Bulgaria very rarely forges a strong geo-political stance of its own. There are very few cases in which, in order to pursue its goals, a Bulgarian government has openly interfered with the interests of other countries. And Russia has almost never been among the ones affected by state policies.
On October 13, a very interesting decision took place in Sofia. Without fuss or discussion, the Bulgarian state introduced an extraordinary energy tax on the transmission and transit of Russian natural gas through its territory. The tariff itself is BGN 20/MWh (10 euros per MWh) and according to the most liquid gas European exchange TFF it will cause a 20% price increase in the price of the gas being transmitted. The taxation is more than significant at the beginning of the heating season and considering the gas crisis in previous years, the decision might turn the market into a shambles.
However, due to the lack of official and unofficial information, it is not possible to conclude what exactly Bulgaria is aiming for with the introduction of this charge. Logic says that it just could be an additional source of income to boost the budget. If the current volumes of Russian gas transit through the country are maintained, the change would generate BGN 2.5 - 3 billion revenues in the Bulgarian budget per annum. And this is a hefty amount that can be used to solve the country's energy problems or even invest in facilities such as the broken down Chaira pumped storage plant.
The tariff could shake the region unpleasantly because Serbia, Hungary, Greece and North Macedonia will be directly affected by the 20 BGN/MWh excess tax - the Russian gas distributor will charge them at the end. The reactions, mostly from Serbia and Hungary, are already there. Therefore, it is not at all certain that the aforementioned billions will be able to be collected. This leads to the second possible goal - to further limit the consumption of Russian gas which does not seem to be an unrealistic objective.
However, this policy will have an indirect effect throughout Eastern Europe, as the redirection of traders to alternatives to Russian gas will disrupt the market, and hence the prices. According to unofficial information from Capital weekly, talks on the subject have already been held with representatives of Austria, which still consumes 50% of Russian gas (although it receives it through Slovakia). Therefore, there are also claims that Sofia may actually use the new fee as leverage to get it into Schengen as Austria is one of the two countries that vetoes Bulgaria's bid.
Without a doubt, the new Bulgarian tax will also affect Turkey, which is the main redistributor of Russian gas to Europe. The Turkish state company Botas, for example, has already concluded several deals for the transfer of gas through Bulgaria to other countries, and if it turns out to be of Russian origin, it will have to pay an additional BGN 20/MWh if its origin could be verified for certain.
Some end users in Bulgaria who are still supplied with Russian gas, such as the refinery Lukoil Neftochim, for example, will also be affected. The refinery is one of the largest consumers of gas in Bulgaria, but it is not supplied through the state supplier Bulgargaz, but from energy kingpin Valentin Zlatev's company - Sustainable Energy Supply (previously called Energiko Trading), which is an intermediary of Gazprom.
"The new tax is levied not only on transit, but also on consumption of Russian natural gas in Bulgaria. It is fully in line with EU goals of reducing EU reliance on Russian fossil fuels. Because most Gazprom contracts are priced at the point of delivery in a given country, the tax will most likely have no impact on gas prices downstream. It will only reduce Gazprom profits", said minister of finance Assen Vassilev.
In any case, it can be easily stated that this is the most significant anti-Russian economic measure introduced by Bulgaria, and it could have serious economic and political consequences. But is Sofia ready for the fallout?
How did we get here?
The legislative changes introducing the fee of BGN 20/MWh on the transmission and transit of Russian gas were made by parliament as early as September 28, when the Law on Amendments and Supplements to the Law on Control of Implementation of Restrictive Measures were voted through, citing Russia's actions destabilizing the situation in Ukraine - a fancy name for a group of measures against Russian energy interests in Bulgaria. Despite the extreme importance of the fee, there were no public comments from politicians. On the contrary, Capital weekly held conversations with some MPs which left the feeling that there is no clarity as to what exactly was adopted and why.
Nothing was understood from the transcripts and protocols of the meetings of the economic committee in parliament, which looked at the amendments in question, as well as from the voting itself in the plenary hall, where additional corrections were made.
It is clear that the tariff of BGN 20/MWh was proposed twice - once by the Council of Ministers and separately by MPs Boyko Borissov (GERB), Magnitsky sanctioned Delyan Peevski (DPS) and Radoslav Ribarski (WCC-DB). The proposals were completely identical. According to information from Capital weekly, the tariff was introduced at the insistence of the Ministry of Finance and Minister Assen Vassilev, but it was approved by, in general, everyone in the ruling majority - GERB, WCC-DB and MRF.
For this reason, neither experts nor journalists were able to analyze what exactly was happening, and everyone was waiting for the changes to be published in the State Gazette.
According to them, the people obliged to charge the fee in question are the importers within the meaning of the customs legislation, as well as the operators of gas transmission and gas distribution networks (in this case it is the Bulgarian gas distributor Bulgartransgaz). The only Russian gas for which the tariff will not be paid is compressed gas, which is transported individually across the country in vessels (tankers) - not being a big percentage anyway.
"This decision meets the strategic goal of Bulgaria and Europe to free itself from dependence on Russian gas. The European Commission has been notified of the changes that were introduced and voted by the people's representatives in the Parliament. The economic dimension for Bulgaria is that more than BGN 2.5 billion will go into our budget," the MP and deputy chairman of the energy commission from WCC-DB Radoslav Ribarski told Capital weekly.
In reality, Bulgaria can even receive more than BGN 2.5 billion, depending on how much Russian gas passes through the country.
"Although at first sight the legislative change appears to be a fair way both to generate additional revenue in the budget and to pay off Turkish Stream more quickly, the decision seems rather controversial because it is actually the imposition of an additional duty that is not approved by the EU as a whole, and we as a member state have no right to impose such additional import fees. On the other hand, additional taxation of transit violates the commercial transmission agreement with Gazprom and MET, which has been contracted for a long time at a certain price." says Martin Vladimirov, director of the Energy and Climate Program at the Center for the Study of Democracy.
According to him, the government probably hopes that since it is an action against Gazprom and Russia, the European Commission will not protest, and Gazprom will not dare to stop the transit as a countermeasure, so as not to threaten the agreements with Serbia and Hungary for the supply of gas.
"Nevertheless, Gazprom can seek its rights in international arbitration, which I rather think will win especially in this case. The suspicion remains that in this case there may also be a preliminary agreement between Gazprom, Bulgartransgaz and Botas that part of the quantities on Turk Stream will pass through the new agreement on the use of Malkoclar's entry gas point. However, the sharp reaction of Serbia and Hungary seems strange," says Vladimirov.
According to gas market players, the measure could remove Bulgaria from the gas map as a transit country. In addition, this fee could actually benefit the LNG projects in Greece and the bypass routes to Central Europe through Macedonia and Albania. In the short term, the liquidity of the Balkan Gas Hub will probably also fall.
The expensive Turk stream
In order to understand how significant the new fee is, a comparison can be made with what Bulgaria now charges for transmission through TurkStream pipeline, for which nearly BGN 3 billion were paid during the administration of Boyko Borissov years ago.
According to a formal market test of TurkStream tariffs conducted at the beginning of 2019, during the first two years of the pipeline's operation (2020 and 2021), Gazprom had to pay BGN 156 million per year, and in the remaining 18 years - BGN 361 million each. But let's say that in the future, about BGN 400 million will be collected per year, after indexation with inflation.
These amounts are due regardless of exactly how much gas is transited as the whole capacity is booked by the Russians. But in order not to draw wrong conclusions, it should be taken into account that just the operating costs of the gas pipeline and its maintenance amount to about BGN 150 million per year. This makes the net income about BGN 250 million.
However, the tariff of BGN 20/MWh introduced is simply quantities of Russian gas transiting through the country. In recent weeks at the entry point of TurkStream -Stranja/Malkoclar, there have been about 450 thousand MWh per day (about 43 million cubic meters). Calculated by the new tax BGN 20/MWh, this equals about BGN 9 million per day revenue. Or more than BGN 3.2 billion per year. However, the volumes vary greatly in different months, and therefore the indicative estimates are for 2.5 - 3 billion. But even so, it is clearly visible that it is a question of 7-8 times higher fee than what TurkStream makes now.
On the other hand, however, if a comparison is made with the Bulgargaz contract signed by Rumen Radev's office for access to the Turkish gas transmission network with state operator Botas, the situation looks radically different. At the beginning of this year, Bulgaria agreed to pay $9,145/MWh (about BGN 17 at the current exchange rate) for input capacity of 53,200 MWh per day, or 5 million cubic meters, regardless of whether it actually transports gas or not. This costs $487,000 per day, or BGN 900,000 at the current exchange rate. The amount is about BGN 330 million per year.
Bearing in mind that this is only about capacity, and not about actual transported quantities, this fee (agreed to by Radev's cabinet) seems even more bonkers than the energy tariff currently imposed by Bulgaria of BGN 20/MWh for the transit of Russian gas.
Capital weekly sources still claim that the 20 BGN/MWh can be reduced if great political tension is sparked with other countries in the region. For the time being, however, the decision of the Bulgarian Parliament is in force and has been effectively implemented since October 13.
Who will be mostly affected?
Currently, the largest quantities of Russian gas are imported to Europe through TurkStream. The reason, apart from the EU's overall policy of avoiding Russian gas, is that it simply has nowhere else to come from. On the one hand, Nord Stream was blown up and is not functioning, and on the other hand, the quantities entering through Ukraine are now much smaller than before and are much more unpredictable. In the first half of 2023, about 33 million cubic meters per day entered the EU direction from Ukraine, with the final beneficiaries being Slovakia, Austria, Hungary, Slovenia, Italy and Croatia.
At the same time, an average of 43 million cubic meters per day is transported through Bulgaria via TurkStream. Recipients of the gas are mainly Serbia and Hungary, which are also key for Russian energy interests in Europe. Quantities are probably resold to Austria as well.
With the additional tariff, these countries will pay 20% more compared to the current price on the most liquid European gas exchange TTF, where the fuel is around BGN 100/MWh. The whole debacle led to an immediate reaction from Serbian President Aleksandar Vucic, who said that he would seek his colleague Rumen Radev for an explanation. In his words, quoted in the Serbian publication Politika, "this is a big problem for us, the price of gas will rise dramatically".
Hungary's reaction was even more emphatic. "There are new attempts to threaten Hungary's security of energy supplies and to prevent Hungarian-Russian energy cooperation, including the transportation of natural gas. For a member state of the EU to threaten gas supplies to another member of the EU is against European solidarity," said Hungarian Foreign Minister Peter Szijjártó during his visit to Moscow for the Russian Energy Week forum.
It is significant that the positions of Szijjártó and Vucic were widely disseminated in Russian agencies such as TASS and RT.
The question here is how the prices of Russian gas for Serbia and Hungary are formed and whether there is room for such concerns. And the answer is that they have clearly defined formulas and fixed prices, which do not depend directly on market fluctuations. Specifically for Serbia, at the signing of the contract last spring, president Vucic announced that the price was fixed at $350 per 1,000 cubic meters, which is €30/MWh. Hungary, on the other hand, negotiated a cap on Russian gas prices of 150 euros/MWh when it signed an additional agreement with Gazprom this year. Therefore, at least in theory, it seems that Serbia and Hungary should continue to pay for their gas according to the price in their contracts with Gazprom.
Apart from TurkStream, Bulgaria continues to transit and determine the quantities of Russian gas to Greece and North Macedonia, which should also be generated by the new fee of BGN 20/MWh.
According to Capital weekly sources, Greece will not be hit that much, because it receives a large part of Russian gas through Turkey, and the Greek government is not worried so far. According to the Greeks, the tariff would even open the possibility for Turkey to distribute larger portions in the region.
As for Austria, which in recent months has repeatedly come into confrontation with the Bulgarian governments because of its reluctance to cancel the Schengen veto, it is still debatable whether the Bulgarian one will directly affect it.
The thesis that Bulgaria wants to pressure Vienna by increasing the price of gas to change its positions on Schengen does not bear scrutiny given the facts about the import of Russian gas into Austria. Yes, according to the European Association of Gas Transmission Operators (ENTSO-G), the country continues to send between 40 and 60 percent of Russian gas, but analysis by the Center for the Study of Democracy shows that it is delivered through Ukraine and Slovakia.
It is very possible that in the next few days all of the countries - Serbia, Hungary and Austria - will come out with strong positions and use the EU as a leverage for the impact of the imposed measure. At that time, Bulgaria has the full right to impose the additional energy tax on the transmission of Russian gas through its territory. In all cases of tension from a political point of view, it can escalate and it remains to be seen how firmly the Denkov-Gabriel government will defend its positions.