[09SOFIA696] BULGARIA PREPARES TO ANSWER RUSSIA ON ENERGY PROJECTS

Published by Wikileaks & Bivol.bg
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