A gas crisis is looming over Bulgaria, the cabinet does not say whether there will be blue fuel

Will the "take or pay" clause cost BGN 3 billion to the Bulgarian taxpayer?

Energy / Analysis / Interview
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Marinela Arabadzhieva

Despite the silence of the authorities on the issue of gas supplies, it is becoming increasingly clear that Bulgaria does not have guaranteed quantities of blue fuel in the long term. This is a serious problem, as it creates a situation of uncertainty for businesses that cannot plan their activities and costs even a month ahead - no one knows how much gas is provided, for what period and at what price. Business organizations have repeatedly sounded the alarm about the alarming situation amid the price sprint on European gas exchanges in recent weeks, troubling news from Russia and unofficial information about the failure of attempts to increase supplies from Azerbaijan, which appears to be the cabinet's best hope to increase the quantities of gas for Bulgaria.

These days, Russia has expanded the list of hostile countries, adding Greece, Denmark, Slovenia, Slovakia and Croatia to it. This means that very soon the supplies of Russian gas to Bulgaria through the territory of Greece will be limited or even completely impossible.

The contract with "Gazprom"

"The contract with Gazprom is a serious legal case that needs to be investigated in depth - where does it come from, what is the correspondence, what are the statements of the parties exactly, what have they done. We know more or less what happened, but is it so?”. Experts commented on this for Dir.bg and 3eNews.

During the hearing by the temporary commission to verify the circumstances that led to the suspension of natural gas from OOO "Gazprom Export" and the procedure for selecting alternative suppliers from "Bulgargaz" EAD, it became clear from the words of the executive director of "Bulgargaz" Ludmil Yotsov, that the company did not make an independent decision to stop gas supplies from Russia.

"It is based on a decision of the Deputy Minister of Energy, which orders us to take certain actions based on an operational meeting of the Council of Ministers (CM), at which these decisions were made," Yotsov explained. According to him, a report from the Minister of Energy to the Council of Ministers was attached to the letter.

"We have not been officially given this decision. We simply have a letter telling us what to do," said Ludmil Yotsov. Now it is expected that the temporary commission will receive from the Council of Ministers the decision from the operational meeting, in order to clarify exactly how the decision was made to stop payments under the scheme demanded by "Gazprom", which accordingly led to the refusal to carry out gas deliveries.

During the hearing, however, it was not clarified whether and to what extent the report of the legal office "White & Case" regarding the payment in rubles for the gas supplies from "Gazprom" was analyzed. From Yotsov's words, it became clear that "Analysis of White & Case's opinion" under Swiss law was not done by Bulgargaz.

"Bulgargaz's behavior recommended by the lawyers was to wait, as there are uncertainties, to ask about this method of payment. Second, there was uncertainty as to whether, if Bulgargaz would accept this method of payment, it would not be subject to of sanctions. Their proposal was to wait to see if there will be a common position, how things will develop. Bulgargaz has complied with this," Yotsov said at the time.

Today, experts who follow the situation comment, "since it is not clear what the correspondence is, it is also not clear whether Bulgaria can seek the gas", which our country, in the person of "Bulgargaz", has contracted with "Gazprom".

"Gazprom" is currently claiming force majeure, commented an expert. However, Bulgargaz states that they are still in correspondence with Gazprom. This means that the contract has not been terminated. On the basis of force majeure, there are usually clauses that if it lasts longer, time either party can claim that the contract is invalid.

The question is whether in this case it is a case of force majeure or not, but a unilateral breach of contract. The case is definitely complex and that is why it should be examined in detail by a competent team of a law firm.

Will the "take or pay" clause cost BGN 3 billion to the Bulgarian taxpayer?

That "Gazprom" claims force majeure was also confirmed by the deputy and former deputy minister of energy Zhecho Stankov. He is adamant that due to the extraordinary situation surrounding the contract with Gazprom, our country will have to pay a huge amount under the "take or pay" clause. In addition, we will not be able to get the agreed amount of gas. As explained Stankov, according to the terms of the contract, our country can in principle claim for the undelivered quantities. During the last year of the contract (the current one expires at the end of the year - n.e.), the receiving party, which we are, has the right to claims only on 15% of the undelivered volumes.

As it turned out, the undelivered quantities under the contract with "Gazprom" until the end of the contract are 1 billion 500 million cubic meters. The rough calculation indicates that, given the "take or pay" clause, our country will have to pay 3 billion BGN.

More worryingly, there is no gas

This was commented by the former energy minister and current deputy from GERB Temenuzka Petkova. According to her, the situation is very serious and very alarming, given the uncertainty surrounding the filling of the reserve in the gas storage, as well as the future gas supplies.

In this sense, Delyan Dobrev, also a former energy minister and current GERB deputy, called on our country to benefit from the general purchases of gas, which the European Commission foresees in one of its latest mechanisms. He defined from the rostrum of the National Assembly the situation on the gas market in the region as non-transparent and with a fusion of private and state interests. He once again confirmed his position that Greek traders are in practice reselling Russian gas to Bulgaria, but at a higher price. Outlining the situation on the Bulgarian market, Dobrev warned that from August 1, 20% of gas consumption must be stopped, which will affect 5,000 companies. Based on the data from the gas ad hoc committee hearing, he concluded that from October 70% of the gas will be unavailable.

For "Bulgargaz" as an intermediary and for the suffering of the business

One of the theses on which the former ministers from GERB are stepping is about the mediators. The "Wintershall" company was specifically named from the rostrum of the parliament. In this regard, however, experts recommend speaking very carefully.

"The reason for mentioning "intermediaries" I cannot comment on. There is a difference between an intermediary and a trader. With the intermediary who is defined - such talk means total ignorance of the specifics of the market. These people live 20 years ago. We are already in a liberalized a market in which the state does not determine who will supply the gas, and the state does not negotiate with the other state for gas supplies. Two countries can agree on the terms they will reach, but the deals are made by traders," commented experts in the industry.

"This is a principle that is enshrined in the Third Energy Package, and henceforth the support of one trader, in relation to other traders, is state aid, which is in violation of European legislation. Therefore, it cannot be said that the middlemen are removed. How profitable companies you know that deliver to the end user? None. What does it mean that there is always an intermediary? Well, isn't Bulgargaz an intermediary? Then what are we talking about?", explained the expert.

In this regard, he gave the example of "Gazprom Export", which is also not a mining company, but a trading company. "He is an intermediary. This with the intermediaries should be clear that it is political talk, so that we can show how someone makes “shmenti chapels” in the market. What needs to be done is that the market rules can be created so that for the business to have the opportunity to achieve the best possible conditions, and now it doesn't have them".

"The problem with Bulgargaz, the state and EWRC is that there is no transparency of the order in which Bulgargaz secures the contracts it has entered into as a public supplier. Because this company must guarantee the public interest as a licensee of public supply. But whether it is so - there is no data. "Bulgargaz" has concluded contracts for which it is not obliged to say where it will supply natural gas, but it must give the business the opportunity to secure better supplies. Not as it is now - to asks the enterprises to conclude contracts first with Bulgargaz at prices that the gas company itself determines, and the energy regulator EWRC only approves. Only after they have concluded contracts are they told what the price is," commented a source from the gas sector, putting the problem at an even wider and painful base, especially from the point of view of business, which wrote a series of letters asking for clarity on future supplies and on the price of blue fuel.

"The state should focus on these elements of structuring the market - Bulgargaz, based on the positives it has under the contracts, should share them with the business and with the Bulgarian business, and they should remain for Bulgaria. However, no one is talking about this. Everyone makes statements about how they found gas, how they brought gas. To whom did they bring it? To "Bulgargaz", to the intermediary. Isn't this state aid in relation to the free market? And they make it out that they are doing good with it of the state. Well, they don't do the state any good. Because 4 months ago, Bulgargaz tells the business how much the gas will cost somewhere around the 10th, or towards the middle of the month, when a quarter of the fuel has already been consumed," commented the expert.

In this regard, it is worth recalling that in recent months, Bulgargaz's violation of the terms of the legal framework is unprecedented.

"It may be that if the consumer had known how much this gas would cost a month in advance, what the rules are for announcing the price, he would have found better conditions. Why should he buy necessarily from "Bulgargaz"? If there was a market, the deals would be concluded only between commercial persons and in the conditions of a liberalized market," adds the expert.

An inquiry by 3eNews showed that "Bulgargaz" is really being favored, without giving other participants the opportunity to realize the conditions for gas supplies. If this happens, they are labeled as middlemen, when in fact they are just traders.

Emergency situation

The situation regarding the state of emergency in the energy sector is also problematic. Recently, a number of countries, due to the conflict with Russia, announced emergency plans - it is important that in them, when moving from one level to another, it was clear what was next. In Bulgaria, this is not the same as in other countries. Otherwise, the political conclusion is clear - there is no gas.

"The authority for ensuring supplies in the Republic of Bulgaria is the Ministry of Energy. EWRC is the authority that ensures compliance with market regulations and the fair conditions under which the market functions. From now on, seeing what is happening, consider whether this is in their duties," commented experts.

They are adamant that our country has an emergency plan. "However, no one says exactly what he envisages and what he has done according to this plan to make the market function in such a way as to achieve relevant results - what rules he has changed, what obligations he has imposed on market participants, at what level of action he is at the moment, is there an order to exit at such a level. However, for the last six months, laws and regulations do not matter at all, and the most important thing is what the politicians will say. It does not matter which law is followed and which is not. Because it just gets in the way," categorical the experts, who wished that their names not be quoted, are also unanimous in their opinion.

Is there gas?

Fears of a shortage of natural gas, especially after August, are already in the public domain. Based on the hearings in the National Assembly, more and more MPs are expressing concern that a gas crisis is looming over the country. During a hearing by the temporary commission for gas, the executive director of "Bulgargaz" Lyudmil Yotsov stated that part of the quantities for August had been agreed, but he was categorical that after that, especially for the time of October and November, and even after, he could not guarantee nothing.

As can be seen from the data for the "Chiren" gas storage, quantities are currently being injected and it is filled to 43.05 percent. However, it is not clear in general what and for how long the quantities are provided. The price for August is even more unclear. If it is judged by the statement of KEVR chairman Stanislav Todorov, who was removed due to an unconstitutional procedure of the parliament, the gas company, with the support of the regulator, has decided to partially solve the problem through “Sofia District Heating" - the heating company will not be allocated volumes, due to an allegation of unpaid sums of more than BGN 300 million. EWRC, however, does not say anything about the issue of uncollected revenue for the same amount of heating due to the fact that expensive gas comes in at the entrance and a disproportionately low heat price at the exit. In this administrative-legal circle, household consumers, who according to European legislation are "protected consumers" are opposed to businesses.

Otherwise, experts and traders from the gas sector are categorical: "There is gas. There is no shortage of gas in the region".

They do not know why "Bulgargaz" cannot deliver fuel to its customers. As it turns out, the problem is once again in the rules.

"We are a country of law. The country of law has order, rules by which you know your rights and obligations. It turns out that nobody in Bulgaria at the moment can know neither the rules nor their obligations, because they do not follow the legal order. The rules in the gas sphere are generally not followed. Not only Bulgargaz is to blame," the analysts are categorical and explain the situation they have created from their point of view.

"As a country, we have done the necessary things so that we are not dependent on the supply of Russian gas. The last months also show this - we do not have a supply of Russian gas, but we are functioning. We were not affected when the supplies stopped, nor was there a shortage of quantities. However, the gas supply to Germany decreased, our price shot up and we started explaining how there was a shortage in the market, meaning that those who were telling us what to do had to think a little bit about what to do as well. Because it turns out that we are currently dependent as a community, but individually - not. We become dependent within the community. This is the direction in which we should think," commented an expert from the sector.

"The more contracts we have with different sources, the more security there will be in the market. If we rely only on Gazprom to fully provide us with gas supplies, we are at risk. But the risk also exists if we abandon the contract with Gazprom at all ". We have several resources - Azeri gas, Russian gas, LNG supplies through Greece and very small quantities that can come from the Central Europe through Romania to Bulgaria. So we have 4 sources. It is good to make a basket out of these 4 sources, so that if one drops out, there are other suppliers to rely on. This is the principle that works everywhere. The bigger problem is that we suffer because of the community shortage," concludes the expert.

Against this background, as GERB deputy Delyan Dobrev says, we are oscillating between two theses - dependence on Russia and independence from Russia. However, there seems to be something else that has been slipping up until now, and that is the widespread non-compliance in the country in recent months. As a result, yes, a gas crisis is looming over Bulgaria.

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