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FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4757
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHINGTON DC PRIORITY

S E C R E T SECTION 01 OF 03 SOFIA 000089 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
C O R R E C T E D COPY (REFTEL CHANGED) 
 
E.O. 12958: DECL: 01/27/2032 
TAGS: PGOV PREL ENRG RS BU
SUBJECT: PUTIN'S BULGARIA VISIT:  FRICTION AND "FRIENDSHIP" 
 
REF: A. SOFIA 0048 
     ¶B. SOFIA 0067 
 
SOFIA 00000089  001.2 OF 003 
 
 
Classified By: Ambassador John Beyrle for reasons 1.4 (b) and (d). 
 
¶1.  (C)  Summary:  The whirlwind that was Russian President 
Putin's January 17-18 visit to Sofia ended up generating as 
much friction as friendship with the Bulgarians. 
Heavy-handed Russian pressure in securing the signing of the 
South Stream deal, plus seven other bilateral agreements, had 
Bulgarian officials gritting their teeth behind diplomatic 
smiles.  The visit was meant to kickstart the Year of Russia 
in Bulgaria, a "soft power" program replete with cultural 
events, as well as a year-long plan for further economic and 
political cooperation.  What the visit accomplished was a 
tightening of Russia's grip on the Bulgarian energy sector, 
and, in the case of South Stream, a perceived blow to Nabucco 
and regional and European energy security.  It was not an 
unalloyed success, either for Russia or Bulgaria.  Even 
before wheels up, the ruling socialists were on the defensive 
for signing the South Stream deal after repeatedly saying 
they were not ready to do so.  Opposition party and 
opinion-maker accusations that Bulgaria was being "Putinized" 
and turned into Russia's Trojan horse in the EU have clearly 
hit a nerve with top officials.  Leading GOB officials, the 
Prime Minister and Foreign Minister included, now appear more 
intent to prove Bulgaria's credentials as a dependable EU and 
NATO member.  They know they must prove themselves on energy 
security, Nabucco, and other critical issues in our bilateral 
relationship, which can give us additional leverage on key 
issues like Afghan deployments and energy deal follow-up in 
the months ahead.  End Summary. 
 
 
RUSSIA TIGHTENS ITS GRIP 
------------------------ 
 
¶2.  (C)  With the dust now pretty much settled after the 
January 17-18 visit of President Putin (and heir-apparent 
Medvedev), some clarity on what was -- and wasn't achieved -- 
has emerged.  Energy deals dominated the visit.  With the 
four signed energy agreements -- on South Stream, the 
Burgas-Alexandropolous Pipeline (BAP), Russian construction 
of the new Belene Nuclear Power Plant, and on nuclear fuel 
return -- Russia tightened its grip on the already dependent 
Bulgarian energy sector.  Despite Prime Minister Stanishev's 
and other government officials' public promises to protect 
Bulgaria's interests, the Bulgarians gave away some key 
redlines, especially during the negotiations for the largest 
and most controversial South Stream deal, which Russia 
actually wanted -- and needed - more.  Finalized in the early 
hours of Putin's departure day, the Bulgarians conceded key 
points prematurely and with not enough in return (Reftels). 
Already over 90 percent dependent on Russian energy, 
the Bulgarians put themselves on the "energy map" by allowing 
Russia a much larger footprint in the EU, renewing doubts 
over Nabucco, and paving the way for Serbia to give up 51 
percent of its oil company to Gazprom the following week. 
With the economics of South Stream questionable and its 
actual construction years off, its political ramifications 
loom far larger than its actual financial value. 
 
¶3.  (C)  The Belene deal is immediately and tangibly more 
significant for Bulgaria's energy sector.  AtomstroyExport 
(with French and German participation) won the tender in 
October 2006 to build the four billion euro project, which is 
designed to replace the shut down reactors at Kozloduy.  As 
such, Belene will eventually provide a direct boost to 
Bulgaria's energy production and electricity export capacity. 
Construction will inject huge sums into an economically 
distressed part of the country.  Already firmly in the 
driver's seat at Belene, Russia is looking to maximize its 
control of the mega-project.  In addition to signing the main 
contract for design, construction, and installation, Putin 
further announced Russia was prepared to offer up to 3.8 
billion euros in credit to finance construction of the plant. 
 Foreign Minister Ivailo Kalfin told the Ambassador January 
25 that the Russian offer came as a complete surprise, and if 
taken advantage of, would force the cancellation of a tender 
process to select a strategic investor for Belene.  (Note: 
Five European companies are in the running.)  Although 
Russian credit terms would likely be more attractive, Kalfin 
said it was more important to find a non-Russian strategic 
investor in a transparent tender process. 
 
 
SOFIA 00000089  002.2 OF 003 
 
 
IT'S NOT JUST ENERGY 
-------------------- 
 
¶4.  (S/NF)  Obscured by the focus on energy, the other 
agreements signed during Putin's visit focused on trade, 
education, culture, and tourism and highlighted Moscow's 
desire to build on its already strong presence in Bulgaria. 
The two sides signed a ferry service agreement between the 
ports of Varna and Kavkaz, Russia, and a memorandum on 
Military Aircraft repair.  In addition, President Parvanov 
stated that the issue of Russia's outstanding debt to 
Bulgaria (which is estimated between USD 19 and 38.5 million) 
would be resolved in the coming weeks.  MFA sources say 
Russia will repay its debt in spare parts and repair of 
Russian MiGs.  (Note:  Bulgaria's M-29 fleet is in sad shape; 
even once repaired, MOD has such limited fuel funds that 
pilots average less than 20 flight hours per year.) 
 
¶5.  (S/NF)  Also raised, but not decided, was the 
long-standing issue of licensing for small arms that are 
manufactured in Bulgaria, but over which Russia claims 
intellectual property rights.  Russia has demanded a prior 
written notice and a veto right over the shipment of these 
arms to certain countries (especially Georgia).  Essentially, 
the Russians conceded nothing, and the issue was shelved. 
Putin also left the Bulgarians empty-handed on the issue of 
the return of Bulgarian archives seized immediately after 
World War II.  Putin reportedly asked Bulgaria for a formal 
request for the return of these documents, brushing aside the 
fact that Bulgaria had done so years earlier.  Despite rumors 
of forward movement on this issue before Putin's arrival, the 
archives (military records, cabinet minutes and private 
papers of the Bulgarian royal family) did not deliver the 
Bulgarians an immediate, hoped-for success. 
 
GOVERNMENT ON THE DEFENSIVE 
--------------------------- 
 
¶6.  (C)  The lack of transparency over the energy deals, 
especially South Stream, had the GOB on the defensive even 
before Putin was wheels up.  The conservative opposition 
parties were the first to object, prompting PM Stanishev, FM 
Kalfin and Minister of Economy and Energy Petar Dimitrov to 
seek a statement from the coalition majority in Parliament in 
favor of the energy deals.  The session was rancorous and 
ended without a statement, although we expect that the South 
Stream deal will eventually be ratified.   Overall, media and 
opinion maker reaction to the visit, especially the energy 
deals, was a mixed bag.  While some media outlets welcomed 
Bulgaria's emergence as an "energy hub," many others, 
including some usually supportive of the government, accused 
the BSP of allowing the "putinization" of Bulgaria and 
asserted that Bulgaria was becoming the "Trojan horse of 
Russia's energy policy in the EU." 
 
¶7.  (C)  The sharp criticism of the energy deals and tepid 
support of BSP coalition partners clearly touched a nerve 
within BSP leadership.  With coordinated talking points, PM 
Stanishev and FM Kalfin, who are both otherwise supportive of 
greater diversification of energy supplies, have been trying 
(not entirely convincingly) to hide any evidence of buyer's 
remorse on South Stream and justify their actions (ref B). 
President Parvanov, who was widely criticized for calling 
the signing of the energy deals a "grand slam" for Bulgaria, 
later responded defensively to the Trojan horse accusation by 
saying "the EU is neither Troy nor under siege." 
 
COMMENT 
------- 
 
¶8.  (C)  One analyst summed up the visit by saying "Russia 
has given Bulgaria things that do not cost money.  In return, 
Bulgaria will have to give Russia for free things that cost a 
lot of money: Burgas-Alexandropolous, South Stream, inflated 
gas prices, and huge fees for the construction of the 
completely unnecessary Belene nuclear power plant."  Indeed, 
the Bulgarian portion of the energy deals alone represents at 
least USD 10 billion, or about 25 percent of estimated 2007 
GDP.  These deals, along with the cultural and other "soft 
power" agreements will, in Dimitry Medvedev's words, "link 
Bulgaria and Russia for decades."  And that was clearly a 
strategic aim of the visit, from a Kremlin sparing little 
effort to rebuild lost market share with a historic ally. 
 
¶9.  (C)  But Bulgaria, while still lacking self-confidence in 
dealing with Moscow, is also no longer the servile "little 
 
SOFIA 00000089  003.2 OF 003 
 
 
brother" the Russians remember.  The unexpectedly strong 
criticism of the optics of the visit and the substance of the 
energy deals -- both domestically and internationally -- have 
unsettled the government and left the socialist party in 
particular feeling exposed.  Upcoming debate in Parliament 
surrounding the ratification of South Stream will require the 
government to publicize the text of the agreement.  This will 
ensure continued opportunities to re-focus on Nabucco, 
question the commercial viability of South Stream, and 
spotlight the related gas/transit agreement signed in 2006 
with Gazprom, the terms of which have never been fully 
examined or explained here.  Beyond the energy sphere, the 
government's fear that it has tacked too far eastward should 
provide us with more leverage as we press for increased 
Bulgarian troop commitments in Afghanistan, and more concrete 
results from our joint counterproliferation and 
anti-trafficking programs.  Secretary Rice's visit here in 
April, and the Prime Minister's hoped-for visit to Washington 
at mid-year, will offer Bulgaria a chance to demonstrate -- 
to the United States and the EU, and to its own public -- 
that there is no change in Bulgaria's strategic transatlantic 
orientation.   END COMMENT. 
Beyrle