Bulgarian refinery secretly helped Russia make €1bn profit despite EU sanctions

Bulgarian refinery secretly helped Russia make €1bn profit despite EU sanctions
Bulgaria's only refinery is owned by Russian Lukoil. It was granted a derogation from the ban on imports of Russian oil until the end of 2024. / Lukoil Neftochim Burgas
By Denitsa Koseva in Sofia November 9, 2023

The Russian state has profited by an extra €1bn from the sale of oil to the Lukoil Neftochim Burgas refinery in Bulgaria, taking advantage of an exemption to an EU-wide ban on imports of Russian oil, according to a joint investigation by Global Witness, the Centre for Research on Energy and Clean Air (CREA) and the Center for the Study of Democracy (CSD) published on November 9.

Bulgaria was granted a derogation from the ban on imports of Russian oil until the end of 2024 in order to give time to its sole refinery, owned by Russian Lukoil, to adjust its equipment to work with non-Russian oil.

The analysis showed that the refinery imported over 4.95mn tonnes of Russian crude oil in the first ten months of 2023, sending an estimated €1.13bn to the Kremlin in direct tax revenues.

“According to Russian President Vladimir Putin, that’s enough to operate the Wagner mercenary group for a year,” it added.

CREA research for 2023 showed that Bulgaria is the fourth largest buyer of seaborne Russian crude oil, after India, China and Turkey.

Meanwhile, Bulgaria was only allowed to sell fuel produced from Russian crude oil to Ukraine.

“The purpose of the exception is for Bulgaria to be able to get supplies and not sell imported Russian oil to other countries,” EC said last year.

However, the analysis showed that the refinery has been using the derogation to buy more Russian crude oil, increasing its share to 93% in the first ten months of 2023 from 70% of its total imports prior to the start of Russian war in Ukraine.

It noted that the refinery exported large amounts of the products it refined – according to CREA analysis estimates, the seaborne exports of refined oil products alone was worth €984mn in the first 10 months of 2023.

Under Bulgaria’s exemption, exports of refined products derived from Russian crude oil are not allowed. However, the refinery is allowed to export fuels to non-EU countries when “the products cannot be stored in Bulgaria due to environmental and safety risks”, i.e. when the refinery produces more than can be stored or consumed domestically.

The law clarifies that “such sale, supply, transfer or export is not meant to circumvent the prohibitions”, but the exception was used by the refinery to do exactly that.

“On the 8th of August, the Seaexpress, a tanker operated by the Greek company Thenamaris Ship Management, moored at the port of Burgas and loaded 40,000 tonnes of fuel oil from the refinery. Tracking data shows that the ship then began a 15-day journey across the Mediterranean before unloading its cargo at the Dutch port of Rotterdam,” the report notes.

“Prior to the Seaexpress taking on its cargo, Burgas did not receive any non-Russian crude for 21 days. In the same period, Burgas received four shipments of Russian crude oil, totaling over 340,000 tonnes, meaning that the fuel on the Seaexpress was likely derived in part from Russian crude. When contacted by Global Witness, Thenamaris Ship Management declined to comment,” it added.

The report suggested that what appears to be a straightforward violation of the terms of Bulgaria’s sanctions exemption is complicated by a principle called mass balance, under which Bulgaria may export to the EU up to the same amount of refined product as the total amount of non-Russian oil it has imported over the course of one year.

Moreover, the Seaexpress delivery, which was likely refined from Russian oil, directly to the Netherlands the transaction does not violate sanctions directly as the EU law says that a final determination cannot be made on whether Lukoil Neftochim is violating sanctions until February 2024, when a year’s worth of import and export data can be reviewed to determine if the refinery is exceeding its allowance of European sales. 

Politico quoted Lukoil as saying in a statement that it “complies with all EU and Bulgarian laws” while arguing “compliance with [derogation-related oil] quotas is also under the strict control by the Customs authorities of Bulgaria”.

Bulgaria decided in October to end its derogation two months earlier, in October next year. However, critics of the decision say it serves only Russian interests.