Translated material
Sofia against intermediaries
Bulgaria intends to achieve a direct contract between Gazprom and Bulgargaz
Today Bulgarian President Georgi Parvanov will arrive in Moscow. Initially, his visit was supposed to mark the solemn beginning of the Year of Bulgaria in Russia. However, the Russian-Ukrainian gas conflict, during which Bulgaria was one of the victims, made adjustments to the “holiday” agenda. The Kremlin emphasizes that it would not like to lose the particularly friendly nature of relations with Sofia as a result of the January events. The interlocutor of Vremya Novostey draws attention to the fact that, contrary to established traditions, Mr. Medvedev gave an interview to Bulgarian television on the eve of Mr. Parvanov’s visit (as a rule, such interviews are practiced in anticipation of foreign visits by Mr. Medvedev himself). In this case, explains the Kremlin source, it was decided to directly address Bulgarian television viewers to explain the reasons for the January events.A certain sense of guilt, which the Russian side seems to feel towards Sofia, may help the Bulgarian delegation to achieve some concessions. Inspired by the example of Russia's refusal to act as a mediator in relations with Ukraine, Bulgaria is serious about sending traders with the participation of Gazprom - WIEE and especially Overgas Inc. -- along the path of RosUkrEnergo.
As the head of the state-owned gas company Bulgargaz, Dimitar Gogov, said yesterday, Sofia expects to change the contract base, which currently ensures supplies of Russian gas. Namely, to abandon intermediaries and conclude a direct contract with Gazprom Export for the entire volume required by Bulgarian consumers. Thus, the Bulgarian government wants to remove Overgas Inc., which imports about 70% of gas, and the Swiss trader WIEE (17%) from the market. Directly, Bulgargaz takes only about 300 million cubic meters from Gazprom Export to ensure the transit of Russian gas to Turkey, Greece and Macedonia, as well as approximately 30 million cubic meters for supplies to consumers in the southwestern part of Bulgaria. The state-owned company is forced to purchase another 3-3.1 billion cubic meters of imported gas from two traders.
“As a rule, unfortunately, consumer countries are interested in the existence of intermediaries. But I’m not talking about our situation now, of course, it’s separate, we need to understand it, but as a principle I’ll say it again: we don’t need any intermediaries if they break the pattern of relations or these intermediaries increase the cost of gas for consumers,” said President in an interview with Bulgarian media. A Vremya Novostei source in the Kremlin claims that the Russian authorities are not against switching to direct supplies “if Gazprom and Bulgargaz agree on commercial terms.” However, the Russian monopolist, apparently, is not ready to give up traders. And, according to a statement by Deputy Chairman of the Board of Gazprom Alexander Medvedev, made recently to the Bulgarian media, he is going to offer Bulgargaz to become a shareholder of Overgas Inc.
Gazprom and Gazprom Export own 50% of the shares of this trader. The remaining shares are held by a consortium of private investors, Overgas Holding (its beneficiaries are not disclosed). Apparently, Bulgargaz will be offered to fully or partially buy out the share of Gazprom’s Bulgarian partners. Alexander Medvedev, who became chairman of the board of directors of this trader three years ago, explains the presence of Overgas Inc., which has been operating on the Bulgarian market since 1992, by the need to develop gasification projects in the country. Overgas Inc. actually owns gas distribution networks in Sofia and a number of regions of Bulgaria and sells over 200 million cubic meters per year to end consumers (the rest of the import volume is resold to the Bulgargaz concern at the border).
Mr. Gogov said yesterday that the existing mechanism does not guarantee gas supplies to Bulgaria. “We must agree on how our interests will be protected if something like this (supply cutoff - Ed. ) happens again,” he said. The supplier, he said, must provide the same strict guarantees of fulfillment of obligations as the buyer in terms of payment.
From a legal point of view, Bulgargaz can make claims to Gazprom only for the failure to supply scanty volumes to the southwestern part of the country. The remaining proceedings should be sent to intermediaries represented by Overgas and WIEE, who will now have to recover damages from Gazprom. The judicial structure in this case will be extremely complex, given that Gazprom controls 50% in both intermediaries. WIEE, which sells gas not only to Bulgaria but also to Romania, is owned by the German trading house WIEH, which is owned on a parity basis by Gazprom and the German Winteshall.
In this regard, it is not surprising that at the end of January, claims for damages to Alexander Medvedev were presented by the Bulgarian Minister of Economy on behalf of the government, and not by Bulgargaz in the manner prescribed by the contracts. The likelihood that Gazprom will avoid paying monetary compensation and limit itself to supplying additional volumes to consumers and to Bulgargaz’s largely empty storage facilities is now very high.
However, Sofia, as part of the political dialogue, expects to radically revise the gas supply scheme, which was agreed upon in 2006. Until this time, Gazprom paid Bulgargaz for transit by barter at the price fixed back in the late 1990s of $80 per thousand cubic meters. In 2006, for example, Gazprom Export transferred 1.4 billion cubic meters to the Bulgarian state-owned company as payment for the transit of 15.2 billion cubic meters. Three years ago, the Russian concern initiated a revision of this agreement, citing a significant change in market conditions (European gas prices rose sharply), and achieved its goal. In 2007, Bulgargaz received about 72 million euros for pumping 17.2 billion cubic meters. However, 1.4 billion cubic meters was forced to be purchased through Overgas Inc. at European prices and with a small trader's markup.