The European Union and Turkey agreed to finalize the Intergovernmental Agreement, or IGA, on Nabucco pipeline’s transit terms early next year, stated European Commission Energy Commissioner Andris Piebalgs late Thursday.

Speaking to Hürriyet Daily News and other media, following talks with President Abdullah Gül, Prime Minister Recep Tayyip ErdoÄŸan and Energy Minister Hilmi Güler in Ankara, the EU energy envoy said, “Today we more or less agreed that the intergovernmental agreement for Nabucco could be signed early next year.”

“Turkey accepted Piebalgs’s offer to host the conference for the IGA on transit terms,” said another EU source. “IGA is the political framework for the Nabucco project and this is the first building bloc in the project.”

However, Turkey and the EU could not resolve their differences concerning the price mechanism of the project, which will transfer Caspian and Middle Eastern gas to Europe through Turkey. “It is very clear that Turkey does not want to be just a transit country. This is where we need to find the best possible compromise for all parties,” Piebalgs said, adding the EU was trying to accommodate security of supply issues in Turkey.

“The technical formula that the energy ministry presented here is not compatible with the EU’s liberalized energy market,” sources said.

“However, this is not an issue of us against Turkey. We can solve this together.” The war between Russia and Georgia stirred up negotiations on technicalities, which had previously been moving in circles.

Turkey is keen on playing a trade-hub role for the pipeline by diverting part of the natural gas for domestic use and selling the rest to Europe and rejects the EU’s offer of only receiving a transit fee. “A transit fee is a cost-based tariff and there is no disagreement on this,” noted Piebalgs. “There is enough gas for everybody in the region,” he said.

Piebalgs said the next step on Nabucco was to work together on the consumer group, for which he said he had reached an in-principle agreement with the Turkish government. “The feasibility study for the Caspian Development Cooperation, or CDC, which will act as an interlocutor with producers will start early next year and be completed in a maximum of 12 months.

That means Turkey will be part of a joint endeavor with buyers and the EU. Turkey will not only be a transit country,” the EU source said. “I got the full support from the president, prime minister and energy minister to continue with the project,” Piebalgs said.

Despite optimism on the formulation of the legal and political framework, producers still need to be convinced to come onboard to complete the Nabucco pipeline. “We have to hear what Azerbaijan says on that,” said Piebalgs, before his visit there as the second stage of his regional trip. Piebalgs met Azerbaijani President Ilham Aliyev and other high-level officials to discuss supply.

Piebalgs said the EU would speed up its efforts on Nabucco and stressed the need for increased activities in support of exploration and development of Caspian resources in Azerbaijan.

Time is running against the EU on the pipeline, as Russian gas export monopoly Gazprom, eyes a deal to secure Azerbaijan’s gas supplies.

“I am concerned that Russia could make a proposal that is better than ours. I know Russian offers, they are generous,” Piebalgs said, but added the EU had one major advantage, “A deal is dependent on how producer countries assess the issue. Diversification is important for producers.”

A commitment of at least 15 billion cubic meters of natural gas annually is necessary before construction of the pipeline can begin. The pipeline is eventually expected to carry 31 billion cubic meters of gas each year. Azerbaijan’s current production is just enough to cover its own and Turkey’s consumption, although it will also develop its Shakh-Deniz 2 field, to come on-stream in 2013.

The inclusion of Turkmenistan and Iraqi gas is also sought to fill the Nabucco pipeline.

‘Liberalization could bring billions of euros’
Piebalgs accepted Turkey’s request for help during Thursday’s talks on diversifying its energy portfolio with renewable sources, especially wind power.

Another major issue raised by Piebalgs was the liberalization of the Turkish energy market. “The 2001 reform remained on paper only, a lot of it was not implemented. We have quite a number of energy operators who are ready to enter the market but they are reluctant to do so because market regulation is imperfect. If this is solved, the commissioner said Turkey will see billions and billions of euros invested,” sources said.