Prosecution launches an attack against a political party because of Gazprom deliveries

The prosecutors seem to ignore that Bulgargaz continued making transfers in dollars to Gazprom, as per the contract, which the Russians consistently declined. Even last fall Galab Donev's new caretaker government was ready to start paying in rubles and was keen to find a way to fulfill Gazprom's terms. But the Russian side never showed any interest. Moreover, at the end of last year, Mr. Putin himself reneged on his insistence on payment in rubles and agreed to accept foreign currency.

The prosecutors' indictment does not specifically criticize the alternative supplier that the Bulgarian gas supplier chose - which was actually the big question at the time. It only says that by refusing to pay in rubles, Deputy Minister Danail Nikolov benefited the private gas supplier MET. Yet the indictment does not claim that MET's offer was favored for injudicious reasons. No comparison between the gas exchange prices at that time is included in the indictment. This would have helped to assess the reasonableness of payments by Bulgargaz to the new suppliers.

The political tone of these events is also quite clear - a minister from Kiril Petkov's cabinet is attacked on signals fabricated by GERB. And the prosecutor's office may now prove to be acting in Gazprom's interest in any future arbitration dispute with Bulgargaz.

The political squabble

The absence of charges against the director of Bulgarian Energy Holding, Ivan Andreev, is baffling. In fact, he is directly responsible for the actions of the Bulgargaz subsidiary of the holding he is managing, and even the appointment of the head of the gas supplier - Lyudmil Yotsov, was at his formal behest. Ivan Andreev joined the board of BEH at the end of the last GERB government and was then close to the office of President Rumen Radev.

Mr Andreev's omission draws the spotlight on Borissov's party. The state prosecution appears guided by the statements of Delyan Dobrev - former minister of energy in the second cabinet of GERB who has been repeatedly accusing the Petkov cabinet of similar behavior. In addition to the government and Minister Alexander Nikolov, last November Dobrev also attacked Deputy Minister Danail Nikolov, claiming that he acted deliberately in MET's interest. Dobrev also filed a report with the prosecutor's office. And the party's claims were that the state interest was damaged by 30% - a calculation that is now also accepted by the prosecution.

An investigation became clear last year when at a public meeting, GERB pressed chief prosecutor Ivan Geshev about what action he'd taken regarding their tipoffs. Geshev replied that moves were afoot. No new detail has been added to the charges, to judge from information in the public domain. And why did the Prosecutor's office wait four months? This only fuels speculation that the timing is connected to the imminent election.

Maybe the timing of the events is not random at all, just like their investigation into crypto bank Nexo. Both probes, albeit indirectly, seek to discredit WCC and Democratic Bulgaria, which have links to the indicted in both cases.

The accusations against Nikolov and his team

Alexander Nikolov is accused of "deliberately not exercising sufficient control" over the work of the director of Bulgargaz Lyudmil Yotsov, while Mr. Yotsov is accused of not taking "sufficient care of the work he is assigned for" (by not paying Gazprom in rubles). According to the State Prosecution, Mr. Yotsov followed Deputy Minister Danail Nikolov's demand not to pay Gazprom in rubles, without first receiving an order to do so from the Council of Ministers.

The indictment says that, because of the order by Mr. Nikolov, Bulgargaz failed to take action to comply with Gazprom's request, and thus, "significant damage" was incurred. Bulgargaz is calculated to have lost BGN 88 million. Apparently, the sum is based on the amounts paid right after Gazprom shut the valves in April compared to what was stipulated in the contract with Gazprom.

The so-called damage

The case pressed by the prosecutor's office has several loopholes. First, the interim financial statements of Bulgargaz show that at the end of March 2022, when the contract with Gazprom was still enforced, the company was operating at a financial loss of BGN 2.8 million. But by the end of June, after new suppliers came into effect, the enterprise reported a profit of just over BGN 6 million.

The second important point is that the price at which Bulgargaz sells gas in the Bulgarian market is controlled by the energy regulator. When the gas supplies become more expensive, the inflation is translated into the regulated price, with the differential being paid by the consumers. Or, in other words, the more expensive gas is being paid by everybody else but Bulgargaz.

How the gas story enveloped

In March 2022, once the natural gas price started falling after the initial shock of the war, Russian President Vladimir Putin decreed that all gas supplies from Gazprom be paid in rubles, not as in the contracts - in euros or dollars.

Brussels initially took the view that payment in rubles would breach the financial sanctions introduced - although there are no specific fines to the European purchasers of Russian gas to this day.

In April, it was not clear exactly how Kiril Petkov's cabinet would respond to the challenge, but later on, it transpired that the government had prepared for disruption to Russian gas supplies by contacting private traders.

The new players

Only much later did it emerge that the cabinet struck deals with various gas traders for emergency gas supplies without public tenders and through contracts that are not transparent. One of these traders turned out to be MET, whose former director was the current head of Bulgargaz Ludmil Yotsov. The other suppliers were the Greek company Mytilineos and Romanian WIEE.

Last summer, GERB's Delyan Dobrev showed invoices in which it could be seen that Bulgargaz paid the new suppliers 102 euros/mWh for May while the average exchange price was 90.2 euros/mWh. At the same time, if the contract with Gazprom had continued to be implemented, the price in May would have been 80 euros/mWh. This is where the 30% price difference derives from - the core of the prosecution office's allegations.

It is hard to prove whether gas traders sold Bulgargaz the same Russian gas that the state-owned company did not buy directly from Gazprom at the lower price. On the one hand, the allegations were that MET had reserved capacity at the Revitusa LNG terminal in advance, having inside information (allegedly from Lyudmil Yotsov) so that it could sell to Bulgaria. If this is true, then the supplied liquefied gas cannot possibly be Russian. On the other hand, Gazprom sells its quantities in Greece to the company DEPA, which, in fact, became a supplier to Bulgargaz at a later stage.

The same new suppliers are still being contracted by Bulgargaz, providing gas to Bulgaria. However, the story right now is quite similar - Bulgaria's regulated price is still more expensive than the one in the European exchange. Perhaps the reason for this has little to do with MET or any other private gas trader.