who had a preblast inspection, a postblast inspection would be performed. To maximize its responsiveness to the concerns of affected landowners, the pipeline owner should evaluate any and all landowner complaints of damage associated with blasting. If damage is substantiated, owner should negotiate a settlement with the landowner to have any and all damages repaired or replaced. Where blasting occurs in wetlands, topsoil along the ditchline will be segregated prior to blasting. Rock removed from the trench will be stored with subsoil material. In order to limit the equipment operating in wetlands and avoid the need to import replacement fill, rock will not be removed from the wetlands but will be returned to the trench as subsoil. Excess blast rock should be disposed of in accordance with established and agreed procedures.
6.4.4 Erosion and Sediment Control

Section 12 of the Appendix 3, Volume IV; Pipeline Construction Specification addresses the topic of erosion control. The reader will remember that in Section 4.1.4, Terrain and Crops, it was delineated that in Albania, Soil erosion is now rampant on sloping land. Also, significant portions of the pipeline right-of-way in Macedonia, and to a lesser extent in Bulgaria, are on sloping terrain, see Section 3.2, above. The Trans Balkan Crude Oil Pipeline System will be implemented in a manner to minimize the potential for erosion and sedimentation during the pipeline construction. The ROW and other disturbed areas will be effectively restored. These objectives will be met by taking the following actions: Minimizing the quantity and duration of soil exposure Protecting critical areas during construction by reducing the velocity of water and redirecting runoff

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Installing and maintaining erosion and sediment control measures during construction Re-establishing vegetation as soon as possible following final grading Inspecting the ROW and maintaining erosion and sediment controls as necessary until final stabilization is achieved

Erosion control barriers should generally consist of silt fences and/or hay/straw bales. Hay/straw bales or silt fences are interchangeable, except where noted below. Erosion control barriers are required immediately after the initial disturbance of the soil, as described below: At the outlet of a temporary slope breaker (water bar/terrace) when vegetation is not adequate to control erosion Along banks of water bodies between the graded ROW and the waterbody after clearing Down slope of any stockpiled soil in the vicinity of waterbodies and wetlands At all sideslope and downslope boundaries of the construction area where runoff is not otherwise directed by a temporary slope breaker (water bar/terrace) To be maintained throughout construction and should remain in place until permanent re-vegetation measures have obtained at least 80% catch/cover, upon which they would be removed To be installed in the ROW at boundaries between wetlands and adjacent disturbed upland areas to prevent flow of sediment into the wetland where runoff is not otherwise directed by a temporary slope breaker (water bar/terrace)

A silt fence should be installed as per the manufacturers instructions where site conditions allow. Otherwise, the silt fence should be imbedded a minimum of 4 inches and, where two sections are joined, overlapped a minimum of 6 inches. Accumulated sediment should be removed regularly and the fence inspected to ensure that the bottom of the fence remains imbedded in the ground. A sufficient stockpile of silt fence should be maintained onsite for emergency use. Hay/straw bales should be anchored in place with two stakes, the first stake driven at an angle toward the previously positioned bale, and the second stake driven perpendicular to ground surface. Bindings on bales should be horizontal. Hay/straw bales should be repaired if damaged or if water is channeling underneath bales.

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Two-Tier (Two-Tone) Approach

Where the pipeline crosses rugged landscape with steep side slopes, contractors often construct the working side of the ROW such that it has two levels, or tiers, that parallel the ditch. The tier level nearest the ditch would be used for construction, while the tier farthest from the ditch would be used for travel. The elevation of the construction tier would usually be as close to the height of the ditch as possible. The elevation of the travel tier will be higher or lower than the elevation of the construction tier, depending on the locations natural grade. The two-tier (two tone) approach is economical and practical because it reduces the amount of soil and rock that must be excavated. This type construction method will be allowed on the Trans Balkan Crude Oil Pipeline.
6.4.6 Wetland Crossings

The Trans Balkan Crude Oil Pipeline Project will protect and minimize potential adverse impacts to wetlands by: Limiting the width of the construction ROW (to about 25 meters) Expediting construction in and around wetlands, and limiting the amount of equipment and mainline construction activities within wetlands to reduce disturbances of wetland soils Restoring wetlands to their original configurations, contours, and drainage patterns Permanently stabilizing upland areas near wetlands using erosion and sediment control measures and vegetative cover as soon as possible after backfilling Inspecting the ROW periodically during and after construction, and repairing any erosion control or restoration features as needed in a timely manner until re-vegetation is successful

The size of staging areas at wetland crossings will be limited to the space necessary for fabricating only those pipe segments required for the crossing. Other additional work spaces, such as additional spoil storage areas, at wetland crossings will also be limited to the size necessary to perform their function. All additional work space areas should be located at least 15 meters from the edge of the wetland where topographic conditions permit. If topographic conditions do not permit a 15-meter setback, these areas will be located at least 3 meters from the wetlands edge. The wetlands and setbacks should be clearly marked prior to the start of construction. To avoid contaminants entering the wetlands the Contractor will follow the spill prevention measures described in Section 10, Volume IV. Hazardous materials, chemicals, fuels or lubricating oils will not be stored nor will concrete costing activities be performed in a wetlands or within 30 meters of

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any wetland boundary. Contractors should attempt to refuel or service all construction equipment in an upland area at least 30 meters from a wetland boundary. If construction equipment must be refueled within 30 meters of a wetland boundary, the procedures outlined in Section 10, Volume IV should be implemented. The reader is also referred to Section 18 of the Appendix 2 Volume IV; Pipeline Construction Specification for a further discussion of wetland (swamp and marshland) construction approaches. Spoil placed up-gradient of wetlands should be contained with silt fences or hay bales as necessary to prevent spoil materials from flowing into wetlands or off of the ROW. The Contractors for the Trans Balkan Crude Oil Pipeline will use one of the following four (4) methods for construction in wetland areas: 1. Method 1 - Standard Pipeline Construction. This method can be used in wetlands where soils are dry enough at the time of construction to support equipment. This crossing method requires the segregation of topsoil from subsoil over the trenchline. This method is described in Appendix 3; Pipeline Construction Specification. Method 2 - Conventional Wetland Construction. This method will be used for crossing wetlands with saturated soils or soils otherwise unable to support mainline construction equipment. With this method, the Contractor will stabilize the ROW by using timber rip-rap (corduroy roads), fabricated timber mats, or gravel over heavy mil/grade geotextile fabric. The Contractor will attempt to use no more than two layers of timber to stabilize the ROW. Method 3 - Push/Pull Wetland Construction. This method entails pushing or pulling a floating section of pre-assembled pipe into position over an inundated trench. The floats are removed and the concrete-coated pipe sinks into the trench. Contractors will use this method in large wetland areas where water levels are high enough at the time of construction to float the pipeline into the trench and where such levels can be maintained without damming. Method 4 - Site-Specific Construction. Custom formulated methods developed for a particular site.

2.

3.

4.

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7.0
7.1

COASTAL EROSION AND SEA CONDITIONS


Coastal Management

The coast of Fier belongs to the physiographic unit of the coastal plain extending between Turris Cape to the north and Vlor Gulf to the south of Albanian coastal region. This coastal plain borders the Myzeqe plain and is characterized by the two lagoons of Karavastase and Nartes and by the beach cusps of the ancient and present river mouths. The objectives of the management plan of the two coastal zones are the following: promote conservation of Albanias & Bulgarias biodiversity, including marine, freshwater and intertidal habitat promote conservation of Albanias & Bulgarias cultural heritage, including historical, cultural, architectural and archaeological site of interests promote the expansion of Albania coastal and marine related tourism and investment opportunities enhance employment creation opportunities and maximize benefits to local people enhance the institutional capacity to manage and implement recommended action recommend a series of investment projects that will help Kick start

The coast of Fier is located in the central coastal zone. It is noted that biodiversity protection, tourism, and infrastructure development actions are very important issues mostly in the northern and southern coastal zones. The southern zone begins from the Vlor Bay and the Karaburuni Peninsula towards Greece, and is characterized by significant natural resources. Some sites of the southern coastal region are of national, regional and Mediterranean significance, such as the Karaburuni Peninsula, Sazani Island and Vlor Bay. The region of Bourgas Bay belongs to the vast Bourgas syncline (depression) which is formed during and after Upper Eocene by complex geological and tectonic processes as transgression and regression of the Black Sea basin, a lot of fault movements, etc. The Bourgas depression includes Bourgas Lakes, Pomorie Lake, Bourgas Bay and its extension to the east in the sea shelf. The length of depression is about 30 km and the width is up to 15 km. The current speed of Bourgas Bay sinking is about 1.5 mm annually. The recent shape of the Bourgas bay is formed during and after Upper Eocene by complex interactions between transgressions and regressions of the Black Sea basin and river erosion of Aitoska, Rusokasrenska, Sredecka, and Aheloy Rivers. The

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sea-shore and the bottom of depression consists of Paleogene and Pliocene clays, weakly or strongly cemented sandstone covered with eluvial - dilluvial clay. They are established near the Aheloy village and along the sea-shore.
7.2 Coastal Erosion

The coast of Fier is not urbanized, so the evolution trend of the beaches is mostly determined by the development of the delta systems of the rivers, particularly the Seman River, located 15 km north of Fier coast, and the wide delta cusp of the Vijose River, 10 km south of the Fier coast. The Vijose River in particular is one of the most important rivers of Albania: its basin is 6706 km2 with an average height of 855 m. The average bankfull discharge is 195 cubic meter/second, while the annual sediment transportation is estimated as 7.9x106 ton (Pano, 1994; Ferrari, 1997). The remarkable migration phenomena of the rivers and the abandoning of the river mouths change the balance between erosive and deposition phases, with locally strong and rapid modifications of the coastal morphology. Data on the coastal evolution of the area, for example, report a erosive process of 50 m/year for beaches situated at the abandoned delta of the Seman River in the last 30 years, while deposition processes in the vicinity of the new river mouth are reportedly estimated as fast as 40-50 m/year. The erosive environment observed along the coast at the proposed landfall locations 4causing the submersion of military bunkers and buildings on the coast, is probably to be referred to such a type of phenomena: natural migration and abandoning of old river mouths with modification of the coastal balance between sedimentation and erosion. Such erosive processes appear to be more intense north of the Hoxhares Channel where bunkers and other buildings have been submerged, then south of it. Another factor which should have an important influence on the shore sedimentation balance are changes of the sediment transportation of the rivers, considering invariable other factors of the balance, such as inland and subsea topography, wave motion characteristics and littoral currents. Taking into account that the Albanian rivers are characterized by high values of sediment transportation, especially if compared with the Italian rivers on the western coast of the Adriatic Sea, it cannot be ruled out that construction of small dams, deviation and capture of streams in the medium-high watershed, can originate a reduction of sediment transportation and discharge from the rivers into the sea along the Fier coast. Compared with the morphological processes outlined above, the potential influence of overpumping in the Fier basin on coastal modifications due to land subsidence is considered not significant.
4

see also the map on environmental problems and issues; MAP-UNEP and DMI, 1995,

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Along the Albanian coast five tidal stations have been installed in order to monitor tidal level, air and sea-water temperatures, salinity, wind speed and direction. One of these stations is located at Seman Cape, near to the study area, but observations are considered not completely reliable; therefore data from Durres Station have also been considered.
7.3.1 Tides

The maximum amplitude of tides is variable from North to South. In Saint John Harbor it is of 0.4 m and at Saranda 0.2-0.25 m. In Durres the amplitude is 0.3-0.4 m., while at Seman Cape is 0.3 m.
7.3.2 Sea Water Temperature

The available temperature data are based on samples taken, during the period 1976-1982, at the Durres station. The annual average water temperature is 16.2C and the average difference between maximum and minimum values is 16C. The average temperature in spring is between 10.9C and 20.4C; in summer between 20.4 and 22.2C (maximum value of 23.9C in July); in autumn between 11.4C and 22.0C; and in winter between 10.9C and 11.4C (minimum value of 8.0C in February).
7.3.3 Salinity

The available salinity data are based on samples taken, during the period 19761982, at the Durres station. The maximum value of salinity is recorded in summer, with a concentration of 38.650/0.
7.3.4 Wave Motion

The waves motion in the Adriatic Sea was continuously observed for 12 months in 1974 at Seman Cape through a buoy located at 6 m depth. During the period of measurement, the waves with a wave height between 0.6 and 1.0 m. had the highest percentage of occurrence (33.3% in the year); these waves were particularly frequent in spring. The maximum wave period was 8.2 seconds and the maximum wavelength was 65 m. The wave motion data for the Black Sea wave climate in deep water have been provided by scientific team from the Institute of Oceanography at the Bulgarian Academy of Sciences, Varna. Storm frequency is quite different for different periods. High storm activity was registered from 1918 to 1930, from 1944 to 1956 and from 1968 to 1977, while low storm activity was registered
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from 1907 to 1917, from 1931 to 1943 and from 1957 to 1967. The main conclusion is that data for long period of time must be used to avoid mistakes in calculation of extreme wave parameters. Unfortunately systematic wave data for long period of time including storms are not available for Bulgarian part of Black sea coast. Wave parameters for "deep water" - at latitude 420 35I are calculated on the base of standard wind data (3 hours interval) from meteorological station Kaliakra, ship measurement and pressure field on Black Sea. Jan Hav [cm] 40 80 120 160 200 240 280 320 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1.2139 1.4024 1.0411 0.8721 0.4968 0.1061 0.0078 0.0039

1.2492 1.5164 1.4260 0.8132 0.1611 0.0943 0.0118 0.0000

2.4355 1.4732 1.0135 0.4125 0.1965 0.0157 0.0393 0.0000

2.7774 1.2100 0.5893 0.2003 0.0511 0.0197 0.0000 0.0000

2.9776 1.2492 0.5264 0.1454 0.0472 0.0039 0.0000 0.0000

3.0682 1.0449 0.4950 0.1965 0.0196 0.0039 0.0000 0.0000

2.9924 1.5203 0.4596 0.1218 0.0158 0.0000 0.0000 0.0000

3.0288 1.6695 0.7149 0.3536 0.0904 0.0000 0.0000 0.0000

3.0327 1.5124 0.9625 0.2475 0.0590 0.0354 0.0000 0.0000

2.4945 1.9681 1.0410 0.4872 0.1375 0.0589 0.0236 0.0000

1.6695 1.6813 0.6246 0.3614 0.0628 0.0314 0.0157 0.0118

1.4103 1.3552 0.8564 0.4243 0.0982 0.0275 0.0000 0.0000

7.4

Bourgas Harbor

The proposed SBM location have approximately following co-ordinates: Latitude 420 35.6

Longitude - 270 42.2

The selected area for SBMs is situated in front of the small bay between the town of Pomorie and the village Ravda on about 6.0 km Eastward from sea shore. There are some discrepancies between the depths shown in the two maps. According the Admiralty map the sea bed depth is 14.5 fathoms equal to 26.53 m. According BG Navigation map the depths are between - 29.0 m and - 30.0 m. On BG Map the depth just below the SBM is shown - 39.5m BD*. Probably this is an error, very unusual is 10 m hole on sea bed. We consider that the correct figure is - 29.5 m.

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Note: For following stage it is required to perform detail sounding to the area to adjust the correct place of SBM including the manoeuvring circle /- 28.0 m BD5, with D = 4.0 km. The trace of the pipelines are chosen take in mind the location of existing rock areas /reefs/. Its pass between the reefs: South from Ravdenski reef and North from Chomos reef. In the investigated area North from the town of Pomorie exist other reef - Pomoriiski but it is far a way Southwards from the traces. It seems that in this traces will not be discovered rocky zones.6
7.4.1 Geological Conditions

The designed engineering structures are situated on the seacoast and on the shelf of northern part of the Bourgas Bay. The region of Bourgas Bay belongs to the vast Bourgas syncline (depression), which is formed during and after Upper Eocene by complex geological and tectonic processes as transgression and regression of the Black Sea basin, a lot of fault movements, etc. The Bourgas depression includes Bourgas Lakes, Pomorie Lake, Bourgas Bay and its extension to the east in the sea shelf. The length of depression is about 30 km and the width is up to 15 km. The current speed of Bourgas Bay sinking is about 1.5 mm annually. According to the seismic zoning of Bulgaria, Bourgas region is located in a zone with seismic intensity of VII degree on the MSK- 64 scale and seismic coefficient kc = 0.10. The recent shape of the Bourgas Bay is formed during and after Upper Eocene by complex interactions between transgressions and regressions of the Black Sea basin and river erosion of Aitoska, Rusokasrenska, Sredecka and Aheloy Rivers. The sea-shore and the bottom of depression are consists of Paleogene and Pliocene clays, weakly or strongly cemented sandstone covered with eluvial dilluvial clay. They are established near to the Aheloy village and along the sea-shore. During the last Holocene transgression in the onshore and offshore zones the valley of Aheloy river was filled with recent river and sea sediments (mud and soft clay). There is not data for the thickness of these sediments.

5 BD Baltic datum level


6 Note: For following stage is required some bore-holes and detail seismic sounding.

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As was mentioned before, the Tank Farm will be located on sea shore. In this place the shore has small sandy beach, behind which the shore is 3 5 meters high. The basement is of the Pliocene clay. Behind of the cliff the terrain is flat and consists of eluvialdelivial clays medium to firm.
7.4.3 Offshore Zone

There are two natural phenomena which have to be taken in consideration: Submerged Mouth of Aheloy River The mouth of the Aheloy River belongs to this zone. Considering the geological development of other river valleys, already investigated in the Bourgas Bay, it could be assumed that the ancient valley of the Aheloy River extends toward the sea bottom. The submerged river valley is filled with very soft marine clay, Quaternary alluvial sand and clay. At the time being there are not data concerning the location of the submerged river valley and the types of soils filled up, but it would be an appropriate construction site of the designed structures. Chomos Reef Between the chosen place for SBMs and the sea shore at 1.5 km Eastward from the shore, parallel to it, is located rocky Chomos reef. The depths around the reef are -13.8 m from the West and -18.4 m from the East, steel the depths over the reef crest are only - 7.0 m to - 9.4 m BD. The reef is about 6.8 to 11.4 m higher than the surrounding sea bottom. This situation change the normal Geological profile which is discovered in our shores. Normal on the shore zone the bottom consist sands which granulometry toward the sea decrease, the sands become thin and below -10 -14 m the soils become very soft liquid clay. We expect that near the Chomos reef the bottom is covered with sands which granulometry decrease toward the sea and soil convert in very soft liquid clay after -14 isolate. The following soil varieties have been established by an old exploration of sea bottom carried out east from the Chomos reef (at dept -17 m): 0 -17 m - sea water 17 - 18.1 m - very soft marine clay and sandy clay 18.1 - 20.5 m firm clay with calcareous concretions

Eastwards from Chomos reef the sea depth increases rapidly up to -18.4 m at 750 m. From this point the depths increases slowly up to -29 to -30.5 m at chosen site on 4.5 km. from the reef. It could be supposed that Eastward of

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isobath -14.0 to -17,0 the sea bottom consist very soft clay with thickness which increase towards the sea. By analogy with data for other locations on Bulgarian cost we could expect that around SBM, the sea bed consists very soft liquid clay. The data obtained by a borehole drilled at 3 km from the coastline and 10 km north from Emine cape / 21 km North from our place/ the geological settings there are as follows: 0 - 31 m - sea water 31 - 50 m - very soft marine clay (liquid) 50 - 74 m soft and firm clay below 74 m - stiff clay and dense sand

In our case on the considered zone for SBM (about 30 m of sea depth) it could be supposed that the thickness of the very soft clay is about 10 - 15 m. Most likely they are underlain by firm clay with sandy intercalations. The anchoring of the chains could be done with 100 t. concrete blocks submerged in the liquid clay using airlifts.7 Buoys in Bourgas Harbor Area The buoys installed at the Bourgas end of the AMBO pipeline system will be of the latest design and technology; very similar to those buoys currently being installed at the loading terminal for the CPC pipeline near Novorossysk. These buoys will be specifically designed for the unloading rates required and have mooring systems (anchors) capable of holding 300,000 dwt tankers. Buoys have been selected as the environmental and technical best solutions for offloading of large volumes of crude oil in Bourgas. These types of buoys have a listing of more than 40 years in use worldwide. The location of the buoys away from principal vessel traffic patterns into out of the way harbors and sitting in sufficiently deep water to handle the large oil tankers are fundamental advantages over the option of jetties/quays with the current commercial harbor of Bourgas. Major operating companies records of buoy and jetty safety and spillage statistics indicate more frequent incidents at jetties, quays, and hard dockings than buoys. The operating criteria for the buoys will address several key factors directly related to the environmental conditions:

7 For following stages Hydrotechnical, sounding and geotechnical investigations are required.

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Max wind and wave combinations for approach and hook up Max wind and wave conditions for continuation of unloading/pumping Max wind and wave conditions for staying on buoy after secession of pumping

During the next phase of project development, the Frond End Engineering and Design (FEED), surveys will be undertaken to confirm wind and wave data. When combined with information on the local current patterns. AMBO will develop the definitive marine operating procedures for the port authorities to approve. The proximity of the commercial Buoys harbor is convenient for the routine maintenance of the buoys as well as any emergency repairs that may be necessary as a result of accidents. As part of the Marine operating procedures, a tugboat and workboat will be harbored as close to the buoy locations as practicable. The newly completed small boat harbor at Pamorie may be the ideal location for these vessels.
7.5 Vlor Port

The coast of Vlor belongs to the physiographic unit of the coastal plain extending between Turris Cape to the north and Vlor Gulf to the south of Albanian coastal region. This coastal plain borders the Myzeqe plain and is characterized by the two lagoons of Karavastase and Nartes and by the beach cusps of the ancient and present river mouths. The coast of Vlor is located in the central coastal zone. It is noted that biodiversity protection, tourism, and infrastructure development actions are very important issues mostly in the northern and southern coastal zones. The southern zone begins from the Vlor Bay and the Karaburuni Peninsula towards Greece, and is characterized by significant natural resources. Some sites of the southern coastal region are of national, regional and Mediterranean significance, such as the Karaburuni Peninsula, Sazani Island and Vlor Bay. Loading Buoys in Vlor Bay The buoy installed at the Vlor end of the AMBO pipeline system will be of the latest design and technology; very similar to those buoys currently being installed at the loading terminal for the CPC pipeline near Novorossysk. This buoy will be specifically designed for the unloading rates required and have mooring systems (anchors) capable of holding 300,000 dwt tankers. Buoys have been selected as the environmental and technical best solutions for offloading of large volumes of crude oil in Vlor. These types of buoys have a listing of more than 40 years in use worldwide. The location of the

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buoys away from principal vessel traffic patterns into out of the way harbors and sitting in sufficiently deep water to handle the large oil tankers are fundamental advantages over the option of jetties or quays at any location along the Vlor coast. Major operating companies records of buoy and jetty safety and spillage statistics indicate more frequent incidents at jetties, quays, and hard dockings than buoys. The operating criteria for the buoy will address several key factors directly related to the environmental conditions: Max wind and wave combinations for approach and hook up Max wind and wave conditions for continuation of unloading/pumping Max wind and wave conditions for staying on buoy after secession of pumping

During the next phase of project development, the Frond End Engineering and Design (FEED), surveys will be undertaken to confirm wind and wave data. When combined with information on the local current patterns. AMBO will develop the definitive marine operating procedures for the port authorities to approve. The proximity of the a new harbor at Vlor is convenient for the routine maintenance of the buoys as well as any emergency repairs that may be necessary as a result of accidents. As part of the Marine operating procedures, a tugboat and workboat will be harbored as close to the buoy locations as practicable. The new harbor north of Vlor Port may be the ideal location for these vessels. 8.0
8.1

ENVIRONMENTAL MANAGEMENT & RISKS


Identification of Mitigatory Measures

This section presents the identification of potential preventative, mitigatory, and compensatory measures in order to minimize any significant adverse impacts of the proposed project along the selected route, as defined in the previous sections. This section also discusses training requirements for the environmental management of the oil pipeline.

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Impact mitigation represents not only a broad concept but also a necessary legal step in the national legislation. The identified mitigating measures are aimed at minimizing the severity of significant impacts and modify unavoidable consequences of particular intervention, as follows: avoiding the impact altogether by not taking a certain action or parts of an action minimizing impacts by limiting the degree or magnitude of the action and its implementation rectifying the impact by repairing, rehabilitating or restoring the affected environment reducing or eliminating the impact over time by preservation and maintenance operations during the life of the particular intervention compensation for the impact by replacing or providing substitute resources

Mitigating Measures

The mitigating measures have been screened and identified using a specific checklist, which is presented in Table 3.1. It is noted that most of the relatively significant potential impacts of the pipeline have been reduced or contained by route selection. Expert teams did the selection of the route from each of the three countries for the portion of the pipeline that passed through their country. Potential for residual impacts should be considered acceptable, provided that appropriate environmental management is implemented. As shown in Table 3.1, relevant mitigating measures have been defined for the all the identified potential negative impacts. Their implementation status is also presented on the table. It is noted that some of them have been already incorporated in the basic design, currently under completion. A very important measure is the selection of the pipeline route, which was the result of the decisions reach by each country expert team. Other measures, such as minimizing corridor requirements, laying pipeline versus burying pipeline in offshore areas to minimize resuspension of sediments, burying pipeline in upland and nearshore areas, minimizing use of fill, minimizing offsite land use impacts during construction, restoring disturbed land along the corridor, have been identified during the environmental assessment, and then discussed and agreed with the design team to be fully implemented during the next phase of the project. Additional mitigating measures have been identified and they will be fully developed in the detailed design. They include all the measures to minimize gaseous emissions from facilities as well as the definition of the most appropriate clearing technique to not impact native vegetation near the onshore ROW, and final landscaping. In addition, characteristics of sediment traps or

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screens to minimize erosion, runoff and sedimentation from construction of the pipeline, will be defined. During the construction phase, other actions are expected to mitigate any residual impacts. They will focus on phasing construction activities in order to control interference with local communities and on maintaining native ground voer (vegetation) above the buried pipeline. Finally, some measures have been recommended to be implemented after pipeline construction. They include marking and mapping location of buried pipeline and sea line, as well as appropriate procedures and measures to prevent accidental spills and leaks and to contain impacts and clean up in case of such an accidental event. Environmental monitoring and leak monitoring, as well as training of staff are also included.
8.2 Environmental Management

As mentioned above, the new export oil pipeline is part of the comprehensive plan. The plan includes the implementation of four main types of actions: Type I: implementation of structural interventions and measures; Type II: development and implementation of environmental management practices and operating procedures; Type III: implementation of monitoring and auditing procedures, including public awareness programs; Type IV: screening and implementation of environmental remedial measures.

The planned actions are categorized by priority and relative cost (Table 3.2), and by type (Table 3.3). The priority of an action is derived from the AMBO development model.
Monitoring Plan

An appropriate monitoring system with feedback mechanism is developed in order to monitor the implementation of mitigating measures, to value their effectiveness and to monitor the potential impacts of the project during operation and construction. Monitoring of construction activities will ensure compliance with good practices and any special requirements to avoid or mitigate any adverse impacts and to detect any impacts which occur so that corrective action can be initiated. The actual monitoring will range from visual inspection of the mitigation system to more extensive water quality monitoring during the pipeline construction.

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Monitoring during the operation of the oil pipeline will allow monitoring local environmental conditions, to assure proper mechanical functions or to identify structural conditions resulting in leaks. Monitoring will include air emissions and waste discharges at pipeline and ancillary facilities, visual checks of integrity of sludge pits and tank dikes, visual checks of areas around pipeline routes, storage tanks, ancillary facilities and transfer points for spills or leakage. Special monitoring requirements will be imposed for early detection of impacts on specific resources in conjunction with mitigation measures. Monitoring will include periodic air quality sampling onsite and at site boundaries, frequent downstream checks of any surface drainages in the area (visual and water samples). Finally, periodic groundwater sampling onsite and down gradient (monitoring wells) may be also implemented at the terminal sites. Monitoring Requirements Monitoring data should be analyzed and reviewed at regular intervals and compared with the applicable operating standards so that any necessary corrective action can be taken. In the absence of specific information in these regards, assumptions are made in the sections that follow regarding the extent and frequency of environmental monitoring that will be undertaken. This approach allows the development of budget estimates for the direct monitoring costs as well as analysis of current and projected local capabilities to undertake monitoring activities. Budget estimates in this section are based on European unit costs for the different elements of the monitoring program. Monitoring data should be periodically transmitted to the local authorities in charge of environmental control, specifically the Committee of Environmental Protection and Preservation (CEPP) in Tirana, and its regional agency in Fier, and the Fier Municipality. Similar relations will be identified or developed in Macedonia and Bulgaria. Monitoring Strategy Monitoring will be effected by AMBO for production matters and by a task force for HEALTH, SAFTEY, & ENVIRONMENTAL activities. These activities shall define the respective Environmental responsibilities and daily and emergency response procedures. Monitoring requirements and programs will be developed within the framework of the Environmental Rehabilitation Plan, coordinating with the responsible local authorities and agencies. The task force shall consist of members of the joint venture partners whose responsibilities include environmental issues and an outside professional environmental specialist.

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These emission requirements can be consistently achieved by well-designed, well-operated and well-maintained pollution control systems.
8.3 Aquatic Environment

Liquid Effluents The World Bank/IFC suggests that liquid effluents should be monitored to verify compliance with the following required effluent levels. Available information from the AMBO Environmental Rehabilitation Plan indicates that the capacity to conduct the monitoring of the identified parameters at the levels identified will be implemented as a high priority action by AMBO. Baseline water quality should be established through sampling the water body in which the effluents are proposed to be disposed in, as indicated in the following section.
8.4 Waste Characterization

Solid and hazardous wastes will be managed at off-site facilities. Solid Wastes Solid non-hazardous waste that is generated by the pipeline operation, will be stored in a container that: (1) protects the waste from the wind; and (ii) prevents scavenging by people and animals. The on-site environmental specialist should monitor compliance with the requirement to store waste in this fashion by responding to litter complaints and personal visual inspection. Hazardous Wastes A fully developed hazardous waste management monitoring system requires the establishment of a cradle-to-grave management system. This should include the following components: 1. 2. 3. 4. The declaration by AMBO or NEWCO of the quantity and characteristics of the hazardous waste it generates The environmentally secure storage and labeling of hazardous waste on the premises prior to being hauled away The monitored haulage of hazardous waste from the industry to an off-site Development Plan The monitored, environmentally safe management of the hazardous waste at the management site

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The implementation of a comprehensive hazardous waste management and monitoring system incorporating the above components will be included in the Environmental Rehabilitation Plan. 9.0 PROJECT ENVIRONMENTAL MANAGEMENT PLAN
AMBO Development Plan

The design philosophy is to maximize the pipeline asset utilization and system availability to transport oil from Bourgas to Vlor. Catastrophic failure could take place due to the fact that the pipeline passes through high intensity earthquake zones. Earthquake hazard assessment will be carried out assuming earthquakes occur randomly as independent events. The magnitude of earthquakes will be taken from the Map of Natural Hazards. The design earthquake magnitude must be the maximum probably magnitude determined for each location. Station trips, ESD valves closure etc. will require some special attention to avoid surge waves of unacceptable magnitude. This will be carried out to determine the pressure surge relieve facilities at each location along the pipeline, unloading and loading facilities.
9.1 Offshore Unloading at Bourgas

Consists of two CALM type buoy systems for tankers unloading at a suitable location in Bourgas port. There will be two 42 XQORDGLQJ SLSHOLQHV EHWZHHQ Catenary Anchor Leg Mooring (CALM) buoys and the onshore terminal.
9.2 Bourgas Storage and Metering Facility

This facility will be ideally located close to the offloading pipelines landfall which consist of 8 x 600,000 barrels storage tanks, office and main communication and control facilities, booster pumps, pump station and fiscal metering system. The storage tanks sized to hold a minimum of two tanker loads each of 2 million-barrel capacity. The oil pumped onshore will be metered to keep an accurate record of oil transferred from the tank(s) to the crude oil terminal. The metering system will be supplied as a packaged unit on a skid. This will be the principal operating location in Bulgaria, with full communications and monitoring systems for all locations in the system both in Bulgaria, Macedonia and Albania.
9.3 Cross-Country Pipeline

The purpose of the pipeline is to transport oil from Bourgas storage terminal to Vlor storage terminal. A 36 SLSHOLQH LV SURSRVHG ZLWK D WRWDO RI IRXU SXPS stations. The overall length of the pipeline is about 897km. With three duty

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pump sets per station and one stand by, the system will have a high level of availability and a throughput of 750,000 barrels per day.
9.3.1 Pipeline Sectioning

Mainline isolation values distribution will be strategically placed to protect the spillage of oil from the pipeline into the environment. The pipeline sectioning system aims to contain the damage to the environment by closing the main pipeline valves upstream and downstream of the ruptured section. The sectioning will be a function of the location, sensitivity to oil spillage, hazard and local regulation. These valves will close automatically upon a sudden loss of pressure, such as in a major line rupture.
9.3.2 Let Down Station

The operating pressures inside the terminal will be below 300 psi maximum. A pressure-reduction station is therefore required to reduce the pressure of the crude oil before entering Vlor storage terminal to avoid vibration and cavitation shock waves.
9.3.3 Surge Protection Systems

Adequate skid mounted surge relief system will be placed along the pipeline where necessary to protect the pipeline and associated facilities from excessive pressure measurement data and determines whether a leak and/or rupture has developed, estimates the leak size and location to prevent major spillage and disasters.
9.3.4 Leak Detection System

The monitoring of leaks is of major importance in this pipeline. The pipeline will include a leak detection system that analyses real-time flow and pressure measurement data and determines whether a leak and/or rupture has developed, estimates the leak size and location to prevent major spillage and disasters.
9.4 Vlor Storage and Metering Facility

This facility will be ideally located close to the loading pipeline landfall which consist of 8 x 600,000 barrels storage tanks, booster pumps and fiscal metering system. Before the oil is pumped offshore, it needs to be metered. The main objective of the metering is to keep a record of oil transferred from the main crude oil terminal to the loading tankers. The metering system will be supplied as a packaged unit on a ski complete with prover/testing facilities.

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Feasibility Study Volume III, Environment 9.5 Offshore Loading at Vlor

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This facility consists of one CALM type buoy system for tankers loading at a suitable location in Vlor port. There will be one 46 ORDGLQJ SLSHOLQH EHWZHHQ the CALM buoy and the onshore terminal.
9.6 Power Supply to Facilities Along the Route

Bourgas Area: to investigate the availability of local power supply. For purposes of the study electricity is assumed to be assessable in the vicinity of the terminals. Pump station 2 & 3 (Bulgaria): For the purpose of this study, electricity is assumed available from the Bulgarian grid. Pump station 4 (Macedonia): Again, electricity is assumed to be readily available.
9.7 Pump Stations

PS/1, PS/2 PS/3 are located in Bulgaria. P/4 is in Macedonia. Stations provisionally sited at 0 km, 154 km, 300 km and 540 km. Each station will consist of a pump house, office and store buildings, workshop, vehicle shelters and control. Room. Pipeline pig launchers and receivers will be provided

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Table 3.1
CHECKLIST OF MITIGATING MEASURES POTENTIAL NEGATIVE IMPACTS Direct 1. --Impacts on air quality MITIGATING MEASURES

2. --Increase of ambient noise levels

3. --Resuspension of sediments from construction of offshore pipelines

4. --Interference with fishing activities from offshore and nearshore pipelines 5. --Habitat and organism loss along offshore and onshore pipeline ROWs and terminal sites

6. --Erosion, runoff, and sedimentation from construction of pipeline, grading for access road and terminal facilities 7. --Alteration of hydrological patterns

1. --Minimize gaseous emissions from facilities. --Phase construction activities to control dust production and traffic emissions. 2. --Phase construction activities to control noise emissions due to construction and traffic. --Select pipeline route away from known fishing areas. 3. --Use alternative pipeline construction techniques to minimize resuspension of sediments (e.g., laying pipeline versus burying pipeline). --Lay pipeline at a period of minimal circulation. 4. --Select pipeline route away from known fishing areas. --Mark and map location of offshore pipeline. --Bury pipeline in nearshore areas. 5. --Select ROW to avoid important natural resource areas. --Utilize appropriate clearing techniques along onshore ROWs to maintain native vegetation near pipeline. --Replant disturbed sites. 6. --Select ROW to avoid impacts to water bodies and hilly areas. --Install sediment traps or screens to control runoff and sedimentation. 7. --Selection ROW to avoid wetlands and flood plains. --Minimize use of fill. --Design drainage to avoid affecting nearby lands. 8. --Select corridor and ROW to avoid important wildlands and sensitive habitats. --Maintain native ground cover (vegetation) above pipeline.

8. --Habitat fragmentation

9. --Loss of land use due to placement of onshore pipeline and terminal.

10. --Creation of barriers for human and wildlife movement.

9. --Select ROW to avoid important social (including agricultural) and cultural land uses. --Design construction to reduce ROW requirements. --Minimize offsite land use impacts during construction. 10. --Select ROW to avoid travel routes and wildlife corridors. --Bury pipeline to allow for movement.

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Table 3.1
CHECKLIST OF MITIGATING MEASURES (continued)

POTENTIAL NEGATIVE IMPACTS 11. --Increased traffic due to construction. 12. --Contamination from wastes and accidental oil spills/leaks.

MITIGATING MEASURES 11. --Phase construction activities to control traffic. Construct alternative traffic routes. 12. --Develop waste and spill prevention and cleanup plans. --Training of staff. --Install cathodic protection. --Utilize spill containment techniques. --Clean up and restore affected areas. --Clearly mark locations of buried pipeline in high-use areas. --Monitor for leaks. 13. --Minimize ROW requirements and offsite land use impacts. --Select ROW to avoid important social (including agricultural) and cultural land uses. --Restore disturbed land along ROW.

13. --Impacts on communities and residential areas. Interference with human activities.

Indirect 1. --Induced secondary development during construction and operations in the surrounding area. 2. --Impacts on communities and residential areas.

1. --Develop comprehensive plan for affected settlements. --Improve and provide financial support to existing infrastructure. 2. --Minimize direct impacts on natural environment.

Notes: (1) Actions and procedures included in the AMBO Environmental Rehabilitation Plan. (2) Compensatory actions; plan under development.

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Feasibility Study Volume III, Environment Table 3.2 ENVIRONMENTAL REHABILITATION ACTIONS CATEGORIZED BY PRIORITY AND RELATIVE COST

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ACTION A) Low Cost/High Priority Actions to Minimize Impacts from Current Oilfield Operations A.1 Audit of Oil Leakages and Gas Emissions

IMPACT

PRIORITY

COST(1)

TYPE

Oil and gas emissions

HIGH HIGH

LOW LOW

III III

A.2 Audit and Mapping of Oil Pipelines, Flowlines and Oil and solvent emissions Solvent Lines A.3 Installation of High Benefit Repair Parts and Equipment Unplanned emissions A.4 Audit of Idle Wells A.5 Review and Implementation of Metering Procedures Lack of proper housekeeping Site Hazards Financial Losses Environmental emission control Oil and solvent emissions

HIGH HIGH HIGH

LOW LOW LOW

I III II

A.6 Rehabilitation of Bunding of AAP Operated Wells

HIGH

LOW

B) Medium Cost/High Priority Actions to Improve Future Operations B.1 Development of Standard Procedures and Practices Sub-surface and surface impacts C) Medium Cost/High Priority Actions to Develop Procedural Issues C.1 Development of Environmental Management System Environmental monitoring C.2 Development of Corrosion Prevention/monit.Program Corrosion and leakages C.3 Development of Preventive Maintenance Program Breakdowns and leakages C.4 Development of Discharge Monitoring Program Air and wastewater emissions
Notes: (1) Costs are present-worth and include both capital and operation/maintenance costs

HIGH

MEDIUM

II

HIGH HIGH HIGH HIGH

MEDIUM MEDIUM MEDIUM MEDIUM

II II II II

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Feasibility Study Volume III, Environment Table 3.2 ENVIRONMENTAL REHABILITATION ACTIONS CATEGORIZED BY PRIORITY AND RELATIVE COST (continued)

AM BO

AMBO Pipeline Consortium May 2000

ACTION IMPACT C.5 Development of Worker Training Programs Health and safety, Operations C.6 Development of Worker Health Program Health and safety C.7 Development of Chemical Handling/Storage Procedures Health and safety C.8 Development of Safety and Emergency Response Plan Health and safety Fire and env. Hazard protection

PRIORITY HIGH HIGH HIGH HIGH

COST(1) MEDIUM MEDIUM MEDIUM MEDIUM

TYPE II II II II

D) Medium Cost/Medium Priority Actions Related to Public Awareness D.1 Establishment of "Public Relations" Unit Health and safety D.2 Development of Public Awareness Campaign Health and safety
E.1 Design and Construction of Central Processing Facilities Surface and subsurface impacts

MEDIUM MEDIUM

MEDIUM MEDIUM

III III

HIGH

HIGH

F) High Priority Actions Affecting the Wider Community F1. Improvement of Roads within AAP Develop. Sectors Safety,pipeline damages F.2 Fencing of Well Sites and Existing Installations Health and safety,security
F.3 Installation of H2S detection/alarm and protection systems Health and safety

HIGH HIGH HIGH

LOW MEDIUM MEDIUM

I I III

F.4 Soil/Groundwater Remediation Feasibility Study F.5 Implementation of Environmental Monitoring Program

Soil and groundwater quality Air, soil and water quality Oil/gas quality Working environ., worker health

HIGH HIGH

MEDIUM MEDIUM

IV III

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Feasibility Study Volume III, Environment

AM BO

AMBO Pipeline Consortium May 2000

Table 3.2 ENVIRONMENTAL REHABILITATION ACTIONS CATEORIZED BY PRIORITY AND RELATIVE COST (continued) COST(1) HIGH MEDIUM

ACTION IMPACT G) Medium and Low Priority Actions Affecting the Wider Community G.1 Implementation of Clean-up Program of Soil and groundwater quality Soils/Groundwater G.2 Landscaping and Revegetation of AAP Development Visual impacts Sectors

PRIORITY MEDIUM LOW

TYPE IV IV

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Feasibility Study Volume III, Environment Table 3.3 ENVIRONMENTAL REHABILITATION ACTIONS CATEGORIZED BY TYPE

AM BO

AMBO Pipeline Consortium May 2000

ACTION Type I: Structural Measures A.3 Installation of High Benefit Repair Parts and Equipment A.6 Rehabilitation of Bunding of Operated Wells B.1 Assistance in Rehabilitation of Ancillary Systems F.1 Design and Construction of Central Processing Facility

IMPACT Unplanned emissions Oil and solvent emissions Fluid and gas emissions Surface and subsurface impacts Financial losses Safety, pipeline damages Health and safety, security

PRIORITY HIGH HIGH HIGH HIGH

COST(1) LOW LOW MEDIUM HIGH

G.1 Improvement of Roads within Develop. Sectors G.2 Fencing of Existing Installations

HIGH HIGH

LOW MEDIUM

Type II: Management Practices and Operating Procedures A.5 Review and Implementation of Metering Procedures Financial losses Environmental emission control C.1 Development of Standard Procedures and Practices Sub-surface and surface impacts D.1 Development of Environmental Management System Environmental monitoring D.2 Development of Corrosion Prevention/monit. Program Corrosion and leakages D.3 Development of Preventive Maintenance Program Breakdowns and leakages D.4 Development of Discharge Monitoring Program Air and wastewater emissions
D.5 D.6 D.7 D.8 Development of Worker Training Programs Development of Worker Health Program Development of Chemical Handling/Storage Procedures Development of Safety and Emergency Response Plan Health and safety, Operations Health and safety Health and safety Health and safety Fire and env. Hazard protection

HIGH

LOW

HIGH HIGH HIGH HIGH HIGH HIGH HIGH HIGH HIGH

MEDIUM MEDIUM MEDIUM MEDIUM MEDIUM MEDIUM MEDIUM MEDIUM MEDIUM

Notes: (1) Costs are present-worth and include both capital and operation/maintenance costs.

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Feasibility Study Volume III, Environment

AM BO

AMBO Pipeline Consortium May 2000

Table 3.3 ENVIRONMENTAL REHABILITATION ACTIONS CATEGORIZED BY TYPE (continued)

ACTION Type III: Monitoring and Auditing Procedures A.1 Audit of Oil Leakages and Gas Emissions

IMPACT Oil and gas emissions

PRIORITY HIGH HIGH HIGH MEDIUM MEDIUM HIGH

COST(1) LOW LOW LOW MEDIUM MEDIUM MEDIUM

A.2 Audit and Mapping of Oil Pipelines, Flowlines and Solvent Oil and solvent emissions Lines A.4 Audit of Idle Wells Lack of proper housekeeping Site Hazards E.1 Establishment of "Public Relations" Unit Health and safety E.2 Development of Public Awareness Campaign Health and safety G.3 Installation of H2S detection/alarm and protection systems Health and safety

G.5 Implementation of Environmental Monitoring Program

Air, soil and water quality Oil/gas quality Working Environ., worker health

HIGH

MEDIUM

Type IV: Environmental Remediation Measures B.2 Assessment of Gas Production/Emission Impacts Gas and vapor emissions G.4 Soil/Groundwater Remediation Feasibility Study Soil and groundwater quality H.1 Implementation of Clean-up Program of Soils/Groundwater Soil and groundwater quality H.2 Landscaping and Revegetation of AAP Development Visual impacts Sectors

HIGH HIGH MEDIUM LOW

MEDIUM MEDIUM HIGH MEDIUM

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AMBO
TRANS BALKAN CRUDE OIL PIPELINE FEASIBILITY STUDY VOLUME IV - PROJECT EXECUTION PLAN AND TECHNICAL REPORT TABLE OF CONTENTS

1.0 2.0

INTRODUCTION SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS 2.1 2.2 2.3 SUMMARY CONCLUSIONS RECOMMENDATIONS

3.0

PRINCIPAL COMPONENTS OF THE PIPELINE SYSTEM 3.1 3.2 3.3 3.4 OFFSHORE UNLOADING SYSTEM AT BOURGAS ONSHORE PIPELINE SYSTEM WITH TERMINALS, PUMP STATIONS, AND STORAGE FACILITIES OFFSHORE LOADING SYSTEM AT VLORE MONITORING AND COMMUNICATION SYSTEMS

4.0

ONSHORE PIPELINE SYSTEM 4.1 4.2 4.3 4.4 4.5 4.6 4.7 ROUTE SELECTION AND FACILITIES LOCATION DESIGN CONSIDERATIONS METERING BOURGAS STORAGE AND PUMP STATION PUMP STATIONS PRESSURE REDUCTION STATION VLORE TERMINAL

5.0

OFFSHORE BOURGAS 5.1 5.2 5.3 5.4 GENERAL UNLOADING SYSTEM PIPELINE BETWEEN SHORE AND BUOY JETTY OPTION

Page 1

6.0

OFFSHORE VLORE 6.1 GENERAL 6.2 LOADING SYSTEM 6.3 PIPELINE BETWEEN SHORE AND BUOY MONITORING CONTROLS AND TELECOMMUNICATIONS 7.1 7.2 MONITORING AND CONTROLS TELECOMMUNICATIONS

7.0

8.0

PROJECT IMPLEMENTATION PLAN AND SCHEDULES 8.1 8.2 IMPLEMENTATION PLAN PROJECT SCHEDULE

9.0

PROJECT COSTING 9.1 9.2 9.3 CAPITAL COSTS OPERATING COSTS RISK ASSESSMENT RESULTS AND METHODOLOGY

10.0

ENVIRONMENTAL CONSIDERATIONS 10.1 10.2 10.3 10.4 10.5 ENVIRONMENTAL ASSESSMENT BOURGAS AND VLORE ENVIRONMENTAL CONCERNS AND MITIGATION STRATEGIES BULGARIA, MACEDONIA, AND ALBANIA ENVIRONMENTAL CONCERNS AND MITIGATION STRATEGIES CONSTRUCTION SPILL PREVENTION AND CONTROL PLAN PROJECT ENVIRONMENTAL PLAN

APPENDIX 1 APPENDIX 2 APPENDIX 3 APPENDIX 4 APPENDIX 5 APPENDIX 6 APPENDIX 7 APPENDIX 8 APPENDIX 9 APPENDIX 10 APPENDIX 11

CROSS-COUNTRY PIPELINE ROUTING MAPS PIPELINE SYSTEM HYDRAULICS AND FACILITIES LOCATIONS TYPICAL PIPELINE SPECIFICATIONS AND DRAWINGS PUMP STATION SPECIFICATIONS PIPELINE METALS PROTECTION SEISMIC RISK MITIGATION STRATEGIES AND SPECIFICATIONS PIPELINE CLEANING PROVISIONS PROJECT METERING FACILITIES CRUDE STORAGE TANK SPECIFICATION STANDBY DIESEL GENERATOR SPECIFICATION EMERGENCY AND FIRE PROTECTION EQUIPMENT

Page 2

APPENDIX 12 APPENDIX 13 APPENDIX 14 APPENDIX 15

REQUIREMENTS BOURGAS AND VLORE PRELIMINARY MOORING SPECIFICATIONS BOURGAS AND VLORE PRELIMINARY SUBSEA PIPELINE SPECIFICATIONS UNCERTAINTY MANAGEMENT MAJOR EQUIPMENT VENDORS AND SUPPLIERS

Page 3

1.0

INTRODUCTION This Volume IV of the Trans Balkan Crude Oil Pipeline Feasibility Study presents the technical issues of the onshore and offshore pipeline systems and facilities in all three countries. These issues are addressed in some detail with a number of specific appendices related to particular areas of interest. The topics covered herein include all items of technical scope stated in the TDA Terms of Reference. Section 2.0 summarizes the findings of the study, specifically the length, volume, and quantities derived as a result of the calculations and technical investigations undertaken. Section 2.0 also lists Conclusions and Recommendations, including a listing of activities which should be considered as progressing the project into FEED.

Section 3.0 includes a description of the principal components of the pipeline systems including onshore and offshore pipelines, offloading and loading buoys, terminals, pump stations, and pressure reduction station. Section 4.0 is a detailed discussion of the onshore pipeline system in all three countries, including design conditions, maintenance and operational conditions, and major equipment and facilities description. Design standards and industry accepted specifications are listed. Section 5.0 defines the offshore offloading system components for Bourgas. Section 6.0 details those components for the offshore loading system at Vlore. Section 7.0 discusses the overall monitoring, controls, and telecommunication systems for the facilities location, pipeline valves, and voice communications, including SCADA and backup systems. Section 8.0 provides a description of the project schedule and the implementation strategy on which the project development will proceed. The design, procurement, and construction activities are addressed. Section 9.0 estimates the CAPEX and OPEX for the pipeline and discusses the various risk areas related to design, procurement, construction, implementation strategy, and schedule. Section 10.0 briefly outlines the environmental considerations related to the pipeline and facilities construction and operation.

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2.0 2.1

SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS Summary A modern, efficient, and dependable Trans Balkan Crude Oil Pipeline system can be implemented for the costs estimated and within the schedule developed within this Study. An overview of the important technical details are: Overall throughput expected to be 35 million tons per annum 36-inch pipeline, 987 km in length crossing Bulgaria, Macedonia, and Albania Two terminals with 4.8 million barrels of storage each Offshore unloading buoys at Bourgas and an offshore loading buoy at Vlore Four (4) pump station facilities with total pumping power in excess of 62 Mw Pressure reduction station located in the downhill section of Albania CAPEX estimate of $1.13 billion, TIC Estimate accuracy determined to be +20%/-10%, with an overall contingency of 8.6% OPEX estimate of $44 million per annum including electricity and fossil fuel requirements. Overall duration of project from start of FEED to pipeline acceptance of first oil is 37 months.

It is recommended that interested parties consider proceeding with this project on an expedited basis by continuing with some critical up-front activities (detailed crosscountry pipeline route characterization, marine surveys, permitting, etc.) until Front End Engineering and Design (FEED) can be initiated, as visualized in the study schedule, around September 1, 2000. The FEED efforts will specifically define the system in detail, identify and purchase long-lead items, and result in selection of Contractors for field installation.

2.2

Conclusions This document can serve as a reference for future technical development of the Trans Balkan Crude Oil Pipeline System. The following conclusions are listed: The proposed crude oil pipeline from Bourgas to Vlore is certainly a feasible project to design and construct in compliance with internationally recognized codes and standards and accepted industry practice. System design flowrate is 119,260 cubic meters/day (750,000 bbl/day) which results in the general overall system as illustrated in Appendix 2.

Page 5

At this early stage, the capital cost of the project is estimated at 1.13 billion US dollars with an accuracy of +20%/-10%. This estimate and its accuracy can be improved with further engineering efforts. Annual operating and maintenance (O&M) costs, excluding fuel costs, are currently estimated at 34 million US dollars. It is feasible to implement the Trans Balkan Crude Oil Pipeline System over a 37 month time period beginning 1 September 2000. Commercial operations would begin in October 2003. Currently, it has been concluded that electricity from the local national grid will be adequate to power system facilities in Bulgaria. The national grids in Macedonia and Albania are not considered adequate and system power must be generated locally using crude oil from the pipeline as a fuel. Annual system fuel usage is estimated as 500 million KW-hours (1.800 E +15 Joules) of electricity from Bulgaria and 525,000 barrels of oil from the pipeline system in Macedonia and Albania. Based upon available data, the 897 kilometer cross-country pipeline route has been analyzed and characterized for construction cost estimating as delineated in Section 4.1.5. The appendices of this document contain numerous designs, specifications, and analysis that can serve as a basis for the further technical development of this project. The pipeline system can be adequately designed for seismic conditions by using the fault crossing design technique discussed in Section 4.1.7 and seismic design specifications such as presented in Appendix 6. The Trans Balkan Crude Oil Pipeline System can be designed for safe operation by using state-of-the-art technology such as real-time leak detection systems, emergency shutdown systems, central monitoring/control (see SCADA system below), etc., and having a trained/professional operations and maintenance staff. It is feasible to locate Onshore Terminals in the Bourgas and Vlore areas, see Figures 4-4 and 6-2 respectively. The offshore facilities will be generally located as presented in Figures 5-1 (for Bourgas) and 6-1/6-2 (for Vlore). The monitoring and control of the Trans Balkan Crude Oil Pipeline will be achieved by implementation of a Supervisory Control and Data Acquisition (SCADA) system. High reliability and availability can be achieved by making all of the critical components of the SCADA system redundant as well as incorporating redundant power supplies in network equipment. The telecommunication system provided for the Trans Balkan Crude Oil Pipeline will be designed to cover both current and future needs in the data, voice, and mobile communications areas. Proven pipeline industry approaches and up-to-date technology will be utilized to support the operations and maintenance of the system. The use of satellite technology will minimize the requirements for land,

Page 6

and increase security by minimizing the amount of equipment located along the pipeline route. The Trans Balkan Crude Oil Pipeline System can be implemented in an environmentally responsible manner by taking into consideration the information and suggested approaches in Section 10 of this document. The three country pipeline route used in this study was provided by the Expert Committee formed to follow this project. This study determined that this route is feasible. The estimated CAPEX and OPEX includes optimization of local labor and services during construction.

The above conclusions can be verified and refined as the project proceeds with FEED and additional upcoming phases of the project.

2.3

Recommendations This present document provides capital and annual cost estimates for the Trans Balkan Crude Oil Pipeline System. If an economic analysis, considering these costs along with current and expected future market conditions, shows that the overall project is potentially attractive economically, then the following recommendations are made: Given that this project is to be pursued on a fast track, expedited basis, and given that project FEED activities will probably not officially begin until September 2000, it would be wise (in order to improve the capital cost estimate and its accuracy, and to define/manage/reduce project risk) to begin some technical/engineering activities as soon as possible between now and FEED activities. Activities which should be considered: Surveys: topographic, geotechnical, and environmental Detailed investigation into supply of long lead items on the basis of current requirements schedule Dynamic modelling of entire pipeline system using actual vessels for shuttling in Black Sea and loading out of Vlore. Investigation into capabilities, plant, and resources of individual local construction companies within the three countries. Engineering efforts should be focused on the most significant areas of cost uncertainty in order to most effectively increase the accuracy of the project capital cost estimate in as short a time frame as reasonable.

Page 7

The risk assessment/management methodology discussed in Section 9.3 should be formally initiated as soon as possible with input from as broad a spectrum of project stakeholders as currently reasonable. Such efforts will allow risks to be more exactly defined and appropriate mitigation strategies to be developed/implemented.

Page 8

3.0

PRINCIPAL COMPONENTS OF THE PIPELINE SYSTEM The cross-country pipeline will originate at the Bulgarian port of Bourgas; will cross the three countries of Bulgaria, Macedonia, and Albania; and will terminate at the Albanian port of Vlore. This routing includes a significant distance in mountainous terrain. The design flowrate through the cross-country pipeline is 119,260 cubic meters of oil per day (750,000 barrels per day). The entire pipeline system is to be designed to the ANSI 600 standard which is commonly found throughout the worldwide crude oil transportation industry. The cross-country pipeline is 914 mm (36 inches) in diameter. The unloading facilities at Bourgas include two (2) Catenary Anchor Leg Mooring (CALM) buoy-type systems at suitable locations with a 1,067 mm (42 inch) diameter steel pipeline to shore. The loading facilities at Vlore include a 1,168 mm (46 inch) steel pipeline with one CALM type buoy system for tankers loading at a suitable location in Vlore bay. Oil will be metered and stored at the new Bourgas onshore terminal tankage. The design philosophy is to maximize asset utilization and system availability to transport oil from Bourgas to offshore Vlore, Albania. The overall system design will take into consideration that the pipeline passes through high intensity earthquake zones. Earthquake hazard assessment will be carried out assuming earthquakes occur randomly as independent events. The magnitude of earth quakes will be taken from the Map of Natural Hazards. The design earthquake magnitude must be the maximum probable determined for each location. Station trips, Emergency Shutdown (ESD) valve closure, etc. will receive special attention to avoid surge waves of unacceptable magnitude. This analysis will be carried out during the upcoming basic engineering to determine the pressure surge relief facilities at each location along the pipeline and at the unloading and loading facilities.

3.1

Offshore Unloading System At Bourgas The offshore unloading facilities at Bourgas will consist of two (2) Catenary Anchor Leg Mooring (CALM) type buoy systems for tankers unloading at a suitable location in Bourgas harbor (see Section 5 of this report) . There will be two 1,067 mm (42 inch) diameter unloading pipelines between CALM buoys and the onshore terminal. The 1,067 mm (42 inch) diameter pipelines will be manifolded to a common pipeline header, size (yet to be determined during FEED) which will transport the crude to the onshore storage and metering facility.

Page 9

3.2 3.2.1

Onshore Pipeline System With Terminals, Pump Stations And Storage Facilities Bourgas Onshore Storage, Pumping, Metering, and Control Facilities The Bourgas offshore and onshore terminals have been located and designed such that onshore booster pumps are not required to pass flow from the offshore unloading tankers to the onshore storage tanks. The onshore facilities are located close to the offloading pipelines landfall. The onshore facilities consist of eight (8) 95,320 cubic meter (600,000 barrels) storage tanks, an office and main communication and control facilities, booster pumps, mainline pump station and fiscal metering system. The storage tanks are sized to hold a minimum of two (2) tanker loads each of 317,725 cubic meters (2,000,000 barrels) capacity. The oil pumped onshore will be metered via tank gauging in order to keep an accurate record of oil transferred from the offshore tankers to the onshore crude oil terminal. A skid mounted custody transfer turbine meter facility will be used to meter the oil going out of onshore tankage and into the cross-country pipeline. Bourgas will be the principal operating location in Bulgaria, with full communications and monitoring systems for all locations in the system (Bulgaria, Macedonia, and Albania). Electrical power from the local grid will be supplied at the Bourgas Terminal boundary for powering the facility.

3.2.2

Cross-Country Pipeline The purpose of the cross-country pipeline is to transport oil from Bourgas Onshore Terminal (Section 3.2.1 above) to the Vlore Onshore Terminal (following Section 3.2.3). A 914 mm (36 inch) diameter pipeline is proposed for a distance of 896.706 kilometers. After the initial mainline pump station at Bourgas, there will be an additional three (3) intermediate mainline pump stations along the pipeline (at kilometer posts 181, 372, and 606) and a pressure reduction station at kilometer post 767. With three (3) duty pump sets per station and one stand by, the system will have a high level of availability and a throughput of 119,260 cubic meters (750,000 barrels) per day. Each intermediate pump station will have a pump house, office and store building, workshop, vehicle shelters and a control room. The pressure reduction station will have a similar arrangement. Pipeline pig launchers and receivers will be provided at these facilities. The first two intermediate pump stations in Bulgaria will have electrical power provided at their boundaries for powering the stations. The third intermediate pump station in Macedonia and the pressure reducing station in Albania will utilize crude oil from the pipeline as fuel to generate power locally. Mainline isolation valves will be strategically distributed along the pipeline to protect the environment from any spillage. Damage will be minimized by closing the isolation valves upstream and downstream of any ruptured section. The sectioning and location of the valves will be a function of the location, sensitivity to oil spillage, hazard and local regulation. The isolation valves will close automatically upon a sudden loss of pressure, such as in a major line rupture.

Page 10

The monitoring of leaks is of major importance for the Trans Balkan Crude Oil Pipeline. The pipeline will include a leak detection system that analyses real-time flow and pressure measurement data and determines whether a leak and/or rupture has developed, estimates the leak size and location to prevent major spillage and disasters. Adequate skid mounted surge relief systems will be placed along the cross-country pipeline where necessary to protect the facilities from excessive pressure surges that exceed the pipeline Maximum Allowable Surge Pressure (MASP). Surge protection systems will be designed to relieve excessive line pressure into surge tanks. 3.2.3 Vlore Onshore Storage, Pumping, Metering, and Control Facilities This onshore facility will be located close to the sea shore where the submarine loading pipeline leaves the shore line for the offshore buoy. This facility will include eight (8) 95,320 cubic meter (600,000 barrel) storage tanks, booster pumps, and a physical metering system. The metering system will measure the volume of oil being transported offshore thereby keeping a record of oil transferred from the main crude oil terminal to the loading tankers. The metering system will be supplied as a packaged unit on a skid complete with prover/testing facilities. The Vlore Terminal boundary will utilize crude oil from storage as fuel to generate power locally.

3.3

Offshore Loading System At Vlore The offshore loading system at Vlore will consist of one (1) CALM buoy system for tankers at a suitable location in Vlore harbor (see Section 6 of this report). The expected buoy location is in 50 meter water depth, which is sufficient to accommodate the large tankers (up to 300,000 dwt) anticipated to be used for oil shipments from Vlore. There will be one 1,168 mm (46 inch) diameter loading pipeline between the offshore CALM buoy and the onshore terminal.

3.4

Monitoring and Communication Systems The monitoring and control of the Trans Balkan Crude Oil Pipeline will be achieved by implementation of a Supervisory Control and Data Acquisition (SCADA) system. The architecture of the SCADA system for the Trans Balkan Crude Oil Pipeline will be designed to meet the following objectives: High reliability and high availability. Fault tolerance with no single point of failure. Excellent performance even under high loading conditions. Emergency backup capabilities. User friendly man-machine interface. Historical data collection for trending and reporting purposes. Secure access to data and control functions.

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Open systems standards for interfaces and protocols. Expansion capabilities for the entire project life cycle. Ease of support and maintenance.

High reliability and availability will be achieved by making all of the critical components of the SCADA system redundant as well as incorporating redundant power supplies in network equipment. The telecommunication system provided for the Trans Balkan Crude Oil Pipeline will be designed to cover both current and future needs in the data, voice, and mobile communications areas. Proven pipeline industry approaches and up-to-date technology will be utilized to support the operations and maintenance of the system. The use of satellite technology will minimize the requirements for land, and increases security by minimizing the amount of equipment located along the pipeline route. A voice communication system will be provided which provides high availability voice communications between all parties, namely the mobile units, the main pipeline control center in Bourgas, the Bourgas onshore and offshore unloading terminal, the pump stations, and the Vlore onshore and offshore loading terminal. The system will use satellite technology, cellular, and the Public Switched Telephone Network (PSTN) to provide this service. High speed, satellite based, communication circuits will communication between the Supervisory Control and Data Mater Terminal Unit (MTU), located in the Bourgas Pipeline pump stations/pressure reducing station and Vlore Terminal. will be used for other communication sites. be provided for data Acquisition (SCADA) Control Center and the Medium speed circuits

The reader is referred to Section 7 of this document for a more complete discussion of monitoring and communications systems.

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4.0 4.1 4.1.1

ONSHORE PIPELINE SYSTEM Route Selection And Facilities Locations General Routing The pipeline route has been derived from the information provided by the Expert Groups from the three countries. Appendix 1 provides routing maps for the crosscountry pipeline. The first Appendix 1 map shows the overall routing through the three (3) countries and the relation of that routing to current infrastructure. The second map again gives the total routing as per the scale indicated. Next, the five (5) part AMBO Pipeline Alignment maps give the routing in more detail at a scale of 1:500,000. The reader will note that the pipeline route is approximately 897 kilometers in length. Finally, the larger sized, folded, map in Appendix 1 provides an overall cross-country routing and profile of the pipeline from Bourgas, Bulgaria to Vlore, Albania. The final pipeline route will vary somewhat depending upon local and governmental instructions, seismicity and earthquake activity, environmental considerations, sources of electric power for pumping and existing access to more remote areas. The ground conditions are not likely to cause significant route relocation. It is usually more economic to install a pipeline in all but the most difficult conditions, than to add substantially to the overall length. These Appendix 1 routing maps provide a basis for construction cost estimates. During Front End Engineering & Design (FEED), surveys will be performed and these maps will be processed and refined to produce Pipeline Alignment Sheets that can be used in construction bid packages. Bulgaria In Bulgaria, the route begins approximately 20 kilometers northeast of Bourgas on the Black Sea shoreline at Bourgas Terminal. This location is approximately 10 kilometers north of the small coastal city of Pomorie. Initially, the pipeline proceeds southwestward for approximately 28 kilometers toward the existing refinery just west of Bourgas. The route crosses a major highway (E772) proceeding northwestward out of Bourgas to Ajtos. The terrain along this section includes salt plains and rolling foothills just before the refinery site. The elevations range from sea level to 40 meters. Fifteen (15) kilometers from the terminal, the pipeline passes to the north of the reservoir Atanasovo Lake, an identified ecologically-restricted area. The route, generally following the existing gas pipeline, continues in a northwesterly direction for approximately 30 kilometers to a location just to the northeast of the city of Karnobat. At Karnobat, the route turns westward eventually reaching a point approximately 10 kilometers south of Sliven. The approximately 84 kilometer pipeline section between the refinery and Sliven crosses rolling foothills and plateau

Page 13

terrain. This segment of the route is in relatively close proximity to Highway E772. Elevations range from 40 to 420 meters. Turning southwesterly, the route then passes to the north of Nova Zagora, to the south of Stara Zagora and onto Chernogorovo passing just to the north of Plovdi (Plovdiv). The distance from Sliven to Plovdi is approximately 141 kilometers. Major highways in proximity to the route include Highway 66, then Highway E772, and finally the A1 Motorway. Elevations range from 400 to 600 meters, the terrain being flat plateau. From Kilometer Post (KP) 340, south of the ROW lies the National Park Rila. Between KP 360 and KP 390, the pipelines pass north of the National Park Vitosha. These are both sites designated as ecologically-restricted areas. From Plovdi (Plovdiv), the route turns northwesterly along the A1 Motorway past Pazarozhik reaching a point just to the south of Sofyia. The pipeline route then proceeds past the southern outskirts of Sofyia and turns southwestward along Highway E 870/871 passing the cities of Pernik and Kyustendil before reaching the Macedonian border. The segment from from Plovdi (Plovdiv) to Sofia is approximately 136 kilometers in length and the continuing Sofia to Macedonian border segment is approximately 85 kilometers. The terrain is generally rolling hills, rising into the Rhodope mountains 30 km from the border (elevations ranging from 600 to 1220 meters). Just to the west of Sofia, at KP 414, to the south of the ROW is the ecologically-restricted area of Sofias water supply reservoir, Ostrica. From the above description, the reader will note that 474 kilometers of the total 897 kilometer route (53%) resides in Bulgaria, with a significant portion of this section paralleling the existing gas pipeline ROW. Macedonia At the Bulgarian/Macedonian border, the route proceeds southwesterly to a point southeast of Kumanoyo (Kumanovo). This segment largely parallels Highway E 870/871 and is 54 kilometers in length. Elevations range from 300 to 1220 meters. The route continues southward from Kumanovo largely paralleling the E75 Motorway, then Highway 27, and passing Prilep to a point just northeast of Bitola (Bitolj). This segment is approximately 139 kilometers in length. Elevations range from 400 to 1000 meters, the terrain is mountainous interspersed with flat plateaus. The route turns westward from Bitola towards the Macedonian/Albanian border, skirting the northern shore of Lake Ohrid. This segment is 82 kilometers in length. Elevations range from 560 to 1200 meters and the terrain remains mountainous for the most part. It should be noted that Lake Ohrid is recognized as an internationallyprotected site of unique environmental interest, and the design phase activities will include a systematic detailed study of the area.

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From the above description, the reader will note that approximately 275 kilometers of the total 897 kilometers route (31%) resides in Macedonia, of which some 100 km runs parallel to the new gas pipeline from Bulgaria. Albania From the border, the route continues in a westerly direction then more northwesterly direction for approximately 32 kilometers along the Shkumbin River valley before continuing to proceed along the valley southwestward for another 36 kilometers to Elbasan. Elevations range from 900 down to 200 meters. The terrain continues to be mountainous, becoming river flood plain at lower elevations. The route continues in a westerly direction for approximately 21 kilometers to Lushnje and then turns southwest for another 35 kilometers passing north and eventually west of the city of Fier. Elevations range from 20 to 170 meters. The terrain is generally flat, becoming marsh around Fier. In this section, there is a major crossing of the Seman River. Finally, the route heads south for approximately 24 kilometers before making a turn to the southwest and terminating on the coast (at the Vlore Terminal) approximately 8 kilometers northwest of the city of Vlore. This section again is flat and marshy with a major crossing of the Vijose River. Elevations range from 75 meters to sea level, the terrain sloping down to the coast along a wide estuary. From the above description, the reader will note that approximately 148 kilometers of the total 897 kilometers route (16%) resides in Macedonia.

4.1.2

Bulgaria Routing Climate Considering its small area, Bulgaria has an unusually variable and complex climate. The country lies between the strongly contrasting continental and Mediterranean climatic zones. Bulgarian mountains and valleys act as barriers or channels for air masses, causing sharp contrasts in weather over relatively short distances. The Balkan Mountains (just to the north of the pipeline routing) are the southern boundary of the area in which continental air masses circulate freely. The Rhodope Mountains (just to the south of the pipeline routing) mark the northern limits of domination by Mediterranean weather systems. The area between, which includes the pipeline routing along the Thracian Plain, is influenced by a combination of the two systems, with the continental predominating. This combination produces a plains climate along the pipeline route in central Bulgaria that resembles that of the Corn Belt in the United States, with long summers and high humidity. The climate in this region is generally more severe than that of other parts of Europe in the same latitude.

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Because it is a transitional area, average temperatures and precipitation are erratic and may vary widely from year to year. Average precipitation in Bulgaria is about 630 millimeters per year. The Black Sea coastal area and parts of the Thracian Plain usually receive less than 500 millimeters. The rest of the Thracian Plain gets less than the country average and is often subject to summer droughts. Higher elevations, which receive the most rainfall in the country, may average over 2,540 millimeters per year. The mountains are covered by heavy snowfalls in winter. The many valley basins scattered through the uplands have temperature inversions resulting in stagnant air. Sofia, which is located in a basin along the pipeline route, has an elevation (about 530 meters) that tends to moderate summer temperature and relieve oppressive high humidity. Sofia also is sheltered from the northern European winds by the mountains that surround its trough-like basin. Temperatures in Sofia average 1 degrees C in January and about 19 degrees C in August, although the summer seasonal highs are nearer 30 degrees C. The citys rainfall is near the country average, and the overall climate is pleasant. The coastal climate is moderated by the Black Sea, but strong winds and violent local storms are frequent during the winter. The temperate climate produces warm, dry summers. The reader is referred to Table 4-1 which gives temperature and rainfall data for the following Bulgarian cities along the pipeline route: Bourgas, Sliven, Plovdiv, and Sofia.

Terrain and Crops Available references indicate that the cross-country pipeline begins at the Bourgas Terminal in an area of wine and grape production along the initial routing. After the pipeline turns west, southwest at Karnobat, the route again passes through wine-grape and grain production areas on the Thracian Plain for significant distances all along the way to and past Plovdi (Plovdiv). As the pipeline route approaches and passes Sofia, significant grain production areas are found along the pipeline routing. Overall terrain along the pipeline routing is delineated in Section 4.1.5. Geology The predominant surface geological structure around the Bourgas Terminal is marine deposits. Proceeding along the pipeline alignment toward the Bourgas area, sections of Holocene solid and Eocene and Paleocene are encountered. As the route passes northwest to Karnobat, Eocene and Paleocene and Pleistocene inferior and Rumanian Apcheronien and Akchagylien are encountered along with a small length of Sedimentary rock with insertions of volcanics and pyroclastiques.

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The main geological structure from Karnobat southwestward along the route to the Nova Zagora area and on to Stara Zagora is Pleistocene inferior and Rumanian Apcheronien and Akchagylien. To the southwest of Stara Zagora, the pipeline alignment again encounters Sedimentary rock with insertions of volcanics and pyroclastiques. Proceeding from Stara Zagora to the Plovdiv area the pipeline route is in either the Holocene solid or Tertiaire Neogene essentially continental geological structures. These structures dominate along the route on past Pazardzik. The geological structure becomes considerably more varied along the pipeline route from just past Pazardzik as it proceeds to and around Sofia. A considerable length of Granite and quartz is first encountered and then Ultra basic rock. The structure becomes even more varied leaving Sofia and headed south westward past Kjustendil and on to the Macedonia border. The following type geological structures are found along this segment of the route: Tertiaire Paleogene, essentially continental, Tertiaire Neogene essentially continental, and Precambrien superior, partly marble. The reader is referred to the last three pages of Appendix 1 which gives geological maps covering the country of Bulgaria. Logistics The new Bourgas Terminal is located on the coast near established port facilities that can be utilized to import required equipment and materials for the Trans Balkan Crude Oil Pipeline Project. Also, from the above description, the reader will note that the proposed pipeline route in Bulgaria follows established transportation routes within the country. Major railways and highways/motorways are generally in close proximity to the route throughout its length. However, the magnitude of materials and equipment to be transported to the Terminal and pipeline right-of-way is large with respect to the expected capacity of these transportation facilities. Therefore, this project will place a significant stress on the local transportation facilities. Brown & Roots pipeline construction cost estimating computer program requires a ranking for project logistics and accessibility. The possible rankings are: Poor, Moderate, and Good. For purposes of this study, Bulgaria will have an overall ranking of Good. Crossings Available information resources were used to estimate the number of river, railroad, and bored highway crossings along the pipeline route in Bulgaria:

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Crossing Type 1. River a. Minor b. Moderate c. Major 2. Railroad 3. Bored Highway

Number 79 16 3 13 34

4.1.3

Macedonia Routing Climate A large part of Macedonia is a high plateau 600 900 meters above sea level, the rest is mountainous. The climate is continental. Rain is heaviest in the summer and there are significant snow falls in winter. The reader is referred to the Table 4-1 of this section for specific weather conditions at Skopje Petrovac, Prelep (Prelip), Bitola, and Lake Ohrid.

Terrain and Crops As the pipeline route enters Macedonia from Bulgaria, land use is classified as Pastures and Valley Farming for approximately 33% of the distance to Kumanovo. As the route nears Kumanovo, the land use classification changes to Field Crops such as wheat, corn, and sunflowers. Cotton and rice are found along the route in the Vardar River valley. Field Crops (as defined above) are found along the route past Titov Veles and approximately 25% along the route to Prilep. Approximately, 20% of the proposed route between Titov Veles and Prilep is Forest. Most of the proposed routing between Prilep and Bitola is classified as Field Crops (as defined above). Between Bitola and Lake Ohrid along the proposed pipeline route, the predominant land use classification is Pastures and Valley Farming. The reader is referred to Section 4.1.5 for a further description of the terrain in Macedonia. Geology Geological references classify the pipeline segment entering Macedonia to be in General rock for a relatively short distance before transitioning into Marine sedimentary rock for a longer distance. As the route continues south westward north of Highway E871 Granite is encountered and also a segment of General rock (tufs, ignimbrites, pyroclastites). The route turns generally southward before reaching Kumanovo and encounters Basalt; basic rock and alkalines and Marine rock in the Vardar River area before nearing the city of Titvo Veles. As the route continues south past Titvo Veles and proceeds to Bitola, Marine rock is first encountered along with a narrow strip of Granite and finally a large region of

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Essentially non-divided river sediments. These River sediments continue as the pipeline turns westward from Bitola proceeding to Ohrid. Around Lake Ohrid, considerable sections of the route are in Marine sedimentary rock and Marine sedimentary rock with insertions of basic rock (basalt, lava). The reader is referred to the last three pages of Appendix 1 which gives geological maps covering the country of Macedonia. Logistics From the above description, the reader will note that the proposed pipeline route in Macedonia follows established transportation routes within the country. Major highways/motorways are generally in close proximity to the route throughout its length. There is also some moderate amount of rail access to the general pipeline right-of-way. However, the magnitude of materials and equipment to be transported to the pipeline right-of-way is very large with respect to the expected capacity of these transportation facilities. Therefore, this project will place a significant stress on the local transportation facilities. It should also be remembered that any materials/equipment transported to Macedonia must first pass through other countries (Albania, Bulgaria, or Greece) over considerable distances and in some cases difficult terrain. Landing of project materials and equipment at the Greek port of Thessaloniki and movement of those materials/equipment up the major E75 Expressway northward directly to the pipeline right-of-way could be the easiest and most direct method of transport, if proper/reasonable political relations and customs/duties costs can be established with the relevant Greek entities. As has been stated previously, Brown & Roots pipeline construction cost estimating computer program requires a ranking for project logistics and accessibility. The possible rankings are: Poor, Moderate, and Good. Considering the above delineated factors and for purposes of this study, Macedonia will have an overall ranking at a mid-point between Moderate and Good. Crossings Available information resources were used to estimate the number of river, railroad, and bored highway crossings along the pipeline route in Macedonia: Crossing Type 1. River a. Minor b. Moderate c. Major 2. Railroad 3. Bored Highway Number 47 7 3 5 19

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4.1.4

Albania Routing Climate Albanias climate is mild temperate with cool, cloudy, wet winters and a January low of 5 degrees C. Summers are hot, clear, dry with July highs of 28 degrees C. The interior of the country is cooler and wetter. With its coastline facing the Adriatic and Ionian seas, its highlands backed upon the elevated Balkan landmass, and the entire country lying at a latitude subject to a variety of weather patterns during the winter and summer seasons, Albania has a high number of climatic regions for so small an area. The coastal lowlands have typically Mediterranean weather; the highlands have a Mediterranean continental climate. In both the lowlands and the interior, the weather varies markedly from north to south. The lowlands have mild winters, averaging about 7 degrees C. Summer temperatures average 24 degrees C, humidity is high, and the weather tends to be oppressively uncomfortable. In the southern lowlands, temperatures average about five degrees higher throughout the year. The difference is greater than five degrees during the summer and somewhat less during the winter. Inland temperatures are affected more by differences in elevation than by latitude or any other factor. Low winter temperatures in the mountains are caused by the continental air mass that dominates the weather in Eastern Europe and the Balkans. Northerly and northeasterly winds blow much of the time. Average summer temperatures are lower than in the coastal areas and much lower at higher elevations, but daily fluctuations are greater. Daytime maximum temperatures in the interior basins and river valleys are very high, but the nights are almost always cool. Average precipitation is heavy, a result of the convergence of the prevailing airflow from the Mediterranean Sea and the continental air mass. Because the convergence usually comes at the point where the terrain rises, the heaviest rain falls in the central uplands. Vertical currents initiated when the Mediterranean air is uplifted also cause frequent thunderstorms. Many of these storms are accompanied by high local winds and torrential downpours. Lowland rainfall averages from 1,000 millimeters to more than 1,500 millimeters annually, with the higher levels in the north. Nearly 95 percent of the rain falls in the winter. Rainfall in the upland mountain ranges is heavier. Adequate records are not available, and estimates vary widely, but annual averages are probably about 1,800 millimeters and are as high as 2,550 millimeters in some northern areas. The seasonal variation is not quite as great in the coastal area.

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The higher inland mountains receive less precipitation than the intermediate uplands. Terrain differences cause wide local variations, but the seasonal distribution is the most consistent of any area. Terrain and Crops In 1991, cultivable land in Albania amounted to about 714,000 hectares, about 25 percent of the countrys total area. Arable land and permanent croplands totaled about 590,000 hectares and 124,000 hectares, respectively; permanent pasturelands accounted for another 409,528 hectares. More than 100,000 hectares of the cultivable land had a slope greater than 30 percent and was allocated almost entirely to permanent tree crops such as olives. Forests and woodlands covered more than 1 million hectares, or 38 percent of the total land area. The soils of the coastal plain and eastern plateau are fertile, but acidic soils were predominant in the 200,000 hectares of cropland in hilly and mountainous areas. Large scale drainage projects begun after World War II turned marshes into fertile fields in Albanias lowlands, and the countrys Mediterranean climate offers ideal conditions for cultivating fruits and vegetables. The proposed pipeline route from the Vlore Port area to the city of Elbasan is in an area classified as the Albanian Southern Coastal Plains and Associated Hills. This area has plains and low hills with moderate slopes and elevation ranging from 0 600 meters. As stated above, former marshes and swamps were reclaimed in the 1950s and are now under intensive cultivation. The only remaining swamp of any importance is Kuna near Lezha, which is now a nature park. A wide range of cereals, forage, vegetable, oil crops, and tobacco are cultivated in flat areas; and olives, vines, and fruit trees, on the hills. The Vlore area is famous for its vine and olives. Fier is an agricultural center surrounded by fertile plains. Elbasan is located in the plain of the Shkumban River and is known for its olives, oranges, persimmons and figs. This is the most important agricultural area of the country, however, low lying land is subject to flooding if the drainage systems do not operate. Soil erosion is now rampant on sloping land. The average rainfall in this region is 900 1100 mm, with 80% falling from October to March and a dry season for about three months in the summer. Summers have a mean temperature of 26 degrees C and mean humidity of 60 percent, while winters are cool and wet with mean temperatures in December and January of 9.8 degrees C to 11.8 degrees C. The dominant soils in sloping areas are Haploxerolls and Haploxeralfs. Flat areas are covered by deep soils of heavy texture: Xerochrepts, Endoaquerts, Haploxererts, and Haplosalids. Fibric Medisaprists have also been identified within this region. Xeropsamments occupy the beaches and sand dunes. The soil temperature is thermic and the soil moisture regime is xeric. The proposed pipeline route segment running southwestward along the Shkumban River valley into Elbasan is classified as Albanian Southern Steeplands and Associated Valleys. Generally in this area, slopes are steep to moderately steep with some mountains with small valleys, where farming takes place. Main crops are cereals, beans, forage, and vegetables. Sloping lands are used for fruit trees, olives,

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and vines. Forests occupy the higher elevations. The average elevation varies from 600 to 1000 meters. Average annual rainfall is 600 1000 mm, with a dry season of two to three months with much of the precipitation occurring from October to March. Summers are hot and winters mild. Shallow residual soils are found on the hills, with colluvial soils on the side slopes of the mountains. Erosion is often more severe than in other regions. Generally, reforestation and appropriate land management is urgently needed in this region to avert degradation of the soil resources. The dominant soils found on slopes are shallow Ochrepts or bare rock. Intermediate valleys have Fluvents, Aquents, Ustalfs, and Ustolls, and they have a finer texture and granula structure. The soil moisture regime is ustic and the soil temperature regime is thermic. The proposed pipeline route from Lake Ohrid westward then northwestward (before turning southwestward) is in a region classified as Southeastern Mountains. In this region, natural vegetation is made up of beech, pine, and oak forests. They are intensively exploited by the timber industry and therefore reforestation is urgently needed. Generally, elevations range from 1600 meters to more than 2300 meters. Annual precipitation is 1000 1100 mm. Most of the rainfall is from late fall to early spring. Heavy snow is also common. The driest months are July and August. Maximum summer temperatures are below 25 degrees C while minimum temperatures may reach 20 degrees C. The majority of upland soils are shallow and heavily eroded with Ochrepts, Lithic Haplumbrepts and Lithic Cryumbrepts. Different soils are found in the valleys with Rhodustalfs typically in the valley of Shkumbin in Librashd. The soil moisture regime is ustic and udic and the soil temperature is mesic and frigid. In the Vlore Port area, land use is classified as Permanent Crops (olives, grapes, and citrus) for approximately twenty (20) percent of the way along the pipeline route to Lushnje. The other eighty (80) percent of the distance to Lushnje is classified Mixed Farming (grains, potatoes, vegetables, and livestock). Cotton and tobacco are also show as crops. Between Lushnje and Elbasan, along the pipeline route, the land use is again classified as Mixed Farming with the same meaning as delineated above. Another concentrated area of Permanent Crops is found immediately around the city of Lushnje. Along the pipeline route from Elbasan up the Shkumban River valley to Lake Ohrid, land use is classified as Forest with Cultivation In The Valleys. Geology According to available geological maps, the pipeline segment landscape between the Vlore Terminal and Lushnje is made up of marine sediments and essentially nondivided river sediments. The routing landscape between Lushnje and Elbasan is made up of various forms of marine sedimentary rock. Finally, the routing between Elbasan and Lake Ohrid has 30% marine sedimentary rock, 35% ultra basic rock, and 35% marine sedimentary rock with segments of lava basalt.

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The reader is referred to the last three pages of Appendix 1 which gives geological maps covering the country of Albania. Logistics The new Vlore Terminal is located on the coast near established port facilities that can be utilized to import required equipment and materials for the Trans Balkan Crude Oil Pipeline Project. Also, from the above description, the reader will note that the proposed pipeline route in Bulgaria follows established transportation routes within the country. Major railways and highways/motorways are generally in close proximity to the route throughout its length. However, the magnitude of materials and equipment to be transported to the Terminal and pipeline right-of-way is very large with respect to the expected capacity of these transportation facilities. Therefore, this project will place a significant stress on the local transportation facilities. A 1995 Albanian travel guide gives some indication of complications that could arise when the large quantity of project materials and equipment impact the existing transportation systems. The guide mentions that already the roadway between Elbasan and Lake Ohrid (essentially along the pipeline route) is heavily traveled by trucks from Turkey and Bulgaria. Also, at Elbasan the roadway along the Shkumban River valley is described as having no guardrails with people, cows and goats also utilizing the road. Given these existing circumstances and the additional potential that some existing bridges may not be adequate for the heavy loads associated with project construction and other equipment, and roadway curves possibly causing problems for the longer pipeline stringing trucks; it can be easily concluded that project logistics may have problems in Albania. As stated earlier, Brown & Roots pipeline construction cost estimating computer program requires a ranking for project logistics and accessibility. The possible rankings are: Poor, Moderate, and Good. For purposes of this study, Albania will have an overall ranking of Moderate.

Crossings Available information resources were used to estimate the number of river, railroad, and bored highway crossings along the pipeline route in Albania: Crossing Type 1. River a. Minor b. Moderate c. Major 2. Railroad 3. Bored Highway Number 33 12 2 9 16

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4.1.5

Route Construction Characterization In order to estimate pipeline construction costs in the three countries along the pipeline route, each country was analyzed to have the following breakdown in terms of type of terrain, percentage of rock, and clear/grade type: Bulgaria

Type of Terrain Level to rolling Choppy, very hilly Rough, small mountains Very rough, major mountains Totals

Kilometers 200 130 94 50 474

% of Bulgaria Routing Distance 42 27 20 11 100

% Rock No rock Rippable rock Solid rock Totals

Kilometers 328 93 53 474

% of Bulgaria Routing Distance 69 20 11 100

Clear/Grade Type Light Medium Medium Heavy Heavy Totals

Kilometers 237 102 123 12 474

% of Bulgaria Routing Distance 50 21 26 3 100

Macedonia Type of Terrain Level to rolling Choppy, very hilly Rough, small mountains Very rough, major mountains Totals Kilometers 61 82 80 52 275 % of Macedonia Routing Distance 22 30 29 19 100

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% Rock No rock Rippable rock Solid rock Totals

Kilometers 124 99 52 275

% of Macedonia Routing Distance 45 36 19 100

Clear/Grade Type Light Medium Medium Heavy Heavy Totals

Kilometers 138 49 55 33 275

% of Macedonia Routing Distance 50 18 20 12 100

Albania Type of Terrain Level to rolling Choppy, very hilly Rough, small mountains Very rough, major mountains Totals Kilometers 82 35 6 25 148 % of Albania Routing Distance 55 24 4 17 100

% Rock No rock Rippable rock Solid rock Totals

Kilometers 83 30 35 148

% of Albania Routing Distance 56 20 24 100

Clear/Grade Type Light Medium Medium Heavy Heavy Totals

Kilometers 105 22 8 13 148

% of Albania Routing Distance 71 15 5 9 100

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4.1.6

Pipeline Hydraulics and Facilities Locations Pipeline Hydraulics A hydraulic analysis has been conducted to properly locate and size the required pump stations and pressure reduction station for the pipeline system as well as size the pipeline itself. Results are shown in Appendix 2. This analysis was performed for the entire pipeline system, including the offshore sections. The profile of the route indicated maximum elevations of 1200 m and minimum elevations of 30 m at Bourgas and 50 m at Vlore. The terminals are located at the shorelines at elevations of approximately 10 m. For the pipeline throughput of 750,000 barrels per day of Tergiz-type typical crude (see crude characteristics in Table 1, Appendix 2), a maximum pressure loss was calculated based on a design operating pressure of 1480 psig. This is equivalent to ANSI 600. The optimized facilities location spacing confirms the pipeline size of 36 inch for the terrain conditions along the proposed route. For the offshore pipeline sections, the line sizes were calculated on the availability of ships pumps pressure (typically less than 100 psig) to pump into terminal tanks with the minimum of pressure loss. This gives each of the buoys at Bourgas a 42-inch line to the terminal. For the offshore loading pipeline in Vlore, the line size is determined by the request for a large volume flow rate (2 million barrels in 24 hours maximum duration) and the limitations of the ships manifold pressure (typically less than 100 psig). Thus, the line in Vlore is 46-inch diameter from the tunnel to the pipeline end manifold beneath the buoy. Pipeline Facilities Location Four (4) pump stations are required at the following kilometer posts (kmps): 0, 181, 372, and 606. The pressure reduction station (PRS) is at kmp 767. The reader is referred to Appendix 1 which provides maps showing the locations of the pipeline facilities (Bourgas Terminal PS1, PS2, PS3, PS4, PRS, and Vlore Terminal). The first mainline pump station (PS1) is located at kmp 0 within the Bourgas Onshore Terminal Complex. This site is approximately 10 kilometers north of the small coastal city of Pomorie. Good access is provided from the larger city of Bourgas via an approximate 20 km trip via the coastal highway. The second mainline pump station (PS2) is located at kmp 181 just to the southeast of the city of Stara Zagora, Bulgaria (see Appendix 1). The site has good access via Highway E85 running north-south and Highway 66 running east-west.

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PS3 is located at kmp 372 which is just southeast of the Sofia, Bulgaria metropolitan area near the major A1 Motorway. PS4 is located to the south of Titov Veles, Macedonia, and north of Prilep, Macedonia, along Highway 27 at kmp 606. This is generally in the Vardar River valley. The Pressure Reduction Station (PRS) is located in a relatively isolated area at kmp 767. This location is in the upper reaches of the Skhumbin River valley just west of Lake Ohrid. The PRS will be near the established roadway, railway, and electrical powerline passing between the lowlands of Albania and Lake Ohrid.

4.1.7

Pipeline Construction Methods Appendix 3 contains a rather comprehensive Pipeline Construction Specification that is general and would apply to the entire length of the pipeline route. The following subsections give further discussions on special methods of construction that are applicable to the Trans Balkan Crude Oil Pipeline. River Crossing Locations And Strategies Appendix 1 provides information on river crossing locations along the pipeline route. Other sources have been used to supplement this information and the following estimate of required river crossings has been developed (river width < 50 meters = minor crossing; 50 < width < 100 meters = moderate crossing; and width > 100 meters = major crossing): 1. Bulgaria Minor Crossings = 12 Moderate Crossings = 12 Major Crossings (Tundzha, Strjama, Iskur) = 3 Macedonia Minor Crossings = 15 Moderate Crossings = 7 Major Crossings (Vardar, Blato, Crni Drin) = 3 Albania Minor Crossings = 14 Moderate Crossings = 4 Major Crossings (Seman, Vijose) = 2

2.

3.

The above listed Major River Crossings are located at the following kilometer posts along the proposed pipeline route:

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River Tundzha Strjama Iskur Vardar Blato Crni Drin Seman Vijose

Kilometer Post 114 246 374 575 657 733 857 877

Sections 15 and 16 of the Appendix 3 Pipeline Construction Specification present procedures for pipeline crossing of water courses, including rivers, and gives a more detailed discussion on Horizontal Directional Drilled (HDD) crossings of rivers. The HDD technique will be the technically preferred method for the major, significant river crossings on the Trans Balkan Crude Oil Pipeline Project. Dredging may also be considered. The open cut method will be considered for minor creek and smaller river crossings. Depending on details, either the HDD, open cut method, or dredging may be used for the moderate crossings. As stated above, depending on the exact circumstances, ability of local contractors, and exact costs, consideration may be given to dredging as a crossing technique for significant rivers. Dredging requires that a ditch be excavated across the river and into the banks using draglines and clamshells. These crossings are installed in low water/low flow seasons of the year as much as possible. Spoil is placed temporarily on the banks in the right-of-way (ROW) and subsequently returned as backfill after the pipe has been installed. The trench would be excavated to a depth and contour such that the pipe is level beneath the river. The pipe would be assembled, welded and coated on one of the banks as a complete unit or in sections. It is pressure tested, then pulled into position along the trench by a cable stretched across the stream to a pulling winch mounted on the other side. The pipe may be walked into the water by sidebooms or carried by track mounted dollies. The pipeline section would be either weighted or buoyed depending on its size, weight and water current conditions. If the water flow is sluggish, the trench would be backfilled near the banks as much as possible, if required. Otherwise, the natural current would be allowed to fill or heal the ditch. Minimal silting of the stream is the goal. If required, backfilling can be accomplished by barge-hauled materials such as clean bank sand. River bank cuts should be replaced with wet or damp spoil in the reverse order in which it was removed so that the top soil is returned to the top of the excavation. All dry bank material would be placed further back on higher ground. When hydraulic dredging is required for wide rivers, the spoil is transported to containment levees on highland areas on the ROW away from the river banks. The containment areas should have spillways and weirs that prevent erosion and excess solids from returning to the stream. Hydraulic spoil should not be placed into the rivers, and spoil should not be placed in another stream or wetland.

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Seismic Fault Crossings Past records have shown that buried pipelines have been damaged by earthquakes, especially for those crossing active faults. Therefore, it is essential to design the Trans Balkan Crude Oil Pipeline to adequately accommodate the anticipated fault movements. The reader is referred to the Appendix 1 map entitled Seismology of the Balkans which shows historical eqrthquakes and faults along the proposed pipeline route. Figure 4-1 gives the basic diagram for a computer analysis of a pipeline across a fault. The fault will have a relative horizontal movement as shown. The pipeline is in the Initial Pipe Position before the fault movement at an angle beta with the fault. After fault movement, the pipe will be placed in tension. It is desirable to route the pipeline with and angle beta that will produce tension instead of compression in the pipeline. In this manner, the pipeline can more likely survive the fault movement and maintain structural integrity. Whenever possible, the Trans Balkan Crude Oil Pipeline will be routed at beta angles with faults such that tensile stresses are produced upon fault movement. In Figure 4-1, the pipeline and soil will move horizontally delta x and delta y. There may also be movement in the vertical plane resulting in a displacement delta z. The pipeline and soil to the left is in an elastic condition. In the transition region, there will be large deformations. The Trans Balkan Crude Oil Pipeline design will be to not unnecessarily restrain the pipeline in the transition region. The design concept will be to make the soil in the transition region weak, loose sand, etc. so the pipeline can move. At each pipeline crossing of a fault along the Trans Balkan Crude Oil Pipeline, the beta angle will be carefully determined to reduce tensile stresses in the pipeline (Figure 4-2). In the transition zone, the pipeline will move with respect to the soil. For calculation purposes, anchor points are considered to exist at the extreme left (start of L1) and the right side of L2. The fault relative movement d will be provided by appropriate seismic experts and the design concept will require L1 and L2 to be carefully chosen to allow such movement. The pipeline should be initially straight to avoid anchoring. Figure 4-3 gives a drawing of the type of trench that can be employed in the transition zone to reduce the confinement of the pipeline by the surrounding soil. Loose sand backfill will be appropriate. Overburden should not be too large and the acceptable depth will be assessed using appropriate computer analysis. Researchers have investigated the effect of stress in the pipe versus soil/pipe friction angle and found that the axial pipe stress at fault location increases tremendously with increase of friction angle. Therefore, the pipeline can, if necessary, be coated with epoxy, etc. to reduce the frictional forces that may be built up by the soil on the pipeline. The concept will be for the pipe to move easily without undue restraint. The intent is to use the same wall thickness and grade of steel at the fault crossing as is used in the standard sections of pipeline.

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The orientation of a pipeline crossing a strike slip fault is very important as described above. It is even more so for a pipeline crossing a reverse slip fault since a proper orientation can minimize the compressive stresses induced in the pipeline during an earthquake. For particular situations where the development of compression in the buried pipeline is impractical or uneconomic to avoid, special design (other than the analysis technique described above) is required and will be implemented. Studies of damages caused by past earthquakes have shown that a buried pipe is more susceptible to damage when it is subjected to compression than tension. In fact, severe compressive wrinkling, buckling and breaks have been reported in areas where the pipes experienced compression and bending during the earthquake. To ensure no adverse effect to the environment, the following procedures, in addition to the analysis procedures described above for pipelines subject to tension, will be utilized for a pipeline crossing a reverse slip active fault: 1). The orientation of the pipeline will be carefully determined. The tension from the lateral strike slip will be utilized to compensate for the compression caused by the dip slip. A stress analysis of the buried pipeline will be performed to check and see if the induced stresses when combined with other applicable stresses are within the allowable limits. If the stresses exceed the allowable limits, flexible pipe, or ball joints may be inserted at the fault location to absorb the predicted displacements across the faults. Cut-off valves may be installed to completely shutoff the oil flow inside the pipe, in case of a sudden pressure drop indicating a pipe break.

2).

3).

4).

The reader is referred to Appendix 6 for further discussion of seismic design including fault crossings. Blasting Procedures Section 4.7 of the Appendix 3 Pipeline Construction Specification discusses blasting procedures that are to be used for trenching in rock. Such blasting will be needed along the Trans Balkan Crude Oil Pipeline route where solid rock is found that is not rippable. The estimated distances for such rock, in each country, has been previously estimated in Section 4.1.5. During blasting, Contractors will take precautions to minimize damage to adjacent areas and structures. These precautions include:

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Installing blasting mats (or backfilling with subsoil) in congested areas, in shallow waterbodies, or near structures that could be damaged by flying rock. Posting warning signals, flags, and barricades. Following procedures for safe storage, handling, loading, firing, and disposal of explosive materials. Manning adjacent pipelines at valves for emergency response.

In all cases, the Contractors blasting standards should meet or exceed applicable Bulgaria/Macedonia/Albania requirements covering the use of explosives. Excessive vibration should be controlled by limiting the size of charges and by using delays, which stagger each charge in a series of explosions. All landowners having structures, structure foundations, and wells that are located within 60 meters of the blast site should be offered pre-blast tests. Owners having septic systems directly abutting the construction area would also be offered pre-blast tests. Upon request by a landowner who had a pre-blast inspection, a post-blast inspection would be performed. To maximize its responsiveness to the concerns of affected landowners, the pipeline Owner should evaluate any and all landowner complaints of damage associated with blasting. If damage is substantiated, Owner should negotiate a settlement with the landowner to have any and all damages repaired or replaced. Where blasting occurs in wetlands, topsoil along the ditchline will be segregated prior to blasting. Rock removed from the trench will be stored with subsoil material. In order to limit the equipment operating in wetlands and avoid the need to import replacement fill, rock will not be removed from the wetland, but will be returned to the trench as subsoil. Excess blast rock should be disposed of in accordance with established procedures. If blasting is necessary in residential areas, small sequential charges will be used to prevent damage to structures and portable seismic equipment will be set up to monitor the blasts. All blasting will be done by certified blasting personnel and inspected by licensed blasting inspectors. Clean-up of residential properties will be carried out immediately after construction. A ROW agent will contact homeowners following clean-up to ensure that the conditions of the ROW agreement have been met and that compensation has been made for any damages incurred as a result of the construction. Erosion And Sediment Control Section 12 of the Appendix 3 Pipeline Construction Specification addresses the topic of erosion control. The reader will remember that in Section 4.1.4, Terrain and Crops, it was delineated that in Albania, Soil erosion is now rampant on sloping land. Also, significant portions of the pipeline right-of-way in Macedonia, and to a lesser extent in Bulgaria, are on sloping terrain, see Section 4.1.5. The Trans Balkan Crude

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Oil Pipeline System will be implemented in a manner to minimize the potential for erosion and sedimentation during the pipeline construction. The ROW and other disturbed areas will be effectively restored. These objectives will be met by taking the following actions: Minimizing the quantity and duration of soil exposure. Protecting critical areas during construction by reducing the velocity of water and redirecting runoff. Installing and maintaining erosion and sediment control measures during construction. Establishing vegetation as soon as possible following final grading. Inspecting the ROW and maintaining erosion and sediment controls as necessary until final stabilization is achieved.

Erosion control barriers should generally consist of silt fences and/or hay/straw bales. Hay/straw bales or silt fences are interchangeable, except where noted below. Erosion control barriers are required immediately after the initial disturbance of the soil, as described below: At the outlet of a temporary slope breaker (water bar/terrace) when vegetation is not adequate to control erosion. Along banks of water bodies between the graded ROW and the waterbody after clearing. Down slope of any stockpiled soil in the vicinity of waterbodies and wetlands. At all sideslope and downslope boundaries of the construction area where run-off is not otherwise directed by a temporary slope breaker (water bar/terrace). To be maintained throughout construction and should remain in place until permanent re-vegetation measures have obtained at least 80% catch/cover, upon which they would be removed. To be installed in the ROW at boundaries between wetlands and adjacent disturbed upland areas to prevent flow of sediment into the wetland where run-off is not otherwise directed by a temporary slope breaker (water bar/terrace).

Silt fence should be installed as per the manufacturers instructions where site conditions allow. Otherwise, the silt fence should be imbedded a minimum of 4 inches and, where two sections are joined, overlapped a minimum of 6 inches. Accumulated sediment should be removed regularly and the fence inspected to ensure that the bottom of the fence remains imbedded in the ground. A sufficient stockpile of silt fence should be maintained onsite for emergency use. Hay/straw bales should be anchored in place with two stakes, the first stake driven at an angle toward the previously positioned bale, and the second stake driven perpendicular to ground surface. Bindings on bales should be horizontal. Hay/straw bales should be repaired if damaged or if water is channeling underneath bales.

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Two-Tier (Two-Tone) Approach Where the pipeline crosses rugged landscape with steep side slopes, Contractors often construct the working side of the ROW such that it has two levels, or tiers, that parallel the ditch. The tier level nearest the ditch would be used for construction, while the tier farthest from the ditch would be used for travel. The elevation of the construction tier would usually be as close to the height of the ditch as possible. The elevation of the travel tier will be higher or lower than the elevation of the construction tier, depending on the locations natural grade. The two-tier (two tone) approach is economical and practical because it reduces the amount of soil and rock that must be excavated. This type construction method will be allowed on the Trans Balkan Crude Oil Pipeline. Wetland Crossings The Trans Balkan Crude Oil Pipeline Project will protect and minimize potential adverse impacts to wetlands by: Limiting the width of the construction ROW (say to 25 meters). Expediting construction in and around wetlands, and limiting the amount of equipment and mainline construction activities within wetlands to reduce disturbances of wetland soils. Restoring wetlands to their original configurations, contours, and drainage patterns. Permanently stabilizing upland areas near wetlands using erosion and sediment control measures and vegetative cover as soon as possible after backfilling. Inspecting the ROW periodically during and after construction, and repairing any erosion control or restoration features as needed in a timely manner until revegetation is successful.

The size of staging areas at wetland crossings will be limited to the space necessary for fabricating only those pipe segments required for the crossing. Other additional work spaces, such as additional spoil storage areas, at wetland crossings will also be limited to the size necessary to perform their function. All additional work space areas should be located at least 15 meters from the edge of the wetland where topographic conditions permit. If topographic conditions do not permit a 15 meter setback, these areas will be located at least 3 meters from the wetlands edge. The wetlands and setbacks should be clearly marked prior to the start of construction. To avoid contaminants entering the wetland, the Contractor will follow the spill prevention measures described in Section 10. Hazardous materials, chemicals, fuels or lubricating oils will not be stored nor will concrete costing activities be performed in a wetland, or within 30 meters of any wetland boundary. Contractors should attempt to refuel or service all construction equipment in an upland area at least 30 meters from a wetland boundary. If construction equipment must be refueled within

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30 meters of a wetland boundary, the produres outlined in Section 10 should be implemented. The reader is also referred to Section 18 of the Appendix 3 Pipeline Construction Specification for a further discussion of wetland (swamp and marshland) construction approaches. Spoil placed up-gradient of wetlands should be contained with silt fences or hay bales as necessary to prevent spoil materials from lowing into wetlands or off of the ROW. The Contractors for the Trans Balkan Crude Oil Pipeline will use one of the following four (4) methods for construction in wetland areas: 1. Method 1 Standard Pipeline Construction. This method can be used in wetlands where soils are dry enough at the time of construction to support equipment. This crossing method requires the segregation of topsoil from subsoil over the trenchline. This method is described in the Appendix 3 Pipeline Construction Specification. 2. Method 2 Conventional Wetland Construction. This method will be used for crossing wetlands with saturated soils or soils otherwise unable to support mainline construction equipment. With this method, the Contractor will stabilize the ROW by using timber rip-rap (corduroy roads), fabricated timber mats, or gravel over heavy mil/grade geotextile fabric. The Contractor will attempt to use no more than two layers of timber to stabilize the ROW. 3. Method 3 Push/Pull Wetland Construction. This method entails pushing or pulling a floating section of pre-assembled pipe into position over an inundated trench. The floats are removed and the concrete-coated pipe sinks into the trench. Contractors will use this method in large wetland areas where water levels are high enough at the time of construction to float the pipeline into the trench and where such levels can be maintained without damming. 4. Method 4 Site-Specific Construction. Custom formulated methods developed for a particular site. 4.2 Design Considerations

4.2.1 Typical Pipeline Specifications and Drawings Appendix 3 contains the following typical pipeline specifications that would be applicable to the cross-country Trans-Balkan crude oil pipeline: Pipeline Construction Line Pipe Pipeline Scraper Traps Pipeline Block Valves Pipeline Check Valves

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Appendix 3 also contains the following typical pipeline design drawings: Main Line Block Valve Assembly Scraper Launching & Receiving Trap Plan View Scraper Launching Trap Scraper Receiving Trap Scraper Launching & Receiving Traps - Elevations Main Line Block Valve Assembly Isometric Cathodic Protection Test Station Canal Crossing With Casing Highway Casing and Vent Installation Details Canal or Minor Stream Crossing Railroad Casing and Vent Installation Details Railroad Crossing Foreign Pipeline Crossing Road Crossing Without Casing Cased Highway Crossing Instrumentation Set-Up For Hydrostatic Testing Zinc Anode Installation Cathodic Protection Detail Single Zinc Rod Grounding Cell

The above documents serve as a basis for estimating the cost of the Trans Balkan Crude Oil Pipeline System. These specifications and drawings will be finalized during the later FEED stage of the project. 4.2.2 Pump Station Specifications Appendix 4 contains relevant specifications for the system pump stations. following specifications are included: Centrifugal Pump Medium-Voltage, Squirrel-Cage Induction Motors Low-Voltage, Squirrel-Cage Induction Motors Medium Voltage Switchgear The

Appendix 4 also contains Caterpillar vendor documentation for the Cat 3600 family of heavy fuel burning engines and the Cat 3600 diesel generator set. 4.2.3 Availability of Power and Back-Up Power The electrical grid within Bulgaria is reliable and will be the main source of electrical power for the project. As well as the terminal site at the coast near the port of Bourgas (including Pump Station No. 1), there is a requirement for power to the intermediate pump stations near Stara Zagora (Pump Station No. 2) and south of Sofia

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(Pump Station No. 3). The main line pumping facilities have a requirement for high voltage power to the pump drivers (electric motors), power for the station operations: control room, offices, lights, valve actuators and utility power. Back-up power is not a critical issue (as it may be in a processing plant) except for safety, monitoring and shutdown systems. The control and ESD (emergency shutdown) systems will have back-up power in the form of a UPS (uninterrupted power supply) battery package. There will be an emergency generator for black starts and emergency lighting and power (for valve actuators, control room and safety systems), which will run on diesel. There will be no separate back-up power connection for the mainline pumps in the event that there is a failure with the grid or power connection to the station. The electrical supply grid in Macedonia is not considered reliable enough or sufficiently robust to provide power for the fourth pump station, northeast of Prelep. The power for mainline pumps, as well as the other electrical requirements within this pump station facility, will be generated locally using crude oil from the pipeline as a fuel source. Back-up power is not a critical issue (as it may be in a processing plant) except for safety, monitoring and shutdown systems. Depending on the final design philosophy, there may be spare capacity within the generating system or possibly a spare generator to accommodate outages for maintenance and breakdowns. The control and ESD (emergency shutdown) systems will have back-up power in the form of a UPS (uninterrupted power supply) battery package. There will be an emergency generator for black starts and emergency lighting and power (for valve actuators, control room and safety systems), which will run on diesel. There will be no separate back-up power supply for the mainline pumps in the event that there is a failure of the local power generating facilities within the station. The electrical supply grid in Albania is not considered reliable enough or sufficiently robust to provide power for the terminal facility located north of Vlore town. Crude fueled generators, installed as part of the capital plant (CAPEX), will provide the power for vessel loading pumps as well as the other electrical requirements within the terminal. Back-up power is not a critical issue (as it may be in a processing plant) except for safety, monitoring and shutdown systems. Depending on the final design philosophy, there may be spare capacity within the generating system or possibly a spare generator to accommodate outages for maintenance and breakdowns. The control and ESD (emergency shutdown) systems will have back-up power in the form of a UPS (uninterrupted power supply) battery package. There will be a separate emergency generator for black starts and emergency lighting and power (for valve actuators, control room and safety systems), which will run on diesel. There will be no alternative back-up power supply for the loading pumps in the event that there is a failure of the generators or electrical control/distribution within the station.

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4.2.4

Pipeline Emergency Relief, Shutdown Isolation, and Safety Provisions This section pertains to pipeline emergency relief, shutdown isolation, and safety provisions for Bularia, Macedonia and Albania. Overpressure of Pipeline A pipeline system surge analysis should be conducted with consideration that any block valve in the pipeline could be accidentally closed while upstream pumps continue operating. A pressure relief system is recommended as protection against overpressure and to allow safe remote operation of pipeline block valves. In doing this, a worst case scenario is assumed such that any remotely operated pipeline block valve can be accidentally closed while upstream pump stations continue operating. It is assumed that manually operated line block valves are not in danger of being accidentally closed since some planning and effort must be expended to close one of these valves. The pressure relief system is intended to be the last activated overpressure protection system of the pipeline, pump station and piping. The pressure relief system includes surge relief valves, relief lines to the relief tanks, relief pumps and associated piping, manifolds and headers. Crude oil will be pumped out of the relief tank by transfer to the crude storage tanks or pumped back into the pipeline again. System Shutdown System shutdown can either be planned or unplanned. Planned shutdown results from regular/scheduled maintenance activities or scheduled modifications to the pipeline. Unplanned shutdown results from an upset condition in the pipeline. Upset conditions that may result in potential overpressure situations are monitored and controlled through a protective safeguard system that can be implemented by direct intervention of operators. The following sections will outline the shutdown approach proposed for the various cases. 1. Unplanned Pipeline Shutdown There are three levels of unplanned shutdown: emergency, process and operational. Emergency shutdown results from a local upset condition or system utility failure. Process shutdown results from process conditions deviating from normal levels. Operator shutdowns are restricted to the failed unit. a. Emergency Shutdown A manual switch at a pump stations control room activates emergency shutdown. Shutdown requires block valve closure to isolate the affected area
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and the tripping of the pumps. The shutdown signal is transmitted to the SCADA system for alarm and control response in case design conditions threaten to be exceeded elsewhere along the pipeline. An automatic pipeline shutdown can occur if pumps go off-line unexpectedly. If a pump at a downstream pump station fails, the high discharge pressure switches (shutoff transmitter) will trip pumps at upstream pump stations. The pumps at the downstream pump stations will be shutoff by low suction pressure switches (shutoff transmitter). The pump recirculation will be activated at the same time. The SCADA system will locally monitor the above actions and allow corrective action which is necessary at other locations. It is proposed that the SCADA central command station be stationed in Bourgas. b. Process Shutdown Process shutdowns result from deviation in process conditions which are not immediate emergencies, but can nevertheless develop into a serious problem if left uncorrected. For process shutdowns which are critical, a high integrity shutdown system is required. High integrity, through more sophisticated technology and backup control mechanisms, ensures that activation of shutdown will not fail. A low integrity system for less critical shutdowns will not have these safeguards. Process upsets are monitored by using pressure, temperature, flow and level transmitters. Redundant pressure transmitters are provided on critical services. c. Operations Shutdown Operators can quickly respond, shutdown, and isolate the station when there is indication that potentially hazardous situations are about to occur such as fire, gas leaks, pipeline ruptures, security beaches, or earthquakes. They may also intervene if there is a major incident that might put individuals at risk, cause property damage, or result in loss of production. Automatic station shutdown can idle the pipeline pumps in an orderly fashion in the event of unplanned events. Communications failure will bring the station automatically to a safe predetermined operating pressure level. Utility failure, such as loss of electric power or low instrument air pressure, will eventually bring the station to a halt. There are individual unit shutdowns that will allow the station to continue operating by either starting stand-by units, reducing throughput, or having the station on standby until operators can identity and resolve the upset conditions. A failure of a pump or nonessential equipment item is not necessarily critical for pipeline operation. If non-critical, its shutdown by a manual trip or block valve closure will not shut down the pump station and entire pipeline.

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2. Planned Pipeline Shutdown A planned shutdown of the pipeline can be carried out by shutting down the pumps and then closing line block valves. Upstream from the peak elevation of the pipeline, check valves protect the crude volume to drain from the hydraulic static head. The valve (pressure control valve) at Vlore be opened to drain crude volume to the storage tank. If only pumps at upstream are shut down, pump at downstream will be automatically shut off by low suction pressure shutoff switches (transmitter). Restarting the Pipeline After the pipeline has been shut down for a period of time, pumps at upstream can be re-started according to the procedure described below. Pumps at each station should be started one at a time for smooth operation. A procedure for re-starting the pump stations is outlined below: First start and warm-up the engine drivers. The engines should operate at idle speed with crude oil re-circulating to the recirculation header. Pump speed will be under manual control. Line pack during normal pipeline shutdown will be such that pump suction pressures will be greater than the required NPSH (net position suction head) for the pumps. The pump speed controller will take control of pump speed to hold a constant flow rate. Pipeline Control Response to Upsets The pipeline automatically adjusts itself during upsets by one or more pumps going off the pipeline in a pump station and allowing the other pumps to respond accordingly. Pipeline Slack Flow Slack flow is not allowed in the pipeline operation. A packed flow in the pipeline will enable leak detection control. 4.2.5 Pipeline Metals Protection Strategy Appendix 5 contains specifications related to pipeline metals protection strategy. Specifications are included for: Fusion Bonded Epoxy External Pipe Coating Pipeline Insulating Joints Pipeline Cathodic Protection Polyethylene Three-Coat External Pipe Coating

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The reader is also referred to the Appendix 3 Pipeline Construction Specification for additional input. The above documents and the remainder of this section provide guidelines with regard to material selection and corrosion control measures to be used for the Trans Balkan Crude Oil Pipeline system. The objective will be to ensure material selection which satisfies the pipeline operating conditions and provides external corrosion control for long term operation. Technical Considerations The short and long term effects of corrosion, both internal and external, will receive careful consideration during FEED. The items of safety and reliability of operation will be included in the design considerations. Proven corrosion control technology will be used. Electro-chemical corrosion can take place if the following conditions are fulfilled simultaneously: Water present in the liquid state. The water contains some aggressive ionic substance, such as NaCl, HCl, H2S, etc. The metallic surface is susceptible to electrochemical attacks.

The primary means of corrosion control will be by proper selection of materials, such as, pipeline material, external pipeline coatings, valve materials, scraper traps, etc.

Material Selection Material selection will give due consideration to: Operating conditions of temperature, pressure, flow rate, and chemical composition of the media. Startup and shutdown conditions. This includes factors, such as, fluid flow and what transient conditions might exist before normal operations are achieved. Upset conditions. The effects of cleaning, contamination and microbiological corrosion.

Elastomeric Materials Elastomeric materials, used for seals, will be suitable for use in a temperature range of minus 30 degrees C to 150 degrees C without loss of sealing qualities.

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Corrosion Allowance Given the expected conditions for Trans Balkan Crude Oil Pipeline, no corrosion allowance will be used for the onshore line pipe.

Cathodic Protection Cathodic protection (CP) should be designed for safe and economical performance, ease of maintenance and testing. Materials and installation should conform to applicable codes, local regulations and standards. The reader is referred to the typical CP Specification in Appendix 5. During FEED, soil resistivity surveys should be conducted along the pipeline right-ofway. The data from these surveys can then be used for location of anode beds and general design of the cathodic protection system. It should be remembered that areas of low resistivity are often wet lands or swamps where additional concrete coating should be considered for protection of the FBE pipe coating. Coatings The external surfaces of the pipeline will be protected by a coating system. Several coating systems have been used over the years, such as coal tar, fusion bonded epoxy (FBE), and polyethylene three layer. FBE is recommended for the onshore portion and coal tar for the offshore portions of the Trans Balkan Crude Oil Pipeline system. Corrosion Inhibitors The pipeline system will be transporting sweet crude oil with a small quantity of water. Since the water quantity is low, the use of corrosion inhibitors is not likely to be necessary for use in controlling internal corrosion. However, fluid characteristics, such as, pressure, temperature, velocity, fouling tendency and residual corrosion rates will be considered during FEED prior to a final decision on usage of a corrosion inhibitor. Pipeline Cleaning Cleaning the pipeline on a regular schedule basis (via pigging, etc.) is very important to control internal pipe corrosion and to eliminate scale buildup in the pipe. Pigging should be conducted on a regular basis to remove any water that has fallen out and collected in low areas along the pipeline. Field Girth Welds Field girth welds will be coated as per the description given the Section 8 of the Appendix 3 Specification for Pipeline Construction.

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Insulating Joints Insulating joints will be used at each end of each pipeline section terminating at a launcher/receiver. This provides isolation of that portion of the pipelines cathodic protection system. Insulating flange kits are not recommended for use. Corrosion Control Many techniques are available for corrosion monitoring and those most commonly used are: Electrical resistance method. Corrosion coupons. Polarization resistance techniques.

The methods best suited for corrosion monitoring are corrosion coupons and electrical resistance probes. It is recommended that the use of corrosion coupons be considered during FEED for use for monitoring possible internal corrosion of the pipeline. The selection of areas of use for corrosion coupons needs careful consideration. 4.2.6 Seismic Risk Mitigation Strategies and Specifications The Appendix 1 map entitled Seismology of the Balkans shows that there is considerable seismic risk associated with the Trans Balkan Crude Oil Pipeline system. Appendix 6 contains specifications related to seismic risk mitigation strategies and specifications. The reader is also referred to prior Section 4.1.7 which delineates design and construction methods for seismic fault crossings. 4.2.7 Pipeline Cleaning Provisions Appendix 7 contains a typical pipeline cleaning, gauging, hydrostatic testing and drying specification that will be applicable for use on the Trans Balkan Crude Oil Pipeline System. The outlined approach is the one that is relatively standard in the pipeline industry and has proven to be very functional. Following these procedures will ensure a well commissioned pipeline that is ready for receiving the crude oil product and begin commercial operations. 4.2.8 Modification of Existing Facilities Bulgaria There are no existing facilities within Bulgaria that are envisaged to be used as part of the AMBO oil pipeline system. At locations along the line that can be planned as possible takeoffs for crude oil supply to existing facilities, such as the Bourgas Refinery, appropriately sized tees and valves will be designed as part of the detail

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engineering activities and installed as part of the initial construction. Takeoffs from electrical power sources (national electrical grid) will be designed in accordance with the requirements of the Bulgarian Electrical Authority and installed in accordance with their approved procedures by the Authority or under their guidance. Macedonia There are no existing facilities within Macedonia that are envisaged to be used as part of the AMBO oil pipeline system. At locations along the line that can be planned as possible take-offs for crude oil supply to existing facilities such as the Skopje Refinery, appropriately sized tees and valves will be designed as part of the detail engineering activities and installed as part of the initial construction. Albania There are no existing facilities within Albania that are envisaged to be used as part of the AMBO oil pipeline system. At locations along the line that can be planned as possible take-offs for crude oil supply to existing facilities such as the local refineries, appropriately sized tees and valves will be designed as part of the detail engineering activities and installed as part of the initial construction. The facilities within the compounds of the existing Albpetrol products terminal at Vlore, such as water, will be tied into the new terminal proposed to be built on the adjacent site. The use or replacement of the existing Albpetrol product tanks will be decided as part of the next phase of the work, but are excluded from the scope of this study. 4.2.9 Above Ground Requirements The following above ground requirements need consideration for Trans Balkan Crude Oil Pipeline System: 1. Pipeline - Cross country pipeline warning sign (marker) - River/canal crossing sign (marker) - Highway/road crossing sign (marker) - Railroad crossing sign (marker) - Pipeline aerial marker - Cathodic protection air cooler rectifier - Cathodic protection test station - Above ground pipeline supports - Pig launching/receiving facilities - Concrete slab for equipment and facilities - Mainline valve station above ground piping and facilities - Gates and fences

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2.

3.

Pump Stations/Pressure Reducing Station - Pumps, meters, instrumentation and controls and associated buildings - Surge tanks - Surge relief valve stations - Diesel tanks - Pressure reducing valves and associated piping - Maintenance/warehouse building - Control room building - Emergency generators - Electrical station - Satellite dishes and other communications facilities - Equipment foundations - Pipe supports - Gates and fences Terminals - Surge tanks - Surge relief valve stations - Floating roof storage tanks - Booster pumps and electric motors - Meter skid - Meter prover - Mainline pumps and electric motors - Aboveground, major interconnecting piping and valves for main oil process stream - 33kv electric substation - Medium and low voltage electrical switchgear equipment and buildings - Medium and low voltage transformers - Onsite electrical generating facilities (at Vlore) - Control center facilities and associated building - Maintenance shop and storage building with shop equipment - Emergency generators - Diesel tanks - Fire water tank and other fire fighting facilities/equipment - Satellite dishes and other communications facilities - Equipment foundations - Aboveground pipe supports - Gates and fences

4.3

Metering Tank gauging will be used to meter the oil entering tankage at Bourgas Terminal from the offshore tankers. The reader is referred to Appendix 8 which provides the API 3.1B Specification on Custody Transfer Tank Gauging.

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Custody transfer metering will be provided for measuring the flow of crude oil into the cross-country pipeline at Bourgas Terminal. The system will include a metering station and a meter prover. The metering station will have multiple, parallel meter runs, each with an upstream strainer, straightening vanes, turbine meter, flow control valve and double block and bleed valves (with electric valve actuators) at the inlet and outlet. The metering station will be skid mounted. Power will be on a separate skid. Meter provers will be of the mechanical displacement type, with the necessary controls for automatic proving of each meter separately. The reader is referred to Appendix 8 which contains a typical specification for the design, materials, fabrication, inspection, testing, and preparation for shipment of Metering Packages and Meter Prover Skids. Provisions are also made in this study for custody transfer metering where the oil is transported across national borders, i.e. one measurement at the Bulgaria Macedonia border area and one measurement at the Macedonia Albania border area. Finally, custody transfer metering will also be utilized at Vlore Terminal to measure oil flows leaving the Terminal for delivery to offshore tankers. The metering system will be similar as that described in the above paragraph for the oil leaving the Bourgas Terminal. Tank gauging will also be utilized at Vlore to maintain an accurate, ongoing distribution of the crude oil inventory among the eight (8) storage tanks. Metering of a sufficient accuracy to support adequate cross-country pipeline leak detection will be performed at appropriate locations along the pipeline, i.e., at the end of the pipeline as the oil is delivered to Vlore Tankage, etc.

4.4 4.4.1

Bourgas Storage and Pump Station Location A location for the Bourgas Terminal Facility, comprising offices, control and communications rooms, oil storage, metering, pumping and maintenance/ warehouses has been proposed (near the shore landing point of the offshore pipelines) and this site location has been discussed with the Bulgarian committee as well as the Bulgarian Environmental authorities. There has been no negative comment from any party about the proposed location. The location that is finally approved for the terminal is critical in that the distance from the unloading buoys to the terminal needs to be within the pressure capabilities of the trans-Black Sea tankers unloading pumps. This will eliminate the need for booster pumps to be located on the shore. Figure 4-4 provides a map showing the proposed terminal location.

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4.4.2

Tank Descriptions Appendix 9 provides a specification for the Bourgas and Vlore terminal crude storage tanks.

4.4.3

Inventory Control Equipment and Instrumentation Requirements The Bourgas Terminal tank farm inventory (tank gauging) system (see Appendix 8) will provide a continuous display of level and temperature, based on data acquired from each tank level gauge and temperature probe installed on each tank. The inventory system will also coordinate crude oil delivered into each tank as well as monitoring specific gravity. Based on real-time data acquired from the tanks, the tank volume will be computed as well as the available volume in the tank for delivery of additional crude oil. Software alarms will be programmed to alarm on high limit to avoid overfilling a tank, and on low limit to avoid drain down of the tanks below the tank suction outlet piping. In the conceptual control system for the Bourgas Terminal tank gauging system, the data acquisition/control will be achieved by two twisted pair cables to Remote Terminal Units (RTUs) which would be measuring the following variables: Analogue flow rates, pressure, temperature, specific gravity Status valve open/closed Control Valve open/closed Pulses gross/net totalized flow Serial tank level/temperature In addition to the above tank gauging system for incoming flow, the other major inventory control equipment at the Bourgas Terminal will be the custody transfer meter package and meter prover that measures crude oil leaving the Terminal. See Appendix 8 for a descriptive specification of this type of facility. The above tank gauging and meter/prover systems will be appropriately interlocked by instrumentation logic. Data will be collected from these systems via the overall Supervisory Control and Data Acquisition (SCADA) system and appropriate analysis will be conducted to ensure efficient and safe operation of the terminal. It is only with the full-scale implementation of a SCADA system that the pipeline system operator can maintain accurate and reliable monitoring and control of all pipeline and tank storage inventories. The SCADA system allows real-time inventory monitoring and integration of pipeline leak detection based on accurate metering systems information. SCADA system integration will provide inventory monitoring on an hourly or daily basis, but can also be programmed to alarm excessive over/short values so that pipeline operators are immediately aware of anomalies requiring further investigating as to the source of the over/short anomalies.

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Integration of Bourgas, Bulgaria-Macedonia border, Macedonia-Albania border, and Vlore metering/inventory systems with the pipeline SCADA system is economically justifiable due to the requirement for accurate measurement, detailed accounting and precise record-keeping. The metering data will be in a format suitable for local printout, master station computing, data processing accounting and for hand-off directly to custody transfer parties in a pre-formatted arrangement on a daily or batch basis. Metering data generation will be timely, accurate, reliable and verifiable and will be used for the immediate generation of appropriate billing invoices, such as would be required on a crude oil pipeline system. If advisable, computer facilities and equipment will be installed that will allow future scenario planning for the Bourgas Terminal considering the Terminal as an integrated entity within the overall Trans Balkan Crude Oil Pipeline system. In order to have an effective inventory control system at Bourgas, operators must be trained according to defined procedures and maintenance technicians trained in the application of metering systems technology. Successful, accurate and economic measurement and inventory control at Bourgas Terminal cannot be easily described in a manual. There will be measurement skills which the operator and maintenance technician must acquire through technical training and through on-the-job training, i.e. field experience. Some of these skills are identified as follows: 4.4.4 Quality meter repair. Quality maintenance work. Detection of leaking valves. Recognition of air problems. Astuteness in determining specific gravities, flow rates, meter readings and temperature readings. Elimination of human error.

Availability of Power, Water, Steam, And Other Utilities And Backup Operations The proposed site for the Bourgas terminal is approximately 2 km from the offshore pipeline landfall location, north of Pomorie. Electrical power, sufficient for electric motor driven pumps (mainline and booster) as well as the power to satisfy the electric loads of the terminal: valves, metering, control room & offices, lighting and general utilities, will be available in this area. The voltage available and the exact location of the tie-in to the power grid will be determined. Details of the tie-in and the facilities required to synchronize with the grid will be part of the next phase (detail design) of the Project. Provisions for substation and transformer requirements will be assumed in the description of the terminal facilities and included in the capital cost estimate (CAPEX).

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It has been assumed that there is sufficient water for industrial and potable use in the area of the preferred terminal site. Given that the area preferred for the terminal site is not industrial, it is assumed that there is no utility steam available form a source outside the plant. Any steam loads will be satisfied by a steam plant provided as part of the terminal equipment. 4.4.5 Standby Power Generating Equipment Specifications The electrical design of the Bourgas Storage and Pump Station Terminal is based upon the assumption that electrical power is available at the Terminal boundary. The extension of the electrical network to the Terminal boundary will be the responsibility of the local utility in Bulgaria. The reader is referred to Section 4.2.3 of this Volume IV for discussions of the local utility grid power availability and back-up of the grid for Bulgaria. Take-offs from electrical power sources (national electrical grid) will be designed in accordance with the requirements of the Bulgarian Electrical Authority and installed in accordance with their approved procedures by the Authority or under their guidance. Back-up/emergency electrical power at Bourgas Terminal will be provided onsite for instrumentation and control, the fire and gas systems, the communications system and lighting. Back-up power will not be provided to run the pipeline transfer pumps. The primary source of back-up electrical power at the Bourgas Terminal will be a standby diesel generator (see Appendix 10). This generator will start automatically upon loss of the utility power. Sufficient diesel fuel storage will be provided for three (3) days of operation. The emergency generator will be sized to power the above mentioned systems with additional capacity to allow for facility maintenance. Additionally, all critical systems shall be powered through an Uninterruptable Power Supply (UPS) system. The UPS system will be sized to carry these loads for (15) minutes. 4.4.6 Emergency and Fire Protection Equipment Requirements Appendix 11 describes the emergency and fire protection equipment requirements at the Bourgas onshore terminal. 4.4.7 Onshore Administration and Operational Facilities

4.4.7.1 General The Bourgas Onshore Terminal will be the main focal point for overall operations of the Trans Balkan Crude Oil Pipeline System. The Terminal will contain all required facilities for the direct operation and maintenance (O&M) of the system in Bulgaria on a day-to-day basis. In the immediate geographical area, this will include the

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Bourgas offshore and onshore terminal facilities (including the first mainline pump station for the cross-country pipeline) operations. The Bourgas Terminal facility will also be the main operations and maintenance (O&M) center for the cross-country pipeline in Bulgaria. The onsite Terminal O&M offices will be in contact and control other appropriate (O&M) facilities/personnel distributed along the Bulgarian pipeline route. The Bourgas Terminal facilities will not only be the O&M center for Bulgarian system operations, but will be receiving relevant overall system data via the SCADA and telecommunications system from operations in Macedonia and Albania. In this manner, Bourgas will have information/data from the complete Trans Balkan Crude Oil Pipeline system, thereby allowing local O&M personnel to efficiently monitor and control the total system. Given these circumstances, Bourgas personnel will be able to conduct future scenario planning using relevant computer software, i.e. this will allow overall system inventory control of the Trans Balkan Crude Oil Pipeline System considering crude oil currently in inventory and planned input from/output to tankers at Bourgas and Vlore, respectively. Bourgas O&M personnel will appropriately share their centralized (O&M) information, data, and analysis with their colleagues in Macedonia and Albania. At this time, the Bulgarian business management and administrative facilities for the Trans Balkan Crude Oil Pipeline System are not expected to be located at the Bourgas Terminal. It is expected that these operations will be in an appropriate office (rented or owned) at a convenient location (perhaps in city of Bourgas). This office facility would be on a computerized Local Area Network (LAN) and would have access to data at Bourgas Terminal. The office would contain the Bulgarian head management of the Trans Balkan Crude Oil Pipeline System along with personnel dealing with the following discipline areas: Accounting Procurement Records Customer Service Safety Marketing Employee Relations Engineering Maintenance Public Relations

Bulgarian head management and managers over the above areas would appropriately interface with their similar colleagues in Macedonia and Albania.

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4.4.7.2 Operations and Maintenance Strategy The Trans Balkan Crude Oil Pipeline System will be designed as a modern, efficient, reliable, and automated system to be operated and maintained under the operating company(ies) directions. a. Maintenance Philosophy Maintenance of the Trans Balkan Crude Oil Pipeline System will utilize the Reliability Centered Maintenance (RCM) methodology. This approach integrates maintenance requirements with operating targets to maximize the availability of the facilities equipment. This goal is achieved through management of a total optimum maintenance program. In order to establish a basis for the implementation of the maintenance program, a process model can be developed to examine the main steps required for implementation of the RCM methodology. This model ignores operating company(ies) departmental and contractual boundaries and addresses only the work process itself. The model permits examination of the process at the highest functional level and divides the maintenance functions into four major categories: 1) Engineering of Routine Activities Preventive Maintenance Predictive Maintenance Routine Maintenance Inspection Programs 2) Engineering of Unique Activities Projects/Modifications Breakdown Maintenance 3) Execution Planning Resource Allocation Close-Out and Hand-Over Work Execution 4) Support Systems Materials/Spares Maintenance Management Program Maintenance Procedure Equipment Data The most significant aspect of this is that the Execution Phase Planning, Resource Allocation, Work Execution, Close-Out and hand-Over is a single process, not a separate process for modification, inspection, and maintenance. This means that all work can be planned and resourced at the same time as a single activity, and executed through a common resource pool.

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This analysis of work process approach can be applied to all maintenance and inspection activities to develop the working procedures for the management and execution of the work. b. Reliability Centered Maintenance Strategy Reliability improvement is the goal of RCM. The transformation of maintenance methodology from a random application of maintenance resources to a focused approach of management priorities not only increases reliability, but reduces total maintenance cost by reducing the downtime of critical equipment. The concept of Just In Time repairs requires the use of technology and diagnostic equipment to eliminate the defects that cause equipment failures and downtime. An overall Inspection and Maintenance Strategy will be employed to ensure that effort and resources are being expended in the right areas to provide the required asset integrity and reliability at minimum cost. c. Preventive Maintenance A Critical Component Preventive Maintenance Program (developed to ensure asset reliability through time-based methodology) will be employed. The program will develop specific planned activities where the respective and relevant resources are defined for particular and specific procedures. These activities are scheduled in accordance with data developed from manufacturers and operating data and inspection generated information to assure the required levels of equipment availability and reliability. d. Predictive Maintenance The Critical Component Predictive Maintenance Program will define current equipment condition based upon diagnostics and monitored operating data. The program will ensure that critical equipment is operating within prescribed maintenance and operating parameters, and select scenarios based upon results of equipment monitoring techniques. The trending of data collected will enable maintenance engineers and technicians to predict maintenance requirements and schedule activities in accordance with operating delivery schedules. e. Routine Maintenance Daily maintenance of system assets is the principal challenge of the maintenance management effort. Activities are varied in scope ranging from routine preventive task to more complex scenarios based upon corrective or predictive maintenance requirements. The major allocation of resources is directed towards the performance of planned corrective work.

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f. Inspection Programs The Inspection Program should consist of an on-going Life Assessment and Maintenance Cost Profile Program. The program should be designed to provide for the continued collection and trending of data at scheduled intervals to determine how long a machine, item of pipeline equipment, instrument. Or piping system can operate before corrective maintenance, secondary damage, or failure occurs. The Inspection Program should be carried out in accordance with local country labor regulations, local country standards, and good operating procedures. Objectives of the Program should include: Establish baseline condition measurements for pipeline and terminal equipment and systems. Identify general maintenance requirements by class of equipment. Develop annual maintenance cost profile for the required life cycle period. Provide a series of technical reports documenting results of the inspection surveys, and forming the basis for establishing data for continued monitoring and trending of equipment and system condition during the like cycle period.

g. Inspection Program Tasks The Program should be characterized by a combination of the following tasks: Establishment and implementation of a system by which equipment and systems criticality can be determined. Selection of pipeline equipment and systems to be included in the program. Classification of equipment and systems by types and groups. Establishing levels and limits that represent normal operating conditions. Selection of the analytical methodology. Development of inspection schedules. Selection of inspection hardware and software. Establishment of baseline measurements and definition of condition trending programs and schedules.

h. Inspection Schedules Inspection schedules should be established in accordance with the local country labor regulations, local country standards, API, ASME, and good operating and maintenance practices. i. Physical Inspection Techniques The Inspection Program will utilize traditional non-destructive testing inspection techniques deemed to be appropriate to obtain the data required. Some of the techniques which may be employed are:

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Visual Inspection Caliper Measurement Pit-depth Measurement Corrosion Potential Radiographic Method Ultrasonic Wall Thickness Measurement Electromagnetic Analysis Magnetic Particle Test Mechanical Characteristics Electrical Methods Thermographic Analysis Pipeline Smart Pigging

j. Pigging Operations Pipeline pigging operations shall be conducted in accordance with the schedule requirements of the Inspection Program. Smart pigs may be run at given intervals to determine corrosion effects, condition of pipe internals, thickness, buckles, ovality and other conditions caused by stress such as deformity or diameter increase. k. Maintenance Management System A computer based maintenance management system will be established to obtain the optimum utilization of maintenance resources in order to ensure the most efficient maintenance of pipeline facilities with minimum interruption to the delivery process. The Maintenance Management System will address such areas of maintenance and infrastructure support as follows: Planning and Scheduling of the Work Standard Job Plans Equipment List Equipment History Material Inventory System Spare Parts Inventory System Work Order System Preventive Maintenance Program Predictive Maintenance Program Inspection Program Safety Management Program Training Management Program Accounting and Cost Management Procurement Interface

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l. Maintenance Staffing Plan Maintenance staffing for pipeline operations will be in accordance with a central shop maintenance methodology. Personnel will be dispatched for maintenance activities from a central location. Work schedules will be based upon a six working day week, eight hours per day, daylight hours. Maintenance work requiring outside the normal schedule will be handled by scheduled overtime or by call outs of appropriate personnel by the operating shift superintendent. m. Operating Philosophy The pipeline and terminal operating philosophy will utilize a central control room philosophy as the nerve center for all operating and maintenance decision based activities. Operating functions will be procedure driven to ensure safe, environmentally sound, actions conforming to the requirements of local laws governing safety, occupational health, and environmental matters. In every case, the transmission of hydrocarbon products will be in accordance with regulations and instructions issued by relevant country authorities. The central control room (in Bourgas and Vlore) and a secondary operations/maintenance center in Macedonia will be the focal point for data collection and reporting activities between field pipeline and control room functions. Operating instructions, transmission schedules and requirements, and maintenance issues will be managed by the Operating Superintendent from the relevant location in Bulgaria (Bourgas Terminal), Macedonia, and Albania (Vlore Terminal). Field operations and maintenance will be monitored on a predetermined frequency. Safety within the operating areas will be in accordance with the requirements of the local country, ISO 9000 series, API, and ASME requirements for training of operations and maintenance personnel for crude oil pipeline and terminal facilities. Staffing considerations will be based upon the requirements for continuous operations in a safe and environmentally responsible manner. Monitoring activities for pipeline operations will be carried out on a twenty-four basis using four shifts of eight hour duration. The major part of the supervisory staff will work straight day basis, forty-eight hours per week schedules. Shift supervision will be carried out by senior operator and shift supervisor staffing. Operational activities required to reach normal operations can be placed into three distinct categories: Pre-commissioning and Organizing Commissioning and Startup Normal Operations

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Base field organization, policies, and procedures necessary for the successful and cost effective management of the overall system will be established during the pre-commissioning and organizing phase. Typical activities during this phase include: Develop Base Field Organization Plan Develop Policies and Procedures Establish the Training Plan Develop Detailed Operations Plan Develop Coordination Procedures Establish O&M Budgets Specify Tools and Materials Necessary for Commissioning and Operation Prepare Operating, Safety, and Training Manuals Inspect Completed Systems, Approve Mechanical Completion Certificates, and Establish Punch List for Outstanding Items

During the Commissioning and Start-Up phase, all auxiliary services will be brought into the organization to support the required activities. Basic operator training will have been completed, a detailed commissioning schedule established, and detailed commissioning procedures complete. Typical activities during this phase include: Prepare Detailed Commissioning and Start Up Schedules Acceptance of the Installation from Construction for Mechanical Completion Commissioning the Pipeline under Normal Operating Conditions Commission and Test Run all Rotating Equipment Commission all Instruments and Controls Loops Start Up the System Monitoring Operating Conditions

Following completion of the commissioning and start up phase, the overall Trans Balkan Crude Oil Pipeline System can be placed in the normal operating configuration for temperature, pressure, flows, etc. During this phase, all rotating equipment is test run, instrument loops, control systems, trips, and alarms tested, and the necessary adjustments made. The final item will be to perform and associated facilities test run in accordance with testing procedures and criteria to develop test run results data and recommendations. The training program for personnel will be focused on both operations and technical personnel including the maintenance staff in accordance with the requirements of local country labor, occupational health, safety, and environmental standards/regulations. The ISO 9000 series and relevant API requirements for training of operations and maintenance personnel will also be incorporated into the training. Operator and maintenance training will be carried out in two phases:

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Classroom Training On the Job Training (OJT)

Prior to commencement of pre-commissioning activities of the pipeline and terminals, classroom training will be focused on the operations and technical service support for the pipeline. The main objective of the classroom training will be to provide trainees basic knowledge in the theories and applications pertaining to operations and maintenance before starting pre-commissioning activities. During the pre-commissioning, commissioning and start-up, and normal operations phases, formally developed and scheduled OJT programs will be utilized. Operator/Maintenance training will continue on an on-going basis for the life cycle of the operation of the pipeline. 4.4.8 Cargo Check Facilities Requirements The requirement to check the cargo applies to the Bourgas Terminal. There will be strict procedures placed upon all cargoes loaded in the Black Sea that are destined to be unloaded in Bourgas for transit through the AMBO pipeline. Inspection The oil companies and producers will have Third Party Inspection, by internationally known agencies such as SGS and Lloyds. These companies will provide personnel at the loading ports to witness the loading, the taking of samples and the transfer of paperwork reflecting the cargo being carried. AMBO will also have a procedure for third party inspection, as part of the overall operating procedures, which will be agreed by those companies, whose oil is to be transited. Sampling All cargoes of oil have samples taken from the loading stream, either at random or at prescribed intervals or locations (such as the tanker cells). Some of these samples are carried by the tanker captain and would be given to the inspector at the unloading port for storage or analysis (if there were any question about the cargo quality). Volume Monitoring The quantity of oil unloaded from the tanker is monitored via tank depth inspection, both at the loading and unloading port, and by the volume of tankage required to store the oil when unloaded. This is usually part of the third party inspection agencys remit, with checks by the terminal operators. The tank volumes at the Bourgas terminal will be known, and the volume easily calculated by gauging the depths of oil in the tanks that are filled during the unloading.

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Metering The oil volumes pumped from the Bourgas terminal storage tanks into the pipeline will be metered to a very accurate fiscal standard. Again, the accuracy of this operation, possibly even the type of meter used, could depend upon how strongly a particular oil shipper feels on the subject, and what percentage of the overall pipeline throughput is his oil.

4.5

Pump Stations Figure 4-5 shows a preliminary Mechanical Flow Diagram for a typical mainline booster pump station (Mainline Pump Stations 2, 3, and 4). Mainline Pump Station 1 is incorporated into the Bourgas Onshore Terminal and has these typical facilities without the scraper receiver. Figure 4-6 shows a preliminary, typical Plot Plan for Main Pump Stations 2 and 3 that receive power from the local electrical grid.

4.5.1

Mainline Pumps and Drivers Mainline Pump Station 1 and Pump Stations 2 and 3 utilize electric motors as pump drivers with power from the local electric grid. The final Pump Station 4 utilizes oil from the pipeline as fuel for the crude oil burning engines that are coupled to the pumps [for example the Cat (Caterpillar) 3600 family of heavy fuel burning engines see Appendix 4]. Appendix 2 has previously defined the power required at each pump station for the mainline pumps. Pump/driver units are capable of unattended, remotely controlled start-up and operation through the SCADA system throughout the full range of their operability.

4.5.2

Electrical Systems Very preliminary, typical drawings associated with pump station electrical systems are given in Figures 4-7, 4-8, and 4-9. These drawings and associated design documents will be refined and finalized for bidding during the FEED stage of the project. Design Considerations Each area where new equipment is installed will be classified in accordance with API Recommended Practice 500C as applicable. All new high voltage substations, electrical switchgear buildings and control buildings will be designed to be located in unclassified areas. Electrical equipment required to be installed in classified areas will be designed in accordance with Articles 501 and/or Article 502 of the National Electrical Code (or equivalent). The high voltage substation required for each of Pumps Stations 1 3 will be grounded by use of an underground ground grid connected to driven ground rods.

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The grounding system will be designated in accordance with IEEE Guidelines of Safety in Substation Grounding (or equivalent). All non-current carrying structures, storage tanks, vessels, towers, building, and enclosures shall be effectively bonded and grounded in accordance with current National Electrical Code (or equivalent) requirements. Back-up/emergency power will be provided at each location for instrumentation and control, the fire and gas system, the communications system and lighting. Back-up power will not be provided to run the pipeline mainline pumps. The primary source of back-up power will be a small diesel driven generator (see Appendix 10). This generator should start automatically upon loss of the utility power. Sufficient diesel storage will be provided for three (3) days of operation. The emergency generator will be sized to power the above mentioned systems with additional capacity to allow for facility maintenance. Additionally, all critical systems shall be powered through an Uninterruptable Power Supply (UPS) system. The UPS system will be sized to carry these loads for (15) minutes. Electrical Distribution Facilities A dedicated high voltage substation will be installed for each of the Pump Stations 1, 2, and 3. The substation will employ a simple radial feed design with a single drop from the utility companys power line. Custody transfer metering will be as required by the utility company. The substation will consist of a dead-end structure, circuit switcher (or oil circuit breaker with an isolation switch), and an oil filled step-down transformer. The secondary of this transformer will be connected by insulated cable to the medium voltage switchgear located in the switchgear building. The dead-end structure will also provide for mounting of potential transformers, current transformers, and lightning arrestors. All electrical switchgear will be mounted in a pre-fab skid mounted metal control room. The switchgear building will have insulated walls and an environmental control system (HVAC) to prevent the entrance of harmful gases and dust. The switchgear building will house the medium Voltage swithgear required to run the pipeline pumps, a low volt motor control center, the UPS system, the Programmable Logic Controller (PLC) system, battery systems, lighting panels and metering and control panels. The medium voltage switchgear will be of metal-clad construction with an incoming vacuum breaker and a metering/relaying section. The medium voltage switchgear will bus directly to a medium voltage motor control center. This motor control center will contain draw-out type vacuum contacts to power the pipeline pumps. One latching type vacuum contact will also be provided to serve as a feeder to a low voltage step-down transformer.

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The pipeline pumps will be started directly across the line and will operate at constant speed. The use of one or more variable speed drive units may be considered as an economic alternative during the FEED phase of this project. A free standing low voltage motor control center will be provided to power small motors and lighting/instrument power transformers. All units less than (100 amps) will be of draw-out type construction. Each motor starter unit will be a molded case type motor circuit protector, motor overload blocks and control power transformer. The step-down transformer from medium voltage to low voltage will be of oil filled construction suitable for installation outdoors. Cable connections will be made through throat mounted terminal boxes. Transformers for lighting and instrument power will be of a dry type design and will be located inside the switchgear building. A small diesel powered emergency generator will be provided at each pumping station to provide power for lighting, communications, and maintenance when the utility power is not available. These generators will be equipped with battery powered starting systems designed to automatically start the emergency generator upon loss of the utility power. Equipment and interlocks to allow synchronization with the utility power will be provided. Separate DC battery systems will be supplied for switchgear circuit breaker controls and the communications systems. The switchgear battery system will consist of a battery designed for (8) hours of backup operation and a battery charger sized to carry the switchgear DC current and recharge the battery within a (24) hour period. The communications battery system will also consist of a battery and dedicated charger. A third battery at each location will be dedicated as the DC link portion of the UPS system. All field power cabling shall be continuously sheathed metal clad construction (C-LX type cable) wherever possible. These cables shall be supported in cable trays. Instrumentation, control, and fire and gas cables shall not be installed in the same cable tray as power cables. Additionally, redundant control circuits shall not be installed in the same cable tray. CLX cables to perimeter lighting will be directly buried except under road crossings. All exterior area lighting will be of a high pressure sodium type operated by photocell control. Lighting installed inside of switchgear/control buildings will be of a florescent type operated by switch control. Emergency lighting will be provided by the UPS system. Also, a few battery operated fixtures will be provided for escape lighting. Pump Station 4 The above paragraphs of subsection 4.5.2 have focused on Pump Stations 1 3 where electrical power is obtained from the local utility. As previously discussed, this is not

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the situation at Pump Station 4 where power must be locally generated. In order to investigate this matter, Brown & Root has worked with Caterpillar Inc. which manufacturers special equipment applicable for this local power generation. Therefore, in this study, general electrical requirements at Pump Station 4 are assumed to be locally generated with a Cat 3608 crude burning engine with an appropriate generator set. The reader is referred to Appendix 4 for materials concerning the Cat 3608 in-line generator set. 4.5.3 Piping All large size crude oil piping within the pump station is to be above ground, including the receiving and launching barrels, valves and kicker lines, station bypass line (except at road crossing), station suction and discharge headers, and individual pump suction and discharge lines. All other piping is to be buried. The station bypass line is to run under the entrance road to the pump station. The incoming and outgoing main pipeline is to pass underground below the station security fence and under the internal periphery road before going above ground to the scraper receiver and launcher. All piping in crude oil service is to be in accordance with ANSI/ASME B31.4, Liquid Petroleum Transportation Piping Systems. Auxiliary piping such as water, air, lubricating oil, etc. are to be in accordance with ANSI/ASME B31.3, Chemical Plant and Petroleum Refinery Piping. Valves and fittings are to conform to the following standards: API Spec 6D API Std 526 API Std 594 API Std 599 Piping at equipment is to be arranged and supported so that equipment, control valves, etc., can be easily removed without disturbing the piping system or pipe supports. Equipment is to be accessible from both sides for operation and repair. Piping connected to pumps is to be provided with removable spool pieces to permit removal of the pump without disturbing the piping. Flanged valves or flanged fittings in pump suction and discharge lines may be considered in lieu of spool pieces. Temporary cone type start-up strainers are to be installed in all pump suction lines before starting the pumps. Extruded factory supplied fittings are to be used. No field fabricated mitre fittings are to be permitted. All elbows are to be of the long radius type and all reducers of the

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long taper type. Eccentric long taper reducers are to be used in pump suctions with the flat side up. Thermal relief valves are to be provided on above ground piping which can be blocked-in between two valves. Vents and drains required for operation, start-up, or hydrostatic testing are to be provided in piping, except the main line, at high and low points, respectively. All valves 305mm (12 inches) and larger that are used for operation are to be motorized. All valves 305 mm (12 inches) and larger that are only used for maintenance purposes are not to be motorized but are to be fitted with manual gear operators with hand wheels. Above ground piping is to be provided with adequate supports, anchors, stiles, platforms and stairs. All above ground piping and appurtenances are to be painted with an appropriate paint. 4.5.4 Process Drains All drainage from crude oil piping drains, vents, thermal relief valves, equipment, and scraper traps is to be routed to an underground steel sump tank. The tank is to be emptied automatically by means of two, level controlled, electric motor driven, vertical sump pumps installed in the tank. One of the pumps is a spare unit. The discharge of the sump pumps is to be connected to the station suction header. 4.5.5 Cathodic Protection Cathodic protection at the pump stations is to be as described in Appendix 5. Station piping and equipment is to be isolated from the pipeline.

4.5.6

Fire Protection Following is a description of the fire protection facilities to be provided at each pump station: A fire wall between the pump room and the electric motor room of the pump house building. Separate automatic Halon 1301 systems in the pump room and in the electric motor room. Hand portable dry chemical fire extinguishers in the pump and motor rooms. Wheeled portable dry chemical fire extinguisher in the pump room.

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4.5.7

Fire detection and alarm system consisting of cross-zoned smoke detectors above each pump and each motor and master fire alarm panel. Local alarm panels as needed.

Civil Works Exact pump station site facilities are to be selected such as to result in the minimum amount of civil work required for site grading and to ensure that storm water runoff from surrounding terrain does not enter the facility. Site Grading Site grading is to be designed such as to result in minimum cut and fill commensurate with other cost considerations.

Site Drainage Site drainage for storm water is to be designed as a surface drainage system directing all the water offsite away from the facility and pipeline corridor through the use of site grading, road ditches, swales and culverts. The direction of drainage is to be away from equipment areas. Surface drainage from potential hydrocarbon liquid release areas is to be provided such that drainage is away from equipment, buildings and facilities. A minimum grade of 0.25% is to be provided to ensure adequate runoff from the site. All ditches are to be sloped to provide a minimum velocity of 0.9 m/sec (3 ft/sec). Culverts are to be provided as required. The drainage design is to be based on the rainfall data established for the facility area. 4.5.8 Roadways Access to each facility is to be by means of a new road connecting to the main road. External roads to the facilities are not included in the cost estimate. Paved interior security roads are to be provided all around the facility peripheral fence, located to provide a spacing of 8 meters from centerline of road to fence. Paved roadways are to be asphaltic concrete with a minimum width of six (6) meters. A one (1) meter wide crushed stone base shoulder with a top coat of asphalt prime coat is to be provided. Roads are to have a high point at the center and are to be sloped to provide adequate drainage of the pavement to swales and/or ditches on each side.

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Roadways are to be designed for a wheel load of 14,600 kg tandem axle or 8,182 kg single axle. 4.5.9 Paved Areas Paved areas for vehicular parking are to be provided at all buildings and other facilities, as required. These areas are to be designed for automobiles and light truck traffic. Asphaltic concrete material is to be used for surface cover. The minimum surface slope of all paved areas is to be 0.25 percent.

4.5.10 Fences Security chain-link fences are to be provided as follows: Around the periphery of each facility and scraper trap area. Separation of high voltage switchyard area from the rest of the facility. In addition to a gatehouse controlled main gate, emergency exit gates are to be provided in the peripheral fences. 4.5.11 Dikes Crude oil storage tanks are to be diked with earthen fills, with slope protection, for liquid containment. 4.5.12 Concrete All concrete works are to be in accordance with the following: Cast-in-place concrete structures are to be designed in accordance with American Concrete Institute (ACI) 318 (or equivalent). Concrete pavements for roads and heavy storage area are to be designed in accordance with ACI 325. Concrete strength is to be a minimum 210 kg/cm squared (3000 psi) at 28 days. Grout is to be job mixed sand-cement. Steel reinforcing bars are to be ASTM A 615, Grade 60. Anchor bolts are to be ASTM A 36. Welded fabric is to be ASTM A 185. Construction joints in a concrete structure are to be located so as to least impair the integrity and strength of the structure. Slabs at grade for buildings are to be designed in accordance with ACI 302. Finished surfaces of building slabs and equipment foundations are to be a minimum of 150 mm above finish grade.

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Underground pit structures are to be designed with data to be found in PCA bulletins (or equivalent). The design calculations of such structures are to include the effects of ground water pressures and uplift. All underground concrete structures are to be coated with bitument paint, as well as any concrete in contact with the soil.

4.5.13 Structural Steel Structural steel design is to be in accordance with AISC Specifications and Codes (or equivalent). The plastic design method in the AISC Manual is not to be used in steel design. Structural Steel materials are to be in accordance with the following standards (or equivalent): Rolled shapes and plates ASTM A 36 Grating Mild Carbon Steel - ASTM A 659 Checkered plate Carbon steel Class I QQF 461C Pipe Handrail ASTM A 53 or A 501, Grade B Welding electrodes - AWS A 5.1 electrode: tensile strength 70 ksi. Compression bracing for steel structures is to be designed with wide flange and structural tee shapes. For tension bracing, single angle or structural tees will be acceptable. Due to maintenance difficulties, double angle bracing is to be avoided. Braces for structures subject to vibration from equipment are to be designed as compression braces. Shop connections for structural steel may be bolted or welded. Field connections are normally to be bolted.

4.6

Pressure Reduction Station A pressure reduction station will be located at kilometer post 767. The actual pressure drop at the reduction station will be realized by utilizing a number of parallel pressure reduction valves. These valves will be designed to generate reasonable flow situations, to prevent excessive cavitation, and to provide guarantee closure (i.e. double block and bleed, etc.). During this present study, Brown & Root consulted with Daniel Industries of Houston, Texas, USA, to more effectively estimate the requirements of the pressure reduction station. It was concluded that 914 mm (36inch) diameter inlet and outlet headers at ANSI 600# would be appropriate. It was also estimated that four (4) [three (3) active and one (1) spare] 254 mm (10-inch) diameter ANSI 600 # Danflo PRS valves with anti cavitation trim (Model 10-415ACT-10) would satisfy the flow requirements. Daniel M-303 gate valves were recommended for flow isolation upstream and downstream of these Danflo PRS valves.

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It is currently envisioned that the pressure reduction station will be controlled by an appropriate pressure set point that will be measured at a required location (high elevation point) and that will ensure positive pressure within the pipeline without development of any slack line flow. It is also envisioned that the set point will be accomplished by using pilot regulators. The output of the regulator will feed into a 3-way, solenoid operated valve with a set point pressure being selected to actuate the pressure reducing valve. The solenoid will be energized by the supervisory control by the pipeline operators discretion or by a contact closure from the local high pressure switch. The system will be designed such that if communications with the Bourgas Pipeline Control Center and the high pressure switch contact be lost, the system will go to a prearranged safe condition that will maintain a line pack condition. There is no reliable electrical power source available in the vicinity of the pressure reduction station. Therefore, required power is locally generated at the station using a Caterpillar crude oil burning engine (oil taken from the pipeline) and appropriate generator set. This equipment is generally described at the end of Appendix 4. A standby diesel generator (see Appendix 10) is assumed to supply backup power. The whole issue of local power generation at the pressure reduction station will be reviewed in detail during FEED. Since electrical power requirements are fairly small, solar power will also be evaluated as a potential option. The reader is referred to above Sections 4.5.3 4.5.13 which are also applicable to the Pressure Reduction Station design.

4.7 4.7.1

Vlore Terminal Location The location of the Vlore Terminal Facility, comprising offices, control and communications rooms, oil storage, metering, pumping and maintenance/ warehouses will be 2 3 kilometers east of the new Vlore harbor (under construction), which is 2.5 km northwest of the old (existing) Vlore port. The proposed site is adjacent to and just to the southwest of the existing Albpetrol product storage facility. No negative comments have been received from any Albanian source nor any adverse comment received during meetings at which this location was presented and discussed. Figure 6-2 provides a map showing the proposed Vlore Terminal location.

4.7.2

Tank Descriptions Appendix 9 provides a specification for the Vlore and Bourgas terminal crude oil storage tanks.

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4.7.3

Inventory Control Equipment and Instrumentation Requirements The Vlore Terminal tank farm inventory (tank gauging) system (see Appendix 8) will provide a continuous display of level and temperature, based on data acquired from each tank level gauge and temperature probe installed on each tank. The inventory system will also coordinate crude oil delivered into each tank as well as monitoring specific gravity. Based on real-time data acquired from the tanks, the tank volume will be computed as well as the available volume in the tank for delivery of additional crude oil. Software alarms will be programmed to alarm on high limit to avoid overfilling a tank, and on low limit to avoid drain down of the tanks below the tank suction outlet piping. In the conceptual control system for the Vlore Terminal tank gauging system, the data acquisition/control will be achieved by two twisted pair cables to Remote Terminal Units (RTUs) which would be measuring the following variables: Analogue flow rates, pressure, temperature, specific gravity Status valve open/closed Control Valve open/closed Pulses gross/net totalized flow Serial tank level/temperature In addition to the above tank gauging system for incoming flow, the other major inventory control equipment at the Vlore Terminal will be the custody transfer meter package and meter prover that measures crude oil leaving the Terminal to the offshore tankers. See Appendix 8 for a descriptive specification of this type of facility. The above tank gauging and meter/prover systems will be appropriately interlocked by instrumentation logic. Data will be collected from these systems via the overall Supervisory Control and Data Acquisition (SCADA) system and appropriate analysis will be conducted to ensure efficient and safe operation of the terminal. It is only with the full-scale implementation of a SCADA system that the pipeline system operator can maintain accurate and reliable monitoring and control of all pipeline and tank storage inventories. The SCADA system allows real-time inventory monitoring and integration of pipeline leak detection based on accurate metering systems information. SCADA system integration will provide inventory monitoring on an hourly or daily basis, but can also be programmed to alarm excessive over/short values so that pipeline operators are immediately aware of anomalies requiring further investigating as to the source of the over/short anomalies. Integration of Vlore (and Bourgas) metering/inventory systems with pipeline SCADA systems is economically justifiable due to the requirement for accurate measurement, detailed accounting and precise record-keeping. The metering data will be in a format suitable for local printout, master station computing, data processing accounting and for hand-off directly to custody transfer parties in a pre-formatted arrangement on a

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daily or batch basis. Metering data generation will be timely, accurate, reliable and verifiable and will be used for the immediate generation of appropriate billing invoices, such as would be required on a crude oil pipeline system. If advisable, computer facilities and equipment will be installed that will allow future scenario planning for the Vlore Terminal considering the Terminal as an integrated entity within the overall Trans Balkan Crude Oil Pipeline system. In order to have an effective inventory control system at Vlore, operators must be trained according to defined procedures and maintenance technicians trained in the application of metering systems technology. Successful, accurate and economic measurement and inventory control at Vlore Terminal cannot be easily described in a manual. There will be measurement skills which the operator and maintenance technician must acquire through technical training and through on-the-job training, i.e. field experience. Some of these skills are identified as follows: Quality meter repair. Quality maintenance work. Detection of leaking valves. Recognition of air problems. Astuteness in determining specific gravities, flow rates, meter readings and temperature readings. Elimination of human error.

4.7.4 Availability of Power, Water, Steam, and other Utilities and Back-up Sources for Critical Operations The preferred terminal site at Vlore is adjacent to the current Albpetrol products tank farm, east of the new Vlore port facilities (under construction). Given the general shortage of power in southern Albania, it is assumed for purposes of this study that there is not sufficient power to cover the requirements of the terminal. Electrical power for the valves, metering, control room and offices, lighting and general utilities will be provided by generators fuelled via crude and provided as part of the capital plant (CAPEX). Loading pumps are assumed to be driven by crude oil burning engines via a coupling. Appendix 4 presents Caterpillar documentation that describes applicable equipment for Vlore Terminal power generation. Potable water is available from the existing tank farm site, and connections will be made available. Steam is not available from the existing tank farm facilities or from the surrounding area. Although industrial plants exist in the general area of the proposed terminal site their proximity is such that any utilities required on the AMBO site should be provided by the Project.

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4.7.5

Stand-by Power Generating Equipment Specifications The electrical design of the Vlore Storage and Loading Pump/Metering Station Terminal is based upon the assumption that electrical power is not available at the Terminal boundary. Back-up/emergency electrical power at Vlore Terminal will be provided onsite for instrumentation and control, the fire and gas systems, the communications system and lighting. Back-up power will not be provided to run the pipeline transfer pumps. The primary source of back-up electrical power at the Vlore Terminal will be a standby diesel generator (see Appendix 10). This generator will start automatically upon loss of regularly supplied power. Sufficient diesel fuel storage will be provided for three (3) days of operation. The emergency generator will be sized to power the above mentioned systems with additional capacity to allow for facility maintenance. Additionally, all critical systems shall be powered through an Uninterruptable Power Supply (UPS) system. The UPS system will be sized to carry these loads for (15) minutes.

4.7.6

Emergency and Fire Protection Equipment Requirements Appendix 11 describes the emergency and fire protection equipment requirements at the Vlore onshore terminal.

4.7.7

Onshore Administration and Operational Facilities General The Vlore Onshore Terminal will a focal point for overall operations of the Trans Balkan Crude Oil Pipeline System. The Terminal will contain all required facilities for the direct operation and maintenance (O&M) of the system in Vlore on a day-today basis. In the immediate geographical area, this will include the Vlore onshore and offshore terminal facilities operations. The Vlore Terminal facility will also be the main operations and maintenance (O&M) center for the cross-country pipeline in Albania. The onsite Terminal O&M offices will be in contact and control other appropriate (O&M) facilities/personnel distributed along the Albanian pipeline route. The Vlore Terminal facilities will not only be the O&M center for Albanian system operations, but will be receiving relevant overall system data via the SCADA and telecommunications system from operations in Bulgaria and Macedonia. In this manner, Vlore will have information/data from the complete Trans Balkan Crude Oil Pipeline system, thereby allowing local O&M personnel to efficiently monitor the total system and run their local operations. Similar to Bourgas, Vlore personnel will be able to conduct future scenario planning using relevant computer software, i.e. this will allow overall system inventory control of the Trans Balkan Crude Oil Pipeline System considering crude oil currently in inventory and planned input from/output to

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tankers at Bourgas and Vlore, respectively. Vlore O&M personnel will appropriately share their information, data, and analysis with their colleagues in Bulgaria and Macedonia. At this time, the Albanian business management and administrative facilities for the Trans Balkan Crude Oil Pipeline System are not expected to be located at the Vlore Onshore Terminal. It is expected that these operations will be in an appropriate office (rented or owned) at a convenient location (perhaps in the city of Vlore). This office facility would be on a computerized Local Area Network (LAN) and would have access to data at Vlore Terminal. The office would contain the Albanian head management of the Trans Balkan Crude Oil Pipeline System along with personnel dealing with the following discipline areas: Accounting Procurement Records Customer Service Safety Marketing Employee Relations Engineering Maintenance Public Relations

Albanian head management and managers over the above areas would appropriately interface with their similar colleagues in Bulgaria and Macedonia. Operations and Maintenance Strategy The O&M strategy and systems in Albania will be the same as those in Bulgaria and Macedonia. Such an approach will create economies for O&M and allow Trans Balkan Crude Oil Pipeline System personnel in each country to easily communicate and cooperate in a synergistic manner. 4.7.8 Cargo Check Facilities Requirements There will be strict procedures placed upon all cargoes loaded at Vlore from the AMBO pipeline system. Inspection Internationally known agencies such as SGS and Lloyds will provide personnel at the loading ports to witness the loading, the taking of samples and the transfer of paperwork reflecting the cargo being carried. This is likely to be at the behest of the company which owns the oil or that company charged with the further transportation by tanker. AMBO will also have a procedure for co-ordination of third party

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inspection, as part of the overall operating procedures, which will be agreed by those companies, whose oil is to be transited. Sampling All cargoes of oil have samples taken from the loading stream, either at random or at prescribed intervals or locations (such as the tanker cells). Some of these samples are carried by the tanker captain and would be given to the inspector at the unloading port for storage or analysis (if there were any questions about the cargo quality). AMBO will keep a set of samples at Vlore, until the cargo is reported delivered to, and accepted at, its final destination. Volume Monitoring The quantity of oil loaded on to the tanker is monitored via tank depth inspection, and by the volume of tankage required to store the oil immediately before loading. This is usually part of the third party inspection agencys remit, but will also be independently undertaken by the Vlore terminal operators. The tank volumes at the Vlore terminal will be known, and the volume easily calculated by gauging the depths of oil in the tanks before loading. The holds or cells on the tanker to be loaded will also be inspected before loading and the volumes dipped after loading, to provide another method of calculating the volume loaded on board the tanker to compare with the volume of oil determined from the Vlore tanks. Metering The oil volumes pumped from the Vlore terminal storage tanks into the tanker will be metered to a very accurate fiscal standard. This standard will be agreed by those oil companies or producers whose oil will be transited through the AMBO pipeline system.

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Table 4-1 Climate Data 1. Bourgas, Bulgaria Jan 2.6 46.4 Feb 4.0 46.1 Mar 6.1 48.3 Apr 11.1 45.1 May 15.7 44.3 June 20.0 60.3 July 22.5 40.7 Aug 22.4 27.9 Sept 19.1 38.1 Oct 13.9 53.4 Nov 8.9 66.3 Dec 4.8 51.8 Year 12.5 Avg. 569.8

Avg. Temp. (degrees C) Avg. Rainfall (mm)

2. Sliven, Bulgaria Jan 2.0 Feb 2.7 Mar 6.5 Apr 11.9 May 16.5 June 20.4 July 22.8 Aug 22.4 Sept 19.4 Oct 13.2 Nov 6.8 Dec 3.9 Year 12.4 Avg.

Avg. Temp. (degrees C)

3. Plovdiv, Bulgaria Jan 1.0 38.4 Feb 2.8 29.4 Mar 6.3 44.8 Apr 12.3 40.3 May 17.1 69.2 June 20.8 62.3 July 23.1 46.0 Aug 22.8 31.0 Sept 18.7 31.5 Oct 12.9 36.5 Nov 7.2 47.5 Dec 2.6 44.1 Year 12.4 Avg. 519.7

Avg. Temp. (degrees C) Avg. Rainfall (mm)

4. Sofia, Bulgaria Jan -1.1 33.6 Feb 1.3 34.4 Mar 4.5 37.8 Apr 10.2 53.7 May 14.7 69.2 June 17.8 78.3 July 20.1 55.8 Aug 18.9 42.8 Sept 16.2 39.9 Oct 10.5 34.8 Nov 5.0 51.7 Dec 0.8 43.9 Year 9.9 Avg. 574.9

Avg. Temp. (degrees C) Avg. Rainfall (mm)

5. Skopje Petrovac, Macedonia

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Avg. Temp. (degrees C) Avg. Rainfall (mm)

Jan 0.2 39.3

Feb 2.8 36.1

Mar 7.0 39.4

Apr 12.2 37.4

May 17.0 57.5

June 20.9 47.7

July 23.2 36.8

Aug 23.0 28.6

Sept 18.7 36.7

Oct 12.4 46.9

Nov 6.7 58.6

Dec 1.9 44.6

Year 12.1 Avg. 509.6

6. Prelep (Prelip), Macedonia Jan -2.9 4.3 43.5 Feb -1.8 7.9 42.9 Mar 1.7 13.0 44.0 Apr 5.6 18.4 46.2 May 9.8 23.0 71.2 June 13.1 27.6 50.2 July 14.9 30.3 31.3 Aug 14.7 30.6 35.4 Sept 11.3 26.5 39.8 Oct 6.8 19.5 54.7 Nov 2.6 11.0 64.7 Dec -1.5 5.7 46.0 Year 6.1 Avg. 18.1 Avg. 570.5

Avg. Min. Temp. (degrees C) Avg. Max. Temp. (degrees C) Avg. Rainfall (mm) 7. Bitola, Macedonia

Avg. Min. Temp. (degrees C) Avg. Temp. (degrees C) Avg. Max. Temp. (degrees C)

Jan -4.0 0.0 3.2

Feb -1.9 1.7 6.6

Mar 1.6 6.3 11.9

Apr 5.0 11.1 16.5

May 8.7 15.3 21.2

June 11.7 18.9 25.9

July 13.1 20.9 28.7

Aug 12.8 20.7 28.3

Sept 9.7 17.6 24.9

Oct 6.1 12.1 18.6

Nov 1.5 4.8 10.2

Dec -2.2 1.6 5.2

Year 5.4 Avg. 11.0 Avg. 17.0 Avg.

8. Ohrid (Lake Ohrid), Macedonia Jan -1.6 5.9 Feb -0.6 6.9 Mar 1.9 11.0 Apr 4.6 14.8 May 8.5 19.8 June 11.6 24.0 July 13.5 27.0 Aug 13.5 27.0 Sept 10.9 23.7 Oct 7.9 17.7 Nov 3.3 10.8 Dec 0.3 6.8 Year 6.3 Avg. 16.8 Avg.

Avg. Min. Temp. (degrees C) Avg. Max. Temp. (degrees C)

9. Korca, Albania Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Year

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Avg. Temp. (degrees C) Avg. Rainfall (mm)

0.7 72.5

2.7 61.7

5.2 61.4

8.4 72.9

13.8 69.1

17.6 33.6

19.7 41.6

19.2 43.3

15.4 51.9

10.6 103.8

6.1 96.0

2.1 79.2

10.1 Avg. 789.4

10. Tirana, Albania Jan 6.7 143.7 Feb 7.7 133.7 Mar 9.9 116.0 Apr 13.5 92.5 May 17.7 94.6 June 21.6 66.8 July 24.2 34.4 Aug 23.9 39.2 Sept 20.6 69.0 Oct 15.9 99.3 Nov 11.7 170.6 Dec 8.3 148.2 Year 15.2 Avg. 1210.2

Avg. Temp. (degrees C) Avg. Rainfall (mm)

11. Vlore, Albania Avg. Temp. (degrees C) Avg. Rainfall (mm) Jan 9.0 125.7 Feb 9.7 100.3 Mar 11.4 79.0 Apr 14.6 62.2 May 18.4 50.1 June 22.1 25.6 July 24.4 12.8 Aug 24.4 21.4 Sept 21.6 56.0 Oct 17.7 107.3 Nov 14.0 153.8 Dec 10.9 142.8 Year 16.6 930.3 Avg.

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5.0

OFFSHORE BOURGAS

5.1

General The offloading system for crude oil shipments coming into Bourgas will be via two calm buoys each capable of handling the maximum vessel size and design unloading rate. The proposed location of these buoys (subject to final approval of the Bourgas Harbor Administration and Bulgarian Marine Authority) is north of the commercial harbor of Bourgas, northeast of Pomorie Point, some 5 to 6 kilometers off the coast. Please see Figure 5-1, Bourgas Offloading Buoys Location. The minimum water depth in the area of the Bourgas offloading buoys is 30 meters, to accommodate the draft of the maximum size tankers anticipated on the shuttle run from Russia or Georgia. The buoys will be spaced a minimum 1000 meters apart. This will allow for a 500 meter radius of operations around each buoy and provide for a separation of 1000 meters between tankers at any time that the two buoys are occupied. As the buoys are effectively located in open water, there is no specific requirement for a turning basin. The turning radius of a 300 meter long tanker is 1200 1500 meters, less if equipped with bow thrusters. The technique used when maneuvering from a buoy takes advantage of the weather to assist in turning the tanker after dropping the mooring line. By putting the rudder hard over and allowing the tanker to drift slightly away from the buoy in the direction of the wind, the tanker will use the wind to its direction beam on towards the wind. If this maneuver is not beneficial due to the wind direction or speed, the tanker orientation can be changed by the tug after unhooking from the buoy. The tug can pull the bow of the tanker into the direction desired without taking the tanker outside the 1000 meters operating circle. The Port of Bourgas is one of two major ports in Bulgaria, handling containers, general cargoes and oil import/products export from the local refinery. The total volume of ships into and out of the port numbers in the many hundreds per year comprising both regular route vessels and one-off call traffic. The approach lanes for shipping into Bourgas are from the north-east, 45 degrees magnetic and from the east 90 degrees magnetic. These shipping lanes, as indicated on the latest Admiralty charts are in excess of 2 km in width, divided centrally for traffic into and out of the port. The vessel traffic associated with the Bourgas port is not directly relevant to the oil tankers calling on the Trans Balkan Crude Oil Pipeline Bourgas Offshore Terminal or buoy activities, as the buoy locations are some 20 km east north-east of the inner harbor quays and 6 km from the shipping lane approaching the harbor from the north-

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east. It is not envisaged that there will be any interference between vessels approaching the buoys or the port. The oil port of Bourgas is on the southern edge of the port basin, still further away from the Trans Balkan Crude Oil Pipeline buoy activities. There are two local ports, north along the coast from Bourgas, supporting in-shore and fishing activities in the general area of the buoys, Pomorie to the south-west and Nesebur to the north. There is no regular or significant vessel traffic to/from these ports, although the Trans Balkan Crude Oil Pipeline System marine operations base is likely to be located at Pomorie. As the exact location of the Bourgas unloading buoys and the pipeline route to shore is not fixed, although both have been approved in principle for the purposes of this study, investigations into the local seabed conditions have been limited to local knowledge, available charts & maps, and previous investigations in the general area. The general seabed conditions are a sandy strata overlaying a significant layer of soft clay and beneath this a layer of firmer clay. This sand overlay decreases as water depth increases. This general structure is confirmed in the findings of two substrata investigations previously undertaken in the area. Southwest of the proposed landfall, east of the Chomos Reef and west approximately five (5) kilometers from the proposed buoy site in 17 meters of water a shallow sampling established: 1 meter of soft marine clay and sandy clay 2.5 meters of firm clay with calcareous concretions Another, much deeper borehole drilled approximately 20 kilometers north of the proposed buoy locations in 31 meters of water, showed: 19 meters of very soft liquid marine clay 24 meters of soft and fine clay below 74 meters, stiff clay and dense sand This information coincides with the seabed conditions description obtained from a senior engineer of the former port company. He concluded that the thickness of the very soft clay would be 10 - 15 meters in the bay locations, with a nominal overlay of sand. For the buoy anchors in this location, large block weights, jetted through the soft layer, will be the most suitable option for these conditions. The Bourgas offshore facilities will not require any offshore platforms.

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5.2

Unloading System In order to have additional capacity for unloading crude oil, AMBO is planning the installation of a CALM (Catenary Anchor Leg Mooring) Buoy system. The CALM system consists of the following components : A buoy body subdivided into watertight compartments and surrounded at the bottom level by a skirt structure containing chain/hawser/stopper assemblies. Roller bearing supported turntable with mooring platform, piping support platform and boat landing. Fluid transfer system consisting of pipe runs in the centrewell and on the turntable and a central swivel unit.

Appendix 12 gives preliminary mooring specifications for the Bourgas offshore unloading terminal facilities.

5.3

Pipeline Between Shore and Buoy Each of the two CALM offshore buoys will be connected to the landfall via a separate pipeline. The pipelines are sized at 1,067 mm (42-inch) diameter and will be carbon steel of welded construction with a coal tar enamel corrosion coating. An additional high density concrete coating will be added to prevent flotation and ensure adequate on-bottom stability. The subsea pipelines will be unburied except at shore (up to a water depth of 3 meters) where a 2 meter trench with minimum 1 meter cover is planned to the extent that trenching can be accomplished using a shallow water barge that can handle onshore equipment at the shore approach. The offshore lines will be constructed onshore in sections that will be welded together as the lines are pulled from the shore to sea using tugboats. The exact line the pipelines will take to the buoy connection will depend upon the seabed conditions, any rock outcrops, obstructions, etc. The agreed landfall location will also impact the final route of the marine lines. The route of the two lines takes a northwesterly direction from the buoys to the same landfall site. A slight curve will facilitate the positioning of the lines and this will be achieved by laying the pulling cables in the same arc on the seabed, which the pipeline pulling heads will follow. Appendix 13 contains preliminary subsea pipeline specifications for the Bourgas offshore facilities. The landfall on the shoreline will be the start of the buried pipeline section, ending at the Bourgas onshore terminal fence. At the landfall, an emergency shutdown valve and/or any other safety related facilities, which may be required by Bulgarian regulations, would be located. These facilities will be buried and non-obtrusive to the current use of the foreshore. The total land requirement for the valves should be no more than 36 square meters. for each pipeline, exclusive of access to the underground facilities.

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The proposed Bourgas onshore terminal site is within two kilometers of the offshore pipelines landfall location and within the hydraulic operating distance for conventional oil tanker offloading pumps. The proposed location is shown on the map (Figure 4-4) referenced in Section 4.4.1. The pipelines will continue to the Bourgas onshore terminal site as individual lines directly from the offshore buoys, so as to be able to operate (and shut down) individually. The pipelines will be steel, of welded construction and coated externally to prevent corrosion. A suitable Cathodic Protection System will be designed and installed to protect the pipe for the life of the system. These pipelines will run in parallel and will be buried with a minimum cover as required by local regulations (typical cover of pipelines in non-rocky areas is 1m) for the soil conditions and land use of the route. The lines will only transition to above ground inside the Bourgas onshore terminal fence. Appropriate design considerations will be implemented where the pipelines cross roads, railroads, other pipelines, and buried or above ground utilities. The design and installation of the lines will comply with any environmental regulations that may be statutory or necessary to comply with the Environmental Impact assessment which will include all sections of the pipeline route as well as all sites of pipeline system facilities. It should be noted that the information available does not indicate many large or significant crossings in the Bourgas onshore area currently being considered for the terminal.

5.4

Jetty Option As an alternative to the offloading buoys system, fixed jetties have been considered as the mooring component for offloading crude oil (see requirement in U.S.A. Trade Development Agency Study Scope). As this option has not yet been the subject of discussion with the Harbor Master or the local port authorities, the most obvious location for the jetty installation would be in the area of the existing jetties (currently used for unloading crude oil to the Bourgas Refinery, and loading refined products) on the south coast of the outer harbor. Consideration needs to be given to water depth and physical space to cater for the anticipated size vessels (up to 300,000 dwt) carrying crude oil across the Black Sea. A minimum water depth of 30 meters will be required throughout the designated approach channels, turning basin and berthing and maneuvering area alongside the jetty. The jetty would be of a length sufficient to handle two of the largest vessels simultaneously, and a minimum of 800 meters should be considered. The structure would be constructed using conventional methods and materials (reinforced concrete and steel piles). An additional breakwater or shelter structure is likely to be

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advantageous for sheltering and maneuvering in rough seas or windy weather if the berthing area of the jetty is outside the lee or protection of the current dock area. The jetty would include a roadway surface for vehicles and a covered and protected pipeway for the unloading pipelines and power/control cables. At each of the two offloading berths, facilities would include breasting dolphins, mooring points, unloading arms, fire fighting system, area lighting, electrical power, spill containment equipment, and standard marine lights and warning systems. A security and control facility would be located at the landfall of the jetty. As in the case of the offshore buoys, no facilities for ballast water unloading or treatment are considered necessary. Communications with the vessels approaching the port would be via marine radio based at the terminal site. In the event that the terminal site was not located favorably for radio communications (land contours and mast locations/heights) a local mast or booster facility would be located at the landfall of the jetty. For comparative purposes (with the offshore buoys) the following are the major advantages/disadvantages of the jetty installation. Advantages Ease of unloading operations using articulated arms (instead of floating hoses) Direct access from shore to tankers (eliminates work boat requirement) Unloading possible to continue in worsening weather (not as sensitive to weather conditions as buoys) Shorter offloading pipelines (hydraulic advantage in siting of terminal storage facility) Existing onshore pipeline route away from jetty. Disadvantages Difficulties will exist in siting jetty for 2 X 300,000 dwt tankers in Bourgas Harbour Major dredging requirements for approach channel, turning circle and jetty area (water depths in the Bourgas Harbor area vary from 24m in the outer approach channel to 8m in the vicinity of the existing jetties). Initial estimates of the dredging requirements are between 15 to 20 million cubic meters.

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Tug assisted berthing would be mandatory, possibly requiring 2 tugs per tanker. Vessel movements to and from the berths would be restricted to one at a time. Tanker movements into and out of the harbor are likely to restrict other traffic to and from the commercial port. Movement to and from berths may be restricted by weather conditions (affecting the availability of unloading berths and pipeline system throughput). Operations support will include the need for an annual survey and the dredging maintenance (as required) of artificial depth areas to keep minimum depths, especially within the harbor area. Given that the latest discussions with the Bourgas Harbor Master clearly indicated the desire to have the large oil tankers offloading via a buoy system away from the commercial harbor and port, it is unlikely that approval for the size jetty facility required for the AMBO project would be readily approved. This fact, combined with the disadvantages of the jetty outweighing the advantages, and the much higher capital costs to install the jetty (over the buoys), clearly indicates that the buoy offloading system is the correct selection for the project. The jetty option will not be included in any further study activity.

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6.0

OFFSHORE VLORE

6.1

General The offshore loading system for crude oil shipments from Vlore will be via a CALM buoy capable of handling the maximum vessel size and design loading rate. The proposed location of this buoy (subject to final approval of the Vlore Harbor Administration and Albanian Marine Authority) is southwest of the commercial harbor of Vlore, in the center of the bay, approximately 2 kilometers from the shores east and west. The area of operations is outside the designated vessel traffic channel to and from the existing Vlore Harbor facilities. Please see Figure 6-1, Vlore Albania Offshore Loading Facilities. Also, Figure 6-2 Vlore Albania Onshore Terminal Offshore Loading Facilities Location more specifically shows the location of the offshore facilities with respect to the onshore facilities. The minimum water depth in the area of the Vlore loading buoy is 50 meters, which is more than sufficient to accommodate the large tankers (up to 300,000 dwt) anticipated to be used for oil shipments from Vlore. As the buoy is located in a bay, there will be procedures in place for tug assisted movements inside the bay, when a tanker is approaching and leaving the buoy. Modern tankers equipped with bow thrusters will be capable of unassisted approach and departure from the buoy area. Tug assistance may still be warranted depending upon the weather conditions. The tug and other vessels to be used in assisting the loading and tanker operations will be based at the new harbor currently under construction to the north of the existing harbor area, some 4 kilometers north northeast of the proposed buoy location. The shipping lanes designated on Admiralty Charts for the Bay of Vlore indicate a single, two way designated vessel traffic lane making a straight line entrance to the Old Port area. This traffic corridor is designated on the chart showing the proposed loading buoy location in the bay. (Refer to Figures 6-1 and 6-2). This corridor approaches the Albanian coast from the west, just to the north of the peninsula of land which forms the west side of Vlore bay. The Channel centerline follows the northern edge of the peninsula south-easterly and straightens to a head-on approach to the Old Harbor at 81 degrees. There is no designated approach channel for the New Harbor, which is not yet complete. This new harbor is located some 6 km north of the Old Harbor and just north of the proposed landfall for the marine pipeline section of the AMBO system. There is no reported traffic using the new port at this time.

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Approximately 2 km offshore from the New port is the oil berth currently used to import products and crude oil as feedstock for the Ballsh refinery. Ships visiting this fixed mooring facility are infrequent and irregular in schedule with import volumes currently indicating less than one vessel per month. Vessel traffic volumes into the Old Harbor for the year 1997 included 122 freighter vessels and between 42 (low season) and 56 (high season) ferries per week. The ferry count includes all types of ferry traffic passenger, cargo and vehicles. As the exact location of the Vlore Bay buoy and offshore pipeline route have not been formally agreed with the Albanian authorities, the investigations of the seabed conditions and geology has been undertaken as a desktop exercise. Using available information from navigation charts, topographic maps and other geological data sources, the proposed route of the offshore pipeline and the proposed area of the buoy can be described geotechnically. The area of the foreshore is soft sand overlaying rock. This sand is several meters in depth at the shoreline decreasing somewhat over the route of the proposed offshore pipeline. This sand will allow the pipe to be buried by standard techniques using conventional onshore excavators and barges. The remainder of the route and the general vicinity of the loading buoy is fissured rock with an overlaying layer of loose sand. The sand will provide suitable bedding for the concrete coated pipeline. The anchors for the buoy will be piles driven into the seabed. Six suitably designed piles will provide adequate anchoring for the maximum 300,000-dwt. tanker considering the design environmental conditions. The Vlore offshore facilities will not require any offshore platforms.

6.2

Loading System The offshore loading facilities at Vlore will include a CALM Buoy. The CALM system consists of the following components: A buoy body subdivided into watertight compartments and surrounded at the bottom level by a skirt structure containing chain/hawser/stopper assemblies. Roller bearing supported turntable with mooring platform, piping support platform and boat landing. Fluid transfer system consisting of pipe runs in the centrewell and on the turntable and a central swivel unit.

Appendix 12 gives preliminary mooring specifications for the Vlore offshore loading terminal facilities.

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6.3

Pipeline Between Shore and Buoy The pipeline route downstream of the onshore Vlore Terminal site will follow the existing infrastructure in the area of the disused caustic soda plant, southeast of the new port and north northeast of the proposed buoy location. The length of the onshore pipeline, as shown on Figure 6-2, is approximately 2.5 km from the Vlore Onshore Terminal fence to the landfall high water mark. The pipeline will be steel, of welded construction and coated externally to prevent corrosion. A suitable Cathodic Protection System will be designed and installed to protect the pipe for the life of the system. This pipeline will be buried with a minimum cover as required by local regulations (typical cover of pipelines in non-rocky areas is 1m) for the soil conditions and land use of the route. The pipeline will only transition to above ground inside the Vlore Terminal fence. Appropriate design considerations will be implemented where the pipeline crosses roads, railroads, other pipelines, and buried or above ground utilities. The design and installation of the pipeline will comply with any environmental regulations that may be statutory or necessary to comply with the Environmental Impact Assessment which will include all sections of the pipeline route as well as all sites of the pipeline system facilities. Specific environmental and regulatory requirements will be determined during the FEED phase surveys. The landfall on the shoreline will be the end of the buried onshore loading pipeline section, beginning at the Vlore Onshore Terminal fence. The landfall location selected is a derelict industrial area, which would be most suitable for use as the fabrication area for the offshore pipeline. At the landfall, an emergency shutdown valve and/or any other safety related facilities, which may be required by Albanian regulations, would be located. These facilities will be buried and non-obtrusive to the current use of the foreshore. The total land requirement for the valves should be no more than 36 square meters exclusive of access to the underground facilities. The subsea pipeline line to the offshore CALM Buoy is sized at 1,168 mm (46-inch) diameter and will be carbon steel of welded construction with a coal tar enamel corrosion coating. An additional high density concrete coating will be added to prevent flotation and ensure adequate on-bottom stability. The subsea pipeline will be unburied except at shore (up to a water depth of 3 meters) where a 2 meter trench with minimum 1 meter cover is planned to the extent that trenching can be accomplished using a shallow water barge that can handle onshore equipment at the shore approach. The line will be constructed onshore in sections that will be welded together as the pipeline is pulled from the shore to sea using a tugboat. The proposed route is essentially a straight line from the landfall to the buoy location. The exact route the pipeline will take to the buoy connection will depend upon the seabed conditions, any rock outcrops, obstructions, etc. The agreed landfall location will also impact the final route of the marine line. Appendix 13 contains preliminary subsea pipeline specifications for the Vlore offshore facilities.

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7.0

MONITORING, CONTROLS, AND TELECOMMUNICATIONS

7.1

Monitoring and Controls The monitoring and control of the Trans Balkan Crude Oil Pipeline will be achieved by implementation of a Supervisory Control and Data Acquisition (SCADA) system. The architecture of the SCADA system for the Trans Balkan Crude Oil Pipeline will be designed to meet the following objectives: High reliability and high availability. Fault tolerance with no single point of failure. Excellent performance even under high loading conditions. Emergency backup capabilities. User friendly man-machine interface. Historical data collection for trending and reporting purposes. Secure access to data and control functions. Open systems standards for interfaces and protocols. Expansion capabilities for the entire project life cycle. Ease of support and maintenance.

High reliability and availability will be achieved by making all of the critical components of the system redundant as well as incorporating redundant power supplies in network equipment. Fault tolerance will be achieved by providing hot-standby servers for the SCADA and Leak Detection systems; two dual-headed operator consoles will provide backup in the event that one of the consoles fails. This redundancy is also provided in the communications system to the Remote Terminal Units (RTUs) through the use of dial backup facilities to and from the remote sites. It is important that the SCADA system provide the level of performance required under the most extreme loading conditions that can be foreseen for the system. The system will be designed to provide the required resources such as CPU cycles, Local Area Network (LAN) bandwidth and database access during the major loading periods. A provision will be included to install an emergency backup pipeline system control center at a location (Vlore Terminal) that is not in close proximity to the existing control center at Bourgas. This emergency backup control center will be used whenever a catastrophic event such as a fire, earthquake, or flood has occurred at the main Bourgas control center. The emergency backup control center will be designed to provide the minimum requirements to control the pipeline system and can be up and running within a few minutes.

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The SCADA system will use windows-based graphics that provide easy navigation and control commands that can be issued with a point and click of a mouse (after confirmation of the control command). All displays and reports in the system will be provided in the most effective and feasible language. The SCADA Master system will provide a complete historical data archive that will retain real-time data on-line for three months and will archive the data to WORM (Optical) disks for longer term storage. Note that the flow computers at Bourgas and Vlore will maintain archive data for two months. The historical data can be accessed by users on the Corporate LAN at the Bourgas control center using standard Structure Query Language (SQL) access (provided they have access rights). A critical component of any SCADA system is the security of both the data and the control command functions. The SCADA system will provide many levels of user access that is controlled by username and password entry into the system. The project life cycle will be decades and during this period new hardware technologies will appear that may be beneficial to the control and monitoring of the pipeline system. The SCADA system will use an open client/server architecture that will enable the addition of new technology as it appears with minimal impact on the system. The initial installed system will be sized to accommodate the anticipated expansion requirements. However, given the open distributed architecture of the system it will be a simple task to expand beyond these anticipated requirements. The SCADA system will come fully equipped with all necessary maintenance software required to maintain databases, displays, network connectivity, flow computer functions, etc. This will provide the necessary tools to support any updates to the system as required. The following sections provide more details on the RTUs, flow computers, communications and the testing, installation and commissioning process that will be followed to ensure the installed system fully meets the requirements of the Trans Balkan Crude Oil Pipeline System. 7.1.1 SCADA Master System The SCADA Master system will be located in the Bourgas Terminal main control room. The system will use a client/server architecture with dual Ethernet LANs providing network redundancy. The two Operator Stations will have dual heads. The dual heads will be under the control of one keyboard and one mouse and each provides a large area which can be used to view multiple locations on the pipeline simultaneously. One Operator Station provides backup to the other in case of hardware failure. All displays and reports associated with the SCADA Man Machine Interface (MMI) will be in the most effective and feasible language.

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In addition, one of the Operator Stations can be used as an Engineering Workstation to make database and display configuration changes when required without interrupting the operation of the SCADA system. The historical data server will have mirrored disks in order to provide redundancy of the historical data. The leak detection system will interface with the real-time SCADA database across the LAN to retrieve real-time data and provide alarm information back to the SCADA system. Communications to the remote sites will be provided through dual communications multiplexers and a digital bridge. The digital bridge will be connected to the satellite communications hub as the primary communications link and also to the Public Switched Telephone Network (PSTN) to provide dial backup capability to the remote sites. The Corporate LAN, the Bourgas control center, and the Vlore Terminal will be connected to the SCADA LANs via a bridge. This will enable real-time and historical data to be extracted for reporting purposes on the Corporate PCs. 7.1.2 Communications Communications to the remote sites will be via satellite at 2400 baud. Backup communications will be provided by dial backup telephone lines through the Public Switched Telephone Network (PSTN) or through the cellular phone system in those areas that have strong cellular coverage and do not have access to the PSTN. Dial backup will be initiated by the RTU upon detection of communications failure via the satellite link. However, the system will provide the SCADA master with the capability of dialing the RTU (especially from the Emergency Backup Control Center in Vlore Terminal). A password will be required before the RTU will permit access to the caller. 7.1.3 Remote Sites The configuration of the system will have the following remote sites: three (3) intermediate pump stations, one (1) pressure reducing station, selected mainline block valves, country border metering facilities (2), and Vlore Terminal. The SCADA Master system will communicate with these facilities local control systems over the satellite link. The link will provide real time data on the status of the various facilities and Operators at the Bourgas Control Center can issue control and setpoint commands to adjust the operation of various selected equipment.

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Each of the metering facilities will have an RTU for Operations and Control functions and a flow computer. 7.1.4 Emergency Backup Control Center (EBCC) An Emergency Backup Control Center (EBCC) will be installed at the Vlore Terminal. In the event of a catastrophic failure of the Main Control Center (MCC) in Bourgas, the monitoring and control of the pipeline can be provided through the EBCC. The EBCC will not be in communication with the SCADA Master system during normal operation. Whenever the EBCC is required, the operators will arrive at the EBCC location and log on to the system. Communications to the remote sites will be established through the dial backup system. If the EBCC will be in use for an extended period of time (due to the extent of the damage at the MCC) and the satellite hub is operational, then provision can be made to connect the EBCC to the satellite hub to re-establish the primary satellite links to the remote sites. This connection will require the installation of additional communications equipment at the EBCC. During Front End Engineering and Design (FEED), this procurement will be defined in the Emergency Response Plan that will be developed as part of the SCADA System design process. 7.1.5 Bourgas and Vlore Control and Monitoring Equipment Requirements In addition to the above narrative description, Figures 7-1 and 7-2 show the major control and monitoring equipment requirements at Bourgas and Vlore. Of course, these figures are preliminary and may be refined/modified during FEED. 7.1.6 Bulgaria, Macedonia, and Albania Control and Monitoring Equipment Requirements The descriptions in Figures 7-1 and 7-2 for Typical Pump Station and Typical Isolation Valve show the major control and monitoring equipment requirements for the cross-country pipeline and facilities in Bulgaria, Macedonia, and Albania.

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7.2

Telecommunications The telecommunication system provided for the Trans Balkan Crude Oil Pipeline will be designed to cover both current and future needs in the data, voice, and mobile communications areas. Proven pipeline industry approaches and up-to-date technology will be utilized to support the operations and maintenance of the system. The use of satellite technology will minimize the requirements for land, and increases security by minimizing the amount of equipment located along the pipeline route.

7.2.1

Voice Communication System A voice communication system will be provided which provides high availability voice communications between all parties, namely the mobile units, the main pipeline control center in Bourgas, the Bourgas onshore and offshore unloading terminal, the pump stations, and the Vlore onshore and offshore loading terminal. The system will use satellite technology, cellular, and the Public Switched Telephone Network (PSTN) to provide this service. Voice Communications Mobile A satellite based communication system with cellular as backup will be provided for mobile coverage over the entire length of the pipeline and surrounding areas. This system will enable a mobile unit to communicate with any other mobile and/or fixed unit. The system will also have dispatch capability. Each of the Operating Companys field vehicles will be equipped with both a Mobile Satellite Terminal (MSAT) phone and a cellular phone. In the geographic areas not covered by the national cellular service providers, MSAT would be used. In geographic areas covered by the cellular providers, either cellular or MSAT could be used. Typically, cellular will be used during normal operating conditions and MSAT used if cellular is out of service. During pipeline emergencies, MSAT would be used because it has dispatch capability, which allows many units to be conferenced together. Both cellular and MSAT will interface with the Public Switched Telephone Network (PSTN). Cellular connects directly to the Bulgaria/Macedonia/Albania PSTN via the cellular provider. MSAT will downlink to an earth station where it interfaces with the PSTN and then is connected back to the Bulgaria/Macedonia/Albania users via PSTN long distance providers. Voice Communications Fixed The main pipeline control center at Bourgas will be equipped with an MSAT phone and a Private Branch Telephone Exchange (PBX) which connects multiple standard telephones to the Bulgarian PSTN. The Vlore Terminal will also be equipped with a MSAT phone and a PBX.

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Intermediate pump stations and the pressure reducing station will be equipped with a PBX system for multiple standard phones. At each site, two voice channels will be multiplexed with the RTU data and utilize satellite communications to connect to the operations center PBX which interfaces with the PSTN. If available, connection will also be made to the local PSTN. Since the PSTN along some parts of the pipeline route may not be of high quality or availability, the cellular, MSAT and satellite communications will be used to operate the pipeline. 7.2.2 Data Communication System High speed, satellite based, communication circuits will be provided for data communication between the Supervisory Control and Data Acquisition (SCADA) Master Terminal Unit (MTU), located in the Bourgas Pipeline Control Center, and the pump stations/pressure reducing station and Vlore Terminal. Medium speed circuits will be used for other communication sites. Data communications within a given facility (Bourgas Terminal, intermediate pump stations, pressure reducing station, and Vlore Terminal) will be by hard wire connections. Remote communications for mainline block valves to the Bourgas Pipeline Control Center will be achieved using Ultra Small Aperture Terminal (USAT) equipment. Vlore terminal, intermediate pump stations, and the pressure reducing station will be connected to the Bourgas Pipeline Control Center by 64 kbps satellite links. This Multi-Channel Per Carrier (MCPC) configuration allows one 9.6 kbps data circuit and two 16 kbps voice circuits to be multiplexed onto one 64 kbps carrier. The data circuits connect to the RTUs to the MTU, and the voice circuits connect the station phones to the Bourgas Pipeline Control Center PBX. At Bourgas Pipeline Control Center and Vlore Terminal a Local Area Network (LAN) system will be provided to support internal information flow and system access among all the office computing devices, fax machines, and printers. E-Mail communication will also be provided. This system will be linked with the SCADA MTU for downloading of data for processing and billing purposes. 7.2.3 Bourgas and Vlore Telecommunications Equipment Requirements In addition to the above narrative description, Figures 7-1 and 7-2 show the major telecommunications equipment and links that will be established between Bourgas, Vlore, and other facilities (isolation valves, intermediate pump stations) along the cross-country pipeline route.

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7.2.4 Bulgaria, Macedonia, and Albania Telecommunications Equipment Requirements The descriptions in Figures 7-1 and 7-2 for Typical Pump Station and Typical Isolation Valve show telecommunications equipment requirements for the crosscountry pipeline and facilities in Bulgaria, Macedonia, and Albania.

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8.0

PROJECT IMPLEMENTATION PLAN AND SCHEDULES

8.1

Implementation Plan The following is a preliminary Implementation Plan based on the available data to date. This Plan will be updated during Front End Engineering and Design (FEED) as more accurate and detailed information becomes available, and as input is received from a broader range of project participants. This current Plan envisions a two step approach: 1) FEED phase followed by 2) the Engineering, Procurement, and Construct Management (EPCM) phase. It has also been delineated to Brown & Root that given the overall expected market conditions, there will be a significant urgency by project participants to implement the Trans Balkan Crude Oil Pipeline System as soon as possible. This Implementation Plan therefore describes a fast track approach that is not as traditional, linear, and as time-consuming as the more standard implementation approach for these type projects.

8.1.1 Front End Engineering and Design (FEED) FEED will include all activities necessary to produce the following: a. b. c. d. e. Right-of-Way (ROW) Selection and Survey Logistics Study Initial Environmental Study of Special Areas Identified in this Report Initial Permit Application, Licenses and Approvals Engineering and Design (Which will include many activities some of which are listed below): 1. Project Planning and Organization 2. Establishment of Base Case and Alternatives 3. Initial Alignment Drawings 4. Schematic Flow Diagrams 5. Preliminary Process Flow Diagrams (P&IDs) 6. Major Equipment List With Sizes and Duties 7. Preliminary Equipment Arrangements 8. One Line Electrical Diagrams 9. Hazardous Area Drawings 10. Special Studies which may include studies such as: Crude Analysis, Steady State and Preliminary Transient Hydraulic Analysis, Storage Requirements and Terminal Unloading/Loading Rate Analysis, Preliminary Geotechnical Study, Preliminary Environmental Management and Mitigation Plan, SCADA/Telecommunication Systems Analysis, Long Lead Items List, Preliminary Metallurgy and Specifications. f. Value Engineering and Cost Reduction Studies g. Procurement Plan

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h. Construction Execution Strategy i. Updated Total Installed Cost (TIC) Estimate for Project j. EPCM Packages The FEED Phase of the project will culminate in the issue of the EPCM package(s), negotiations, and selection of an EPCM contractor(s). The time period for selecting the EPCM contractor(s) will be expedited such that there will be no need for a bid evaluation period between the FEED and EPCM project stages. There will also be parallel Owner activities during this FEED phase. These activities will include items such as legal documentation and agreements between all entities and governments, Owner structure definition, Memorandums of Understanding (MOUs), finalization of supply and offtake contracts and project financing. For the Trans Balkan Crude Oil Pipeline System, it is anticipated that the FEED phase will be completed in 7 to 8 months, starting around September of 2000 and finishing around April of 2001. Since the FEED is completed in this fast track time frame, it should be realized by the reader that a traditional FEED Total Installed Cost (TIC) estimate with accuracy of +/- 10% may well not be possible. Such accuracy is often required at the end of FEED for financing and budgeting purposes, and could require a FEED timeframe of 10 to 12 months. Therefore, for the Trans Balkan Project, all relevant project participants should understand these circumstances, be organized, and be coordinated such that this fast track FEED will be effective in reducing the overall project schedule and progress the project smoothly into the next EPCM phase. Certain components of FEED will be subcontracted to local companies. Some of these activities are envisioned to be the survey of the ROW [Item (a) above], input to the logistics study [Item (b) above], participation in the Environmental Study [Item (c) above], assistance with permit applications [Item (d) above], and some engineering activities such as civil/structural and HVAC design. It is currently anticipated that local contractors will be involved in the procurement plan development and construction execution strategy development [Items (j) and (k) above] to ensure maximum local content during procurement and construction. During FEED, a small liaison team will be located in country to coordinate the incountry activities with the main project office. 8.1.2 Engineering, Procurement and Construction Management (EPCM) It is currently envisioned that the EPCM contractor(s) will transition smoothly to detailed engineering and design and procurement activities and subsequently manage (for each of the three countries) pipeline construction contracts, pump station (and pressure reducing station) contracts, and onshore/offshore terminal facilities contracts. Actual construction contracts are currently anticipated to be negotiated, funded/financed and awarded between December 2001 and May 2002.

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It is anticipated that the detailed engineering will be completed in about 8 to 9 months, starting around May 2001 and finishing around January 2002. Early mobilization for construction of the cross-country pipeline and pump stations/pressure reduction station will commence beginning February 2002. Detailed engineering should be sufficiently completed to allow for mobilization and early construction work on the cross-country pipeline and pump stations/pressure reduction station starting by the late winter/early spring of 2002. Due to a potentially longer construction window, the onshore terminals at Bourgas and Vlore are estimated to begin construction approximately 3 months earlier in November 2001. The construction phase will be completed around June 2003. It is anticipated that Purchase Orders for long lead items will be placed during FEED or as soon as major funding is agreed to be committed. Line pipe purchase orders will be placed around May 2001 with deliveries starting around November 2001 and completing around May 2002 (6 to 12 months). Purchase Orders for rotating equipment, instruments, and Supervisory Control and Data Acquisition (SCADA) equipment will be placed around July 2001 with deliveries taking place between July 2002 and January 2003 (12 to 18 months). Commissioning and start up will take place between July and September of 2003. First oil will start in October 2003. The following paragraphs describe the currently anticipated larger scale cross-country pipeline construction execution plans to be used in each of the three countries.

Bulgaria In Bulgaria, one pipeline construction spread is anticipated. At this time, automatic welding is anticipated. The majority of the terrain is level to gently undulating. Double jointed pipe (approximately 24 meter or 80 foot lengths) will be delivered to the ROW from the double joint rack facilities. At this time, the cross-country pipeline construction work is anticipated to proceed from East to West along the route. It is currently anticipated that the main pipeline construction office will be located in the vicinity of Plovdiv. The double joint rack will be located at Bourgas and moved at a later date as the project progresses to Plovdiv. Currently, the project management office is expected to be located in Sofia. Pipe storage yards are expected to be located along the ROW in the vicinity of the following towns: Karnobat, Stara Zgora, Plovdiv, Vakarel, and Kjustendil. Double jointed pipe will be strung along the ROW from these locations. The construction duration is expected to be about 357 days. The pipeline construction spread will be located in low elevation areas during the winter of 2002 moving to

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higher elevation areas during the summer. An allowance of 20% is made in the schedule to account for holidays, shutdowns and days off. It is anticipated that food and lodging will be found in the many cities and towns along the ROW, such as: Bourgas, Karnobat, Sliver, Stara Zgora, Plovdiv, Pazardzik, Sofia, Pernik, and Kjustendil. Materials and equipment are expected to be received primarily through the Bourgas and Varna ports. The port of Varna is connected to the port of Bourgas and the ROW through Highway 9 / E 87. There would be a small project office at the ports to handle custom clearance of equipment and materials. Airport entry of expatriate personnel and materials are Sofia and Bourgas. The pipeline ROW is along side and crosses highway (E 772) from Bourgas to Sliven. From Sliven to Sofia, the ROW is adjacent to several highways (Highway 66, Highway E 772, and the A1 motorway). The ROW will follow Highways E 870 and 871 from Sofia to the Macedonia border. Access to the ROW is ample from these highways through a network of secondary roads that cross the ROW in numerous locations along the ROW.

Macedonia Two pipeline spreads with manual welding are anticipated in Macedonia. Single random lengths of pipe (approximately 12 meters or 40 feet) will be delivered to the ROW from several pipe yards. As was the case in Bulgaria, the expected direction of cross-country pipeline construction work in Macedonia is expected to be East to West. The main project office is expected to be in the vicinity of Skopje. Pipe storage yards are expected to be located along the ROW in the vicinity of the following towns: Kumenova, Titov Veles, Prelip, Bitonia, and Ohrid. Pipe will be strung along the ROW from these locations. Approximately 315 construction days will be required for the cross-country pipeline construction in Macedonia. The spread will be located in the Eastern part of the country during the summer of 2002. This area has a somewhat lower average rain fall during the summer season. As the spread moves initially west and then south, it will be following generally lower average rain fall areas. An allowance of 25% is made in the schedule to account for holidays, shutdowns, and days off. Currently, it is expected that food and lodging will be handled in the many cities and towns along the ROW such as the towns and cities mentioned above. Material and equipment will be received primarily through the ports of Bourgas, Varna and Vlore. Depending on a detailed analysis and the associated economics

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considering taxes, duties, etc., the Greek port of Thessalonike may also serve as a port of entry for materials and equipment destined for Macedonia. There will be a small project office at the relevant ports to handle clearance of equipment and materials. Air entry of expatriate personnel and materials can be made through the Skopje airport. In Macedonia, the pipeline ROW is alongside Highway E 870/871 from the Bulgarian border to Kumanova. From Kumanova to Titov Veles to the Albanian border, the ROW runs adjacent to Highway 27, Highway 26, Highway E65, and then highway E 850. Access to the ROW is ample from these highways and a network of secondary roads that cross the ROW in may locations. Albania In Albania, it is currently expected that one main pipeline spread will be required and it will move with a direction of work from West to East. Manual welding is expected with single random joints of pipe (12 meters or 40 feet in length) delivered to the ROW. Albanian project management offices are likely to be located in Tirane. The main construction office will probably be located in the vicinity of Vlore. Pipe yards will likely be located along the ROW in the vicinity of the following towns: Elbasan, Lushnje, Fier, and Vlore. Single random length joints will be strung along the ROW from these locations. The cross-country pipeline construction work in Albania will take approximately 250 working days. The spread will be located in the low elevation areas during the winter of 2002 and especial consideration will be given to the dry season for the work in the Shkumbin River valley. An allowance of 25% is made in the schedule to account for holidays, shutdowns and days off. Food and lodging will be handled in the many cities and towns along the ROW such as the cities and towns mentioned above. Material and equipment will be received primarily through the port of Vlore. Durres is another port in the vicinity that could serve as a port of entry. There will be a small project office at the relevant ports to handle custom clearance of equipment and materials. The Tirane airport can serve as an entry point for expatriate personnel.

8.2

Project Schedule Figure 8-1 provides a preliminary, overall project schedule for the project based on the above Implementation Plan. The FEED Phase of the project is anticipated to begin around 1 September 2000 and succeeding activities conducted (as described

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above) such that commercial operations of the system could begin around 1 October 2003. This 37 month time frame is considered realistic and feasible. Of course, this schedule will be expanded in detail and accuracy as the project proceeds into the FEED and following stages. Figure 8-2 gives a preliminary schedule for the procurement of long lead items. Again, this schedule will be refined during FEED.

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9.0

PROJECT COSTING

9.1

Capital Costs The capital cost for the Trans Balkan Crude Oil Pipeline System is estimated at 1.13 billion U.S. dollars. Table 9-1 gives the details of the estimate including a breakdown of costs by country and facility. A recommended contingency of 8.6% has been included in the total. The overall estimate accuracy has been set as +20%, - 10%. The estimate is based on a current cost basis (second quarter 2000). The onshore pipeline installation estimate was developed using a proprietary Brown & Root Energy Services (BRES) program that benchmarks this project against worldwide pipeline project data. In this case, the major reference point was a project in Eastern Europe. The program adjusts the cost to reflect parameters such as terrain profile, soil/rock conditions, vegetation cover, and labor productivity. The program also adjusts for the impact of accessibility and logistics on the cost of pipeline construction for each of the three countries. Additional analysis has tested the cost of the cross-country pipelines in each country based on cost rates for selected equipment and labor. Pipeline material pricing has been developed from a world market survey of particularly U.S. vendors with the resultant pricing used for the offshore and onshore scopes of work. This pricing includes the pipe, concrete coating, coal tar coating and FBE coating. The offshore pipeline installation cost was developed by estimating the personnel and equipment requirements for the activities necessary to build and test the pipeline onshore and pull into place using tug boats. The pipeline would essentially be fabricated in strings of some 300 meters in length and pre-tested. The installation would be the pulling of the strings and the welding of the strings together to make the lengths of pipeline required from the buoy location to the shore. The activities included are site preparation, pipe delivery, welding, testing & coating, roller bed set-up, pulling head/pipeline end manifold fabrication & attachment, string tie-ins and coating, pulling and lowering (trenching) at the landfall waterline. The supervision for these activities and any unique equipment required would be provided by a specialist contractor. Labor and equipment for the site work, concrete supports, excavation, pipe handling, welding and pulling would be sourced from the local marketplace. The procedures were very similar for both Bourgas and Vlore. Costs were developed along this philosophy using the labor and equipment rates for the respective locations. The onshore facilities which include two terminals (Bourgas and Vlore), three Pumping Stations, and a Pressure Reduction (PR) Station were modeled through the

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use of the ICARUS 2000 estimating program. The ICARUS 2000 computer system by the ICARUS Corporation will generate conceptual costs based on process equipment data sheet input, project site specific information such as size of the site, buildings, pipe rack piping and structural steel and any other scope items identified by engineering or the client. ICARUS 2000 produces a detailed bill of materials based on the user input data and the design parameters built into the system. The program estimated the costs of all components and the cost of the construction work force. All program generated information can be modified or replaced to reflect the project specific specifications or site conditions that would effect the project cost. For this project, the major equipment pricing was acquired through budget quotes from basic specifications and used to replace the data in the ICARUS system. The ICARUS 2000 system produces estimates that are generally used as factored estimates with an accuracy of +/- 20 to 30% but can be improved in accuracy as project specific information is used to verify or replace the system generated components. The project parameters used in the development of the estimate for the facilities are: 1. The Control center at the Bourgas Terminal is considered the master control center with the Vlore terminal having a completely redundant Control center. 2. The main corporate fiscal Metering Stations are located at the Bourgas and Vlore terminal. Smaller metering stations will be located at Pumping Station #4 and the Pressure Reduction Station nearest the Macedonian and Albania borders, respectively, to monitor flow for government tax purposes. 3. The estimate basis is all sites are substantially level with minimal vegetation cover. The sites were cleared, stripped (soils hauled to just outside the boundary fence) and back filled with gravel. Asphalt topping was added on top of a gravel base to provide road-wearing surfaces. 4. The Bulgarian national power grid is the source of power for the facilities in Bulgaria. Electricity will be produced at the other locations by using crude oil from the pipeline in crude burning engines driving generators. 5. Utilities such as potable water and power for the Bourgas Terminal are based on connections to the utility networks within 400 meters. The pumping stations in Bulgaria are based on connecting to power within 1600 meters. Potable water for the pumping stations, pressure reducing stations and Vlore Terminal is based on wells. Sanitary services were developed at the terminals and the pumping stations via drainage fields. 6. The oil tanks are placed in individual diked areas complete with a 1.5 mm membrane liner. The tank foundations have gravel sub base with ring beams and sand cement tank bottom areas. 7. A fire water loop runs around the tank farm, with a foam system for the tanks themselves.
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8. Buildings on the terminal sites include a. Storage / Warehouse b. Control Center c. Office d. Pump Station e. Emergency Generator Shelter f. Guardhouse Buildings at the Pump Stations and Pressure Reduction Station include a. Storage / Warehouse / Control Center b. Emergency Generator Shelter c. Guardhouse The pumping station building and the storage / warehouse building on each site have overhead cranes to facilitate maintenance. 9. ROW restoration has been included based on the restoring conditions to those as they were found. 10. ROW costs are not included. 11. Basic industry standard environmental considerations have been included. 12. Current labor rates for these countries were not readily available from documented sources. One documented source used was the year end 1998 Engineering News Record international summary. It provided wage rates with benefits for the Eastern European countries of Rumania, Hungary, Poland, and the Czech Republic. This information was weighed against in-house estimating information and very preliminary information received from within Bulgaria. This estimate is based on an average wage rate of $4.25/ hr which includes social benefits. 13. To arrive at the all in labor rate, preliminary information from contractors in the region was used. This information was received through knowledge of other recent projects in the region and in discussion with contractors. The all in rate includes construction equipment, small tools, temporary facilities, contractor supervision and management. The basis of this estimate is $10 to $11 per workhour as an overlay on the base wage resulting in an all in labor cost of $15 per workhour. 14. The labor productivity is based on using experienced contractors from within the countries with sufficient skilled labor and working equipment to accomplish the work. If not available within the countries, contractors from outside the countries will be brought in to accomplish the work.

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15. The base estimate in ICARUS is based on US Gulf Coast labor productivity rates. The productivity of the work force is affected by items such as skilled labor availability, the mix of craftsmen and unskilled labor in the project work force, the availability of equipment, the terrain, weather and the delivery of materials and consumables in a timely fashion. The labor productivity adjustment applied to the US gulf Coast labor was developed by discussions with in house sources and literature for surrounding countries. The basis of this estimate is as follows: Bulgaria Macedonia Albania 1.5 times US Gulf Coast labor 2.5 1.8

16. The following items are not included in the estimate, as they are reflective of the basis of the contract and/or the relationship with government entities. a. Insurance b. Taxes, customs duties, and regulatory compliance costs c. Environmental remediation beyond existing conditions or not caused by the contractors. d. Security e. Additional costs if world wide source of materials is restricted f. Additional costs if the selection of construction contractors is established through criteria other than competence and price.

9.2 9.2.1

Operating Costs Annual Overall System Operations and Maintenance Costs Annual overall system operations and maintenance costs (excluding driver fuel costs) are estimated as 3% of the capital cost presented in Section 9.1 above, i.e. 3% of $1.13 billion per year = $34 million per year. During the upcoming Front End Engineering and Design (FEED), this estimate will be updated to a more refined and accurate value.

9.2.2

Annual Electrical and Crude Oil Fuel Costs The reader will remember that the Trans Balkan Crude Oil Pipeline System will receive electrical power from the local utility in Bulgaria for Bourgas Terminal/Pump Station 1, Pump Station 2, and Pump Station 3. The current assumption is that electrical power will be generated locally (via crude oil burning engines/generators) at Pump Station 4, the Pressure Reduction Station, and Vlore Terminal. Pump drivers at Pump Station 4 and Vlore Terminal are assumed to be powered by crude burning engines. The crude oil fuel will be taken directly from the pipeline system. Total annual system electrical costs in Bulgaria can be estimated by multiplying the following annual kilowatt-hour usage by the appropriate unit cost for Bulgarian

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electricity (in $/kilowatt-hour). Also, total annual driver/generator crude oil fuel costs can be estimated by multiplying the following estimated annual volume usage (in barrels) by the unit cost for the pipeline crude oil ($/barrel). Annual Bulgarian electrical usage for Bourgas Terminal, Pump Station 2, and Pump Station 3 = 500 million kw-hours (1.800E+15 Joule). Annual crude oil consumption for: Pump Station 4 = 135,000 barrels for pump driver fuel + 35,000 barrels for electrical power generation = 170,000; Pressure Reduction Station = 35,000 barrels for electrical power generation; and Vlore Terminal = 250,000 barrels for pump driver fuel + 70,000 barrels for electrical power generation = 320,000. Total project annual crude oil usage = 525,000 barrels.

During FEED, these estimates for annual electrical and crude oil usage will be refined with more accurate values.

9.3

Risk Assessment Results And Methodology Results of a preliminary risk assessment for the Trans Balkan Crude Oil Pipeline Project are presented in the following Section 9.3.1. Section 9.3.2 presents a general risk assessment methodology for upcoming phases of the project. Section 9.3.3 shows specific project risks and mitigation steps that should be considered for the Trans Balkan Crude Oil Pipeline System. Finally, Section 9.3.4 discusses effective risk response actions that should be considered for the present project.

9.3.1

Preliminary Risk Assessment Results At this early stage of the project, the only analysis that is typically performed is a preliminary quantitative assessment as to the level of uncertainty surrounding the estimated cost (CAPEX) items as opposed to the comprehensive assessment described in the sections below. The analysis involved determining the uncertainty surrounding the individual cost line items and setting +/- % ranges. This was determined through discussions with the study participants from engineering and estimating. None of the risk elements discussed in Section 9.3.3 were included in the analysis. The risk model was analyzed using Crystal Ball software. The resultant contingency of 8.6% or $89.24 million is included in the total estimated CAPEX cost of $1.127 billion U.S. dollars. The accuracy of the estimate was established by the project team as +20%, -10% after an evaluation of the similar pipeline projects and a thorough review of this estimate.

9.3.2

General Risk Assessment Methodology The risk assessment of the Trans Balkan Crude Oil Pipeline should utilize the basic principles as set out in this section and in Appendix 14, or an equivalent methodology.

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The following process describes the methodology for the identification of uncertainties and the compilation of the Uncertainty Register, the development of the Cost and Schedule Risk Models, and the analysis of the models. Each area of the assessment will be addressed separately below. Qualitative Assessment The objectives of the qualitative assessment are to identify, document, and assess the principal uncertainties of the project (see following Section 9.3.3), in order that management attention can be directed towards the most important issues. The initial uncertainty (Risk and Opportunity) identification should be conducted by means of a brainstorming session. This meeting should be attended by the key personnel assigned to the project, representing all aspects of the project from design to hand-over and encompassing, both technical and commercial interests. During the brainstorming, uncertainties that could impact the achievement of the projects objectives should be identified. Then, key project personnel should be nominated to be responsible for each of the identified issues. Each uncertainty should also be benchmarked in terms of its likelihood of occurrence and the potential cost and schedule impacts. A simple high, medium, or low scoring system should be adopted in order that the identified issues can be ranked in some order of significance. Following the brainstorming session, the identified risks/opportunities should be entered into an uncertainty register for the Trans Balkan Crude Oil Pipeline Project. This should be followed by one-on-one interviews to explore the identified issues in more detail. During these discussions, the true nature of the issues will be discussed and potential impacts on cost and schedule are assessed in more detail. Particular emphasis should be placed on the identification of management actions. The uncertainty register constitutes a key management document that should be continually updated and maintained during the life of the project. Quantitative Assessment Cost The objective of the quantitative cost risk assessment is to assess the level of uncertainty surrounding the estimated cost (CAPEX) figure. The currently existing cost estimate should be used as the basis for the risk analysis. Before uncertainty can be introduced into the model, the required level of detail should be agreed with the appropriate personnel. Then the estimating uncertainty inherent in the cost estimate should be included within the model by recognizing and quantifying the uncertainty surrounding the individual cost line items. Primarily this quantification should be determined through discussions with the lead managers/engineers for engineering, procurement, construction, commissioning, etc. Then the complete uncertainty register should be reviewed with key project personnel to assess the impact of specific

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risks and opportunities on the cost and to agree assumptions to be included in the risk model. Once all the inputs to the cost risk model are agreed and included in the model, it should be run for 2000 iterations using Crystal Ball software to ensure a representative sampling of all probable combinations of assumed cost spreads. The result of the exercise should be presented as a graphic S curve depicting the probability of achieving the projects target cost against all the simulated project outcomes. In addition, a tornado diagram should be produced that shows the areas of cost uncertainty to which the project is most sensitive. Quantitative Assessment- Schedule The objective of the quantitative schedule risk assessment is to assess the level of project schedule uncertainty, the chances of meeting the first commercial oil transportation date and the project activities displaying the greatest degree of criticality, i.e. the program drivers. A Level 2 schedule (200 600 activities) of the project in Primavera P3 should be used as the basis for the schedule risk analysis. This schedule should be transferred into Monte Carlo software, which should be used for the quantitative schedule risk analysis. Uncertainty in activity durations should then be included within the schedule by recognizing and quantifying the uncertainty in the planning estimates and the uncertainty pertaining to the specific risks and opportunities described in the uncertainty register. Primarily this quantification will be determined through discussions with lead managers/engineers for engineering, procurement, construction and commissioning, etc. Then the complete uncertainty register will be reviewed in a meeting with key project personnel to assess the impact of specific risks and opportunities on the schedule and agreed assumptions to be included in the risk model. Once the schedule model is produced, it will be run for 1000 iterations using Monte Carlo software to ensure a representative sampling of all probable combinations of activity duration spreads. The result of the exercise will be presented as a graphic S curve depicting the probability of achieving the projects First Commercial Oil Transportation milestone against time. In addition, a criticality diagram should be produced that contains the major program drivers so that management attention can be directed towards the identified activities.

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9.3.3

Specific Project Risks and Mitigation Steps The following specific types of project implementation risks and associated risk mitigation steps are applicable for the Trans Balkan Crude Oil Pipeline System (note: identification of risks and mitigation steps should be reevaluated during FEED and intermittently reevaluated throughout project implementation as per the methodology discussed above in Section 9.3): Environmental/Regulatory/Permitting Risk The fundamental problem is that the regulatory/permitting agencies and the pipeline system owners/contractors have different agendas/expectations that are often not totally rectified until the field construction activities have begun. This circumstance occurs despite the fact that project permitting/regulatory documents are available relatively early in the project life-cycle, and the regulatory/permitting agencies pipeline owners/contractors may have significant communications (team building efforts, etc.) relatively early in the project life-cycle. The only approach for managing this risk is effective, early project life-cycle communications and education between the agencies and the owners/contractors. These entities must have a common understanding (be on the same page) of how regulations and permits are actually going to be applied in the field on a day-to-day basis. It is generally not nearly sufficient for each party to have just a general understanding of these matters. Public Relations Risk Since a pipeline construction project is a disruptive event spread over a large geographical area and impacting numerous individuals/institutions, it is by its very nature a very public event open to controversy/contention. Given that most individuals/institutions have a Not In My Backyard mentality with respect to high pressure pipelines and facilities such as compressor or pump stations, there is a significant probability of a public relations risk, if this whole circumstance is not properly managed. Fortunately, industry accepted approaches have evolved for managing pipeline construction public relations risk. Also, international lending institutions such as the Inter-American Development Bank, Asian Development Bank, and World Bank have established public relations guidelines and procedures. The reader will appreciate that an effective public relations program will need to be tailored to the particular political, cultural, and socio-economic circumstances of the region under consideration. An approach that may work well in the Western, democratic, economically developed countries may need to be considerably modified to be effective in the developing countries where a significantly different set of conditions may exist.
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Work Environment Risk On a number of international pipeline construction projects, a significant risk is the development and implementation of an effective local labor engagement plan and the corresponding relationships with the unions, regulatory authorities, and communities along the pipeline route. These risks can only be managed by a coordinated, organized effort on the part of the pipeline system Owner/Sponsor and the Contractor. Status of the labor engagement plan should be constantly monitored and any problems addressed as soon as possible. Good communications must be maintained between the Owner/Sponsor-Contractor and the unions, regulatory authorities and communities. The Owner/Sponsor and Contractor need to take an informed, sophisticated view of the labor engagement plan that will carefully consider local cultural, socio-economic, political forces and issues.

Real Estate/Right-of-Way Risk The significant problems associated with acquiring pipeline right-of-way have been discussed in the literature for at least 20 years. Technology and generally accepted methodologies have somewhat improved the process over the years, but still this is an area of significant risk on most international pipeline construction projects. Acquisition of real estate/right-of-way is a significant effort in terms of time and money. Because of this fact, the acquisition is often done in the same time frame, or nearly the same time frame, as the actual physical construction of the pipeline. This circumstance significantly increases the risk of delayed real estate/right-of-way acquisition impacting the field construction activities. In order to mitigate risks, it is advisable to start the right-of-way planning and preparation process as early as possible, and to investigate alternative courses of action and routing. It is advisable to objectively quantify the route selection process as much as possible so that right-of-way routing decisions can be fully explained to the many interested parties that will require explanations. It is also highly advisable to obtain expert construction, logistics, and environmental input from the very beginning. To reduce risk, it is necessary to have early identification of all the real estate that will be required for the construction. This real estate will include temporary work space that is often required for river crossings, boring sites, restricted width right-of-way sections, wetland areas, environmentally sensitive areas, and storage areas for pipe/equipment. Identification of required access roads should be completed in a timely manner so that required permitting efforts can efficiently proceed. The above paragraphs of this subsection are focused on officially obtaining permitting to allow construction forces to begin and complete work on the right-of-way. It is wise, and really a necessity on particular projects, to maintain an effective public

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relations initiative during the construction and commissioning efforts up to the beginning of operations. In this manner, the concerns of local landowners, communities, organizations, and other entities can be addressed on a continuous basis thereby insuring there are no disturbances or demonstrations that could disrupt construction forces. Partnering Risk Many international pipeline construction projects have the requirement that local input be maximized during construction. This often requires the international EPC Contractor to associate itself with local partners and/or subcontractors for the project. Risks occur with respect to subcontractor performance because of misunderstandings between the EPC Contractor and the subcontractors, or simply the inability of the subcontractor to perform as required, or inappropriate management approaches by an uneducated EPC Contractor. Frequent problems include inferior subcontractor equipment/equipment maintenance, under-qualified personnel, and incompatible work methods. These apparent risks are quickly realized if the EPC Contractor does not properly consider or manage these circumstances. Steps can be taken to mitigate and reduce the above Partnering type risks. The EPC Contractor should endeavor to associate with local partners/subcontractors with whom it has worked before and has a good knowledge. That will allow an effective working relationship with minimal, or at least well known/manageable, risks. If this is not possible, then the EPC Contractor should carefully pre-qualify its potential partners/subcontractors. It should be noted that early in the project, the project owners/sponsors can considerably help this whole process by carefully evaluating local entities, pre-qualifying those entities, evaluating the associated risks, and then considering these aspects when formulating the project budget, contracting plan, and execution plans. The owners/sponsors can also reduce project risk by sharing this information with the Project Management and/or EPC Contractors. In evaluating Partnering Risk, it is important to keep in mind that the analysis should inherently involve consideration of a number of soft issues such as management style, culture, corporate objectives, and personalities of key individuals. These and many other aspects of successful Partnering can be found in the general literature on this topical area. Logistics Risk Generally, logistics must be considered significant on international pipeline construction projects. Getting permanent, capital materials/equipment (pipe, driverspumps/compressors, valves), construction equipment, and proper manpower to the site, at the correct location at the correct time, and maintaining the effectiveness of these resources, is a challenge. The difficulty of this task is often compounded when the project is occurring in the developing world where support infrastructure may be far from optimum. In some of these areas, there are no local suppliers for equipment

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and spare parts, food, or other items that are often taken for granted in the Western, developed world. Harsh weather conditions and difficult geography can quickly compound problems. The most effective approach for managing logistics risk on an international pipeline construction project is to begin the logistics analysis as early as possible in the project life-cycle and incorporate those results into the planning, implementation and costing of the project. Thoroughly understanding the applicable geographic area, benchmarking against other appropriate projects that have occurred in the area, and conducting computer simulation scenarios can all be helpful approaches.

9.3.4 Effective Risk Response Actions For international pipeline construction projects, the Risk Response phase is the critical phase of the whole Risk Management Process. The following subsections give proposed actions that the Trans Balkan Crude Oil Pipeline Project should take to more effectively implement the Risk Response phase. Begin Early To be most effective, the Risk Response measures must be implemented as early as possible on projects. Most successful projects take the time and allocate the budget to collectively identify, analyze, and develop risk mitigation and control approaches during the early formative stages of the project. Unfortunately, in todays international pipeline construction environment, the Risk Management Process is most often not started early enough by the project sponsors/owners to be most effective. In many cases, the pipeline system construction is competitively bid based on lowest cost with the contractor forced to deal with risks at a rather late date when risk response approaches cannot be optimally implemented. This situation can be greatly improved by the project sponsors/owners early implementation of the Risk Management Process with diversified input from such areas as environmental regulations, permitting, public relations, work environment, real estate/right-of-way acquisition, construction, and logistics. The sponsors/owners then need to share their analysis with later project participants and require them to continue with such Risk Management Processes. Keep A Broad Perspective In order to get the diversified input mentioned in the above paragraph, it may be necessary to bring in special expertise from outside the project to get fresh insights and perspectives into the risks. Brainstorming sessions guided by a person trained to conduct such sessions may well be beneficial.

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The reader will note that the six types of international pipeline construction risk (see Section 9.3.3) are actually somewhat general in nature and applicable to other type projects, i.e. infrastructure projects such as highways and railways, etc. For example, please note that the Partnering Risk is quite generic and applies to many types of projects. Therefore the pipeline industry can learn from other industry projects facing these type risks and benchmark their risk management approaches with consideration to the best practices of other industries.

Front-End Loading The Project Management Institute (PMI), Construction Industry Institute (CII), and other project management organizations have proven that successful projects frontend load their activities to conduct a significant portion of detailed analysis and engineering early in the formative stages of the project. Such an approach in conjunction with early implementation of the Risk Management Process (see above subsection) can allow risks to be effectively managed on the project.

Partnering In too many international pipeline construction projects, the relationship between the project sponsors/owners, the project management contractor, and the construction contractor(s) is not optimal for effective overall project risk management. There is a strong possibility that this circumstance could be greatly improved by bringing in the management contractor and construction contractors early in the project as partners (sharing in the project risks) with the project sponsors/owners. This approach has proved effective on North Sea offshore projects.

Project Context For Risk Management The project management on an international pipeline construction project must create the proper context and environment for the Risk Management Process. On a simple project where the risks are confirmed to be few and well understood, there may be no need for an organized, formal Risk Management Process. The Sponsor/Owner and/or Construction Contractor Project Managers may be able to manage the risk largely on their own. However, experience suggests that if the pipeline project contains one or more of the following then it is significantly more likely that a comprehensive, detailed Risk Management Process will be beneficial: substantial resources, significant novelty, long planning horizons, large size, complexity, several organizations, and significant political issues. The reader will note that by their very nature, many international

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pipeline construction projects, including the Trans Balkan Crude Oil Pipeline, do have these characteristics. Even on these more complex projects, the Risk Management Process should be kept as simple as possible. Risk Analysis should not become an end in itself or result in paralysis by analysis where management is running the project to not make a mistake. As much as possible, the Risk Management Process should be presented in a positive light, i.e. the Process should be represented as a methodology to identify and take advantage of opportunities for enhancing project implementation.

Soft Management Issues A number of entities are generally involved in an international pipeline construction project. The corporate culture and management styles of these participants will impact communications and how effective the entities can work together on resolving risk management issues. The above circumstance not only applies at the entity level, but also at the individual level. One individual with deficient, incompatible management skills, who is at a significant position of influence, can greatly damage the effectiveness of the risk management process on a project. The most effective management style for risk management is one of facilitation where the individual/entity seeks different points of view, respects others, is consensus seeking and willing to compromise for the overall benefit. Generally, the individual with an authoritarian management style and with a pre-determined agenda can wreak the most havoc on the risk management process by approaching matters on a non-compromising, I win, you lose basis. The Risk Management process on a pipeline construction project can be greatly enhanced by taking these soft management issues into consideration early in the project and selecting appropriate personnel. If problems are only realized after the project has begun, then it is most often best to address the situation as soon as possible and not let the circumstance linger where increased damage may be inflicted.

Use of Technology Technology advances can be used to enhance Risk Management on pipeline construction projects. Satellite (and other types of remote sensing), mapping software, Global Positioning System (GPS) surveying, and Geographic Information Systems (GIS) computer software can be used to quantify and more objectively define issues with pipeline routing. Linear programming can be used to select a pipeline route based on established criteria.

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The above technology is useful primarily because it can be used to quantify decision making and enhance communications between project participants.

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10.0

ENVIRONMENTAL CONSIDERATIONS

10.1

Environmental Assessment The Trans Balkan Crude Oil Pipeline system and related terminal facilities will be defined and analyzed in an Environmental Assessment (EA) as per requirements set out in the European Union Directive and by the World Bank. This documentation will serve as a basis for further environmental management of the project. The EA will generally have the following sections which are described in more detail later in this section: Executive Summary Introduction Legislative, Regulatory, and Policy Considerations Description of the Proposed Project Description of the Baseline Environment Potential Impacts of the Proposed Project Environmental Management and Mitigation Plan Monitoring Plan Coordination with Government Agencies, Affected Communities, and Nongovernmental Organizations (NGOs)

10.1.1 Executive Summary The executive summary will be a concise description of the proposed project, environmental setting, significant findings, and recommended actions to mitigate significant impacts and monitor environmental performance. The executive summary should be no more than 20 pages of text, with one figure or map showing the projects location. 10.1.2 Introduction This will generally contain the following items: Brief description of general location and type of activity Identification of project sponsors Brief history of the project, if project represents expansion, modernization, or restart of previous activity at the proposed site

10.1.3 Legislative, Regulatory, and Policy Considerations All applicable regulations and standards (Bulgarian, Macedonian, Albanian, and other) governing liquid effluents, air emissions, solid waste management, environmental quality, and health and safety should be identified and outlined, with numerical standards specified in summary tables. These include national and local

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regulations and standards as well as the guidelines and requirements of any financial institutions to which the sponsors apply for financing. The projects consistency with relevant policies on forestry, wildlands, and resettlement should also be described where appropriate. 10.1.4 Description of the Proposed Project The EA should provide a description of the project, preferably using maps (at appropriate scale), figures, and tables where appropriate, and including the following information: Site or sites, including any installations or investments of the project sponsor that are directly linked to the proposed project even though outside of the main project site. Provision of services from offsite (for example, energy, water, or transportation). Process diagram showing the steps in the process, material flow and balances, and sources of liquid effluents, air emissions, solid waste, and any other waste. Locations of liquid effluent discharge points. Information on the quality of the air emissions and liquid effluent after relevant treatment, together with a description of the treatment system or pollution control technology installed to achieve the specified waste characteristics. Environmental alterations during construction (for example, land grading, rightof-way clearance, road building). Project employment. Proposed organization of environmental management staff and associated training. Projected occupational conditions related to worker health (for example, noise levels and workplace air quality) and safety (for example, hazardous areas, operations, or equipment). Proposed occupational health and safety programs, including training.

10.1.5 Description of the Baseline Environment Detailed descriptions of baseline environmental conditions in and surrounding the operation should be provided. Graphic presentations of data (for example, figures and tables) are preferred where practical. Environmental features to be described (focusing on those environmental features likely to be affected by the project) include: Climate and air quality. Landform (topography, geology, seismicity, and soils). Hydrology, water quality, and groundwater resources. Ecology, flora, and fauna (including identification of unique or sensitive natural habitats and locally or internationally recognized endangered or threatened species).

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Existing land and water resource uses, including potentially affected areas adjacent to the project site and focusing particularly on areas and uses likely to be affected (for example, receiving waters for liquid effluents). Archeological, historical, and culturally sensitive resources at the site. Socioeconomic conditions, especially potentially affected or concerned communities and organizations.

10.1.6 Potential Impacts of the Proposed Project The EA should: Provide a brief comparison of the impacts associated with alternative sites or processes, as appropriate, and key factors in decisions to select the proposed site and process. Identify all significant environmental, socioeconomic, and human health and safety impacts associated with the project. Distinguish between beneficial and adverse impacts, direct and indirect impacts, and immediate and long-term impacts on the environment. Clearly identify significant impacts that are unavoidable or irreversible. Wherever possible, describe impacts quantitatively, in terms of environmental costs and benefits, assigning economic values where feasible. Characterize and explain significant information deficiencies and ensuing uncertainties associated with predictions of impact. Describe the planned and implemented programs, or both, to inform concerned governmental and nongovernmental organizations as well as local communities and involve them in the selection and design of mitigation, compensation, and monitoring measures.

In certain cases, cumulative impacts may need to be assessed. Such cases could arise when the project includes plans for significant future expansion or has the potential to interact with other proposed development activities such that the resulting impact on the environment is much greater than it would be if each occurred alone. As a general guidance, preparers of the EA should determine to the extent practical whether other development projects are being considered for the project area that are likely to be implemented and that could interact substantively with the proposed project. 10.1.7 Environmental Management and Mitigation Plan The EA should include proposals for mitigation of any significant adverse impacts of the project and plans for ongoing management of the project to ensure that environmental impacts will be kept to a minimum throughout the lifetime of the project. This portion of the EA should: Identify feasible and cost-effective measures to prevent significant adverse impacts or reduce them to acceptable levels. Estimate capital and recurrent costs for environmental management activities.
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Identify institutional and training requirements (that is, development of capabilities needed to implement mitigation measures and monitoring programs). Propose work plans and schedules (to ensure that actions are taken in phase with appropriate project engineering activities). Specify compensatory measures where mitigative measures are not feasible or cost-effective.

10.1.8 Monitoring Plan The EA should include a detailed plan for monitoring waste discharges, emissions, and environmental parameters in and around the project. The proposed monitoring scheme must be adequate to allow determinations of rates and concentrations of emissions and waste discharges from the project, occupational health and safety conditions, and the effectiveness of mitigating measures. The monitoring plan should include an estimate of capital and operating costs and a description of other inputs (such as training and institutional strengthening) required for its implementation. The plan should also identify action levels for each parameter monitored, at which point action will be taken to reduce or mitigate associated impacts. Specific elements to be included in this plan will vary according to the potential environmental and occupational health and safety concerns associated with each project. In many projects, elements of a monitoring program include: Stack emissions and ambient air quality. Effluents released to surface waters, including storm water runoff and receiving water quality. Accident frequency and severity, temperature, noise, and air quality conditions at work stations. Socioeconomic conditions.

10.1.9 Coordination with Government Agencies, Affected Communities, and NonGovernmental Organizations As mentioned earlier, the sponsors should make an active effort during the preparation of the EA to consult in a culturally acceptable context with appropriate Bulgarian, Macedonian, and Albanian government agencies and obtain the views of local nongovernmental organizations, affected communities, and other affected groups. Records should be kept of meetings and other activities, communications, comments, and actions taken or project modifications made in response to public and community input. The EA should include a summary of steps taken to consult with local interested parties, highlights of key concerns of local interested parties, and a brief explanation of how these were addressed in the draft EA and project design.

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10.2

Bourgas and Vlore Environmental Concerns And Mitigation Strategies

10.2.1 General There are internationally important ecological sites on the coasts close to the proposed Bourgas and Vlore terminals. The wetlands are under threat from inappropriate farming practices, aquaculture and pollution. Endangered marine species in the area include the Loggerhead and Green Turtle, the Harbour Porpoise, and the Mediterranean Monk Seal. There is the potential for the project to provide significant environmental improvements by introducing improved environmental management practices. 10.2.2 Water and Air Treatment Equipment and Facilities Requirements Water Due to the following circumstances, this present study assumes that no ballast water treatment facilities will be required for the Bourgas or Vlore offshore terminals. Since the mid-1970s, tankers greater than 50 MDWT have been constructed with segregated ballast systems. The Inter-Governmental Maritime Consultative Organization (IMCO) administers an agreement that has the goal of eliminating discharge of oily ballast water into open waters. Vessels registered in signatory nations are required to carry water treating equipment, have adequate segregated ballast capacity, and/or discharge oily ballast water into ballast water treatment systems. Typical crude oil tankers built after the mid-1970s have segregated ballast water capacity equal to about 20 percent of the deadweight tonnage. During FEED, the above scenario will be confirmed. The Oily Water System is designed to collect and treat all potentially oil contaminated water runoff from process areas and storage tank diked areas. In general, surface drainage from all areas where hydrocarbon spills could occur is directed to an oily water treatment system via surface grading, containment valving, and open channel flow. Oil will be removed from the water by either API type or CPI type separators. Actual separator type will require specific review of each site and application rate required. Treated surface water will be disposed of to the local watershed. The recovered oil will be handled differently in the various sites: Bourgas Recovered oil will be transferred to the primary crude oil storage tanks or to the suction of the pipeline pumps. Pump Stations 2, 3, and 4 Recovered oil will be transferred to the suction of the pipeline pumps for transfer through the pipeline.

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Pressure Reduction Station Recovered oil will be pumped into the pipeline. Vlore Recovered oil will be transferred to a Slop Oil Storage Tank for subsequent transfer offsite through the crude shipping facilities or for disposal at facilities yet to be identified. It should be noted that the systems briefly explained above are for the recovery of surface oils resulting from standard maintenance and operational activities. The systems are not designed to recover the quantities associated with pipeline rupture or major spill nor for tankage cleanout. It is expected that any oil recovery involved with these types of occurrences will require the use of vacuum trucks, dry chemicals, soils removal, and disposal, etc. No oil recovery facilities related with offshore spills have been included at the present time. Final definition of recovery facilities will be dependent on detailed review of the applicable environmental requirements and regulations at each of the sites involved during the next phase of the project. It is envisioned that potable water for both onshore terminal facilities will be obtained from local sources. Air Driver air emissions at Bourgas and Vlore Terminals will be within relevant local regulatory limits and will also be in accord with the U.S. Clean Air Act Amendments of 1990 which defines attainment areas and non-attainment areas. The emission requirements are stricter in non-attainment areas. In general, in the attainment areas exhaust emissions are required to meet the following values for engines of 500 horsepower and above: 2.0 gms/bhp/hr (NOx) 3.0 gms/bhp/hr (CO) 1.0 gms/bhp/hr (CxHy - Unburned hydrocarbons) In the non-attainment areas, the levels are the same except that they apply to engines of 150 horsepower and above. Since power is obtained from the local utility, air emissions at Bourgas Terminal are minimal with respect pump drivers and general electrical power at the Terminal. Air emissions are of more concern at Vlore Terminal, where power must be generated locally using the system crude oil as a fuel source. It has been mentioned earlier that the Caterpillar 3600 series of crude oil burning engines are typical of the type of equipment that would be used to power the Vlore pumps and generators. Such

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engines are developed extensively to minimize exhaust emissions. Features of the 3600 engines including high pressure unit injectors and low temperature after cooling (50 degrees C water to the after cooler) reduce exhaust emissions. Also, by using the excess air already present in the exhaust, the CO and CxHy can be significantly reduced by employing an oxidation catalyst to complete the combustion process of these two emissions. Another benefit of an oxidation catalyst in the exhaust is that both the odor and visible smoke are significantly reduced to make the engine more acceptable to the nearby community. Finally, in cases where the NOx reduction by combustion modification is not adequate for the local air quality agency, the NOx can be further reduced by selective catalytic reduction (SCR), employing the use of ammonia injection. The storage of crude oil and petroleum products, in floating roof tanks, may result in vapor migration outside the o-ring seals and ignition to form a fuel fire that in time (if undetected) destroys the seal and turns into a catastrophic fire. The fugitive vapor emissions can be caused by natural evaporation during the floating roof movement along the tank, or by damages to the seal. At the Bourgas and Vlore terminals, an optical open path (or equivalent) gas monitoring system will be located on the floating roof tanks to monitor the vapor migration from the tanks. If the above floating roof gas detection system measures vapors above acceptable levels, then immediate operating and maintenance measures will be taken to bring vapor emission into allowable levels. Maintenance measures include keeping the tank seals in good condition. Upgrade to double seals can be a viable option. The primary seal can be the liquid mounted, foam filled type and the secondary seal a multi-plate design with a resilient tip and a separate, fabric vapor barrier. In addition, proper consideration will be given to vapor emissions at times when the floating roof is in a landed position. If the landed position becomes prevalent and vapor emissions significant, then consideration will be given to installing a vapor collection system. The conventional method is to install a fixed roof on top of the tank to direct all vapors to a common collection point. 10.2.3 Spill Containment Equipment and Remediation Equipment Requirements Bourgas and Vlore onshore terminal foundations and ground surface grading will be implemented such that at regular maintenance areas, any potential small crude oil spills will be contained to as small an area as possible. Above ground crude oil storage tanks will be surrounded with berms to limit the spillage area. Operations and maintenance procedures will require personnel to immediately report any crude oil or other hazardous waste spill and to give specific information about the spill. This report will be immediately processed thereby causing appropriate cleanup/remediation efforts to be implemented and satisfactorily completed.

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Spill containment equipment will be appropriately located at each terminal location in order to allow a specified response time. This type equipment is discussed later in Section 10.4.3. Ballast release will not be allowed at the Bourgas or Vlore offshore terminals. Booms and skimmer equipment will be available to control unexpected spillage at sea. The Bourgas and Vlore terminal operations and maintenance management personnel will be knowledgeable of potential remediation options. There are a wide variety of petroleum waste treatment/remediation alternatives. They can be performed either on-site or off-site and are classified in accordance with the treating agent/medium as: 1) Mechanical, 2) Chemical, 3)Thermal, or 4) Biological. The terminal operating company will have subcontract relationships established with appropriate companies which specialize in these types of remediation efforts. The subcontractors will maintain the specialized remediation equipment/materials to react in a timely manner as defined in their contractual relationship with the terminal. 10.3 Bulgaria, Macedonia, And Albania Environmental Concerns And Mitigation Strategies

10.3.1 General The proposed route crosses significant areas of forest and through Conservation protected areas. The proposed route also passes near European Union CORINE sites (similar to international Sites of Special Scientific Interest). There are internationally important ecological sites on the coasts close to the proposed terminals. The wetlands are under threat from inappropriate farming practices, aquaculture and pollution. Endangered marine species in the area include the Loggerhead and Green Turtle, the Harbour Porpoise, and the Mediterranean Monk Seal. There is the potential for the project to provide significant environmental improvements by introducing improved environmental management practices. These internationally important ecological sites are expected to provide feeding and nesting grounds for endangered and threatened birds and mammals, and to provide significant stop-overs for migrating birds. Detailed safeguards would be provided for the protection of the individual sites and along the routes through forest areas. Additional forest clearing along the Right-of-Way will be avoided. There are a significant number of globally threatened and CITIES listed plants within Bulgaria, Macedonia, and Albania. Most species are expected to occur in the mountainous regions, along river corridors or in wetlands. It is not known how many internationally protected plant species exist along the proposed Right-of-Way, but a botanical survey will be undertaken prior to construction as part of the Environmental Assessment (EA).

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It is unlikely that the proposed route will significantly affect endangered terrestrial animals, provided best construction practices are followed. This will be confirmed prior to construction. Where the Right-of-Way follows a road alignment, it is not likely that there would be disturbance to archaeological sites or significant environmental impacts during the construction phase. Where the Right-of-Way is not alongside a road, archaeological sites would be located if possible as part of the EA and the pipeline route would be modified to avoid them. There would be on-site environmental supervision during the construction phase and any additional archaeological sites found would be investigated. 10.3.2 Water and Air Treatment Equipment and Facilities Requirements Water Ongoing water treatment will not be required along the pipeline route in Bulgaria due to the fact that no processes are in place that would produce wastewater from the main crude oil process stream. This is also the case in Macedonia and Albania except some crude oil will be extracted from the pipeline as a fuel source for the pipeline drivers at Pump Station 4 (Macedonia) and for the Pressure Reduction Station (Albania). Future detailed studies during the FEED stage of this project will determine the exact requirements for any fuel treatment systems at these sites. Proper treatment of any waste water (or other by-products) generated during the fuel treatment process, is well within current technology and will be implemented, if ultimately required. At all above ground facilities along the cross-country pipeline route (pump stations, pressure reduction station, block valves), site drainage for storm water will be designed as a surface drainage system directing all the water offsite away from the facility and pipeline corridor through the use of site grading, road ditches, swales and culverts. The objective of this approach is to negate or minimize potential contamination of any storm water. Surface drainage from potential hydrocarbon liquid release areas is to be provided such that drainage is away from equipment, buildings and facilities. A minimum grade of 0.25% is to be provided to ensure adequate runoff from the site. All ditches are to be sloped to provide a minimum velocity of 0.9 m/sec (3 ft/sec). Culverts are to be provided as required. The drainage design is to be based on the rainfall data established for the facility area. Air Air pollution is expected to be negligible along the cross-country pipeline route in Bulgaria. Pump station drivers are non-polluting electric motors and the state of

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maintenance along the pipeline route will ensure a secure and tightly sealed pipeline that will not release significant vapors. This will also largely be the case in Macedonia except at Pump Station 4 where crude oil will serve as the base fuel for engines that will drive the pumps and generate local electrical requirements. As described in prior Section 10.2.2, air emission control approaches/equipment will be included as an integral item of these engines such that required air emission requirements are satisfied. Similarly, in Albania, along the cross-country pipeline route, there are essentially no locations for generation of air pollutants except at the Pressure Reduction Station (PRS) where electricity will be generated locally by engines with pipeline crude oil as the base fuel. Again, air emission control approaches/equipment will be included as an integral item of these PRS engines such that required air emission control requirements are satisfied. In addition, during FEED, consideration will be given to solar power generation at the PRS, which if proven to be feasible, would significantly reduce air emissions. 10.3.3 Spill Containment Equipment and Remediation Equipment Requirements Foundations and ground surface grading will be implemented at above-ground facilities, along the cross-country pipeline, such that at regular maintenance areas, any potential small crude oil spills will be contained to as small an area as possible. Operations and maintenance procedures will require personnel to immediately report any crude oil or other hazardous waste spill and to give specific information about the spill. This report will be immediately processed thereby causing appropriate cleanup/remediation efforts to be implemented and satisfactorily completed. Mainline block valves will be located along the pipeline such that they can be closed to isolate pipeline segments and thereby limit spillage at any leakage location. Special consideration will be given to wetland areas or river crossings where spills could generate a larger area of contamination. Locations where the pipeline crosses active seismic faults will also be given special attention. A computerized leak detection system will continuously monitor the cross-country pipeline for leaks and allow quick action when any leak may be confirmed and located. The integrity of the pipeline system will also be monitored on a regular basis by the use of intelligent pigs which can access the condition of the pipe wall along the route. The cross-country pipeline and facilities will be visually inspected on a regular basis for any evidence of system leakage. Also, property owners along the pipeline route will be given proper information so that they can immediately contact pipeline operations personnel upon observing a leak. Spill containment equipment will be appropriately located along the pipeline route in order to allow a specified response time. This equipment is discussed later in Section 10.4.3. Pipeline company operations and maintenance personnel will be knowledgeable of potential remediation options. There are a wide variety of petroleum waste

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treatment/remediation alternatives. They can be performed either on-site or off-site and are classified in accordance with the treating agent/medium as: 1) Mechanical, 2) Chemical, 3)Thermal, or 4) Biological. The pipeline operating company will have subcontract relationships established with appropriate companies which specialize in these types of remediation efforts. The subcontractors will maintain the specialized remediation equipment/materials and be able to react geographically and in a timely manner as defined in their contractual relationship with the pipeline operating company. 10.4 Construction Spill Prevention and Control Plan The spill prevention and control methods listed in this section are based on spill control approaches commonly used in the pipeline construction industry. This section is comprehensive in that it addresses actions used to prevent spills during construction in addition to specifying actions that should be taken should any spills occur, including emergency notification procedures. The Projects on-site Environmental Inspectors are responsible for ensuring that Contractors implement and maintain spill control measures. 10.4.1 Preventative Measures Training Prior to construction, the Contractors should instruct construction personnel on the operation and maintenance of construction equipment to prevent the accidental discharge or spillage of fuel, oil, and lubricants. Personnel should also be made aware of the pollution control laws, rules, and regulations applicable to their work. During construction, spill prevention briefings with the construction crews should be scheduled and conducted by the Environmental Inspector (EI) at intervals frequent enough to assure adequate understanding of spill prevention measures. These briefings should highlight the following: Precautionary measures to prevent spills. Sources of spills, such as equipment failure or malfunction. Standard operating procedures in case of a spill. Equipment, materials, and supplies available for clean-up of a spill. List of known spill events.

Equipment Inspection/Maintenance The Contractors should inspect and maintain equipment that must be fueled and/or lubricated according to a strict schedule. The Contractors should submit to the Owner for approval written documentation of the methods used and work performed.

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All containers, valves, pipelines, and hoses should be examined daily to assess their general condition and a copy of the inspection record should be provided to the Owners EI on a weekly basis. The examination will identify any signs of deterioration that could cause a spill, signs of leaks, such as accumulated fluids, and corrective actions taken. All leaks should be promptly corrected and/or repaired. Refueling The Contractors should assure that all equipment is refueled and lubricated within the ROW. The Contractors will perform such activities at least 120 meters away from all municipal or community water supply wells (certain construction activities, such as directional drilling, horizontal boring and hydrostatic testing may require the refueling of various equipment at its needed location during operation mitigation measures will be implemented accordingly). The Contractors should also perform such activities at lease 30 meters away from all waterbodies and wetlands with the following exceptions: Areas such as rugged terrain or steep slopes where movement of equipment to refueling stations would cause excessive disturbance to the surface of the ROW. Areas where removing equipment from a wetland for servicing would increase adverse impacts to the wetland. Construction sites where moving equipment to refueling stations from prefabricated equipment pads is impracticable or where there is a natural barrier from the waterbody or wetland (i.e., road or railroad). Locations where the waterbody or wetland is located adjacent to a road crossing (from which the equipment can be serviced). Areas where flotation equipment will be used which will be refueled at designated docking locations. Refueling of immobile equipment including, but not limited to, bending and boring machines, air compressors, padding machines, and hydro-test fill pumps.

In the above areas, auxiliary fuel tanks will be used to reduce the frequency of refueling operations. In no case will refueling take place within 60 meters of any potable water wells. The contractor will also assure that all refueling be done pursuant to the following conditions: Impact minimization measures and equipment should be sufficient to prevent discharged fluids from leaving the ROW or reaching wetlands or waterbodies, and be readily available for use. These should include some combination of the following: a. Dikes, berms or retaining walls sufficiently impervious to contain spilled oil. b. Sorbent and barrier materials in quantities determined by the Contractor to be sufficient to capture the largest reasonably foreseeable spill (dependent upon

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c. d. e. f. g.

the amount and type of equipment working in any one area at a given moment). Curbing. Culverts, gutters, or other drainage systems. Weirs, booms, or other barriers. Spill diversion or retention ponds. Sumps and collection systems.

The Contractors should prepare for approval by the Owner a list of the type, quantity, and the storage of containment and clean up equipment to be used during construction. The list should include the procedures and impact minimization measures to be used in case of a spill. All spills will be cleaned up immediately. In no case will containment equipment be used for the storage of contaminated material. Contaminated material must be placed in Owner pre-approved containers for temporary storage; the containers must be labeled properly in accordance with the Owner pre-approved labeling system; and the containers must be transported to the temporary designated storage area until arrangements for transport are made at a facility approved by the Owner.

Storage The Contractors should store hazardous liquids/materials at least 120 meters away from all municipal or community water supply wells (certain construction activities, such as directional drilling, horizontal boring and hydrostatic testing may require the storage of various materials at its needed location during operation mitigation measures will be implemented accordingly). The Contractors should also store hazardous liquids/materials at least 30 meters away from all water bodies and wetlands (any deviations will be coordinated with the Owner and responsible regulatory authorities). Storage containment areas should not have drains, unless such drains lead to a containment area or vessel where the entire spill can be recovered. In no case will the storage of hazardous liquids/materials be within 60 meters of any known potable water wells. Personnel Support The Environmental Inspector (EI) will: Prepare a pre-job, written inventory of lubricants, fuels, and other materials which could be accidentally discharged during construction. This information should be supplied by the Contractors. Consult with Owner to determine reportable spill quantities for each material on the pre-job inventory.

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Consult with Owner to classify, in the event of an accidental release, each material on the pre-job inventory as hazardous or non-hazardous waste under applicable regulations. Identify and prepare, in conjunction with appropriate Owner personnel a written inventory of approved waste transporters and disposal sites for both hazardous and non-hazardous wastes near the construction site. Approve the Contractors list of equipment and spill procedures and impact minimization measures. Maintain, with support from the Owner, an up-to-date list of names, addresses, and phone numbers of all persons to be contacted in case of a spill. Assure that the Contractors conduct mandatory training and instruction for spill prevention and impact minimization.

Prior to construction, the Owner will identify and prepare a written inventory of municipal and potable water wells, critical waterbodies, and wetlands to be crossed during construction. The Construction ROW Agent will notify the authorities of all potable water supply intakes located within five kilometers downstream of any crossings a minimum of 1 week prior to construction. 10.4.2 Impact Minimization Measures Standard Operating Procedures Containment is the immediate priority in the case of a spill. A spill will be contained on Owners property or ROW if possible. Cleanup procedures should begin immediately after a spill is contained. In no case will containment equipment be used to store contaminated material. Containment material must be placed in Owner pre-approved containers for temporary storage. The containers must be labeled properly in accordance with the Owner pre-approved labeling system and the containers must be transported to a temporary designated storage area until arrangements for transport are made at a facility approved by the Owner. Equipment that will be used to facilitate cleanup and minimize damage to the environment is listed later in this section. If a spill enters a body of water (ditch or larger), the Contractors should immediately take samples upstream and downstream from point of entry and refrigerate samples. If so advised, additional analysis will be completed and/or additional samples will be gathered. If the EI determines that a spill is small enough such that the construction crew can safely handle it, the crew will use construction equipment to containerize all spilled material, contaminated soil, and sorbent material in a manner consistent with the spilled materials characterization.

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If the EI determines that a spill can not be adequately excavated and disposed of by the construction crew alone, the Contractors will contact waste containment specialists immediately. The Owners Inspector will ensure that all excavated wastes are transported to a disposal facility licensed to accept such wastes. The Contractor will prepare a Construction Site Spill Report form to be given to the EI that includes the following details of the incident: a. The date, time, and location of the occurrence. b. A description of the material spilled. c. The quantity spilled. d. The circumstances that caused the spill. e. A list of waterbodies affected or potentially affected by the spill. f. A statement verifying whether a sheen is present. g. The size of the affected area. h. An estimate of the depth that the material has reached in water or on soil. i. A determination of whether the spill will migrate off of Owners property or the ROW. j. A determination of whether the spill is under control. k. A statement verifying that cleanup has begun and a description of the methods being used to clean up the spill. l. The names of the first person to observe the spill and any subsequent witnesses (with their affiliations). The EI will ensure that the Contractors spill report is complete and will send it to the appropriate Owner personnel. The EI will assure that the Contractor notifies the appropriate agencies if it is determined tht a spill exceeds reportable quantity thresholds. 10.4.3 Suggested Equipment List Earlier in this Section 10.3, it was stated that the Contractor will prepare a list of the type, quantity, and location of storage or containment and clean up equipment to be used on the construction site. The list will include the procedures and impact minimization measures to be used in response to a spill. The Contractors choice of impact minimization measures and equipment will be tailored to meet the characteristics of the affected terrain as well as the types and amounts of material that could potentially be spilled. The types of equipment that Owner expects to be used to control spills at terrestrial sites and wetlands are described below: Terrestrial Construction Spill kits consisting of the appropriate materials, as specified by Owner, will be required in all heavy construction equipment associated with this Project. At a minimum, smaller vehicles used to transport Owner and Contractor personnel will be

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required to contain absorbent pads. General equipment that Owner will use for spill containment and cleanup on terrestrial areas includes: Sorbents including pillows, socks, and wipe sheets for containment and pick up of spilled liquids. Commercially available spill kits (or the functional equivalent thereof) that are self-contained and prepackaged with a large variety of sorbents for both small to large spills. Structures such as gutters, culverts, and dikes for immediate spill containment, where available and appropriate. Shovels, backhoes, etc., for excavating contaminated materials. Sumps and collection systems. Drums, barrels, and temporary storage bags to clean up and transport contaminated materials.

The potential for large spills exists wherever fuels and hydraulic fluids are stored. Contractor, at the direction of the Owner, will take precautions in areas where trucks carrying fuel are loaded and areas where oil barrels are loaded, and will implement special measures to prevent spills in these areas. Containment equipment will be kept close to tanks and barrels to minimize spill response time, and will include absorbent pads or mats. The quantity and capabilities of the mats will be sufficient to capture the largest foreseeable spill, given ROW characteristics and crankcase and other fuel vessel capacities. Prevention is the preferred alternative for controlling common, small spills that occur when crankcase oil is changed, hydraulic lines are repaired, and coolants are added to equipment. Absorbent pads and mats, available form a number of suppliers, will quickly be placed on the ground beneath equipment before refueling and maintenance. Sorbent materials will be carried to each piece of equipment by maintenance personnel. Equipment that will be stored on site for routine refueling and maintenance includes small sorbent kits (or their functional equivalent). Spills can result from unforeseen events such as the rupturing of fuel tanks, radiators, and hydraulic lines. Spill kits consisting of the appropriate materials, as specified by the Owner, will be required in all heavy construction equipment associated with this Project. At a minimum, smaller vehicles used to transport Owner and Contractor personnel will be required to contain absorbent pads. Wetlands Construction For each waterbody and wetland crossing, the equipment listed below will be available in addition to that needed for terrestrial construction. This equipment will be stored close to the water or wetland to minimize response time, and will include: Oil containment booms and the related equipment needed for rapid deployment.

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Equipment to remove oils from water, such as oleophilic and hydrophobic absorbent booms and mats, and/or mechanical skimmers.

10.5

Project Environmental Plan Environmental management through the life cycle of the project will provide benefits by minimizing environmental risks, decreasing scheduling delays and engineering redesign, and reducing averse third party comment and interference. To achieve these objectives, the environmental systems are contained in a Project Environmental Plan, and Environmental Risk Management Plan and On-Site Environmental Supervision during construction and commissioning. The aim of the Environmental Plan is to provide a consistent set of procedures to monitor and control environmental performance and systematically implement cost effective activities during the Design, Construct and Commission phases of the project. The Plan will also ensure that the project meets the compliance standards set by the European Union. The Environmental Risk Management Plan will contain all procedures for assessing and controlling the environmental risks and liabilities. The results of this work will be integrated with the engineering work during the design, construction, and commissioning phases. The proposed Environmental Plans will satisfy existing national and international legislation and regulations and funding agency guidelines. As the project develops, different aspects of the systems and plans will be implemented and at each stage there will be a tie-in between the Environmental Plans and the engineering of the project. The Environmental Plans should be reviewed at the commencement of each phase and revised as appropriate. The sections below describe the proposed work.

10.5.1 Environmental Risk Management Plan The Environmental Risk Management Plan provides the detailed procedures to assess the risks and liabilities to the environment and includes: Environmental Legislation, Regulations and Performance Standards Environmental Screening Environmental Impact Assessment Environmental Audits and Reviews Waste Management Contingency Planning

The environmental standards to be adopted for the project would be established following a review of environmental legislation and regulations for each country and also of pertinent international agreements. The standards adopted will be the same for the whole project, in Bulgaria, Macedonia, and Albania.

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Environmental Screening Environmental Screening will identify significant environmental issues and risks as the project develops through defined engineering phases. It will also be used to focus the Environmental Assessment (EA) work effort on the significant issues and sensitive locations. Environmental Assessment The EA will be performed to meet the defined requirements set out in the European Union Directive and would include appropriate issues in the Environmental Assessment Guidelines of the World Bank. The effects of permanent and temporary installations and use of existing facilities (eg. access roads, port facilities) would be included together with the consequences of indirect impacts such as those arising from the supply of power, for example. Temporary installations would include construction camps and storage depots. The EA will identify waste materials and chemicals used in the construction and commissioning of the pipeline and their means of disposal. For a more detailed discussion of the EA contents, please refer back to Section 10.1. Environmental Audits and Reviews A schedule of environmental audits/reviews will be developed during the initial phase of the project to monitor site activities and the effectiveness of the effectiveness of the Project Environmental Plan and associated procedures. Reviews and audits will be carried out during the execution of the project, including reviews of drawings, specifications and other documents to verify that environmental objectives and requirements have been satisfied. Audits of site operations at key stages and locations during the construction phase will also be conducted to ensure procedures are followed in the field. Particular emphasis will be placed on reviewing activities carried out in environmentally sensitive areas. Waste Management The Waste Management plan defines the waste and potential discharges to air, ground and aquatic environments. The wastes for all stages of the project would be characterized, quantified and disposal routes identified. The aim would be to reduce costs and liabilities associated with all kinds of waste from the project. Procedures would be developed to ensure compliance with statutory and good practice requirements relating to the production, handling, transport, storage, treatment and disposal of waste. Wastes to be generated during the course of the project will be identified during the initial phase of the project and procedures will be implemented to ensure the appropriate handling of these wastes. In addition, waste management records would be maintained including the types and volumes of wastes

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generated, duty of care transfer notes, special waste consignment notes, copies of the registration documents of all carriers used and copies of waste disposal site licenses. Contingency Planning The contingency plan would be developed by Environmental and Safety specialists to ensure that the procedures are developed and implemented so that there is an adequate and acceptable response to any uncontrolled leak from the pipeline or associated facilities. Different integrated plans would be developed for each installation including the offshore loading, terminals, and pipeline and intermediate pump stations. The contingency plans would contain procedures identifying the action to be taken in the event of an environmental pollution incident including whom to contact, location of oil spill response equipment and actions to be taken. Particular attention will be given to the protection of the aquatic environment both during operation and storage of plant. Wastes from such activities as pipeline commissioning will not be directed to any waterway unless toxicological reviews show the liquids to be harmless to biological organisms. 10.5.2 Project Environmental Plan The aim of the Project Environmental Plan is to ensure that not only legal requirements are met, but that all measures necessary to protect the environment are documented and undertaken. The Environmental Plan will effectively set the environmental standards for the project and will address the following components: Environmental Effects and Concerns Environmental Performance Monitoring Auditing of Environmental Plan Procedures Contractor and Supplier Control Quality Assurance

The Environmental Plan ensures that environmental concerns are addressed at all stages of the project activities. During the design phase, there would be close collaboration between the environmental and engineering design teams. The Environmental Screening procedures and the Environmental Assessment (EA), see Section 10.1, would be used to ensure the design meets the required environmental performance standards. This would reduce costs by decreasing redesign and contributing to optimizing the route. The Environmental Plan will provide the procedures for the monitoring and auditing of environmental performance during the construction phase. These procedures are

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linked with those in the Environmental Risk Management Plan which set out how the different environmental liabilities would be managed during the project. In the construction phase, there would be on-site supervision to ensure that environmental standards in the Plans are met and the potential liabilities are controlled and minimized. Following commissioning, the structure of the Environmental Plan would support some operations functions. Early operational tasks include an appropriate level of monitoring and auditing to ensure proper operational functioning: Environmental Effects and Concerns A Community Liaison Plan would be developed to provide pro-active consultation between the Project and the public. Procedures would meet the requirements of national governments and funding institutions. Environmental Performance Monitoring A small monitoring program would be undertaken to ensure that environmental objectives were being met. The program would be focused on important issues and concerns identified in the Environmental Risk Management Plan. Auditing of Environmental Plan Procedures To ensure that the specific project procedures are being followed, a small number of audits would be performed at key milestones covering the high risk locations and activities. Contractor and Supplier Control Procedures will be available for the assessment and monitoring of supplier and sub-contractor environmental performance. Environmental questionnaires will be sent to all sub-contractors and key suppliers requesting information on their environmental performance. All suppliers and sub-contractors will work to a common environmental policy and project environmental requirements. Any deficiencies in performance standards would be corrected before the sub-contract begins. Quality Assurance - All environmental work would be supervised and subject to quality assurance procedures. All work done by sub-contractors would be to the British Standard of BS5750, which is equivalent to the ISP 9000 standard.

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APPENDIX 1 CROSS-COUNTRY PIPELINE ROUTING MAPS

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APPENDIX 2 PIPELINE SYSTEM HYDRAULICS AND FACILITIES LOCATIONS

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APPENDIX 3 TYPICAL PIPELINE SPECIFICATIONS AND DRAWINGS

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APPENDIX 4 PUMP STATION SPECIFICATIONS

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APPENDIX 5 PIPELINE METALS PROTECTION

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APPENDIX 6 SEISMIC RISK MITIGATION STRATEGIES AND SPECIFICATIONS

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APPENDIX 7 PIPELINE CLEANING PROVISIONS

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APPENDIX 8 PROJECT METERING FACILITIES

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APPENDIX 9 CRUDE STORAGE TANK SPECIFICATION

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APPENDIX 10 STANDBY DIESEL GENERATOR SPECIFICATION

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APPENDIX 11 EMERGENCY AND FIRE PROTECTION EQUIPMENT REQUIREMENTS

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APPENDIX 12 BOURGAS AND VLORE PRELIMINARY MOORING SPECIFICATIONS

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APPENDIX 13 BOURGAS AND VLORE PRELIMINARY SUBSEA PIPELINE SPECIFICATIONS

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APPENDIX 14 UNCERTAINTY MANAGEMENT

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APPENDIX 15 MAJOR EQUIPMENT VENDORS AND SUPPLIERS

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