Published by Wikileaks & Bivol.bg 
 id: 236738 date: 11/25/2009 14:30 refid: 09SOFIA673 origin: Embassy Sofia classification: CONFIDENTIAL destination: 09SOFIA538 header: VZCZCXRO8529 OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR DE RUEHSF #0673/01 3291430 ZNY CCCCC ZZH O 251430Z NOV 09 FM AMEMBASSY SOFIA TO RUEHC/SECSTATE WASHDC IMMEDIATE 6499 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 03 SOFIA 000673    SIPDIS    FOR SPE MORNINGSTAR    E.O. 12958: DECL: 11/17/2019  TAGS: ENRG, PREL, PGOV, BU  SUBJECT: BULGARIA:  ENERGY UPDATE    REF: SOFIA 538    Classified By: CDA Susan Sutton for reasons 1.4 (b) and (d).    1.  (C) Summary: Since taking power in July, PM Borissov has  shaken up the energy sector by calling into question the  Russian-backed energy projects pursued by the previous  government and emphasizing the need for greater transparency  and diversification.  While Bulgaria may continue going  through the motions on South Stream, it is making Nabucco,  interconnectors, and closer cooperation with southern  corridor gas producers the focus of its gas strategy.  It has  frozen the Russian-backed Belene Nuclear Power plant, at  least for now, and is investigating U.S. nuclear fuel and  spent fuel storage diversification options.  The obstacles  are many.  Eager not to lose their privileged place in the  Bulgarian energy sector (and economy), Russian and Bulgarian  energy lobbies are resisting. In certain key areas, they  still have the upper hand.  We are urging the government to  act boldly on individual diversification and transparency  projects, which, added together, will represent real change.  End Summary.      THE FUTURE OF RUSSIAN-BACKED ENERGY PROJECTS  --------------------------------------------      2.  (C) In August Prime Minister Boyko Borissov's government  announced a full-scale review of all Russian-sponsored energy  projects (the Belene Nuclear Power Plant, the South Stream  gas pipeline and the Burgas-Alexandroupols oil pipeline) to  which the previous government had committed.  Borissov had  promised Russian PM Putin an answer on these projects by  November.  Our contacts tell us an announcement on the fate  of these projects is likely in early December. This is what  is likely:    3.  (C) Belene:  The previous government had awarded Russia's  AtomstroyExport the contract to construct two AES-92 VVER  1000 reactors at Belene at an original cost of four billion  euros in 2006.  In 2008 Bulgaria brought in the German  company RWE as a 49 percent strategic investor.  Since then,  the project, at times referred to here as "the money  machine," has been dogged by cost over-runs, financing woes,  construction delays and rumors of serious safety and quality  assurance concerns.  Cost estimates skyrocketed to over 10  billion euros around the same time the Borissov government  took office.  Borissov and his energy team immediately began  questioning the terms, conditions and rationale of the  project, and stated Bulgaria would, at a minimum, reduce its  share of the project to 20 percent (down from 51 percent.)  Strategic investor RWE then got cold feet and withdrew from  the project altogether.  The Belene project, still consisting  of little more than an empty field, is now frozen, with the  only offer of investment coming from Russia, an option the  Borissov government calls unacceptable.    4.  (C) South Steam: The Borissov government originally had  harsh words for South Stream, but after a September  Borissov-Putin telephone conversation and meeting, additional  outreach by Russian Energy Minister Schmatko and Italian PM  Berlusconi, and a steady stream of Russian warnings that  South Stream would bypass Bulgaria if Sofia continued its  feet-dragging, the Bulgarians backed down.  Our contacts tell  us that with so many European countries signed on, South  Stream is no longer a Russian project, but a European one.  They have doubts it will be built, but if it goes forward,  Bulgaria doesn't want to be left out.  As the EU country most  affected by the Russia-Ukraine gas dispute in January,  Bulgaria is also eager to diversify not only its sources of  gas, but its supply routes as well.  The Bulgarian Energy  Holding tells us that Gazprom continues to exert pressure on  Bulgaria to rush decision-making on South Stream in order to  bring Bulgaria to an ultimate investment decision, but  Bulgaria's U.S.-based legal advisers Paul Hastings are fully  engaged in trying to protect Bulgaria's interests in the  project.    5.  (C) Burgas-Alexandroupolis:  The Borissov Government is  still undecided on the BAP oil pipeline, a joint Russian,  Greek and Bulgarian initiative.  The new government most  often cites environmental concerns as the reason it is  dragging its feet on this Bosphorus bypass, but we've heard  that even if these concerns can be satisfactorily overcome,  there is little appetite within the current administration  for this project.  If Russian pressure on BAP becomes intense    SOFIA 00000673  002 OF 003      (which it has not been so far), the Bulgarians still could  decide to move forward, but would likely seek a reduction in  the government's 24.5 percent share.      A FOCUS ON DIVERSIFICATION  --------------------------    6.  (C) After January's gas crisis exposed Bulgaria's extreme  dependence on Russian energy supplies, even the previous,  Russia-friendly government, began to focus on  diversification.  With its desire to rid Bulgaria of the cozy  relationship the last government had with Russia, the  Borissov administration has increased these diversification  efforts.  Nabucco is central to Bulgaria's diversification  strategy.  During a recent visit of the Nabucco CEO to Sofia,  the Bulgarian Government pledged a 300 million euro  investment into the project.  There is still a significant  amount of skepticism about Nabucco's prospects within the  halls of the Bulgarian Energy Holding, but publicly the  Government is fully on-board.    7.  (C) Interconnectors:   In July the Bulgarian Energy  Holding signed an agreement with the Greek and Italian  companies DEPA and Edison for the construction of a  Greek-Bulgarian interconnection that would allow Bulgaria to  import one bcm of gas through ITGI (the Turkey-Greece-Italy  Interconnector.)  The 160 km, 120 million euro pipeline,  called Interconnector Greece-Bulgaria (IGB), would extend  from Komotini in northern Greece to Stara Zagora, Bulgaria.  Bulgaria has applied for 45 million euros in EU funds to  support this project, but we heard of some hesitation in  Brussels to approve these funds.  A feasibility study for  this project is in the final stages.  Less progress has been  made on potential interconnectors to Romania, Serbia and  Turkey, but these key for Bulgaria's (and Europe's) energy  security and are under consideration.    8.  (C) Azeri Outreach/CNG: During a November visit of Azeri  President Aliev to Sofia, Azerbaijan and Bulgaria signed an  agreement on the export of one bcm of Azeri gas to Bulgaria  (which Bulgaria would take through its ITGI interconnector,  and, later, through Nabucco.)  The Azeris and Bulgarians also  agreed to study the possibility of sending additional amounts  of compressed natural gas to Bulgaria (and beyond) via  Georgia and the Black Sea.  If the initial 60 day study of  this option is promising, the two sides agreed to set up a  joint venture company to perform a full-scale feasibility  study.    NUCLEAR: REAL ALTERNATIVES  ---------------------------    9.  (C) While the January gas crisis focused attention on the  need for gas source diversification, Bulgaria is just as  vulnerable on the nuclear side. One hundred percent of the  fuel used at the Kozluduy Nuclear Power Plant (which  generates 40 percent of Bulgaria's electricity) comes from  Russia.  Bulgaria is also dependent on Russia to take spent  nuclear fuel from these reactors, which Moscow does at  considerable annual cost.  These are areas where U.S.  technology offers real diversification alternatives to  Bulgaria.  Bulgaria has a unique opportunity to benefit from  a successfully demonstrated USG nuclear fuel supply  diversification program (using Westinghouse technology)  originally designed for a Ukrainian reactor identical to  Kozluduy blocks 5 and 6.  This program, combined with  deployment of a U.S. (New Jersey-based Holtec International)  on-site transportable spent nuclear fuel storage system,  could not only save Bulgaria hundreds of millions of dollars  and launch a state-of-the-art technology transfer program,  but also play an important role in increasing Bulgaria's  energy security.    COMMENT:  TRANSPARENCY IS ELUSIVE  ----------------------------------    10.  (C) Even with the Borissov Government's tremendous  political will, bringing transparency to Bulgaria's  notoriously-shady energy sector is a challenge.  As the new  government restructures the Bulgarian Energy Holding and  decides which projects to pursue, powerful domestic energy  lobbies are fighting behind the scenes to keep their  representatives in positions of influence.  As several  officials have lamented to us, Bulgaria's energy bench is  shallow, making it nearly impossible to find new energy  sector professionals who are not beholden to one or another    SOFIA 00000673  003 OF 003      lobby. Complicating the situation, Bulgaria's long-term gas  supply contracts with Gazprom run out in 2010 and 2012.  The  government would like to improve transparency by eliminating  the shady, Gazprom-linked intermediaries that dominate the  gas sector in its next supply contract, but Gazprom and  domestic lobbies are opposed.  In addition, we understand  Russian leaders, at the highest levels, have linked a  favorable gas deal with Bulgaria's continued participation in  the big, Russian-backed energy projects.  We are urging bold,  individual moves -- nuclear diversification, interconnector  projects, a gas sector transparency initiative -- which,  added together, will represent greater diversification,  transparency and energy security for Bulgaria.      SUTTON  

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