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DE RUEHSF #0270/01 1561317
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O 051317Z JUN 09
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6043
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

UNCLAS SECTION 01 OF 02 SOFIA 000270 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG ECON PREL PGOV BU
SUBJECT: BRINGING TRANSPARENCY TO EURASIAN GAS TRANSIT 
 
¶1.  (SBU)  Summary:  The Eurasian gas transit sector is 
notoriously murky, with poorly-understood, Gazprom-owned and 
affiliated intermediaries managing operations, taking cuts, 
and complicating or preventing legal recourse during gas 
supply interruptions.  For most countries in the region, 
bringing even a modicum of transparency to this sector has 
been an illusive goal.  Bulgaria is about to try.  Victim of 
the two week gas cut-off in January and tired of 
Gazprom-connected rent seekers dominating its gas industry, 
Bulgaria is working on a first-of-its kind gas transparency 
initiative through an innovative partnership with the World 
Bank and the Extractive Industries Transparency Initiative 
(EITI).  The plan will use a simple, EITI-like template to 
record and reconcile payments and revenues related to gas 
import and transit.  While Bulgaria's ulterior motive for the 
project is to eventually rid the country of entrenched gas 
intermediaries, positive side effects of the project will 
include new transparency in gas supply and transit contracts, 
understanding of the role of transit revenues in the state 
budget, and a new-found voice for civil society in this key 
sector.  If successful, the World Bank believes the plan 
could be replicated throughout the region and anywhere else 
gas transit transparency needs a boost.  End Summary. 
 
¶2.  (SBU)  As in most countries in the region, Bulgaria's gas 
transit sector is notoriously opaque.  It was only after 
Bulgaria fell victim to a two-week gas dispute between Russia 
and Ukraine in January that most Bulgarians -- high level 
officials and average citizens alike -- found out that the 
country had no direct gas supply or transit contracts (and 
therefore no recourse) with Gazprom, only with shady 
Gazprom-owned or connected intermediaries.  Rebuffed by the 
Kremlin and Gazprom on compensation for the cut-off and 
so-far left empty handed in its attempt to eliminate two of 
three intermediaries in the market, the Bulgarian Energy 
Holding is looking for other avenues to bring greater 
transparency, certainty and security in the gas transit 
sector. 
 
¶3.  (SBU)  It was against this backdrop that Embassy Sofia 
urged Bulgaria to open a dialog with EITI and other 
transparency organizations to develop an EITI-like model for 
the gas sector.  Launched in 2002 as a sister-organization to 
Transparency International, EITI is a multi-stakeholder 
initiative that promotes transparency in the extractive (oil, 
gas, mining) sectors by publishing and verifying government 
revenues obtained through these industries.  While the 
initiative is government-led, private sector and civil 
society play significant roles in the initiative's 
implementation.  EITI has never before dealt with hydrocarbon 
transit, but the organization is interested in determining 
whether an EITI-like model could be useful for gas transit 
countries interested in bringing greater transparency to the 
sector. 
 
¶4.  (SBU) In late January, the EITI Head of Secretariat met 
with the CEOs of the Bulgarian Energy Holding and Bulgargaz 
and representatives of several local NGOs to determine if the 
idea was doable.  He left enthusiastic.  Since the EITI model 
is currently designed to apply only to the extractive 
industries, in mid-April EITI brought in the World Bank to 
conduct a scoping mission for this transit project.  On April 
24, the Chair of EITI and founder of Transparency 
International Peter Eigen announced the idea of this pilot 
project at a business forum connected to the Sofia Energy 
Summit.  Next, the World Bank and the Bulgarian Energy 
Holding, with EITI mentoring and advice, will form a 
technical working group made up of relevant stakeholders, 
including the gas intermediaries (who will need to be 
convinced, cajoled and compelled) to design a simple, 
appropriate reporting template that will form the basis of 
the project.  Once this is done, the plan can be put into 
action. 
 
¶5. (SBU)  Comment:  The success of this first-of-its-kind 
initiative is not assured.  Continued political will, 
intermediary cooperation, and EITI board of directors support 
to allow it to expand into new geographic and thematic 
territory are all necessary.  But if the Bulgarian project 
succeeds, the impact would be dramatic and far-reaching.  The 
World Bank believes the model could be applied to gas transit 
countries throughout the region and beyond.  The Swedish 
Ambassador to Bulgaria is interested in promoting the idea 
during Sweden's "transparency-focused" EU Presidency.  NGOs 
in Georgia, Ukraine, Kazakstan and Azerbaijan, supported by 
Revenue Watch and the Open Society Foundation, have already 
called for the introduction of an EITI-like gas transparency 
model in those countries.  Such initiatives are not magic 
 
SOFIA 00000270  002 OF 002 
 
 
bullets. But the very creation of a forum in which 
government, private sector and NGO players interested in the 
gas sector come together with a stated goal of greater 
transparency, is a step in the right direction. 
McEldowney