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Oil & Gas Laws and Regulations in Bulgaria

Oil & Gas Laws and Regulations in Bulgaria

Oil & Gas Comparative Guide: 2022
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Contributed by CMS.

1. SUMMARY

In the autumn of 2020, significant changes to the Underground Resources Act (URA) were adopted. The URA is the main Bulgarian piece of legislation, regulating the prospecting and exploration of oil and gas, exploration, and production. The changes to the legislation were largely commented on by the business and current draft legislation seems to accommodate most of the concerns of different stakeholders.

The Energy Act is the other piece of legislation regulating the sale and purchase of natural gas; setting up the licensing procedures for trading with natural gas; holding gas storage facilities, etc.

Currently, the liberalization of the natural gas market in Bulgaria is booming.

Bulgartransgaz EAD, a state-owned company, is the sole entitled natural gas transmission network operator in Bulgaria.

Another company holds a license of a public supplier of natural gas – Bulgargaz EAD – which is also wholly state-owned.

There are two operators of gas exchange stocks in Bulgaria. These are the Balkan Gas Hub and Bulgarian Energy Trade Platform. Balkan Gas Hub is wholly owned by Bulgartransgaz EAD; while the second one is privately owned.

Due to the growing demand for natural gas on the market, we see that there are more and more international players stepping on the Bulgarian market. The number of registered participants on the Balkan Gas Hub is now 50. The second gas exchange has 14 registered members. 

2. OVERVIEW OF THE COUNTRY’S OIL & GAS SECTOR

2.1. Legal framework – a brief outline of your jurisdiction’s oil & gas sector

As mentioned above, it is the URA the main legislative act which regulates and governs the prospecting and exploration, development, and production of oil and gas in Bulgaria. Prospecting and exploration of oil and gas may be done only based on a license issued by the Council of Ministers at the suggestion of the Minister of Energy.

During the prospecting and exploration phase, the license holder pays an annual fee based on the area of the block where the prospecting and exploration rights are granted. In addition to the annual fee, the license holder is obliged to hold a guarantee covering the performance of the approved overall and annual work program; and covering its environmental obligations. Rarely, the permit holder may need to pay for extracted natural resources should the quantities meet the requirements set in the respective agreement for prospecting and exploration.

Once a production license is issued, the company pays the state royalty fees based on the production. The ordinance for setting up the mechanism for payment of the royalty fees is under discussion by authorities and businesses for quite some time now and we are expecting further development in its amendment and supplement.

The import and export of oil and gas are regulated by general legislation, including the URA and the Energy Act. A license is needed for trading with natural gas, including import and export if they are regarded as trading pf natural gas. 

There is only one license for a public gas supplier which is held by the 100 % state-owned company Bulgargaz EAD.

The other state-owned company is Bulgartransgaz EAD which is a combined operator performing licensed activities of natural gas transmission and storage. The Company is an owner and operator of gas transmission infrastructure for natural gas transmission to natural gas distribution companies and industrial consumers on the territory of Bulgaria and to the neighboring countries Romania, Turkey, Greece, North Macedonia, and Serbia; underground gas storage in Chiren (Chiren UGS) with major function – natural gas storage for covering the seasonal fluctuations in consumption and delivery of natural gas.

Bulgaria’s energy sector is still dominated by electricity, produced mainly from nuclear, coal, and renewables. However, coal-fueled plants are regarded as something that either needs big investments to be clean or replaced by gas-fueled generators. The country’s gas market has a huge room potential for development and investments though we see significant growth in it due to the liberalization of the gas market and construction of a new pipeline system.

Bulgaria is still very much dependent on imported gas. The mix of imported gas is getting more and more variable. Domestic production has been in decline in the past years. 

In the past years, we have seen a detailed exploration of the oil and gas potential offshore Bulgaria. Prospecting and exploration works in the largest Bulgarian block offshore continue.

2.2. Domestic oil & gas production and imports/exports

At present, Bulgaria has proven insignificant quantities of natural gas and oil reserves. 18 concessions have been granted from the group of mineral resources – oil and natural gas, 14 of which are in onshore territories, and in limited quantities oil and condensate are extracted. In 2019, 22 million tons of oil were extracted, which is insufficient to cover the needs of the domestic market. Given the low yield, the country’s oil needs are met by imports.

So far, no significant natural gas deposits have been discovered on the territory of the Republic of Bulgaria. The actions that have been taken are to explore and search for new natural gas fields, both onshore and in the Black Sea – Khan Asparuh Block and the Khan Kubrat Block. Currently, production in the country is limited, covering just over 1% of annual consumption. The production of natural gas in the country in 2019 amounts to 29 million cubic meters, and the trend is for the rapid depletion of existing fields. To meet the needs of Bulgarian consumers for natural gas relies mainly on imports. Recently, in 2019, Bulgaria realized alternative supplies of liquified natural gas from six different sources. The delivered quantities reached 0.5 billion cubic meters of gas at competitive prices.

An important element related to the security of natural gas supply is the underground gas storage facility in Chiren. Its capacity is 550 million cubic meters of natural gas.

Following the information shared by the National Statistics Institute for 2021 is: 21 million cubic meters produced gas; 3015 million cubic meters imported natural gas.

2.3. Foreign investment and participation

Bulgarian legislation does not provide restrictions on foreign stakeholders to enter the domestic market. We witness a continuous strategy to develop the Bulgarian energy sector environment in an investor-friendly direction.

The URA imposes certain requirements to companies to meet to be granted a permit for exploration and production such as: the company needs to be registered under the Bulgarian Commerce Act or a similar act of another country; the company may not be registered under the legislation of a country with preferential tax treatment; the company needs to meet the financial, technical and management requirements to qualify for bidding round, etc.

Bulgaria is a member of the Energy Charter Treaty. The country also takes all necessary steps in time due manner to implement relevant to the energy sector EU Directives. Bulgaria has been represented in court and arbitration cases, derived from the energy sector legislation in the past and by no means make an exception in comparison with other member states of the European Union when it comes to bearing its liability before domestic and foreign investors.

It is very important to mention that the URA does incorporate a stability clause, meaning that investment is given stability when the transaction is entered. The clause provides that:

In case of changes to the Bulgarian legislation which limit the rights or cause material damages to the permit holder, on the request of the permit holder the terms and conditions of the executed contract shall be amended to restore its rights and interests corresponding to the initially concluded contract.

3. EXPLORATION OF OIL & GAS

3.1. Granting of oil & gas exploration rights

In Bulgaria, the exploration and production of underground resources are regulated activities. As mentioned above this is regulated by the Underground Resources Act and the secondary legislation on the implementation of the URA. 

A permit for prospecting and exploration may be granted following a competitive procedure or on the initiation of an interested party where it is also announced the possibility for other participants to bid.

As mentioned above, the candidates shall meet a set of requirements to qualify for bidding for a license for prospecting and exploration of oil and gas.

The permits for prospecting and exploration of natural resources like oil and gas are granted on the consent of the Council of Ministers based on the suggestion of the Minister of Energy. This means that the Ministry of Energy is leading the whole procedure and running the coordination with other ministries prior to having the permit approved by the Council of Ministers. In practice, this is a rather very formalistic and thorough procedure that consumes at least four months to have completed.

When the bidding round is started by the initiation of the Council of Ministers on the suggestion of the Minister of Energy the public call is promulgated in the Bulgarian State Gazette and all interested parties are given the main terms and conditions under which the license shall be awarded. The invitation includes the area it will be bid for, its coordinates, the land use fee payable, any requirements for having to drill a prospecting well, any specifics of the area, information where interested parties will be given access to available information on the study of the concerned area, etc.

A permit is an administrative act. Its issuance is promulgated in the State Gazette and it is subject to appeal within 14 days following the publication by any party that has legal standing to do so. The permit does not enter into force, and the exploration contract cannot be signed before the expiry of the appeal period or before the completion of the appeal procedure. The grantor may decide to allow preliminary implementation of the permit, in which case the contract can be signed before the expiry of the period for appeals.

As prospecting and exploration of natural underground resources is rather a hot topic for the government, the plans for its development are usually included in the program for each mandate.

Currently, the focus of the governing party is turned to the gas market liberalization and stronger regulation was adopted in this regard like a licensing regime for all traders with natural gas.

Further, when a commercial discovery is made, it has to be reported to the Ministry of Energy so the latter can conclude a separate agreement for the concession of the area where the deposit is. Despite the lack of significant discoveries on the territory of the Republic of Bulgaria, the Government still shows support for the activities of exploration and prospecting both on and offshore Bulgaria.

3.2. Foreign exploration

Under Bulgarian legislation, underground resources are the exclusive property of the state. Their prospecting and exploration may be done through a permit for prospecting and exploration issued following the procedure detailed in Section 3.1. The only formal limitation to a permit holder is that it may not be a company incorporated under the legislation of a country with preferential tax treatment or its associated companies be registered in jurisdictions with preferential tax treatment; it is in insolvency or liquidation procedure. The other requirements a permit holder needs to meet are set out in art. 23 of the URA.

Once granted the permit for prospecting and exploration of natural resources, the permit holder may transfer it to another company following the provisions of the URA with the consent of the issuing authority, in the case of oil and gas prospecting and exploration this is the Council of Ministers.

The new permit holder must meet the same requirements and criteria the permit holder did upon granting the permit for prospecting and exploration.

3.3. Stages of the exploration process

Usually, the contract for prospecting and exploration of natural gas and oil sets out the steps and works the permit holder needs to do during the license. A list of the works is included in the overall work plan and the annual work plan is an inseparable part of the permit. The overall work plan covers the whole period of the license, and it is approved upfront upon starting of the works under the prospecting and exploration contract, while the annual work plans are approved based on the provided for in the overall work plan and in advance to the start of works.

Certain changes may be done in the overall work plan and the annual work plan on the initiation of the permit holder like a suggestion to drill optional exploration wells. If such works are to be done the approval of all concerned authorities is sought. Additional guarantees may be requested to secure and cover the works to be done, like having the environmental works bank guarantee extended to cover the new scope of works.

3.4. Obligatory state participation

Under the URA the state does not get ownership or interest in the permit while the prospecting and exploration are going on. The data collected is co-owned by the state and the permit holder following the requirements of the URA and sub legislative legislation.

Once the permit for prospecting and exploration is over the state becomes the exclusive owner of all the data and information collected during the prospecting and exploration phase.

What the state most benefit from during the prospecting and exploration of underground resources like oil and gas is having been paid the area fee and collecting updated data from the study of the area.

3.5. Risks to be considered

As Bulgarian legislation is compliant with EU legislation and the Bulgarian government is open to foreign investment and collaboration the main risk, we may identify was the short terms for doing prospecting and exploration works on and offshore Bulgaria as regards oil and natural gas. This was tackled by the recent amendments and supplements in the URA giving additional periods for doing such works.

4. PRODUCTION OF OIL & GAS

4.1. Granting of oil & gas production rights

The holder of an exploration permit, who has applied for registration of a commercial discovery and has received a certificate for commercial discovery, can obtain a concession to produce the respective underground resource. The concession is not being granted automatically. The grounds for granting a concession are being checked and the concession can be rejected if these are not met. The concession can also be rejected upon compensation of the applicant if there is a threat to the national security and defense, the environment, or cultural objects.

Concession rights may be granted also following a tender procedure for a specific area and type of underground resource.

The Government grants production concessions upon a motion of the Minister of Energy. There is no limitation on the number of concessions that one individual or company may have. The decision for granting a concession is an administrative act. Similar to the exploration permit, it is subject to publication, appeal, and entry into force, and might be subject to preliminary implementation. The concession is granted for a particular territory, which shall include the territory of the discovery and territories, necessary for the performance of the concession activities. Similarly, to the prospecting and exploration permit, the concession rights are granted following the provisions of the URA. The supervision of concession activities is with the Ministry of Energy which reports to the Council of Ministers in case of need.

Currently, the government is focused on ensuring the gas independence of the Bulgarian market. Therefore, for quite some time now one of the top priorities of the government is the prospecting and exploration of the oil and gas potential of the country, including offshore Bulgaria. We expect to see the tender of unexplored blocks offshore Bulgaria in the coming years.

4.2. Foreign production

Production by foreign entities is not subject to special regulation by the law. The procedure for granting production rights under a concession follows the same general rules as stipulated in Section 4.1. Therefore, similar restrictions exist like the one for granting a permit for prospecting and exploration. For more, details please see Section 3.2. Moreover, the concession rights come only after the successful prospecting and exploration of a given area. Our experience shows that the Bulgarian government does not differentiate local and foreign investors and it is willing to cooperate with either of them in order to succeed in insuring its gas independence.

4.3. Stages of the production process

Domestic legislation provides for a concession agreement that oversees the legal relations between the state and the entity, which made the commercial discovery as a result of an exploration permit. The concession in this sector is with a maximum term of 35 years which may be extended in specific cases. The concessions agreement sets forth all the applicable procedures, responsibilities, and obligations between the parties. Where the concession agreement is silent the URA shall apply.

The concession agreement mainly includes the parties, subject of concession, coordinates and area of the concession rights, term and when it starts to run, rights and obligations of the parties, adjacent area to the concession rights, financial terms and conditions, concession payments, security for the performance of the obligations, possibility for the transfer of rights and obligations, terms and conditions for the termination of the concession agreement, terms and conditions for the works performance, environmental responsibilities, dispute resolution clauses; etc.

4.4. Obligatory state participation

There is no regulation currently in force in Bulgaria, stipulating obligatory state participation nor does the state actively seek participation in the process.

The concessionaire pays a concession payment, the amount of which shall be determined considering the type, group, and value of underground resources, as well as the specific terms of extraction and primary processing. The amount, terms, and conditions for the concession payment shall be determined by the concession contract based on the sub legislative acts. A portion of the concession payment amounting to 50% shall be transferred to the budgets of the municipalities, where the areas are located. As mentioned above, for quite some years the concession payment mechanism is being the ‘hot topic’ for the industry. Therefore we expect to see developments in the legislation dealing with the concession payments in the coming years.

4.5. Risks to be considered

At this point, we believe that the applicable legislation is quite balanced, and industry is favored to stimulate investors on the market. We may not identify high risks related to the production of oil and gas in Bulgaria.

5. TERMINATION OF PRODUCTION OF OIL & GAS

5.1. Abandonment and decommissioning

The rights acquired on the grounds of concession for extraction shall be terminated upon termination of the relevant contract.

The contract may be terminated upon the occurrence of any of the below:

  • expiry of the initial term of the concession and after acceptance by the competent authorities of the activities for liquidation of the extraction site and/or reclaiming of the affected land and forests;
  •  in the event of objective impossibility to pursue the activities under the granted concession;
  •  in cases where a decision for declaration of bankruptcy of the holder of a license or the concessionaire has come into force; by mutual agreement;
  •  by virtue of ruling of a court of justice or a court of arbitration;
  •   in cases where within three years from entry into force of the concession contract no extraction of subsurface resources has started for reasons attributable to the concessionaire; or
  •  for other reasons provided for in the contract.

The Minister of Energy is entitled to suspend the validity of the concession if the concessionaire pursues activities that conflict with the legislation in force or violate the provisions of the concluded contract.

Shall the concessionaire not be able to decommission the infrastructure then the state enters into such obligation. The funds for the works to be done come out of the guarantee provided upon commencing the works. If they are not enough funds to cover the expense, the state has a claim against the concessionaire.

5.2. Environmental and HSE consideration

This is dealt with the secondary legislation, i.e. the ordinance on requirements and the scope and contents of the work programs for prospecting and exploration, production and initial processing of underground resources, for the liquidation and/or conservation of geologically studied and mining and production objects and recultivation of the affected lands and for the term and conditions of their coordination.

The plans for the abandonment and decommissioning of the oil and gas facilities represent an inseparable part of the overall and annual work plans for the prospecting and exploration, production, and initial processing of the underground resources. They are approved and coordinated at once. The bodies involved in the approval and coordination process are the Ministry of Energy, the Ministry of Environment and Waters, and their local administrative bodies.

The procedure is led by the permit holder/ the concessionaire.

6. SAFETY OF OIL & GAS EXPLORATION AND PRODUCTION

6.1. International treaties to which the jurisdiction is a party

The main international treaty, that the Republic of Bulgaria is a party to, is the Energy Charter Treaty. The treaty provides for a global legal framework in the investment, trade, transit, dispute resolution, national sovereignty, energy efficiency, etc. in the field of energy including the oil and gas sector.

6.2. Offshore Safety Directive

The Offshore Safety Directive was transposed in the domestic legislation and its provisions are embedded in the URA and within Ordinance on the Requirements for Prevention of Accidents in Prospecting and Exploration or Exploration or Extraction of Mineral Resources - Oil and Natural Gas in the Territorial Sea, the Continental Shelf and in the Exclusive Economic Zone of the Republic of Bulgaria in the Black Sea.

7. IMPORT, EXPORT, AND SALES OF OIL & GAS

7.1. Import and Export of oil & gas

The Energy Act does not provide any specific regime for the origin of gas to be transmitted and sold on the wholesale market.

The transactions are entered into on freely negotiated prices.

The selling entity shall have entered the respective Access and Transmission contract with Bulgartransgaz EAD (BTG), as well as into a Balancing contract.

The production companies and natural gas clients inside and outside of the country may connect themselves with direct gas pipelines and enter into gas transmission agreements using these pipelines.

All the transactions on freely negotiated prices are administered by BTG if the capacity is run through the transmission network of BTG or on the gas exchange market. BTG has absolutely no involvement in the conclusion of the agreement but is obliged to assist in its performance.

At the entry/exit points with the neighboring TSOs within EU, the gas capacity allocation procedure is done based on the agreed in the Interconnection Agreement, entered into between the two TSOs in compliance with the requirements of Regulation (ЕU) 2015/703 of the Commission dated April 30, 2015, for the establishment of the Network Code of the Rules for the Operational Compatibility and the Transfer of Data.

The catalog of the entry/exit points, their names, and codes within the TSO’s network may be found on the website of BTG.

7.2. Transportation

The transit of natural gas and gas network operation is done by the Bulgarian transportation system operator, BTG.

BTG as the gas transmission network operator shall ensure, among others:

  • integrated management of the natural gas transmission network with a view to its reliable, safe and efficient operation;
  • the transmission of natural gas through the natural gas transmission network and metering of the natural gas;
  • the expansion of the gas transmission network in accordance with long-term forecasts and plans for the development of gas supply and outside the framework of such plans, where economically justified;
  • maintenance and expansion of the auxiliary networks;
  • provision and control of third-party access on a non-discriminatory basis between network users or groups of network users in compliance with the quality requirements, and provision to network users of information that they need for efficient access to the network;
  • the coordinated development and operating compatibility of the natural gas transmission network with interconnected natural gas transport systems;
  • sufficient information to ensure that transportation and storage are done in a manner consistent with the secure and efficient operation of interconnected networks and facilities to operators of other gas transport systems, operators of natural gas storage facilities, and/or operators of liquefied natural gas facilities and/or operators of gas distribution networks; and
  • enough cross-border capacity with a view to integration of the European gas transmission infrastructure while meeting all economically reasonable and technically feasible requests for capacity and with a view to meeting the requirements for the security of gas deliveries.

The operation of gas transmission networks is done in accordance with the rules of management of gas transmission networks adopted by the Bulgarian Energy Regulator based on a proposal of BTG.

The gas transmission system operation is regulated by secondary legislation approved by the Energy Regulator.

The procedure for access to the gas transmission system is initiated by the filing of an application with the TSO in a template form. The form may be filled in Bulgarian or English language. It is accompanied by original documents certifying the lack of obstacles to joining the network (that the company is not insolvent, in insolvency and/or liquidation procedure) and a good standing certificate of the company. If trading on the Balkan Gas Hub one needs to register there, as well. Once the verification is passed, and the company is registered on the platform, the company has a period of six months to file requests for booking of capacity on the RBP or to participate in the procedures for capacity allocation.

The draft Access and Transmission contract and the GTC applicable to it is available on the website of BTG.

The gas transmission on the territory of Bulgaria may be done based on an entry-exit tariff model and based on agreements for monthly, quarterly, or annual products, and additionally daily products.

The other associated infrastructure is the Chiren underground gas storage. The gas storage facility is also run by BTG.

7.3. Land rights

If there is a need for access to the gas transportation pipeline system, the secondary legislation shall apply, namely the Ordinance for the gas transportation and gas distribution systems. The application for joining the gas transportation and gas distribution systems is thoroughly examined and decided on by authorities. Should there be a need and benefit to joining the systems, a contract is entered into based on the approved documents and the available town planning documents. The facilities to be joining the gas transmission and gas distribution system shall comply with the requirements set in the Energy Act and the related legislation.

The obligation for the construction of the infrastructure for gas transportation/gas distribution is split between the party willing to be connected and the system operator. The connectivity point is the borderline of parties’ obligations.

The company may be granted rights to construct and hold such servicing facility based on the provisions of the URA and the EA unless it owns the land where the facility will be passing.

Usually, such rights are in-rem rights like superficies or servitudes. Should the company fail to reach an agreement with the landowner for having the infrastructure go through his lands, assistance may be sought by competent authorities.

The construction of direct pipelines is ensured by the production companies, the gas infrastructure facility operators. The construction may be done only based on an executed contract for joining the gas transmission/gas distribution network.

7.4. Access and integration

Please refer to Section 7.2. on access to oil and gas transportation pipelines and associated infrastructure.

In the context of European goals for building an interconnected and single pan-European gas market, Bulgaria's policy and legislation for gas infrastructure development are directly linked to the country's position as one of the main gas distribution centers in Southeast and Central Europe. Key to market integration by 2030 is the interconnections with the Republic of Greece and the Republic of Serbia, the participation in the liquefied natural gas terminal near Alexandroupolis, Greece, as well as the expansion of the gas transmission infrastructure on the territory of Bulgaria from the Bulgarian-Turkish to the Bulgarian-Serbian border. To implement this policy, a number of projects of common interest to the European Union are being implemented under Regulation (EU) No. 347/2013 on guidelines for trans-European energy infrastructure, as well as projects of common interest to the energy community and priority gas projects under the gas interconnection in Central and South-Eastern Europe.

The Bulgaria-Greece gas interconnection

The gas connection has a total length of 182 kilometers and a capacity for natural gas transportation from 3 to 5 billion cubic meters/year. If there is interest, the capacity can be increased to 10 billion cubic meters/year. The route of the gas pipeline will be between the town of Komotini, Greece, and the town of Stara Zagora, Bulgaria. After a delay in the execution, the gas connection will be put into commercial operation in the second half of 2022. Numerous high-profile international companies participated as contractors to the project company in various public procurement procedures held by the project company for services related to the interconnector.

The Bulgaria-Serbia gas interconnection

The Bulgaria-Serbia Gas Interconnection is envisaged as a reverse connection that will connect the national gas transmission networks of the Republic of Bulgaria and the Republic of Serbia. It has a total length of 170 kilometers from the town of Novi Iskar, Bulgaria, to the town of Nis, Serbia, of which 62.2 kilometers are on Bulgarian territory. The pipeline will create an opportunity to transport natural gas in both directions.

The project for the LNG terminal near Alexandroupolis

The terminal has a projected annual capacity of 6.1 billion cubic meters and a storage capacity of 170,000 cubic meters. It is a state-of-the-art technological project that includes an offshore floating device for receiving, storing, and regasifying liquefied natural gas and a system of underwater and onshore gas pipelines through which natural gas is delivered to the Greek National Natural Gas System and beyond to end-users. The LNG terminal is strategically located close to the gas transmission network of the Greek national gas operator DESFA S.A. Bulgaria participates in this project through Bulgartransgaz EAD. The company is a shareholder with a 20% share of the capital of the project company that will implement the project, and Bulgargaz EAD participates in the legally binding phase of a market test and reserves a capacity of 500 million cubic meters of gas per year for the next 10 years. According to public information, the terminal would become operational by the end of 2023.

The expansion of UGS Chiren’s capacity

The project is to expand the capacity of the underground gas storage Chiren, including a gradual increase in the capacity of the only gas storage facility in Bulgaria, in order to achieve larger volumes of stored gas, increased pressures in the gas tank and higher average daily production and injection flows. The project envisages an increase in the volume of working gas to 1 billion cubic meters and an increase in the production and injection flow to 8-10 million cubic meters/day. The Chiren UGS capacity expansion project is a project of common interest for the European Union, according to Regulation (EU) No 347/2013. The commissioning deadline is expected to be 2025.

7.5. Gas transmission and distribution

The activities of “transmission of natural gas” and “storage of natural gas” are carried out by BTG. The transmission of natural gas is carried out on the national gas transmission network and on the gas transmission network for transit transmission. As mentioned above, BTG is the holder of licenses for the activity “transmission of natural gas,” as well as a license for the activity "natural gas storage.” Bulgartransgaz EAD is an operator of the National Gas Transmission Network for transmission of natural gas on the territory of Bulgaria to gas distribution networks and non-domestic customers of natural gas; gas transmission network for transit of natural gas through the territory of Bulgaria to the neighboring countries Romania, Turkey, Greece, and Macedonia and the underground gas storage Chiren for storage of natural gas for primary purposes to cover seasonal inequalities in consumption and ensure the security of natural gas supply.

The individual access and transmission contract are signed annually between the user and BTG.

The access and transmission fees are available on the internet site of the Bulgarian TSO.

8. TRADING

8.1. Trading license

Natural gas transactions are regulated by the provisions of the EA (article 173 to article 184) and the Natural Gas Trading Rules. The transactions could be based on written agreement and/or organized gas exchange market.

The categories transactions with natural gas are: (i) delivery; (ii) transmission through the natural gas transmission and the natural gas distribution system; (iii) gas storage; (iv) transactions for the balancing of the market; and (v) transactions on spot or VTP of the gas delivery systems.

Parties to the transactions with natural gas in Bulgaria are: (i) BTG (TSO); (ii) production companies; (iii) gas storage facilities operators (currently only BTG); (iv) LNG facilities operators; (v) the gas system operators; (vi) combined operator; (vii) gas distribution system operators; (viii) gas traders; clients and parties, forming the market; (ix) end supplier of natural gas; and (x) liquidity suppliers.

According to the adopted amendments to the Energy Act, as of October 1, 2021, the activity of "trading with natural gas" may be carried out based on a license issued by the Energy and Water Regulation Commission. The latter also issued the Rules on Trading with Natural Gas. The licensing procedure requires the candidates to provide extensive information and proof of their technical and financial suitability to exercise the above-mentioned activity.

Domestic legislation stands out with cheap and time-efficient license procedures, which resulted in a high (for the country’s scale) number of licensees of both foreign and domestic stakeholders. Also, an advantage is the option to file for a license online.

8.2. Products

As mentioned above, currently there are two gas exchanges operating in Bulgaria. One is the Balkan Gas Hub and the other one is the Bulgarian Energy Trading Platform.

Both gas exchanges provide long- and short-term segments.

The long-term segment of the Balkan Gas Hub trading platform offers products traded on a medium and long-term basis – weekly, monthly, quarterly, and calendar year(s).

The short-term (spot) segment of the Balkan Gas Hub trading platform offers short-term standardized products intraday and day-ahead as well as temporal and locational products for the TSO network balancing purposes. Trading is done on an anonymous basis, in accordance with the provisions of Regulation (EU) No. 312/2014.

9. COMPETITION

9.1. Authorities

The Commission for Protection of Competition (CPC) is responsible for overseeing the fair and compliant competition environment. The CPC has the authority to trigger an investigation for competition breaches at its own will. Moreover, the CPC has full authority over the competition field and its decision can be only appealed before the Supreme Administrative Court.

A competition-related investigation can be also triggered by a third party, again before the CPC.

9.2. Anti-competitive actions

With Resolution No. 80 of January 27, 2022, the CPC set as one of its goals for 2022 to initiate priority proceedings to investigate the existence of prohibited agreements or abuses of a dominant position, including in the energy and fuels sectors. The CPC considers these sectors to be a priority in its law enforcement activities, as they are structurally important for the country's economy, significantly affect the competition process in other economic sectors and directly affect the well-being of citizens as consumers.

The CPC has the authority to resolve mergers and acquisitions above certain financial thresholds. As the financial thresholds, regulating whether a transaction will undergo a merger clearance before CPC, are in practice negligible for the energy sector, basically all envisioned deals should undergo such examination. The outcome is either giving clearance or prohibiting the said transaction. The Bulgarian domestic legislation provides for an obligation for the involved parties to provide information that is considered more extensive than in other European jurisdictions. The process usually takes two months for the CPC to resolve but can be prolonged based on the complexity of the case.

10. STABILITY CLAUSE AND DISPUTE RESOLUTION

10.1.       Stability clause

According to the Underground Resources Act, the permit holder/concessionaire, mentioned in Sections 3.1. and 3.2., is entitled to request amendments to the respective contract, if the law changes in a way that limits the rights or causes damages to the permit holder/concessionaire in contrast to the moment when the contract was entered into due to the separation of the exploration from the production activities under separate contracts, the stability does not cover the entire duration of the exploration and production activities. Instead, there is: (i) one stability clause that covers the exploration activities and does not extend to the production activities; and (ii) another stability clause that covers the period of the production concession.

10.2.       Compulsory dispute resolution procedure

Under the URA the parties to a contract for prospecting and exploration/ production license may choose between having a dispute resolved by the competent Bulgarian court or arbitration. The arbitration may be Bulgarian or international. In any case, the contract shall choose the forum as well as the language and procedure a dispute will be reviewed.

URA also allows for certain matters to be regarded by an expert. This shall be explicitly set in the prospecting and exploration agreement and/or the concession agreement.

10.3.       International treaty protection

Bulgaria is a party to both the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). So far there has not been a major dispute involving Bulgaria and foreign companies on prospecting and exploration/production of oil and gas.



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Guide Contributors For Bulgaria

Kostadin Sirleshtov

Managing Partner, CEE Head of Energy & Climate Change

Kostadin.Sirleshtov@cmslegal.bg

+359 2 921 9942

 

Denitsa Dudevska

Senior Associate

denitsa.dudevska@cmslegal.bg

+359 2 923 4863

 

Diyan Georgiev

Trainee

diyan.georgiev@cmslegal.bg

+359 2 923 4861