Aug 8 2011

Prof. Krastyo Petkov*

On July 29th this year the Bulgarian government deprived “Lukoil Neftohim” of their license for petroleum processing at the oil refinery near Bourgas /located at the Black Sea south coast of Bulgaria/. The strike was sudden as with all other carefully prepared secret operations. To the wall was driven not anyone else but the Russian petroleum giant, whose influence on Bulgarian economy is practically immeasurable:

– Lukoil Neftohim is the number one tax payer with 25% contribution of all revenue in the Bulgarian budget;

– the same company is in control of almost 50% of the petroleum supplies in Bulgaria and disposes of large chain of fuel stations in the country;

– another daughter company of the Lukoil corporation: Lukoil Aviation Bulgaria, holds the monopoly over the airplane fuel deliveries to the airports;

– the Russian corporation’s companies in Bulgaria employ around 6000 people and the living of almost 25000 people along the respective supply chain depends on them…

Not many have expected – and only a few knew – that exactly in this very moment the conflict between the Bulgarian government and the Russian petroleum octopus will explode. What a conflict! We are witnessing a true war waged on all martial arts rules. Moreover, it happens a few months before the fateful for the ruling party GERB presidential and local elections /October 23rd, 2011/. This might not be an accidental coincidence…

The war is strange at first glance. The left opposition qualified the action as a political theater – perhaps because some of the participants in the head-on collision are led by two long-lived friends and partners: the prime minister Boyko Borissov and Valentin Zlatev who is supposed to be the most powerful Bulgarian oligarch. They are both known to be strong players – they don’t like losing and stand their personal and corporate interests’ grounds with a firm hand. A fact that turns the outcome of the giant duel unpredictable.

The reason for the head-on actions seems rather financially-technical: “Lukoil Neftohim” failed to meet the deadline fixed by the government for the installation of devices to measure the quantities of raw petroleum imported for processing; the company also neglected the requirement to install in time devices for online transmitting of information for the processed petroleum to the Bulgarian tax authorities. A few days after having sent a final warning letter to the refinery management, the state revoked its license – until the instructions given by the Ministry of Finance and the Customs Agency are fulfilled.

This lightning move introduced the first element of surprise and provoked immediate reaction of the Russian-Bulgarian operative management. At first the refinery operation suspension was announced; then Valentin Zlatev warned that the difficulties in the Bulgarian airports supply with airplane fuel might spoil the whole summer tourist season. The market reacted in a nervous manner, rumors for fuel prices increase /one of the highest in the EU/ appeared. The airplane companies sent acute notices to the Russian suppliers, reminding them that Lukoil’s companies shall import fuel from abroad in order to execute the signed contracts.

The Bulgarian government reacted by deciding to open a part of the state strategic fuel reserve in order to prevent a supply crisis and market panic. Lukoil Neftohim appealed to the Supreme administrative court and got permission to continue its business. For the time being! As the saying goes: à la guerre comme à la guerre!

The reason for the conflict is clear, but in similar situations we shall always ask: to whom this conflict is needed and who will get the final benefit? This is the true focal point of the public debate in relation to the petroleum war that burst into the territory of Bulgaria – until quite recently supposed to be the most loyal Russian satellite.

As usual in such head-on collisions, the observers draw different scenarios for the future development of the doings; the strategic headquarters in Sofia and Moscow are getting prepared for sudden twists; the stakeholders /in Brussels and Washington/ closely observe the duel.

1. The global scenario

It could hardly be doubted that the bilateral conflict between Bulgarian and Russian authorities is a part of a large-scaled geopolitical clash between the rich in energy resources Russia and its west /including over-seas/ competitors. In countries like Bulgaria Russia creates a strategic springboard for further offensive into a large sub-region of the European economical space like South-East Europe and especially the Balkans. Observers note that “Lukoil” and all other corporate giants of Russia strictly follow the “Putin” doctrine for economic expansion towards West Europe; this strategy is materialized not only be means of fuel and other energy resources supplies system, but also by means of investments in key sectors like banking, insurance, infrastructure, tourism …

That’s why it is so important that the government of GERB and its one-man leader Borissov should have thought twice prior to undertaking the sudden attack. And there are reasons for fear. Moreover, such reasons are quite enough!

The Russian hegemony. Ideological and geopolitical in the past, these days hegemony is achieved by other means, mainly economic. This policy is most clearly manifested in the energy sector /respectively, the fuel market/. It is not by coincidence that for a long time the EU has been regarding critically and with reserves at the warm connection between Bulgarians and Russians in the field of nuclear power. USA diplomatic representatives devote to this issue as much attention as to the guarantees for their military bases in Bulgaria.

Recently Wikileaks and the Bulgarian site “Bivol” again published information from the diplomatic mail of the American embassy in Sofia, where the long-term energy “love” between Bulgaria and Russia is commented. In 2008 the ex-ambassador Nancy McEldowney described Bulgaria’s connection to Russian large energy players – Lukoil and Gazprom, as an imaginary porn-scene:

“The cartoon strip portraying a passionately eager Bulgaria in bed with the muscle bound duo of Gazprom and Lukoil is only partially true – it is a tryst driven less by passion and more by a perceived lack of options.”

This picturesque description of the American diplomat is put in a gramma addressed to Washington’s special envoy for energy issues in Europe and Asia – Boyden Gray.The report has been also sent to the trade and energy departments as well as to the CIA. Bulgaria’s quandary over energy is qualified as particularly acute and related to the fact that 70% of its petroleum needs and 90% of its gas come only from Russia

As the saying goes, no comment! The question is: will the PM Borissov’s government have enough courage to part with the unenviable past in a way that will not harm the relations between Bulgaria and Russia as a whole!

The Bulgarian syndrome. If the prime minister Boyko Borissov holds out against the inevitable counter-attacks that the giant Lukoil is expected to undertake /with the powerful support of Moscow, of course/, he will face another challenge: to persuade that he led a fair war for the protection of the national interests. That is, if he wins, he will not fall into the arms of the other super power – the USA.

So far it is obvious that without its /USA’s/ approval the unprecedented aggravation of the relations between representatives of the two traditionally close Slavic countries is quite unlikely. It is not certain though that the new Big Brother over-seas will keep its promise to fairly encourage in the spirit of good partnership the “Bulgarian energy diversification” /a quotation taken from the public statements of the current USA ambassador in Sofia James Warlick, preceding the petroleum war/. Meaning that the “diversification” is not only a code covering the strategic operation for opening Bulgarian gates for a mass offensive of American energy investments in the south-east part of the EU.

In case this does happen, the Bulgarian syndrome the “AOS” /the Always Obedient Satellite/ will return on the geopolitical stage.

The alternative outcome. Bulgaria has its emergency exit, even if it loses this consecutive /but obviously heaviest/ war for winning energy independence. Let’s remind that only two winters ago Gazprom and the Prime Minister Putin left their “Bulgarian brothers” with no gas, thus placing the economy and major part of the population on the edge of the catastrophe. The alternative decision is not only arranging urgent supplies of petroleum and airplane fuel from neighbors like Romania for a start. The permanent decision lies within the review of the strategy implemented in the 90s that grants monopoly rights to private, state-owned or mixed / multinational corporations to command at the energy market and the utility services in Bulgaria.

„Lukoil” does not make an exception! Privileged monopolists like it are a dozen of foreign mega-corporations that have acquired key segments of the Bulgarian economy and utilities sector: banking, insurance, water supply, heat supply, electricity distribution, telecommunications…

2. The corporate scenario

This is the other narrative which commentators having access to classified information in relation to how the new corporate networks have been created in the countries of the ex-soviet area adhere to. Deeper meaning is looked for in the hostile actions of the recent tandem “Zlatev – Borissov” and it takes is two decades back. It is at that time when Valentin Zlatev traces the route for the Russian petroleum interests’ expansion in Bulgaria; he is nowadays a key player in the investment break-down expansion in other energy segments – nuclear and gas.

The following fact is a demonstration of the manner of achieving this investment expansion: two months ago, at the height of the strategic negotiations for the construction of the new nuclear power plant Belene held in Moscow, Valentin Zlatev gets suddenly involved as a key consultant – but to the Russians! This demonstration has hardly escaped the touchy Prime Minister Boyko Borissov’s notice. As this colorful and still quite popular in Bulgaria leader likes to express himself to the media: “Friendship is friendship but the law is above all!” At present he – Borissov – is at the helm of the executive power in Bulgaria; all negatives of an eventual adverse development of the disputes /financial until recently, already ecological and international-juridical/ in relations to the strategic nuclear facility at the riverside of the Danube are accumulated over him.

Twenty years ago, the roles have been opposite. Valentin Zlatev ruled the empire Lukoil Neftohim; whether the company of the inceptive businessman Boyko Borissov would get the contract for providing security of the industrial facilities and petroleum ducts entirely depended on him. The company “Ipon” acquires this privilege and was shut to the head of the security business in Bulgaria /at the moment more than 130 000 people are employed in this sector, i.e. about 1/3 of the officially employed/. Zlatev and co got benefit of this too as they implemented an investment in the future. In 10 years their representative became secretary-in-chief at the Ministry of interior at the government of the ex-Tzar Simeon; today he is a Prime minister having unchallenged personal power…

So far, this power successfully re-distributed the Bulgarian strategic business zones. The financial and media king Ivo Prokopiev /participating in the “Global Bulgaria” – elite circle that ejected Borissov to the senior power levels/ was eliminated from the big stage; he was followed by Alexei Petrov, again a close partner of Borissov from the time of the primary capital accumulation. The competitors elimination methods are different but the signature is the same: Ivo Prokopiev was forced to emigrate to the Far East; Alexei Petrov was arrested and is now expecting a series of court cases. These are power fights and techniques which are typical for the so called re-distribution coalitions described also by the eminent social scientist Mancur Olson. It was both in Bulgaria and in most of the ex-soviet countries that his theory acquired persuasive empiric proves…

But let’s go back to the informal relations and their strange transformations whenever “Big money” and “Invisible power” are involved. History knows many examples of old friends turning into enemies overnight. It will not be a surprise if the history repeats itself, now, at the height of the petroleum and financial war between the government of Bulgaria and Lukoil.

From a formal point of view, the clash is between the institutions of two countries; in fact, however, the leaders of the troops in war are two Bulgarians. Until yesterday, they have been demonstrating friendship in public, they have been making political plans, and they have been sharing hobbies and intimate passions….

*Krastyo Petkov is Professor in Economic Sociology at UNWE / University of National and World Economy in Sofia, Bulgaria. His analysis are published on the blog www.kpetkov.eu

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