Bulgaria Economy Energy Europe Featured Finance News Russia

Bulgaria’s Tax on Russian Gas Sparks Diplomatic Tensions

Bulgaria’s government has defended its decision to impose a new tax on Russian gas transiting through the country as Hungary and Serbia — which rely on supplies from Moscow — vowed to respond to the move, which they called a “hostile” step.

Bulgaria imposed a tax on Russian gas transit in the amount of 20 leva ($10.80) per megawatt-hour last week, prompting reactions in Budapest and Belgrade, which receive Russian gas through Bulgaria.

Bulgarian Prime Minister Nikolay Denkov on October 18 defended the move, saying that “there is a good chance that this [tax] would create real competition” on the gas market “from which the whole of Europe would benefit.”

“We protect Bulgarian interests. These are revenues that can enter the state budget,” Denkov added.

Bulgarian Finance Minister Asen Vasilev said the goal of the tax was not to make gas more expensive for consumers in Hungary and Serbia but to make it less profitable for the Russian state energy company Gazprom to ship gas via Bulgaria.

“Because most Gazprom contracts are priced at the point of delivery in a given country, the tax will most likely have no impact on prices downstream…. It will only reduce Gazprom’s profits,” he told the Financial Times in an interview published on October 17.

Russia stopped supplying gas to Bulgaria soon after the start of Moscow’s full-scale invasion of Ukraine in February 2022 after Sofia refused to pay in rubles — a condition imposed on “unfriendly countries” as a way to sidestep Western financial sanctions against Russia’s central bank.

But Sofia allowed Russian energy giant Gazprom to continue using its gas pipeline network to supply Serbia and Hungary, two of Europe’s most pro-Russian governments.

Belgrade and Budapest have said the new transit tax, which is equal to about one-fifth of current market prices, “threatens the security of the energy supply in Hungary and Serbia.”

“Bulgaria’s decision to introduce a tax on Russian gas, which is delivered through its territory, is a step directed against Hungary and Serbia,” Serbian Deputy Prime Minister Sinisa Mali and Hungarian Foreign Minister Peter Szijjarto said in a joint statement on October 17.

“Hungary and Serbia will harmonize their positions and respond adequately to this controversial decision of Bulgaria.”

In separate comments, Szijjarto said that Bulgaria’s decision was “a hostile move because it has the potential to jeopardize the security of energy supplies for other countries.”

The Russian state news agency TASS quoted Szijjarto as saying that the new tax was discussed during a meeting between Hungarian Prime Minister Viktor Orban and Russian President Vladimir Putin on October 17 at a forum in China.

Szijjarto said that Putin, along with Gazprom CEO Aleksei Miller, had assured Hungary that Gazprom will fully fulfill its obligations to supply the required amount of natural gas to Hungary in accordance with the long-term contract between the two countries.

Hungary has been receiving 4.5 billion cubic meters (bcm) of gas per year from Russia under a deal signed in 2021, mainly via Bulgaria and Serbia.

Serbia also has expressed fears that the new tax imposed by Bulgaria would make gas more expensive. Serbian President Aleksandar Vucic said the tax would “drastically increase” the price of gas that Serbia pays.

Bulgaria’s parliament adopted the introduction of the additional tax in late September.

The amendment was introduced by lawmakers from three parties between the first and second reading of a law on implementation of sanctions against Russia over its invasion of Ukraine.

The amendment was supported by the ruling parties GERB, We Continue The Change – Democratic Bulgaria, as well as the Movement For Rights And Freedoms, which is formally not part of the ruling coalition but supports it in key votes.

But President Rumen Radev, seen by some as pro-Russian, criticized the new tax, saying that by imposing it the government “interferes in the sovereign decisions of other countries.”

The measure entered into force on October 13, but there are no details yet on the mechanism for collecting the tax. The ministries of economy, energy, and finance did not respond to questions sent by RFE/RL’s Bulgarian Service on the issue.

According to preliminary estimates the new tax could bring as much as 2 billion leva ($1 billion) per year into Bulgaria’s budget if the levels of Russian gas transited through the country are maintained.

Source : Oil Price