Energy: Oil & Gas 2023 Comparisons

In accordance with the Bulgarian Constitution and the Underground Resources Act, all oil and gas deposits located in Bulgaria, including its exclusive economic zone (EEZ) in the Black Sea, are construed as public property.

In that respect, any rights to extract oil and gas are granted exclusively through concession procedures under the Underground Resources Act following the signing of a concession contract.

Bulgaria has a centralised its permitting and concession regime so that all oil and gas permits/concessions are granted by the Ministry of Energy (ME) and the Council of Ministers. Other relevant co-authorities are the Ministry of Environment and Waters and the Regional Inspectorates for Environment and Waters, which co-ordinate environmental permitting with the Ministry of Environment and Waters. Permits for prospecting and exploration, or exploration, are granted by the Ministry of Energy upon approval by the Council of Ministers, although the continental shelf and the EEZ are overseen by the Council of Ministers.

Type of Rights That Are Granted

Prospecting and exploration for underground resources (oil and gas) are carried out on the grounds of granted permits for:

• prospecting and exploration – to Bulgarian and foreign legal entities, with the aim of registering geological discovery, and discovery with commercial potential; and
• exploration of underground resources (oil and gas) with the aim of registering geological discover and ascertaining its commercial potential.

Procedures for Granting Permits

Granting of permits may be initiated by the state or by the investor.

Permits for prospecting and exploration, or for exploration of underground resources, are granted for a period of five years (with a possible extension of a maximum of three years) by way of:

• Competition/contest – if more than one candidate applies or the initiative belongs to the state, a competition is held. 
• Tender – a tender is organised when the underground resource is within an already known/registered area of economic (commercial) value, as well as for resources on the shelf and the EEZ. This differs from a competition procedure in that the competition takes into consideration all elements of the proposal, while the tender considers only the highest investments and royalties offered by the investor.
• By right of application in the case of single applicants after the expiry of a one-month term from the date of the announcement of the forthcoming granting of permits, published in the State Gazette and on the internet site of the ME.

A permit may be granted only after being co-ordinated/accepted by the competent ministers with respect to:

• protection of national security and defence (Ministry of Defence, Ministry of the Interior, National Security Agency);
• natural protected areas (Ministry of Environment and Waters; the relevant Regional Inspectorate on the Environment and Waters); and
• sites of cultural value (Ministry of Culture).

Procedure for Granting a Concession for Extraction

Concessions for extraction of subsurface resources are granted for a period of 35 years (with a possible 15-year extension):

• by means of a competition;
• by means of a tender;
• by right of a holder of a permit for prospecting and exploration, or for exploration, who has made a commercial discovery, provided that: 
1. the investor has declared the discovery of a deposit of subsurface resources within the term of validity and within the area of the granted permit;
2. the investor has obtained a certificate for commercial discovery;
3. the investor has requested the conclusion of a concession contract from the ME within six months after obtaining a certificate for the registered commercial discovery; or
• by right to a company on the grounds of a privatisation deal.

Generally, the permits and agreements go together, however due to lack of recent oil and gas discoveries in Bulgaria, the sector predominantly includes prospecting and exploration activities in order to ascertain and register discoveries in the EEZ.

Once a concession is granted, the concessionaire is entitled to exploit the commercial discovery as per the terms and conditions of the concession contract, including exclusive extraction and production operations. For areas for which concession for extraction has been granted, other concessions may not be granted for the same subsurface resources, that is, rights are exclusive for only one resource in one concession area. However, concessions may be granted for other underground resources (in the same area) and every operating concessionaire must comply with the legal requirement that they may not obstruct activities under another concession.

Following the extraction of hydrocarbons, the concessionaire automatically acquires full ownership over the extracted oil and gas, with the full right to dispose of the extracted resources as per the terms and conditions of the concession contract.

The oil and gas sectors are supervised by the following authorities.

Ministry of Energy

The Ministry of Energy (ME) is responsible for the development of a competitive internal and an integrated external market; the construction of reliable infrastructure; security and diversification of sources and the supply routes of energy resources; and the overall improvement of energy efficiency.

One of the main functions of the ME is to adopt and implement long-term strategies for the development of the energy sector.

The ME is also responsible for the issuance, together with the Council of Ministers, of prospecting and exploration or exploration permits, as well as for carrying out concession procedures and concluding concession contracts.

Energy and Water Regulatory Commission

The Energy and Water Regulatory Commission (EWRC) is responsible for tariff setting and the quality of service providers in the gas, electric, district heating and water supply and sewage sectors. The EWRC is also responsible for the licensing of operators in the gas, electric and district heating sectors and issues permits for the construction of transit gas or oil pipelines. The commission is responsible for secondary legislation (ordinances) and regulations with respect to electricity market liberalisation and certain aspects of grid connection related to the EU Green Deal package.

National Revenue Agency

The National Revenue Agency is responsible for issuing downstream licences for operators of fuel and gas tax depot warehouses under the provision of the Excise Duty Tax Act, including with respect to the compulsory minimum stocks of crude oil and/or petroleum products.

Other Authorities

In addition, as all mining activities are subject to an environmental impact assessment (EIA), the Ministry of the Environment and Waters is regularly involved as a co-authority in addition to the regional inspectorates, which act as regional environmental permitting authorities. A permit/concession may be granted only after being co-ordinated and not rejected by other authorities such as the Ministry of Defence, Ministry of the Interior, National Security Agency (if national defence issues are at stake), the Ministry of Culture and the municipality concerned (local land-use planning, certain construction permits, etc).

Bulgargaz EAD has owned the only licence for the activity of the “public supply of natural gas in the territory of the Republic of Bulgaria” for a period of 35 years.

The main licensing obligations of Bulgargaz EAD as the public supplier of natural gas are:

• to conclude transactions with upstream companies and natural gas traders for the purchase of gas in the quantities required to cover the consumption of customers directly connected to the gas transmission network and to perform the function of public provider;
• to provide a continuous and quality supply of natural gas;
• to maintain relationships with energy companies to ensure the natural gas supply and to secure the continuity and quality of supplies;
• to maintain the financial resources required to perform these activities; and
• to conduct commercial transactions in a way that secures Bulgargaz EAD’s financial stability.

The public supply of natural gas as a main activity of the company is of strategic importance for the stability of the whole energy sector. In this regard, Bulgargaz EAD secures consumption within Bulgaria pursuant to long-term and short-term contracts for natural gas supply from imports and local extraction. With a view to diversification of sources and routes for the supply and extension of its operations, Bulgargaz EAD co-operates with partner companies in the gas sector.

Bulgartransgaz EAD is a combined operator performing licensed activities involving natural gas transmission and storage. The company pursues a transparent and responsible behaviour policy and aims to ensure secure conditions and the sustainable development of the natural gas market in the country and the region, in compliance with the principles of equality and transparency. As part of the common European gas network, Bulgartransgaz EAD is guided by the requirements of the Third Energy Liberalisation Package, and European and Bulgarian legislation.

Bulgartransgaz EAD is the owner and operator of:

• the infrastructure for natural gas transmission to natural gas distribution companies and industrial consumers in the territory of Bulgaria and to the neighbouring countries of Romania, Turkey, Greece, North Macedonia and Serbia; and
• underground gas storage in Chiren with the main function of natural gas storage to cover seasonal fluctuations in the consumption and delivery of natural gas.

Bulgartransgaz EAD holds licences for natural gas transmission and natural gas storage in Chiren, issued by the EWRC.

Both Bulgargaz EAD and Bulgartransgaz EAD are 100% owned by Bulgarian Energy Holding EAD, which is the holding company for a group of companies principally engaged in electricity generation, supply and transmission; natural gas transmission, supply and storage; and coal mining. Bulgarian Energy Holding EAD is 100% owned by the Bulgarian government and is the largest state-owned company in the country on the basis of owned assets.

ICGB AD is a joint venture company held between Bulgarian Energy Holding EAD (50%) and IGI Poseidon (50%) that is responsible for the construction and operation of the IGB gas pipeline (commissioned in 2022), connecting the Greek national gas transmission system in the area of Komotini with the Bulgarian national gas transmission system in the area of Stara Zagora (a total length of 182 km).

In 2018, ICGB AD completed a procedure to gain temporary exemption from the obligation to provide third-party access under the meaning of the Gas Directive to the pipeline, by virtue of which, the following rights were granted to the company for a period of 25 years:

• exemption from obligations to provide third-party access with respect to the capacity booked by five users in a market test held in 2015–2017 ( a maximum of 1.57 bcm/year);
• exemption from tariff regulation; and
• exemption from obligations to unbundle the operator.

Upstream Laws and Regulations

The Underground Resources Act, adopted in 1999 (URA)

The URA is the main legislative act governing onshore and offshore upstream operations in Bulgaria. The Act transposes the requirements of Directive (EU) 94/22/EC into Bulgarian law by regulating the following material issues:

• prospecting, exploration and extraction of subsurface resources in the territory of the Republic of Bulgaria, its continental shelf and the exclusive economic zone in the Black Sea;
• protection of the earth’s subsoil through rational use of underground resources in prospecting, exploration, extraction and primary processing; and
• management of mining waste from prospecting, exploration, extraction and primary processing of underground resources.

The URA regulates the following main aspects:

• the concessions legal regime, including the concessions contract procedure;
• the content of the concession;
• the rights and obligations of the concession granter and the concessionaire;
• the usage and access rights regarding lands on which concession operations are being carried out; and
• contraventions and sanctions.

In addition, secondary legislation issued by the ME regulates various matters, such as:

• royalties due by the concessionaire;
• the overall working plan and the annual work programme for oil and gas extraction, abandonment and decommissioning operations;
• assessment, classification and confirmation of reserves;
• various technical documentation for the development of extraction fields; and
• the liability of the concessionaire.

Midstream and Downstream Laws and Regulations

The midstream and downstream sector is governed by the Bulgarian Energy Act, adopted in 2003 (the “Energy Act”) and the Excise Duty Tax Act, adopted in 2005.

The Energy Act implements the European Third Energy Package, setting forth provisions related to the following main aspects:

• the licensing regime applicable to the production, storage, transmission, distribution and supply of natural gas;
• the requirements for obtaining authorisations and licences issued by the EWRC;
• the rights and obligations of licensees and other market participants;
• third-party access to networks and unbundling rules; and
• contraventions and sanctions.

The Excise Duty Tax Act regulates the issuing of licences for the operation of fuel and gas tax warehouses by transposing the requirements of the applicable EU excise duty legislation.

The secondary legislation for the midstream and downstream sector is issued by the ME, Ministry of Economy and the EWRC and regulates the following main aspects:

• the issuance of authorisations and licences;
• prices and tariffs applicable to the natural gas sector;
• the natural gas network code;
• standards of performance for transmission, distribution and supply of natural gas services; and
• various technical norms relevant for the midstream and downstream sector.

Private investments in the upstream sector are carried out on the basis of:

• contracts for prospecting and exploration or exploration for oil and gas in the onshore or offshore territory of Bulgaria; and
• concession contracts, entered between the Council of Ministers, as concession grantor and the private investor, as concessionaire, by virtue of which the concessionaire obtains concession rights to extract and sell oil and gas.

The contract for prospecting and exploration or exploration provides the permit holder with the right to prospect and explore the respective area for oil and gas deposits. If the permit holder discovers such deposits, they are entitled to register, depending on the ascertained commercial potential of the deposit, a geological or commercial discovery. 

The concession contract provides the concessionaire with exclusive rights to carry out extraction operations in the respective concession area and dispose of the extracted oil and gas. Generally, the concession contract does not include limitations on the sale of the extracted oil and gas, however, the concession grantor (Council of Ministers) has the prerogative to envisage such limitations, depending on protection of public interest.

Procedure for Granting a Permit

The process for granting permits may be initiated by the competent authority (the ME or by physical and juridical persons, or alliances between them). The procedure may be competition or tender. The competition may be attended by the applicants, while the tender may be made by open or secret bidding.

By initiative of the competent authority – the ME (ex officio)

• Publication of the announcement for the permit and documentation, containing the deadline for acceptance of applications, the amount of the deposit and the deadline for paying, and other specific conditions. The documentation also contains the criteria for the evaluation and form of the final complex note. 
• Acceptance of and review of applications – one or several candidates may apply. Even in the case of a single applicant a competition/tender is carried out. The application must be in written form and must be in Bulgarian.
• Decision to admit or reject the competition/tender – rejection or admission for participation in the competition or tender is subject to appeal, pursuant to judicial procedure according to the Administrative Procedure Code.
• Grading the candidates – within 14 days of the expiry of the term for the submission of offers, the commission will grade the participants in compliance with the competition or tender requirements. 
• Issuance of the respective permit after approval from the Council of Ministers.
• Signing of the contract between the ME and the winner, containing the terms and conditions for the issued permit.

By initiative of the investor

• Expression of interest in a written form in Bulgarian by the investor, accompanied by an overall working programme with a summary of the aims and objectives of the permit.
• Review of the request, verification and co-ordination. The ME verifies that the request conforms with the URA and co-ordinates it with the other competent authorities.
• Decision for approval or rejection of the request. In the case of approval, the ME will publish an announcement on the site of the ME and in the State Gazette about the prospectus and exploration or exploration granting of the permit. If no one expresses interest within a one-month term, the ME will issue the permit to the investor. In the case of second or several applications, the procedures are “transformed” by the ME into a competition or tender.
• Approval by the Council of Ministers and the signing of a prospecting and exploration or exploration contract between the ME and the investor/winner.

Procedure for Granting a Concession

A concession is granted ex lege to a permit holder who, within the period of the permit and in the permitted area, has registered a deposit of the explored natural resources and has obtained a certificate for the so-called “commercial discovery”. This right is stipulated for permit holders who apply for a concession within six months after a certificate for a “commercial discovery” has been obtained.

In all other cases, a concession for the extraction of natural resources is granted by a contest or tender that is announced in the same way as those for granting permits for prospecting and exploration or for exploration.

The concessions for extraction of natural resources are granted by the Council of Ministers, which takes the respective resolution after the ME presents a motion.

Prospecting and exploration permit holders/concessionaires are subject to:

• 10% corporate income tax;
• royalties levied gradually on production in the limits provided by law; and
• fees and tariffs.

Corporate Income Tax

Bulgarian and foreign legal entities are subject to the standard 10% corporate income tax applicable to their taxable profit derived from economic operations carried out in Bulgaria.

Royalties

The applicable royalties for each concession contract are determined on the basis of a methodology, representing part of the ordinance for determining concessions remunerations adopted as a secondary legislation to the URA. The royalties may vary from 2.5% to 30% based on the economic benefit of the concessionaire from the concession (the so-called “R factor”).

The concession may be a monetary payment or provided in kind, depending on the terms and conditions of the concession contract.

A typical obligation of a concessionaire under a concession contract for oil and gas is reaching a minimal yearly output. However, such obligations are generally not fulfilled during the last few years of a concession due to the exhaustion of natural resources, such as in the few remaining operational concession sites in the Black Sea (Kaliakra and Kavarna).

There is no separate tax income regime for hydrocarbons in Bulgaria, as Bulgarian legal entities are subject to the standard 10% corporate income tax applicable to their taxable profit derived from in-country activities.

Additionally, foreign legal entities carrying out activities by way of a permanent establishment are also subject to corporate income tax, applicable to the taxable profits derived from activities performed at their Bulgarian permanent establishment.

Foreign legal entities entering into concession agreements may be obliged to establish a subsidiary or a branch in Bulgaria, which must be maintained for the entire duration of the agreement. As a consequence, such subsidiary/branch will be subject to the applicable tax regime in Bulgaria – corporate tax and VAT.

Between 1945 and 1989, Bulgaria’s oil and gas industry was entirely state owned. However, from 1990, privatisation of the industry commenced which led to some of the former state-owned companies becoming private, although the major companies in the gas downstream sector – gas supplier Bulgargaz EAD and the TSO Bulgartransgaz EAD – still remain 100% state owned.

In this respect, the URA explicitly envisages the possibility for privatised entities holding prospecting and exploration or exploration rights, to receive concession by right. However, few such concessions have been granted and those that have, have not had a significant economic impact on oil and gas supplies, as Bulgaria imports nearly 100% of the oil and gas the economy needs.

The URA has no specific local content provisions.

In 2019, a five-year Gas Release Programme (GRP) was introduced as a voluntary amendment by the Bulgarian government, to make certain amounts of natural gas (liquidity) available to third parties via auctions on the national trading platform.

Following the introduction of the GRP, the number of concluded transactions and traded quantities in the spot and forward market segments has been increasing on the Balkan Gas Hub, a Bulgarian gas exchange.

Due to the growing number of market participants registered on the exchange and actively operating in the Bulgarian gas market, the Bulgarian government decided to discontinue the GRP at the end of 2022. The introduction of the Bulgarian GRP and its subsequent suspension, as acts of voluntary national legislation, are not directly regulated by EU law and do not fall under the Commission’s competence.

Prior to starting the prospecting and exploration/production process, concessionaires must carry out:

• a certain amount of preparatory work under the overall and annual programmes, in accordance with the prospecting and exploration/concession contract (and their offer, if applicable); and
• certain environmental obligations as per the results of the respective EIA.

Where the preparatory works lead to further geological discoveries, these must be reported to the ME and be evaluated by the concessionaire to ascertain whether they are viable to be considered as commercial discoveries.

The prospecting and exploration/concession contracts usually contain detailed clauses regarding the sequence of activities required prior to declaring and confirming certain geological and/or commercial discoveries.

Prospecting, exploration and production works may be initiated by the permit holder/concessionaire only after the time plan part of the work programme has been approved by the ME.

Given the progress of the prospecting and exploration/production works, permit holders/concessionaires may request from the ME to amend the issued exploration permit/concession in view of the overall work programmes, amendment of resources and reserves, utilisation waste programme, etc, approved by the ME.

Permit holders/concessionaires may give away rights to parts of the area where they determine, based on performed works, that no discovery potential exists. This is effected through a written notification to the ME which is followed, if necessary, by an amendment to the prospecting and exploration/concession contract.

Alternatively, the work programme of the permit holders/concessionaires may contain a designated time schedule, by virtue of which, certain parts of the area may automatically be considered relinquished, unless the permit holder/concessionaire requests otherwise.

Notwithstanding the above, permit holders/concessionaires will be held liable for the performance of the minimum work programme for the entire prospecting and exploration/concession area.

Prospecting and exploration/concession contracts also contain provisions regulating matters such as liability for incurred costs relating to abandonment and decommissioning, and technology and know-how transfer obligations.

Government Approval

According to the URA, any direct or indirect transfer of the participating interest in a prospecting and exploration permit/concession contract must be notified to the ME, whereby the ME, in co-ordination with the Council of Ministers, will do one of the following:

• confirm the validity of the permit/contract as per the new permit holder/concessionaire;
• amend the prospecting and exploration permit/concession contract; or
• unilaterally terminate the prospecting and exploration permit/concession contract.

Although the provisions of the URA are not entirely clear, the government may refuse to approve such transfer (i) only on the grounds of national security; or (ii) only in the case of transfers to offshore entities or entities which are effectively controlled by legal entities outside the EU, or by nationals of third countries outside the EU.

Approval by the State Agency for National Security

Regardless of the requirement to obtain a competition clearance, transactions in the energy sector are subject to the scrutiny of the State Agency for National Security (SANS).

Other Approvals

Any transfer may be granted only after being co-ordinated/accepted by the competent ministers with respect to:

• protection of national security and defence (Ministry of Defence, Ministry of the Interior);
• natural protected areas (Ministry of Environment and Waters; the relevant Regional Inspectorate on the Environment and Waters); and
• sites of cultural value (Ministry of Culture).

There are no legal or regulatory restrictions applicable to production rates in Bulgaria. However, the URA envisaged that, based on the public interest, the state may include certain restriction provisions in a concession contract.

Gas Midstream

The Bulgarian natural gas midstream sector is represented by transmission, distribution and storage facilities. Bulgaria has a single natural gas transmission system which is owned by the state and operated by the state-controlled TSO, Bulgartransgaz EAD which is the owner of the gas transmission network infrastructure and an underground gas storage facility in Chiren, connected to the transmission system.

The gas transmission network infrastructure includes a national gas transmission network and a gas transmission network for transit transmission. It provides natural gas transport to users in the country, as well as to the neighbouring countries Turkey, Greece, Serbia, Romania and North Macedonia. The gas transmission infrastructure comprises approximately 3,300 km of gas pipelines and gas pipeline branches, as well as ten compressor stations with an approximate total installed capacity of 355 MW.

The underground gas storage facility at Chiren has 24 exploitation wells and a compressor station of approximately 10 MW of total installed capacity. The present storage capacity can provide storage for up to approximately 5,813,500 MWh/day natural gas.

Bulgaria’s natural gas domestic market is only 3 bcm per year, while the recent output from local resources is scarce, meeting approximately 1–2% of the market demand. Natural gas is currently a small component of the country’s energy mix and is primarily utilised in industrial processes, with a modest role in the power generation mix and very low consumption in the residential and commercial sectors. Some 10% of industrial consumers represent 80% of demand, 19 with the largest individual industrial consumers in chemicals, fertilisers, and the glass sectors, as well as some large, industrial CHPs. Among industrial users, major consumption is in the chemical industry and energy sectors.

However, the country has an extensive network of gas pipelines that serve Bulgaria’s needs as well as those of neighbouring Turkey, Greece, and Macedonia. Bulgaria is also a gas transit country that currently transports gas to North Macedonia, Turkey and Greece (approximately 15 bcm per year).

As of 1 January 2020, Bulgaria started receiving Russian gas through the so-called Turkish (Balkan) Stream pipeline. The local gas supplier Bulgargaz signed an agreement with Gazprom Export regarding new fuel deliveries coming via Turkey, and changing the entry point for Russian natural gas. Under the contract with Gazprom, 80% of the gas quantities for Bulgaria were under the “take or pay” clause. However, as the expiry of the contract in December 2022 coincided with the Russian intervention in Ukraine, Bulgaria has not undertaken any steps to sign a new delivery contract with Gazprom, although the transit towards Serbia, Hungary and Austria is ongoing.

After the Russian intervention in Ukraine, Bulgaria intends to receive its demand (3 bcm) from Azerbaijan via ICGB and through deliveries of liquefied natural gas (LNG) from a coastal terminal in Alexandroupoulis, Greece.

Oil and Gas Downstream

The Bulgarian oil and gas industry was privatised after 1989 and the downstream oil and gas markets are currently open to competition, being dominated by private suppliers and distributors.

The oil sector

The Lukoil Burgas refinery is a monopolist in the market, as one of the biggest oil refineries in southeast Europe. Lukoil Neftochim Burgas, a subsidiary of Russian oil company Lukoil, is the owner and operator of the refinery complex which is the major supplier of fuels in Bulgaria’s domestic market.

As Lukoil holds between 80 and 90% of the petrol tax warehouses in Bulgaria (mainly through privatisation), in 2020 the Bulgarian government announced its plans to set up a state-owned company to manage oil and fuel reserves, and to build warehouse facilities and filling stations, to boost competition and ensure fair prices for consumers.

In April 2023, following a sectorial analysis of the fuel market in Bulgaria released by the Bulgarian competition authority, the companies from the Lukoil group were fined approximately EUR100 million due to the restricted access to their tax warehouses and transport infrastructure, effectively limiting fuel imports. Since the existing storage and transport infrastructure owned by Lukoil cannot effectively be replicated, in part due to high costs, but also due to the legacy of the transportation network, as it was built by the state and later privatised, Lukoil forced wholesalers to purchase fuels produced at Lukoil Neftochim Burgas.

The Bulgarian competition authority had previously investigated Lukoil Bulgaria – in 2017, as part of a price-fixing cartel on the fuel distribution market, and in 2012, for alleged abuse of dominant position (it was cleared) and participation in a price-fixing cartel. On those occasions, the regulator closed the investigations without imposing any fines.

Separately, the regulator ruled in 2017 on a complaint filed against both Lukoil Bulgaria and Lukoil Neftochim, lodged by another fuel retailer, finding that there was no evidence that either of them abused their market position.

The gas sector

With regard to the gas sector, the natural gas distribution system has a total length of approximately 5,000 km and is dominated by three large entities, operating approximately 90% of the country’s gas distribution network, namely Overgas Mrezhi AD, Citygaz EAD and Aresgaz EAD. The other 10% of the distribution network is split between about 15 small companies.

Natural gas distribution services are a public utility service of general interest, being awarded by way of exclusive territorial licences granted by the EWRC in a natural monopoly regime – that is, the distribution services are ensured by a single operator in a given territorial area.

The main consumers of natural gas are large manufacturers from the chemistry and energy sectors, whose consumption amounts to 65–70% of the total consumption. Only 17% of consumption goes through the distribution companies, whose total number of customers is slightly below 100,000.

In 2021–2022, as part of the Three Seas Initiative, the US-based energy development company Linden Energy acquired a 50% stake in Overgas, aiming to expand the company’s distribution network not only in Bulgaria, but in the Western Balkans. This is considered to be a landmark deal for the Bulgarian gas sector.

Third-party access rights are recognised both for gas transmission (operated by Bulgartransgaz EAD) and distribution systems (operated by DSOs) under monopoly, provide by virtue of the law. Following certain rules, the operators must ensure that third parties have access under non-discriminatory and transparent conditions consistent with EU internal market requirements and by applying regulated tariffs.

Access is regulated by the Energy Act and secondary legislation issued by the EWRC.

In principle, the tariff policy of TSO (Bulgartransgaz EAD) is strictly in line with the requirements of Regulation (EU) 2017/460 on establishing a network code on harmonised transmission tariff structures for gas. In line with the requirements of the Regulation, Bulgargaz has adopted a unified tariff, methodology for determining different tariffs and other documents. The tariff prices of Bulgargaz are under the control of the EWRC. By virtue of law, Bulgartransgaz EAD has prepared a ten-year business development plan for the expansion of the transmission grid and the associated costs thereof.

As for DSO tariffs, these are determined by the EWRC on the basis of the business model of the respective DSO, in order to guarantee equal access and transparency in pricing based on actual costs. For this purpose, the DSOs prepare five-year business plans containing financial data, on the basis of which, the EWRC decides on the business pricing.

Licences for transmission and distribution activities are granted by the EWRC based on specifics of the activity being carried out (geographical area, gird coverage, etc).

Such licences are granted to applicants following a thorough selection process based on technical and financial capabilities, and in accordance with the unbundling requirements set forth by the EU legislation.

The construction of new infrastructure is subject to various authorisations and licences which must be obtained from the EWRC and other central and local authorities.

The National Revenue Agency is responsible for issuing downstream licences for operators of fuel and gas tax depot warehouses, including with respect to the compulsory minimum stocks of crude oil and/or petroleum products.

The royalty system for the oil and gas midstream sector is envisaged in the Energy Act and the secondary legislation adopted by the EWRC, whereby transmission system operators (TSOs) and distribution system operators (DSOs) are subject to the following due payments:

• a fixed yearly fee of BGN2,000 (approximately EUR1,000); and
• a fixed royalty of 0.055% of the gross annual income from the licensed activity, based on the annual financial statement of the respective licensee.

Furthermore, the TSO Bulgartransgaz EAD, as a 100% state-owned public undertaking, is obliged to transfer at least 50% of its annual profit to the state.

The oil refining, supply and distribution sectors are fully liberalised, with prices and commercial terms being established freely between the contractual parties.

As a rule, gas distribution, transmission and storage services are supplied according to regulated tariffs, approved for each operator based on the EWRC’s methodologies, enacted for each regulatory period.

The transmission tariff system is composed of a set of tariffs for booking the capacity into entry/exit points in the transmission system, as well as a volumetric tariff to use the system, in case of exit points.

The distribution tariff system comprises several types of tariffs, which are differentiated for each distribution system operator and by category of client (based on annual consumed volumes).

Storage activities are also regulated by the EWRC, being established distinctly for each storage system operator.

Income from midstream and downstream operations is subject to the uniform 10% corporate tax rate.

National oil and gas companies do not benefit from any special rights.

Previously, TSO Bulgartransgaz EAD enjoyed certain prerogatives to refuse third-party access to the transmission grid, however following a 2015 unbundling procedure, Bulgartransgaz EAD now meets all unbundling criteria and is certified as an independent transmission operator.

No local content obligations apply to midstream/downstream operations.

Bulgarian legislation contains mandatory obligations relating to the use and operation of natural gas transmission pipeline systems, storage and LNG plants with regard to third-party use, tariffs and providing information to the authorities, users, consumers and the public.

Depending on the geographical area and the affected customers, the licence may also contain the specific individual conditions necessary for the protection of public interests or to avoid distortion of competition on the market. However, in practice, the EWRC rarely uses its prerogatives in this respect.

Pursuant to the Energy Act, transmission and distribution operators benefit from an underground, above-ground, and surface easement rights on the lands and other assets related to the public or private property of natural or legal persons for the performance of development, rehabilitation and upgrade works, and of exploitation and maintenance activities.

Also, special land-access rights are granted to the TSOs and DSOs for projects of national importance.

The transportation of hydrocarbons is regulated by the Energy Act and various secondary legislation, adopted by the ME and the EWRC.

As already mentioned, the EWRC regulates the transportation of hydrocarbons through regulated tariffs, approved for each operator, based on the EWRC’s methodologies, enacted for each regulatory period:

• the transmission tariff system is composed of a set of tariffs for booking the capacity into entry/exit points in the national transmission system, as well as a volumetric tariff for use of the system, in the case of exit points; and
• the distribution tariff system comprises several types of tariffs, which are differentiated for each distribution system operator and by category of client (based on annual volumes consumed).

As for transit transportation through the territory of Bulgaria, this is usually regulated on a state level through intergovernmental agreement with the respective counterparties.

Third-party access to upstream pipelines, the national transmission system, gas storage facilities and the gas distribution system is regulated under a specific regime by the EWRC and against payment of regulated tariffs.

As a rule, third-party access to available systems must observe the quality specifications and technological requirements, infrastructure safety, and public service commitments, and must avoid generating severe economic difficulties for the operator, on a take-or-pay principle. Failure to observe these conditions may trigger refusal by the operator to offer access to the system.

Subject to observing the above conditions, distribution operators or the TSO may not refuse connection requests and must finance the work required for connecting consumers from the area where they provide the public distribution/transmission service. Consumers must be connected in a maximum of 90 days from the date of obtaining the relevant construction permit.

On another note, new major natural gas infrastructure, such as interconnections and storage facilities, may benefit from a total or partial exemption from the third-party access rule, applicable temporarily, subject to certain conditions being met, and based on the EWRC’s approval.

As an example, in 2018 ICGB AD completed a procedure for “temporary exemption” from obligations for regulated third-party access to the ICGB pipeline, by virtue of which, for a period of 25 years, the following rights were granted to the company:

• exemption from obligations to provide third-party access with respect to the capacity booked by five users in a market test held in 2015–2017 (a maximum of 1.57 bcm/year);
• exemption from tariff regulation; and
• exemption from obligations to unbundle the operator ICGB AD.

In Bulgaria, the EWRC has the prerogative to determine fixed gas prices on quantities sold by Bulgargaz, acting in its role as public supplier (mainly to non-household customers).

In addition, unlike many EU countries, in a situation of rising global energy prices, Bulgaria has not introduced an obligation for the producers of petroleum products to sell quantities of gas at regulated prices to suppliers of household consumers or to businesses.

However, the Bulgarian authorities adopted a decision for a general rebate of BGN0.25 (approximately EUR0.125) per litre for all fuels sold to end-customers. In addition, measures were adopted in 2022 to compensate non-household consumers for the rising cost of gas – however, these measures were not applied in practice.

Prior to joining the EU, Bulgaria imposed regulated prices for the supply of natural gas to end-consumers. Before the Russian invasion of Ukraine, such prices were established based on prices for imported gas (the take-or-pay price under contracts with Gazprom), applying a designated formula in the Gazprom contract.

Although the regulated gas prices for all households are usually compatible with the general EU state aid, since joining the EU, Bulgaria has decided to liberalise the household gas market. Although no end-date is as yet envisaged for that purpose, the expectation is that the process will start somewhere in 2025.

It is worth mentioning that, following some court cases for violations of the unbundling rules, in the last few years the domestic regulatory framework has been improved to align with the requirements of a single energy market.

Currently, the import/export of natural gas is performed via several cross-border pipelines, connecting Bulgaria to Serbia, Romania, Turkey, Greece and North Macedonia. In terms of transmission infrastructure and interconnectivity, in recent years the TSO has undertaken a highly ambitious upgrading and development programme (the so-called “Balkan stream project”). In addition, the ICGB project entered into commercial operation in 2022, providing an additional connection between Bulgaria and Greece.

Currently, the TSO is in the process of establishing a 170 km gas interconnector between Bulgaria and Serbia that should be ready by the end of 2023. The next step will be the building of a similar interconnector between Bulgaria and North Macedonia.

Pursuant to secondary legislation enacted by the EWRC, midstream and downstream licence holders (transmission, distribution, storage and supply) are obliged to notify the authority of planned changes in their legal status (eg, merger, spin-off, transfer or encumbrance of assets used in the licensed activity to other persons). Such notification should be made prior to the completion of the respective action/operation.

Following such notifications, the EWRC reviews the case on its merits and may decide to permit, amend or terminate the licence, and permit or ban the respective transfer/encumbrance operation.

In compliance with EU legislation, Bulgaria has adopted national treatment of foreign investors and there are no general limits on foreign ownership or control of companies, nor is there screening or restriction of foreign investment in Bulgaria.

However, as from 2014, offshore companies and the entities under their control are prohibited from directly or indirectly:

• obtaining a licence under the Energy Act (including with respect to transmission, distribution or trading of gas); and
• participating in a procedure for selection of a concessionaire or an award of a concession for extraction of underground natural resources, or for granting a prospecting and exploration or exploration permit for underground natural resources.

As per the applicable EU and Bulgarian AML legislation, any investment in countries from the so-called high-risk jurisdictions on the Financial Action Task Force (FATF) list is subject to stringent control and monitoring by the Bulgarian authorities. In addition, Bulgaria is strictly following the EU sanctioning policy towards Russia.

The main regulatory authority in the environmental sector is the Ministry of Environment and Waters which is responsible for drafting legislation and implementing it at a central level.

On a local level, the ministry operates through regional directorates which collaborate and co-ordinate environment-related activities with various other central and local public authorities actively involved in the implementation of environmental regulations on a local level. This includes with regard to the issuance of urban planning and construction documentation and permits.

The primary legislative acts include:

• the Environmental Protection Act;
• the Biological Diversity Act; and
• the Climate Change Mitigation Act.

The Environmental Protection Act

The Environmental Protection Act, adopted in 2002, regulates social relations with regard to:

• protection of the environment for present and future generations and for the protection of human health;
• conservation of biological diversity in conformity with the natural biogeographic characteristics of Bulgaria;
• the conservation and use of environmental media;
• the control and management of factors damaging the environment;
• the exercise of control over the state of the environment and over the sources of pollution;
• the prevention and limitation of pollution;
• the establishment and management of the National Environmental Monitoring System;
• environmental strategies, programmes and plans;
• collection of, and access to, environmental information;
• the economic organisation of environmental protection activities; and
• the rights and obligations of the state, the municipalities, and juristic and natural persons in respect of environmental protection.

The Act specifies the terms and conditions for the preparation of EIAs, if this is required. An EIA is necessary where projects may have a significant impact on one or more environmental features. The Act clearly sets out which projects require a mandatory EIA and where the regulator may decide on a case-by-case basis if an EIA is required.

Additionally, the Act regulates procedures for assessing the effect of certain plans and programmes in a strategic environmental assessment (SEA) applicable to plans and programmes likely to have a significant environmental impact. As a rule, the development of oil and gas projects is subject to the performance of an SEA procedure.

In addition, for projects found within or in the vicinity of environmentally protected areas, a compatibility assessment (CA) is required.

In the case of oil and gas projects having a potential impact on the management of water surfaces/courses, the issuance of water intake or usage permits (depending on the type of water source) will also be required for the development and, respectively, the operation of the relevant project.

The Biological Diversity Act

The Biological Diversity Act, adopted in 2002, aims to ensure the conservation and sustainable use of biological diversity in Bulgaria. The state is responsible for establishing the National Ecological Network, the purpose of which is the long-term conservation of biological, geological and landscape diversity, the creation of suitable conditions for wild animal breeding, and the preservation and protection of endangered, rare and endemic plants, etc.

The Act regulates the conservation and protection of wild flora and fauna. The Act also covers the conservation of the genetic resources and the diversity of plant and animal species outside the natural surroundings, the introduction of non-native and the reintroduction of native plant and animal species into the wild, and the conservation of centuries-old and remarkable trees, and it sets up detailed rules for any trade in endangered species of wild flora and fauna.

The competent authorities are the Ministry of Environment and Waters (including Regional Inspectorates of Environment and Waters and National Park Directorates), the Ministry of Agriculture and Forestry, the Ministry of Regional Development and Public Works. A consultative body to the Ministry of Environment and Waters, the National Council on Biological Diversity, has also been established.

In 2016, an ordinance was passed on the safety of the activities of search, exploration and extraction of underground resources, such as oil and natural gas in the continental shelf and in the EEZ of the Republic of Bulgaria in the Black Sea. The ordinance transposes into Bulgarian law the provisions of Directive 2013/30/EU regarding the safety of oil and gas-related activities in coastal waters.

The purpose of the ordinance is to prevent/minimise major accidents in oil and natural gas-related activities on the continental shelf and in the Bulgarian EEZ in the Black Sea. Its aim is to limit the consequences of such accidents, thereby improving the protection of the marine environment and coastal areas. Requirements and conditions for the safe search for and exploration or extraction of underground resources – oil and natural gas – are defined. The document also regulates reaction mechanisms in the event of an accident.

Pursuant to the provisions of the URA, prospecting and exploration permit holders/concessionaires are required to prepare and submit to the ME, for prior approval, plans for the abandonment of oil and gas wells, as well as plans for waste management and re-cultivation related to such abandonment.

These plans must be based on technical, economic, social and environmental data. The plans are also required to include measures for environmental rehabilitation and a financing plan for the cessation of operations up to completion of decommissioning.

In pursuance of its international commitments and in order to synchronise Bulgarian legislation with European law, the Climate Change Mitigation Act outlines the overall policy to be followed in order to mitigate climate change and its impacts and fulfil international obligations within the UNFCCC and Kyoto Protocol, as well as the applicable EU legal framework.

The Act integrates the existing climate change mitigation-related articles of the Environmental Protection Act (EPA), namely provisions on:

• the National Environmental Monitoring System (including the National GHG Inventory System), directed by the Minister of Environment and Waters through the Executive Environment Agency, originally established by the EPA and related regulation;
• the Greenhouse Gas Emissions (GHG) Allowances Trading Scheme, for which the Minister of Environment and Waters (acting jointly with other ministers) devises a National Allocation Plan every five years; and
• the National Trust Eco Fund, established in 1995 after signing a swap deal “Debt for Nature” with Switzerland and assigned, in 2010, responsibility for managing the funds received by Bulgaria within the Green Investment Scheme and other programmes.

The Act further regulates instruments available under the Kyoto Protocol (Joint Implementation, CDM), administration of the national climate strategies and implementation of corrective climate measures in Bulgaria.

The Bulgarian integrated National Energy and Climate Plan is structured to cover the key objectives of the Green Deal related mainly to the decarbonisation, energy efficiency and energy security dimensions. Bulgaria’s 2030 target for the reduction of GHG emissions is quite ambitious but achievable, provided that the country is able to phase out its less efficient coal-fired thermal power plants (TPPs) by 2030 and replace them with renewable energy sources.

Local authorities have no legally envisaged prerogative to interfere directly with or restrict exploration/concession operations, as these are authorised and supervised by industry-specific bodies.

However, by virtue of local referendums, affected communities may influence the operations of a concessionaire, including with respect to impeding its on-site operations. Therefore, given the significant role they have in the general permitting process, local authorities can significantly impact hydrocarbon operations. This was demonstrated in 2010–2012 when a public debate was held on possible prospecting and exploration of shale gas deposits.

In 2012 Bulgaria became the second European country after France to ban, by virtue of a so-called moratorium, any prospecting and exploration activities for shale gas using “fracking”, due to the various environmental concerns of NGOs and the general public.

According to various estimates, the country’s resources are estimated to be approximately 500 bcm, which would cover Bulgaria’s domestic needs for more than 150 years. Currently, following the Russian invasion of Ukraine, there is public debate on partial lifting of the ban with respect to granting exploration rights in certain areas, to ascertain geological and potential commercial discoveries. However, the prospect of granting concessions for the extraction of shale gas remains uncertain.

In 2013, Bulgarian authorities allowed extensive scientific research of methane hydrate deposits off the Bulgarian Black Sea coast. The preliminary research indicated considerable amounts of frozen, highly pressurised methane which is considered to be one of the main energy sources of the future. However, as the economic costs of prospecting and exploration remain quite high, there is still no advancement beyond scientific research.

There are currently no LNG production facilities in Bulgaria.

However, in 2020, Bulgartransgaz EAD acquired 20% of the capital of the project company Gaztrade SA, which is building the LNG terminal near Alexandroupoulis. This terminal has strategic importance for the diversification and security of energy supplies in Bulgaria and the region.

The project contributes to the implementation of the overall Balkan Gas Hub concept, which envisages connecting the natural gas markets of the countries in Central and Eastern Europe by construction and development of the necessary gas transmission infrastructure. It is being fully implemented in pursuit of the policy and priorities for establishing a single interconnected pan-European energy market.

Green hydrogen is already an integral part of the policies developed by the Bulgarian authorities, as hydrogen production from renewable energy sources is among the policy measures provided in the Bulgarian integrated National Energy and Climate Plan. As a basis for the development of hydrogen capacities, the plan foresees the construction of a 20 MW project for a hydrogen plant by 2030.

In addition, as part of Bulgaria’s gas infrastructure has come into operation within the last two to five years, Bulgargaz and ICGB are considering using it for the transportation of green hydrogen. However, as these plans are still at the inception phase, there is no clarity on any possible investment by the companies at this stage.

Response to the Crisis Situation in Eastern Europe

In June 2022, Bulgaria received exemption from the European Commission to keep importing crude oil and petroleum products from Russia by sea until the end of 2024, despite the EU-wide ban that had been in force since December 2021. The Commission has also allowed Bulgaria, under a special exemption, to export diesel products to Ukraine that have been refined locally from imported Russian crude oil.

The Bulgarian parliament has subsequently adopted legislation allowing the state, in critical situations, to assume control over companies that operate facilities for the production, processing, storage and transport of crude oil and petroleum products.

The legislation can be applied in the event of threats to Bulgaria’s national security, the delivery of critical resources, market monopoly or a breach of sanctions imposed by the European Union. Under the new legislation, the government may appoint a manager to run such companies for a six-month period that can be extended once.

In late 2022, the Bulgarian government agreed with Lukoil Neftochim that the company will transfer its financial operations to Bulgaria and start paying taxes to the state.

The Role of Gas as a Transitional Fuel

In 2020 Bulgaria’s government granted approval to the state-owned gas transmission system operator to acquire 20% interest in Gaztrade SA – the company developing a floating LNG terminal off Greece’s northern coastal city of Alexandroupoulis. The participation in the LNG terminal project is in line with Bulgaria’s long-term energy strategy for diversification of gas supply sources and routes, and will support the development of the Balkan Gas Hub project.

The TSO Bulgartransgaz EAD has booked a capacity of around 500 mcm of gas per year for a ten-year period at the Alexandroupoulis LNG terminal. The most recent projections for gas demand in the next ten years are for a growth based on sustained economic growth (GDP growth between 2% and 3% per year).

Under the Recovery and Resilience Plan of 2021, the Bulgarian government plans to allocate around EUR244 million for the construction of a 175-kilometre gas pipeline network, aiming to phase out the use of coal for electricity generation in the Maritza region (over 3,000 MW of lignite coal-fired TPPs) and to gradually replace the fuel base in power plants through “low-carbon” gases – biogas and hydrogen, blended in different ratios with natural gas. This project was abandoned in the final versions of the Recovery and Resilience Plan – however, as the EU Taxonomy Regulation currently recognises natural gas as transitional fuel and providing the Recovery and Resilience Plan is open to amendments, the project is being reinvigorated.

There have been no material changes to the applicable legislation within the last 12 months.

In 2020, long-awaited amendments were made in the URA, relevant to the concession regime, expanding the rights of the concessionaire to acquire the right of ownership over:

• the extracted underground natural resources from the deposit for which the concession has been granted; and
• the right to carry out excavation/drilling works outside the area of the deposit, within the limits of the granted concession area, for the purpose of extraction of underground natural resources from the deposit.