Банкеръ Weekly



The natural gas market was liberalized back in the end of last year with the amendments to the Energy and Energy Efficiency Act. Under article 117 of the law, a registration regime was introduced for import and export deals in this product.According to the new legislative regulationsBulgargas, which held a monopoly position until recently, cannot refuse to transit the ordered quantities of gas to any place on Bulgaria's territory via existing pipelines. In fact, there was an opportunity for import of natural gas long before these legislative amendments were passed. The transportation itself was not a problem either: Bulgargas had calculated the price for the transit and had set the possible surplus charges and internal rate of profitability. The legislative framework for such activities was established back in mid-2000 by the General Terms in the Contracts for Sale of Natural Gas, approved by the State Committee for Energy Regulation.So both the law and the exististing facilities allow gas transportation. But not a single serious order for transiting natural gas on this country's territory by third parties (besides Bulgargas) was placed thoughout 2000, 2001 or the first two months of 2002, Bulgargas insiders claim. Talks with some of its biggest clients (which are also the greatest debtors to the Bulgarian gas mastodon) have been held and are still going on. But there has always been one major problem, which is a stumbling block for all candidate-importers and this is the impossibility to deliver the natural gas, purchased by them, to Bulgaria's borders.A single gas conduit leads to this country's territory. It starts from the Yamburg gas deposit, far north in Russia. Most of the pipeline (several thousand kilometers long) passes through Russian territory. The Yamburg deposits and the main sections of the connecting conduit are owned by Russia's Gazprom. Insideres informed that after a long-term agreement for natural gas deliveries to Bulgaria was closed with the monopoly Bulgargas in 1998, no any other document of the kind was signed.Sales and transit have been liberalized, but under the condition that technical opportunity for the transportation exists. This unobjectionable provision, however, renders impossible the contracting of alternative supplies. The mechanism is quite simple. The pipelines are owned by Gazprom and the decision whose natural gas would be transited along them is prompted by economic and geopolitical interests. In the case with Bulgaria they fully coincide. Therefore, none of the candidate-importers of natural gas has so far succeeded to break through Russia's iron wall and negotiate direct gas supply.The take and pay clause in the 1998 contract for natural gas deliveries to Bulgaria is not a hindrance to the liberalization of this market segment. Bulgargas orders certain quantities within the annual 6 billion cu m limit, fixed in the contract. No defaults are charged for smaller quantities. The gas monolpoly's orders are simply the sum total of all natural gas consumers' on Bulgaria's territory for the following year. The current 2002 is indicative in this respect. In the conditions of the already liberalized gas market no one of the consumers (counting on alternative import) has cut down its orders to Bulgargas.In fact, the greatest advantage from the actual break up of the monopoly will be for the gas company itself. Now it pays for the ordered quantities, receives them and delivers them to its clients, some of which consume the gas but delay the payment or do not pay at all. This is the case with the heating companies, whose liabilities to Bulgargas amounted to some BGN90MN in the end of the previous heating season and currently exceed BGN160MN. The gas monopoly has already paid for these amounts to the supplier Gazprom and owes 20% VAT on them to the State. However, Bulgagas stands little chances of getting its money, experts claim, pointing out the bad financial situation of heating companies and the limited state subsidies for this sector in the 2002 budget. The State has in fact transferred its social obligations to a commercial company (Bulgargas). What do we get as a result? The decapitalization of the gas monopoly goes up and it cannot stop gas deliveries to the indebted heating companies for purely social reasons. It will continue to supply gas to them and pay for it.And what is the truth about the fertilizer manufacturers?Presently, Bulgargas sells 1,000 cu m of natural gas at about BGN300 (a little over USD133, or around BGN250 before VAT). As a rule about 70% of the production cost of fertilizers is accounted for by the price of consumed natural gas (USD93/t after VAT or USD77/t before VAT) plus USD20/t for additional expeneses (electricity, wages and other payments). Thus, the price of manufactured fertilizers is USD113/t after VAT. Fertilizers are exported (VAT is not paid) at USD115-130/t, and are sold on the domestic market at USD120-130/t. This means that the local fertilizer manufacturers post good profits from the export of each ton. According to experts, the fertilizer producers operate normally, consume even more natural gas than the announced quantities, and duely pay for the gas supplies. The only exception is Chimco of Vratsa, but its problems are not only in the natural gas price but in the company's management as well.

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