Published by Wikileaks & Bivol.bg 
 id: 192407 date: 2/17/2009 14:14 refid: 09SOFIA69 origin: Embassy Sofia classification: CONFIDENTIAL destination: 08SOFIA815 header: VZCZCXRO4314 PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSR DE RUEHSF #0069/01 0481414 ZNY CCCCC ZZH P 171414Z FEB 09 FM AMEMBASSY SOFIA TO RUEHC/SECSTATE WASHDC PRIORITY 5772 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY RUEHBS/USEU BRUSSELS PRIORITY RUEAIIA/CIA WASHINGTON DC PRIORITY RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY   C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000069    SIPDIS    PASS TO EUR/CE TOM YEAGER    E.O. 12958: DECL: 02/17/2019  TAGS: ENRG, PGOV, PREL, BU  SUBJECT: BULGARIA'S BELENE NUCLEAR POWER PLANT - BUYERS  REMORSE ON ALL SIDES EXCEPT RUSSIA'S   REF: 08 SOFIA 0815    Classified By: Amb. Nancy McEldowney for reasons 1.4 (b) and (d).    1. (C)  Summary: Despite its status as Bulgaria's highest priority energy project, the Belene Nuclear Power Plant (NPP) is foundering.  Marred by cost over-runs, financing problems, infighting between strategic partners, rumors of corruption, and serious delays, the project is looking increasingly like a lemon.  The relationship between the government and the project's strategic investor, the German RWE, is one of mutual buyer's remorse.  But with 700 million euros in sunk costs, in addition to priceless political capital already invested, the government is unlikely to walk away from the project.  End Summary.    2. (C) When Bulgarians talk about the Belene nuclear power plant, they increasingly do so in hushed tones.  Issues of delays, financing woes, non-transparent horse-trading and side deals, Russian influence, middle-man rent seeking, and the interests of well-connected politicians and energy oligarchs inevitably come up.  Belene's construction offered the perfect chance for Bulgaria to decrease its independence on Russian energy sources.  But the Stanishev-led government, indebted to Russia-connected energy oligarchs, let the  opportunity slip away.  In 2006, Bulgaria chose Russian company AtomStroyExport over a Skoda-led consortium as Belene NPP's main contractor.  The tender was managed by former Minister of Economy and Energy Rumen Ovcharov, a pro-Russia energy maestro, who left office (but not political life) in June 2007 after an energy-related corruption scandal.  The Belene deal lacked transparency and reeked of side deals involving the proposed South Stream gas pipeline and the long-term gas transit contract Ovcharov was negotiating with  Gazprom at the same time.    -------------------------------  ONE OLD PROJECT GETS A NEW LIFE  -------------------------------    3.  (C) Belene was originally started in the 1980s, but was  abandoned in the early 1990s due to lack of funds.  In 2005,  to make up for the European Commission's decision to close  Bulgaria's Kozluduy NPP reactors 1-4, the Bulgarian  government approved the construction of a new 2000 MWe plant  at Belene.  (Note:  Kozluduy units 1 and 2 were shut down due  to safety concerns in 2003, while units 3 and 4 were taken  off-line at the end of 2006, on the eve of Bulgaria's EU  accession.)  The Bulgarian National Electric Company (NEC)  hired WorleyParsons as the strategic architect engineer for  the financing and construction of the plant in 2005.  Belene,s two units (1 and 2) will be of the Russian A-92  design (third generation) with pressurized water reactor  (PWR), each producing 1000 MW electric power.  The main  contractor of the project, AtomStroyExport, is working with  the main foreign contractor CARSIB Consortium (Areva and  Siemens).  In December 2008 NEC and RWE (Germany) signed a  strategic investor agreement for the project with NEC  controlling 51 percent and RWE with 49 percent.    4.  (C)  Bulgarian company participation in the Belene  project is approximately 30 percent.  (Note:  Risk  Engineering is one Bulgarian-owned company involved in  Belene.  It is owned by notorious Bulgarian energy oligarch  Bogomil Manchev, the "godfather" of the Bulgarian nuclear  sector.  He has an ownership stake in 10 different firms and  is the sub-agent for hundreds of other firms).  The French  bank PNB Paribus financed the pre-construction loan of 250  million Euros.  Currently, teams are preparing the site for  new construction by tearing down old infrastructure from the  1980s.  The plant's construction is expected to begin in late  2009 or early 2010.  Construction will be in two stages.  Unit 1 was originally planned to come on-line in 2014-2015  followed by Unit 2 in 2015-2016, according to the Belene NPP  Managing Director, Jordan Georgiev.  These time frames are  now widely in doubt.    ---------------  BUYER'S REMORSE  ---------------    5.  (C)  Despite its due diligence, our contacts tell us Belene,s strategic investor, RWE, is now experiencing regret about its purchase.  According to XXXXXXXXXXXX, RWE    SOFIA 00000069  002 OF 002    worries about the project's lack of transparency and the need  to work with AtomStroyExport.  RWE wants to enforce European  business practices, and is now demanding to review all  Belene-related agreements.  RWE is reportedly negotiating  with Belgium's Electrabel to join it as a subcontractor  (likely to be announced in mid-March) to help re-inforce  standard European business practices.  RWE's insistence on  reviewing all agreements is causing Bulgaria heartburn.  Delays of 3-5 years have already been announced, and Belene  is not expected to come on-line until 2016-2017.  According  to XXXXXXXXXXXX, RWE realizes that working with Russian and  Bulgarian companies in the energy sector is a "poisonous  combination" for European investment.  Transparency is  affecting financing.  RWE (and Electrabel) want European  banks to finance their half of the project, hoping EU  restrictions and western lending standards would help with  transparency.  However, with the current global financial  crisis, they believe finding a European bank will be  difficult and may reluctantly have to turn to Russia for the  money.    6.  (C)  The Bulgarians are also experiencing buyer's  remorse.  Despite Russia's offer to extend a loan of about  four billion Euros for the project, rumors abound that the  Russians do not have the money to finance the project and the  Bulgarians have been reluctant to take the money in any  event, for fear of being seen as "too close" to the Russians.   For their part, the Bulgarians at Belene are chafing at  RWE,s close scrutiny of all decisions and complain that this  approach is needlessly slowing the project.  Our contacts say  that some Bulgarian officials are beginning to admit  privately that in Belene, they have bought "a lemon."  NEC  has sunk approximately 700 million euros into the project,  while the Russians are not out of pocket and could walk away  losing nothing.  Meanwhile, cost estimates for Belene  continue to creep up, running as high as eight billion euros,  double the original price.    ------------------------------  BELENE VS KOZLUDUY UNITS 7 & 8  ------------------------------    7.  (C)  The rumors of trouble at Belene have resurrected the  idea of a competing project at Bulgaria's only working  nuclear power plant, Kozluduy. Bulgarian Minister of Energy  and Economy Petar Dimitrov has been actively and publicly  courting Westinghouse to invest in a project to build two new  reactors at Kozluduy -- units 7 and 8.  Contacts say that the  existing infrastructure, powerlines connecting Kozluduy to  the national power grid, and a highly-skilled workforce close  by at currently-operating Kozludy 5 and 6 give Kozluduy 7 and  8 at least a one billion euro cost edge over Belene.  Westinghouse officials are cautiously interested, but only if  the Belene project is abandoned and Bulgarian government  financial support is put into Kozluduy.  They want to avoid  being used simply to create a new sense of urgency to  jump-start Belene.    8.  (C)  Comment:  There is clearly something amiss at  Belene.  Asked whether the project was in jeopardy, a senior  WorleyParsons official privately told us that while the  project was still likely to go forward, "countries walk away  from deals like this all the time."  With elections on the  horizon and 700 million euros in sunk costs, in addition to  priceless political capital already invested, the government  is unlikely to abandon the project any time soon.  But it may  be on a very slow track.    McEldowney    

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