gazprom-beh

 

The issue of why the EC imposed an unprecedented fine of 77 million euros on the Bulgaria Energy Holding (BEH) and its subsidiaries, Bulgartransgaz and Bulgargaz, is quite extensive, and a single angle of analysis could hardly tell the whole story. I will focus on a more holistic approach, answering questions about matters on which the audience has been kept in the dark or misled by “experts” serving the culprits consciously/for a reward/ or through incompetence or naivete.

 

1. Attempts to subdue the real issue, as stated in the EC’s investigation, and direct criticism to the complainant, Overgas, are irrelevant and decry nervousness. The benefits of the EC decision will be shared by all customers and players in the gas market, not just Overgas. Following this decision of the Directorate-General for Competition of the EC, any company that is denied equal treatment trying to use gas infrastructure to transit, store, or trade in Bulgaria can rely on this precedent and shortcut court procedure when suing the government and the state owned energy companies.

 

2. These 77 million euros, when paid, will end up in the EC budget, not in Overgas’s purse or that of any other private company. Therefore, Bulgarians have a duplicit role – on one hand, we pay the bill for the unlawful conduct by the managers of BEH, Bulgartransgaz and Bulgargaz, and on the other, we are the collective beneficiary of these proceeds to the EC budget.

 

3. The scale of the damage inflicted on the country’s budget, both direct and mostly indirect, through the balance sheet of the state energy companies, let alone the reputational loss, is unprecedented in recent history. There is a dedicated, purpose-oriented act of the EC, which not only defines as erroneous the actions of the Bulgarian government and its state companies – measured in political and managerial failures – but also passes judgement on the total deficits of the Bulgarian judicial system and anti-trust authorities, which have failed to detect and address violations of EU law. This serves as a reminder that EU legal norms should be treated as an essential and integral part of domestic law. There is no trace of evidence that the General Prosecutor or the CPC have taken any action. On the contrary, the chieftains of the Bulgarian energy SOEs have been relieved of responsibility, involving an act of the Bulgarian Parliament.

 

4. The CEO of BEH recently stated, by way of justification for his deeds, that Bulgarian consumers have not suffered in the process, revealing a basic and systemic lack of judgement and priorities misfit beyond the EU’s set of rules and values. Any attack on competition, liberalization and market diversification ab initio restricts and violates consumers’ rights. Such words are more than enough for CEOs to be held accountable for managerial incompetence and neglect of EU law, which spells fresh trouble – new complaints and new fines.

 

5. The idea that paying the fine will close the subject is offered by people who ignore the practice and the history in kindred cases of investigations conducted by the Directorate-General for Competition. Suffice to look at the recent track record of DG COMP. Global and national companies have been fined on a regular basis until the EC sees a remedy to the fundamental problem that hinders competition, either through voluntary obligations or restructuring of business. In our case, whether we admit guilt or not is academic, while we pay the fine, thus accepting the judgement of the Commission. This July, the VPM Donchev and Energy Minister Petkova managed to reach an out-of-court settlement at a much lower cost. The Council of Ministers approved the draft and that seemed to be a good compromise. Yet Parliament intervened on a matter that was totally beyond its powers and banned any deal with the EC.

 

One should look at EC’s antitrust cases against Google, Microsoft and Apple to understand what comes next for the Bulgarian government and the energy SOEs, as they state firm resolves, not to restructure and ignore the Commission. The fine is not the end, just the beginning.

 

6. In decisions on anti-trust cases, the EC’s prime goal is to define the extent and the nature of infringement. The Commission does not only investigate past actions, but seeks to guarantee that the fault is removed. The EC DG COMP continues to monitor the remedial actions, therefore the notion the prime minister and the minister of energy seem to imply, that payment of the fine will spare the need to restructure Bulgartransgaz/Bulgargas and change course on energy policy away from Gazprom dependency, is pure wishful thinking. The Bulgarian government has shown no remorse, implying likelihood of future acts of abuse and negligence of EU law.

 

7. The European Commission decided on the hardball play after exhausting more lenient options. At the very beginning of the procedure, the DG COMP discussed a softer way out, i.e. Bulgartransgaz’s oversight to be moved to another ministry, such as the Ministry of Finance or the Ministry of Regional Development and Public works, thus exiting the structure of BEH and severing ties with Bulgargas. The offer made by the Commission experts was met with deafening silence and largely ignored by BEH and BTG management, whose top managers continue to preach that national energy security equals monopoly of Gazprom. People following developments in Bulgaria’s energy sector know well that this is not a sudden and unique “capture of the will”, but a legacy of a longtime conscience, motivated by a blend of corruption and nepotism in the conduct of the top management of the implicated companies, as well as the politicians that appoint them.

 

With such a mindset, it has been easy all along to imagine the frustration and the last resort move of the DG Competition’s experts, demanding more when the subject of the investigation is offering less. In the interim, the Commission has further tried other softer options, including the restructuring via selling off a controlling stake in BTG, which seemed a meaningful solution against the ongoing privatization process of operators across the EU. This line of action was totally ignored, with the CEOs of BTG hectically spreading Armageddon scenarios to the top leaders in the country – equating the loss of majority stake to national security cataclysm. Most of them knew well that under a more diversified ownership structure their chance to remain on top is negligible. To this personal line of interest, the parties involved successfully crafted a scare tactic – that the PM and politicians would lose a powerful instrument to make geopolitical business and to plan and direct resources on hugely oversized and economically unjustifiable “grand slam” projects. Worth noting is Hub-related projects are under the personal command of Prime Minister Borisov, who has so far successfully guarded the monopoly of Gazprom.

 

8. Even though, the DG COMP extended the deadline for the final move several times in the hope that the Bulgarian government would agree to cooperate, the D-day has come and the decision has been announced. For Mrs. Vestager and her associates, the percentages and ownership in BEH and its subsidiaries have secondary importance. The main concern is that, most probably, the three state companies will continue to block and abuse their exclusive status and deny competitors to Gazprom equal access to the transport grid, the storage and ultimately the clients.The medium-term outlook on the situation is grim, given the fact that the Bulgarian gas market is totally dependent on a single source, and the clients use only Russian gas. The dependency line is embodied in the terms of the third binding stage of the market test of the Balkan gas hub project – that virtually blocks competition for third party’s use of the transit system that is exclusively built for Gazprom’s use.

 

The DG COMP and the Commission can’t afford to remain mute, hence new fines and further confrontation with the EC seem inevitable once the national security smokescreen vanishes. New fines will hit hard, enhancing the probability of insolvency or economic hardship for the three energy companies, resulting in privatization becoming the only choice under far less favorable conditions. This is a story that has marred the whole period of the Bulgarian transition – selling assets at the wrong time.

 

Against this backdrop, even more grotesque seems the fake patriotism, equating non-compliance with EU law with the protection of Bulgaria’s national security. The parable shared at the top, that this intentional failure of the Bulgarian government to implement EU directives is meant to prevent Russian and Turkish companies from operating the gas transmission system, falls apart against the reality check of a persistent monopoly of Gazprom on the grid and the market, and the fresh story of the privatization of the Greek operator DESFA, where Kremlin appetites were blocked by the same Commission. The fact of the matter is that, based on their track record and current plans, the EC has no other option but to treat the Bulgarian government’s intentional non-compliance with the EU law as proof of its total capture by Russian gas interests.

 

It is in the national security interest of Bulgaria that state energy companies comply with the common rules and principles we voted for and agreed to abide when joining the EU. The single European gas market standards are not something that we could cherry pick and interpret on our own, creating an island of divergence on EU gas policy in Bulgaria. The sheer nonsense that PM Borissov and the CEOs of BEH, BTG and Bulgargaz can better handle the EU and Bulgaria’s energy security by hampering competition, is not only a betrayal, but also it sends a warning signal of rising anti-EU sentiment in Bulgaria’s governing circles under nationalistic disguise.

 

At this stage, however, I trust the GoB will try to sweep under the rug the scandal and pay without delay the fine to allow business as usual, as it needs a basic line of cooperation from the EC on PM Borisov’s pet project – the Balkan gas hub. The odds are heavily against him, as it has become clear that the European Commission, in the words of Commissioner Sefcovic, and the United States, following statements made Secretary of State Pompeo and Deputy Secretary of State Sullivan, are strongly opposed to the extension of the TurkStream via Bulgaria.

 

It is true that Sofia has reasons to complain about double standards by DG COMP – when one compares the no-fine, engagements-only decision on Gazprom’s abuse of its dominant position and the fine against BEH and its subsidiaries. Mrs. Vestager does not command a moral high ground on that, as in retrospect, given the fact that Gazprom is pushing ahead with plans to block transit through Ukraine and shift delivery points at its own discretion, the DG COMP’s appeasement line has proven a total failure.

 

The lack of debate and the muted reaction of the so-called “opposition” in the Bulgarian parliament to the unprecedented 77-million-euro fine is just one more embarrassing feature of the total capture of Bulgaria’s political elite by Russian special interests.

 

The fines are already a fact. Next stop – sanctions. Unless we change course.

 

By Ilian Vassilev

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