UPDATE 3-Russia says Turkey agrees to start S.Stream work

*Russia says Turkey agrees South Stream can use its waters

*Russian, Turkish PMs to sign gas protocol on Thursday

*Italy, oil group Eni also to attend

*Protocol will determine start date for construction (Adds Italian prime minister, Eni to attend)

By Gleb Bryanski

MOSCOW, Aug 5 (Reuters) - Turkey has agreed "in principle" to allow the South Stream gas pipeline to pass through its territorial waters, a senior Russian official said on Wednesday, ahead of a visit by Prime Minister Vladimir Putin to Turkey.

Putin's trip follows a signing ceremony in Ankara last month for transit agreements for the rival Nabucco gas pipeline, a European Union-backed project designed to counter Russia's strong influence on European energy supplies. [ID:nLD637622]

"An agreement has been reached in principle to start construction work," Yuri Ushakov, deputy head of government staff, told a news briefing. He said the Turkish government will also give permission to begin a feasibility study "within days."

A Turkish government source who declined to be identified confirmed to Reuters Turkey will agree to allow the South Stream gas pipeline to pass through its territorial waters.

South Stream will be built by a joint venture between Russia's Gazprom (GAZP.MM) and Italian oil group Eni (ENI.MI).

Italian Prime Minister Silvio Berlusconi will take part in the meetings on Thursday, the Rome government said in a statement.

Senior officials from Eni (ENI.MI), possibly Chief Executive Paolo Scaroni, are also expected to attend.

Ushakov said a protocol on cooperation in the gas industry, due to be signed by Putin and Turkish Prime Minister Tayyip Erdogan on Thursday in Ankara, would also set a date for the start of construction work.

Russia, which supplies a quarter of Europe's natural gas, wants to accelerate construction of gas supply routes to bypass Ukraine and other ex-Soviet states after disputes with Kiev over transit payments several times in recent years.

Some consumers in Europe are also seeking alternative routes, such as Nabucco, that would cut dependence on Russian gas by drawing on reserves in the Caspian Sea and Central Asia.

The agreement would mark a new victory for Russia in its fight to undermine the construction of the Nabucco pipeline. Had Turkey rejected the South Stream project, Russia would have been forced to go through Ukraine's territorial waters.

CONCESSIONS

Ushakov said the agreement does not mention any gas marketing rights for Turkey -- a thorny issue in Turkey's previous negotiations with Russia over gas transit to Europe, as well as in talks on the Nabucco project.

Ushakov said Putin and Erdogan have developed "a personal chemistry" that helps them deal with "the most difficult issues." Turkey is the third-largest consumer of Russian gas after Germany and Italy.

Ankara is also looking for Russian oil that would fill up a planned government-backed oil pipeline that is expected to travel from the Black Sea coastal town of Samsun to the Mediterranean oil hub of Ceyhan.

Ushakov said the two sides will "express readiness to start a realisation" of the project and agree to create a working group. He said Russia made some concessions on the oil pipeline issue in exchange for Turkish concessions on South Stream.

"We made a compromise of sorts," he said.

"They made concessions on South Stream. We made some concessions on the Samsun-Ceyhan pipeline. The concessions are that we need to carefully study this project.

"Maybe it doesn't make sense to start it at all, although the Turkish side is insisting on it," Ushakov said.

Eni is in a consortium to build the Samsun-Ceyhan pipeline with Turkish Calik Energy and project engineering should be completed in 2010.

Ushakov said the Russian-led consortium licensed to build Turkey's first nuclear power plant was ready to lower its proposed prices to sell electricity. Russia's Atomstroiexport and its partner Inter RAO (IRAO.MM) won the tender last year.

"A new compromise proposal from the Russian side is on the table, it will be discussed. I would refrain from giving away the numbers but it is really a compromise proposal. They (the numbers) are lower than those at the start of the process." (For a FACTBOX on major energy pipelines in central/south Europe [ID:nL4439355]) (For a FACTBOX ON South Stream gas pipeline [ID:nLF362831]) (For a PREVIEW of Putin's visit to Ankara [ID:nnL457866]) (Reporting by Gleb Bryanski; Additional reporting by Paul de Bendern in Ankara; Editing by James Jukwey, Gary Hill)