19.9.2018, ICIS, Aura Sabadus

 

ilian vassilev

 

Bulgarian gas incumbent Bulgargaz has failed to clinch more attractive terms from its supplier Gazprom despite a recent EU anti-trust investigation, a former Bulgarian ambassador to Russia told  ICIS in an interview.

 

The investigation would have provided Bulgargaz significant support in its negotiations with the Russian producer.

 

Speaking to ICIS this week, Ilian Vassilev, said Bulgargaz could have requested price reviews and more lenient terms linked to take-or-pay as part of a long-term 3 billion cubic metre/year supply contract with Gazprom. But, instead, Bulgargaz was acting as an “extension” of the Russian producer, passively ac- cepting existing terms, Vassilev said.

 

Vassilev, who is currently managing partner at eastern European advisory firm Innovative Energy Solutions, said the incumbent had not asked for a review since 2012, one year after its long-term contract with Gazprom was signed.

 

“The problem is that throughout the years you get an accumulation of factors such as fluctuations in the exchange rate and oil prices,” Vassilev said, not- ing that Bulgargaz had accepted the terms imposed by Gazprom without seeking price reviews, or new sources of supply that would have made its portfolio more competitive.

As the oil-indexed price for the gas that Bulgaria is importing from Russia has been rising in line with the price of crude, the country will now have to reflect the hike in the regulated tariff to end consumers. The increase could be as high as 15% before the end of the year, Vassilev said.

Bulgargaz has had a variety of options to reduce its costs ranging from seeking to purchase volumes from alternative sources to mitigating price risks by buying and storing gas in its Chiren storage or in Ukraine in the low-demand summer period and withdrawing in winter when prices are higher.

Bulgargaz has had a variety of options to reduce its costs ranging from seeking to purchase volumes from alternative sources to mitigating price risks by buying and storing gas in its Chiren storage or in Ukraine in the low-demand summer period and withdrawing in winter when prices are higher.

The EU’s Competition Commissioner ordered the Russian producer to remove barriers to the export of gas and give customers in central and eastern Euro- pean countries, including Bulgaria, an effective tool to secure prices at competitive western European market levels.

If Gazprom is found to be non-compliant with these requests it could incur a 10% fine of its total turnover.

“There has not been any instance [since the publication of the investigation outcome] where  Bulgargaz expressed an interest,” Vassilev said, adding that Gazprom was unlikely to object to a price review or even a change in the pricing formula to include a hub element, if Bulgargaz requested one.

“If they object [Gazprom] they would be taken to court [for non-compliance with the results of the EU anti-trust investigation].”

 

He said the Bulgarian incumbent was nei- ther interested in negotiating the import price, nor in lowering the take-or-pay obligation, currently at 80% of total volume, nor even in removing the destination clause, a feature of old legacy contracts.

 

“It’s a mixture of political influence, bureau- cratic inertia and corruption,” Vassilev said, adding that Bulgargaz was comfortable with current circumstances.

“The destination clause is a self-imposed restriction – my Gazprom contacts have re- peatedly stated that the destination clause  was no longer relevant. The same with take- or-pay – the trivial and permanent excuse of Bulgargaz [for not buying] gas from alternative suppliers,” he said.

 

Bulgaria is one of the most dependent EU markets on Russian gas, being repeatedly singled out in European studies as a vulnerable country which ought to diversify its sources of supply.

 

Neither Bulgargaz nor Gazprom replied to repeated ICIS requests for comment to all the points raised above Sources active in the region confirmed that Bulgargaz had not requested a price review since 2012, but added that its own Russian purchase prices may be lower than those of other regional countries considering its tight relationship with Gazprom.

 

This meant that Bulgargaz had no incentive to seek regular price reviews.

 

Aura Sabadus

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