Another Questionable Tender Procedure for Chiren Underground Gas Storage

After one failed attempt to expand the Chiren Underground Gas Storage last year, state-owned company Bulgartransgaz has announced another questionable tender procedure with the same scope.

The estimated contract value (BGN 109.5 mln. for six (three + three) wells) has been determined based on obscure criteria. In addition, it appears that the public company has abandoned its goal of drilling ten new exploitation wells and three observation wells, as outlined in the contract, terminated last year, with a consortium led by the private company Glavbolgarstroy.

Besides the drilling of a smaller number of wells, the gradual expansion of the Chiren Underground Gas Storage – as the project is now described by the public company – will rely on a cheaper but riskier technology.

The new tender procedure was announced almost two months after the Anti-Corruption Fund Foundation (ACF) exposed serious violations in the first tender procedure, currently under investigation by the European Public Prosecutor’s Office (EPPO). The second part of ACF’s investigation revealed political and corporate dependencies among key Bulgartransgaz employees.

“At the end of last year, we exposed attempts to harm the public budget, worth almost BGN 400, under the watchful eye of the state-owned gas transit company Bulgartransgaz,” said Lora Georgieva, a legal expert with ACF. “We also revealed that many individuals, linked with political parties, Russian interests, and officials in public regulatory bodies, have been appointed to well-paid positions with decision-making authority within Bulgartransgaz.”

“Instead of taking responsibility and remedial action, Bulgartransgaz’ leadership is acting in ways that only deepen our concerns about the future of the Chiren Underground Gas Storage.”

The estimated contract value of BGN 109.5 mln. for six wells (three assigned at the time of signing the contract and another three, possibly, at a subsequent stage) is based on market consultations and indicative offers from five companies. Among them are the Romanian company HABAU S.R.L. with an indicative offer of BGN 72.15 mln. for three wells and the Bulgarian company Oil and Gas Exploration and Production Plc., part of Chimimport, which is linked to the conglomerate TIM[i], with an offer of BGN 50.89 mln. The Bulgarian construction company SA. I. E. submitted the highest indicative offer of BGN 73.65 mln., while the Turkish company Guney Yildizi Petrol Uretim Sondaj Muh. Ve Tic A.S. submitted the lowest – BGN 48 mln.

Among the companies invited to participate in the market consultation procedure, most lack significant experience in well drilling. One of them, Oil and Gas Exploration and Production Plc. – the contractor behind the failed attempt to drill the new well E73 in Chiren.

Additionally, the only international company with relevant experience submitted the lowest indicative offer of BGN 26.5 mln. for three wells – which suggests that the estimated contract value is too high.

“The leadership of Bulgartransgaz owes citizens a number of questions, and today we are adding two more: what were the criteria used to determine the participants in the market consultations, and on what grounds was the estimated contract value established?” said Georgieva.

Even more concerning is the decision of the public company not to commission the drilling of the safer and more productive horizontal high flowrate exploitation wells. The technically more complex horizontal directional drilling technique was a requirement in the terminated contract with the consortium led by the Bulgarian company Glavbolgarstroy.

As the ACF has already revealed, following the signing of the multi-million contract with Bulgartransgaz, the contractor decided not to drill the high flowrate exploitation wells but, instead, the cheaper and technically less complex vertical wells, thus diverging from the terms of reference and the submitted offer. Despite the substantial changes, the consortium did not offer to lower the contract value.

The public company, which was at the time headed by the former interim Minister of Energy Vladimir Malinov, accepted Glavbolgarstroy’s proposal without objections, despite being warned by a subcontractor of the existence of serious safety risks. This company was PM Lucas Kazakhstan LLP, which submitted the lowest indicative offer within the present market consultation procedure.

Since the mid-1990s, all of the experts hired to consult Bulgartransgaz have recommended drilling horizontal wells for the expansion project. This was the overall concept adopted by the company. The first stage was initiated in 2015 when wells E72 and E73 were drilled, following the submission of detailed technical and economic analysis by the Czech company MND. The only party to recommend the drilling of vertical wells is the consortium, led by Glavbolgarstroy.

“The logical question is whether the leadership of Bulgartransgaz made a reasoned assessment of the risks of drilling vertical wells, considering the geological features of the Chiren Underground Gas Storage,” said Georgieva.

ACF approached Kiril Ravnachki, Mr. Malinov’s successor to the directorship of Bulgartransgaz, with the above-mentioned questions. We are expecting Mr. Ravnachki’s answers and hope to receive them before he passes the baton back to Mr. Malinov, who was reappointed to the top job within Bulgartransgaz last week, in violation of Art. 86 of the Act on Preventing and Fighting Corruption. It is expected that Mr. Malinov will shortly be formally declared executive director in the records of the Commercial Register.

“The Chiren case has revealed concerning political dependencies in the energy sector and these dependencies are not only harming the public budget but also creating risks to the safe operation of the facility, while at the same time undermining important strategic goals such as energy independence and affordability,” said Boyko Stankushev, director of the ACF. “The Bulgarian state owes its public a transparent and effective implementation of this project, although, sadly, at present, this does not seem to be happening.”

[i] In a leaked confidential document of the US Embassy in Bulgaria, dated 2005, TIM is described as “the up-and-coming” star of Bulgarian organized crime” (https://wikileaks.org/plusd/cables/05SOFIA1207_a.html).