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Cablegate: Putin's Bulgaria Visit: Friction and "Friendship"

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OO RUEHFL RUEHKW RUEHLA RUEHROV
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O 121430Z FEB 08 ZDS
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4757
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
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S E C R E T SECTION 01 OF 03 SOFIA 000089

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C O R R E C T E D COPY (REFTEL CHANGED)

E.O. 12958: DECL: 01/27/2032
TAGS: PGOV PREL ENRG RS BU
SUBJECT: PUTIN'S BULGARIA VISIT: FRICTION AND "FRIENDSHIP"

REF: A. SOFIA 0048
B. SOFIA 0067

SOFIA 00000089 001.2 OF 003


Classified By: Ambassador John Beyrle for reasons 1.4 (b) and (d).

1. (C) Summary: The whirlwind that was Russian President
Putin's January 17-18 visit to Sofia ended up generating as
much friction as friendship with the Bulgarians.
Heavy-handed Russian pressure in securing the signing of the
South Stream deal, plus seven other bilateral agreements, had
Bulgarian officials gritting their teeth behind diplomatic
smiles. The visit was meant to kickstart the Year of Russia
in Bulgaria, a "soft power" program replete with cultural
events, as well as a year-long plan for further economic and
political cooperation. What the visit accomplished was a
tightening of Russia's grip on the Bulgarian energy sector,
and, in the case of South Stream, a perceived blow to Nabucco
and regional and European energy security. It was not an
unalloyed success, either for Russia or Bulgaria. Even
before wheels up, the ruling socialists were on the defensive
for signing the South Stream deal after repeatedly saying
they were not ready to do so. Opposition party and
opinion-maker accusations that Bulgaria was being "Putinized"
and turned into Russia's Trojan horse in the EU have clearly
hit a nerve with top officials. Leading GOB officials, the
Prime Minister and Foreign Minister included, now appear more
intent to prove Bulgaria's credentials as a dependable EU and
NATO member. They know they must prove themselves on energy
security, Nabucco, and other critical issues in our bilateral
relationship, which can give us additional leverage on key
issues like Afghan deployments and energy deal follow-up in
the months ahead. End Summary.


RUSSIA TIGHTENS ITS GRIP
------------------------

2. (C) With the dust now pretty much settled after the
January 17-18 visit of President Putin (and heir-apparent
Medvedev), some clarity on what was -- and wasn't achieved --
has emerged. Energy deals dominated the visit. With the
four signed energy agreements -- on South Stream, the
Burgas-Alexandropolous Pipeline (BAP), Russian construction
of the new Belene Nuclear Power Plant, and on nuclear fuel
return -- Russia tightened its grip on the already dependent
Bulgarian energy sector. Despite Prime Minister Stanishev's
and other government officials' public promises to protect
Bulgaria's interests, the Bulgarians gave away some key
redlines, especially during the negotiations for the largest
and most controversial South Stream deal, which Russia
actually wanted -- and needed - more. Finalized in the early
hours of Putin's departure day, the Bulgarians conceded key
points prematurely and with not enough in return (Reftels).
Already over 90 percent dependent on Russian energy,
the Bulgarians put themselves on the "energy map" by allowing
Russia a much larger footprint in the EU, renewing doubts
over Nabucco, and paving the way for Serbia to give up 51
percent of its oil company to Gazprom the following week.
With the economics of South Stream questionable and its
actual construction years off, its political ramifications
loom far larger than its actual financial value.

3. (C) The Belene deal is immediately and tangibly more
significant for Bulgaria's energy sector. AtomstroyExport
(with French and German participation) won the tender in
October 2006 to build the four billion euro project, which is
designed to replace the shut down reactors at Kozloduy. As
such, Belene will eventually provide a direct boost to
Bulgaria's energy production and electricity export capacity.
Construction will inject huge sums into an economically
distressed part of the country. Already firmly in the
driver's seat at Belene, Russia is looking to maximize its
control of the mega-project. In addition to signing the main
contract for design, construction, and installation, Putin
further announced Russia was prepared to offer up to 3.8
billion euros in credit to finance construction of the plant.
Foreign Minister Ivailo Kalfin told the Ambassador January
25 that the Russian offer came as a complete surprise, and if
taken advantage of, would force the cancellation of a tender
process to select a strategic investor for Belene. (Note:
Five European companies are in the running.) Although
Russian credit terms would likely be more attractive, Kalfin
said it was more important to find a non-Russian strategic
investor in a transparent tender process.


SOFIA 00000089 002.2 OF 003


IT'S NOT JUST ENERGY
--------------------

4. (S/NF) Obscured by the focus on energy, the other
agreements signed during Putin's visit focused on trade,
education, culture, and tourism and highlighted Moscow's
desire to build on its already strong presence in Bulgaria.
The two sides signed a ferry service agreement between the
ports of Varna and Kavkaz, Russia, and a memorandum on
Military Aircraft repair. In addition, President Parvanov
stated that the issue of Russia's outstanding debt to
Bulgaria (which is estimated between USD 19 and 38.5 million)
would be resolved in the coming weeks. MFA sources say
Russia will repay its debt in spare parts and repair of
Russian MiGs. (Note: Bulgaria's M-29 fleet is in sad shape;
even once repaired, MOD has such limited fuel funds that
pilots average less than 20 flight hours per year.)

5. (S/NF) Also raised, but not decided, was the
long-standing issue of licensing for small arms that are
manufactured in Bulgaria, but over which Russia claims
intellectual property rights. Russia has demanded a prior
written notice and a veto right over the shipment of these
arms to certain countries (especially Georgia). Essentially,
the Russians conceded nothing, and the issue was shelved.
Putin also left the Bulgarians empty-handed on the issue of
the return of Bulgarian archives seized immediately after
World War II. Putin reportedly asked Bulgaria for a formal
request for the return of these documents, brushing aside the
fact that Bulgaria had done so years earlier. Despite rumors
of forward movement on this issue before Putin's arrival, the
archives (military records, cabinet minutes and private
papers of the Bulgarian royal family) did not deliver the
Bulgarians an immediate, hoped-for success.

GOVERNMENT ON THE DEFENSIVE
---------------------------

6. (C) The lack of transparency over the energy deals,
especially South Stream, had the GOB on the defensive even
before Putin was wheels up. The conservative opposition
parties were the first to object, prompting PM Stanishev, FM
Kalfin and Minister of Economy and Energy Petar Dimitrov to
seek a statement from the coalition majority in Parliament in
favor of the energy deals. The session was rancorous and
ended without a statement, although we expect that the South
Stream deal will eventually be ratified. Overall, media and
opinion maker reaction to the visit, especially the energy
deals, was a mixed bag. While some media outlets welcomed
Bulgaria's emergence as an "energy hub," many others,
including some usually supportive of the government, accused
the BSP of allowing the "putinization" of Bulgaria and
asserted that Bulgaria was becoming the "Trojan horse of
Russia's energy policy in the EU."

7. (C) The sharp criticism of the energy deals and tepid
support of BSP coalition partners clearly touched a nerve
within BSP leadership. With coordinated talking points, PM
Stanishev and FM Kalfin, who are both otherwise supportive of
greater diversification of energy supplies, have been trying
(not entirely convincingly) to hide any evidence of buyer's
remorse on South Stream and justify their actions (ref B).
President Parvanov, who was widely criticized for calling
the signing of the energy deals a "grand slam" for Bulgaria,
later responded defensively to the Trojan horse accusation by
saying "the EU is neither Troy nor under siege."

COMMENT
-------

8. (C) One analyst summed up the visit by saying "Russia
has given Bulgaria things that do not cost money. In return,
Bulgaria will have to give Russia for free things that cost a
lot of money: Burgas-Alexandropolous, South Stream, inflated
gas prices, and huge fees for the construction of the
completely unnecessary Belene nuclear power plant." Indeed,
the Bulgarian portion of the energy deals alone represents at
least USD 10 billion, or about 25 percent of estimated 2007
GDP. These deals, along with the cultural and other "soft
power" agreements will, in Dimitry Medvedev's words, "link
Bulgaria and Russia for decades." And that was clearly a
strategic aim of the visit, from a Kremlin sparing little
effort to rebuild lost market share with a historic ally.

9. (C) But Bulgaria, while still lacking self-confidence in
dealing with Moscow, is also no longer the servile "little

SOFIA 00000089 003.2 OF 003


brother" the Russians remember. The unexpectedly strong
criticism of the optics of the visit and the substance of the
energy deals -- both domestically and internationally -- have
unsettled the government and left the socialist party in
particular feeling exposed. Upcoming debate in Parliament
surrounding the ratification of South Stream will require the
government to publicize the text of the agreement. This will
ensure continued opportunities to re-focus on Nabucco,
question the commercial viability of South Stream, and
spotlight the related gas/transit agreement signed in 2006
with Gazprom, the terms of which have never been fully
examined or explained here. Beyond the energy sphere, the
government's fear that it has tacked too far eastward should
provide us with more leverage as we press for increased
Bulgarian troop commitments in Afghanistan, and more concrete
results from our joint counterproliferation and
anti-trafficking programs. Secretary Rice's visit here in
April, and the Prime Minister's hoped-for visit to Washington
at mid-year, will offer Bulgaria a chance to demonstrate --
to the United States and the EU, and to its own public --
that there is no change in Bulgaria's strategic transatlantic
orientation. END COMMENT.
Beyrle

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