Bulgaria’s Russian gas games rile Europe – POLITICO

BRUSSELS — When it comes to Russia’s energy empire, Bulgaria is giving with one hand and taking with the other — and Europe is getting fed up.

Last month, Sofia hit Russia with a new tax on gas exports to the EU — an attempt by the country’s new, reformist administration to burnish its Western-friendly credentials and hammer the Kremlin’s war chest. But the move has infuriated Bulgaria’s neighbors and the country’s own pro-Russian president, who has asked the highest court to review its legality.

Experts also say the government can’t claim the country is truly getting tough on Russia: Earlier this year, the country struck a gas deal with Turkey that could help Moscow regain its stranglehold over the EU’s energy supplies. 

The contradiction highlights the fine line Bulgaria has long walked within Europe. 

On the one hand, the country is keen to shake off its historical reputation as Moscow’s stooge in the EU after Russia’s invasion of Ukraine. Yet even Bulgaria’s most outwardly pro-Western parties are still struggling to root out Moscow’s deep-seated influence in the country, from its energy sector to its security services.

The country’s gas deal with Turkey, which experts say will help boost Russia’s role as the dominant energy supplier in southeastern Europe, is likely to stoke grumblings in Europe about Sofia’s allegiances. The EU is trying to fully phase out its reliance on Moscow’s fossil fuels by 2027 — something Bulgaria’s pact with Turkey could make harder to achieve.

“The Bulgarian government is trying to send a clear signal to its allies in the U.S. and in Europe that it’s sticking with the Euroatlantic agenda of undermining Russian influence,” said Martin Vladimirov, a senior analyst at the Center for the Study of Democracy think tank. “But at the same time, [it] tries to preserve key economic interests linked to this Russian influence not only within Bulgaria but also within the southeastern European region.”

The Bulgarian government disagrees. “We’re not trying to score political points with anybody,” Bulgarian Finance Minister Asen Vasilev told POLITICO, adding that when his party has been in power since Moscow’s invasion of Ukraine, “the policy that has been … to remove Bulgarian fossil fuel dependence on Russia.”

The tax, he argued, would reduce Russia’s gas profits “drastically.”

‘A clear signal’

When Bulgaria imposed the €10 per megawatt-hour tax on Russian gas transiting the country from Turkey last month, it argued the move would help raise €1.2 billion in much-needed cash while hitting Moscow’s military revenues.

Vasilev insisted Bulgaria can levy any fees it wants and Gazprom, the Russian energy giant, “is free to use alternative routes for delivery if they don’t want to pay Bulgarian national taxes.” He insisted that neighboring countries have no reason to worry because the flows aren’t being stopped and “I don’t see why they would have an issue with the tax in the first place.”

However, the measure immediately sparked fury from Russia’s gas importers in the neighborhood.

Countries such as Serbia and Hungary, which have resisted calls to divest from Russian gas, are also concerned the move will mean rising bills for their consumers. The two blasted the move in a joint statement, arguing the tax could threaten their energy supplies.

Meanwhile, Greece’s Hellenic Federation of Enterprises, which represents half the business activity in the country, last week said it would take the matter to Brussels, arguing the tax “violates EU law” and would impose “additional burdens on all sectors, businesses and consumers.”

András Gyürk, an MEP from Hungary’s ruling Fidesz party, said the “Bulgarian decision undermines the security of supply of EU member states,” warning it could jeopardize the 55 percent of gas imports transiting Bulgaria to southeastern Europe and cause prices to jump ahead of winter.

This “is a hostile move” and “unacceptable,” he told POLITICO after he submitted a complaint to the European Commission.

For now, the EU executive has backed Bulgaria. The tax is “a national measure, and therefore, it is up to Bulgaria to decide where to allocate the revenues,” Commission spokesperson Tim McPhie said last month.

Ultimately, the move is about winning brownie points with the EU, rather than challenging the bloc’s energy dependency on Russia, according to Vladimirov, the analyst.

The tax has “no enforcement mechanism” and a low non-compliance fee of up to €50,000, Vladimirov pointed out, adding that the government knows Russia’s state-run gas firm Gazprom can “launch an arbitration case against Bulgaria” and that it could win.

Russian grip 

Whether Bulgaria is serious or not about taxing Russia, experts warn that it’s also quietly opening the door for Moscow to boost its role as the dominant supplier of gas to southeastern Europe — handing Russia significant leverage in the region.

As part of a broader deal signed between Bulgaria’s state-owned gas firm Bulgargaz and its Turkish counterpart Botaş in January, the former agreed to grant the Turkish company access to Bulgarian pipelines to sell gas for domestic consumption via the Strandzha-Malkoclar border point as well as to neighboring countries.

Under the legal framework created by that pact, Botaş has announced a raft of gas supply agreements, with Hungary’s MVM, Romania’s OMV Petrom and Moldova’s East Energy Gas Trading all inking supply deals in recent months. 

The problem is that the gas is almost certainly coming from Russia, which supplies Turkey via the subsea Turkstream pipelines, according to Aura Săbăduș, a senior analyst at the ICIS market intelligence firm.

Although imports could come from Iran, Azerbaijan or liquefied natural gas arriving at its ports, “there’s no other producer” but Moscow that could sell at the low prices currently seen on Bulgaria’s gas exchange, which are sharply discounted compared to the European benchmark prices, she said.

And since “we cannot test … whether this is Russian gas,” said Delyan Dobrev, a Bulgarian lawmaker who chairs the parliament’s energy committee, “Botaş could be buying more Russian gas, shipping it to Bulgaria and giving it origin documents of some other gas because they have a mixture of different gasses in Turkey.”

With the Turkish-Bulgarian pipeline able to process up to 10 billion cubic meters of gas with some technical adjustments, that means Moscow could supply all the extra demand in southeastern Europe and the Western Balkans that’s not already contracted to them, according to Săbăduș,.

The result is that “Russia is regaining its grip on the region,” she said, but with newfound “energy leverage and also political leverage” outside the purview of the EU, which has no oversight over Turkey.

Bulgargaz said its deal with Turkey’s Botaş would give access to its pipelines for supplies from “countries without sanctions, embargoes or any trade restrictions” while arguing it “is not a party” to Botaş’ deals in the wider region.

Vitalii Septefrat, technical director at Moldova’s East Energy Gas Trading, said there were “no political risks involved” in the “purely business-oriented deal” that aims to help Moldova to “stop its reliance on Russian gas.” The country’s Energy Minister Victor Parlicov denied any immediate risk to supplies since the Moldovan energy firm is not currently supplying any flows. “All this company has given us so far is news — not gas,” he said. 

Romania’s energy ministry said OMV Petrom had “formally assured” the government “the gas from Botaş is not of Russian origin,” adding that the country can “essentially cover 100 percent of its needs from internal production and storage.” MVM, Gazprom, Botaş, OMV Petrom and the energy ministries of Hungary and Bulgaria didn’t respond to questions from POLITICO. 

Hands tied

Not everyone is convinced by the assurances that the gas deal with Turkey is above board.

The Commission has since opened an antitrust investigation into the agreement, according to a letter seen by POLITICO, amid fears it favors the Bulgarian and Turkish gas firms at the expense of their competitors. 

The move has also sparked concern in some EU capitals.

Bulgaria’s gas gambit means “bypassing the diversification policy, getting dependent once again on Russia — and now on Turkey as well — giving them money and yet again a leverage on the EU,” said a diplomat from one of the bloc’s countries, who was granted anonymity to speak candidly.

“If they stop supplying gas, we’re in shit again like a year ago,” they said.

Bulgaria’s government has now admitted the deal should not have been signed by the previous caretaker administration and opened a probe. Vasilev said he was looking into whether the deal makes sense commercially, but insisted measures were in place for Bulgaria to track the gas’ country of origin.

But Sofia’s hands on the agreement are tied, said Vladimirov, the analyst, with the country forced to cough up €2 billion per year if it scraps the deal.

And whether they like it or not, the government is now “stuck with the deal, and they’re trying to distract from it,” he said.