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Bulgaria and Romania are trying to ensure the continued operation of their Lukoil-owned refineries before U.S. sanctions take effect on Nov. 21, according to a recent report by Politico. On Nov. 7, the Bulgarian parliament approved a bill allowing the government to appoint a special administrator to the Lukoil-owned Burgas refinery — the country's largest. It took the lawmakers just 30 seconds to vote on the bill. At the same time, Bulgaria is requesting that the U.S. grant an exemption from sanctions.
Bulgarian Economy Minister Petar Dilov said he was confident Sofia would receive a waiver similar to the one granted to Hungary, adding that all necessary steps had been taken to ensure stable fuel supplies and prevent a market crisis. Romania, where Lukoil operates the Petrotel refinery, is also considering a request for a temporary exemption.
The scramble to find a solution before the Nov. 21 deadline intensified after Lukoil’s plans to sell its European assets to the Swiss trading company Gunvor attracted criticism from the U.S. Treasury. Gunvor, founded by Russian oligarch Gennady Timchenko, withdrew its bid on Nov. 7.
Petar Tanev, an adviser in the European Parliament, told The Insider that Bulgaria’s decision was primarily political:
“The problem is not so much economic as political. The Bulgarian authorities do not want to nationalize the refinery for three reasons. First, because of the legal risk: the plant belongs to Lukoil's subsidiaries registered in the EU, and any seizure without due process will lead to international lawsuits and compensation payments. Second, because of the influence of local oligarchic structures linked to the DPS party and the local Bulgarian super-influential oligarch [Delyan] Peevski: it is more profitable for them to retain control through a ‘special manager’ than to transfer the asset to the state. And third, because of the unwillingness to take responsibility. Managing such an object is technically difficult; it requires an operator and a guarantee of supplies, which the state does not have.
In essence, instead of a transparent nationalization, the Bulgarian authorities have chosen a quasi-solution that creates a legal vacuum: appointing a manager who can dispose of the asset without [the] court or oversight. This is not a way to ‘avoid a crisis,’ but an attempt to use the sanctions situation for [the] internal redistribution of influence.”
Martin Vladimirov, director of the Energy and Climate Program at the Center for the Study of Democracy, told The Insider that if affected EU countries do not urgently coordinate with the U.S. Treasury, there may not be enough time for the Office of Foreign Assets Control (OFAC) to issue waivers.
“Without the license, even the state manager could potentially be the subject of secondary sanctions. Bulgaria has introduced changes to its special manager law expanding its rights and mandate, including the ability to sell the assets under Lukoil ownership. However, there [are] no explicit legal guidelines [on] how the owner of the assets will be compensated for the sale, which can be a cause for a Russian state arbitration case against Bulgaria including the UN arbitration court (part of the Russian-Bulgarian Bilateral Investment Treaty).”