Comment by Emilia Milcheva:
How Bulgaria will react to the American sanctions against "Lukoil" is not only a matter of effective energy policy, but also of political survival. Washington hit the largest private company in Russia, "Lukoil" with sanctions, and thus presents Sofia with a problem that could shake the government. "Lukoil" owns the largest refinery in the Balkans - Burgas' "Neftochim", which controls the wholesale fuel market, as well as aviation fuel, as well as over 220 gas stations - over 7% of all in Bulgaria.
The goal of the sanctions - both American and European - is to limit Russia's ability to finance the war in Ukraine through revenues from its energy sector.
Who wants Serbian news
The rulers have less than four weeks until November 21, when the sanctions will come into effect, to find a solution - if they do not want the shocking headlines about fuel shortages in Serbia at the beginning of the heating season to become Bulgarian news. For example, Serbian radio 021.rs quotes an expert who warns: "If the problem is not solved, the authorities will have to choose between shortages and price increases!", and the Financial Times came out with the following headline: "Fuel crisis fears in Serbia as US sanctions main oil refiner."
On October 8, the six-time previously postponed sanctions imposed by the US on the Serbian oil company NIS (Naftna industrija Srbijе), owner of the refinery near Belgrade, came into force in Serbia. It is owned by the Russian state company "Gazprom", despite attempts to change ownership. The Croatian company JANAF, operator of the Adriatic oil pipeline - the only pipe through which crude oil enters Serbia, has stopped supplies to ΝΙS. And President Aleksandar Vučić has warned that after November 1, the refinery, which is the main supplier to Serbia, will stop working. Currently, it operates only on reserves, and fuel prices are rapidly rising.
What can Bulgaria count on? Unlike Serbia, it is an EU member, has access to European security of supply mechanisms, strategic reserves, and coordination with other member states to overcome potential fuel shortages.
Bulgarian reserves
According to the Law on Mandatory Reserves of Oil and Petroleum Products, Bulgaria is required to maintain reserves of crude oil and petroleum products equal to the average daily consumption for 90 days. This would provide a breath of fresh air, but two questions arise: who holds them and how much of these quantities are available, not on paper. A few days ago, the Minister of Energy Zhecho Stankov assured that there is fuel, and the cabinet has an action plan, the first phase of which is "verification and monitoring of the available quantities of fuel in the country, working together with the State Agency "State Reserve and Wartime Stocks".
The Minister of Energy does not address the topic of how many of these reserve quantities are in excise warehouses of "Lukoil" - which means that they cannot be used due to the sanctions. (Unless they are transferred to other bases.) It is known that the company has had a monopoly on tax warehouses for many years. In 2023, the Commission for the Protection of Competition (CPC) dared to fine "Lukoil-Bulgaria" 195 million leva and "Lukoil Neftochim Burgas", for not allowing other importers and producers of fuels to their warehouses and limiting imports by sea.
At the request of the MP from "Democratic Bulgaria" Martin Dimitrov, in September 2023, customs sent a response describing the ownership of the tax warehouses by type of fuel and their capacity. At that time, in addition to "Lukoil", significant quantities were also held by "Insa Oil", "Saksa", "Rompetrol", OMV, even the Serbian NIS through the company "NIS Petrol" EOOD registered here, etc. Given the critical situation, public clarification of how much of these petroleum products can be used is imperative.
How will fuel be paid for
The other problem is related to the real, not the reserves, which was questioned on the Bulgarian National Radio yesterday by the co-chairman of "Yes, Bulgaria" (part of "Democratic Bulgaria") Ivaylo Mirchev. Whether the declared fuels are where they are is also a test of the reliability of government control, since the state reserve is with the Council of Ministers.
The banks servicing "Lukoil" companies in Bulgaria - oil purchases and the fuel business - are also under pressure. As is its custom, the BNB reassured that "there is no direct credit risk affecting the stability of the banking system". But it also reminds us that OFAC (the US Office of Financial Assets Control) has provided for a transitional period to settle "current liabilities" of the economic entities affected by the sanctions.
Significantly more outspoken, GERB leader Boyko Borisov stated in parliament last week that he had spoken with the Bulgarian National Bank and the Minister of Finance to "very carefully monitor and be careful about how the sanctions will affect the banks that service transactions related to oil and oil products". Justice Minister Georg Georgiev also spoke about the problem with the banks on BNT, explaining that fuel payments will not be able to be serviced by banks under the threat of being subject to additional sanctions. In other words, Bulgaria is really threatened by the Serbian problem, where hundreds of gas stations cannot be paid with bank cards.
For former Energy Minister Alexander Nikolov, there is a way out, as long as it is explained to the US administration that "the funds will not leave Bulgaria and what will happen to the cash flows will be thoroughly checked". It will certainly be favorable to such an approach, Nikolov said on BNR.
Is a special manager possible
Analysts and politicians have raised the topic of introducing a special manager to take over operational control of the refinery in Burgas. Such a manager was provided for by amendments to the Law on Control of the Implementation of Restrictive Measures in View of Russia's Actions Destabilizing the Situation in Ukraine, adopted two years ago. He is appointed and controlled by the parliament upon a proposal from the Council of Ministers.
"From then on (after his appointment, b.a.) the state can conclude an agreement with the US to sell the refinery, but everything that happens to the refinery from now on depends on the US", Martin Vladimirov, director of the "Energy and Climate" program at the Center for the Study of Democracy, recently explained on Nova TV. However, this means that Bulgaria will voluntarily "suspend" the foreign investment screening mechanism, which requires coordination with the EC when selling such a strategic asset.
If agreed with Washington, the introduction of a special manager into the Burgas refinery will guarantee oil purchases and the continuation of its work. According to Martin Vladimirov, without a refinery, Bulgaria cannot satisfy its current fuel consumption.
The budget and several thousand employees at "Lukoil"
If the Burgas refinery stops working, the problems will grow like an avalanche. The countries that are supplied with fuel from "Neftohim" will also suffer, just as the Serbian crisis hit Bosnia and Herzegovina, since there is a chain of NIS gas stations there.
The interruption will cause technological risks in the production cycle, in addition to financial ones. Over 1,000 people from the company will be unemployed, and at least six times more are indirectly related to its activities - suppliers, transport, maintenance, services. Added to them are the families of those affected. For the Burgas region, this will be a serious blow, but also for the budget, which will lose hundreds of millions in revenue from customs duties, excise duties and other tax revenues.
The import of fuels could not compensate for the deficit if "Lukoil Neftochim" stops, and this means only one thing - an increase in the price of fuels, transport and goods, and speculation. The result will be high inflation and strong social tension at the entrance to the eurozone, which is a recipe for the fall of the government.
The sanctions against "Lukoil" have turned out to be a clockwork that is ticking over the fuel market in the Balkans, over the budget, over thousands of jobs, energy and financial security - and therefore the stability of the government. The cabinet of GERB-SDF, DPS-New Beginning, BSP and ITN is based on the oil card.