Bulgaria cuts off LUKOIL from the sea

Bulgaria has decided to accelerate the phase-out of Russian oil at the LUKOIL-owned refinery in Burgas. The country’s authorities imposed a ban on the export of petroleum products for the plant in January, and in March they banned it from refining Russian oil. LUKOIL said that these measures pose great risks for the Bulgarian fuel market, as the plant could shut down. Experts believe that by doing so the Bulgarian authorities are forcing LUKOIL to sell this asset.

The LUKOIL oil refinery in Burgas, Bulgaria, with a capacity of about 9 million tons from March 2, 2024 will be prohibited from using Russian oil as a raw material, and from the beginning of January the plant will lose quotas for the export of petroleum products. This decision was made by the deputies of the parliamentary majority, said the chairman of the parliamentary group of the coalition of the Citizens for European Development of Bulgaria party and the Union of Democratic Forces, Desislava Atanasova. According to her, the authorities agreed to such a transition period “only so that there would be no financial shocks in the fuel market, namely damage from the increase in the cost of gasoline and diesel.” The legal ban must be approved by the end of November.

LUKOIL Neftochim has already announced the threat of stopping production due to the abolition of quotas for the export of petroleum products. They noted that the cessation of work would entail logistical risks and a possible crisis in the supply of fuel to Bulgaria.

Bulgaria’s ruling coalition previously proposed stopping oil refining from Russia within three days, but this proposal did not receive the support of other deputies. On November 16, the Security Council under the Bulgarian government recognized October 2024 as the optimal date for abandoning Russian oil. Parliament agreed to this in September, but has now decided to reconsider this condition. According to the then-approved bill, the refinery had the right to process no more than 80% of oil of Russian origin until December 31, 2023, no more than 75% until March 31, 2024, no more than 50% until June 30, 2024, and until the end of September 2024 this figure was to drop to 25% with a complete phase out by October 2024. At the same time, EU sanctions allow Bulgaria to buy Russian oil until 2025.

Kommersant’s interlocutors believe that the decision to accelerate the abandonment of Russian oil is an attempt to put pressure on LUKOIL, which so far refuses to sell the refinery in Burgas.

At the end of October, Litasco SA (the main shareholder of LUKOIL Neftochim) stated that didn’t receive proposals for the sale of the plant, does not conduct such negotiations and search for potential buyers. This year, Sofia introduced a 60% profit tax for the refinery, which will be reduced to 15% only after the sale of the asset. In addition, the plant is required to carry out a €500 million modernization to enable the processing of non-Russian types of oil. If the Russian company does not comply with demands for complete diversification of oil supplies, the government will be able to transfer the refinery and its other assets in the country to the state through a special manager. In addition, this year the Bulgarian authorities fined LUKOIL $108 million for abusing its dominant position in the fuel market and terminated the concession for the oil terminal in Rosenets ahead of schedule.

Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation, notes that LUKOIL is being “squeezed out” from Bulgaria by all means and, if the country had not independently accelerated this process, the refinery would still have to stop accepting Russian oil from 2025. This will be a serious blow for LUKOIL, he believes. “The company specifically built vertical integration on its Bulgarian assets to operate in European markets. LUKOIL supplied its own oil, which it received at its port facilities, processed at its refinery and then sold mainly through its own network of gas stations. Without synergy, the refinery loses economic meaning for the company,” the expert believes. He doubts that LUKOIL will remain the owner of the plant in the future, and also fears that in the end the asset may simply be taken away from the company. LUKOIL this year closed the deal to sell its largest refinery in Europe – ISAB in Sicily, the company retains the Ploiesti refinery in Romania and a stake in a refinery in the Netherlands.

Olga Mordyushenko