Bulgargaz EAD, a state-owned company working entirely for the benefit of Bulgarian society and industry, has been the subject of an unprecedented and fact-defying attack and disinformation campaign in recent weeks.
Bulgargaz EAD supports freedom of speech and, in view of the complexity of the matter, is tolerant of statements by any commentators and public figures, but when the allegations affect the authority, reputation and credibility of Bulgargaz EAD as a competitive and reliable supplier, the company is forced to take a stand. Unfortunately, the attacks have long gone beyond the boundaries of normal public discussion and have crossed the line of incompetence to the point where they raise suspicions of malicious intent and serving economic interests beyond those of the state, domestic consumers of natural gas and Bulgarian industry.
With its actions in the period from 2015 until now, Bulgargaz EAD has proved that it serves the society in full, works in the interest of its owner - the Bulgarian state - as well as entirely in the interest of its customers - Bulgarian industry, district heating companies and gas distribution companies. In this period, the company was financially rescued from the heavy legacy and became a guarantor of the security of natural gas supply in Bulgaria, a significant factor in the regional gas market, as well as a reliable and desirable partner of businesses, international suppliers and financial institutions.
As a result, Bulgargaz EAD has managed and will continue its efforts to offer Bulgarian industry proven lower prices for natural gas, providing them with a price advantage compared to their competitors on European markets and, most importantly, security of supply, avoiding shortages and non-fulfilment of the quantities of natural gas nominated for consumption by the industry.
In the conditions of an unprecedented energy crisis in Europe, dictated by shortages and record gas prices, in recent years Bulgargaz EAD has transferred to the district heating companies, gas distribution companies and the industry all the benefits from its contracts with its suppliers, namely: in 2020 BGN 202 million and in 2021 - approximately BGN 675 million, or a total for the last two years the amount reaches nearly BGN 877 million. Without the efforts and work of the public supplier Bulgargaz EAD, it is questionable whether this significant financial resource would have reached, even partially, the domestic consumers of natural gas and Bulgarian industry.
The most definite and high recognition for the commercial policy of Bulgargaz EAD comes from the industry, which realized record-high purchases of natural gas in 2021 from the company. It is important to emphasize that this result was achieved in the conditions of strict state regulation of the activities of the public supplier Bulgargaz EAD on the one hand, and real competition with dozens of domestic and international traders of natural gas on a liberalized gas market on the other hand. The fact that Bulgargaz EAD currently offers its customers better prices and conditions for the supply of natural gas than those offered by other natural gas suppliers in the natural gas market is sufficient indication of the efficiency of Bulgargaz EAD's management.
Presenting the facts, Bulgargaz EAD categorically rejects the accusations against the company as completely baseless and not corresponding to the truth. Bulgargaz EAD considers it its duty to inform the public about the actual situation regarding the issues raised publicly below.
On allegations of natural gas exports and sale of "cheap gas" in Romania
The allegations that Bulgargaz EAD exports cheap gas from the gas storage in Chiren to Romania instead of providing these quantities to the regulated market in Bulgaria are categorically untrue. In fact, 100 % of the quantities stored by Bulgargaz EAD in the UGS Chiren are made available on the regulated market for the needs of end suppliers (gas distribution companies) and district heating companies, as well as Bulgarian industrial customers. Speculations on the possibility of rescheduling the production from the UGS Chiren do not take into account the operating regime of the gas storage facility and the need to have spare capacity for changes in production.
Regarding the allegations on natural gas sales by Bulgargaz EAD in the country
The natural gas market in Bulgaria has a regulated and liberalised segment.
- Regulated market
Natural gas on the regulated market is purchased by district heating companies and gas distribution companies. Prices on the regulated market are not freely negotiated but are approved by the Energy and Water Regulatory Commission (EWRC) upon application by Bulgargaz EAD, which is prepared in accordance with Ordinance No 2 of 2013 on the regulation of natural gas prices.
Bulgargaz EAD forms the price of natural gas at the entry of the gas transmission networks as a weighted average, taking into account the last nominated forecast quantities of natural gas from imports for the domestic market, from domestic production companies and from natural gas stocks for sale.
Bulgargaz EAD forms the regulated price for the month of delivery based on the binding customer nominations under their supply contracts. The mix forming the regulated gas price includes:
- all the quantities under the agreement with the Azerbaijani company with the corresponding price;
- all quantities to be produced from UGS Chiren, according to the schedule approved by Bulgartransgaz EAD with the corresponding price;
- the remaining quantities, up to the amount of the customers' nominations, are supplemented by the quantities under the contract with the Russian supplier, as this contract provides for flexibility on a daily basis and the possibility of an increase, with a corresponding price.
The following shall be added to the price at the entry of the gas transmission network in accordance with the Ordinance:
- a mark-up on the entry price – “public supply” component of up to 2.5% per annum, calculated according to a methodology agreed with the EWRC. For 2021, the “public supply” component amounted to 1.37% on an annual weighted average basis. This component is intended to cover the operating costs of the company and to ensure a profit;
- an "obligation to society" component, which provides for the return of the costs incurred for the storage of quantities at the UGS Chiren in relation to the company's obligations under the Emergency Situation Action Plan approved by the Minister of Energy.
- Liberalised/Free Market
On the liberalized market, Bulgargaz EAD sells gas to industrial customers directly connected to the national gas transmission network of Bulgaria. In this segment prices are not regulated by the EWRC. Bulgargaz EAD's policy is to offer prices on the free market close to those on the regulated market, formed in an objective and transparent manner, taking into account the cost of the natural gas supplied.
- Sales on the organised exchange market.
The activities of Bulgargaz EAD are entirely focused on meeting the natural gas consumption in Bulgaria.
All quantities of Azeri gas and the quantities produced from the UGS Chiren, which currently have the lowest price in the mix, are sold in full on the Bulgarian market as follows: 1) on the regulated market; 2) on the organized exchange market in accordance with the Natural Gas Release Program as provided for in the Energy Act; 3) on the free market under contracts with industrial consumers.
Only after satisfying the nominations of all these customers, on a daily basis, Bulgargaz EAD offers the remaining quantities not taken by them (if any) on an organized exchange market - these are the two gas exchanges licensed by the EWRC in the country.
Offering on the exchange is the most market-based and transparent way to trade natural gas. Natural gas is traded on the anonymous segment of the exchanges, with Bulgargaz EAD only learning which customer has purchased the gas sold once the transaction has been concluded.
Offering residual quantities on the exchange is a normal practice that every trader strives to implement. In this way, Bulgargaz EAD takes all the requested quantities from its suppliers instead of being liable for non-fulfilment of this obligation.
The price at which Bulgargaz EAD sells the residual volumes on the organised exchange market is formed on the basis of the "highest price in the pricing mix", currently the price under the contract with the Russian supplier, plus the costs to the Virtual Trading Point Bulgaria - the delivery point at which the transactions on the organised exchange market take place. It should be noted that currently the delivery price under this contract is also significantly lower than the prices on the European gas markets. Bulgargaz EAD sells these quantities of natural gas well above the price level of the price/cost thus obtained and choosing the highest price offered by buyers, taking into account the demand on both licensed gas exchanges.
The quantities and prices of transactions on an organised exchange market concluded with residual quantities on a daily basis after the beginning of the month shall in no way affect the regulated price. In other words, the sales of residual gas on the exchanges in Bulgaria do not lead to an increase or decrease in the gas price for the gas distribution companies and the district heating companies, respectively the household consumers.
The sales on the organized exchange market generate a positive financial result for Bulgargaz EAD and at the same time provide a significant cash inflow. At the same time, the sale of free quantities on the gas exchanges contributes to the fulfilment of Bulgargaz EAD's obligation under the contracts with its suppliers to accept minimum annual and minimum summer quantities and to avoid penalties under take-or-pay clauses.
Regarding the allegations of "sales to Romania" and "gas exports", Bulgargaz EAD stresses that it has no means to inform, control or track in any way for what purposes and where the quantities of natural gas purchased from buyers on the licensed exchanges are used. Moreover, Bulgargaz EAD not only does not have, but also cannot require information or restrict the final destination of natural gas, as this would violate the basic principle of European law on free trade. The European Commission is extremely sensitive to this type of infringement.
Bulgargaz EAD reminds that one of the practices for which the European Commission initiated a case against Gazprom in 2012 was precisely the presence of so-called "destination" clauses in the gas supply contracts. Following the European Commission's intervention, Gazprom had to remove these clauses from its contracts under threat of heavy sanctions.
09.01.2022
BOARD OF DIRECTORS
BULGARGAZ EAD