Alternatives & Analyses: Russia and Bulgaria defy EU and US sanctions on Turk Stream

The news from Ukraine about the reduced price of Naftogaz for natural gas at 3, 950 hryvnia/291 BGN per 1000 thousand cubic meters of gas, reconfirm the degree of state capture and subservience in Bulgaria towards Russia, that has no equivalent anywhere in the EU or the region. Ukraine, which does not import natural gas from its neighbor Russia has managed to reduce prices substantially.
Bulgaria’s trader is still reluctant to offer cheaper Russian gas to industrial consumers.

Bulgaria imports its gas from Gazexport, but Bulgargas’s price to clients is BGN 370 per thousand cubic meters, i.e., 22% higher. We could speculate on the cumulative effect on GDP, the trade balance and current account, for goods, services, and exports not produced for lack of competitiveness – but the sum ranges in the hundreds of millions of dollars.
The difference is too drastic to ignore, given that natural gas in Ukraine comes via reverse flows through Germany, the Czech Republic, Slovakia, and Poland, i.e., with much higher transmission costs.

Bulgaria’s politicians and companies usually gloat about direct imports from the Turk Stream, which removes the cost of transit in Romania. They never explained why the saved BGN 77 million a year does not translate into lower prices to households and industrial consumers. This gives rise to legitimate concerns – that Gazexport has actually increased its oil-indexed price for Bulgargaz.

Kudos for the government, the GERB Party, and Bulgargaz for the exclusive privilege to pay the highest gas prices in the EU.
The other news story is that the Russian company IDC has crossed the border from Serbia into Bulgaria with its ‘troops’, subcontracted to build the border-to-the national grid segment of the Russian-Turkish-Balkan Stream. The Kremlin has been able to impose its will thrashing Borisov’s pretense for an ‘independent’ Bulgarian gas pipeline. Putin first pressed with unrealistic deadlines to meet his geopolitical goals, disregarding internal and EU procedures and rules. It was clear from the start that the Saudi Arkad Group is a cover for the real players. Now the movers come out in the limelight. The bottom-line is – a Russian company is building a Russian project on Bulgarian – EU, and NATO – land aimed to serve exclusively Russian gas. This is the new Borisov definition of independence.

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The comparison between the legal, regulatory, and technical compliance work done in the Greece-Bulgaria interconnector and the rush in the Turk-Balkan stream could not be starker.
Kremlin’s ultimatum to Borisov: either you accept IDC to take over the link to Serbia, or we will bring you down.
One might ask – where are the EU and the US in the picture? Absent. Equally silent when Russia military cargo planes flew over Bulgaria strategic weapons en route to Serbia. Washington again threatened with sanctions. Nothing followed.
Moscow interpreted this silence as a green light for the next deliveries, including tanks, or possibly even the C-400.
The US Congress imposed sanctions against the Nord and Turk Stream and the onshore segments. Nothing followed on the part of the Executive Branch.

This unexpected turn of events exemplifies Russia’s omnipresence and control over Bulgaria and the Turk-Balkan Stream.
Energy Minister Temenuzhka Petkova announced today that Bulgaria needs to speed up the construction of the Russian gas pipeline as Bulgartransgaz has been losing $ 110 million per year in transit revenues since Gazexport shifted its delivery point from Isaccea (Romania) to Malkochlar (Turkey).
In the meantime, despite all the subservience on the part of the Bulgarian government, circles close to and Borisov himself insist that the Kremlin was behind the Barcelona gate. No one believes this – but the last thing the Bulgarian PM cares these days is truth.
Few questions remain unanswered  – where does Bulgaria’s national interest lie – in transit revenues or cheaper gas?

The fact is that one state energy monopoly – Bulgartransgaz (BTG), while giving up on its contractual right to collect $ 1 billion in compensation fees complains that it loses $110 million in transit revenues. On the other hand, another state energy monopoly – Bulgargaz continues to drag its feet on diversification of sources – which results in Bulgarians overpaying for the gas each year almost $ 200 million – twice more than the perceived loss in transit revenues. Penny-wise and pound-foolish.

The message from Moscow – until the Turk Stream in Bulgaria is completed, there will be no reduction in the price of gas. It might be the case that as Gazexport finds it impossible to continue with its blackmail and arms twisting, with Brussels watching, it might have opted instead to take over construction works in Bulgaria via the IDC defying any US and EU sanctions.

Finally, due to corruption at the highest level of government, Bulgaria has missed the chance to profit from market trends in the gas and oil market with substantial prices drops. Lower gas and fuel prices could have helped contain inflation, which has risen to 4,2% y/o/y in January, well over the Maastricht criteria.
The timing could not be worse – just when the country expects to enter the ERM-2.

Ilian Vassilev

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