Lukoil is preparing for the post-derogation period, but also allows for a short-term supply shock

Weird. This is how the various decisions of the parliament were determined, including the reasons for terminating the derogation of "Lukoil Neftohim Burgas" for the import of Russian oil by sea by the chairman of the supervisory board of the refinery, Alexander Velichkov. As is known, it was initially decided that the termination would be almost from today to tomorrow, and subsequently it was decided to terminate in October 2024, i.e. three months before the final expiry of the exception granted to Bulgaria by the European Commission. He reminded that it is about withdrawing the derogation for the import of oil, but the issue of fuel import is not touched upon. MP from "We continue the change" Venko Sabrutev explained that this is the result of the conclusion that the withdrawal of the derogation suddenly, without a smooth transition, could lead to serious problems on the fuel market. He even recalled that fuel prices were much lower in the summer of 2022. The derogation can be managed, commented BPGA chairman Zivodar Terziev for his part, who reminded that the purpose of the derogation was never aimed at fuel prices . This became clear during a round table "Fuels and energy security - what has changed in the world, Europe and in Bulgaria and what is to come", organized by energy policy expert Slavcho Neikov and 3e-news.net.

The "Lukoil Neftohim Burgas" refinery has been on the Bulgarian market for 60 years. To this day, the industry provides more than 2,500 jobs to employees who produce products with a high added value, said the deputy chairman of the Supervisory Board of the Burgas refinery. "So, it's not a call center, it's not commercial operations, it's actually the work of quite highly educated, engineering staff in the refinery itself," he reminded, also referring to the long process of decarbonization that is about to happen in all sectors of the economy. Velikov reminded that there will be processing of fuels in the future as well, but with the participation of cleaner sources. In this sense, he also developed his thesis regarding the decision of the National Assembly for an earlier termination of the derogation for the import of Russian oil by sea, in order to switch to the processing of fuels from other sources of supply.

It is in this sense that Velichkov defined as strange the making of decisions that make the refinery the subject of a given policy, without the owners being invited and without anyone having taken an interest in how it works, and even more so what the necessary investments are so that it can activity on the territory of the country to be preserved and developed.

Velichkov gave an example of standing on an inclined plane. "We don't actually play on a level field, but on an inclined plane. If you want to stand on this inclined plane, you have to run again and invest so you don't fall down," he explained. According to his presentation, during the long period of the refinery's operation from the moment of its privatization from 2000 to 2022, a total of 3.4 billion dollars have been invested in the modernization and reconstruction of the installations. The Deputy Chairman of the Supervisory Board of "Lukoil Neftohim Burgas" also presented the meaning and periods of refining margins and the index measuring the activities that the refinery in Burgas can carry out, which increases to a value indicating the possibilities for more complex processing, and they are perhaps at one of the highest levels in Europe.

"I want to point out that the refinery we have, which is said to be Russian, is one of the most advanced facilities of heavy industry, which gives the highest degree of surplus value. Accordingly, in the age of decarbonisation, additional investments will still need to be made to reach the goals that have been stated. Or, when we want to move to a carbon-neutral environment, there will always be reprocessing, and a large part of the reprocessing that comes out is fuels like diesel and gasoline. In fact, the next stage of processing will require hydrogen, and green hydrogen at that. Therefore, more investments are required and we have committed them. Therefore, the Republic of Bulgaria has a refinery," said Velichkov.

"Let's talk about what we are talking about - an asset of the Republic of Bulgaria, located on the territory of the Republic of Bulgaria," he repeated. According to him, it is a Bulgarian employer, providing tax revenue, as well as employment for nearly five thousand people with a Swiss company as the owner. "Yes, down the chain after the grand-grand-level you get to a Russian company, about which many of you probably do not know that about half of the shareholders are foreigners, and most of them are Americans", Alexander Velichkov also said. He reminded that even the trade unions sided with their employer. "Notice how far we've come - the unions are not protesting against the employer," he pointed out.

The deputy chairman of "Lukoil Neftohim Burgas" was categorical that the company had paid all its taxes. He defined as "terrible gum" the statement that they are not paid. According to him, only the refinery is being looked at. "But the Lukoil group is much more than the refinery. "Lukoil Bulgaria", for example, has been paying taxes, including profit tax, which total billions, because we have been paying VAT and excise duty all these years. But I also want to draw attention to these nearly four billion (dollar) investments. To invest them and, when you invest them, when you go through depreciation, you have inherent costs," he said and reminded that it is also about investments in human capital, and additionally in social activities.

"The goal of today's conversation is about the security of supplies, and there is still something to talk about - is it so easy to replace this power by turning it off like that?" asked Velichkov, not forgetting to remind that even in the 6th package of sanctions has had a certain long transition, for a number of reasons.

"Why was the derogation introduced? For objective reasons, because it provides not only Bulgaria, but also the region. I give an example: if it stops today, there will be a total deficit in the region of one thing that cannot replace it - aviation fuel. Not only Bulgaria, but also neighboring countries have nowhere to get it," he explained. The Vice-Chairman of the Supervisory Board of the Refinery from this point of view raised the question of the political intervention that can form economic consequences. According to him, regardless of the shortened term of the derogation by three months, the management of the refinery in Burgas will do everything necessary to bring it into line with the requirement to work with other types of fuels that are not of Russian origin.

"Yes, in this period we will do the necessary, which is up to us. But this is short-term. The question is what happens in the long term - what will we get? With fuels from other places..." - he pointed out, raising the question of both the price and the time of their implementation.

"Currently, deliveries within the Black Sea are 36 hours. When they are not in the Black Sea, delivery is up to 600 hours. 600 hours for tankers,” he pointed out. At the same time, he specified that tankers with a cargo lift of 70,000 tons "cannot enter our port, it is not that deep, and a tanker over 140,000 tons cannot pass the Bosphorus. From now on, figure out how and how easily this will happen?” he asked. Alexander Velichkov also asked a question regarding the technology for switching to another type of fuel, pointing out that the solution is not so easy and outlined the risk of blocking the facilities. "But there will always be a short-term supply shock and there will always be a solution but it's not that simple," he explained.

"Gasoline is not born and does not live at the gas station gun. There are an awful lot of examples of oil incompatibility that literally block refineries," Velichkov said, adding that the refinery team will still be able to cope with the challenges. "What we want is, if possible, that politics does not interfere in the economy and that we work on objective economic processes. We have always fulfilled all obligations under the legislation," he added. According to him, only in the absence of political interference can we talk about the future, so that an industry with a high added value can be developed. "We have a vision for organic supplements. The green transition is inevitable and we will do it, it requires addition in transport and industry and we can do it. When the production is made in Bulgaria, it remains here as salaries and jobs, as taxes, but when it is imported, we lose competitiveness", stated Velichkov. He was also adamant that ending the derogation would help stop Russia's revenue, and vice versa.

In a comment on the subject of the derogation and Velichkov's words about "political chewing gum", the deputy from "We continue the change" Venko Sabrutev reminded that the exception to the European rules for the transfer of Russian oil by sea was won by the "Petkov" cabinet. He also stated that in the summer of 2022 fuel prices were actually much lower. Sabrutev also explained that withdrawing the derogation suddenly, without a smooth transition, was rejected due to concerns that it could lead to serious problems on the fuel market. The MP was adamant that "Lukoil" did not present a plan for the diversification of fuels and there was no "feedback".

"We communicate with the executive power, but in the parliament, they don't call us and they don't let us in," commented Velichkov during the discussion, being adamant that only when the trade unions went did, they agree to a meeting and on the part of the deputies.

"The strange thing is that the parliament decided to withdrawal of the derogation for the import of Russian oil by sea, but not for the import of fuels", concluded the chairman of the Supervisory Board of Lukoil Neftohim Burgas.

Regarding the claims in the previously published article of "Politico" that "Lukoil Neftohim Burgas" circumvents the sanctions and the quoted cargoes, it became clear from the explanations that there is an inaccuracy, including some of the numbers of the codes with which designated products authorized for export. It is about two tankers. "The quotas allow the export of low-octane gasoline, which has been done, but not to the EU," explained Velichkov, clarifying that it is about the offshore zone of Malta and outside the economic border of the EU. Regarding the second cargo from Rotterdam, it became clear that it refers to products for which there is no ban, but there is a match in the first part of the codes with the banned ones in terms of quotas.

The Bulgarian Oil and Gas Association commented that the derogation was never intended to make fuel "free of money" and it worked in the first months. The derogation can still be managed, said the chairman of the organization Zivodar Terziev.

During the discussion, the expert and former acting minister Daniela Bobeva drew attention to the fact that there is no way an enterprise can exist with such a long loss. Of course, she made the distinction that energy is another type of economy. It was subsequently explained that it was precisely the "basket of products" that protected the vertically integrated companies in this sector.