LUKOIL is exploring the possibility of selling a plant in Bulgaria
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LUKOIL, whose plant in Bulgaria will not be able to purchase Russian oil from March 2024, is considering selling the asset. This is already the second refinery in Europe that the company will be forced to sell due to pressure from local governments and sanctions on Russian oil. According to experts, the Burgas refinery is an attractive asset, but given the political situation, LUKOIL is unlikely to be able to get a fair price for it.
LUKOIL will reconsider its strategy in Bulgaria, where the company owns a refinery in Burgas with a capacity of almost 9 million tons. “Various options will be analyzed with the involvement of international consultants, including the sale of the business,”— reported company December 5th.
Bogdan BogdanovMinister of Economy of Bulgaria, November 19:
“The exceptions for LUKOIL will cease to apply at the beginning of March. We believe that LUKOIL is ready for this, and if not, then the state is ready to take control of the enterprise.”
LUKOIL has owned the Burgas refinery since 1998, investments in the modernization of the enterprise have since amounted to $3.4 billion. Also, the Bulgarian LUKOIL Neftohim, owned by LUKOIL trader Litasco, owns 220 gas stations, nine oil depots and a sea and air bunkering business in Bulgaria ships. The plant’s profit in 2021 amounted to about $44 million with revenue of $1.86 billion; the company did not disclose figures for 2022. At the same time, on October 25, LUKOIL Neftochim reported that it paid €323.5 million in taxes to the budget of Bulgaria for the nine months of 2023, including €76.5 million in corporate tax, which at that time the company paid at a rate of 55%. Based on this, we can assume that the company’s net profit for January–September could have amounted to about €62.6 million.
LUKOIL’s statement was a response to the decision of the Bulgarian authorities made at the end of November that the plant would not be able to process Russian oil starting in March. European sanctions provided for such a ban only from 2024.
Sofia has also banned the plant from exporting petroleum products since January, although about 70% of the Burgas refinery’s production is exported. In the fall, the government once again increased the profit tax for refineries to 60%; it 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.
LUKOIL calls these decisions “discriminatory, unfair, biased and political, having nothing to do with the civilized regulation of big business or increasing the revenue side of the country’s budget.” Bulgarian Finance Minister Asen Vasilev disagreed with this, saying that the authorities do not “allow any discrimination against LUKOIL.”
Kommersant’s sources note that it will depend on Sofia’s decision whether the Russian company will be able to sell the asset, since buyers will demand the maximum discount. Usually, Kommersant’s interlocutor says, such plants are valued at 8–10 annual profit figures ($500–700 million), but now there is no need to talk about the market price.
Taking into account the good condition of the plant, high processing depth and favorable geographical location, finding buyers for it will not be difficult.
First, the asset may be bought by a player close to the Bulgarian government, and then by a large foreign holding, Kommersant’s sources believe. After the abandonment of Russian oil, the main source of raw materials for the plant may be supplies from Kazakhstan, which are shipped through Novorossiysk.
Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation, notes that LUKOIL has so far refused to sell the refinery, as it probably counted on a postponement of the ban on the use of Russian oil. Now the company has two options: try to sell the refinery at a significant discount or risk its nationalization, Mr. Yushkov believes. In his opinion, the Azerbaijani Socar can buy the plant, which can build back the complete chain from oil supplies to the sale of petroleum products. At the beginning of the year, LUKOIL already had to sell its largest refinery in Europe – the Sicilian ISAB – to the Cypriot company GOI Energy with Israeli capital, the transaction amount was not disclosed.
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