Economy

Eurasian disunion – Russia’s vulnerable flanks - Part Twenty Seven

Analysis 12 July 2018
Eurasian disunion – Russia’s vulnerable flanks - Part Twenty Seven

The think tank Institute for Strategic Analysis continues publication of excerpts from a book “Eurasian disunion-Russia’s vulnerable flanks” to keep English-language readers informed of new trends, developments and analyses of President Vladimir Putin’s policies in former Soviet nations during his reign over Russia.

Part Twenty Seven

Bulgaria

Bulgaria has always been considered a good prospect by Moscow for gaining political influence if not outright state capture. Old Socialist networks, a selective historical memory regarding Slavic solidarity and Russian assistance against Ottoman occupation, elite susceptibility to lucrative corruption, and offers of profitable energy contracts have enticed Sofia closer to Moscow. Nonetheless, there is a struggle in Bulgaria over Russia’s influence, as some politicians realize that short-term benefits could be followed by long-term costs. This was evident in Russian investments in Montenegro that virtually bankrupted the country’s most important Aluminum enterprise. The struggle over South Stream and other energy plans highlighted how Moscow exploits political divisions to weaken NATO and the EU and uses countries such as Bulgaria as pawns in its anti-Western offensive.

On the propaganda, disinformation, and psychological operations (psych-ops) fronts, Bulgarian Defense Minister Nikolay Nenchev stated that a Russian propaganda center operated in Bulgaria, designed to generate tension in the local and international communities over alleged war preparations.8 Moscow aims to incite protests against Bulgaria’s NATO membership, warning that it could lead to a war between Bulgaria and Russia. The goal is to create panic and confusion among the Bulgarian public and to imply that NATO was planning to engage in a military offensive. Nenchev’s comments came after Voice of Russia’s Bulgarian-language website ran a report citing the TV station of the ultra-right Ataka party, according to which scores of Bulgarian men received call-up orders for the military, a rumor that the government flatly denied.

According to Ataka and the Voice of Russia: “The threats to Bulgaria from its involvement in a dangerous adventure as a satellite of NATO in Eastern Europe, not too far from the borders of Ukraine and Russia, are very realistic.” Additional Russian disinformation topics have included the construction of a NATO nuclear base near Varna on the Black Sea, the deployment of a NATO battalion nearby, and a massive influx of US troops. Ataka has claimed that huge quantities of US combat equipment and servicemen have been unloaded in Bulgaria, together with CIA agents who will foment ethnic and religious strife. This will then be used as a pretext for the arrival of huge numbers of NATO troops as peacekeepers. Such a scenario appears to be a projected replica of Russia’s strategies in neighboring states.

Contrary to Russia’s disinformation, NATO planned to position a command-and-control center in Bulgaria and establish similar facilities in five other East Central European countries. The Center on Effective Communication, involving Bulgarian armed forces and NATO troops, will be located in the Ministry of Defense. It is intended to improve coordination between Sofia and Brussels and focus on planning and coordination of joint training and exercises, some of which will be held on Bulgarian territory. This in line with the commitments agreed under the Readiness Action Plan adopted at the NATO Wales Summit, in September 2014. NATO will also station a center for the command and management of ships near the Bulgarian Black Sea port of Varna. The command center will be constructed with funds allocated under the NATO Security Investment Program (NSIP).

In a barely veiled threat from the Kremlin conveyed through Vladimir Yevseyev, director of the Center on Military-Political Studies in Moscow, “the deployment of any NATO infrastructure in Bulgaria compels Russia to view those places as a target of a possible strike in the case of an assumed clash.” The purpose of this statement was to increase anxiety among the Bulgarian public and heighten pressure on the administration. In February 2015, Prime Minister Boyko Borisov answered Socialist Party questions in parliament regarding plans to deploy a NATO center in Bulgaria. At that time, Sofia had not finalized any commitments regarding the deployment of heavy arms, even though NATO commanders explored the feasibility of storing weapons in Bulgaria, Romania, Poland, Estonia, Lithuania, and Latvia. In the face of a broad disinformation campaign, Bulgaria’s Foreign Minister Daniel Mitov felt compelled to reiterate that the country did not face any kind of emergency situation. Rumors about weapons deployments, including nuclear weapons, from other NATO states on Bulgarian territory were purely fabrications.

Socialist Party officials have acted as Moscow’s proxies in melodramatically appealing to the government “to prevent dragging Bulgaria into a war with Russia or even enhancing tensions with Russia.” Socialist leader Mikhail Mikov visited Moscow in March 2015 and returned complaining about the allegedly servile attitude of the Bulgarian government toward NATO and those sanctions against Russia hurt both Europe and Bulgaria. According to Russia’s Duma Chairman Sergey Narishkin, the main reason why Bulgarian-Russian relations deteriorated were instructions from Washington and Brussels to downgrade ties with Moscow. Following Russia’s attack on Ukraine, Narishkin was placed on the list of individuals financially sanctioned by the West. Ataka party leader Volen Siderov went a step further than the Socialists and echoed the far-right Hungarian Jobbik party by demanding the protection of Bulgarians in Ukraine, who were allegedly recruited forcefully by Kyiv to participate in a “fratricidal war.”

Russia has deeply penetrated the Bulgarian economy. Russian business has sought increasing access to the energy sector, including the electric and nuclear industries, and aimed to use Bulgaria as a major transit country for gas supplies. Bulgaria is the most dependent country on Russian energy in Europe’s east. It imports three critical energy supplies from Russia: crude oil, natural gas, and nuclear fuel. Sofia played a central role in the South Stream project, as the pipeline was supposed to come onshore on its territory. The government gave the project the status of “national importance” and intensively lobbied Brussels to bend its rules for Gazprom. Bulgaria’s energy policy has been historically entwined with the government’s foreign policy priorities. Socialist administrations are more likely to accommodate Moscow’s interests and hand strategic energy projects to Russian companies, because of their political and personal connections and opaque business interests. By contrast, center-right governments generally try to reduce dependence on Russia and diversify the country’s energy supplies.

In January 2008, Bulgarian President Georgi Parvanov, elected on the Socialist ticket, signed with President Putin agreements on building the Burgas–Alexandroupolis oil pipeline, the second Bulgarian nuclear power plant (Belene NPP), and the South Stream gas pipeline. Putin announced that €3.8 billion had been already designated in the Russian budget for prospective work at NPP Belene. However, the opposition viewed the deal as a betrayal of Bulgaria’s national interests. One year later, the new center-right Borisov government pledged to review all pending Russian energy contracts signed by the previous Socialist government. In 2012, the Burgas-Alexandroupolis oil pipeline and the Belene NPP projects were cancelled and South Stream was sidelined by Sofia’s support for the Nabucco gas plan.

Corruption has seriously affected the energy sector in Bulgaria, as a great number of procurement contracts with significant monetary value are awarded for energy projects. Some of the shady dealings with Russian companies were linked with South Stream and the construction of the second nuclear power plant at Belene. In June 2014, the European Commission started infringement procedures against Bulgaria for setting up the South Stream–Bulgaria joint venture in violation of EU competition laws. The Commission stated that the government was not allowed to award such a large public procurement to a specially established joint entity between Gazprom and Bulgaria’s Energy Holding without an open tender for other bidders.

South Stream–Bulgaria subsequently awarded a contract for the construction of the Bulgarian part of the pipeline to a consortium led by Russia’s Stroytransgas Holding. A major shareholder in Stroytransgaz, with 63% ownership, is the Volga Group, owned by Gennady Timchenko, who was placed on the US sanctions list on March 20, 2014. Timchenko is a close Putin ally and Russia’s sixth richest man, according to Forbes Magazine. His Volga Group and another ten related entities, including Stroytransgaz Holding, were also sanctioned by the US Treasury Department on April 28, 2014.

Russian oil and gas companies or their Bulgarian subsidiaries have heavily permeated Bulgaria’s energy sector. The largest business in the country is Lukoil Neftohim Burgas, a subsidiary of Lukoil, which acquired 58% of Bulgaria’s main refining company through a privatization deal in 1999. The second largest business is Lukoil Bulgaria EOOD, which owns over 200 service stations, with a market share of about 26% on the retail market. The two companies close a Russian-controlled circle of supply, production and trade, as the refinery on the Black Sea coast processes Russian oil, delivered by tankers across the Black Sea, while the oil products are then distributed and exported by Lukoil-Bulgaria. This advantage allows the Russian company to bid successfully for public procurement contracts at national and local level.

Another Russian company, Overgas, a subsidiary of Gazprom, has played a lucrative intermediary role in all Russian gas supply contracts with Bulgaria for almost two decades. Overgas and Wintershall Erdgas Handelshaus Zug AG, also a Gazprom subsidiary, were finally pushed out as intermediaries from the long-term contract between Gazprom and state-owned Bulgargaz, signed on November 15, 2012. The Bulgarian government managed to remove the two middleman companies in exchange for signing an agreement on South Stream.20 Instructively, Alexander Medvedev was serving simultaneously as Gazprom’s Deputy CEO, Director-General of Gazprom Export, and Chairman of the Board of Overgas, thereby practically signing contracts with himself.

Overgas announced in 2010 that it would start buying gas directly from Gazprom for its consumers, instead of buying it from Bulgargaz. However, the state-owned gas transport entity Bulgartransgaz refused to give Overgas access to the Trans-Balkan supply pipeline entering from Romania. As a result, Overgas filed a complaint with the European Commission, which led to infringement procedures against Bulgarian Energy Holding and its subsidiaries Bulgargaz and Bulgartransgaz for violating the Third Energy Package. Evidently, Gazprom and its subsidiaries such as Overgas only respect the EU’s energy market regulations when they can benefit from them.

In July 2011, tensions between Sofia and Moscow increased over tax evasion by Lukoil Bulgaria. Lukoil’s license suspension came after the Bulgarian Customs Agency conducted a probe into its refinery, which confirmed gross excise duty violations. The legal saga between Lukoil and the Bulgarian state continued for two years, until the Russian oil company was ordered by Bulgaria’s Supreme Administrative Court to install measuring devices on its tax warehouse connected to the main pipeline between the Burgas refinery and Sofia. However, the Socialist-led coalition that replaced Borisov in February 2013 dismissed the Customs Agency Director Vanyo Tanov.

Putin’s cancelation of South Stream may prove beneficial for Bulgaria, as it can focus on alternative gas supplies from the Caspian and finally escape Gazprom’s grip. After Moscow abandoned South Stream, Sofia expressed an interest in participating in the Southern Gas Corridor from Azerbaijan. Although only 10 billion cubic meters per year are expected to be delivered to the EU by 2019–2020, Azerbaijan possesses substantial gas reserves and could increase future volumes. The Southern Gas Corridor has the potential to meet up to 20% of the EU’s future gas needs, with prospective longer-term supplies from the Caspian Region, the Middle East, and the East Mediterranean. To counter Sofia’s energy reorientation, Russia’s ambassador in Bulgaria declared that Moscow would be prepared to consider the possibility of diverting Turkish Stream toward Bulgaria. On the broader economic front, Russia plays a significant role in foreign investment. According to the Bulgarian National Bank, the net inflow of foreign investment between January and October 2014 was €805 million ($974 million). Of that, some €177 million, or about 22%, came from Russia.

During a visit to Sofia on January 15, 2015, as part of Washington’s regional reassurance initiative in the aftermath of Russia’s attack on Ukraine, US Secretary of State John Kerry warned Russia not to seek retribution against Bulgaria for opposing South Stream. In meetings with President Rosen Plevneliev and Prime Minister Borisov, Kerry underscored that NATO’s Article 5 commitment to Bulgaria’s defense was “rock solid.” Some commentators pointed out that Kerry publicly declared something that no Bulgarian politician had mentioned, that there was a threat of Moscow seeking retribution against Sofia for the termination of South Stream. Kerry also pledged that the US would help Bulgaria reduce its dependence on Russia for energy supplies through investments and assistance in gaining alternative sources. Bulgaria relies on Russia for approximately 85% of its gas usage and 100% of its nuclear fuel. Washington announced plans to work with officials in Sofia and Athens to establish a pipeline to Bulgaria from an LNG terminal in Greece.

Moscow has endeavored to manipulate Bulgaria in the Balkan region by implying that it has irredentist aspirations toward Macedonia. Such accusations are partially punishment for Sofia’s stance on supporting EU energy diversity, reducing its dependence on Russian energy, supporting Western sanctions against Moscow, and hosting a NATO command-and-control center. It is also an additional way for Moscow to ingratiate itself with Skopje by concocting conspiracies against the beleaguered Gruevski government. On May 20, 2015, Bulgaria’s Foreign Minister Daniel Mitov condemned as “extremely irresponsible” suggestions by Russia’s Foreign Minister Lavrov that a partition of Macedonia between Bulgaria and Albania was being considered.

Bulgarian nationalists are also useful for the Kremlin in its multipronged campaign against Ukrainian statehood and territorial integrity. Representatives of the Ataka party attended the launching congress of the People’s Council of Bessarabia, formed in Odesa in April 2015 to campaign for the region’s national-territorial autonomy in Ukraine. About 150,000 Bulgarians live in the region, and pro-Moscow groups could recruit some of their leaders to further undermine Ukraine’s territorial integrity. In addition, former members of Ataka established another nationalist group, the United Bulgaria Movement (UBM), in March 2015, claiming that their goal was for Bulgaria to become a monolithic one-nation state. Its chairman, Georgi Dimitrov, asserted that the movement was pro-Russian and wanted Bulgaria to terminate its NATO membership.

(TBC)

Republished from a book "Eurasian disunion - Russia's vulnerable flanks".

 

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