Bulgaria's caretaker government and LUKOIL Neftochim Burgas have agreed that the company can continue to operate and export petroleum products to the European Union until the end of 2024, provided it pays its taxes in full.

The European Pravda publication reported this, citing the Euractiv publication.

The agreement was reached despite warnings from the European Commission it would violate the European Union’s sanctions regime.

According to Bulgaria’s Deputy Prime Minister for Economic Policy Hristo Aleksiev, the change will lead to an additional EUR 350 million in the state budget revenues.

“We achieved a very important step today. From 1 January 2023, Lukoil will transfer all production, revenues, and taxes to be paid in Bulgaria and not in the Netherlands or Switzerland, as was previously the case,” Aleksiev said during a briefing with the management of the Russian oil company on Monday.

“Within a week after Bulgaria adopts the relevant legislative acts, the supervisory board of Lukoil will decide to switch to a scheme in which it will transfer its real profits from crude-oil processing to Bulgaria,” the management of the Russian company said.

The deal is beneficial for Lukoil, as it will de facto make Bulgaria a base for partially avoiding the European oil embargo.

In its June sanctions package, the European Union banned the purchase, import, or transfer from Russia of Russian crude oil from 5 December 2022 and other petroleum products from 5 February 2023.

However, Bulgaria was granted a derogation "because of its specific geographical exposure," which allows it to continue importing crude oil and petroleum products by sea until the end of 2024.

The European Commission has already stated that Lukoil cannot export petroleum products made from Russian crude oil from Bulgaria, but the interim government claims that the Bulgarian media misinterpreted Brussels' position, the Ministry of Finance said in October.

The ministry pointed to a clause that exempts “refined petroleum products produced in a third country based on Russian crude oil and exported to another country or a third country” from sanctions “because they were produced outside Russia.”

In other words, gasoline and diesel produced from Russian crude oil outside the European Union that otherwise follows EU-backed rules, such as the upcoming Russian oil price cap, can enter the single market. However, the government did not offer details on how the rule applies to Bulgaria as a member of the European Union.

Meanwhile, the Bulgarian caretaker government intends to cancel the previous government’s decree that prohibits the export of fuels produced by the Russian refinery in Bulgaria after 5 December. This will allow the Russian company to continue operating in Bulgaria under the current regime until the deadline of 31 December 2024, when the special derogation for Bulgaria expires.

As the CFTS portal reported earlier, European traders have stepped up the filling of tanks with Russian diesel against the backdrop of the approaching ban on the import of petroleum products from Russia.