The System Spill over

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By proximity, Bulgaria mirrors Russian autocratic tendencies, including mimicking the state oligarchy model. Unlike Russia, however, the Bulgarian version can’t be sustained on “natural” resources – oil, gas, nuclear fuel-based wealth. Redistribution can be effectuated on added value and GDP growth, or thereafter on the budget accumulated taxed economic output. Bulgaria’s autocracy has limited margins for self-propelled growth and wealth sharing, which implies greater reliance on grand corruption mechanisms.

 

The Kremlin’s GDP sustains its dynamics even on holidays as the oil and gas industry turns round the clock. Bulgarian GDP, however, must be generated and incomes earned.

 

In Russia, the population exhibits extreme patience, willing to accept sacrifice in the name of “stability” (note the overlay in the jargon of the ruling elites in both countries), collective pride and grandeur of the Motherland. In the EU member Bulgaria, stability is synonymous for stalemate and equals reluctance to engage in reform process.

 

For whatever this spillover of autocratic tendencies and reasoning from Russia means for Bulgaria, they ultimately translate into a handicap, a risk and therefore a threat.

 

The Bulgarian Government could rightfully boast record GDP growth rates, record low unemployment and other macroeconomic “exploits,” but a disproportionately large part of the country’s newly generated wealth ends up in political and business oligarchy’s hands, which invites social injustice and social instability, restricting the country’s development.

 

There is no other country in the EU and NATO that is more prone to “Russian” interference and to influence campaigns, which are converted into economic and political gains for the Kremlin. The geopolitical premiums appear in many forms – above-market prices charged for oil and gas; lower revenues from lower tariff rates for transit; and breaches of EU law and market standards, leading to immediate, tangible and direct losses or damage to the Bulgarian taxpayer and consumer.

 

Over the last 10 years, the sale of the three major Russian energy products – gas, oil and nuclear fuel – have exceeded $7 billion per annum – no competition, no auctions, no EU market rules. The import channels are running on completely different set rules, often incompatible with EU and global business standards, pregnant with corruption, bordering on crime and draining wealth and value from the country at a rate that guarantees the country’s eternal laggard status in the EU. It is exactly this clash of the value sets – the Russian and the EU – that explains the collapse of all the Grand Slam Projects and any future likes.

 

The Bulgarian government’s pathetic reluctance to address head on the issues of Russia’s exclusive status not only inflicts rising material loss but compromises the capacity of the country – its companies and citizens – to benefit in full during EU and global integration. Instead of becoming an integral part of the EU’s social, economic, business, defense and security networks, Bulgaria’s political system retains precarious levels of dependence on Russia, which effectively captures the political process and results in Bulgaria functioning in an island-type model within the EU.

 

A recent stark example is the introduction, following EU directives, of the entry-exit tariff model in the gas transmission and transit system, which discriminates against all Bulgarian and international players in the national gas market in favor of Gazexport. Relative to the volumes of gas transited through Bulgaria, the actual tariffs’ “premium” on an annual base reaches $140 million, which apart from being a possible unauthorized state aid, distorts the market. Concurrently it generates unjustified disenchantment with EU-driven policies in the public, due to their belated and twisted application by the Bulgarian institutions to the detriment of Bulgarian taxpayers and consumers.

 

Over time, this funneling of funds and benefits back to Moscow has become a routine feature of bilateral relations – from paying the maintenance cost of the Occupation Corps after the Russo-Turkish war, through the regular ‘voluntary’ repatriation of Bulgaria’s gold and foreign currency reserves to Russia, or the expropriation of assets in strategic industries (the aircraft manufacturing after the SWW), to enforcing unjust and inequitable contracts, including ‘grand corruption” marked infrastructure projects.

 

It is difficult to identify a zone in bilateral relations where Bulgarian institutions and citizens have received an equal and fair treatment. Looking even at the cultural exchange, – that is the area with the least material interest involved – it is difficult not to note the disparity between the visits and the financial flows between the two countries.

 

The Bulgarian politicians’ mantra opposing “sanctions against Moscow” puts the country in a special risk watch group, further undermining EU and NATO partners’ trust. Exports to Russia have lately risen, including in the ‘sanctioned list’ category. Where Bulgarian companies grieve, when exporting to the Russian market, has more to do with red tape and arbitrary and discriminatory treatment of Russian authorities.

 

Quite often the issue of the Russian threat is artificially muted as Bulgarian authorities are trying to acquiesce the Russian government on strategic projects, such as the NPP Belene or the Bulgarian extension of the Turkish Stream project. They reason that by declaring Russia a threat – chances for success in engaging the Kremlin are slim, notably when Russia is tough bargaining to secure business deals and contracts to justify a visit at the highest level. It is no secret that a potential visit of President Putin in 2018 hangs on the progress on the nuclear power plant Belene restart and mostly the EU leg of the Turkish Stream on Bulgarian territory, thickly wrapped up in the verbiage of the Balkan Gas Hub.

 

The truth is that the Bulgarian gas hub project has fewer chances with Gazprom only gas, than with diversified and multidimensional entry and exit gas flows. The Russian and the international project axes collide, as the Kremlin route implies a bypass of key EU law provisions — the current two ‘speed’ transit system, more government and less market driven process.

 

With time and given its deepening internal economic, social and financial crisis, Russia will grow more assertive in trying to secure ‘strategic deals’ and cash outflows from Bulgaria based on extension of privileges and subsidies, which are contingent on the Bulgarian government’s will.

 

A clear indication of the coming future is the developments around the restart of the Belene project. NEK’s payment of the Euro 600 million – equivalent to nearly 40 billion Russian rubles – looms impressive and nearly pars the total annual sum of Russian state budget subsidies for Rosatom in 2017, which are critical to its operation both in the military and civil areas. The underlying fact is that at present, Rosatom needs more NPP Belene and any type of engagement with guaranteed revenue stream, that work on the current pipeline of projects, that need financing.

 

Russia’s other strategic lever in Bulgaria – the energy company Lukoil – has consistently recorded consolidated profit on the parent company’s balance sheets in Moscow, while the Bulgarian refinery has been generating losses for the last 10 years, henceforth not paying profit taxes. The natural explanation is that the benefits are exported while taxes are spared. This is representing a direct threat to Bulgaria’s national economic and social security, as the budget is critically dependent on taxes and proceeds from Lukoil – Neftochim’s operation, the originating value chain of refined products, to cover the costs of critical reforms and modernization programs across the board of Bulgaria’s development agenda.

 

Continuing accommodation of Russia’s interests in Bulgaria’s defense planning, including budgeting for modernization programs, regardless of condescending verbal and political packaging, remains a latent risk and a permanent threat.

 

Maintaining the illusion that the Russian MIG-29 aircraft, the backbone of the Bulgarian Air Force, is an interim escape from spending on NATO compatible aircrafts is a direct offshoot of this captured will and scare.

 

The main objective of the Kremlin is to disregard Bulgaria’s NATO and EU membership as a non-binding and potentially replaceable anchor in Bulgaria’s development, replicating the classic format of historic dependencies that will guarantees Kremlin-bound cash outflows.

 

The above reading of the Russian threat is not the result of malicious interpretations or bias, but bitter experience and objective analysis of ugly and crude, but genuine facts.

 

While political expediency and sheer scare might force the Bulgarian government to close its eyes to the existence and the impact of the Russian threat, it will remain the elephant in the room and the top political external risk in Bulgaria’s political life.

 

Unless the problem is adequately addressed and mitigated, the country will be doomed to lag behind the expectations of its own people and its EU and NATO partners.

 

END of PART THREE

 

By Ilian Vassilev

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