The report from an Ad Hoc Committee of the Bulgarian National Assembly provides an intriguing insight into the controversial BOTAS – Agreement signed on 3 January 2023 – writes Dick Roche, former Irish Minister for European Affairs.
When the Agreement was signed the Commission was blindsided. It had no prior knowledge of the deal and had no opportunity to review its implications.
The Ad Hoc Commission report and the subsequent instruction by Bulgaria’s National Assembly that the Agreement be renegotiated opens an opportunity for the EU Commission.
With renegotiation in prospect, the Commission can put down ‘markers’ about any replacement agreement and about the ‘pick and mix’ approach applied in Bulgaria’s energy sector to EU rules and standards.
The Secret Agreement.
The BOTAS-Bulgargaz Agreement was signed three months before Bulgaria’s fifth general election in two years.
Bulgaria’s then Energy Minister Rosen Hristov praised the deal claiming that it gave Bulgaria access to infrastructure needed to upload liquefied natural gas and allowing it to buy gas from “all international producers”. The Turkish Minister spoke of the deal increasing the security of supplies in south-eastern Europe.
Questioned on the origin of the gas covered by the deal Minister Hristov chose his words carefully saying “while Bulgaria could not control the gas that would enter his country’s gas transmission lines it would make sure it signs deals for LNG deliveries that are not from Russia.” The emphasis on LNG is noteworthy. The issue of the origin of the gas was to become a central issue in the subsequent debate on the Agreement. It also receives attention in the Ad-Hoc Committee report.
Minister Hristov’s enthusiasm for the Agreement was not shared by members of the Bulgarian government that took office on 6th June 2023. Prime Minister Denkov labelled the Agreement “non-transparent and unprofitable”. His Energy Minister referred to the requirement that Bulgaria must pay a fixed $2 billion service fee to BOTAS over 13 years spoke of the Agreement ‘costing Bulgarians without delivering any benefit.’
In the Dark
In addition to being blindsided when the agreement was signed, the Commission was kept in the dark on its content. Between February 2023 and April 2024, it had to bat off Parliamentary Questions on the Agreement with assurances that it was following ‘developments closely’ and was “sending requests for information” to the relevant authorities.
The EU Commission is not alone in being left in the dark. The Ad-Hoc Committee of the National Assembly was also left scrabbling for details.
In its report, released on 19th April, the Committee noted that Bulgaria Energy Holding EAD (BEH) the state-owned behemoth that owns Bulgargaz “was not in a position to provide it with either a copy of the Agreement or of the associated Tripartite Protocol as it did not have copies of either” and that Bulgargaz refused to supply material in an accessible form.
The Committee’s report provides an intriguing insight into how the agreement was put together and the key roles played by Turkish and Bulgarian Presidents.
Both Presidents met in Istanbul on 9th December 2022 where “an agreement was reached to strengthen the cooperation between the two countries in the field of ….energy…“. Fifteen days later BOTAS sent the agreement, by email, to Bulgargaz for signing. The name of Bulgaria’s Energy Minister Rosen Hristov was “already affixed as buyer”. According to the Committee, the emailed agreement which was marked “as an execution copy” did not reflect Bulgargaz proposals for changes.
The Committee reported that “the agreement procedure in the (Bulgarian) Council of Ministers was conducted in less than 24 hours”.
This extraordinarily truncated timetable suited the Bulgarian authorities. Private operators had been flagging concerns about the Bulgargaz – Gazprom contract that was due to conclude on 31st December 2022. Condensing the ‘negotiations’ on the Agreement into the shortest possible timetable, opening them at the last minute and conducting the negotiations at the highest political level provided cover for not involving non-government parties in putting it together.
Excluding non-state stakeholders meant that key points in the Agreement such as the decision to reserve the entire capacity at the key interconnection point for BOTAS and Bulgargaz and the disastrous arrangements for the pricing of services provided by BOTAS to Bulgargaz had no objective scrutiny before being ‘signed off’.
Time for the Commission to step up the pressure
The Ad-hoc Committee concluded that the manner in which Bulgargaz failed to cooperate with it constituted a breach of constitutional obligations. It outlined a series of questions that arose from its examination including the basic question as to why Bulgargaz entered into the agreement and whether the fact that the Bulgarian Minister’s signature was appended to the copy of the Agreement sent to Bulgargaz by BOTAS on 24th December 2022 bound the company to the agreement.
The Committee recommended that the documentation it had unearthed be sent “for inspection and respective action” to the Bulgarian Prosecutor’s Office, the State Agency for National Security, the Minister for Energy, BEH, and the Energy and Water Regulatory Commission.
In an extraordinary plenary sitting on 19th April the Bulgarian National Assembly by an overwhelming 166 -32 majority instructed the Minister for Energy to renegotiate the agreement. It also agreed that the Committee’s report be submitted to the Bulgarian Prosecutors Office, the European Public Prosecutor’s Office, the state agency for national security, and other relevant state institutions.
The report of the Ad Hoc committee, its endorsement by the Bulgarian National Assembly and the Assembly’s instruction that the Agreement be renegotiated have changed the dynamic. They put the European Commission in a much stronger position than ever to deal with the eccentric nature of Bulgarian energy policy, its failure to comply with EU principles to promote change and to ensure that EU interests are protected in any new agreement.
The priority for the Commission must be to ensure that the anticompetitive elements that existed in the Agreement of 3rd of January 2023 do not reappear in any new agreement.
It should insist that full non-discriminatory third-party access particularly for any unused capacity is a central part of a revised agreement.
The Commission’s capacity to press for private operator access is further strengthened by Turkey’s expressed desire to dramatically increase gas transit capacity through Bulgaria from 3bcm to 15bcm. Any such upgrade will require significant EU funding, putting the Commission in a commanding position to require that all additional capacity be open to effective non-discriminatory third-party access.
Taking a strong stand at this point would not only make clear that the breaches contained in the BOTAS – Bulgargaz agreement cannot be repeated but, going forward, it opens the way for the Commission to press for wider reform.
An obvious starting point in this regard would be for the Commission to engage with Bulgaria on the question of cutting back state domination in Bulgaria’s energy sector as exemplified by BEH. Unbundling, starting with Bulgargaz, is a logical starting point.
Carpe Diem
There has been a long-held view amongst scholars of public administration that when state-owned entities are endowed with privileges that shield them from competition governments create coercive monopolies. Bulgaria’s energy sector where it is often hard to determine who is calling the shots is an example.
The difficulties that have arisen from the BOTAS – Bulgargaz agreement offer the Commission and reformers in Bulgaria an opportunity to break the cycle. That will only happen if they have the resolve to seize the day.
Dick Roche is a former Irish Minister for European Affairs.