Doublespeak: Russian energy policy and Bulgaria’s Botas contract – Part 3

Lessons and prospects

In the final part of this three-part article, we consider some of the ways in which the current grim situation could yield long-term improvement and some lessons to be learned. Finally, we examine prospects in the light of the Bulgarian parliament’s recent decision to appoint an Interim Commission to investigate the contract and protocols signed by the two Bulgarian gas companies with Botas – and we find some grounds for optimism.

In the previous parts of this article, we have subjected former energy minister Rossen Hristov – and his boss, Bulgaria’s president Rumen Radev – to some very serious criticism for negligence and malign intent over the contracts signed with Turkey’s Botas. And rightly so. But if we’re pointing the finger of blame, we should not confine ourselves to Sofia. Some culprits are in Brussels.

The EC must bear its fair share of responsibility for the mess. On the one hand, it investigates and punishes. But on the other hand, by approving state aid – loans and guarantees – without conditions, it makes a bad situation worse, securing profits for Gazexport and enabling its gas sales via Botas. With a budget-secured loan approved by the EC, Bulgargaz pays Botas, which in turn pays Gazprom for its Russian gas.

But if the EC were now to act more prudently and strategically, things might improve. In fact, its investigation is very likely to result in negotiations and new commitments by the Bulgarian government to liberalise the gas market and lift barriers to genuine competition. That would, in the short-to-medium term, be at the expense of Bulgargaz and, to a lesser extent, of Bulgartransgaz, as they are at present constituted, financed and incentivised. And that would be disruptive and, in fiscal terms, expensive.

However, in the longer term, reforms could work to the advantage of the sector as a whole and of its future contribution to the Bulgarian economy and the welfare of Bulgarian consumers. Thus, remedial action could include:

• Removing BTG from the Bulgarian Energy Holding (BEH) – the sector-wide mastodon that rather pointlessly incorporates a diversity of state-owned assets in the energy sector;
• Switching control of BTG from the MoE to a different ministry – perhaps the Ministry of Economy;
• Forcing the government to privatise significant shares of both BTG and Bulgargaz, in order to lower the political risk and elevate corporate management standards and competitiveness ; and
• Reviewing and even abolishing the “public supplier” niche in the organisation and regulation of the gas sector, and the obligations and rights it entails for Bulgargaz.

There’s also a point to be made here on how Bulgarian governments function:

1. The requirement for risk assessments to be included in submissions to the CoM is there for good reasons. Yet Minister Hristov got away with, in effect, ignoring it.
2. Two key ministries refused to endorse his submission, yet this seems not to have mattered (and, incidentally, it’s not much consolation that the Ministries of Tourism, Agriculture, Culture, Health, Youth & Sports, and Environment & Water agreed without comment!).
3. The CoM was asked to approve agreements whose text it – never mind parliament or the public – hadn’t seen. And, rather quickly and without much fuss, it did.

And, as a result, an extraordinarily bad agreement, carrying horrendous financial risks – and the near certainty that Bulgaria’s image and Euro-credibility would be damaged for no very obvious gain – was simply nodded through. Now, we can make a good guess at what happened and why: the course of events is hardly intelligible without the direct intervention of caretaker Prime Minister Donev and direct calls from President Rumen Radev. There ought to be political consequences – and perhaps not only political.

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But the broader point is that such things don’t happen in well-run states. In terms of its political system, Bulgaria needs to get its act together, and to make sure that norms are respected, if it is to be taken seriously.

The Interim Commission: a sign of hope

Anyway, watch this space. For, recently, Bulgaria’s National Assembly (parliament) voted to set up an Interim Commission to investigate the Botas-Bulgargaz-Bulgartransgaz arrangements.

Now, there’s a bad-news and a good-news side to this – and also a fair amount of uncertainty.

The bad news is twofold:

• • First, in the short term, the result will be to discredit Bulgaria still further in the eyes of its EU and NATO partners.

• • Second, whatever the Commission comes up with in the way of findings, conclusions, or recommendations, it will be unable to stop the financial hemorrhaging that is already underway. Why? Because all contracts were overseen and coordinated by President Radev himself. And because no act of the National Assembly can cancel a commercial contract without massive loss to the state budget.

And the good news?

Well, for a start, there will be no shortage of material for A&A articles in the new year, as the Commission discovers – as it undoubtedly will – whole cupboards full of skeletons in the murky attic of the Bulgarian political elite.

Apart from this, the fact that such a Commission has been set up at all is in itself a good sign – and seems to be part of a positive trend in Bulgarian policies.

It’s congruent with the decision a couple of months ago – also by parliament – to impose a 20% levy on Russian gas entering or transiting Bulgaria. Although both Parliament and the government had to step back as Hungary’s President Orban threatened to veto Bulgaria’s accession to the Schengen zone, the move was a solid proof of the will to change the course of the country’s energy dependence on Russia. And, incidentally, Bulgaria’s emerging propensity to do the right thing might have even more results if the EU and the US were more prone to offer the country proper support – making good on their Euro-rhetoric of solidarity – instead of mostly leaving Sofia, alone on the edge of Europe, to be pushed around by the likes of Mr Orban, Mr Putin and Mr Erdogan.

In a way, the decision to set up the Commission is even congruent with the recent efforts of Mr Borissov and his pals to look radical over the question of the Russian-owned oil refinery in Burgas (see A&A): however disingenuous and slippery these moves were, it’s a good sign that Bulgaria’s long-time boss felt constrained to make them. Similarly, such a Commission would have been unthinkable one or two years ago, given its potential to expose uncomfortable truths, inconvenience the powerful, and disrupt hitherto stable constellations of interests.

The final bit of good news is that the Commission might actually achieve something. “Might”, since what happens will depend on a very complicated political situation. To put it mildly, 2024 is going to be an interesting year.

And the D-day for Bulgaria’s energy sector is fast approaching.

Ilian Vassilev