site.btaMedia Review: October 24

US SANCTIONS ON LUKOIL

Prime Minister Rosen Zhelyazkov convened a working meeting in connection with the US decision to impose sanctions against Rosneft and Lukoil and Justice Minister Georgi Georgiev confirmed that the Lukoil oil refinery in the coastal city of Burgas fall under the sanctions.

Mediapool published an interview with Center for the Study of Democracy’s Energy and Climate Program Director Martin Vladimirov and Bulgarian Petroleum and Gas Association Chair Svetoslav Benchev. The Lukoil oil refinery falls under the ban from November 21 on carrying out bank payments by persons from the US or transit transfers through the US related to the assets of blocked companies and their subsidiaries and companies with 50% or more ownership, the article reads. "This means that the refinery must stop making payments for crude oil supplies, as otherwise the persons involved in the transactions risk falling under secondary sanctions," said Vladimirov. According to Benchev, however, the US sanctions against Lukoil are unlikely to change anything in Bulgaria, given that they have no application outside the US. He reassured that the country has sufficient fuel reserves and does not expect price shocks on the market or fuel shortages. This is because distributors and producers are obliged to maintain reserves for critical situations. Nevertheless, the authorities have hastened to adopt controversial texts in the Investment Promotion Act, the article reads. The parliamentary Energy Committee approved at second reading that the sale of Lukoil’s assets in Bulgaria should take place only following a decision of the Council of Ministers and upon a positive opinion by the State Agency for National Security (SANS). This means that only days remain before this decision comes into force, which, according to the sponsors from GERB–UDF, MRF – New Beginning, BSP – United Left, and There Is Such a People (TISP), will ensure that the refinery does not fall into questionable hands or again into those connected with Russia. According to the opposition from Continue the Change – Democratic Bulgaria, this allows the SANS, allegedly controlled by the MRF–New Beginning Floor Leader Peevski, to influence a future deal in favour of the interests of Peevski, Mediapool writes. In fact, however, for months it has not been clear whether anything at all is being done regarding Lukoil’s intention, announced at the end of 2023, to sell its Bulgarian assets. After reports of offers from the Hungarian MOL, the Kazakh KazMunayGas, and an Azeri–Turkish consortium, the negotiations appear to be at a standstill. But even if a deal were to be reached, according to Vladimirov such a transaction could not be realized after the imposition of the US sanctions, as the change in ownership cannot be registered. The owner of the Bulgarian group of Lukoil is Litasco, registered in Switzerland, which in turn belongs to the Austrian Lukoil, itself owned by the Russian company. Since the Washington sanctions concern any transactions involving Lukoil’s assets, such a deal cannot go through. According to Vladimirov, the most reasonable option is for the State to activate the provision adopted back in 2023 in the Act on the Administrative Regulation of Economic Activities Related to Oil and Petroleum Products, which provides that the Minister of Economy appoints a special administrator on behalf of the state in the Burgas refinery. "The worst thing would be if now Bulgaria starts begging on behalf of Lukoil for some kind of derogation from the sanctions," the energy expert commented.

On Nova TV’s morning show, Vladimirov said that in the short term no shock price increase is expected, but a rise of around 10–15% is possible if on November 21 Russian oil is withdrawn from international markets. According to the expert, after November 21 the refinery will not be able to fulfil its obligations to contractors, import crude oil, or sell fuels on the market, regardless of whether it uses Russian or Kazakh crude oil. Vladimirov revealed that already in 2023 a “Plan B” had been prepared for a response in case the refinery’s operations were halted. “The plan provides for the appointment of a special administrator and the securing of crude oil supplies from three Western companies. Preliminary contracts - the so-called standby agreements - have been signed, which will come into force immediately after the activation of the administration,” he specified. According to him, these agreements will guarantee supplies for three months, after which new arrangements can be concluded.

In an interview with the Bulgarian National Radio (BNR), Benchev stressed that there are no reasons for concern regarding crude oil quotations. He added that sufficient quantities have been secured to last until the New Year.

On Nova News’ morning show, Bulgarian Petroleum and Gas Association Executive Director Andrey Delchev said that the sanctions do not have a direct effect on Bulgaria, since American laws do not have direct application in the country, but they will have indirect consequences. "The banks are not directly affected, but each one decides for itself whether to continue working with the respective parties. It is not only about Rosneft and Lukoil, but also their subsidiaries. That is, it is very likely that some of the banks, especially international ones, will refuse to work with the oil giants. And then there is a problem with payments. It is very likely that some countries will reconsider their approach to the import of Russian oil," explained the Association’s Executive Director. He urged the Government to ask for derogation through diplomatic channels.

On bTV’s morning show, former deputy foreign minister Milen Keremedchiev compared the situation to an “economic Magnitsky for companies”, which acts like a “financial COVID” – infecting related contractors, banks, and payment operators. The sanctions prohibit American citizens and companies from any financial relations with the listed firms, while for non-American entities they envisage so-called secondary sanctions for “significant” transactions with them. Former deputy energy minister Yavor Kuyumdzhiev said that one possible scenario is for the State to temporarily assume management of the Bulgarian companies in order to guarantee supplies and payments. "However, there are entirely no developed secondary regulations for this – how control would be assumed, through which legal structure crude oil would be purchased, and how the production would be sold," he pointed out. The second scenario is reaching a situation where normal payments become impossible, which would lead to a suspension of operations, similar to the case of the Serbian refinery where card payments were blocked due to the involvement of American financial institutions in the card schemes, Kuyumdzhiev explained. Both experts expect pressure on prices. International markets have already reacted with a 4-5% increase in oil prices in recent days.

POLITICS

On Nova TV’s morning show, political scientists Teodor Slavev and Rumyana Kolarova analyzed the political situation in the country. According to Slavev, the Zhelyazkov Cabinet will not serve a full term, and Kolarova also predicted that the Government would go through a very difficult period. Slavev pointed out that GERB–UDF Floor Leader Boyko Borissov had asked MRF – New Beginning to officially join the governing coalition so that it could also bear responsibility and not only GERB suffer the negatives of this Cabinet. "He mentioned concessions of ministries, but we see that absolutely none of this is going to change. The question being raised is how much weight Borissov’s word still carries. Unfortunately, it seems to me that we are following a parallel scenario to the way Ahmed Dogan’s displacement from MRF happened," the political scientist said. Kolarova added that at the moment Borissov is the subject of malicious mockery: “The political situation for him right now is very unfavourable from the point of view of public perception.”

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Trud features an interview with political psychologist Antoaneta Hristova, according to whom an impression is being created of powerlessness both among the Government and the opposition, and the prevailing feeling among the majority of voters is that there is no way out. She believes that what could tip the balance is the budget and the funds it will allocate to different sectors, which could become the basis for serious protest actions. “The financial state of the country is not good, and the moral dilemma we are facing and witnessing is also disheartening. But it seems that Bulgarians are not particularly affected by this - that is, our threshold of tolerance has risen significantly, unfortunately,” Hristova said. According to her, GERB has an interest in holding parliamentary elections before the presidential ones. “GERB is currently in a very unstable condition, with people leaving at the local level. Even worse, there are situations that reveal weakness. To escape this unfavourable framework, Borissov’s only chance was to enter an election campaign and overtake Radev with his own project,” she said.

ECONOMY

In an interview with BNR, Expert Club for Economics and Politics Co-Founder Stoyan Panchev noted that over the past year there has been a trend of more Bulgarians saving money. "We see a certain anxiety. This may be related both to the entry into the euro area and to negative global processes," he noted. He added that the process of replacing banknotes in Bulgaria is proceeding significantly more slowly than it did in Croatia. “Data from last week show that the reduction in lev banknotes over recent months is around 7%, whereas at this stage in Croatia it had reached 30%. Bulgarians are giving up their lev banknotes much more slowly. It is very likely that there will be a concentration of activity in the final months of this process, which could cause some minor chaos,” said Panchev.

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24 Chasa writes that bankers and financiers predict record financial inflows in levs into the banks in the remaining little over two months of the year. According to preliminary estimates, around BGN 16 billion more are expected to enter vaults, after deposits have already increased by BGN 11 billion since the start of the year, while cash in circulation has decreased by 4.2 billion.

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Telegraph features an article on the amounts families in Bulgaria spend on food. According to a check by the daily, a family with two children spends about BGN 400, while for pensioners the amount is half that. Bulgarians mainly shop during promotions and spend money on the cheapest food - chicken wings and drumsticks, pork, more rarely fish, milk, cheese, and potatoes. Bean stew is the most commonly prepared dish among elderly people, and pork trotter jelly replaces the steak, the article reads. The media outlet writes that if less than a year ago people were paying about BGN 100 per week for a family food basket, now the bill has doubled.

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On Bulgarian National Television’s morning show, National Grain Producer Association’s Board of Directors Chair Iliya Prodanov called for a meeting with Prime Minister Rosen Zhelyazkov against the backdrop of the protest readiness announced by the country’s grain producers and their calls for the resignation of the Agriculture Minister. "After this meeting, if we do not receive specific commitments, the tractors will be on the streets," Prodanov said firmly. "Our demands have been the same for the past few years. We always talk only about legislative initiatives that the sector needs in order to stabilize. In addition to amendments to the Water Act, in our declaration we have listed several issues related to irrigation systems, the provision of funds for the construction of the pumping station at the Pyasachnik Dam, which is of critical importance, and this must happen within the next week or two. There we have outlined quite a few problems with irrigation," he added. Prodanov emphasized that access to water during the active season is extremely limited for farmers and that in recent years the number of farms has decreased by 37%. The industry insists on long-term contracts for land leasing and tenancy.