|Mr Zlatev will most probably carry on for at least another year, while Lukoil tests operating without his infamous card games with Bulgarian political brokers.|
The Bulgarian arm of Russia's Lukoil is among the few companies better known for the name of its CEO rather than its own brand. For two decades, the names of Lukoil Bulgaria and Valentin Zlatev had been interchangeable, so his surprise dismissal as head of the company's fuel trading operations in mid-April was seen as the end of an era.
Mr. Zlatev was replaced by Bulat Subaev, a Russian national and a manager who had run various Lukoil's subsidiaries in Europe. It's hard to pinpoint the precise reason for his dismissal but a combination of factors probably played their part. These included a slump in support for Mr Zlatev at the Lukoil's headquarters in Russia, poor financial results in recent years, and the need to reinvigorate Lukoil's business practices in Bulgaria.
The new general manager (see sidebar) is expected to seek a more market-oriented approach and stronger financial results. Yet Valentin Zlatev is unlikely to vanish and looks set to continue tapping his strengths, most notably cultivating contacts with powerful politicians.
A change or just a rearrangement?
Immediately after the media announcement, the company tried to spin it that Mr Zlatev was being promoted to director of the controlling board of Lukoil Bulgaria and would remain deputy head of the supervisory board in Lukoil Neftochim Burgas oil refinery. Some players in the sector point out that there will be no real change, since even as general manager Mr Zlatev was seldom involved with the company's day to day operations. His main activity has always been making sure the authorities play along with Lukoil.
Mr Zlatev will most probably carry on for at least another year, while Lukoil tests operating without his infamous card games with Bulgarian political brokers.
The managerial change is expected to usher in new trading policies. Lukoil owns Bulgaria's sole big oil refinery, controls 80% of the storage facilities and has a 35% share in fuel retail. It exerts a near monopoly over Bulgaria's market due to its size and cozy relations with politicians, a position it has aggressively maintained.
In early 2018, Lukoil Bulgaria severely restricted the number of distributors entitled to purchase fuels directly from the company. Until then, 10 to 15 distributors had such contracts, dropping to four as of 2018 - Litex, Bent Oil, Saksa, and Insa Oil. Lukoil Bulgaria demanded bigger orders from distributors in a move meant to force them, mainly Insa Oil, to discontinue their imports, which would in turn ensure that Lukoil would supply all the fuels to the Bulgarian market - an enormous success for the company.
Insa Oil, which is gradually increasing its share of the fuel market, expected to become the sole distributor of Lukoil Bulgaria as a trade-off. Yet this didn't happen. As a result, Insa Oil left the cartel and the Bulgarian Gas and Oil Association, attacked Mr Zlatev directly and continued its old practice of independently importing fuel in tankers.
The golden 20 years
Valentin Zlatev's entire career has been in the oil sector. He graduated from the Moscow State Institute of International Relations in 1988 and joined Lukoil in Russia on the company's foundation in 1991. His real heyday began eight years later when Lukoil purchased Bulgaria's biggest oil refinery Neftochim-Burgas with Zlatev's active participation. It was only logical that he should go on to become general manager of Lukoil Bulgaria.
He has enjoyed success under all administrations, ever since the privatization of the oil refinery during the premiership of Ivan Kostov (the former leader of the reform-minded Union of Democratic Forces) and the subsequent Socialist Party-led coalitions. Yet he is closest to Boyko Borissov, who has been in power for most of the past decade.
At the core of this link, according to media publications from the turn of the century, stands the contract for the security of the Burgas-Sofia oil product pipeline. It was awarded to security company Ipon, owned by Mr Borissov, who by that time had risen to the highest professional rank in the interior ministry, that of secretary-general. In this instance, the private company replaced the police.
Through the years, Lukoil Bulgaria became the leader in both fuel retail and wholesale, with 223 gas stations and a near-monopoly of storage facilities. The company often attracted the attention of the Customs Agency and the Commission for Protection of Competition over suspected tax fraud and cartel agreements. Yet investigations never led to any sanctions.
Lukoil Bulgaria often had a strained relationship with the former state-owned monopoly Petrol. In the end, it bought Petrol's 75 gas stations and storage facility near Sofia in 2008, which is how it gained a leadership position in the retail market. Petrol tried to import fuels but Lukoil Bulgaria made that exercise unprofitable by lowering its wholesale prices each time a tanker arrived. Hostilities ceased in the summer of 2014 when Petrol (which had passed through the orbit of the now-defunct Corporate Commercial Bank) came under the management of Grisha Ganchev.
Lately, a new enemy appeared - the Insa Oil company owned by Georgi Samuilov. He has gathered momentum since the collapse of Corpbank, and armed with new and powerful backers, could very well be rearranging the market soon.
Out of favour
Sources of Capital newspaper have floated sundry reasons for Mr Zlatev's demotion, the most plausible being an erosion of support at Lukoil's headquarters in Russia.
About 18 months ago, Mr Zlatev started to feud with one of Lukoil's deputy directors, Aleksandr Matitsin, who according to Russian observers is one of the most influential figures in the management structure. He rose to the position in 2017 and is in charge of economic and financial issues. Lukoil's new representative in Sofia is considered to be Matitsin's man. According to sources in the sector, weaker financial results in the Bulgarian branch were behind the falling out with Zlatev.
Part of the explanation for Lukoil Bulgaria's financial woes is its chosen tactic of rendering imports unprofitable. According to the same sources, imports made financial sense for only a single week in 2018, due to Lukoil's wholesale pricing policies. Nonetheless, this model did not bring the desired results, since the Russian company's competitors are on the verge of an upturn, while a reshuffle is due in the sector. Unconfirmed reports allege that Lukoil has failed to collect a debt from one of its main distributors, so exacerbating its deteriorating financial health.
The picture is made more complicated by Lukoil's reform plans. Back in 2016, Lukoil president Vagit Alekperov announced that the company might be selling its assets in Bulgaria and three other countries. The idea was later reassessed, but the rumour keeps resurfacing periodically.
Alleged misconduct uncovered by the company's internal audits could also be a reason. According to sources of online publication Mediapool.bg, an internal probe prompted by investigative journalism website Bivol.bg could have possibly led to the replacement. Its investigation revealed that a company said to be associated with Valentin Zlatev had purchased plots of land that were later sold to Lukoil at inflated prices. This practice, however, had been ongoing for much longer than a year, which makes it unlikely that Lukoil's headquarters in Moscow just got wind of it.
Mr Zlatev, increasingly beleaguered, became more aggressive recently following these developments. He levelled a delayed conflict-of-interest accusation against Kiril Domuschiev, chairman of the Confederation of Employers and Industrialists in Bulgaria and freshly minted Nova TV owner. The point of contention was a new law on fuel trading proposed by Mr Zlatev. The legislation would have restricted the smaller players in the sector and hurt the company owned by Mr Domuschiev which is the concessionaire of Burgas port. The Black Seaport is the main point of discharge of Insa Oil's tankers, Lukoil's main local competitor.
Insa Oil's owner Georgi Samuilov is also a major sector player in Bulgaria. In 2018, he financed the purchase of Municipal Bank, a financial institution deemed close to the ruling GERB party. However, Mr Zlatev didn't spare his public attacks against Mr Samuilov, indirectly accusing him of fuel smuggling.
Last but not least, the Kremlin does not have many reasons to be extremely happy either. In 2010, a massive protest erupted in Burgas against the planned construction of an oil pipeline linking Bulgaria to Greece overland as an alternative to oil deliveries by tankers through the congested Bosporus strait. The project, promoted by Russia's Rosneft and Transneft, was not of interest to Lukoil and many suspect Mr Zlatev's involvements in the protest. Later that year, Mr Zlatev emerged as an official Russian lobbyist for state-owned Rosatom and even represented the atomic energy corporation in its talks with Bulgarian officials on the project for the building of a nuclear power plant in Belene, on the Danube river. However, his efforts didn't pay off and the construction of the power plant was terminated.
Replacing Mr Zlatev was only a question of time. Over the years he gradually became tainted with too many negatives such as Russia, lobbyism, cartels and the status quo, etc., while his charms ceased casting their spell over Bulgaria's politicians. Not a good aura for the CEO of the biggest company in Bulgaria.
|The new manager |
Bulat Subaev is the new managing director of Lukoil Bulgaria. The change was made by the sole owner of Lukoil Bulgaria, the Netherlands-registered Lukoil Europe Holdings. The official decision dated April 10 was published in Bulgaria's Commercial Register on April 19.
Born in 1975, Subaev has spent almost his entire career at Lukoil where he began working as an engineer on a site in western Siberia. He occupied various positions in the Russian company, spending longest stints at its West European subsidiaries. Since 2013, he has managed Lukoil's operations in Belgium and the Netherlands. Based in Brussels, Subaev managed a team of over 1100 employees working at 270 retail units.
Lukoil Bulgaria did not answer questions about Mr Subaev's future priorities or the reasons for the change. According to two of Capital's sources, Mr Subaev has come to Bulgaria as a close associate of the deputy director Aleksandr Matitsin, cited by Russian observers as one of the most influential people in the company's managing structure. He took the post of first VP in 2017 and was in charge of economic and financial affairs. The reason given for his appointment was "a planned rotation of the managing board". Previously, he was the company's senior VP of finance. Before he joined Lukoil, he worked at KPMG in Russia from 1994 to 1997.
In the last year, Russia's Lukoil has increased its revenue by more than 38%, reaching 8 trillion roubles (about 116 billion US dollars). The reason, as revealed in the company's 2018 consolidated report, was not a bump in yield or production, but higher international market prices, as well as the cheaper ruble. The company's market capitalization stood at 65 billion dollars.
The latest financial data from Bulgaria are from 2017 when the Burgas refinery had the largest revenue in the country (nearly 6 billion levs) and the retailer Lukoil-Bulgaria stood at number four with almost 2.7 billion levs. Nonetheless, both companies have been operating at a loss for years and profits have been exceedingly rare.