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RR RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSF #0190/01 0341158
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R 031158Z FEB 06
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC 1389
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 04 SOFIA 000190 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: DECL: 02/01/2016 
TAGS: ENRG ECON ETRD TRGY EINV EPET PREL SENV RU BU
SUBJECT: BELENE NUCLEAR PLANT: KEY TO DIVERSIFICATION, 
PIECE OF THE RUSSIAN (ENERGY) EMPIRE OR ALBATROSS? 
 
REF: 05 SOFIA 2063 
 
Classified By: Amb. John Beyrle for reason 1.4 (b) 
 
¶1.  (C) SUMMARY:  The EU requirement that Bulgaria close 
Kozloduy Nuclear reactors 3 and 4 by the end of the year as 
part of the accession process, combined with increased 
international gas and oil prices and pressure by Russia's 
Gazprom to renegotiate gas delivery contracts, has focused 
the GOB again on building a new nuclear plant at Belene. 
February 1 marked the closing of the bid submission process 
and the beginning of a five month review and negotiation 
period before the GOB decides which of two international 
consortia will build the plant - 2,000 MWe from two units. 
 
¶2.  (C) Bulgaria is faced with tough choices on its energy 
future in order to diversify its sources.  Belene nuclear 
plant is perhaps the most interesting and risky option. Both 
the Russian and Czech led bidders will incorporate 
international partners into key construction and supply 
areas, using Russian light-water reactor technology. 
However, it appears both groups are at least partially-owned 
by Gazprom ) which has been squeezing Bulgaria on gas 
contracts (reftel).  Outstanding questions of cost, 
financing, the role of Russian and other international 
players, the prices of alternative sources of energy, 
environmental concerns, and the actual need for Belene, will 
determine whether this weighty project gets off the ground. 
END SUMMARY. 
 
IS THERE A NEED FOR BELENE? 
--------------------------- 
 
¶3.  (U) Under the EU Accession process, Bulgaria has already 
closed Kozloduy units 1 and 2, and will close 3 and 4 by the 
end of 2006.  (All four have 1970's vintage VVER-440 
reactors.  The remaining operational units, 5 and 6 are 
VVER-1000's.)  The Bulgarian energy community estimates that 
between 2010 and 2015 Bulgaria will need an additional 1,000 
to 2,000 MWe in order to replace this lost nuclear capacity, 
maintain energy independence, continue to export electricity, 
meet international environmental standards and satisfy 
anticipated higher domestic electricity consumption. In 
remarks on January 27, Minister of Economy and Energy Rumen 
Ovcharov told parliament that due to its closure of Kozloduy, 
Bulgaria has in effect become the only country to pay for EU 
membership before joining. 
 
¶4.  (U) Bulgaria currently relies on foreign fuel supplies 
for 87.1 percent of its energy consumption.  Virtually all of 
Bulgaria's natural gas (88.3 percent) and oil (73 percent) 
come from Russia, as does all of its nuclear fuel. In fact, 
with the exception of the coal-fired thermal plants at 
Maritza East, all electricity generation is based on Russian 
sources ) even the coal-fired plant on the Black Sea in 
Varna relies on specially-processed Russian coal. 
 
¶5.  (U) Despite this over-reliance on Russia, some experts 
have raised concerns about various aspects of the Belene 
project, including whether Bulgaria really needs additional 
nuclear capacity.  Scientists from the Bulgarian Academy of 
Science said the government overestimates future domestic 
electricity demand and discounts increased energy efficiency. 
 They estimate in-country consumption to be less than 44,000 
million kWh in 2010 vice the 63,000 million kWh estimated by 
the government.  In-country electricity consumption has been 
declining in recent years, falling to 36,000 million kWh in 
2004, according to official statistics. 
 
¶6.  (C) In addition, private economists and the IMF 
representative have told us they question whether the GOB 
should put state resources into such a costly project when 
they are trying to privatize much of the energy sector and 
preparing to be more competitive with European companies in a 
deregulated market. 
 
OWNERSHIP STRUCTURE: OPTIONS GALORE, DECISIONS PENDING 
--------------------------------------------- --------- 
 
¶7.  (C) The GOB hired Deloitte&Touche to coordinate the 
financial aspect of the project.  Deloitte&Touche estimates 
that construction will cost between 2-4 billion euros and 
would require at least 60 percent foreign financing.  The 
Belene project falls squarely between two contradictory 
government policies: On one hand, the government hopes to 
minimize its financial involvement in order to honor its 
agreement on a budget surplus with the IMF.  On the other 
 
SOFIA 00000190  002 OF 004 
 
 
hand, the government would like to retain control.  Minister 
Ovcharov told Amb. Beyrle recently the GOB is weighing three 
options for ownership structure: Majority government 
ownership, minority government ownership, and private 
ownership.  Ovcharov said the GOB seeks a balance between 
various international partners, but wants to keep a key role 
for the state.  He said a decision on ownership should come 
within a month. 
 
¶8.  (C) A representative of Parsons, advisor to the GOB for 
Belene, has suggested the GOB establish a joint national 
nuclear company, consisting of Kozloduy Units 5 and 6 and 
Belene, to enable project finance options.  However, XXXXXXXXXXXX, have told us Kozloduy carries 400 Million euros in debt to RosExim Bank (Russia), EXIM, Citibank and EuroAtom, which would not help Belene nor attract needed private financiers.  Others feel 
this approach would result in a non-transparent transfer of 
state assets.  Ovcharov is also discussing the possibility of 
a "super electric company" consisting of Belene, Kozloduy and 
the Maritza East plants, which would compete with European 
companies. 
 
¶9.  (U) Other critics argue that Belene may well result in the most expensive electricity in Bulgaria.  The financial consultant calculated that an electricity price of between 3.2-3.7 euro cents per kWh would be necessary to attract the interest of international financial institutions earning a rate of return of 11-14 percent.  Currently the most 
expensive electricity in Bulgaria -- 2.48 euro cents per kWh -- is being generated by the thermal power plant Bobovdol, while Kozloduy electricity costs 0.76 euro cents per kWh. 
 
TECHNICAL AND TENDER DETAILS 
---------------------------- 
 
¶10.  (U) Discussion of a second nuclear power plant in 
Bulgaria started as far back as the early seventies. 
Construction work on Belene Unit 1 began in 1987, based on 
the design of the pressurized water reactor in Kozloduy Units 
5 and 6 -- VVER-1000 (B-320).  Work was suspended in 1990 due 
to lack of funds and environmental concerns.  The GOB 
estimates that about 40 percent of Unit 1 is completed, 
including major civil works and equipment installation worth 
about USD 660 million, but skeptics wonder whether this 
nearly twenty year-old infrastructure will require extensive 
refurbishing. 
 
¶11.  (U)  The Council of Ministers decided in April 2005 to 
proceed anew with light water reactors that would allow use 
of the existing infrastructure.  The government's preference 
for a pressurized light water reactor eliminated one of the 
potential bidders led by the Canadian AECL, which offered to 
build two &CANDU 68 units.  The government has hired US/UK 
Parsons E&C Europe as architect-engineer to assist in 
preparing the bidding procedure, evaluate bids, negotiate 
contracts, and provide general management service during the 
entire project execution.  In return, Parsons will receive 
almost 17 million euros.  Parsons advised the GOB to either 
upgrade the existing VVER 1000 MWe (B-320) on the Unit 1 site 
and install VVER 1000 MWe (B-466) on the Unit 2 site, or 
build VVER 1000 MWe (B-466) on each of the two Units. 
 
¶12.  (U)  The Bulgarian government selected a combination of 
turnkey and split package (island) contracting approach. 
While the tender explicitly organized the construction work 
into two separate contracting bids for design and 
construction of the reactor (Nuclear Island) and turbine 
(Turbine Island), the Nuclear Island contractor will be 
responsible for the general coordination and implementation 
of the project. 
 
¶13.  (C)  Two groups submitted bids by the February 1 
deadline:  a consortium of the Russian Atomstroyexport and 
French/German Framatom, and the Czech Skoda group.  While 
both consortia are ready to complete the existing type of 
reactor, the Russians have expressed interest in installing a 
second more advanced (VVER 1000 (B-466)) reactor on the Unit 
2 site.  Skoda has partnered with Westinghouse for completion 
of the existing reactor VVER 1000 MWe (B-320) using the same 
technology as in the Czech Temelin plant.  Parsons told us 
they are not happy with the French proposal for the 
Instrumentation and Control solution, and would prefer 
Westinghouse I&C equipment that successfully upgraded 
Kozloduy reactors 5 and 6. 
 
¶14.  (U)  While the GOB decides on an ownership and financial 
 
SOFIA 00000190  003 OF 004 
 
 
structure, Parsons will lead a technical review and 
negotiations with the two consortia, which will last until 
July.  At that time, a decision is expected on who will build 
the plant.  The project should be completed within 120 months 
after the contract is signed with the first unit to be 
commissioned in 2010-11. 
 
RUSSIAN/INTERNATIONAL ANGLE 
--------------------------- 
 
¶15.  (C)  Ovcharov told us the GOB wants to find a way to 
balance the interests of all international players, meaning 
that members of both consortia would have discrete projects. 
However, an official within the ministry said that, while the 
project is big enough to include roles for all, this could be 
its downfall as well.  Former Minister of Economy and Energy 
Milko Kovachev asserted that the fact that the plant uses 
Russian light-water technology does not signify a threat to 
Bulgaria and that a Russian-led consortium could be selected 
to build the plant.  The risk, he said, is if the GOB opens 
ownership to the private sector and Russian-led groups were 
to win a controlling share. 
 
¶16.  (C)  XXXXXXXXXXXX  told us she researched Skoda 
and Atomstroyexport and found links in both to Gazprom 
through Gazprom Bank.  Gazprom Bank apparently owns a part of 
Atomstroyexport, and recently purchased a large share in the 
Russian company OMZ, which in turn owns a majority of Skoda. 
A Ministry of Energy Director confirmed to us this 
information, but said that Gazprom has not officially claimed 
they own OMZ.  In any case, that would not affect the bidding 
process.  XXXXXXXXXXXX told us the concern would come only 
if OMZ adversely influenced Skoda's desire to seek nuclear 
supply from Westinghouse ) thereby keeping Russia in control 
of nuclear fuel supply.  Skoda told XXXXXXXXXXXX that 
Russian ownership does not mean control over policy.  Another 
concern is that AtomstroyExport and Skoda could collude on 
the bids, which could harm potential investors and/or 
Bulgarian taxpayers and consumers who would not enjoy the 
benefits of a transparent, competitive bidding process. 
 
BULGARIAN HOPES -- AND FEARS 
---------------------------- 
 
¶17.  (C)  Public opinion polls indicate strong regional 
support for nuclear power and completion of Belene, according 
to XXXXXXXXXXXX. 
XXXXXXXXXXXX told us that implementation of the project will 
result in a significant decrease in unemployment in 
Bulgaria's depressed north-central region.  Belene will also 
satisfy international environmental standards and meet the 
country's commitments to reduce air emissions, according to 
the GOB. 
 
¶18.  (U)  However, a local environmental organization, 
Ecoglasnost, supported by Greenpeace, has tried to stop the 
project.  Environmentalists claim the GOB revived the project 
without fully evaluating the radioactive waste threat for 
Bulgaria.  The completion of Belene would entail the 
expansion of the nuclear waste storage facility in Novi Han, 
which could negatively affect its population, according to 
Ecoglasnost, Greenpeace has also criticized the location of 
the site on a seismically active area, and complained that 
Bulgaria ) as one of the least energy-efficient countries in 
Europe ) needs to focus on improving its existing 
infrastructure. 
 
COMMENT 
------- 
 
¶19.  (C)  Belene, if structured properly with full 
international participation and ownership, could diversify 
Bulgaria's energy independence and continue Bulgaria's 
success as an electricity exporter.  However, if Gazprom 
becomes a majority owner, using Russian technology and fuel, 
Bulgaria would be even more beholden to one energy source 
than before.  In both candid private conversations with us 
and in more nuanced public statements, the President and 
Prime Minster have made clear that Bulgaria's strategic 
interests lie in greater diversity of energy sources.  There 
is no doubt that Belene, Gazprom and the proposed 
Burgas-Alexandropolous oil pipeline are all inter-connected. 
Ovcharov has said Bulgaria will agree to re-negotiate gas 
transit fees if Russia invests strongly in Bulgaria.  Since 
two of the only major projects for potential large Russian 
investments right now are B-A pipeline and Belene, it is 
possible that Ovcharov is laying the groundwork with the 
 
SOFIA 00000190  004 OF 004 
 
 
Bulgarian public for a deal with Russia. 
 
¶20.  (C)  It is clear that Bulgaria is at a crucial stage in 
deciding how to ensure its own energy independence and the 
demands of its growing economy - a message we deliver 
repeatedly at the highest levels.  President Purvanov, PM 
Stanishev and Ovcharov seem to understand the stakes. 
Bulgaria's economic, and to some extent political, 
independence depends on how effectively they deal with 
Russia's supply monopoly in the short term, while building 
greater source diversity for the future.  A separate 
forthcoming cable will examine this dilemma with a focus on 
oil and gas. 
Beyrle