Lukoil: It was like playing football says Ambassador

Guests pulling into the driveway of the Russian embassy find it difficult to reconcile such rambling neoclassical splendour with Russia's vastly transformed status as a political and economic partner. The place is a monument to the strength of past economic relations between the two neighbours.
The two countries have grown apart since the Round Table talks in 1989. Each has pursued its own allegiances in global politics and locked into a different pace of economic growth, while neither has put mutual relations high on its agenda.
"The problem is that we lost sight of each other, and nothing was said or shown in the media, so we know very little about today's Poland," said Nicolai Afarasyevski, Russia's ambassador to Poland. "I see that very few Poles know about today's Russia. We are now trying to promote different contacts among journalists and among young business people."
None of this is evident as visitors are escorted through the vast spaces of the embassy, through a ballroom adorned by a single white grand piano and into a room the size of a modest restaurant that here passes for an intimate meeting space.
For the past 10 years, trading relations between Poland and Russia have been declining steadily. Poland's imports from Russia have grown tenfold, while exports have grown only fivefold. Poland is particularly sensitive about its dependence on Russian gas and oil, while its farmers are worried that they have lost a significant part of the Russian market after fleeing from the 1998 crisis.

While the embassy's cavernous spaces are a little worn and sparse - supplying the impression of the aftermath of a clearance sale - the fact that this vast embassy is still in use gives a sense that the downturn in Polish-Russian relations is a temporary blip.
But the truth is that Poland and Russia are finding it hard to get back into bed together. Poland's European Union accession has left Russia on a limb and facing mounting difficulties in exporting to Poland, while mutual efforts to strengthen ties are at risk as the growing distance between the countries in the past decade has nurtured old and new prejudices.
While embassy staff serve tea in delicate china cups, Afarasyevski sits calmly perched on the edge of a deep leather armchair, dipping frequently into a pack of Russian cigarettes. The relaxed atmosphere is modestly disturbed by the mention of Lukoil, Russia's largest oil company.

During the summer, Lukoil and its UK partner Rotch Energy were locked in negotiations with government privatisation agency Nafta Polska for the purchase of a 75% stake in Rafineria Gdańska (RG). But the coupling of Rotch and Lukoil fractured in September when Rotch announced a new partnership with state-controlled refining giant PKN Orlen, even though the consortium's deadline for negotiations passed only last week.
"The company tried to participate in the modernisation programme exactly in line with EU policy," Afarasyevski said. "This last situation with Lukoil, I'm not sure that it will put a lot of enthusiasm into the hearts of Russian investors in Poland. The manner that it was dealt with made us feel like it was a football match in the middle of which one of the teams was given the right to play with their hands."
The ambassador is particularly aggrieved by the publication in Rzeczpospolita, a state-owned daily, of an article entitled "We don't want Russian money", examining attitudes toward Russian investment in Poland.
In an accompanying poll, the daily showed that 51% of the public thought that investment by large Russian corporations was bad for Poland, 60% feared for Poland's economic independence and 38% suspected that Russian companies would launder money in Poland. About 32% of the public stated that Russian investment risked reinstating Russian political influence, while 32% feared that it would lead to an increase in organised crime.

"I was very upset - and not only me - by this publication," Afarasyevski said. "It was, frankly, contrary to all I hear and see. I meet with representatives of the business community of Poland and other countries every day, and this is not their feeling at all.
"There is not one example of Russian investors who try to influence the internal policy of Poland or are involved in corruption or something like that. We feel that there are still some stereotypes in Poland, but if we really want to co-operate and help each other as our two presidents said at the top of their meetings, then I think that these speculations can't help."
The fact that the article appeared in a state-owned newspaper shortly before a state-owned oil company replaced Lukoil as Rotch's privatisation partner awakened suspicions in Russia about the motivation for its publication.
"I wonder if there is any coincidence that this was published in the middle of the discussions on the Lukoil investment," Afarasyevski said. "It's too good to be true."
While denying that Polish and Russian business circles were laced with mutual distrust, Afarasyevski put down the national stereotypes fuelled by the Rzeczpospolita article to the limited familiarity of the countries with each other's current realities, a factor that needs to be remedied before economic relations between them can reach full potential.
"In previous years we had perhaps all the preconditions for good economic co-operation," he said. "We are close neighbours, we have traditions of co-operation, people who know each other in various sectors of industry and no language barrier. But there was one problem: politics and policy."

Afarasyevski pointed to the issue of Kaliningrad as a major theatre of political play between Poland, Russia and the EU. After Poland's accession, the EU wants Kaliningrad residents to apply for visas to enter Poland, a policy area in which Afarasyevski currently sees little room for a resolution that would be fair to the enclave's residents, for whom the best solution would be visa-free travel into Poland. He said 58 countries have such agreements with Poland.
"This is the most sensitive problem for President Putin, our society, our opinion and our relations with the European community," Afarasyevski said. "Imagine if you, as a Polish resident, had to ask the EU for a visa when you wanted to go to Gdańsk. That's what it's like, I don't exaggerate. We don't understand why our solutions are being rejected. Two-thirds of the border crossings in Kaliningrad are by Poles.
"We believe that it's a lack of political will. We are really anxious that if we don't find a normal, human, practical solution, we will have not only problems in our relations with the EU, but also practical problems for the people who live in Kaliningrad, resulting in protests and manifestations."

Although Russia is optimistic about the future of bilateral trade with Poland, which this year began to recover after its rapid decline after 1998, Poland's implementation of EU trade restrictions is a growing problem for Russian exports, Afarasyevski said.
"Last year the volume of our trade with Poland was over $5 billion," he said. "This year we think that we will do better, and this figure will approach $6 billion. The problem is that the imbalance of trade, without a doubt, is the major problem of our economic relations. Last year this imbalance was $3.4 billion. This year, thanks to measures taken in Russia and the efforts of Polish exporters, the trend is very positive. In the first nine months of this year we observed a growth of Polish exports to Russia close to 40%."
"Russia's exports to Poland are a problem because they are not growing. This year we think the trade imbalance will be diminished by at least a $1 billion. The problems for our exports are quota reductions on coal, metals, steel and chemicals, including fertilisers. This is currently the subject of discussion of our intergovernmental committee and our economy ministries."
Russia is already seeing signals of difficulty, including the regime of customs controls, particularly for items sensitive to the EU, like metals and chemicals.
"That's why we say, 'Let's sit down and have a serious discussion, product by product, tax by tax - what does each mean for our trade', for new and traditional Polish exports," Afarasyevski said.