The collapse in the price of crude oil is good news for importing countries like Bulgaria. It immediately translates into a positive balance of payments and trade, boosting reserves and generating cash needed to beef up the crisis response capacity of citizens and companies. It also shifts into the black the balance of costs and benefits in the crisis transition period.
Not in Bulgaria, at least not now, where it is pretty routine that bad scenarios become the new normal, as the captured by oligarchic interests and poor governance state fails to offer its citizens the best crisis response policies.A combination of blocked institutions, mediocre governance and grand corruption reduces the capacity of citizens and companies to choose the optimal trajectory of risk management. The situation in Bulgaria’s oil and gas sector provides an elucidating example.
The price of crude oil and its derivatives is falling all over the world. In Bulgaria, however, the captured state has produced a fuel market’s model, overseen by the Prime Minister in agreement with key oligarchs, which deprives Bulgarian fuel customers of between BGN 600 million and BGN 1 billion each year. 2020 makes no exception. This represents a lost crisis cash buffer, critically important for consumers to survive and compete in this most difficult of times. Looking at the example of US and German government anti-crisis measures worth tens of billions of dollars and euros, aimed to help the economy remain afloat and rebound, it becomes ever more frustrating that the Bulgarian companies and consumers are left on their own while being ripped off. Not only will companies and individuals be spared the support from the Bulgarian government, sustaining jobs and incomes, but even the boons emerging in the global oil and gas market are substantially contained as an effect.
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Few would trust the Bulgarian government’s capacity to conceive and implement a comprehensive anti-crisis strategy. More prey it doesn’t, as the current policy paradigm would translate into more public funds ending up with the oligarchy – this close entourage of privileged individuals.Bulgarians are again at the losing end, with recent developments in the oil market. Lukoil’s control of the local refinery, which continues to transfer profits to the mother company, not paying any profit tax for more than ten years, is not the sole issue at stake.
Kremlin’s grip on the decision-making process in Lukoil denies the Bourgas based refinery the chance to buy the cheapest crude on the market, making use of the generous discounts that the Saudis make. Saudi Aramco has decided to flood the global market with cheap oil, displacing Russian companies, offering a new 3,5 million barrels per day, with discounts ranging between $ 6/bbl in Asia, up to $ 8/bbl in Europe, where it exclusively targets the Urals market. That is if the National Revenue Agency accepted for accounting purposes, as a fair market value the price of Saudi Oil at $ 26 a barrel for Lukoil, the Russian company would have had no choice but to translate it into cheaper refined products and record profits.
The Urals Med instead is $ 34 a barrel. Other EU citizens and companies, whose governments are not captured by Moscow and oligarchs, will buy crude oil at 22 percent lower price!? With this pool of cash, remaining in their hands, Europeans are more likely to increase their competitiveness vs. the Bulgarians, better responding to the crisis and exporting their goods and services.If the Bulgarian government hadn’t been casting a blind eye on the abuse of monopoly and dominant position by Lukoil in the crude oil market, the trade and current account balance would have improved by 2 billion leva, just by importing Saudi oil. Another billion leva would have remained with the individual and industrial consumers in savings made down the value chain in the fuels market.
These savings could have helped anti-crisis and adaptive measures.The case in the natural gas market is identical. In essence, the widely acclaimed price of 13.5 euros per MWh at which Gazexport sells natural gas to Bulgargaz is, on average, four euros or 30% above hub gas prices in Europe. Several US and EU companies are trying to sell cheaper than Gazprom gas, but guess what their chance are in a captured market. Once again, badly needed resources, leave Bulgarian companies and citizens for Russia and local oligarchs’ deep pockets.To add to the burden of expensive crude oil, derivatives, and natural gas, the government is imposing new hidden taxes, as the toll system, which further drains value from the chain.
The black swan mix of a captured market, lesser resilience at times of recession, and the coronavirus epidemic spell gloom, further limiting Bulgaria’s chances to rebound from the last place in the EU using the crisis as a springboard for future growth and prosperity.
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