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DE RUEHSF #0673/01 3291430
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FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6499
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 SOFIA 000673 
 
SIPDIS 
 
FOR SPE MORNINGSTAR 
 
E.O. 12958: DECL: 11/17/2019 
TAGS: ENRG PREL PGOV BU
SUBJECT: BULGARIA:  ENERGY UPDATE 
 
REF: SOFIA 538 
 
Classified By: CDA Susan Sutton for reasons 1.4 (b) and (d). 
 
¶1.  (C) Summary: Since taking power in July, PM Borissov has 
shaken up the energy sector by calling into question the 
Russian-backed energy projects pursued by the previous 
government and emphasizing the need for greater transparency 
and diversification.  While Bulgaria may continue going 
through the motions on South Stream, it is making Nabucco, 
interconnectors, and closer cooperation with southern 
corridor gas producers the focus of its gas strategy.  It has 
frozen the Russian-backed Belene Nuclear Power plant, at 
least for now, and is investigating U.S. nuclear fuel and 
spent fuel storage diversification options.  The obstacles 
are many.  Eager not to lose their privileged place in the 
Bulgarian energy sector (and economy), Russian and Bulgarian 
energy lobbies are resisting. In certain key areas, they 
still have the upper hand.  We are urging the government to 
act boldly on individual diversification and transparency 
projects, which, added together, will represent real change. 
End Summary. 
 
 
THE FUTURE OF RUSSIAN-BACKED ENERGY PROJECTS 
-------------------------------------------- 
 
 
¶2.  (C) In August Prime Minister Boyko Borissov's government 
announced a full-scale review of all Russian-sponsored energy 
projects (the Belene Nuclear Power Plant, the South Stream 
gas pipeline and the Burgas-Alexandroupols oil pipeline) to 
which the previous government had committed.  Borissov had 
promised Russian PM Putin an answer on these projects by 
November.  Our contacts tell us an announcement on the fate 
of these projects is likely in early December. This is what 
is likely: 
 
¶3.  (C) Belene:  The previous government had awarded Russia's 
AtomstroyExport the contract to construct two AES-92 VVER 
1000 reactors at Belene at an original cost of four billion 
euros in 2006.  In 2008 Bulgaria brought in the German 
company RWE as a 49 percent strategic investor.  Since then, 
the project, at times referred to here as "the money 
machine," has been dogged by cost over-runs, financing woes, 
construction delays and rumors of serious safety and quality 
assurance concerns.  Cost estimates skyrocketed to over 10 
billion euros around the same time the Borissov government 
took office.  Borissov and his energy team immediately began 
questioning the terms, conditions and rationale of the 
project, and stated Bulgaria would, at a minimum, reduce its 
share of the project to 20 percent (down from 51 percent.) 
Strategic investor RWE then got cold feet and withdrew from 
the project altogether.  The Belene project, still consisting 
of little more than an empty field, is now frozen, with the 
only offer of investment coming from Russia, an option the 
Borissov government calls unacceptable. 
 
¶4.  (C) South Steam: The Borissov government originally had 
harsh words for South Stream, but after a September 
Borissov-Putin telephone conversation and meeting, additional 
outreach by Russian Energy Minister Schmatko and Italian PM 
Berlusconi, and a steady stream of Russian warnings that 
South Stream would bypass Bulgaria if Sofia continued its 
feet-dragging, the Bulgarians backed down.  Our contacts tell 
us that with so many European countries signed on, South 
Stream is no longer a Russian project, but a European one. 
They have doubts it will be built, but if it goes forward, 
Bulgaria doesn't want to be left out.  As the EU country most 
affected by the Russia-Ukraine gas dispute in January, 
Bulgaria is also eager to diversify not only its sources of 
gas, but its supply routes as well.  The Bulgarian Energy 
Holding tells us that Gazprom continues to exert pressure on 
Bulgaria to rush decision-making on South Stream in order to 
bring Bulgaria to an ultimate investment decision, but 
Bulgaria's U.S.-based legal advisers Paul Hastings are fully 
engaged in trying to protect Bulgaria's interests in the 
project. 
 
¶5.  (C) Burgas-Alexandroupolis:  The Borissov Government is 
still undecided on the BAP oil pipeline, a joint Russian, 
Greek and Bulgarian initiative.  The new government most 
often cites environmental concerns as the reason it is 
dragging its feet on this Bosphorus bypass, but we've heard 
that even if these concerns can be satisfactorily overcome, 
there is little appetite within the current administration 
for this project.  If Russian pressure on BAP becomes intense 
 
SOFIA 00000673  002 OF 003 
 
 
(which it has not been so far), the Bulgarians still could 
decide to move forward, but would likely seek a reduction in 
the government's 24.5 percent share. 
 
 
A FOCUS ON DIVERSIFICATION 
-------------------------- 
 
¶6.  (C) After January's gas crisis exposed Bulgaria's extreme 
dependence on Russian energy supplies, even the previous, 
Russia-friendly government, began to focus on 
diversification.  With its desire to rid Bulgaria of the cozy 
relationship the last government had with Russia, the 
Borissov administration has increased these diversification 
efforts.  Nabucco is central to Bulgaria's diversification 
strategy.  During a recent visit of the Nabucco CEO to Sofia, 
the Bulgarian Government pledged a 300 million euro 
investment into the project.  There is still a significant 
amount of skepticism about Nabucco's prospects within the 
halls of the Bulgarian Energy Holding, but publicly the 
Government is fully on-board. 
 
¶7.  (C) Interconnectors:   In July the Bulgarian Energy 
Holding signed an agreement with the Greek and Italian 
companies DEPA and Edison for the construction of a 
Greek-Bulgarian interconnection that would allow Bulgaria to 
import one bcm of gas through ITGI (the Turkey-Greece-Italy 
Interconnector.)  The 160 km, 120 million euro pipeline, 
called Interconnector Greece-Bulgaria (IGB), would extend 
from Komotini in northern Greece to Stara Zagora, Bulgaria. 
Bulgaria has applied for 45 million euros in EU funds to 
support this project, but we heard of some hesitation in 
Brussels to approve these funds.  A feasibility study for 
this project is in the final stages.  Less progress has been 
made on potential interconnectors to Romania, Serbia and 
Turkey, but these key for Bulgaria's (and Europe's) energy 
security and are under consideration. 
 
¶8.  (C) Azeri Outreach/CNG: During a November visit of Azeri 
President Aliev to Sofia, Azerbaijan and Bulgaria signed an 
agreement on the export of one bcm of Azeri gas to Bulgaria 
(which Bulgaria would take through its ITGI interconnector, 
and, later, through Nabucco.)  The Azeris and Bulgarians also 
agreed to study the possibility of sending additional amounts 
of compressed natural gas to Bulgaria (and beyond) via 
Georgia and the Black Sea.  If the initial 60 day study of 
this option is promising, the two sides agreed to set up a 
joint venture company to perform a full-scale feasibility 
study. 
 
NUCLEAR: REAL ALTERNATIVES 
--------------------------- 
 
¶9.  (C) While the January gas crisis focused attention on the 
need for gas source diversification, Bulgaria is just as 
vulnerable on the nuclear side. One hundred percent of the 
fuel used at the Kozluduy Nuclear Power Plant (which 
generates 40 percent of Bulgaria's electricity) comes from 
Russia.  Bulgaria is also dependent on Russia to take spent 
nuclear fuel from these reactors, which Moscow does at 
considerable annual cost.  These are areas where U.S. 
technology offers real diversification alternatives to 
Bulgaria.  Bulgaria has a unique opportunity to benefit from 
a successfully demonstrated USG nuclear fuel supply 
diversification program (using Westinghouse technology) 
originally designed for a Ukrainian reactor identical to 
Kozluduy blocks 5 and 6.  This program, combined with 
deployment of a U.S. (New Jersey-based Holtec International) 
on-site transportable spent nuclear fuel storage system, 
could not only save Bulgaria hundreds of millions of dollars 
and launch a state-of-the-art technology transfer program, 
but also play an important role in increasing Bulgaria's 
energy security. 
 
COMMENT:  TRANSPARENCY IS ELUSIVE 
---------------------------------- 
 
¶10.  (C) Even with the Borissov Government's tremendous 
political will, bringing transparency to Bulgaria's 
notoriously-shady energy sector is a challenge.  As the new 
government restructures the Bulgarian Energy Holding and 
decides which projects to pursue, powerful domestic energy 
lobbies are fighting behind the scenes to keep their 
representatives in positions of influence.  As several 
officials have lamented to us, Bulgaria's energy bench is 
shallow, making it nearly impossible to find new energy 
sector professionals who are not beholden to one or another 
 
SOFIA 00000673  003 OF 003 
 
 
lobby. Complicating the situation, Bulgaria's long-term gas 
supply contracts with Gazprom run out in 2010 and 2012.  The 
government would like to improve transparency by eliminating 
the shady, Gazprom-linked intermediaries that dominate the 
gas sector in its next supply contract, but Gazprom and 
domestic lobbies are opposed.  In addition, we understand 
Russian leaders, at the highest levels, have linked a 
favorable gas deal with Bulgaria's continued participation in 
the big, Russian-backed energy projects.  We are urging bold, 
individual moves -- nuclear diversification, interconnector 
projects, a gas sector transparency initiative -- which, 
added together, will represent greater diversification, 
transparency and energy security for Bulgaria. 
 
 
SUTTON