Doublespeak: Russian energy geopolitics and Bulgaria’s Botas contract – Part 1

The doublespeak in defining Bulgaria‘s national interests

The saga of Turkey’s use as an avenue for getting Russian gas into Bulgaria and onward to a wider Europe has been full of doublespeak and deceit. In this three-part series of articles, we first explore the recent history of the route – including the Turk Stream pipeline and the Turkish Gas Hub. Then we discuss what could be a major turning point, the creation of a parliamentary Commission that represents a new challenge to the crucial and controversial arrangement between Turkey’s Botas and Bulgarian gas firms Bulgargaz and Bulgartransgaz. And we end with some thoughts on the lessons to be learned and on what is in store for us in the pivotal year of 2024.

“Doublespeak”. It’s a term inspired – though not actually coined – by George Orwell, author of the dystopian novel 1984. It refers to speech that deliberately obscures, disguises, distorts or reverses the meaning of words. It can include the use of euphemisms: you engage in “downsizing” instead of sacking people, for instance, or you talk of “friendly fire” instead of saying that your artillery has killed your own troops by mistake. The aim is invariably to make the truth more palatable by not referring to it in plain terms. You don’t call a spade a spade. You refer to it as an “excavation implement”.

On the eve of 2024, almost three-quarters of a century after Orwell’s death, doublespeak is still going strong. Not least in Bulgaria.

Turk Stream: the “extension”

For one of the most striking examples of doublespeak in recent years concerned Turk Stream, the pipeline – commissioned in early 2020 after much scheming and maneuvering – that takes Russian gas across the Black Sea and through Turkey and thence, via Bulgaria, into Southeast Europe, bypassing Ukraine. In the early days, this was referred to by the vague and inoffensive project name “Gas Transmission Network Expansion”, and later as “Balkan Stream” (which is, properly speaking, the name of the Bulgarian stretch of the pipeline), just so it could sound as if it had nothing much to do with Turk Stream.

This worked – up to a point. As an “extension” or “expansion”, this project received approval from the European Union (EU) and, in 2015, entered the EU’s 2^nd list of Projects of Common Interest (PCI), retaining that status when the 3^rd list was issued in 2017. Until, that is, a penny dropped in Brussels and the European Commission (EC) figured out the true nature of the project and terminated its support, dropping it from the 4^th PCI projects’ list in 2019.  That left project execution to the Bulgarian government – in terms of both implementation and financing.

No problem, however, as Gazprom provided the backup and the project went ahead.  And, sure enough, today its proponents insist they have achieved their goals – and thereby advanced Bulgaria’s interests – because more gas now flows through Balkan Stream than through Ukraine!

Now, it has to be asked: when, precisely, did Bulgaria’s national interest come to consist in transporting Russian gas and turning the country into the sole entry point for Russian pipeline gas in the EU? It’s true that Bulgartransgaz (BTG) – the country’s transmission system operator (TSO) – receives revenues from providing this service. But they do not come free, nor does Gazexport pay market tariff fees. The project has left BTG laden with debt; and it also makes the company a paid accomplice to the Ukraine war crime. While the BTG gets $200 million a year in revenue, Russian state gas giant Gazprom receives annually more than $10 billion – which its real boss, Vladimir Putin, proceeds to spend on his war.

Since when has it been in the “Bulgarian national interest” to help Mr Putin kill Ukrainians?

And, by the way, isn’t inflation in the betrayal business terrible?

Time was when such services cost, not $200 million a year, but just a one-time payment of thirty pieces of silver.

The “ultimate guarantee”

Hold on, though. Let’s not be too hasty.

Remember that, to justify the Turk-Balkan Stream’s construction and financing, Bulgaria’s then prime minister Boyko Borissov and BTG chief Vladimir Malinov promoted the project as the ultimate guarantee that Gazprom would always comply with Bulgaria’s interests and supply it with cheap gas.

So that was alright.

Except that these guarantees proved to be worth precisely nothing: citing Sofia’s refusal to go along with its, well, eccentric demand for payment in roubles, Gazprom cut off Bulgaria’s gas supplies in April 2022, but gas continued to flow through Balkan Stream to Serbia and Hungary, with Lukoil’s subsidiaries taking over considerably reduced gas supplies to Bulgaria. And, though deliveries to some other European countries – e.g. Germany – were also cut off later, Bulgaria (along with Poland) was first.

So come on, try to find the “national interest” in these developments!

In whose interest?

In fact, the brutal truth is that, national interest or not, the interest that really counts in all this is that of Bulgartransgaz itself: for BTG is still dependent on these revenues from the transit of Russian gas. Any interruption of Russian gas flows – which could always occur for reasons beyond Bulgaria’s control – doesn’t just threaten heavy losses for BTG, but puts its very existence in doubt.

BTG’s dependence on Gazexport (Gazprom’s foreign trade arm) amounts to addiction. It’s the narcotic which explains why the Bulgarian TSO’s managers guard the interests of the Russian gas monopoly so jealously. Apart perhaps from a few personal fringe benefits, they and their company are simply caught in a tangle of one-sided dependencies which have nothing whatever to do with the Bulgarian national interest.

The Turkish Gas Hub

But there’s a still more recent example of “double speak”. That is the project, by now familiar to readers of Analyses & Alternatives (A&A), that builds on our dependence on Turk Stream to achieve a still higher level of reliance on Russian natural gas supplies by means of the so-called “Turkish Gas Hub” (TGH).

At the centre of this web of double-spoken arrangements is an agreement between Turkish national oil-and-gas company Botas – one of whose many roles is as Turkey’s TSO – and state-owned Bulgarian gas supplier and trader Bulgargaz, signed in January 2023 under one of several caretaker governments appointed during a long period of political stalemate by state president Rumen Radev.

In the doublespeak of this cabinet and its energy minister Rossen Hristov, this deal meant “an agreement to provide access to liquid natural gas regasification [regas] terminals and its subsequent transmission to the territory of the Republic of Bulgaria”.

Which is true in a sense. But it isn’t the whole truth or even most of the truth. Nor, certainly, is it nothing but the truth.

On the face of it, this sounds like a perfectly innocent – even worthy – undertaking in defence of the Bulgarian state trader’s right to diversify both sources and, above all, supply routes.

Greek vs Turkish LNG terminals

After all, the need to seek alternatives to Greek regas terminals as sources of liquefied natural gas (LNG) had become all too apparent after the November 2022 auctions to allocate slots for 2023 at the Revithoussa LNG terminal near Athens. Bulgargaz had had a rather unfortunate experience and secured only three slots, at high prices and in the off-season – in April and October.

Wanting to control LNG flows through Greece and maximise their own profits as middlemen, the Greek companies forced Bulgargaz to work through Greek traders to gain access to the terminals, further inflating the price of LNG-related charges and making LNG uncompetitive with piped gas from Russia and Azerbaijan. Although the prices of LNG, including US LNG, seemed competitive, when this Greek premium was added in, LNG became higher-priced than Russian pipeline gas.

The intermediary trading premiums charged in Greece, which add up to no less than 10% on top of the price paid by Bulgargaz for gas at the entry into the Bulgarian gas transmission network, are one of the main reasons why Bulgaria’s regulated natural gas price is higher than the European benchmark price on the Netherlands-based TTF exchange.

The triad that dominates Greece’s gas sector – TSO (and Revithoussa operator) DESFA and the country’s two biggest gas traders – had done this before and is still doing it today: both state-owned DEPA (the rough equivalent of Bulgargaz) and Greek private gas trader Mytilineos have direct contracts with Gazprom for Russian gas supplies via Turk Stream and contracts for LNG supplies, allowing them to replace LNG piped from the Revithoussa terminal with Russian gas piped via Bulgaria.

Under the terms of their supply contracts, the Greek companies receive the right to use Bulgaria’s transmission system and gas storage facilities directly, without anyone forcing them to use any Bulgarian company as an intermediary. But Bulgargaz enjoys no corresponding rights regarding Greece’s transmission system facilities. Which made it understandable that Bulgargaz should have turned to Turkey for alternative LNG supply routes.

Now, you might well ask, couldn’t Bulgargaz bring in LNG directly from Greece and pay for its transportation? And the answer is simple: certainly it could and, moreover, it could do much more than that. But there are several reasons why it doesn’t:

• First, to do so it would need equal access to Revithoussa LNG terminal and the gas transmission system.
• Second, it would also need to be proactive. That would mean being ready to buy and share the LNG from a single tanker, selling it in advance or preparing it for storage. Doing, in other words, what DEPA, Mytilineos and their compatriot Elpedison do now. But, in practice, Bulgargaz is entirely passive. That, admittedly, is not a preordained fact. However, it’s a matter of the pathological caution, corruption and lack of a competitive business culture that derive from decades at the receiving end of the Gazprom gas supply chain. So it can pretty much be taken as a given for now.
• Third, the obstacles faced by Bulgargaz do not consist only of Greek companies. Bulgarian “intermediaries” are also in the game. And they have been ever since the first LNG shipment came through Greece back in May 2019, with the help of Kolmar, a company close to the then government, led by Boyko Borissov and his GERB party. Which puts the state-owned Bulgargaz in a difficult position, since it cannot serve the “private” interests of these companies – if only because it is challenging to channel commissions without institutions and society finding out.

Meanwhile, however, oiling of the wheels proceeds unhindered when other countries’ traders mediate, with money going smoothly to offshore accounts. The relevant schemes have been in operation since the first LNG supplies reached Bulgaria and have hinged on guaranteed purchase by Bulgargaz of this gas at a price high enough to secure the financial interests of everyone in the chain. In most cases, incidentally, the cheapest and best option was Russian LNG delivered by Russian tankers to Revithoussa.

So it’s neither surprising nor reprehensible that Bulgargaz should have sought to loosen the monopolistic stranglehold of the Greeks on its access to LNG by making a deal with Turkey. The problem lies in the nature of that deal.

For the Bulgargaz- Bulgartransgaz tandem was in quite a strong position – one that it could have used to its own advantage, to that of Bulgaria, and for the good of the EU and of friendly states both within and outside the Union.

After all, Botas and its master, Turkish president Recep Tayyip Erdogan, have cherished ambitions that Bulgartransgaz and Bulgargaz can help or hinder. Ankara wants to develop its LNG capacities on a large scale. It’s in chronic rivalry with Athens, each being concerned to maximise its hub-intermediary position on the threshold of the EU gas market – Greece on the strength of LNG, Turkey by virtue of Russian and Azeri pipeline gas as well as LNG. And, for Mr Erdogan, commercial considerations shade into geopolitics and questions of Turkey’s place in the world. His beloved Turkish Gas Hub scheme is simply impossible without Bulgaria.

So Bulgartansgaz-Bulgargaz (and Bulgaria, as represented by President Radev) could have struck a much better deal. We’ll elaborate on this theme in Part 2 of this article. For now, two points will suffice:

• First, as we shall see, the transparent, “European”, Brussels-friendly way of going about things would have been an intersystem agreement between Bulgaria and Turkey. That would have benefitted EU-based traders other than Bulgargaz. It would also have helped the “Vertical Gas Corridor” countries to the north of Bulgaria, which need all the help they can get in the current geopolitical situation. And it would have prevented Bulgaria from getting into what seems likely to be very hot water with the EC.

Now, Bulgaria could easily have insisted on such an intersystem agreement as a precondition for a deal. Mr Erdogan, with a lot to gain and a lot to lose, wouldn’t have had much choice. But instead, Sofia opted for a hole-in-the wall arrangement that disrespects and undermines the EU gas market. Bulgaria had a strong hand to play, but handed all its cards to Turkey.

• Second, as we noted above, Energy Minister Rossen Hristov implied that the arrangements with Turkey were mostly about LNG. Well, in that case, those arrangements have been defined and put in place in a remarkably inept and wasteful way: Bulgargaz has booked – and in part, paid in advance for – capacity in the Turkish LNG and transmission system that may so far have been utilised for less than 25% of the paid term!

Why such a bad deal? Let’s keep the answer short, for it will have a familiar, “usual suspects” ring to regular A&A readers. We’ve already noted the extreme passivity of Bulgargaz. But we should also mention the influence of Vladimir Malinov, Bulgartransgaz boss and the Svengali of the country’s gas sector. And, of course, there’s President Rumen Radev.

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Two presidents and a joke

Let’s stop there for a moment, however. For we’ve set the stage without properly introducing one of the main players on it. Rumen Radev, as we mentioned above, is Bulgaria’s president. We also noted that he’s appointed several caretaker governments in recent years, which means he’s been playing a more pivotal role in the country’s politics than a president normally would – or than those framing the constitution with its mostly, but not entirely, non-executive presidency ever intended.

A career Air Force man who ended up heading his service branch, Mr Radev was backed in his 2016 presidential election bid not only by the (former Communist) Bulgarian Socialist Party (BSP), but also – and quite openly – by a former high level official of Russia’s Foreign Intelligence Service (SVR), one of the successor agencies to the Soviet-era KGB. This was Lt-Gen Leonid Reshetnikov, who was tasked with this special mission by President Putin himself. Taking office in early 2017, Mr Radev went on eventually to win a second (five-year) term that started in January 2022 and, according to the constitution, must be his last.

Which means that President Radev feels less constrained now, since there is no election to lose or to consider.

How is he intending to use this freedom? Well, he seems to be looking for inspiration to Georgi Parvanov (president 2002-2012), the last-but-one holder of the office before Mr Radev.

Also BSP-backed – he had led the party before his presidential bid – Mr Parvanov had worked hard to engineer a scheme that became known as the “Energy Grand Slam”. This would have involved the construction of:

• • A Russian-equipped nuclear power plant (NPP) at Belene on the Danube;

• • An oil pipeline from Burgas on Bulgaria’s Black Sea coast to the Greek port of Alexandroupolis on the Aegean, allowing Russian crude to access the Mediterranean without the tedious necessity of shipping it by tanker through the Bosphorus; and

• • South Stream, a 63 bcm/yr gas pipeline to take Russian gas under the Black Sea to landfall near the Bulgarian port of Varna, and thence overland to Italy.

In fact, none of this happened. All Mr Parvanov actually achieved was to hand Gazprom a rather substantial gift by renegotiating the gas price formula in the Russian company’s supply contract with Bulgaria and decoupling it from its previous link to oil prices – an adjustment and de-indexation which poured over a billion dollars into Gazprom’s coffers.

No matter. In fact, there’s a rather nice joke on this phenomenon. There are two mayors, one American and the other Bulgarian. They visit each other’s cities and each brags about the big house he has built for himself on the basis of rake-offs from a publicly financed bridge-building project over the river that runs through his city.

The American shows the Bulgarian both the house and the bridge in question. The Bulgarian shows off his house – but there’s no bridge to be seen.

It was the same with Mr Parvanov: his attempt at the Grand Slam propelled him into the orbit of super-rich former politicians. Mr Parvanov got his house – even though there was no bridge.

As to Mr Radev, he seems intent on his own version of the “Energy Grand Slam”. It remains to be seen whether he’ll have a bridge to show for it, but he certainly means to have his house. His determination is evidenced by the vigour with which he and his friends have been making an unholy mess of Bulgargaz (and, incidentally, the public finances) for the benefit of Gazprom.

The company is currently on its knees, stricken by its worst-ever liquidity crisis. It’s still afloat only because it is state-owned and state-backed, and has received more than BGN 1.2 billion in state aid – in the form of both guarantees and direct financial assistance.

And it’s the Botas deal – Mr Radev’s work, as we indicated above – that has been the most serious as well as the most recent blow.

To see that, you need only to look at the company’s books and audit reports, which attest that Bulgargaz, cash-strapped though it is, has made the first annual advance payment for capacity-booking due under the contract between the two companies – a sum of BGN 381 million. It did so in the first quarter of 2023, after the government, or “Council of Ministers” (CoM), approved the Botas–Bulgargaz agreement, despite the lack of LNG supply contracts. These funds came from the budget of the Ministry of Energy (MoE) during Rossen Hristov’s ten-month stint as minister under the caretaker premiership of presidentially-appointed Galab Donev, and were secured by a previous MoE loan to Bulgargaz of BGN 800 million. The purpose of the loan was two-fold: 40% of it went to cover the upfront payment to Botas, which Bulgargaz promptly made; while the rest was earmarked for securing long-term LNG, including Russian gas, supply contracts.

It’s a sure sign that someone is up to no good. A useful rule of thumb is: every time there are immense upfront payments, look for commissions. Bulgargaz itself has difficulty “oiling the wheels”, but Botas is subject to fewer constraints. So the state budget pays. It has to, or the consequences of the liquidity gap become ruinous. And the effects have not been confined to the months of Mr Hristov’s tenure. The state budget is again coming to the rescue, issuing Bulgargaz with a fresh BGN 240 million EC-approved guarantee to cover natural gas payments in the winter season. The crime has been committed, and the damage is done. No one is held responsible and the crime scene is ripe for further financial blows to Bulgaria’s state gas trader.

And why have President Radev, the self-professed champion of the anti-corruption fight, and his friends been so focused on the business opportunities to be had via Turkey? The answer is simple: he was a latecomer to the “wheel-oiling” process of importing LNG via Greece and largely missed out on the benefits of these deals – which were enjoyed mainly by Mr Borissov and his favourites. And it’s this, rather than any particular benevolence to his erstwhile backer Mr Putin, that explains Mr Radev’s belated interest in helping Russian gas enter and then transit Bulgaria via the Turkish Gas Hub project.

That concludes Part 1 of this article. In Part 2, we will take a closer look at the Bulgargaz-Botas contract, at its rather numerous shortcomings, and at the extraordinarily relaxed attitude of Minister Hristov to acknowledging them. And, in Part 3, we will ask where that leaves Bulgaria, what lessons are to be learned and what – for good or ill – lies ahead.

Link to Part Two

Ilian Vassilev