WHILE Bulgaria may be refusing to re-negotiate its contract to receive natural gas from Russian giant Gazprom, to stave off price increases, an increase in cost appears inevitable.

At a meeting on January 16 with the management of Bulgarian natural gas company Bulgargaz and the managers of 14 company managers, Economy and Energy Minister Roumen Ovcharov said that from 2007, natural gas would be subject to an excise.

According to a report by Ovcharov's ministry, the imposition of the excise would mean a price increase of about six to seven per cent.

Another factor that could push up the price is the fact that, from next year, the Galata deposit, which currently supplies about 14 per cent of domestic consumption, will seriously diminish.

Bulgaria's contract with Gazprom is to expire in 2010. Controversy was stirred up this month by reported statements by representatives of Gazprom and of the Russian government that Russia wanted to re-negotiate the term of the contract before its expiry.

Currently, Bulgaria pays a relatively low price for natural gas supplied by Gazprom, enabling it to keep domestic prices low.

In response to the likelihood of a hike in costs, specialist groups are to be set up to analyse the natural gas market and recommend steps to moderate the scale of post-2010 price increases. These groups will include representatives of Ovcharov's ministry, Bulgargaz, and natural gas consumers, and have been given until early February to produce a report.

Companies represented at the January 16 meeting with Ovcharov included fertiliser firms Agropolychim and Neochim, steel maker Stomana, metallurgical plant Kremikovtzi, mining company Kaolin, glass maker Drujba and the district heating companies based in Sofia, Pleven and Plovdiv. Together, these firms account for about 85 per cent of domestic gas consumption. They are strongly opposed to any price increase, and asked Ovcharov that their representatives be included in any future negotiations with Gazprom.

Ovcharov said that opening negotiations with Gazprom could mean an immediate process of gas price increases, by gradual stages. Accepting a price increase only after 2010 would mean a sharp price increase, he said.

The current arrangement is that Gazprom sells natural gas to Bulgargaz for a reduced price of $83 a 1000 cubic metres in exchange for using pipelines that cross Bulgaria to ship gas to Turkey, Greece and Macedonia. This transit arrangement allows Bulgargaz prices to domestic producers to be kept at a relatively low 297 leva ($180) a 1000 cubic metres. Bulgaria also buys gas under a direct delivery deal, whereby prices depend on currency fluctuations and international oil prices.