The year 2008 was proclaimed the Year of Russia in Bulgaria. Annually, Russian diplomacy strives to strengthen Moscow’s influence in some countries in this way. Although this way of bilateral contacts intensification may remind of Soviet-style campaigns, the results of the visit of the Russian President Vladimir Putin to Bulgarian capital Sofia on 17th and 18th January attest that, in contrast to Ukraine or Belarus, it was not just the campaign which was in the centre of attention. Unless there is a change, which, however, seems rather improbable, in January it will be possible to state that the year 2008 will be a genuine “Russian Year” not only in Bulgaria, but also in the wider region of the Balkans and the Mediterranean. This will affect a considerable part of Europe for several decades. The Balkan “Russian Year” might thus easily result in a Russian era in this region.
The effects of the visit are, particularly from the economic viewpoint, really imposing. Overall, agreements on joint ventures amounting to more than 5.3 billion Euro have been signed. The make-up of Russian delegation was astonishing too. Putin and his designated successor to the Russian Federation’s President Office Dmitryi Medvedev were accompanied by the Head of the Diplomacy Sergey Lavrov and by important energy sector leaders like the Industry and Energy Minister Viktor Khristenko, the Head of Rosatom Sergey Kiriyenko, the President of Lukoil Vagit Alekperov, the Chair of Gazprom Aleksey Miller, the President of Rosneft Sergey Bogdanchikov, the Head of Strojtransgaz Viktor Lorenc, the Vice-President of Transneft Mikhail Barkov and the President of Atomstrojeksport Sergey Shmatko. The symbolical dimension of the visit was highlighted by the presence of culture sector representatives. The interest in the development of common transport projects was underscored by the participation of the Transport Minister Igor Levitin as well as the Director General of AirUnion Boris Abramovich. The participation of the Chairman of the Board of Directors of the Mechel steel group Igor Ziuzin and the Mayor of Moscow Yuri Luzhkov, who deals in real estate, suggests the future direction of potential Russian-Bulgarian economic collaboration.
Moving the gas-chess piece on the European geopolitical chessboard
Most probably the biggest surprise is the agreement on Bulgaria’s involvement in the construction of the South Stream gas pipeline through which Russia plans to export earth gas to the Mediterranean region. Its completion is scheduled for 2013 – 2014. It’ll be a variant of North Stream which is supposed to connect Russia and Germany through the Baltic Sea seabed. In this case an approximately 900 km long pipeline will run from the Russian terminal Beregovaja in the Krasnojarsk region to the Bulgarian port Varna through the Black Sea seabed. The gas pipeline will be installed in a maximum depth of two kilometres. Estimated costs of the whole project account for more than 10 billion Euro. The costs for the construction within the Bulgarian territory will reach 1.4 billion Euro. It will most probably lead from Bulgaria across the territories of Romania and Serbia to Hungary which pledged to take part in the South Stream project during the visit of the Russian PM Viktor Zubkov to Budapest in December (1). Anyway, the central task of the gas pipeline are the supplies for “old” EU members, namely Italy and possibly Austria and Greece.
Russian move came as a complete surprise on the international scene, since several days before Putin’s visit, Bulgarian representatives had been restrained about declarations concerning their conceivable participation in the project. Speculations that Bulgaria was controlled by Russia appeared subsequently. Domestic opposition accused the Bulgarian Government of exaggerated dependence on Russia as well (2). The fact remains that almost the complete energy dependence of this country on Russia will be stepped up. However, not just Bulgaria is to be accused of being too accommodating towards Russia. Countries like Bulgaria or Serbia can be attractive for the Russian gas monopoly Gazprom primarily as transit countries. Major consumers are much wealthier states with larger markets. Nevertheless, both countries will possess equal share in the company which is to ensure the construction and administration of the South Stream route in the Bulgarian territory.
Exactly the same day in the course of which the participation of Bulgaria in the project was announced, a joint venture of Russian Gazprom and the Italian company Eni “South Stream AG” was registered in Switzerland. Moreover, following the resolution of the Serbian Government dated 22nd January, according to which Gazprom is to become the new owner of the Serbian oil giant NIS (Naftna Industrija Srbije) in Novi Sad, nothing stands in the way of the South Stream gas pipeline expansion into the Central Europe.
The decision on the South Stream gas pipeline construction means particularly the failure of the EU strategic project Nabucco the aim of which was to secure the import of earth gas from the region of Central Asia across the Turkish or maybe Iranian territory to Europe.
“Orthodox” oil pipeline
Not such a great surprise was the signing of the contract on the construction of the so-called orthodox oil pipeline from the Bulgarian port Burgas to Greek Alexandropolidis which enables to bypass congested Turkish Isthmuses of Bosporus and Dardanelles and makes the import of Russian gas to the Balkans and Southern Europe more efficient. Also the Greek Development Minister Christos Folias attended the official signing of the contract on oil pipeline construction.
First ideas concerning the realisation of this project appeared as early as 1993. Political agreement on the building of oil pipeline was signed on 15th March, 2007, in Athens by the Russian President Vladimir Putin and the Greek PM Konstantinos Karamanlis and the Bulgarian PM Sergey Stanishev. The treaty on international project company and its registration in the Netherlands was signed on 18th December, 2007. The fact that the governments of both states committed themselves to provide the oil pipeline operator with an advantageous tax regime in exchange for Russian guarantees of continual supplies attests to the importance which the Governments of Bulgaria and Greece attribute to the construction of a new oil pipeline.
The consortium, which will be in charge of the construction and operation of oil pipeline, is headed by Dimitriy Yevstakov from Russia. For the Greek side only Dmitris Kopeluzos and Petros Kalancis, the members of the Board of Chairs of the Thraki company, signed the agreement on its building. The company Hellenic Petroleum participates in the consortium’s activities as well. As for the Bulgarian side, the Executive Director of the Technoeksportstroj company Emil Kocev and the Executive Director of the Bulgargaz-Holding company Liubomir Denchev signed the agreement. Russia had the decisive parcel of shares in the consortium (51 per cent), Bulgaria and Greece obtained 24.5 per cent each.
The consortium remains open for other shareholders and it is assumed that their list will be longer. Meanwhile, from among Russian oil enterprises the companies Transnefť, Rosnefť and Gazprom’s subsidiary company Gazpromnefť have actively displayed interest to take part in this investment. In March 2007, Lukoil representatives were restrained about their involvement in the project, as they had been active in the Balkans since 1999 when they gained control over the refinery in the Bulgarian Burgas and afterwards in 2003 over the Serbian fuel distributor Beopetrol. The construction of oil pipeline leading to Greece can thus help the rival Greek refineries, however, the economic growth in the Balkan countries will contribute to oil consumption increase also in Bulgaria itself. The participation of the company chief Vagit Alekperov in the President Putin’s retinue during the visit to Sofia suggests that Lukoil keeps the door open also to the orthodox oil pipeline, as it were.
The length of the pipe will reach 285 km and total costs are estimated at one billion Euro. The oil pipeline will be able to transport 35 million tonnes of oil annually with a capacity extension up to 50 million tonnes.
Not only Russian enterprises and South-Eastern countries are interested in the project. Among those that have shown interest in the project are also the Kazakh company KazMunaiGaz, the Russian-British company TNK-BP and the US Chevron. The company mentioned as last sets the capacity expansion of KTK (Caspian Pipeline Consortium), which utilises the Tengiz – Novorossijsk route, as a prerequisite to its participation. Chevron has got a 15 per cent share in the consortium through the Chevron Caspian Pipeline Consortium Company. The capacity extension of the Tengiz – Novorossijsk oil pipeline form 31 to 67 million tonnes of oil per annum remains still open (3).
New era of nuclear power engineering in the Balkans
In the course of Putin’s visit to Sofia, the European Commission rejected the possibility to re-open two older reactors in the Kozloduj nuclear power plant the closure of which was one of the preconditions for the entry of Bulgaria into the EU (4). Owing to its closure Bulgaria lost 20 million Euro of the income from electric power exports annually. After the closure of the Kozloduj power plant, Greece, Macedonia as well as Kosovo started to feel the lack of electric power which was offset by the import from Romania and Hungary. Thus for Bulgaria the construction of a new nuclear power plant is a vital step not only from the point of view of its own energy security, but also from the viewpoint of the restoration of its position as an important electric power exporter within the region.
The new nuclear power plant Belene near the Danube is no surprise. The Bulgarian National Electric Company (NEK) invited a tender for its building which was won by the Russian state-owned company Atomstrojeksport on 30th October, 2006. In 2007, the project obtained the EUR certificate which confirmed that it met technological and security criteria of the EU. The European Commission endorsed the investment plan in the first half of October (5). Bulgarian NEK will maintain the control stock (51 per cent), Atomstojeksport, which is simultaneously the provider of the whole construction, will gain minority share. Among the suppliers will be the German Siemens, the French Areva NP, the Czech Skoda Allianz and the US company Westinghouse that will provide the installation supplies (6).
The building of two blocks with 1000 MW power capacity is planned. The overall power plant construction costs account for 4 billion Euro. Its finishing is scheduled for 2013 or 2014 like in the case of the South Stream gas pipeline. Despite the fact that the Bulgarian side is supposed to gain control stock, Russia exerts intensive pressure in order to secure the control over the power pant. Putin declared not only the readiness to finance the Russian part of the power plant construction, but also the willingness to invest 3.8 billion Euro in all if Bulgaria wouldn’t possess funds to build the plant. In the case of Bulgarian insolvency the Belene power plant will be completely in charge of Russia.
Russian economic expansion into the Balkans
Three vast energy projects attest to the fact that Putin’s visit to Sofia must be perceived in a broader context of Russian economic penetration into the South Eastern Europe. Although direct Russian investments within this region haven’t been of greater account so far, fiercely conducted activities in the second half of 2007 and at the beginning of 2008 are sure to reinforce Russian position in the Balkans.
As I have already mentioned, Lukoil has been controlling the Bulgarian refinery in Burgas since 1999. Lukoil also possess a network of petrol stations in Bulgaria. Russian entrepreneurs invest in the building of casinos and tourism capacities in this region too (7). One of the results of Putin’s visit to Sofia is the agreement on the establishment of shipping connection between the Bulgarian Varna and the Russian port Kavkaz in the Strait of Kerch.
However, a massive flood of Russian capital has been registered primarily by Serbia in which there is currently a late privatisation of huge industrial enterprises and companies of strategic character under way. The penetration of Russian capital is facilitated by the fact that Serbia and Montenegro as the only countries in the region established a free trade zone with Russia. Russian Lukoil has already invested 200 million Euro in Serbian Beopetrol which controls a network of petrol stations throughout the country. In summer 2007 the Russian company Metropol invested in the largest Serbian travel agency Putnik approximately 40 million Euro and took control over 75 per cent of its shares. The company Harvinter based in Moscow invested around 1.5 million Euro in the Belgrade-based enterprise Termoelektro (8). In the end of 2007, the Russian Bank of Moscow, which is controlled by the Moscow Municipal Government headed by the Mayor Yuri Luzhkov, announced its intention to enter the Serbian market. It is to start operating in Serbia at the beginning of February 2008 after the acquisition of necessary licence (9).
From the viewpoint of Russian economic influence in Serbia, the decision by the Serbian Government dated 22nd January, 2008, is of key importance. According to this decision Gazprom acquired the control stock in the Serbian oil company NIS, which was the precondition for Serbian participation in the South Stream gas pipeline project (10). The mentioned agreement with Russia, that’ll be signed on 25th January, 2008, was the subject of cut-throat political conflicts in Serbia. The original proposal submitted by Gazprom presupposed that Gazprom would obtain 51 per cent of NIS shares for 400 million Euro, which was considered by the Economy Minister Mladjan Dinkić demeaning for Serbia. According to the latest news, however, Gazprom committed itself to invest in the company apart from the original 400 million Euro also further 500 million Euro by 2012. Most probably this definitely eliminated other companies interested in the Novi Sad refinery, namely Austrian OMV, Polish PKN Orlen, Hungarian MOL and Romanian Rompetrol which is controlled by KazMunaiGaz. It happened despite the concerns over the transparency of the transaction in question which were voiced by the European Commission representatives.
When obtaining NIS Russia took advantage of tense relations between Serbia and the EU caused by the Kosovo status solution as well as the non-transparent character of privatisation process in this country. The instance of the NIS company shows that both phenomena are interrelated. The Economy Minister, who had pushed through the sale of NIS by means of a tender, was removed form the negotiations. The preference for Gazprom was the result of the PM Vojislav Kostunica’s personal intervention. His commitment to privatisation is the guarantee of respecting Russian interests irrespective of any change within Serbian power structures, since nowadays, it is impossible to constitute any government without the involvement of Kostunica’s Democratic Party of Serbia. Serbia needn’t be concerned that it has suffered a loss as regards the NIS sale in the absence of a tender. Taking into account the estimated company book value of 2 billion Euro (according to Dinkić) (11), or rather, 1.6 billion Euro (according to the daily Danas) (12), the total sum of 900 million dollars along with the pledged gas tank construction in Banatsky Dvor may sound advantageous.
One may not rule out that after NIS the Russian investor will seize control also of Elektroprivreda Srbije. In this way Russian capital will obtain grip on the central part of the Serbian energy sector. Namely the Russian company Mechel applies for the reconstruction and privatisation of thermal power station in Novi Sad and plans at the same time its rebuilding so that is driven by gas (13).
Another Russian acquisition in Serbia may soon become the Serbian airline company JAT Airways in the privatisation of which Russian Aeroflot is interested. The relevant memorandum on understanding between both companies was signed on 1st July in Sochi. The Russian acquirer is supposed to get 75 per cent of JAT shares and invest 100 million Euro in the company’s development. This transaction would enable Aeroflot to establish itself in European markets (14). The tender should be under way in April 2008. Aeroflot’s chances are meanwhile the best. Another big Russian investor, which is about to enter Serbian market, is an entrepreneur working in the field of nonferrous metallurgy Oleg Deripaska whose company SMR (Strikeforce Meaning and Resource Limited) strives to get the aluminium works RTB Bor (15).
According to official data Russia takes 18th position in the list of foreign investors in Serbia. In case that the investment objectives of Russian entrepreneurs are carried out, its influence on Serbian economy will increase severalfold. Nonetheless, such development needn’t impinge upon some part of the EU entrepreneurial circles. For instance, many French companies utilise the free trade zone between Serbia and Russia for the penetration into Russian market (16). Serbia may thus become a kind of economic buffer zone between the EU and Russia, for a short time at least. Some part of domestic Serbian elites, including entrepreneurs, certainly think that this is suitable time for the conduction of privatisation in which domestic capital has the upper hand. It is the national wing of Serbian politics which finds this “multitude of vectors” highly convenient. This is hinted in the statement made by the presidential candidate for Serbian Radical Party Tomislav Nikolić in the course of election meeting in the town of Niš where he expressed the wish that Russia and the EU should meet in Serbia (17). Thus Kosovo needn’t be the sole reason for the negative attitude of Serbian politics to the EU membership.
Russian economic expansion affected also Montenegro, although not to such an extent like Serbia. Similarly to Bulgaria, it is oriented primarily towards the sphere of tourism. Russian businessmen are active in the area of hotel and villa construction on the coast of the Adriatic Sea. A villa in Montenegro was allegedly bought by a company close to the expected Russian presidential elections winner Dmitryi Medvedev (18). Whereas in the case of Serbia we may speak of strategic challenges for Europe with regard to the growth of Russian influence, as for Montenegro it is rather the possibility of the legalisation of financial means from criminal activity. Anyway, a part of Russian investments in Montenegro as well as Serbia may come from domestic sources which were deposited in Russia during wars and the economic blockade of Belgrade in 1990’s. From among the most significant Russian investments in terms of tourism the construction of the hotel Splendid in Budva is worth mentioning. This was the target of a bomb attack with a hitherto unclear motive behind. According to some versions the impulse behind were the clashes between local property developers, other sources spoke of protection racket. The hotel proprietor is a Russian-Montenegro company Montenegro Stars Hotels Group which controls also other hotels, namely the Star and the Montenegro. The company owner is the Russian Viktor Ivanenko, a former first vice-president and the part-owner of Yukos. However, he worked for Soviet, or rather, Russian special services until 1993 (19).
The total value of Russian investments in Montenegro is estimated at 70 million Euro (2006), which amounts to more than 10 per cent out of the overall sum of 640 million Euro. These estimates are most probably underrated, because in 2005, for example, the Russian concern Rusal, the proprietor of which is the Russian billionaire Oleg Deripaska, procured 65.4 per cent of shares in aluminium works in Podgorica as well as the related thermal power station and coal and bauxite mine. By the way, Rusal was the only company to negotiate with the local government. The Železjara Nikšič steelworks are also in the hands of Russian proprietors who, however, are based in the United Kingdom (Midland Resources). Anyway, the Montenegro Government backed out of the transaction after some time and at present, the steelworks are owned by another British company (20).
Putin’s visit to Bulgaria is of tremendous geopolitical as well as symbolic importance. He couldn’t have chosen a better place and a more suitable moment for saying goodbye to the presidential post indeed. A crowd of around 100,000 people greeted him in Sofia. He could have counted on a similarly triumphant farewell neither in Ukraine nor in Belarus under current political circumstances in Kyiv and Minsk. Besides this it is crucial that Putin was capable of presenting the success of his foreign policy exactly in Sofia, i.e. the capital of the former Soviet satellite which has become an EU and NATO member. During his visit, he laid a special emphasis on this fact by explaining that the commitments of Bulgaria as a “new member of the Alliance … shouldn’t impede the development of the relations with Russia” (21). He showed that Russia would proceed with the policy of individual approach to particular EU and NATO members. In spite of the fact that there have been four US military bases in Bulgaria since 2006, the US President George Bush wouldn’t have been given such a warm welcome most probably. This is intriguing, because Bulgaria and Romania consider the US an important ally within the region, especially after the departure of US troops from Bosnia and in connection with unpredictable development in Kosovo (22).
The Russian endeavour to reach an agreement on the construction of the South Stream gas pipeline hasn’t been discussed in the media very often, which might be the reason for its success. It is simultaneously bad news for European unity, its willingness to carry out joint energy policy and its ability to coordinate its stance on third countries. Paradoxical though it may seem, but the EU enlargement in the period from 2004 to 2007 isn’t likely to be the main cause of this condition. For instance, the construction of the South Stream gas pipeline was first and foremost Russian and Italian initiative. For the EU the warning signal should be the Russian ability to paralyse its common activities and intentions. Recently, information has appeared according to which Serbia was interested in the building of Russian missile base near the border with Croatia. Particularly the representatives of Serbian Radical Party have spread it. Its building, but mainly its running, is hardly feasible form the technical viewpoint, since Serbia is surrounded by current, or rather, future NATO members that are unlikely to accede to the possibility of the transportation of Russian troops across its territory or the utilisation of their airspace to this end. Nonetheless, Russia doesn’t need missiles or tanks in order to exert its influence at the moment. Economical influence and real monopoly on energy supplies will do. The functioning of gas pipeline is conceivable only when peace is kept. As every state is interested in earth gas supplies in order to meet the needs of economy as well as to make profit from transit to third countries, it will be interested in long-lasting stability. Although a good deal of Western investments flows primarily in Serbia, it is Russia that may become a stability guarantor, at least in the eyes of the orthodox inhabitants of the Balkans. This project will unite several Balkan states in a concrete way. The direction of individual pipes from Bulgaria is hitherto undecided and if the Russian Federation resolves to construct the shortest possible connection to Italian ports through Macedonia and Albania, the income from transit fees might secure peace even at the common border of these two countries.
Russia can thus become a player that will play the role of the “Balkan stabiliser”. This stability, however, may be different form the notion of the EU and NATO the position of whose can be enfeebled. Russia behaviour is in stark contrast to that one of Putin and his predecessor Boris Yeltsin in the Caucasus, where Russia used to act and still acts as a destructive player that on one level has huge privatisation ambitions but on another level supports regional separatist tendencies and the destabilisation of Caucasian independent republics. On the contrary, the US is a partner that initiates the construction of new energy routes and bears new investments into the region. In the Balkans, however, it is Russia which, apart from buying state-owned enterprises, builds new oil and gas pipelines, whereas the US and NATO are linked with the bombardment of Serbia in 1999, at least in the states where Slavic and Orthodox population prevails.
From the symbolical point of view it was momentous that Putin was accompanied by his designated successor Dmitryi Medvedev in Sofia. His arrival is a signal that power engineering remains one of the most important tools of Russian foreign policy even after Putin’s retirement. Medvedev’s achievements in the period of his presidency of the Gazprom Board of Chairs are supposed to show the Russian voters as well as the entire world that he will be likewise successful also in the position of Russian top representative.
Putin’s visit to Sofia is at the same time a signal that Russia is interested in pragmatic collaboration with the West. The form of pragmatism, however, will be shaped according to its own rules. The pipeline construction hasn’t been commenced yet, but its termination date has been approaching very rapidly. This is the final challenge that Europe and the US face in their quest for decreasing the energy dependence on Russia. That’s why the Balkans is the arena where the geopolitical battle between the East and the West will go on yet several years regardless of the fact that in the current situation within the Caspian Sea area the normalisation of the relations between the EU, the US and Iran is the key to the success of the Nabucco project.
From the perspective of the transit of energy supplies as well as political significance, it will mean marginalisation of the region of Central Europe if Russia manages to conduct its northern and southern gas pipeline construction projects. In the final analysis, Slovakia but also Poland, Ukraine, Belarus and partially the Baltic countries will be deprived of a considerable part of income from oil and earth gas transit. In this way their dependence on energy supplies from Russia will grow and their room for negotiation will be restricted.
(2) Skieterska, Agnieszka: Bułgaria wpada w objęcie Rosji. Gazeta Wyborcza, 18. 1. 2008.
(3) RF, Grecija i Bolgarija podpisali soglašenije o stroiteľstve nefteprovoda Burgas-Aleksandrupolis. Interfax, 15. 3. 2008.
(4) EC rules out reopening two reactors at Bulgaria’s Kozloduy nuclear plant. News.bg 18. 1. 2008.
(5) „Atomstrojeksport” podpisal soglašenije o soorudenii AES v Bolgarii. Regnum, 18. 1. 2008.
(6) Skieterska, Agnieszka: Bułgaria wpada w objęcie Rosji. Gazeta Wyborcza, 18. 1. 2008.
(7) Skieterska, Agnieszka: Bułgaria wpada w objęcie Rosji. Gazeta Wyborcza, 18. 1. 2008.
(8) Daily views energy deals as boosting meagre Russian investment in Serbia. http://news.tradingcharts.com/futures/6/6/103134566.html, 6. 1. 2008.
(9) Banka Moskvy požiadala o licenciu na srbskom bankovom trhu. TASR, 17. 12. 2007.
(10) Kostunica: Serbia to sign energy deal with Russia. Balkantimes, 22. 1. 2008. http://www.balkantimes.com/cocoon/setimes/xhtml/en_GB/features/
(12) Aleksandar Popovič, ministar rudarstva i energetike i potpredsednik Demokratske stranke Srbije: Država nam je važnija od evropskih fondova. Danas, 9, 1. 2008.
(13) Ruski Mechel gradi gasnu elektranu u Novom Sadu. Tiker, 22. 9. 2007. http://www.tiker.co.yu/ots-pregled/vest.asp?vID=130
(14)JAT tender expected by April. B92.net, 20. 1. 2008.
(15) Petković, Rato: Drakulić odustao od kupnje RTB Bor, Deripaska najveći favorit. Poslovni dnevnik, 2. 11. 2007. http://www.poslovni.hr/59124.aspx
(16) French invest in Serbian exporters to Russia. B92.net, 31. 5. 2005.
(17)Nikolič: Želim da se u Srbiji stretnu Rusija i EU. Beograd, Srpska radikalna stranka. http://srs.org.yu/svimsrcem/clanok.php/2008/01/10/rtsmitingnis/
(18) Medvedev kupio plac u Herceg Novom. Consulting Group Montenegro, 12. 12. 2007. http://www.bizniscg.info/modules.php?name=News&file=article&sid=
(19) Calovic, Vanja: Organized Crime and Montenegro’s Construction Industry. 11/8/2005 (Balkanalysis.com). http://www.balkanalysis.com/2005/11/08/organized-crime-and-montenegros
(20) New York Times, 24. 12. 2006.
(22) US troops set for Bulgaria bases. BBC News, 28. 4. 2006.