On Monday, the European embargo on the import of Russian oil came into force. The aim of the EU is thus to limit Russia’s income with which it finances the war against Ukraine.
Bulgaria is the only country in the European Union that received an exception and can import Russian oil by sea for another two years. The import is carried out by the Russian company “Lukoil“, which owns the refinery in Burgas. However, the Russian company is not satisfied only with the Bulgarian market and asked the Bulgarian government to allow it to bypass the sanctions. And the official government allowed it – on Friday The Council of Ministers gave the right to “Lukoil” to export processed Russian oil for another 3 months.
The European Commission has already said several times that the exception for Bulgaria aims to satisfy the domestic market. Appointed by the President Rumen Radev however, a caretaker government insists that there is no problem for the Russian company to continue exporting its products.
But even the prime minister’s office Dove Donev if he had not taken this decision, Bulgaria would once again be the wide open door for Russian oil to Europe. An audit by Free Europe found that no single institution is responsible for monitoring the implementation of sanctions. So it doesn’t matter what the EU decides and what the government in Sofia says – whoever has exported oil products so far has no problem continuing to do so in the future.
How the pressure worked
At the end of November the Russian company “Lukoil” threatenedthat it will close the refinery in Burgas, if the Bulgarian government forbids it from exporting products produced from Russian oil. The company has a dominant position on the Bulgarian market, according to several findings of the antimonopoly authority.
The European Commission said that the exception for importing Russian oil that Bulgaria received was only to meet the needs of the Bulgarian market and “Lukoil cannot export fuels, derived from Russian oil. The caretaker government claims that this is not true and has complied with Lukoil’s interest.
This happened literally at the last moment, at the end of the last working day before the embargo began. Late Friday official government allowed the Burgaska refinery “Lukoil Neftohim” to export products of processed Russian oil until March 5, 2023, i.e. three more months.
EC officials said the export of fuels made from Russian oil was a violation of the embargo.
It is not clear from the government’s announcement whether the decision was agreed with the European Commission. Its representatives have repeatedly said that exporting fuels made from Russian oil is a violation of the embargo and will lead to sanctions.
The government’s decision opens the door for Lukoil to continue to profit, but it remains unclear what the Bulgarian state is getting, apart from the Russian company’s promises to change its work pattern and pay more tax profit in Bulgaria. For years, Lukoil has been reporting only losses in Bulgaria, and the money earned in the country goes to Russia.
Since the beginning of the year, the refinery in Burgas has processed a record amount of oil, mainly Russian. About 55 percent of the finished product is exported, and the expected profit for the year will be approx 3 billion dollarsexperts told Free Europe.
The “rosy” situation of “Lukoil” in Bulgaria is due to the lower price of Russian oil after the beginning of the military aggression against Ukraine.
Now the company wants to take advantage of this advantage, and the Bulgarian government is helping it. The European Commission has already signaled that it may sanction Bulgaria for violating the embargo.
What next
In the coming weeks, the European Commission will react to the decision of the Bulgarian government. Until the publication of this text, we have not yet received comments from the government in Sofia and the European Commission in Brussels.
Free Europe tried to find out how the sanctions will be applied after December 5 and which institutions will be responsible for this. The European Commission told Free Europe that this is the task of the state. The Bulgarian institutions did not answer us, and the experts say that “the country is on autopilot”.
The introduction of the oil embargo takes place with a regulation, which is mandatory for the member states. Each country then decides by what mechanism it applies and controls it.
However, there is no such solution in Bulgaria. It is also not clear who should monitor whether the embargo is not violated.
“Someone must say in this country who controls the implementation of European sanctions. That is not clear,” he told Free Europe Juliana Nikolovadirector of Portal “Europe”.
“It’s absolute legal chaos at the moment,” he told Free Europe Martin Vladimirov from the Center for the Study of Democracy. According to him, it may happen that some countries stop the import of fuels, while others do not.
“The Bulgarian authorities have not done their job in the last nine months and refuse to take a firm decision on the regulatory mechanism over the refinery, which will create chaos that Russia can take advantage of,” Vladimirov said.
According to him, Bulgaria should take advantage of the “golden share” in the refinery and take over the operational control of the enterprise.
This has already happened in Italywhere Russian oil giant Lukoil’s refinery in Priolo, Sicily, was placed under “temporary management” by the new Italian government of Giorgia Meloni. The aim is to avoid closing the refinery due to the already effective European embargo on the import of Russian crude oil by sea.
The government is silent
The Bulgarian government has not said how the country will implement the sanctions. Free Europe sent questions to the Council of Ministers and the Ministry of Finance, which are responsible for the activities of the Customs Agency and the National Revenue Agency (NAA), but did not receive any answers. Fuels are excise goods and their movement is monitored by customs.
Unlike other European countries, Bulgaria has not yet adopted a mechanism for implementing sanctions. In mid-November, the caretaker government published a draft of decree for “coordination of the restrictive measures of the European Union”, but it is still in public discussion mode.
In this project, the Minister of Foreign Affairs has been designated as the national coordinator for the implementation of the measures. In mid-December, the period of public consultation expires, and the decree can be adopted only after that. However, then it’s the Christmas holidays and that makes an even bigger delay very likely.
European Commission suggested on Friday up to 5 years in prison for individuals and a fine of at least 5% of turnover for companies that violate or circumvent sanctions imposed by the EU against third countries. The directive also covers trade in goods whose import, export, sale, purchase, transfer, transit or carriage is prohibited or restricted. But this is also a project that has yet to be discussed and approved.
For now, Lukoil is getting what it wants from Bulgaria. And Bulgaria is becoming the wide open door to Europe for the company’s products.
Lukoil’s demands became known on November 21. Then the management of the company and representatives of the government gave a joint press conference, to which they said that they had agreed with the caretaker government that Lukoil would transfer all its economic activity to Bulgaria and pay taxes on its profits in the country. This arrangement is not bound by a document and clear commitments.
“Lukoil” worked on a similar scheme before, but bypassed the payment of profit tax in Bulgaria through a network of related companies.
At the moment, Lukoil is working on an ishleme. It processes oil supplied by the Litasco subsidiary, which retains the large profits from the sale of fuels. Litasco is registered in Switzerland, which has also joined the European sanctions.
“Lukoil” threatened that if the government does not fulfill their conditions, they will close the refinery in Burgas. The company did not answer Free Europe’s questions as to whether the already promised decision to move their economic activity to Bulgaria has been made, as well as whether they are clear about how they will work under the embargo conditions.
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