site.btaUPDATED Lukoil Reviewing Operations in Bulgaria, Including Sale of Business

The Lukoil Group is reviewing its strategy with respect of its assets in Bulgaria and will analyze various options, including the sale of the business, Lukoil Neftochim Burgas said in a press release on Tuesday.

The move is prompted by a "significant change in the operating conditions of the LUKOIL Group companies in Bulgaria." More specifically, the revision of the strategy is "a consequence of the adoption by the Bulgarian state authorities of discriminatory laws and other unfair, biased political decisions towards the refinery, which have nothing to do either with the civilized regulation of a large business or with increasing the revenue part of the country's budget."

"The artificially fanned political storm around the enterprise of a large international commercial structure, which is not subject to sanctions by the European Union and the United States, and which fulfils all its obligations to the state and its workers, harms the business of Lukoil, the investment climate in Bulgaria, inexorably destroys the image of the Republic in the eyes of global business, negatively affects the revenues of the state budget," the press release says.

"Lukoil will inform the country's authorities and the Lukoil Syndicate of Bulgarian Petrochemists about further Company actions with respect to assets in Bulgaria," the Russian-controlled oil refinery said.

In early November, an international report alleged that fuel exports through Bulgaria and Lukoil Neftochim Burgas (Bulgaria's only oil refinery) had generated EUR 1 billion in tax revenue to the Kremlin.

In 2022, the European Commission granted Bulgaria a derogation from the EU embargo on oil imports from Russia due to the country's specific geographic exposure. Under the effective legislation, the exemption is to be revoked on October 1, 2024, three months ahead of the initial December 31, 2024 deadline.

Under pressure from GERB and despite resistance from Continue the Change, the pro-government parties have agreed to move up the lifting of the revocation to March 1, 2024.

Round-up of Reactions

Approached for comment by journalists, Bulgarian Vice President Iliana Iotova said she was not surprised by the news that Lukoil is reviewing its operations in Bulgaria and contemplates a sale of its business.

Recalling that Finance Minister Assen Vassilev said this in a Financial Times interview back two months ago. "I wonder why they [the Bulgarian Government] are not sincere and lack the courage to tell Bulgarian citizens what they are up to," Iotova added.

In his FT interview in mid-October, Vassilev said that the government's squeeze on Russian companies had also prompted Lukoil to start the process of selling its largest oil refinery in south-eastern Europe, which is located near Burgas, a Bulgarian city on the Black Sea coast.

"There probably is an economic benefit to switching the ownership of the refinery," he told the Financial Times. "We have indications of interest."

The government is not involved in the sale of the refinery, which supplies international clients with more than half of its output - including crucial shipments of diesel to Ukraine at the start of Russia's invasion, the daily reported.

Shortly after that interview, Switzerland-registered Litasco SA, which is the majority owner of Lukoil Neftochim Burgas, said that it had not appointed any public or private entity to look for potential buyers or negotiate a sale on their behalf.

Finance Minister Assen Vassilev commented that they had an early indication of Lukoil reviewing its operations in Bulgaria and contemplating a sale of its business in this country. "I'm glad they went public about it. I don't think the company is discriminated against in any way. We strictly adhere to the legislation as adopted by Parliament," Vassilev said, replying to a question. "Every company is able and entitled to decide where to operate and how to handle its own assets," the Finance Minister pointed out. He explained that, as far as the Bulgarian Government is concerned, a representative of the State must be designated at the refinery so that it can continue to operate, possibly with a strategic investor, and that the Bulgarian interest is protected. Vassilev was adamant that Bulgaria does not risk being left without fuels in this situation.

Bulgarian Industrial Capital Association (BICA) Board Chairman Vassil Velev commented to BTA that his Association does not have information about potential interest in Lukoil's assets in Bulgaria. "Depending on the potential buyer, its capabilities and skills, the company can develop or fail," Velev pointed out. Asked who stands to gain and to lose from this situation, he said that the answer depends on whose hands the refinery will land in. "Bulgaria stands to gain from a smoothly operating refinery because, on the one hand, we have the cheapest fuels and supply the region, too, say, with diesel fuel, but, on the other hand, the business model has changed over the last two years and the company has started to pay corporate tax in Bulgaria, from which we stand to gain," Vassilev said.

Parliamentary Energy Committee Chair Delyan Dobrev MP of GERB-UDF commented that "Lukoil realize that the whole business with the Russian oil and the [tanker-to-tanker] transfer of fuel in international waters is starting to unravel. The whole scheme with the derogation over the last year and a half in Bulgaria is starting to unravel, the whole world sees that our purchases of Russian oil have skyrocketed from 15 million barrels before the war to 45 million barrels now despite the sanctions regime," Dobrev commented. "The destination of this fuel will be pinpointed quite soon," he added. Replying to a question, the MP explained that the golden share that the Bulgarian State holds in the refinery does not entitle the State to approve the buyer. He specified that the right to such an approval requires special legislation like one adopted in Germany. 

Dobrev was referring to a blocking minority interest in Lukoil Neftochim Burgas which entitles the Bulgarian Government to convene a shareholders' general meeting on all key issues concerning the company. Under Bulgarian legislation, the State can take control of the refinery if national security is jeopardized.

Bulgarian Petroleum and Gas Association (BPGA) Chair Zhivodar Terziev shared that the BPGA is surprised, because at a recent forum Lukoil had stated that they will continue to operate, that they are taking care of the market. "Now we read something else. Changing ownership is nothing to worry about. Besides, if Lukoil sells its business in Bulgaria, it does not mean that the refinery will stop working. The news that they are considering selling the business in Bulgaria will not affect retail fuel prices in the country. They are already slightly inflated, and prices on international markets have collapsed," Terziev said.