[06SOFIA310] BULGARIAN ENERGY MINISTER’S MEETINGS IN MOSCOW

Published by Wikileaks & Bivol.bg
C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000310    SIPDIS    SIPDIS    E.O. 12958: DECL: 02/27/2016  TAGS: ENRG, EPET, PREL, RU, BU  SUBJECT: BULGARIAN ENERGY MINISTER'S MEETINGS IN MOSCOW    REF: A) 05 SOFIA 2063 B) SOFIA 202 C) SOFIA 190    Classified By: Amb. John Beyrle for reasons 1.4 (b) & (d)    1. (C) SUMMARY: Economy and Energy Minister Rumen Ovcharov  called his January 31 - February 1 meetings with Russian  energy officials constructive and productive, in contrast to  the bad taste left by Gazprom's heavy-handed approach to PM  Stanishev in Sofia last December (Ref A.)  Bulgaria and  Russia have agreed to finalize plans with Greece for the  Burgas-Alexandropoulis oil pipeline, slated to be announced  in mid-March in Athens.  They also agreed to further postpone  renegotiation of the Gazprom contract, while exploring  expansion of the capacity and reach of the existing gas  pipeline.  Regarding the proposed Belene nuclear power plant,  Ovcharov indicated the Russian Atomstroyexport offer was  clearly superior to the Skoda one, but said details of the  contractor's participation were not yet settled. END SUMMARY    GAS  ---    2. (C) Ovcharov requested a meeting with Ambassador Beyrle on  February 24 to discuss his trip to Moscow, a marathon of  meetings with top Russian oil, gas and nuclear officials  including Gazprom's Miller and Medvedev, Rosatom and  Atomstroyexport, UES/Chubays, and a two-hour session with his  counterpart Viktor Khrishenko.  According to Ovcharov, the  meeting with Miller and Medvedev was "totally different" in  tone from Medvedev's finger-waggling performance with PM  Stanishev in Sofia.  Both sides agreed that there would be no  changes to the current Gazprom delivery contract before the  end of this year.  Gazprom is looking now to determine its  long-term partnerships, and is interested in an agreement  that would offset a reduction of the currently high transit  fee with an increased flow of gas through Bulgaria to Serbia,  Greece, and possibly Italy.  The current structure has  headroom for an increased gas flow of 20-30 percent, Ovcharov  said.  The Russians continue to raise the threat of sending  their gas through other pipelines in Greece and Turkey (Ref  B), both as leverage against Bulgaria and in order to avoid  reliance on the route through Ukraine.    3. (C) In addition, Ovcharov was told that Russia wants to  invest in/own local thermo-electric heating plants, as well  as the current gas pipeline.  The latter cannot be addressed  until the end of this year because Bulgaria is complying with  an EU directive to liberalize the sector by carving up parts  of the current Bulgargaz empire, which includes the pipeline.   Ovcharov said the Russians are looking to obtain these  assets at preferred prices, but the issue has not yet been  seriously discussed.  He characterized the topic as "an open  question."    BELENE NUCLEAR PLANT  --------------------    4. (C) At Rosatom and Atomstroyexport, Ovcharov's hosts said  that they want a majority stake in the company that will own  Belene NPP (Ref C.)  The GOB is looking to keep a majority  for itself, but needs to attract a strategic partner, which  could well be Russian.  Commenting on the February 1 tender  to develop the two blocks at Belene, Ovcharov told the  Ambassador "in confidence" that the Russian Atomstroyexport  proposal is superior to the Czech Skoda proposal on technical  grounds.  The Russian proposal is to build a modern,  double-containment facility, similar to projects being built  in China; the Skoda proposal, according to Ovcharov, is based  on 30 year-old technology with only single containment.  In  addition, Russia is proposing both to provide the nuclear  fuel for the plant and to take back spent fuel for long term  storage in Russia.  The Czechs are only offering to provide a  terminal, said Ovcharov, not the fuel.    5. (C) In spite of the deficiencies of the Czech offer and  the fact that Gazprom Bank owns a majority in both  Atomstroyexport and Skoda, Ovcharov told us his February  15-16 trip to the Czech Republic had confirmed that theirs  was a real offer -- not a stalking horse for the  Atomstroyexport proposal.  Nonetheless, he said, because of  the containment the Skoda bid does not even meet the  technical specs of the Belene tender.    BURGAS-ALEXANDROPOULIS OIL PIPELINE  -----------------------------------    6. (C) Ovcharov told us the Russians will decide soon whether  they will move forward with plans for the B-A pipeline.  This  is clearly a Russian state project, with participation of    SOFIA 00000310  002 OF 002      Sibneft, TNK-BP and Rosneft very likely, although Chevron's  later participation is also envisioned.  Ovcharov agreed that  the viability of B-A is linked to increased output of CPC,  which he thought Russia was looking at more seriously.    7. (C) Maintaining control of the Universal Terminal Burgas  (UTB) is still the major outstanding issue for the Bulgarians  in the B-A negotiations.  The GOB wants only one terminal for  all potential oil pipelines to protect Bulgaria's Black Sea  tourist industry, and to control the shipment of the oil  through Bulgarian territory.  The Russians now want a  majority stake and control over the pipeline, said Ovcharov,  in spite of last year's tripartite memorandum of  understanding which calls for an equal three-way split.  Regardless of the ultimate division of ownership, each side  will be expected to pay for its own portion of building and  operating costs.  All this should be resolved in Athens by  mid-March, Ovcharov hoped, when the  parties expect to give  the go-ahead to the project.    COMMENT  -------    8. (C) Ovcharov characterized the Russian approach as more  economic -- related to energy interests -- than as an attempt  to exert political pressure on Bulgaria.  The tone of  Ovcharov's discussion with Gazprom were much less  confrontational this time, but Russia's leverage over  Bulgaria (which pays about 35 percent under market price per  gas unit) is unchanged.  Ovcharov agreed with Amb. Beyrle  that by tying its future even more tightly to Russian oil,  gas and nuclear fuel, Bulgaria would become further dependent  on one source for its energy needs, but he said the  Bulgarians saw very few near term alternatives: "give me a  better option and I'll take it,"  Ovcharov said ruefully.  Clearly, though, Russia sees Bulgaria as a reliable partner  and is comfortable with greater dependence on Bulgaria for  getting its energy to Western markets.  Russia, it is  presumed, does not want to put all its eggs in the Turkish  transit basket, already heavy with the Bosphorous straits,  Blue Stream, Samsum-Ceyan, and other projects.  For that  reason, Bulgaria might enjoy a bit of leverage over Russia --  in the longer run.  In the near term, Bulgaria's economic  interest in maintaining the gas subsidies from Russia will  give Moscow a strong bargaining hand in discussions over the  B-A pipeline and especially the Belene project -- which  Ovcharov all but declared in the win category for Russia.  END COMMENT  Beyrle