According to a joint investigation by Global Witness, the Center for Energy and Clean Air Research (CEECR), and the Center for the Study of Democracy (CDR), an EU refinery is taking advantage of sanctions relaxation and increasing Moscow's tax collection within the EU.
Bulgaria's largest refinery is Neftohim Burgas. It has become one of the world's major users of Russian oil since the outbreak of full-fledged conflict in Ukraine. According to our research, the refinery absorbed almost 4.95 million tons of Russian crude oil in the first 10 months of 2023, delivering the Kremlin around €1.13 billion in direct tax income. According to Russian President Vladimir Putin, this is enough to fund the "Wagner" mercenary group's operations for a whole year, according to Politico.
Bulgaria secured an exemption (derogation - ed.) when the EU banned Russian oil in December 2022 in order to ensure local supply. "The purpose of the exception is for Bulgaria to be able to procure and not sell imported Russian oil to other countries," stated an EC official last year.
However, our research indicates that the refinery, which is mainly owned and controlled by Russian fossil fuel company Lukoil, appears to be taking advantage of the exemption rather than serving Bulgarian demand.
According to industry figures, Russian oil now accounts for 93% of Burgas imports, up from 70% before the invasion. Simultaneously, Neftohim Burgas exports a significant portion of the goods it refines; seaborne shipments of refined petroleum products from the facility alone are valued at €984 million in the first ten months of 2023.
It is illegal for the refinery to export items manufactured from Russian oil. However, Neftohim continues to send petroleum products to the EU under the "mass balance" criterion, which enables it to export as long as the amount exported is less than the amount imported from countries other than Russia by Burgas.
The ship Seaexpress carried 40,000 tons of fuel oil from Burgas in August and emptied its cargo two weeks later at the Dutch port of Rotterdam. The agreement itself does not violate the sanctions; but, a definitive judgment cannot be made until February 2024, when a year's worth of import and export data will be assessed to decide if the refinery has exceeded its European sales quotas.
According to the analysis, Bulgaria has exported more to the EU this year than it has imported from other countries other than Russia, creating severe concerns about Neftohim Burgas' ability to comply with the mass balance regulation.
The Bulgarian subsidiary of Lukoil not only opens the door to Russian oil in the EU; the refinery also sells goods to nations that do not join the EU, such as the United States. According to transport data, the United States imported over 70,000 tons of refined goods from Burgas this year.
"Whether or not Neftohim ends up violating the letter of the EU's Russian oil embargo, its actions undermine the spirit of the embargo," said Christopher Lambin, senior data investigations consultant at Global Witness.
"Lukoil" distributes petroleum products in Europe, netting the Kremlin more than a billion euros this year. "The EU must close the numerous gaps in the ban on Russian oil imports and increase investment in the transition to clean energy," says Lambin.
"Neftokhimik's growing dependence on Russian crude shows how sanctions loopholes allow a Russian oil refinery to operate within EU borders," said Isaac Levy, director of the European and Russian political and energy analysis team. Russian oil is used to power automobiles in the EU while also providing income to the Kremlin. Bulgaria's sanctions exemption must be terminated, and the Russian-owned refinery must be sold, in order to decrease cash flows utilized by Putin to wage war in Ukraine. The refinery already imports non-Russian crude oil, demonstrating that there is an alternative, and hence Russian oil purchases should be barred."
"There is an urgent need to strengthen the implementation and enforcement of oil sanctions by revoking the derogation granted to the landlocked Central European countries and Bulgaria, as there is no technical or economic justification for the exemptions," Martin Vladimirov, Director of Energy and Climate at the CID, said. The EU should also ban the transshipment of Russian petroleum products arriving at EU ports and then being moved to non-EU destinations."
When contacted for comment, Lukoil subsidiary Litasco S.A, a significant shareholder in the refinery, stated that it adheres to all applicable laws and regulations, including G-7 pricing cap guidelines./BGNES
