Negotiations between Bulgarian and Russia on the supply of Russian gas will get closer to clarity by the end of June.

This was announced in Moscow on May 17 after a meeting between Economy and Energy Minister Roumen Ovcharov and Russian gas giant Gazprom’s board chair Alexei Miller.

Ovcharov was on a visit to the Russian capital, leading the Bulgarian delegation for the 10th session of the intergovernmental Bulgarian-Russian Commission on Trade, Economic, Scientific and Technical Co-operation.

The working groups – that by June 30 would have to offer a new scheme for changing the contract for the transit of Russian natural gas through Bulgaria – will seek a solution that would not lead to a drastic price increase of the gas and would guarantee the long-term gas interests of Sofia and Moscow, Ovcharov said after meeting with Miller.

The problem first surfaced as part of Russia’s campaign asking for a higher price for the gas it supplies not only to Bulgaria and other countries in Europe.

In January, Gazprom sent a letter to the Cabinet in Sofia seeking revision of the long-term contracts it has with Bulgaria on supplying the country with gas. Since the contracts expire in 2010, the Government said clearly that it would not bow to pressure and would not renegotiate the price.

The price at which Bulgaria buys natural gas from Gazprom will remain unchanged until the contracts between the two sides expire in 2010. Ovcharov had announced this on February 1 after his meeting with Russia’s minister of industry and energy Viktor Khristenko.
Furthermore, in Khristenko’s words, it was in Russia’s interests to have long-term supply agreements with Bulgaria.

Currently, Gazprom sells natural gas to Bulgaria’s state-owned gas supplier Bulgargaz under two contracts: one for direct delivery and one in exchange for Bulgaria transiting Russian gas to Turkey, Greece and Macedonia. Both contracts expire in 2010.

Gazprom now pays transit fees to Bulgaria in the form of gas at a price set at about $83 for 1000 cu m, compared to the $257 Bulgaria pays for supply not covered by the transit contract.

The Russian company wants to renounce the gas-for-transit agreement and receive direct payment for all gas deliveries. Bulgaria fears that in this case, Gazprom would decrease the volume of gas piped via Bulgaria and use an alternative pipeline under the Black Sea, which was launched in early 2006 under the name Blue Stream.

Bulgaria imports about 2.73 billion cubic metres of natural gas every year from Russia, 90 per cent of the country’s total needs.

After the May 16-17 visit by Ovcharov to Moscow, it emerged that Gazprom had again asked for the renouncement of the gas-for-transit agreement. The Russian company has posted June 30 as the deadline for Bulgaria to decide its position on the matter because Gazprom’s board of directors will be meeting on this date.

Ovcharov, who has always claimed that Bulgaria would not bow to the Russian pressure, now had to admit that working groups from both countries have for some time been working on drafting a new gas accord.

The groups will work out a solution that would serve the long-term interests of the two countries. At the same time, the change will be made in a way that would “explain to the Bulgarian public that a balance of interests exists and will prevent the suspicion that something is being done behind people’s backs”, Ovcharov said.

Experts comment that the remaining month and a half is hardly enough for resolving such a complicated issue. This deadline, they say, is quite optimistic, provided that in the past year the negotiations between Bulgaria and Russia on different Russian demands have not been going smoothly or at the needed pace.

The former head of Bulgaria’s Committee on Energy (the ex-agency, which later became the Energy and Energy Resources Ministry, and is now the of Economy and Energy Ministry), Nikita Shervashidze, said in an interview with the Bulgarian National Radio on May 17 that Bulgaria’s more realistic goal and better option was to delay the negotiations with Russia as much as possible, to postpone the gas-price hike for the domestic market, which would have negative social implications.

Unofficial comments in Bulgarian media show that most of the large industrial consumers of natural gas in Bulgaria are also in support of the negotiations’ delay. They insist on preserving the currently existing agreement with Russia for as long as possible, regardless of the fact that Russia has already threatened to decrease the volume of gas piped via Bulgaria.

An interesting point in Ovcharov’s recent statements from Moscow, according to the Bulgarian news portal mediapool.bg, is that “what we are doing now is not for the sake of just one of the sides”. Ovcharov has on many occasions said that he will seek, in the case of a possible change of the contract with Russia, inclusion of Bulgaria in Gazprom’s long-term plans for expanding the gas supply network in the region and for enlarging the quantities of transited gas, as well as investment inside this country.

“It looks as if Ovcharov is prone to securing the transit of gas for Bulgaria’s neighbouring countries and even increasing the transited quantities in case of Russian guarantees, instead of, as he put it back in January, having ‘nice and empty pipes’,” mediapool.bg said.
Naturally, in exchange, Bulgaria will have to agree with the renouncement of the gas-for-transit agreement. According to experts of the Economy and Energy Ministry, there is an option for a balanced hike in the price of natural gas via increase of the transit fee, which is obviously on Ovcharov’s agenda when he speaks of inflation-driven price fluctuation. With most of the fees Russia would pay for the transit of gas, the state-owned Bulgargaz would be able to compensate the price of the fuel for the domestic market.

One thing that remains unclear for now is if the gas transit network on Bulgarian territory is expanded to meet the larger quantities, under whose ownership the new pipes would fall. Previous statements by Ovcharov after his meetings with Gazprom officials have shown that the Russian gas giant has interests in acquiring gas pipelines in this country. This could not happen through Gazprom acquiring a share in Bulgargaz, Ovcharov categorically said several months ago.

Even the Cabinet’s plans for the restructuring of Bulgargaz into a holding consisting of a gas-supply and gas-trader unit plus another two units also exclude participation in the existing gas network.

“We defined with Mr Miller that the sought solution could not be to the detriment of any of the sides, and in any case would lead to a beneficial co-operation in both the short-term and the long-term plan,” Ovcharov said. 

He said he wanted to see an agreement reached that would be a prerequisite for a strategic partnership and would guarantee no dramatic price increases in the coming years.

Bulgaria has no alternative in a visible future of the Russian gas supplies, or any possible alternative looks rather foggy and will never be enough to secure the country’s needs.

Resulting from the continuous pressure from Gazprom to review the transit contract signed in 1998, Bulgaria is looking for energy providers other than Russia to secure its supplies, Ovcharov said back in January.

In his words then, the main alternative was the 3300km pipeline project Nabucco, which would link Bulgaria with some countries, other than Russia, with gas fields in Iran and Azerbaijan through Turkey. Another option is importing natural gas from Algeria.

Negotiations are still underway with eight major European companies that have declared interest in participation in the Nabucco gas pipeline project. Agreement will probably be reached with up to two companies in view of accelerating the implementation of the project, while at the same time the number of participating companies will not become too large.

Partners in this project include gas companies Botas of Turkey, Bulgargaz of Bulgaria, Transgaz of Romania, MOL of Hungary and OMV Gas of Austria, which are all joined in the consortium Nabucco for the construction of this transcontinental gas pipeline from the Caspian region and the Middle East to Central and Western Europe.

On Bulgarian territory, the main infrastructure passes though eight regions and 22 municipalities, crossing seven railway lines, three highways, many other roads and six large rivers, as well as the Danube. The length of the pipeline on Bulgarian territory will be 400km and investments stand at 450 million euro.

The phases of project implementation provide for its development from 2006 to 2008, construction between 2008 and 2011 and putting it into operation as of 2011. Which is just one year after the current agreement with Russia expires.

However, many important people do not believe in the future of Nabucco; the main reason for the disbelief is the mere fact that Iran will be a main provider of gas for the network. The number of these people constantly grows, especially with regard to Iran’s current delicate position in international relations.