Funds from Brussels or nationalizations? Quo vadis Bulgaria

In October 2022, the newly elected Parliament of Bulgaria (the 48th) begins its work in Sofia. In his Parliament inauguration’s speech, the President of the Republic, Mr. Rumen Radev, calls on the deputies to elect the next government, adopt the state budget and vote for the package of changes introduced by the interim government. That package includes twenty-two laws necessary for Bulgaria to receive a much needed 6.27 billion euros from EU funds. The funds were approved by the European Commission as part of Bulgaria’s Recovery and Resilience Plan but shall be transferred to the country only in exchange of enacting necessary reforms. The President emphasizes that the whole Bulgarian society is waiting for this.

Vlad Olteanu is the Founder of i3pact EU srl.

January 2023. Mr. Rumen Radev decides to call for snap elections, which will be held on 2nd April 2023. The 48th Parliament is dissolved and leaves the country without a confirmed government or a new budget. During its short life, the Parliament drafted and passed three new laws instead of the twenty-two laws to which the president alluded in October 2022. The three laws were developed specifically for the Neftochim Burgas refinery and were adopted in a record one month with a majority from three parties who have, otherwise, not been able to agree to form a new government. Finally, Mr. Radev approved the three laws: a law on the withdrawal, by the State, of 70% of the difference between the price of Urals and Brent originated oil, multiplied by the total volume of fuel supplied to the market; a law on the revocation of the Neftochim Burgas’s refinery concession for the Rosenets port, through which the bulk of oil is imported to Bulgaria ; and a third law providing for the introduction of state operational management “in relation to large, strategically important enterprises, including energy infrastructure.”

To the general public, the authors of the laws motivated their unusual zeal and cooperation with political adversaries because of their concern for the consumer. Although Bulgaria obtained derogations from the European sanctions on the import of Russian oil and petroleum products, the fuel on the market is not as cheap for Bulgarian consumers as it should be according to their calculations. Fuel in Bulgaria is, however, already the cheapest in the entire EU. The Neftochim Burgas refinery is already paying a 33% tax on excess profits according to European regulations, the state wants, via one of the three laws, to take another 70% from the difference between the price of Brent and Urals oil and will return them to consumers through government aid. Unless, the European Commission notices that this is, essentially, a fee and takes 75% of these funds in accordance with European rules.

Politicians explained that, in the future, refineries will be charged for access to port infrastructure, and thus the state will receive even more profit. Hence the second’s law enactment. An advance excise tax and VAT will also be introduced. However, if the refinery manager is not able to work under such conditions, the state will then take over its operational management, again “in the interests of the consumer.”

“What these three legislative proposals have in common is the belief that the state will manage the company better and that there are no problems with oil supplies from other sources. The first did not happen in all twenty years during which the state owned a “golden share”. I do not understand why the deputies believe that this will happen now. The second, erroneous belief, is that oil supplies through the Bosporus are possible in large volumes and at an affordable price, despite the fact that since February 2022, transport, insurance and tanker fees have increased six times,” says Krasen Stanchev an economist, founder of the Market Economy Institute and associate professor at Sofia University.

Continues Mr. Khristo Aleksiev, Deputy Prime Minister and Minister of Transport of Bulgaria: “Despite the analyzes provided to the People’s Assembly, it has adopted laws and decisions that create risks for price increases and the suspension of Neftochim Burgas operation. The MPs should not have passed laws more restrictive than the requirements of the European Commission. These EC compromises were made precisely to provide Bulgaria, as the poorest country in the EU, with an opportunity to take advantage of this delay, so I don’t see the logic of the MPs, why we should have approached this case in such a strict manner,” Aleksiev told reporters. He also stated that “taking over the entire process of supplying crude oil, processing and distributing of a large refinery is a very difficult process, because it is not only the work of the refinery itself. There is also a very complex system of logistics, supply and distribution. It is necessary to prepare for such a decision, and it is obvious that the state does not have such a resource and knowledge”. 

In practice, the Bulgarian parliament put the government in an extremely awkward position in front of the European Commission. Instead of reporting on the fulfillment of the conditions for providing the country with much-needed EU funds, it sends, only three, completely different laws for notification to Brussels. The European Commission will have to decide on their compliance with European law and international trade rules. Commissioners must assess whether the voted-for state aid is justified and whether the imposition of hidden tariffs is an attempt to put pressure on business and restrict free trade rules. In case of a positive decision from Brussels, Neftochim Burgas will be subject, firstly, to the usual 10% income tax, secondly, to a 33% tax on excess profits of the energy sector (the so-called “solidarity contribution”) adopted in accordance with European regulations, and thirdly, to a fee of 70% of the difference between the prices of benchmark crudes. This, combined with other taxes, fees, excises and modified terms of existing taxation, as well as the inaccessibility of the port, might make Neftochim’s successful and high-tech business just unprofitable. Such a development would not only affect the jobs of about ten thousand people, but also the existence of many other Bulgarian companies, for which the refinery is the main business partner. 

Today Neftochim Burgas is arguably the largest and most modern refinery in the Balkans. It is a major producer for fuel consumed not only in Bulgaria but across the Balkans. Endangering it is simply irresponsible. And blaming the “priority” of the energy laws on the consumer is also doubtable: if the refinery fails, fuel prices could only go up in Bulgaria. And with them, general prices, in a classical “energy fueled” spiral inflation. And this would be very negative for the consumers-citizens of the already poorest EU member state. And taking about priorities: where are the other 22 laws necessary to access EU funds?