North Macedonia faces energy crisis if no interconnection agreement signed with Bulgaria

BUCHAREST (ICIS)–Traders active in south-east Europe have raised alarm over security of energy supply in north Macedonia, which will be unable to tap alternative sources in case Russia cuts exports.

The country could import gas from Bulgaria, which, in turn, sources it from Greece, but despite sufficient border capacity it is blocked from doing so because there is no interconnection agreement in place. Failure to source natural gas could lead to a significant electricity deficit.

Interconnection capacity at the Zidilovo/Kyustendil border point with Bulgaria stands at close to one billion cubic meters (bcm)/year, but for the last six years it has not been used at more than 53%, according to data seen by ICIS.

Russian producer Gazprom has reserved the full capacity at the interconnection point, or around 2.6 million cubic meters/day, according to data from Bulgarian gas transmission system operator Bulgartransgaz.

Traders say this is booked until 2030, which means gas is now supplied under the terms of a legacy technical protocol involving Gazprom, Bulgarian gas transmission system operator Bulgartransgaz and its North Macedonian counterpart, GA-MA.

COMPLEX RULES

Traders say there is a pressing need for GA-MA to sign a separate interconnection agreement with Bulgartransgaz because if Gazprom cuts supplies to European buyers, including North Macedonia, the country will be left completely without gas.

The situation, however, is much more complex and is linked to the fact that the interconnection involves an EU member state, Bulgaria, and a non-member state, North Macedonia.

On one hand, there is no obligation for the two countries to sign an interconnection agreement because Bulgaria is an EU member state but North Macedonia is not. Interconnection agreements are mandated for EU member states but non-members can sign technical protocols with neighbouring EU countries to align technical elements such as the definition of gas days, measurements and balancing protocols.

On the other hand, Bulgaria as a member state could have released unused capacity under the EU’s use-it-or-lose-it (UIOLI) principle, but has not done so over the years because there is no such requirement with Energy Community contracting parties, such as North Macedonia.

A source close to ongoing discussions say Bulgartransgaz has made a goodwill gesture and offered to release capacity towards North Macedonia and Turkey, an Energy Community observer, subject to GA-MA and Turkish gas grid operator BOTAS signing interconnection agreements. Once the agreements are signed, Bulgartransgaz is willing to release the unused capacity, the source said.

GA-MA did not reply to questions from ICIS. ICIS understands it sent a letter to Bulgartransgaz earlier in June, expressing readiness to finalise an interconnection agreement draft, which has been under discussion for two years.

THWARTING COMPETITION

Since Gazprom is booking the capacity on the border with Bulgaria but has been using less than half of it over the last six years, other companies are unable to import alternative supplies from the region, effectively thwarting competition.

Currently, there are two importers of natural gas in North Macedonia – independent power producer TE-TO Skopje and its affiliate district heating BEG, and state-owned company Makpetrol.

While some industrial consumers and the district heating arm of TE-TO Skopje could switch to fuel oil in case of curtailments, the gas-fired electricity generation arm of TE-TO cannot.

If the 220MW electricity plant, which covered a quarter of the country’s electricity consumption in 2021, cannot source natural gas it will be forced to shut down completely, traders said.

There are plans to build a bidirectional 1.5bcm/year interconnector linking the Greek VTP to Gevgelija in North Macedonia, but the line is due to come online only in 2025.

Gazprom, the cabinet office of the North Macedonian prime minister, regulator ERC and GA-MA did not reply to ICIS’s requests for comment.