Bulgartransgaz has been noticeably absent from the public debate around the fate of South Stream-turned-TurkStream-turned-Balkan Stream, a project than can be summed up with the lone common denominator, ‘Borissov’ Stream.
Consider the arguments. We are told that the TSO, Bulgartransgaz, is facing an existential threat – bound to lose money as Gazexport dries up transit via Ukraine and consequently via Bulgaria. That is a valid argument insofar as there is no alternative or plan B, and the threat is imminent, credible and verifiable – i.e. gas transit cancellation via Ukraine is a given. Yet both hypotheses are speculative in varying degrees.
Since January 21, 2019, Gazprom and Naftogaz have been negotiating, with the help of the European Commission, a new ten-year gas transit contract through Ukraine. The game is tense and complicated. Gazprom deliberately keeps a lid on talks’ progress and keeps partners guessing on the extent of its commitment.
The overall business prospects for the Ukraine bypass look bleak for Gazprom, or at best, uncertain. Critical assumptions that made TurkStream a logical move are proving wrong. Judge for yourself. Russian gas exports to Turkey via the Trans-Balkan pipeline in 2018 have dropped by a staggering 62% just in one year. The trend persists over the last three months. One might insist this is a part of Gazprom’s power play aimed at stressing to Sofia, Kiev and Athens that it means business with a clear resolve to dry transit via Ukraine.
Oops, this explanation proves short-sighted as there has not been any sizeable substitution in exports via alternative routes for Russian gas – neither via Blue Stream, nor Turkstream. Instead the difference has been covered by a drastic increase in LNG imports – 74 cargo loads over the last three months, most originating in the US.
Attempts to play Sofia against Athens and vice versa over the extension of TurkStream ring hollow if one bothers to consider the end market in Italy. Try to check statistics and the dynamics of the Italian gas market, and the hard facts will loom – Russian gas sales to Italy are not an easy bet, certainly not on a long-term basis.
Independent Russian experts have long warned there is no option for Gazprom at this stage to entirely forego transit through Ukraine.
The panic disseminated by the Russian cabal that Bulgartransgaz is losing gas transit to neighbors serves precisely this purpose – to hold the public hostage to the narrative that we need to make sacrifices and ignore common sense and business logic. Concurrently, the official media are singing praise to the president and the prime minister, who sleep less just to secure access to the indispensable Russian gas – in the name of Bulgarians’ ‘national interest’.
Try to define ‘national interest’. Elected officials tend to abuse their right to speak on behalf of nation’s and peoples’ interest. Yet the options are obvious – either Bulgaria sticks to the current paradigm of one source, one route, sparing Gazprom the need to compete for the right to sell gas to Bulgarian consumers or Bulgargaz and BTG shift course to understand and profit from letting everyone fight for market share. The byproduct of such a change will be lower prices, securing diversified supply and liquidity and sparing ourselves the derogation of being blackmailed. It is suffice to recall the cold winters and the gas supply cut offs.
Stubbornly persisting with both transit and consumption dependence on a single supplier is typical conduct of a hostage with Stockholm syndrome. This comes at a time of unparalleled new opportunities on a global and regional scale, supportive EU regulatory and legal frame and growing competition between gas traders and shippers.
Yet it seems for Mr. Radev and Mr. Borissov, the top two statesmen of the country, that the ‘national’ self-interest falls squarely and solely with escalating the dependence on Gazprom and spending handsomely on new transit infrastructure aimed to serve only Russian gas.
Before contemplating the merits of new transit infrastructure, first should come the interests of consumers – individual and industrial. Instead, both the President and the Prime Minister chose a foreign state’s over domestic consumers’ interests, making us believe that “Russian gas is the one and only”, and pursuing obtrusive policies that push back genuine gas market liberalization, diversification and true competition.
Bulgartransgaz’s total annual revenues from its gas transit contract with Gazexport range slightly above $100 million. This has not changed much over the last 13 years, since the contracts were amended. At the same time, Bulgargaz’s gas bill over the same period has risen dramatically to all-time highs of above $1.6 billion. At present, the figure is close to $700 million. This is a solid argument that the national interest should be addressed basically at a consumer, rather than TSO, level.
Since both BTG and Gazexport are fully cognizant of the pending issues related to the use of the current transit contract as a legal basis substantiating expensive new gas infrastructure worth almost a billion and a half euros, proponents have been obliged to turn to hysteria, fake business patriotism and assurances of German-EU support.
The need to accommodate everything within the current EU legal arrangements stems from attempts to avoid at all cost EU-level project clearance, which a new transit contract would entail. Easy comparisons with the Nord Stream-2 are abundant, yet they fail to address two key differences – Russian gas holds no monopoly on the German market, and Gazprom is footing the bill for Nord Stream-2, while BTG carries the total investment risk, leveraging its total asset base, in order to receive a Euro 1 billion credit. This picture does not change significantly financing comes in the form of suppliers or contractors – Gazprom proxies – credit to BTG.
Note that all revenues are 100% dependent on Gazprom, which could at any time take the Bulgarian TSO hostage.
Furthermore, Gazexport has added one more condition for agreeing to the contract – that it should be absolved from having to made good on the $1 billion in potential penalties for early termination of the current transit via Ukraine and Romania.
Note, the proponents of the current moves are the same people who condoned the $1 billion loss for amending the original gas supply and transit contract in 2006.
The same cohort stood idle while the European Commission, through its investigation into abuse of monopoly status by Gazprom, provided a virtual shield and encouraged legal action for overpayment for gas since 2012 with an almost certain win.
The same group chose to turn a blind eye to the criminal oversight of agreeing to an arbitration clause in the transit agreement between BTG and Gazexport for dispute settlement in the Moscow Chamber of the Russian Chamber of Commerce and Industry.
The Bulgarian state gas companies have failed the simplest litmus test proof they are not captured by Gazprom – levelling the field for competition and opting for tenders instead of direct bilateral talks with a single privileged seller. The explanation is simple – a transparent and open procedure will shine the truth that there are dozens of suppliers and shippers beyond Gazprom, waiting for a chance to expand the options for Bulgarian and regional gas consumers.
There is a hidden agenda behind BTG’s move to tender for transport capacity allocation in two segments between the Turkish-Bulgarian and the Bulgarian-Serbian borders, dubbed the entry and exit capacity. The section between KS Strandja and KS Provadia on the Trans-Balkan gas pipeline, which is the most critical part of the whole Bulgarian transmission system, has been effectively allocated to Gazprom, disallowing competitive gas transit to/from Ukraine and Romania, Turkey and Greece, undermining the Southern Gas Corridor as a source for gas in Central and Eastern Europe.
The Bulgarian government has purposefully misled the public by claiming that all actions on the extension of TurkStream are EU-compliant. The difference between the first draft of the Balkan Gas Hub, herein below, approved in the PCI’s list of the EC, and the current third version, could hardly be more striking. As a result, the Commission dropped the project altogether from its priority list.
PM Borissov insists that he has Jean-Claude Juncker’s ear, henceforth the Commission’s green light, which is false.
The Balkan hub project comprises mostly of interconnectors and the Chiren UGS. The latter has been long neglected, in spite of persistent high demand and shortage of storage capacity in the region. In the latest set of infrastructure upgrades, considered under the Gazprom deal, the Chiren expansion is notably missing.
Now look at what is left of the original Balkan Gas Hub project with the shift in accents of the Bulgarian government.
The interconnector with Serbia is gone, and the Kirevo-Zaijcar new pipeline looms as the epitome of the Hub. The updated Balkan Gas hub version, judging from capacity allocation forecasts, has a single pivot – Gazprom. It totally ignores alternative gas flows that could load up the transit system of Bulgaria.
The Bulgarian Government chose to clear the project at the national regulatory level through the Commission for Water and Energy Regulation, thus sparing an EC review. The implications are that the project impacts only or predominantly the Bulgarian gas market. Let’s look at the facts – more than 15 billion cubic meters enter from Turkey and 12+ billion cubic meters leave, which is clear proof that transit outweighs domestic consumption. Yet the Bulgarian government continues to insist that it has the right to determine origin and capacity of flows that can traverse the country. Ultimately, through its actions, the Bulgarian government clearly states that Gazprom competitors are second rated to supply gas to Serbia, Hungary, Austria and other countries in the CEE.
By deliberately developing and allocating transit capacities, including offering preferential terms, in line with Gazprom’s wishes, Bulgartransgaz is denying equal chance to traders sourcing gas from the Southern Gas Corridor to Ukraine or Central Europe. Thus, BTG is not only assisting in the Ukraine bypass efforts, but also in disallowing fair access to its gas market.
For all its talk, the Bulgarian Government seems to take sides, aligning the country with Russia’s geopolitical pursuits, regarding Ukraine, the European Union and NATO. And this comes at a heavy price for Bulgaria’s reputation as loyal and trustworthy member.
Bulgartransgaz has consistently overlooked options to replace revenues from Russian gas transit, which exceed the $100 million in potential loss in ten years.
The patriotic drumbeat – “we should care about our own interest” – strikes valid chords only insofar as national interest is understood as minimum risks and maximum benefits within a consolidated context, across the whole range of interactions and consequences – well beyond the notion of “the gas world according to PM Borissov or President Radev”.
Bulgaria is far from playing an honest broker and from maximizing its middleman’s role. We let the Kremlin threaten current supply lines at our own cost and risk, allowing a few politicians and oligarchs at the top to convert their petty political games into personal gains – rewarding Gazprom with monopoly access to gas markets in Central and Eastern Europe via Bulgaria.
Bulgartransgaz and PM Borissov deliberately ignore first-time golden opportunities to reposition Bulgaria as a key honest broker for competing gas flows, denying anyone special privileges, navigating between different interests and maximizing gains at government and corporate levels.
Instead, Bulgartransgaz happily enters into fresh risks of premeditated penalties and losses by willingly concluding binding transit contract with Gazprom to provide services to the Serbian border, as early as January 1, 2020. This is an untenable condition.
And we are all led to believe this is being done out of national interest!? Mine and yours?!