Bulgarian President vetoes Underground Resources Act

Bulgarian President Rumen Radev recently vetoed an amendment to the Underground Resources Act (URA), which is the main specialised legislative act governing prospecting and exploration, exploration and the granting of concessions for underground resources in Bulgaria.

The amendment to this act was preceded by amendments to the Concessions Act, which excluded the concessions for underground resources – a vacuum filled by the detailed regulation contained in the URA. These amendments and acts were passed over the following legislative timeframe:

Lawmakers finally passed the URA bill in July 2020, only to have it vetoed by President Radev. The veto covers five articles (two of which are related) of the bill with the following arguments:

Although the President gave detailed reasons for the veto, the Ministry of Energy is dealing with some of these issues in practice. The other newly adopted texts concern adding regulation to specific areas, which are currently unregulated.

Below, we have elaborated more on the three of the suggested by president arguments:

• Proving the ability to use third party resources is an option that already exists in the tender documents of past bidding rounds. These third parties are usually either the parent company or holding company of the applicant and give extra security to the government for the operation of its affiliate.
• Activities outside the discovery contour area but within the concession area should be a matter of technical and environmental expertise and appraisal. Given current state-of-the-art technical solutions for prospecting, exploration, exploration or production, this approach may be less environmentally damaging than old ones and could provide better results.
• Regarding the payment of compensations under the bill to license holders whose concession is rejected after a commercial discovery is made – it shall be noted that the license holder would have already made a huge investment for its activities under the license like paid area fees, performed work programmes, approved by the Ministry of Energy and the Ministry of Environment and Waters; invested significant amounts for gathering new data (2D and 3D seismic, drilling of prospecting wells, reprocessing of old data and data conversion, etc.) where most of the information, documents and output data are co-owned with the state; and once the reserves are proven and production foreseeable (which process usually takes more than five years of investments), the state refuses the concession on reasons out of the investor. All the gathered information for the license is delivered to the state without any counter payment. Therefore, the text of the draft Bill is not only necessary but rather insufficient to give protection of investors in such cases when they are deprived of the award of concession. Any stricter regulation may put off investors right from the beginning when evaluating the business opportunities in Bulgaria and even chase away existing ones or make them freeze their investment.

In the wake of the veto, parliament can pass the Bill with more than 50% of support of the representatives.

Since parliament is currently closed due to summer vacation, another vote on the bill is unlikely to take place until autumn.

When passed, the President will not be able to return the URA a second time.

For more information on this bill and investing in Bulgaria's energy sector, contact your regular CMS advisor or local CMS experts: Kostadin Sirleshtov and Denitsa Dudevska.