Bulgaria’s Customs Agency vs Lukoil – the remake

Written by on April 24, 2013 in Bulgaria, Business, News - No comments

The efforts of Bulgaria’s Customs Agency to enforce excise tax laws on the local subsidiaries of Russian oil group Lukoil were once again thwarted when a Sofia court suspended, late on April 23, the execution of the order to revoke a tax warehouse licence held by Lukoil. The latest episode in the confrontation between Bulgaria’s customs authority and Lukoil was replayed, to a tee, under the same scenario as during their previous clash in the summer of 2011.

The Customs Agency issued, earlier this week, the order to revoke the tax warehouse licence for Lukoil’s petrol pipeline, which is used to deliver fuel to six storage facilities in southern Bulgaria, effectively blocking deliveries to those facilities. Tax warehouses are defined in European Union regulations as “premises approved for the production, holding and movement of excise goods”.

The order was issued after Lukoil failed to meet the March 31 deadline to install meters monitoring the amounts of fuel shipped through the pipeline, needed to calculate the exact amount of taxes and excise duties owed to the Budget.

The Customs Agency said that following a check of Lukoil facilities, its inspectors found that some of the storage facilities did not have any meters, while others had meters that did not send any data to the agency. Furthermore, the inspectors also found bypasses that would allow pumping fuel without it being recorded by the measuring equipment.

In reply, Lukoil Bulgaria, the retail subsidiary of Lukoil in the country, said that the Customs Agency was overstepping its authority. The company said that it did not have the necessary equipment installed because it required large investment and a longer period of time that it was given.

Lukoil Bulgaria chief executive Valentin Zlatev also accused Customs Agency director Vanyo Tanov of embarking on a “crusade” against Lukoil’s oil refinery Neftochim – last week, Tanov fired three senior officials at the Bourgas customs office for disconnecting meters at the Rossenets oil terminal that services the refinery, which allowed the company to pump an unknown amount of fuel without paying excise tax.

However, the decision by the Sofia Administrative Court now allows Lukoil Bulgaria to continue operations until the court examines the substance of the Customs Agency’s order. The stay of execution was granted because the revocation of the licence would lead to damages that would be “significant or difficult to redress”, stemming from Lukoil’s contracts to supply fuel to state railways BDZ and Sofia’s public transport company, as well as other state institutions.

Commenting on the ruling, the agency said in a statement that the court “missed the opportunity to dispel the suspicion that the country is ruled by an oligarchy”. The agency said that the ruling showed that “in a country governed by the rule of law, not all are equal in front of the law and the principles of the free market […] Tonight the law was brought to its knees and the monopolist won.”

(The statement is a clear reference to Zlatev – whom many in Bulgaria see as a bona fide oligarch, with all the negatives implied by that title.)

Familiar refrain
This clash between the Customs Agency and Lukoil followed the same script as their previous one in July and August 2011, when the agency revoked the tax warehouse licences of Lukoil Neftochim refinery and the Rossenets oil terminal.

That decision was prompted by a similar failure by Lukoil to install meters at the two facilities, mandated by legislative amendments approved in 2010 that required facilities that produce or store spirits and fuels to install monitoring equipment. The deadline for installing such meters was September 2010, but Lukoil Neftochim asked for a further delay of implementation until the end of 2011, which was denied.

The Supreme Administrative Court granted Lukoil a stay of execution citing the same reasons as this time around – damages that would be “significant or difficult to redress”.

Lukoil, which dominates Bulgaria’s wholesale and retail petrol trade, was the only company that failed to comply with the new regulations. At the time, Tanov said that other traders installed the required meters, resulting in the collection of an additional 150 million leva in excise duties.

Asked whether the agency had any proof to confirm suspicions that Lukoil Neftochim was declaring lower production and higher exports than in reality, Tanov said that it was impossible without tracking the exports to their final destination.

In the end, Rossenets oil terminal was granted a tax warehouse licence in January 2012, while the deadline for the Neftochim refinery to install the meters is June 1 2013.

‘Micro-drama’
Bulgaria’s caretaker Prime Minister Marin Raykov said on April 24 that he met with Tanov and Zlatev the previous evening, but described the issue as a “micro-drama”.

“I think that at this stage we are in control of this sensitive situation. On one hand, we have to defend the interests of the Bulgarian state and the rule of law, but on the other hand we must not allow an interruption of deliveries to petrol stations, especially before the [Easter] holidays and before election day [on May 12],” Raykov told reporters after the Cabinet meeting.

Raykov said that he supported Tanov’s actions, but declined to comment on the court’s decision, nor on Tanov’s statement the Bulgaria was ruled by an oligarchy. He said that he did not blame Tanov, whom he described as “an honest man with a clear goal in line with the interests of the state”, for his reaction to the ruling.

(Lukoil petrol station. Photo: sociate/flickr.com)

Comments

comments

About the Author

Alex Bivol is the news editor of The Sofia Globe.