[06SOFIA1560] B-A OIL PIPELINE: SIGNS OF PROGRESS; BULGARIA AND GREECE SEEK CHEVRON PARTICIPATION

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C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 001560    SIPDIS    SIPDIS    E.O. 12958: DECL: 11/07/2016  TAGS: ECON, ENRG, PGOV, RU, BU  SUBJECT: B-A OIL PIPELINE: SIGNS OF PROGRESS; BULGARIA AND  GREECE SEEK CHEVRON PARTICIPATION    REF: SOFIA 1481    Classified By: AMB. JOHN BEYRLE FOR REASONS 1.4 B & D    1. (C) SUMMARY Greek and Bulgarian officials described to EUR  DAS Matt Bryza progress on the Burgas-Alexandropoulis (B-A)  oil pipeline during his November 3 visit to Sofia.  The Greek  consortium plans to transfer most of its shares to  international private sector participants, including Chevron,  and the Bulgarians will likely follow suit.  In addition, the  pipeline's legal headquarters will be in Luxembourg, which  creates a much more international project than the previous  perception of a solely Russian-controlled venture.  The  Bulgarians and Greeks eagerly seek Chevron's participation,  and the active involvement of the USG.    END SUMMARY    2. (C) EUR DAS Matt Bryza and Ambassador Beyrle met in Sofia  on November 3 with President Parvanov, PM Stanishev, Minister  of Economy and Energy Ovcharov, Minister of Regional  Development Gagauzov, Greek Minister of Economic Development  Sioufas and Turkish Minister of Energy Guler, to discuss  regional energy issues, including the Burgas-Alexandropoulis  oil pipeline.    B-A MOVING AHEAD WITH PRIVATE PARTNERS  --------------------------------------  3. (C) The B-A pipeline is making progress in key areas,  despite the lack of an overall political agreement between  the three parties - Russia, Greece and Bulgaria.  Greek  Minister of Economic Development (including energy) Sioufas  who was coincidentally in Sofia, was keen to tell Bryza that  the pipeline will be an international one, not Russian, whose  legal headquarters will be in Luxembourg and therefore  subject to EU law and regulation.  Sioufas also described  forward motion on the Greek consortium for B-A, where private  companies will assume the majority of the Greek share of the  three-country project, which means private funding as well as  additional expertise and pressure on politicians to make it  happen.  Bulgaria will likely follow the Greek model and  apportion equal shares to private companies Chevron and  TNK-BP, and Kazakhstani state oil company Kazmunaigaz.  Since  the Bulgarian public is sensitive to foreign ownership, the  Greek model could give the GOB cover, said Gagauzov.  The  three countries plan to establish the international project  company by the end of the year.    4. (C) President Parvanov confirmed that in the September 4  meeting in Athens, President Putin had explicitly endorsed  "broad participation" in the B-A project, which all present  clearly understood as a green light for foreign players like  Chevron or TNK-BP to take part in the deal on the Greek and  Bulgarian sides.  Sioufas suggested Bulgaria should engage in  separate talks with Chevron, TNK-BP and  Kazmunaigaz - something Bulgaria is anxious to do.  Bulgarian  Minister of Regional Development Gagauzov requested USG help  in setting up a meeting for the GOB with Chevron's London and  Moscow teams.  Sioufas was eager for Bryza and Beyrle to  convey to Chevron the progress to date and Greece's  willingness to work out specifics.  President Parvanov called  for increased U.S. presence in the B-A project, saying that  without U.S. government intervention and support, the project  will suffer more delays.  Bryza stressed that private  companies must take the lead in determining the commercial  viability of the project, but offered to cooperate with both  Chevron and the GOB to help the parties advance their own  discussions.    5. (C) Russia,s desire for its state oil pipeline monopoly,  Transneft, to operate the pipeline raised concerns among the  Greek and Bulgarian officials.  Bryza asked how Greece and  Bulgaria planned to protect their national interests if  Russian state-owned oil companies acquire majority ownership  shares of the project and Transneft becomes the pipeline  operator.  Sioufas replied that Greece and Bulgaria would  insist that companies from their countries be sub-contractors  and that minority rights be guaranteed, and that  international oil companies (like Chevron) provide the oil  throughput required to secure financing.   Sioufas also said  Bulgarian and Greek companies might be co-operators of the  pipeline, along with Transneft.  Bulgarian officials  indicated that the GOB will ensure its rights are protected  by setting up international partners for the Universal  Terminal Burgas (UTB), while maintaining some GOB and  ownership of the terminal, said Gagauzov, whose ministry is  officially in charge of Bulgaria's pipeline activities.  Bryza picked up on this international theme and described B-A  as a potential example of Western companies, NATO and EU  member states, and Russia working together on a major energy  project, provided that Bulgaria and Greece structured the    SOFIA 00001560  002.3 OF 002      deal appropriately.    6. (C) PM Stanishev relayed his frustration that regional  energy projects took so long to develop.  He pointed to the  ten-year AMBO discussions which have led nowhere, but felt  both AMBO and the Belene nuclear project must be pursued in  order to keep options open for Bulgaria's overall energy  security.  He also mentioned that Bulgaria wanted to maintain  control over the UTB (pumping station) in order to  provide flexibility to build a second oil pipeline in the  future and to keep some control in their own hands.  Ambassador Beyrle stressed that these hands need to be  transparent ones.  Bulgaria will seek funding from the World  Bank and others for the UTB.    TURKEY LOOKING FOR U.S. SUPPORT FOR SAMSUN-CEYAN  --------------------------------------------- ---  7. (C) Guler made a strong pitch for U.S. involvement on the  Samsun-Ceyan (S-C) oil pipeline, which would compete with  Burgas-Alexandroupolis for the next major increment of  Caspian oil that will be shipped around the Turkish Straits.  At one point, Guler asked Bryza directly if the U.S.  "affirmatively supported" S-C.  He described the pros of the  route as having no environmental concerns, unlike the B-A  route, and the existence of a harbor in Ceyan vs. the lack of  harbors or loading/unloading facilities in Burgas and  Alexandropoulis.  Guler questioned whether it would be  feasible for the USG to "sponsor" both pipelines, and clearly  pressed Bryza in favor of S-C, pointing to Turkish experience  with BTC.  Bryza reiterated what he has told Guler many times  in the past, namely, that the U.S. believes commercial  considerations will determine whether B-A or S-C is built  first, that the U.S. wishes the GOT and other developers of  S-C success in proving the project's commercial viability,  and that eventually, there might be sufficient Caspian oil  available to realize both projects.    AMBO  ----  8. (C) Some GOB officials feel the AMBO project (Burgas to  Vlore, Albania via Macedonia) is a step ahead of B-A in  organizational planning, with routes mapped out and a  fund-raising plan.  But the GOB does not  see any chances of immediate progress without attention from  the big oil companies that can provide the throughput  required to secure financing.  Gagauzov, whose ministry  supports both B-A and AMBO, does not feel it is feasible to  have both pipelines starting at the same time, but thinks  they could co-exist in the future.    BELENE  ------  9. (C) Bulgaria decided to go with the Russian  Atomstroyexport bid, PM Stanishev said, because their  design is newer, which he equated with being more secure.  Stanishev also pointed to "great interest" from France on the  Framatome (Siemens/Areva) Instrumentation and Control portion  of the Russian bid, and stressed the need for German and  French support for EU licensing reasons.  He also mentioned  Russian pressure "behind the scenes."  When Amb. Beyrle  pitched Westinghouse's proven track record and better prices,  the PM said the GOB was considering how to combine the two  competing bids, and said Minister Ovcharov was trying to  include as many partners as possible.  Stanishev was aware of  Westinghouse's good works at Kozloduy Nuclear Power Plant.  In a nod to the controversy swirling around Bulgaria's  agreement to close four of six reactors at Kozloduy in order  to enter the EU, Parvanov noted that Bulgaria makes up for  around 50 percent of the electricity shortage in the region,  but will only have enough for its own use once Kozloduy units  3 and 4 are closed on December 31.    COMMENT  -------  10. (C) It is clear that Bulgaria and Greece, separately and  together, are trying to come up with practical solutions to  make the B-A pipeline work.  We take it as a step toward  commercial viability that the Bulgarian and Greek Governments  are now planning to sell their shares in B-A to private  investors, and to ensure that the venture will be subject to  European laws and regulations.  Now might be a good time for  Chevron to reach out to the Governments of Bulgaria and  Greece, and for the USG - in Washington, Brussels and the  three capitals - to prepare for active diplomacy aimed at  aligning our  geo-political interests with commercial realities.    This cable was cleared with DAS Bryza.  BEYRLE