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Cablegate: Bulgaria Prepares to Answer Russia On Energy

VZCZCXRO1427
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHSF #0696/01 3431520
ZNY CCCCC ZZH
O 091520Z DEC 09
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6530
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000696

SIPDIS

FOR SPE MORNINGSTAR
DOE FOR ELKIND, CUTLER, EKIMOFF

E.O. 12958: DECL: 12/07/2019
TAGS: ENRG ECON PREL PGOV BU
SUBJECT: BULGARIA PREPARES TO ANSWER RUSSIA ON ENERGY
PROJECTS

REF: SOFIA 674

Classified By: CDA Susan Sutton for reasons 1.4 (b) and (d).

1. (C) Summary: The Prime Minister, President and Energy
Minister briefed SPE Morningstar December 4 on changes in the
Bulgarian energy sector and preparations for the next round
of Bulgarian-Russian intergovernmental economic committee
meetings. The Russian delegation, led by Energy Minister
Schmatko, will arrive December 10 and expects to hear the new
Bulgarian government's intentions on three large-scale energy
projects to which the last government commited Bulgaria.
Bulgarian officials told SPE Morningstar that Bulgaria will
continue to pursue the South Stream gas pipeline, is still
studying the Burgas-Alexandroupolis oil pipeline and will
open a new tender for strategic investors for the now-frozen
Belene Nuclear Power Plant project. Knowing they will be
dependent on Russian energy sources for the foreseeable
future and cannot rely on a common EU energy policy to
protect their interests, the Bulgarians will stay engaged
with Moscow while pursuing alternatives in the form of
Nabucco, interconnectors, CNG/LNG possibilities and nuclear
fuel diversification. End Summary.

2. (C) In a series of meetings with Bulgarian officials,
businesses, energy experts and foreign diplomats December 4,
SPE Morningstar commended the new government for its
concerted efforts to bring greater diversification and
transparency to the notoriously-opague energy sector. He
urged the Prime Minister and President to continue Bulgaria's
outreach to Southern Corridor gas producers and Turkey to
secure progress on Nabucco. He suggested that Bulgaria work
more closely with like-minded EU member states in the region
to ensure EU energy policy protected CEE country interests.
SPE Morningstar stressed the need for continued work on
regional interconnectors, diversification in the nuclear
sector, including the use of alternative nuclear fuel and
spent fuel storage capabilities, and efforts to promote
greater transparency in the energy sector.


THE RUSSIANS ARE COMING
-----------------------

3. (C) The Bulgarians described their strategy ahead of the
arrival to Sofia of Russian Energy Minister Schmatko's
delegation December 10. Energy Minister Traykov stated there
will be no surprises in Bulgaria's announcement about Sofia's
participation in Russian-led energy projects. Bulgaria will
continue to pursue South Stream, as this pipeline has become
"a European project" and lessens Bulgaria's dependence on
Ukraine as a transit country. Bulgaria still has
environmental and other concerns about the
Burgas-Alexandroupolis oil pipeline, so will call for
additional studies on this project before making an
investment decision. The Belene Nuclear Power Plant is
currently frozen, having lost its strategic investor (RWE).
To avoid "kill costs" and keep Moscow reasonably content,
Traykov said Bulgaria will, reluctantly, open a new tender in
an attempt to attract outside investors to the beleaguered
project. Once the Russians leave, Bulgaria will continue to
work on diversification and reform of the energy sector. He
said Bulgaria is ready to move forward with a pilot
relationship with the Extractive Industries Transparency
Initiative, as one way to increase transparency in Bulgaria's
gas transit sector.


PRESIDENT STRESSES SOUTHERN CORRIDOR OUTREACH
---------------------------------------------

4. (C) President Parvanov, who led Bulgarian energy policy
under the previous government, detailed his continued
outreach to southern corridor energy producers, including
recent visits to Sofia by the Presidents of Turkmenistan and
Azerbaijan. He noted that Bulgaria has agreements to buy gas
from both countries, but lamented the lack of alternatives to
access the agreed-upon quantities. He urged continued USG
efforts to secure a Turkish transit agreement with Azerbaijan
and described Bulgarian plans for a hook-up to the TGI
pipeline and a joint Azerbaijan-Bulgarian study of taking
compressed natural gas across the Black Sea via tanker.
Parvanov expressed concern about Nabucco, saying that South
Steam was becoming ever dominant, with Gazprom's proposal to
increase the project's capacity to 63 bcm and the recent

SOFIA 00000696 002 OF 002


Turkish agreement on South Stream's route.


PM RAILS AGAINST EU DISUNITY; SEEKS MORE US ENGAGEMENT
--------------------------------------------- ---------

5. (C) A clearly frustrated Prime Minister Borissov used
his time with SPE Morningstar to rail against EU disunity in
the face of Russian energy dominance, particularly in this
region. Borissov complained that the EU was holding up
funding for proposed interconnectors with Greece and Romania
(the Bulgarians heard later in the day the EU would fund
those projects) and that small, energy dependent EU member
states were held hostage to the energy ambitions of Italy,
France and Germany. He lamented that Bulgaria, the poorest
EU member state, was still a net-contributor to the EU,
causing a rise of Euro-skepticism in the country. He also
urged more U.S. engagement in Bulgaria to show that Bulgarian
efforts on Afghanistan, missile defense and other priorities
are appreciated and rewarded. In particular, he called for
inclusion of Bulgaria into the US Visa Waiver Program (a real
sore point with the new government) and asked us to use USG
good offices with the EU to support Bulgaria's inclusion into
ERM-II and the Eurozone (something he described as
"absolutely free" for the United States (reported septel)).
He noted that the Russian presence in Bulgaria is growing
ever stronger, with continued state-sponsored cultural
events, high-level visits and offers of investment. His
government, he said, was trying to make the right decisions
-- on rule of law, our security relationship, transparency,
and energy diversification, but to pull this off, Bulgaria
needs more attention, engagement and support from both
Brussels and Washington. SPE Morningstar agreed and promised
to raise the PM's concerns in Washington.

6. (C) Comment: The Bulgarians will play it safe when the
Russians come to town December 10. Knowing they will be
dependent on Russian gas for years to come (and being in the
middle of long-term gas supply contract negotiations) the
Bulgarians can't afford to kill all of the Russian-dominated
projects agreed to by the last government. Nor do they want
to. Sofia sees increasing value in South Stream as lessening
its dependence on Ukraine as a transit country. The
government wants to be rid of Belene, but believes it will be
too costly -- either in contractual kill costs or fall-out
with Russia -- to let the project die at this time. Once the
Russians leave, we should up our engagement with the clearly
frustrated Prime Minister, who is making tough decisions on
everything from rule of law to energy, but feeling little
support from outside partners.

7. (U) SPE Morningstar cleared this message.
SUTTON

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