The deal was signed by the development ministers of Bulgaria and Greece, Valentin Tserovski and Dimitris Sioufas, and Russian Industry and Energy Minister Viktor Khristenko.
Under the long-delayed deal, a 285km pipeline will link Bulgaria's port of Burgas to Greece's Alexandroupolis on the Aegean Sea, a link that its sponsors hope will provide a faster, safer and cheaper alternative to carrying shiploads of oil through the Bosphorus.
Bulgaria's Tserovski, however, indicated that original estimates to have the pipeline completed by 2007 were overly optimistic.
"I'm convinced that the project can be fulfilled in the next three or four years," he said.
Initial talks on building the pipeline began in 1993 but were delayed because of disagreements over its cost, ownership and feasibility.
The officials said the project would be financed by companies interested in running and exploiting the pipeline and not the three governments.
Russia exports about a third of
its oil through the Black Sea
BP PLC's Russian joint venture, TNK-BP, is heading the project and other partners are to include Greece's Hellenic Petroleum, US-based Cambridge Energy Research Associates, Russia's Lukoil and Rosneft, and Bulgaria's Technoexportstroy.
"These companies understood the concept that this pipeline could be their insurance policy against the limited piping capacity of the route via the straits," Tserovski said.
"The rising oil prices also played a role for speeding up the project."
He added that an international project company would soon be established to offer the options for structuring and financing the project.
Russia exports about a third of its oil production through the Black Sea and the pipeline will allow it to bypass the crowded and dangerous Bosphorus in Turkey, minimising delays and potential environmental disasters.
"Rising oil prices also played a role for speeding up the project"
Bulgarian Development Minister
According to excerpts from a study carried out by the three governments, more than 100 million metric tonnes of oil were shipped through the Bosphorus in 2004 and delays added about $7 to every metric tonne shipped through the strait - for a total cost to oil companies of about $700 million.
The excerpts, published in the Athens daily Kathimerini, said the oil was delayed by an average of eight days in 2004 while it waited to transit the Bosphorus.
"Russia has no intention to use budget financing on this project," Khristenko said. "We envisage only the use of private capital, including that of Russian oil companies, because investors should be able to independently answer the question about the project's efficiency."
Work in progress
The pipeline will have a capacity of 700,000 barrels per day.
The planned annual capacity will be 15 million metric tonnes once the first stage of construction is finished, 24 million tonnes after completion of the second stage and 35 million tonnes on final completion with an option to expand it to 50 million tonnes.
Rising oil prices played a role in
speeding up the Balkan project
It will be able to handle exports from oil-rich Azerbaijan via a Russian pipeline linking the Caspian and Black seas. It would also allow oil from Kazakhstan to be shipped to Burgas.
Khristenko cautioned that signing the deal was just the beginning and that much work remained.
"Guarantees are needed to secure sufficient oil supplies to be pumped through the pipeline," Khristenko said.