The news that Finance Minister Asen Vassilev discussed in Washington the need to find a strategic buyer for the Bulgarian refinery “Lukoil Neftohim Burgas”once again brought to the agenda the long-suffocated topic of the fate of the company and the Bulgarian fuel market.
For now, the Ministry of Finance refuses information on whether a specific investor interest has been discussed.
In October of Minister Vasilev announced that the government’s pressure to push Russian energy interests out of the Bulgarian market has led Lukoil to start the process of selling its refinery in Burgas.
In its first reaction to the news, Lukoil denied looking for a buyer, but after some time announced that it would analyze how to operate its assets in Bulgaria. He also allowed their sale. Information on whether a consultant has been hired for this analysis and whether the sale procedure is already being structured is mixed. According to some sources, the Russians actually do not plan to part with “Neftohim” and their chain of gas stations in Bulgaria at all and have not activated themselves in this direction. Others claim that, albeit reluctantly, “Lukoil” is forced to look for options for an exit from the Bulgarian market and has already taken action.
If it were not for Russia’s war in Ukraine and if Neftohim was not an asset of a Russian oil concern, the question of why the state, even if it has a golden share and special control, is looking for a buyer of foreign property, and what would happen , if “Lukoil” refuses to accept the new owner specified by the state.
The state is looking for alternative oil – just in case
According to analysts, however, it is perfectly normal, when it comes to an object of strategic importance, for the state to try to provide for an option in which the owner can say that he cannot find crude oil and this threatens the market.
They think that in the event of a decline in oil processing below 40% of refinery capacity, the state must intervene and even undertake expropriation. This would be an interim operation to ensure the supply, operation and financing of the enterprise so as not to disturb the balance of the fuel market.
People familiar with the matter say that the government’s main task at the moment is to provide “emergency” supplies of non-Russian crude oil in case the refinery critically reduces processing. There has already been interest from enough raw material sellers, informed sources told Mediapool.
“Efforts in the last 7-8 months are to provide alternative oil”said on Wednesday before the parliamentary committees on energy and economy the Minister of Economy and Industry Bogdan Bogdanov. He noted that the supply of crude oil to “Neftohim” and, accordingly, its processing have decreased at the moment.
“But we believe that the minimum necessary quantities can be provided for smooth operation and not risk the operational capacity of the refinery as well as the fuel market”added the minister.
Could Kazakh oil be Russian?
The Chairman of the Parliamentary Energy Commission Delyan Dobrev (GERB) announced last week that currently, almost half of the oil processed at Neftohim comes from Kazakhstan. The remaining quantities are from Iraq – 29%, from Saudi Arabia – 16%, and Tunisia – 7%.
A logical reason for mainly using raw material from Kazakhstan is that its indicators are closest to those of Russian oil, with which the combine is designed to work. But according to some, there is also a second – it is possible to mix it with embargoed crude oil, given the peculiarities of the logistics of pipeline deliveries to the port of Novorossiysk. According to refinery supply data, it is an import of Kazakh oil CPC Blend, which is a mixture of different grades, including Russianwhose share in the blended variety is about one fifth.
The Customs Agency states that the documentation on the origin of imported oil is strictly traced back to its primary producer.
Will Lukoil sell its Bulgarian assets?
The big question mark is, in fact, whether “Lukoil” seriously intends to withdraw from Bulgaria, because of the “pressure” to which it is subjected with the early termination of the right to import and process Russian oil, as well as to export products. According to insiders, even if they didn’t want to, the Russians may have to sell the refinery – not only because of supply difficulties, but also because of banks’ refusal to deal with Russian companies.
It seems strange that potential candidates are rather knocking on the door of the statewhich holds one golden share in the refinery, instead of that of majority owner Lukoil, whose choice should be the buyer of Neftokhim.
However, analysts believe that this is perfectly normal, because with such a strategic asset, the future investor must also be acceptable to the government and to have irreversible guarantees for the continuation of the refinery’s operations. According to them, state control should even be extended when structuring a future deal.
At the end of 2023, the ruling GERB-PP-DB and DPS decided that if “Lukoil” wants to part with its assets in Bulgaria, the final word will be with the parliament – but not just approval, but a qualified majority of 2/3.
Some see this as a no-deal trap if Lukoil decides to sell and choose a buyer, but according to others, the goal is to exclude the possibility of a momentary majority that could defeat the intentions of the rulers.
In favor of Azerbaijan or Turkey?
The Azeri oil and gas company SOKAR, which imports 1 billion cubic meters of natural gas annually through Greece, but also 2 million cubic meters per day through Turkey, which it sells to the “Balkan” gas hub exchange.
In principle, the Azeris have the capacity to manage the refinery in Burgas, but do they need it?
SOKAR owns the largest oil refinery in Turkey, which supplies Russian oil as part of a $1.5 billion loan deal with Lukoil. Sources claim that SOCAR does not have a fresh financial resource of 2.5-3 billion dollars to buy Neftochem, however roughly the enterprise is valued. they think it would be much easier for the Azeris, instead of putting such money into the Bulgarian market, if they want to expand their presence, to feed it with fuels produced in Turkey from cheap Russian oil. The twist here is that the ban on the import of Russian oil and Russian fuels does not apply when it comes to “deeply” processed crude oil and gasoline or diesel produced from it. That is, the door to import fuels produced in Turkey from Russian oil is open.
Those familiar with the activities of “Neftohim” claim that the burgas refinery is not that interesting an asset to buy at all, because of a specific indicator of the difference between the costs of processing crude oil and the income from the sale of finished petroleum products. It is usually negative for refineries (the exception was the last two years around the energy supply crisis). Only powerful integrated oil structures, which have closed the whole circle – extraction, transportation of oil, its processing and sale of the products, can survive, because along the chain they manage to maneuver and adjust the accounts, say supporters of Lukoil’s remaining in us.
According to them, giants such as OMV, SHELL, Total, Chevron have their own problems to solve, given that the fossil fuel business is facing increasing difficulties due to the Green Deal, emission reduction requirements and the refusal of banking institutions to finance oil companies for development of new fields and mining. That is why there is no talk of interest of companies of this caliber in “Neftochem”.
What were the motives
In the last months of last year, Lukoil became the target of a fierce political campaign, led by the head of the DPS deputies Delyan Peevski and the chairman of the parliamentary energy commission Delyan Dobrev (GERB). At one point, Peevski threatened that the government would fall if Lukoil’s derogation was not immediately revoked. The main reason he insisted that this be done was “to stop financing Putin’s regime with billions”.
The pressure also increased after revelations by non-governmental organizations that “Neftohim” violates Western sanctions against Russia.
The EC has not yet released data from its verification of these claims.
But anyway, the political tension surrounding “Lukoil” escalated to the limit. It has reached the point of absurdity for Peevski and Boyko Borisov to accuse the PP-DB of working in the interest of Russia, as long as they resist the immediate cancellation of the derogation.
But both now and at the end of last year, it was clear that if there is no clear plan of action on what will be done with Neftokhim, the entire action against Lukoil will not lead to the declared goal – to end the processing of Russian crude oil and the sale of its products, as this activity will simply be redirected from Bulgaria to Turkey.
Peevski and “Insa Oil”
Given Peevski’s frenetic activity on the early termination of the waiver for Russian crude imports, many believe he has an interest in buying or destroying Neftohim. But on the other hand, there is no process in the country – economic or political – in which the MP sanctioned under Magnitsky is not involved by inertia.
Peevski is seen as a behind-the-scenes player in a possible deal for the refinery by businessman Georgi Samuilov, owner of Insa Oil, which holds a significant share of the fuel trade. It is 37.5% in 2021, according to data from the Center for the Study of Democracy. Insa also refines petroleum products and has a joint venture with Houston-based Focal Point Energy to expand Insa’s portfolio of refined petroleum products and expand into the Balkans.
There is a version that Peevski’s interest is rather the gradual dismemberment and seizure of certain more interesting assets of “Neftochem”, following the model of “Bulgartabac”, KTB and other businesses connected directly or indirectly to the MP from DPS. This option was also more profitable for SOCAR, because it would open up a market share, as well as for Turkey, which would become an importer of fuels.
Whatever scenarios develop, one thing is certain – the separation from Lukoil will most likely be complicated and painful.
Any indolence can seriously damage the interests of Bulgaria. After all, it is one of the largest enterprises in the country with an annual turnover of nearly BGN 3 billion, which, in addition, has one of the most modern oil refining facilities in the world, but also because it is a question of the structure of the fuel market as in the country as well as in the region and last but not least – for the work of thousands of people from the Burgas region.
#buyer #horizon #Lukoil #Neftohim