Bulgaria seeks to force out Russian energy companies

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Bulgaria has imposed punitive taxes on Russian-owned oil and gas operations, in an effort to make them less profitable and force them and their European buyers to look for other options, according to government officials.

Sofia on Friday introduced a Lv20 (€10) excise tax per megawatt-hour of transiting Russian gas, days after it hit the Russian-owned Lukoil refinery on its Black Sea shore with a 60 per cent tax on profits. The main goal of both measures was to squeeze the Russians out of the European market, officials said.

An EU and Nato member, Bulgaria has performed a drastic turnround since a pro-European government came into power in May. Up until very recently, the country was closely aligned with Moscow and had been reluctant to shake off its dependence on Russian hydrocarbons.

The new transit fee amounts to about a fifth of the current TTF benchmark gas price (€50p/MWh). Transit fees are normally low single-digit percentages of the actual gas cost.

“The calculation is that while we’re not consuming any more Russian gas, we’re still basically culprits [for other countries] in Europe continuing to consume Russian gas,” said a person familiar with Sofia’s decision. “The entire goal was to make that slightly less profitable and force Serbia and Hungary to look elsewhere.”

Bulgaria was cut off from Gazprom shipments soon after the start of Russia’s full-scale invasion of Ukraine, but it allowed the use of its gas pipeline network to supply Serbia and Hungary, two of Europe’s most pro-Russian governments, with critical gas supplies.

Hungarian foreign minister Péter Szijjártó blasted the gas transit tax increase as an “unacceptable . . . law with an unclear background”. In a video from an energy forum in Russia, where he was the only EU minister, he called it “another attempt to undermine Hungary’s energy security and energy co-operation between Hungary and Russia”.

The Bulgarian finance minister, Asen Vassilev, said the goal was not to make gas more expensive for consumers in Hungary and Serbia but to make it less profitable for Gazprom to ship gas via Bulgaria.

“The new tax is . . . fully in line with EU goals of reducing EU reliance on Russian fossil fuels. Because most Gazprom contracts are priced at the point of delivery in a given country, the tax will most likely have no impact on gas prices downstream,” he said. “It will only reduce Gazprom profits.”

He said his government had notified Brussels of the changes. An EU official said the European Commission was “looking into” the issue.

Vassilev said that the government’s squeeze on Russian companies had also prompted Lukoil to start the process of selling its largest oil refinery in south-eastern Europe, which is located near Burgas, a Bulgarian city on the Black Sea coast.

“There probably is an economic benefit to switching the ownership of the refinery,” he told the Financial Times. “We have indications of interest.”

The government is not involved in the sale of the refinery, which supplies international clients with more than half of its output — including crucial shipments of diesel to Ukraine at the start of Russia’s invasion.

But the minister said Sofia would keep a string of punitive measures in place until new owners came on board.

The recently imposed 60 per cent profit tax on the refinery’s profits would only be cut back to 15 per cent after the sale — and in the meantime there was a mandatory upgrade to prepare the refinery to effectively process lighter non-Russian crude, at a cost north of €500mn.

Vassilev, who is also co-leader of the party We Continue the Change, one of two major coalition forces, said that Sofia’s wake-up call came after Gazprom ceased to ship gas following the Russian invasion of Ukraine. First, a technocratic government, followed by the new government this spring, changed Sofia’s stance into a pro-western one and accelerated reforms, including of the energy sector, that had been deadlocked for years, he said.

“In the last three months we have put in place reforms that had been stuck for 10-15 years,” he said.

Bulgaria had suffered from disruptions to its gas supply in the past, notably in the winter of 2008-2009 when Russia turned off the taps over a dispute with Ukraine. The most recent gas shutdown also caught Sofia without much gas in stock, with its storage facilities filled to less than 20 per cent in spring 2022.

Since then, Vassilev said, Bulgaria had added reverse capabilities to a Communist-era pipe network designed to ship gas towards Greece and Turkey. It also linked up with Greece using a new connection and is building more cross-border capacities towards Serbia and Romania.

“We’re doing pretty good,” Vassilev said. “When Russia stopped the gas, within 24 hours we had a plan, avoided interruptions and price hikes, and bridged to longer-term solutions.”