New Bulgarian Act Implements EU Sanctions on Russian Oil and Petroleum Products

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Diverse and swingeing international and EU sanctions have been imposed on Russia for its actions in Ukraine by a range of Western countries. Initially sanctioning Russia more mildly in 2014, the EU added new sanctions in 2022 and 2023. 

Bulgaria has generally participated in and applied EU sanctions against Russia keenly, but has been doing so without the benefit of a purposive, domestic legislative framework. On 5 February 2023, a new legislation aiming  to implement EU sanctions related to crude oil and petroleum products of Russian origins finally came into force in Bulgaria.

This was the new Control of the Implementation of the Restrictive Measures in View of Russia’s Actions Destabilising the Situation in Ukraine Act (Act) adopted in connection with Council Regulation (EU) No 833/2014 (EU Regulation on Restrictive Measures towards Russia). This covered prohibitions on the sale and transport of crude oil and petroleum products of Russian origins, alongside amendments to the Concessions Act 2017.

EU Sanctions towards Russia

EU Regulation on Restrictive Measures towards Russia as amended on 4 June 2022, prohibited the purchase, import or transfer, directly or indirectly, of any crude oil or petroleum products, as listed in Annex XXV, if they originate in Russia or are exported from Russia (Sanctioned Petroleum Products). The Regulation also prohibits any party to provide, directly or indirectly, technical assistance, brokering services, financing or financial assistance or any other services related to the prohibition.

However, the amended Regulation provided a derogation for Bulgaria, according to which Bulgaria had until 31 December 2024 to authorise contracts concluded before 4 June 2022, or ancillary contracts necessary for the execution of such contracts, for the purchase, import or transfer of seaborne Sanctioned Petroleum Products (Derogation on Sanctioned Petroleum Products). Goods imported in Bulgaria by virtue of the derogation cannot be re-exported to buyers in another Member State or outside the EU. 

Currently, the new Act prohibits the sale of the Sanctioned Petroleum Products to buyers in other Member States and outside the EU. 

Bulgaria also prohibits the transfer, transport and sale to Member States and third countries of petroleum oils or oils obtained from bituminous minerals, part of the EU’s Combined Customs Nomenclature code 2710, derived from crude originating from Russia, but provides three exceptions from this rule as well. 

The exceptions from the rule:

• refuelling vehicles (motor vehicles, vessels and aircraft);
• where the petroleum products are intended for use only in Ukraine and the provision of which is not intended to circumvent the prohibition; and
• where the sale, supply, transfer or export of petroleum products of Russian origin to third countries, when their storage on the territory of Bulgaria would be regarded as a risk to the environment and to safety and when there is no intention to circumvent the prohibition.

It’s important to note that the Act does not restrict further substantively the sale of Sanctioned Petroleum Products than the EU Regulation on Restrictive Measures towards Russia does, and maintains the Derogation permitted to Bulgaria up to the end of 2024, but seeks to clarify things.

Declaration of the Origins of Petroleum Products

The Act introduces additional declaration requirements regarding petroleum oils which are part of the EU’s Combined Customs Nomenclature code 2710. 

Persons selling or transporting such products must declare whether they originate from crude imported by virtue of the Derogation.

Penalties

The Act provides for fines for the offenders between BGN 20,000 (approx. EUR 10,225) and BGN 50,000 (approx. EUR 25,500), and for repeat offences – between BGN 50,000 (approx. EUR 25,500) and BGN 100,000 (approx. EUR 51,100). 

Persons who fail to submit declarations shall be fined between BGN 5,000 (approx. EUR 2,500) and BGN 10,000 (approx. EUR 5,100) and, in the event of a repeated offence, between BGN 10,000 (approx. EUR 5,100) and BGN 20,000 (approx. EUR 10,225). 

In case of incomplete or inaccurate provided data, the penalty is between BGN 5,000 (approx. EUR 2,500) and BGN 10,000 (approx. EUR 5,100), unless the breach is also a criminal offence.

Amendments to the Concessions Act 2017

The Act also amends the Bulgarian statute Concessions Act 2017 in line with EU Regulation on Restrictive Measures towards Russia, introducing a prohibition on awarding concessions related to activities at strategic sites of national security importance affecting crude oil and petroleum products to individuals and legal entities related to Russia (or with Russian Origins). 

The concessions awarded before the Act entered into force shall be terminated within one month of a positive decision of the European Commission following its notification of the measures taken by Bulgaria, and the activities that were part of such concessions contracts shall from then on be carried out by the state. 

The amendments in the Concessions Act 2017 created uncertainty insofar as third parties’ rights are affected without compensation. The withdrawal of concessions already awarded and the substitution of the state in these respective activities is a unilateral revocation of the rights provided with the concession contracts. The Act does not provide for any compensation and is vague on how existing investments will be treated. 

Another problem caused by the Act may occur in relation to Lukoil Neftochim Burgas AD, the largest oil refining enterprise on the Balkan peninsula and a major supplier of fuels in the local market. 

Firstly, the plant’s equipment allowed them to work only with Russian crude and the requirements regarding the origins of the raw material meant that Lukoil must reorganise technologically by 31 December 2024 – the deadline introduced by the EU Regulation on Restrictive Measures towards Russia. They must also be able to switch to crude originating elsewhere. 

Furthermore, Lukoil’s business may be significantly threatened as one of its main business activities are export-oriented. After the new changes are being implemented, they will not be able to export petroleum products of Russian origins except to Ukraine, which may cause significant losses to the operation. 

Conclusion

Following the adoption of the Act, a gap withinBulgaria’s laws which governs either the international sanctions imposed on Russia or sanctions generally would still remain. However, the new Act does provide for a sectoral implementation in Bulgaria of EU sanctions on crude oil and petroleum products from Russian origins. It introduces a prohibition to sell, transport and transfer of such products, as well as a new additional declarative regime regarding the origins of petroleum products. The Act also amends the Concessions Act 2017. According to the amendments, concessions that were already being awarded will be terminated if they are related to Russia and the activities contained in the concession contracts will be performed by the state. 

Nevertheless, these amendments will deprive existing rights granted by the concessions’ contracts without offering any compensation, leading to a further uncertainty as to how the existing legal relations will be treated and as to what the future actions of the state regarding the continuation of the terminated concessions might be.