When on December 9, 2022, the President of Bulgaria, Rumen Radev, and the executive director of the Russian gas giant Gazprom miraculously bumped into each other outside the office of the Turkish President, Recep Tayyip Erdogan, many thought this could usher in the return of Russian gas to Bulgaria.
Suspicions grew after the surprise announcement of a 13-year agreement between Bulgarian national gas distributor Bulgargaz and Botas (the Turkish state system operator) for gas supplies through Turkey on January 3, 2023. This was not even a month after the "chance" encounter.
Officially, the presidential caretaker government of Galab Donev announced that it provides an alternative route for the import of liquefied gas and thus guarantees the security of supplies. But further details remained hidden.
In recent weeks, however, clauses in the agreement have leaked into the public domain. The international think-tank ICIS also released an analysis in which it said that Bulgaria's gas deal with Turkey should be investigated by the EU.
Kapital also managed to obtain a copy of the document and reaffirmed its authenticity. It was signed on December 30, 2022, not at the official ceremony on January 3, and its conclusions can be summarized as:
- Bulgargaz does not get access to the Turkish transmission network, as announced, but only the right to unload tankers at Turkish terminals and receive the fuel at the Strandja/Malkoclar gas transmission point.
- For the "service", the state company undertakes to pay BGN 3.8 billion just for fees to Botas for the period of the agreement, regardless of whether it imports gas or not. It is not clear how this price was determined.
- The contracted capacity for importing natural gas is actually for 60% of the entire annual consumption of Bulgaria and even if it is not used, it still has to be paid for (the "take or pay" clause is standard for gas contracts). It is about 1.85 billion cubic meters, not 1.5 billion, as announced by the official office.
- Unlike Bulgargaz, Turkey's Botas gets full access to the Bulgarian gas market and transmission network, and will even have the right to supply to end-customers, being able to completely replace Bulgargaz.
- The guaranteed capacity for Botas is equal to that of Bulgargaz - 1.85 billion cubic meters per year, or 60% of the domestic Bulgarian consumption.
- For this service, Botas will pay the Bulgarian side only EUR 138 million (BGN 270 million, or 14 times less) for the entire 13-year period of the agreement. Again, it is not clear how this price was determined.
- Botas has the right to provide its capacity on the Bulgarian market to third parties without coordinating this with Bulgarian distributors . It can also ask Bulgargaz to deliver its quantities to the Serbian, Romanian or other border, without specifying the origin of the gas. It can also be Russian.
- If the contract is terminated, Botas is entitled to an indemnity equal to the full amount of the due fees for the entire remaining term, or BGN 3.8 billion. Bulgargaz has no such clause.
Nevertheless, the contract, allowing Bulgaria to use Turkish LNG terminals for the import of liquefied gas is historic itself - the Turkish state is fully in charge of their domestic terminals. It is quite uncertain whether Sofia can take advantage of the opportunity and use it appropriately; Bulgaria has not reaped any benefits since the agreement was signed and only pays for the agreed fees.
In the meantime, Turkish state company Botas receives guaranteed access to the Bulgarian and European markets for modest fees, as there is no requirement to prove the origin of the gas and it can actually resell large Russian quantities.
So why did the Bulgarian side agree to such conditions in the agreement between Bulgargaz and Botas? No official answer has come from the former caretaker government. This can only come from President Rumen Radev whose role in signing this document was decisive.
If we go back to last year, however, the whole picture becomes clearer. With the appointment of the caretaker cabinet last August, the president and his ministers began to argue that Bulgaria could not survive the winter without Russian gas. Even against the background of the war in Ukraine, they tried to return Gazprom to the Bulgarian market, arguing that the state might lose an arbitrage and pay huge penalties.
Nothing of the sort happened, but all this shows that either President Radev incorrectly assumed that the country could not do without Russian supplies (like he thought, for example, that Russia would win the war in Ukraine in three days), or he simply wanted to arrange the return of Gazprom to the Bulgarian market. In both cases, he had a strong motive to negotiate with his Turkish counterpart Erdogan to open a gas route from the south to Bulgaria. Moreover, a similar opportunity in Greece, but on a market basis, was not utilized.
Certainly, Radev got it wrong and Bulgaria did not need Gazprom to survive the winter.
Unofficially, Kapital's sources say that the agreement is preliminary and negotiations are currently underway to draw up a final contract. However, the already completed delivery of gas according to the conditions therein can be interpreted as final acceptance of the conditions by the Bulgarian side and their entry into force, even without a final contract.
Also, with Decision No. 26 of 12.01.2023, the agreement in question was approved by the Council of Ministers of Bulgaria - the caretaker cabinet of Galab Donev.
At the end of June, current Minister of Energy Rumen Radev was interrogated in the National Assembly, where he said that the pricing under the agreement between Bulgargaz and the Turkish state energy company Botash does not damage the Bulgarian state. But he pointed out that the 13-year term is quite long, and the conditions for terminating the agreement are severe.
After that, MP Ivaylo Mirchev (DB) sent written questions to Radev about the agreement with Botash, but the answers did not contain any useful information, as the minister referred to trade secrets.
Meanwhile, the Minister of Energy Rosen Hristov, in office when the contract was signed, claimed the following: "Without an active contract with Gazprom, Bulgaria is left with buying expensive second hand Russian gas. Without the agreement with Botash, we cannot get the LNG tankers we need from the USA and Europe. In Greece, which is the only alternative to Turkey, Bulgargaz managed to book only 3 slots for this year".
What will now happen to the Botas contract?
So far, it does not appear that the state will try to terminate this agreement, especially since it clearly states that if Botas's contract rights are breached, or Bulgargaz fails to pay accordingly, massive penalties will ensue. According to the formula, if the contract is terminated now the fee due will be BGN 3.8 billion .
In order to justify the agreement, the national distributor Bulgargaz needs to expedite its commercial operations, so that tankers can be contracted and delivered to Turkey for the entire paid capacity - 1.85 billion cubic meters per year. Also, the company needs to place the gas in the market and find buyers.
A more intensive approach is urgent since Bulgargaz has effectively reserved and paid for 1 billion cubic meters of Azeri gas through the ICGB pipeline, as well as another 1 billion cubic meters at the new LNG terminal in Alexandroupolis. Thus, the total booked long-term capacity equals almost 3.9 billion cubic meters, with consumption in Bulgaria below 3 billion cubic meters per year.