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Cablegate: Subject: Bulgaria: Facing Resurgent Russian

VZCZCXRO7831
PP RUEHFL RUEHKW RUEHLA RUEHROV
DE RUEHSF #1396/01 3551338
ZNY SSSSS ZZH
P 211338Z DEC 07
FM AMEMBASSY SOFIA
TO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 4620
INFO RUEHNO/USMISSION USNATO PRIORITY 0955
RHMFISS/HQ USEUCOM PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEAHQA/OSAF WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RHMCSUU/FBI WASHINGTON DC PRIORITY 0202
RUEKJCS/JOINT STAFF WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHINGTON DC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUENAAA/SECNAV WASHINGTON DC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY
RHEHAAA/WHITE HOUSE WASHINGTON DC PRIORITY

S E C R E T SECTION 01 OF 03 SOFIA 001396

SIPDIS

NOFORN
SIPDIS

PASS TO EUR/NCE BULGARIA DESK OFFICER MARK TURNER

E.O. 12958: DECL: 12/19/2032
TAGS: ENRG PGOV PREL BU
SUBJECT: SUBJECT: BULGARIA: FACING RESURGENT RUSSIAN
INFLUENCE ON THE EVE OF THE PUTIN VISIT

Classified By: Amb. John Beyrle for reasons 1.4 (b) & (d)

1. (C/NF) SUMMARY: Bulgaria is bracing for the January
17-18 visit of the Russian President, fully expecting Putin
will bring some deliverables, but many more demandables.
Together with a few cultural sweeteners, the Russians will
push a hard line on Kosovo; missile defense, CFE, and U.S.
temporary deployments under the Defense Cooperation
Agreement; and energy, especially South Stream. The
Bulgarians are intent on holding their ground on issues
affecting NATO and the EU, but are more wobbly on energy,
where, despite our concerted work to stiffen their resolve,
Russian blandishments and pressure are strongest. Putin,s
visit is one aspect of a broader Russian effort to regain
some of the political and economic "market share" it lost
here over the past ten years. Membership in NATO and the EU
allows Bulgaria a stronger basis for resisting Russian
pressure, but the instinct to accommodate Moscow is still
strong. High-level U.S. engagement can act as a brake on
this instinct, and we need to look at some planned visits by
Bulgarian leaders to Washington in 2008 as opportunities to
help Bulgaria define and defend its transatlantic interests.
END SUMMARY

SOFT POWER . . .
----------------

2. (S//NF) During his January 17-18 visit, Putin is primed
to sign four agreements: culture; science and technology;
nuclear fuel return from Bulgaria,s research reactor (we
have a parallel agreement under negotiation); and
anti-organized crime cooperation (sic). More important, he
will push on key regional and energy topics -- Kosovo,
NATO-Russia, and gas and oil projects. The Russians are
playing a strong hand. On the "soft side," Bulgarian popular
mythology romanticizes Russian intervention in securing
Bulgaria's 1880,s independence from Ottoman Turkey. Drawing
on shared Slavic bonds of culture, language, and religion,
Russia vies with the EU in popularity rankings -- placing in
the 60-70 percent range -- whereas the U.S. average is around
55 percent. Moscow will also dole out up to 10 million euros
to celebrate the 130th anniversary of liberation as part of
the 2008 "Year of Russia" - renovating churches, battle
sites, monuments, and promoting broader cultural and
educational exchanges.

. . . AND HARDBALL REALITIES
----------------------------

3. (C/NF) On the "hard side," more tangible and powerful
forces are at play: massive dependence on Russian energy,
Lukoil,s prominence in the economy, legitimate and shady
Russian business investments, and Bulgarian politicians,
strong personal and business ties with Moscow. The
Bulgarians chafe at and resent Russian big brother
condescension and increasingly heavy-handed tactics. These
are summed up neatly by candid and typically maladroit
Russian statements (in Sofia and Brussels) that Bulgaria is
Russia's "bridge" into the EU and its "Trojan horse."

4. (C/NF) But there are inescapable realities that keep
resentment from hardening into stronger policies. Bulgaria
depends on Russia for 98 percent of its oil and 95 percent of
its natural gas supplies, according to Bulgargaz officials.
Bulgaria gets all its nuclear fuel for its reactors from
Russia. Huge energy imports have led to a highly unbalanced
foreign trade deficit, which in 2006 represented 46 percent
(or 2,992.2 million euros) of Bulgaria's overall trade
deficit. Lukoil is Bulgaria's largest single taxpayer,
accounting for 25 percent of tax revenues and five percent of
GDP. Gazprom, Bulgaria's sole natural gas supplier, has a
hand in three major energy projects including the

SOFIA 00001396 002 OF 003


Burgas-Alexandropolous Pipeline (BAP), South Stream, and
construction of the Belene Nuclear power plant. In 2006,
Gazprom/Kremlin pressure forced Bulgaria to renegotiate its
gas supply and transit agreement, resulting in steadily
increasing domestic prices. Gazprom continues to press to
privatize and take over state-owned Bulgargaz. In 2006,
Russian AtomstroyExport won the construction of a
long-delayed new nuclear power plant at Belene in a
controversial, non-transparent process involving then
Minister of Economy and Energy Rumen Ovcharov (who later lost
his job in a different corruption scandal). Belene's
contracted costs have been estimated at 4 billion euro (5.8
billion USD), making it the most expensive single project in
Bulgaria.

OLD SCHOOL TIES TO MOSCOW
-------------------------

5. (S//NF) Key officials, including President Georgi
Parvanov, Interior Minister Petkov, Ovcharov (who is now
Budget Committee Chairman in Parliament) have ties to Russia.
Parvanov -- who received major contributions from Lukoil in
his 2006 re-election bid -- has a good personal relationship
with Putin, and has visited Russia eight times since assuming
office in 2002. Petkov and Ovcharov both are perceived as
pro-Russian with links to Russian business and possibly
organized crime. Ovcharov studied in Moscow and has spent
much of his career working with Russian energy interests; he
is widely suspected of enriching himself through the deals he
has concluded with Gazprom. The stakes are huge: if
consummated, the major Russian energy deals in Bulgaria would
be close to USD 10 billion. Even a one percent rake-off
would inject USD 100 million into a weak rule of law
environment. The xenophobic Ataka party is widely believed
to receive considerable funding from Russian sources. Its
daily paper serves as a pro-Moscow mouthpiece, regularly
spewing anti-U.S. and anti-EU rants and routinely criticizing
the U.S.-Bulgarian joint military bases, Bulgaria's military
deployments abroad, and U.S.-Bulgarian cooperation in
general.

TURNING THE SCREWS ON KOSOVO
----------------------------

6. (S//NF) Bulgaria supports the Ahtisaari plan and is
working actively within the EU to maintain (or forge) an EU
consensus on recognition for a coordinated declaration of
Kosovo independence, and to act as a bridge between Brussels
and Belgrade. Moscow will likely prey upon Bulgaria's fear
of Serbia's reaction to recognition and Sofia,s economic
ties to Belgrade to press the Bulgarians to delay
recognition. The Bulgarian side is negotiating the
non-discussion of Kosovo during the Putin visit, with no real
hope for success. We expect the predictable Russian hard
sell, and the Bulgarians to hold their (uneasy) ground.

U.S.-BULGARIAN MILITARY COOPERATION: A SORE SPOT FOR MOSCOW
--------------------------------------------- --------------

7. (S/NF) A Russian embassy official told us the Putin visit
will focus on economic issues because the Russians "do not
have any political problems with the Bulgarians except for
U.S. military bases in Bulgaria." The Russians have publicly
railed against U.S.-Bulgarian military cooperation,
particularly temporary U.S. training deployments to Bulgaria
under the Defense Cooperation Agreement (DCA), and Joint Task
Force-East infrastructure in Bulgaria and Romania designed to
support this training. Bulgarian support for U.S. missile
defense plans in Eastern Europe has also ruffled feathers.
Past Russian statements have criticized Bulgaria's hopes to
be covered by U.S. or NATO missile defense plans. In
general, the Russians see U.S.-Bulgarian military cooperation

SOFIA 00001396 003 OF 003


and the joint-training facilities in particular as the "sore
spot" in the relationship, rarely missing a chance to
mischaracterize the facilities as "U.S. bases" in the media,
and repeatedly claming the facilities violate CFE. Here
again, we expect the Bulgarians will stand firm, although the
Putin visit has clearly slowed the government,s timetable
for approving new force deployments we are seeking from them
in Iraq and Afghanistan.

ENERGY: THE WEAKEST LINK
------------------------

8. (C//NF) SOUTH STREAM AND NABUCCO: The elephant in the
room is energy. The Bulgarians do not want to be hurried
into a premature South Stream deal, but also don,t want to
be left out as Russia dangles options to other possible
transit states. Determined to be an energy hub/corridor and
anxious for transit fees, the Bulgarians are susceptible to
pressure and blandishments. We have argued against speedy
decisions ("creative delay"), and urged Bulgaria to retain
international legal and technical counsel. But it now looks
almost inevitable that they will sign an IGA on South Stream
with Putin. Although likely to be thin on substance, it will
be loaded with political symbolism that Russia can exploit.
Although Bulgaria formally supports the EU-backed Nabucco
pipeline, a South Stream IGA (on the heels of the one with
Greece) will serve Russian interest in further undermining
Nabucco. Privately, the Bulgarians express doubt about the
seriousness of the EU and its multiple potential investors to
support Nabucco. The Bulgarians do not trust the Russians,
but also have few direct dealings with, and little confidence
in, the Azeris on alternate guaranteed supplies. The
Russians play this grand-master-level energy chess match many
moves in advance. The Bulgarians are simply outclassed if
they do not slow the clock.

FINAL COMMENT
-------------

9. (S//NF) As a NATO and EU member, Bulgaria has greater
strengths than ever to resist pressure from a recrudescent
Russia. But the old habit to duck when Russia stamps it foot
is almost an instinct here. As much as Bulgarians bristle
privately at Russian power plays, they see themselves as
vulnerable and
hesitate to antagonize Moscow. But there are some important
exceptions to this rule. Prime Minister Stanishev, despite
strong family ties to the USSR, has been willing to stand up
to Russia/Gazprom in energy negotiations to protect
Bulgaria's interests, and sees nothing good in the backward
drift of Russian democracy. Foreign Minister Kalfin
repeatedly cites Bulgaria,s NATO and EU membership as a
strong strategic reality when discussing relations with
Moscow. But the sheer weight of Russian economic interests
will sustain Moscow,s influence on business and politics
here, no matter what Putin accomplishes during his visit, and
no matter how well Bulgarian leaders play the board. Our
strongest lever of influence is Bulgarian recognition that a
good relationship with the U.S is crucial to their ability to
protect their interests. Upcoming visits to the U.S. by FM
Kalfin (to meet Secretary Rice in January) and Prime Minister
Stanishev (who is seeking a visit in the spring of 2008) will
provide low-cost, high-impact opportunities to demonstrate
our support for some the strongest proponents of the
trans-atlantic view, and also to help them define how to
better leverage their strengths against Russian pressure.
END COMMENT.
Beyrle

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