Yuri Vyakhirev, head of Gazexport, the export arm of Russian gas monopoly Gazprom, told Reuters in an interview that financing solutions for the project with Italy's Saipem, a unit of ENI had been identified.

"We have elaborated a harmonious scheme for financing the project and have allocated the technical tasks, so we plan to start building the subsea part in autumn," Vyakhirev said.

The pipeline will start at the Russian compressor station of Izobilnoye, 100 km (60 miles) east of Krasnodar, and run 400 km (250 miles) under the Black Sea to the Turkish Port of Samsun and then further to Ankara.

A Turkish official said last week that Turkish state gas company Botas was studying the feasibility of onshore routes between Samsun and Ankara and construction would begin by theend of this year.

Vyakhirev, son of Gazprom Chief executive Rem Vyakhirev, said Gazprom and ENI would register a 50-50 joint venture called Trustco in the Netherlands or in "another country with a stable tax regime". Trustco would own and operate the subsea section.

Vyakhirev estimated the preliminary cost of the project, including construction of the pipeline overland and in waters around 2,000 metres deep, plus a compressor station in Russia, at $2.75-$2.90 billion.

"The distribution of roles in this most complex project, both technical and Financial, has been virtually completed," he said, adding that Saipem had recently informed Gazprom that a vessel had now been modernised to lay the underwater pipe.

Gazprom and ENI will invest $200 million each in Trustco, which will also get an $800-million loan from Italian banks Banca Commerciale Italiana and Mediocredito Centrale as well as German West LB.

Gazprom, which will be responsible for the surface part between Izobilnoye and the coast, plans toattract up to $400 million in loans guaranteed by Japan's Eximbank and ministry of international trade and industry.

Gazprom says big Japanese firms Mitsui, Itochu and Sumitomo may take part in the financing, as well as in supplying equipment and services for the land section of the pipeline in Russia.

ENI will act as creditor, sponsor and investor for the maritime part of "Blue Stream" and will transport up to eight bcm of gas through the pipeline, purchased from Gazprom, until it starts extracting gas in Russia itself.

Saipem won a contract to build the subsea section, while French Bouygues will be involved as a subcontractor to build the new compressor station, Vyakhirev said.

Russia and Turkey signed an inter-governmental agreement in 1997 under which Gazprom presold to Turkey 360 billion cubic metres of gas to be delivered between 2000 and 2005.