VZCZCXRO4800
OO RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSR
DE RUEHSF #0015/01 0121511
ZNY CCCCC ZZH
O 121511Z JAN 09
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5689
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000015 
 
SIPDIS 
 
E.O. 12958: DECL: 01/11/2019 
TAGS: ENRG ECON PREL PGOV BU
SUBJECT: BULGARIA:  DIGGING OUT OF THE ENERGY HOLE 
 
REF: SOFIA 0010 AND PREVIOUS 
 
Classified By: Ambassador Nancy McEldowney for reasons 1.4 (b) and (d). 
 
 ¶1.  (C)  Summary:  The total gas cut-off, now in its seventh 
day, has exposed the vulnerabilities and short-sightedness of 
Bulgaria's Russia-centric energy policy.  Nearly 100 percent 
dependent on Russia for its gas, oil and nuclear fuel, 
Bulgaria is clearly under Moscow's thumb.  We are urging 
senior government officials to seize this crisis as an 
opportunity to dig the country out of its energy hole.  Our 
message is four-part:  increase transparency; eliminate 
intermediaries; boost diversity of supply; and make Bulgaria 
a renewables and efficiency powerhouse.  End Summary. 
 
¶2.  (C)  Exactly one year ago in Sofia, President Parvanov 
and President Putin kicked off "The Year of Russia in 
Bulgaria," sealing the two countries' energy partnership with 
the signing of a "grand slam" of big-ticket energy deals 
including South Stream, Burgas-Alexandroupolis, and the 
Belene Nuclear Plant.  At the time, the Socialist-led 
government never believed Russia would turn off the spigot. 
What a difference a year makes.  We are urging the 
Bulgarians, both senior officials and private advisers, to 
seize the opportunity offered by the Russia-Ukraine gas 
dispute to get out from under Russian energy dominance. 
Russian interests and the rent-seekers who feed on 
Moscow-linked energy deals will resist, but a window of 
opportunity has opened. 
 
¶3.  (C)  Our message is four-part: 
 
Transparency:  The Bulgarian energy sector is a murky morass 
of Russian-connected insiders and parasitic rent-seekers. 
Shining a light on the players and deals will allow the 
government and public to make market-based deals that are in 
the public interest.  At our invitation, on January 14 the 
Extractive Industries Transparency Initiative will brief 
Bulgarian Energy Holding Officials and NGOs on ways to bring 
transparency to this sector.  We are also urging transparency 
in the ultra-secret contracts Bulgaria has with Gazprom and 
its intermediaries as well as clarity in public procurements 
for large energy projects such as the Belene Nuclear Power 
Plant. 
 
Intermediaries:  Gazprom has so far insisted on using 
Gazprom-owned or affiliated intermediaries to sell gas to 
Bulgaria.  They take a cut of the action, increasing consumer 
prices and creating tax headaches for Bulgargaz.  They also 
protect Gazprom in the event of a cut-off, as the Bulgarians 
have come to realize over the past week.  We are urging the 
elimination of these unnecessary intermediaries as Bulgargaz 
begins negotiations for a new long-term gas supply contract 
to replace current supply contracts that are set to expire in 
2010 and 2012. 
 
Diversification:  While the Stanishev Government still 
supports South Stream, the gas cut-off has reinvigorated 
Bulgarian efforts to diversify away from Russian energy 
sources.  We are urging Bulgaria to think big.  They will 
continue to support Nabucco, pursue a hook-up to the 
Turkey-Greece-Italy interconnector, a hook-up to the Romanian 
gas transmission network, an LNG terminal in the Aegean, and 
an expansion of the Chirin gas storage facility.  Others are 
talking about construction of a new, mid-sized oil refinery 
to compete with Lukoil's Neftochim refinery and a new oil 
storage facility.  We will urge U.S. company involvement as 
well as U.S. technical assistance through USTDA and other USG 
entities. 
 
Renewables and Efficiency:  The gas cut-off is a wake-up call 
for Bulgaria to rely on indigenous, renewable resources 
including wind, hydro and solar.  We are encouraging Bulgaria 
to double currently-offered incentives to develop and use 
renewable energy.  Bulgaria remains the least 
energy-efficient economy in the EU.  We are urging the 
government to put in place new incentives to make soviet-era 
heavy industry and large apartment blocks more energy 
efficient. 
 
 
¶4.  (C)  Comment:   Our message is simple:  the gas crisis 
has given the government the opportunity -- and a brief 
window -- to discuss and implement projects and ideas that 
were impossible only a month ago.  We are pushing them to 
bring real change to the way Bulgaria does energy.  If the 
government comes up with the goods - an innovative strategy 
backed up by political support and financial resources - the 
potential benefits are profound. 
McEldowney