Tuesday, June 25, 2024
HomeEuropean UnionRussian Oil Fuels New Political Crisis in Bulgaria

Russian Oil Fuels New Political Crisis in Bulgaria

Bulgarian political stability is threatened by a fuel market crisis as the ruling coalition wants to cut dependence on Russian oil, which would mean clashing with Russian private company Lukoil, which owns the Burgas refinery and has a monopoly on the wholesale market, several EURACTIV sources in parliament and government confirmed.

While it is clear that Bulgaria is moving towards ending Russia’s monopoly in the oil sector, it appears to be using its handling of Russian energy sources as an argument to be accepted into Schengen and the Eurozone.

“Nothing has been decided yet. It will be discussed,” a member of the ruling majority who asked to stay anonymous commented to EURACTIV.

EURACTIV’s sources say that Prime Minister Nikolay Denkov is opposed to playing hardball with Lukoil, which could even involve nationalising the Balkans’ largest refinery and is insisting that the refinery continues to operate with guaranteed supplies and that fuel prices do not rise significantly.

The government proposes that Bulgaria continue to work with Russian oil until the spring of 2024, while the parliamentary majority insists that this period be reduced to the end of 2023.

The second problem is that shadow players in Bulgarian politics and the oil sector may also try to seize control of the refinery behind the scenes.

The most insistent on derogation rapid termination are the biggest parliamentary GERB party of former prime minister Boyko Borissov and the Turkish minority party DPS, and on the sidelines of the parliament, there is also talk of serious interest from the side of the DPS MP Delyan Peevski, who is on Magnitsky Global Act sanctions list.

The most realistic option is for Bulgaria to convince Lukoil that selling the refinery to a foreign investor is the best solution. According to EURACTIV sources, the only realistic option is a US investor because all major European companies have interests in Russia and would not want to get involved.

The biggest problem

The future of the Lukoil refinery in Burgas is one of the biggest issues for Bulgaria’s current fragile pro-European coalition, which is too vulnerable to hybrid Russian influence and disinformation on social networks. Future missteps against Lukoil will lead to higher inflation, leading to a very high risk of the government being used as a scapegoat by the parties that now support it.

In a secret report submitted to the Security Council of the government that EURACTIV has seen, the counter-intelligence agency (SANS) predicts that if the derogation received by Bulgaria for importing Russian crude oil by sea is dropped, fuel prices will rise by at least €0.10-0.15 euros per litre.

In September, when the autumn session of the parliament begins, MPs will discuss the termination of the derogation, proposed by a serious parliamentary majority of GERB, the coalition We Continue the Change-Democratic Bulgaria and DPS.

Only Bulgaria has permission from Brussels to import Russian crude oil by sea, which will operate until the end of 2024.

Lukoil has not presented a plan to the government to diversify supplies in the remaining year and a half, so on 1 January 2025, the refinery will start working only with non-Russian oil. Meanwhile, the government terminated the 35-year concession of the country’s only oil port, Rosenets, which Lukoil took over.

Prices will go up

The SANS’s report has alarmed the authorities. Government and special services have discussed the potential effects if the derogation is prematurely terminated. The forecasts are that the result will be an increase in fuel prices by at least 20 to 25 cents/l.

EURACTIV learned that the report also mentioned a loan of nearly $800 million granted by Litasco to its subsidiary Lukoil Neftochim Burgas. Most of it has been repaid, but in the event of an end to the waiver, for example, the creditor could declare the remaining $300 million in default and bankrupt the refinery. Its eventual suspension will cause tremors on the fuel market in Bulgaria and North Macedonia, for example.

If, for one reason or another, the refinery shuts down, it will have to rely on local traders to import fuels, which takes time.

Data from June show that Bulgaria has fuel reserves for two months.

Russian or non-Russian, Neftochim must work

With or without a derogation, however, everyone is unanimous that the Burgas refinery should not stop working. The facility may also handle non-Russian oil from the Black Sea region, the Middle East and West Africa, according to the think tank Center for the Study of Democracy (CSD).

The chairman of the Bulgarian Oil and Gas Association Zhivodar Terziev told EURACTIV that Neftochim should remain a Bulgarian refinery and continue to produce petroleum products. He refused to give a forecast of how much the fuel would be more expensive if the derogation was cancelled, pointing out that it also depends on oil prices – which can rise or fall for geopolitical reasons.

In response to EURACTIV’s questions, the Bulgarian Economy and Industry Ministry did not give a concrete answer as to what the action plan is if there is an oil crisis.

Putin’s huge profit

Bulgaria’s curtsy to Lukoil’s business so far has brought huge revenues to the Russian company and the Putin regime without working for the interests of Bulgarian taxpayers, according to an analysis by the Centre for the Study of Democracy published on Friday..

According to the analysis of the largest Bulgarian think tank, in 2022 alone, Lukoil generated more than $3 billion in profit from the processing and sale of fuels in Bulgaria and in the region, which is equal to about 4% of the total revenue from the sale of oil in the Russian budget, the authors of the report calculated, pointing out that this money is used to finance Putin’s war in Ukraine.

The colossal profits are possible because, due to Western sanctions against the Kremlin, Russian oil is sold significantly cheaper than competing grades, and at the same time, the fuels produced from it in Bulgaria are sold at high European prices. The final prices of gasoline and diesel in Bulgaria are relatively low only because the country has the lowest excise taxes in the entire EU, according to the CSD analysis.

According to the organisation, the suspension of Russian oil will not have a significant impact on fuel prices. According to their analysis, the price increase will be about five to six cents per litre.

“The removal of the derogation and the state’s measures would lead to a serious displacement of the wholesale market in Bulgaria, allowing other companies to compete for Lukoil’s market share,” the analysis says.

Source: Euractiv

RELATED ARTICLES

TRANSLATE

Most Popular