Hungary PM, Reeling From Pipeline Set-back, Blames Brussels

Hungarian Prime Minister Viktor Orban accused Brussels on Friday of sabotaging the Russian-backed South Stream gas pipeline project, which was scrapped this week in a setback to his strategy of closer ties with the Kremlin.

Orban has tried to secure supplies of energy and trade for Hungary by doing deals with Moscow, but that drew criticism from Western governments which say he should not be cosying up to Russia when it has sent troops into Ukraine.

Moscow's decision to cancel South Stream - which would have shipped Russian gas under the Black Sea and then north through central Europe - is a loss of face for Orban, his critics say, though not bad enough to threaten his grip on power.

"The EU has worked ceaselessly to undermine this programme," Orban said in a radio interview.

Orban cast South Stream's fate as part of a David-and-Goliath-style struggle between his country, a former Soviet satellite that joined the European Union in 2004, and the outside world. This resonates in Hungary, still aggrieved after it lost two-thirds of its territory following World War One.

Orban said Hungary was looking at other options for securing gas supplies, including possibly from Azerbaijan.

Russia's announcement on Monday caught Orban's government off guard. Officials contacted by Reuters a few hours afterwards said they had heard about it only from the media.

Bernadett Szel, a member of parliament from the small opposition LMP party, said the cancellation showed Orban was wrong to bet on ties with Russian President Vladimir Putin.

"Viktor Orban has done everything, sidelining all principles and rational considerations and shared interests with our allies, to form a good relationship with Putin," Szel said. "But when his interests so dictated, Putin withdrew from this project in the blink of an eye."

Costly Alliance
The cancellation of the $40 billion project follows an uncomfortable few weeks for Orban, a 51-year-old who was re-elected to a second consecutive term in April by a landslide. A proposal from his government to tax Internet traffic brought thousands of protesters on to the streets. The idea was shelved but opinion polls showed support for his Fidesz party had dropped by 5 percentage points.

Adding to his problems, the United States has barred entry for six Hungarian public officials over alleged corruption.

Hungary backed South Stream because it wanted a source of gas that did not go through Ukraine, a route vulnerable to disruption.

Brussels, along with Washington, has expressed its opposition to pursuing the project while East-West relations are at a low over Russia's annexation of Crimea and its support for rebels in eastern Ukraine. The EU has imposed sanctions on Russian firms, including in the energy sector, although Moscow denies it has sent troops to support the separatists.

Though Bulgaria and Austria also backed South Stream, Hungary incurred more criticism. Western diplomats saw the commitment to the pipeline as one part of a wider drift by Orban into the Kremlin's orbit.

South Stream was also costing Hungary friends. At a dinner on the sidelines of an energy conference in Slovakia last month, an executive of Hungarian energy company MVM grew visibly agitated as other delegates spoke out against South Stream.

The Hungarian did not show up for the next day's panel discussion. He refused to participate because of the previous night's discussion, according to the head of the Slovak gas pipeline operator, who was on the same panel.

In Budapest, a source familiar with the government's thinking on energy acknowledged the cost of South Stream to Hungary's image.

The source said that with the project now off the agenda, Hungary could look ahead and work with the EU on other ways to give it secure energy supplies. "Of course, it is one less pockmark on our face," the source said of the cancellation.

By Gergely Szakacs, Additional reporting by Michael Kahn in PRAGUE and Marton Dunai in BUDAPEST