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Bulgarian gas wars uncover hidden Gazprom strategies

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Bulgarian gas wars uncover hidden Gazprom strategies

A cartoon by Cristo Komarnitski. Borissov brings Putin’s project for South Stream to Merkel. [Sega]

EXCLUSIVE / Gazprom stopped supplies to Overgas, a private Bulgarian gas distribution company in which it has a 50% stake. The surprising move prompted comments and provided insight into the broader strategies of the Russian gas monopoly in Bulgaria, and the local interests involved.

On 29 December, Bulgarian Prime Minister Boyko Borissov called an urgent meeting of the country’s state energy companies: Bulgargaz, Bulgartransgaz and BEH.

The Bulgarian gas grid is owned by Bulgartransgaz, which is part of the Bulgarian Energy Holding (BEH), which has amassed a debt of €250 million to the state budget. The BEH holding was established in 2008 by then-Prime Minister Sergei Stanishev, with the aim of cross-subsidising state companies at loss. Bulgargaz is the largest Bulgarian gas distribution company.

The intricacies of the Bulgarian energy trade have helped keep monopolies alive, and resist EU energy liberalisation rules.

>>Read: The energy conundrum in Bulgaria and Greece

Zeros in the form

At the meeting, it emerged that Gazprom had sent the usual form to the Balkan gas distribution centre, in which, surprisingly, all the figures for the planned supply to the Bulgarian private gas distribution company Overgas, in the period beginning 1 January, were zeros.

Overgas, the largest private energy company in Bulgaria, is owned 50% by Gazprom and 50% by Bulgarian businessman Sasho Dontchev. The company has 55,000 household clients and 3,000 industrial clients. The daily supplies to those clients amount to 1.5 million cubic metres per day, and represent some 10% of the gas consumption in Bulgaria.

The head of BEH was quoted as saying that the country risks undergoing a gas crisis, and that 200,000 people are at risk of remaining in the cold. Overgas was not invited to the meeting.

Strangely, on 30 December a statement was made by the Russian ministry of foreign affairs, not by Gazprom. It says that the usual amount of gas Bulgaria receives, 3 billion cubic metres a year (bcm/y), could be increased if needed, and that Russia “will not leave Bulgaria without blue fuel”.

Following a second extraordinary meeting convened by Borissov on 31 December, also without the participation of Overgas, a solution to the crisis was announced.

Borissov said that Bulgargaz and Overgas agreed that the former will provide gas supplies to the customers of the latter. In fact, Bulgargaz, as a “public supplier” according to Bulgaria’s byzantine energy law, has the obligation to make up for the missing supplies. Only Bulgargaz has access to the Chiren gas reserve, the country’s only underground storage.

The relationship between the private Overgas and the state gas companies has been complicated. In 2010, Bulgartransgaz blocked Overgas’ access to the gas grid. Consequently, Overgas lodged a complaint with the European Commission, which, in 2011 carried out raids at several Bulgarian gas companies, as part of a wider investigation into possible breaches of its antitrust rules, as part of its Gazprom probe, which remains ongoing.

The Commission’s interference helped Overgas to return to its gas distribution business. The private company offered gas prices to its industrial clients 7-8% lower than Bulgargaz. This infuriated the state company, which saw many of its corporate clients signing up with the private competitor.

Bulgargaz had a monopoly on the supply of Russian gas to Bulgaria until 2012. Since then, instead of receiving the usual amount of 3.3 bcm/y, it started receiving 2.9 bcm, the outstanding amount of 400 mcm being supplied to Overgas.

‘A plot against the government’

Speaking on 4 January, Borissov defended Gazprom and attacked the Bulgarian private company for having put its clients at risk and thus, of “plotting” against his government. He said that Russia and Gazprom were not to blame, and that the entire responsibility for the problem lay with Overgas.

Borissov said that if Bulgarians had been left without heating for the New Year, they would swear at him, not at Overgas. He added that if those people would have turned to electricity for heating, this would have caused a national blackout.

Contacted by EurActiv, Overgas says they got in touch with Bulgargaz on 30 December and informed it of the situation, and that no risk of disruptions existed, contrary to what Borissov said.

Overgas writes to the Commission

In a letter to the Commission seen by EurActiv, dated 23 December 2015, Dontchev warns of what he says is a clear-cut abuse of Gazprom’s dominant position at the upstream supply level, and a risk of serious and irreparable harm to competition.

“Any interruption of supplies by Gazprom Export, even for a short period, would lead in all likelihood to the permanent extinction of Overgas as the only remaining competitor in Bulgaria,” Dontchev writes.

Dontchev also reveals that on 21 December 2015 Alexander Medvedev, the deputy chief of Gazprom, told him in a telephone conversation that Gazprom would cease its supplies to Overgas from 1 January 2016, irrespective of the fact that under a current contract, Gazprom is obliged to supply the company until at least 31 December 2017.

“Overgas suspects that [the alignment of interests between Gazpom and BEH] is politically motivated by Russia’s desire to reanimate the South Stream project in light of current tensions between Russia and Turkey,” says Dontchev.

Indeed, there are enough indications that Bulgaria plans to bring Russian gas to its borders – just like Germany, which plans an expansion of the Nord Stream pipeline. Borissov prefers to call the project a “gas hub” instead of South Stream.

>>Read: Borissov: I told Merkel Bulgaria plans pipeline similar to Nord Stream 2

In another letter dated 30 December, Dontchev tells the Commission that the sudden cutoff is a clear-cut infringement of Article 102 TFEU, and urges the EU’s competition services to apply article 8 of Regulation 1/2003.

Quiet divorce?

The issue of Gazprom leaving Overgas was discussed by Medvedev and Dontchev on 2 December, including the terms, the timetable and the mutual commitments.

Speaking to EurActiv, Dontchev said that the divorce with Gazprom has been “a question of efficiency”.

“We are in a stage of separation. Gazprom has no interest in the distribution business,” Dontchev said. He explained that under Bulgarian law, the company’s board of directors needed to convene four times a year. In fact, for the last six years, only five such meetings took place, and only three of them made decisions.

“It is impossible to work like that. We really need, every quarter, to update our investment programs, to decide new products for the market. But for six years we have been treading water,” Dontchev said.

Shooting the cartoonist?

Commentators said that the whole scheme was aimed at stealing Dontchev’s business, and wrecking Sega, a critical newspaper, which he also owns. Borissov is reportedly unhappy with the newspaper’s cartoonist, Cristo Komarnitski, who is highly appreciated by its readership, in particular for the sardonic ways in which he depicts the prime minister.

Borissov alluded to the newspaper’s cartoons, arguing that the same people who tried to offend him with cartoons and critical articles came to ask for his help.

“The question is, why did they press us against the wall on the 31st [of December], at 8PM, to write contracts? Their cartoons and stories… I will refrain from commenting, it is not at my level. It was them who came to ask us to do this [make it up for the missing gas supplies]. It was them, not us,” Borissov was quoted as saying.

This is not the first time that Overgas has been a pawn between Bulgarian leaders and Gazprom. In 2009. Russian media ITAR-TASS and Interfax announced that at the request of Bulgarian President Georgi Parvanov, Overgas would be eliminated. Reportedly, as part of a package deal with the Bulgarian government, including the South Stream gas pipeline, Dontchev would be required to sell his shares to Gazprom and to stop financing Sega. Parvanov later denied having made such remarks.

This however did not happen, and in the meantime Overgas became stronger and stated selling gas to industrial clients at lower prices, which was regarded as a major offense by the monopolistic system in Bulgaria.

Ilyan Vassilev, a former Bulgarian ambassador to Russia, said that the current attacks on Overgas were part of a scenario to resuscitate South Stream via Bulgaria, as well as the oil pipeline Burgas-Alexandroupolis, aimed at transporting Russian oil bypassing the Bosporus. After a local referendum in 2011, the Bulgarian government shelved the project.

According to Vassilev, who is persona non-grata in Russia, after being included in the Kremlin list mirroring the EU visa ban lists, Bulgaria has been in talks with Russia over the two big infrastructure projects since the autumn. He also said that for Russia, the real priority was the Burgas-Alexandroupolis pipeline.

On Tuesday morning (5 January), EurActiv submitted questions to Gazprom concerning its plans with Overgas. No answer was received by the time of the publication of this article.

A Commission spokesperson told EurActiv that it had received “letters on the matter” and that it would look into the issues raised.

Further Reading