The trade and economic relations between Bulgaria and Russia in our modern history have never been ones of balanced nature – neither as a level, nor as a structure. Thanks to Petersburg’s doctrine for keeping Bulgaria dependent after 1879 by making Bulgarians cover the expenses of the Russian troops during the occupation, pay various debts out of gratitude and by outright racket in exchange for the non-interference of Russia in our internal affairs, the relations between Bulgarian and Russian business have always been crooked and unequal. Perhaps the period between the recovery of relations and the Second World War is one of the rare instances of a relatively balanced relationship. Moscow has always burdened economics and trade with a certain political agenda.
After the Second World War, Bulgaria completely lost its sovereign right to decide what to produce, what to import and what to export. It’s enough to look at how the Marshall plan helped Europe rise from the ashes and step on its own two feet, including by encouraging European exports to the US and compare that to the harsh reality of Stalin’s regime which not only made us cover for the expenses of the Red Army in Bulgaria, but also to share the debts of the Warsaw Pact and Comecon and even to co-finance KGB’s and external “trade” offices’ operations, which were presented as “common” ones.
After the war and under the thumb of Moscow we waded into unprecedented debt (towards the USSR) in order to finance an economically illogical industrialization by Soviet model.
In the end of the 50’s we defaulted for the first time and had to sell a substantial part of our gold reserve to cover for our forced indebtedness towards Moscow. In 1959 the gold reserves stacked during the Tsardom, amounting to 26 tons, were moved to Moscow under the ridiculous pretext that BNB vaults could not withstand a nuclear strike. Until 1962 we had sold 21 tons of gold in exchange for rubles, seemingly to clear the debt, instead of selling the gold in London in exchange of convertible currency and then pay out.
While Western Europe was developing integrated communities, expanding market demand and opening access for European corporations to the global markets, Bulgaria and the other countries in Comecon were only allowed to develop within the framework that the Central Committee of the CPSU deemed necessary and useful. Meanwhile Moscow reserved its right to develop industries, which only existed to serve its global positioning and not market demand within the Comecon.
The fact that somehow, the international division of labour had awarded Bulgaria with the opportunity to develop its IT sector rather reflects the inability of the Soviet Union to access the Western markets and technologies, than some privileged treatment.
In each of the following decades (70s and 80s) this scheme continued to operate outside any market logic, expectedly led to growing indebtedness towards the USSR and the West due to the gross disproportion between imports and exports.
This asymmetrical model that we inherited after 1989 is still repeating itself to further enhance misbalances. The suggestion that Bulgaria and the countries from the Eastern bloc initiated the breakup of relations with Russia is a myth. On the contrary, both the liquidation of the Comecon and the end of trade with convertible rubles were initiated by Moscow, because they figured that it will be better for them to sell oil, gas and raw materials in exchange for hard currency. They believed old partners were no longer worth it and furthermore – that with or without the Comecon, the former allies would remain bonded to Russian oil and gas supplies being locked in to the established supply infrastructure.
And these assumptions were not groundless – the interconnection infrastructure for oil and gas supply was a premise for this dependence. This is exactly what happened with the import of crude oil for the refinery in Burgas, which was and still weighs in on the country’s trade and payment balance.
In addition – the Bulgarian elite so deeply integrated with Russia and the West was so reluctant to break up these connections thereby accepting the transition model offered by the Loukanov circle, that the Russian connection of the Bulgarian new business elite was considered normal and appropriate for quite a while.
Until Putin seized power.
It has never been true that Lukoil was the only company to show interest in the privatization on Exxon-Mobil to send representatives and negotiate to acquire the majority share. Neither the debt, nor the technological dependence were an issue.
Back then the opinion that no Western investor would be interested in buying assets that are technologically or materially hinged upon Russia was already widespread. It turned out that this was not only untrue, but also used as a convenient cover-up for local players who were defending their positions in energy-related imports from Russia.
Not only every Western company could import Russian crude oil, but there was plenty of crude oil on the market with different origin and comparable quality. No wonder why after the privatization, it wasn’t unusual for Lukoil to import crude oil from destinations other than Novorossiysk, without thus affecting the processing in any way.
I recall that Exxon-Mobil’s reps didn’t see any issue in that. However, in spite of my relatively high position – FIA was positioned under the Council of Ministers – I couldn’t arrange the meeting at the highest level that Exxon sought to make sure that their proposal was going to be considered in substance. It became clear that the procedure was closed and the government had already made its mind. I remembered this story 12 years later when another US giant – Chevron came to Bulgaria and won a tender fair and square only to be forced to leave later.
I’m telling this only now to provide evidence to my statement, that the asymmetrical economic relationship between Bulgaria and Russia today is neither natural nor inevitable, but rather a consciously shaped process, a function of current political interests and a matrix for interaction between the Bulgarian and the Russian elites.
Business relations which are sustained through political channels and driven only by the politicians’ greed for personal benefit are a logical premise for the oversized role of inter-governmental agreements in trade agreements, projects and financial operations.
Little room is left for the free initiative of small and mid-sized businessmen from both sides. Quite often they suffer from the administrative and bureaucratic barriers.
The degree to which business relations between the two countries are dependent on Kremlin’s policy and the unusual non-market motivation of the Bulgarian political and business players makes these relations incomparable and incompatible with the European and global matrixes in the integration of Bulgaria.
Russia does not want to compete on the Bulgarian market in sectors Moscow perceives a reserved sphere of influence.
Kremlin has always seen Bulgaria as reserved sphere of influence, a market free of competition, where it can sell Russian stock and make political and business deals of any caliber.
The most visible aspect of Russia’s influence is the market for oil and gas, worth 7 billion dollars per year and secured by means of intergovernmental agreements and monopoly. This is only one end of a chain that includes a refinery, excise warehouses, chains of gas stations, retail trade and distribution of gas and etc. In other words, in the end of this equation one has market for goods and services worth more than 20 billion leva per year including secondary and tertiary trade. In the past two years due to the falling oil prices, the oil imported from Russia lost more than half of its value and the imports are now worth a little over 3 billion dollars. The benefits and profit margins along the oil value chain all the way to the consumers have increased.
There are many hidden and obscure details to the picture, including such regarding the often stated brag in removing mediators – that in fact were just replaced as a segment in the chain siphoning away resources.
There are permanent groups of politicians and businessmen entrenched around the energy imports and the energy sector in general, that are extremely focused on retaining the profit matrix for Russian monopolies, often more than the Russians themselves.
That’s why one doesn’t see much progress in the liberalization of gas supply, in the building of interconnectors or in the projects for exploration, production, storage and trade with gas outside the established framework of relations with Russia.
It is difficult to assess the extent of involvement of the Bulgarian political elite as a whole, but it is clear that such a mode of conduct is not a distinctive characteristic of the left or the right alone. Such existential “grand corruption” can be traced to different levels of representation – the Parliament, the public administration, the judiciary, the management of public companies, media and NGOs.
Over the years I’ve come across all sorts of numbers regarding the Bulgarian politicians who are dependent on the business with Russian companies. Having served as ambassador for the record period of six years and half year I have come to know many things which I cannot share due to professional reasons. The only thing worth noting is that the general assumption that Russia has been the source of constant pressure while our politicians have been in passive mode forced to succumb to foreign pressure is simplistic and often wrong. A significant number of the politically driven business initiatives have been launched and promulgated largely thanks to the active, even pioneering role on the Bulgarian side.
These circles simply regard Russophilia and Kremlinophilia only as a tool of convenience assisting their plans.
Before any of the major “Grand Slam” projects reached publicity, they first underwent an incubation period, long enough to allow different mediators and political entrepreneurs to work behind the scenes, often out of the control of the institutions.
I can attest to the fact that in many instances the “hot ideas” pushed forward by the Bulgarian political businessmen had to be cooled down by our Russian partners, who were after all, capable of calculating profit and loss. This is how things used to work during Putin’s early years and Kasyanov’s government, until the president decided to replace the existing model with one of the power vertical, which completely changed the picture.
Many reasonable arguments and warnings have been tabled by professionals in different Russian companies and institutions that Bulgaria should not jump into initiatives, before costs and benefits are not carefully assessed and accounted for. Suffice to recall the visit of the Russian former vice-minister of energy, Boulat Nigmatulin, who has been in charge of the Russia’s nuclear energy that played a pivotal role in sobering up Bulgarian politicians. Most of them were already floating in dreams, too busy to calculate personal profits against guaranteed sunken costs for the country in the Belene project.
The President of Lukoil also warned against the Burgas-Alexandroupoli project that was not in Bulgaria’s interests.
Executives at different levels in Gazprom were ready and willing to consider different options for flexible renegotiation of the contract for supply and transit of gas in 2006, in order to dampen damage to Bulgargas and national interests often more than Bulgaria’s own government was offering.
Modern Bulgarian and Russian policy makers should be driven by the impact of their current decisions on the future of the Bulgarian-Russian relations and what we are going to leave behind us for next generations. It’s relatively easy to mediate in the art of business through politics and spend a few billions pursuing a grand idea, which turns out to be grand only in corruption effect, with grand benefits for a narrow circle of individuals and equally grand losses for both Bulgarian and Russian taxpayers.
All ostensibly done in the name of Russophilia.
The consequences of such a short-sighted policy will be inherited by the coming generations of Bulgarians and Russians, who will struggle to settle their mutual claims, debts and frustrations, without a chance to focus on a positive agenda.
These business Russophiles pretend to be calling for closer relations, but if they look at the numbers of how many Bulgarians have been visiting Russia in recent years, they might very well think that both countries are at war. The levels of mutual suspicion and mistrust are unprecedentedly high.
This is all due to a small number of political oligarchs in Bulgaria and Russia who have decided that their sole chance to collect political gains, to provide for their families and for their close partisan and business circles, is to engage in political business with Russia.
The evolution of their motivation and the logic behind their political moves both in Bulgaria and in Russia has been worth the watch. It has never occurred to these people that it is their duty to prioritize national over private interests and subdue their own material aspirations. On the contrary – with or without Belene, with or without the South Stream, their only objective will be to provide mediatory services with access to ongoing political business cashflows. Furthermore – in many instances these people have no interest in the deals happening without their mediation. That’s why they need administrative barriers, as well as other obstructions in order to limit the field of free business cooperation between our countries. Under free terms they wouldn’t be able to capitalize on their mediation.
One shouldn’t be surprised that practically not a single project has been successfully completed, let alone on time or within budget.
No one is capable of assessing and mitigating the risks associated with accommodating all possible, thinkable and unthinkable individual interests in an environment of a volatile political conjuncture and a changing aspirations of a small group of people in charge of key projects.
By Ilian Vassilev