EC approves 400 million euro state aid for Bulgarian Bulgargaz

The European Commission has granted its approval for a substantial state aid package of 400 million euros (equivalent to 800 million leva) to Bulgargaz EAD. This aid has been extended to the public supplier by the office of President Rumen Radev, and it comes in the form of a loan with subsidized interest rates. The rationale behind this financial support is the economic distress faced by the state-owned company, a situation largely attributed to Russia’s ongoing conflict with Ukraine.

This decision by the European Commission is based on the Temporary Framework for State Aid in Crises, which was originally adopted on March 23, 2022. Subsequently, it was revised on July 20, 2022, in response to the unfolding events in Russia’s war against Ukraine. Furthermore, on October 28, 2022, this framework underwent further adjustments and was eventually replaced by the Temporary Framework for State Aid in Crisis and Transition. This updated framework, officially adopted on March 9, 2023, is tailored to support measures in sectors critical for expediting the ecological transition and reducing dependency on conventional fuels.

During August 2022, the Council of Ministers gave its nod to the allocation of these funds, and Denitsa Zlateva, the Director of Bulgargaz, provided insights into their intended usage. A significant portion of the aid, approximately 400 million Bulgarian leva, will be earmarked for repaying the obligations of district heating companies, while another portion is allocated to expand gas storage in Chiren.

The crucial question that arises is: Why was this loan approved in the first place? The European Commission’s reasoning behind this decision is grounded in the acknowledgment of Bulgargaz as the exclusive public supplier of natural gas in Bulgaria, indirectly being wholly owned by the Bulgarian state. The termination of gas supplies from Russia under Bulgargaz’s long-term contract with Gazprom Export, which covers a substantial 90% of the natural gas quantities delivered to customers, has led to unforeseen liquidity challenges. These challenges have emerged due to the rising gas prices on European energy markets.

The European Commission has meticulously examined the Bulgarian measure and concluded that it adheres to the conditions stipulated in the temporary crisis framework. Among these conditions are that the subsidized loan was granted before December 31, 2022, it caters to urgent liquidity needs for working capital, has a term of 3 years, and features interest rates in line with the minimum levels specified within the crisis framework.

The Commission firmly believes that this measure is not only necessary but also suitable and proportionate to address the significant economic difficulties faced by a Member State. This decision aligns with Article 107, paragraph 3, letter b) of the Treaty on the Functioning of the European Union, and it adheres to the conditions specified within the temporary crisis framework.

In terms of European regulations, the Temporary Framework for State Aid in Crisis, initially adopted on March 23, 2022, enables Member States to leverage the flexibility inherent in state aid rules to support their economies in the face of Russia’s conflict with Ukraine. It was amended on July 20, 2022, to complement measures aimed at conserving gas supplies during the winter and to align with the objectives of the REPowerEU plan. Additionally, it was further modified on October 28, 2022, to be in accordance with regulations pertaining to high energy prices and the coordination of gas purchases.

On March 9, 2023, the Commission unveiled a new temporary framework for state aid in times of crises and transition. This framework is intended to facilitate support measures in sectors pivotal for making the transition towards a climate-neutral economy, in line with the Green Industrial Plan pact. This, along with the amendment to the General Block Exemption Regulation (GBER), also approved on the same day, will stimulate investment and financing for clean technology production across Europe. Moreover, it will assist Member States in implementing specific projects outlined within their national recovery and resilience plans.

This freshly introduced framework amends and extends the provisions of the temporary crisis framework adopted on March 23, 2022, allowing Member States the flexibility to employ state aid rules to bolster their economies amidst Russia’s conflict with Ukraine.

The European Regulation complements the wide array of options available to Member States in crafting measures that adhere to current EU state aid rules. For instance, these rules enable Member States to support businesses facing liquidity shortages or those in need of emergency assistance to survive. Furthermore, Article 107(2)(b) of the Treaty on the Functioning of the European Union empowers Member States to compensate companies for damages directly incurred as a result of extraordinary events, such as those triggered by the current crisis.

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