Payment inevitable: BOTAS demands its 4 billion levs from Bulgargaz

However, in the letter quoted by ICIS, which was allegedly also seen by energy consultant Ilian Vassilev, the Turkish company clearly states that the proposed contract amendments would "disrupt the basic dynamics of the agreement [and] would make its implementation impossible for BOTAS."

Curiously, shortly after the letter became public, the Ministry of Energy reported a meeting of Minister Malinov with his Turkish counterpart Alparslan Bayraktar, at which the Bulgarian minister "once again raised with his Turkish counterpart the issue of renegotiating the agreement between Bulgargaz EAD and Turkish energy company BOTAS." According to the announcement, the negotiations on this topic will continue, as representatives of the Turkish gas are to come to Bulgaria on 15 August. Officially, there has been no comment on the letter from the Energy Ministry and Bulgargaz.

The Turkish visit shows that negotiations are still ongoing and there is still room for concessions. However, it is possible that their demands are related to other projects or goals of the Turkish side that are unrelated to gas and the final decision is likely to be taken at the highest political level. According to 24 chasa newspaper, one such demand by the Turkish side has to do with Bulgaria releasing additional water from its reservoirs to feed the rivers flowing towards the Edrine region in order to help with the drought there.

What the Turks say

When it comes to the strictly gas part of the deal, ICIS said BOTAS has rejected Bulgargaz' claims that the renegotiation was necessary to respond to changes in the market, saying the Bulgarian company's arguments were not backed by evidence. "We would note that there have not been any radical changes in the market that the parties would not have reasonably anticipated when entering into the agreement," the letter, dated 17 July 2024, said.

The Turkish company states that it has "endeavored to be as responsive as possible to Bulgargaz' requests for additional financial and operational flexibility during the implementation of the agreement" and has "reached a common understanding on certain mechanisms that can improve Bulgargaz' ability to manage its supply and finances without disrupting BOTAS' overall revenue expectations."

It is also indicated that BOTAS has prepared a draft sale and purchase agreement which was sent to Bulgargaz as early as February 2023 in accordance with the terms agreed in the bilateral document, but has not yet received feedback. The company states that the deal needs to be finalized to "minimize uncertainties and further disputes." This is strange, as gas supplies were already made through Turkey under the agreement last year, and BOTAS itself uses reciprocal capacity on the Bulgarian gas network.

What the contract says

The agreement between BOTAS and Bulgargas was signed on 30 December 2022 and the official ceremony was on 3 January 2023. It took place with the active cooperation of President Rumen Radev, who visited Turkish President Recep Tayyip Erdogan on 9 December 2022. Officially, then the government of Galab Donev announced that it was providing an alternative route for the import of liquefied gas and thus guaranteeing the security of supply after the shutdown of gas supply by Gazprom. In reality, the effects are exactly the opposite - they may provide a new route for Russian gas to Bulgaria and the region, but most of all they may lead to the bankruptcy of Bulgargaz and huge financial losses for Bulgaria.

In short, the conclusions of the agreement are as follows:

• Bulgargaz does not get access to the Turkish transmission network, but only the right to unload tankers at a specific terminal and receive the same amount of natural gas at its border;
• For this "service," the state-owned company has committed to pay nearly 4 billion levs in fees to BOTAS for the period of the agreement - until the end of 2035 - regardless of whether it imports gas or not;
• The agreed gas import capacity is for 60% of Bulgaria's total annual consumption (1.85 bcm) and even if it is not used, it still has to be paid for;
• Unlike Bulgargaz, Turkey's BOTAS will get full access to the Bulgarian gas market and transmission network, and will even have the right to supply end customers, potentially displacing Bulgargaz entirely;
• The secured capacity for BOTAS is equal to that of Bulgargas - 1.85 bcm per year, or 60% of Bulgaria's domestic consumption;
• For this service, BOTAS will pay the Bulgarian side only 138 million euro (or 14 times less) for the entire period of the agreement;
• BOTAS has the right to provide its capacity on the Bulgarian market to third parties without coordinating with Bulgargaz or Bulgartransgaz. It may also ask Bulgargaz to deliver quantities to the Serbian, Romanian or other border without specifying the origin of the gas in question. It could also be Russian;
• Upon termination of the agreement, BOTAS is entitled to a penalty equal to the full amount of the fees due for the entire remaining term of the contract. Bulgargaz is not entitled to any penalties.

At the end of 2023, the European Commission launched an investigation into the deal for possible breaches of EU competition rules, and Matthew Briza, managing director of Ballard Partners in Istanbul, told Capital weekly that the contract between Bulgargaz and BOTAS disguises Russian gas imports and is part of Putin's plan.

The most visible effect of the agreement at the moment is that Bulgargaz is already generating multi-million losses - 52 million levs for 2023 and 100.8 million levs for the first quarter of 2024.