VZCZCXRO1427
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHSF #0696/01 3431520
ZNY CCCCC ZZH
O 091520Z DEC 09
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6530
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 02 SOFIA 000696 
 
SIPDIS 
 
FOR SPE MORNINGSTAR 
DOE FOR ELKIND, CUTLER, EKIMOFF 
 
E.O. 12958: DECL: 12/07/2019 
TAGS: ENRG ECON PREL PGOV BU
SUBJECT: BULGARIA PREPARES TO ANSWER RUSSIA ON ENERGY 
PROJECTS 
 
REF: SOFIA 674 
 
Classified By: CDA Susan Sutton for reasons 1.4 (b) and (d). 
 
¶1.  (C)  Summary:  The Prime Minister, President and Energy 
Minister briefed SPE Morningstar December 4 on changes in the 
Bulgarian energy sector and preparations for the next round 
of Bulgarian-Russian intergovernmental economic committee 
meetings.   The Russian delegation, led by Energy Minister 
Schmatko, will arrive December 10 and expects to hear the new 
Bulgarian government's intentions on three large-scale energy 
projects to which the last government commited Bulgaria. 
Bulgarian officials told SPE Morningstar that Bulgaria will 
continue to pursue the South Stream gas pipeline, is still 
studying the Burgas-Alexandroupolis oil pipeline and will 
open a new tender for strategic investors for the now-frozen 
Belene Nuclear Power Plant project.  Knowing they will be 
dependent on Russian energy sources for the foreseeable 
future and cannot rely on a common EU energy policy to 
protect their interests, the Bulgarians will stay engaged 
with Moscow while pursuing alternatives in the form of 
Nabucco, interconnectors, CNG/LNG possibilities and nuclear 
fuel diversification.  End Summary. 
 
¶2.  (C)  In a series of meetings with Bulgarian officials, 
businesses, energy experts and foreign diplomats December 4, 
SPE Morningstar commended the new government for its 
concerted efforts to bring greater diversification and 
transparency to the notoriously-opague energy sector.  He 
urged the Prime Minister and President to continue Bulgaria's 
outreach to Southern Corridor gas producers and Turkey to 
secure progress on Nabucco.  He suggested that Bulgaria work 
more closely with like-minded EU member states in the region 
to ensure EU energy policy protected CEE country interests. 
SPE Morningstar stressed the need for continued work on 
regional interconnectors, diversification in the nuclear 
sector, including the use of alternative nuclear fuel and 
spent fuel storage capabilities, and efforts to promote 
greater transparency in the energy sector. 
 
 
THE RUSSIANS ARE COMING 
----------------------- 
 
¶3.  (C)  The Bulgarians described their strategy ahead of the 
arrival to Sofia of Russian Energy Minister Schmatko's 
delegation December 10.  Energy Minister Traykov stated there 
will be no surprises in Bulgaria's announcement about Sofia's 
participation in Russian-led energy projects.  Bulgaria will 
continue to pursue South Stream, as this pipeline has become 
"a European project" and lessens Bulgaria's dependence on 
Ukraine as a transit country.  Bulgaria still has 
environmental and other concerns about the 
Burgas-Alexandroupolis oil pipeline, so will call for 
additional studies on this project before making an 
investment decision.  The Belene Nuclear Power Plant is 
currently frozen, having lost its strategic investor (RWE). 
To avoid "kill costs" and keep Moscow reasonably content, 
Traykov said Bulgaria will, reluctantly, open a new tender in 
an attempt to attract outside investors to the beleaguered 
project.  Once the Russians leave, Bulgaria will continue to 
work on diversification and reform of the energy sector.  He 
said Bulgaria is ready to move forward with a pilot 
relationship with the Extractive Industries Transparency 
Initiative, as one way to increase transparency in Bulgaria's 
gas transit sector. 
 
 
PRESIDENT STRESSES SOUTHERN CORRIDOR OUTREACH 
--------------------------------------------- 
 
¶4.  (C)  President Parvanov, who led Bulgarian energy policy 
under the previous government, detailed his continued 
outreach to southern corridor energy producers, including 
recent visits to Sofia by the Presidents of Turkmenistan and 
Azerbaijan.  He noted that Bulgaria has agreements to buy gas 
from both countries, but lamented the lack of alternatives to 
access the agreed-upon quantities.  He urged continued USG 
efforts to secure a Turkish transit agreement with Azerbaijan 
and described Bulgarian plans for a hook-up to the TGI 
pipeline and a joint Azerbaijan-Bulgarian study of taking 
compressed natural gas across the Black Sea via tanker. 
Parvanov expressed concern about Nabucco, saying that South 
Steam was becoming ever dominant, with Gazprom's proposal to 
increase the project's capacity to 63 bcm and the recent 
 
SOFIA 00000696  002 OF 002 
 
 
Turkish agreement on South Stream's route. 
 
 
PM RAILS AGAINST EU DISUNITY; SEEKS MORE US ENGAGEMENT 
--------------------------------------------- --------- 
 
¶5.  (C)  A clearly frustrated Prime Minister Borissov used 
his time with SPE Morningstar to rail against EU disunity in 
the face of Russian energy dominance, particularly in this 
region.  Borissov complained that the EU was holding up 
funding for proposed interconnectors with Greece and Romania 
(the Bulgarians heard later in the day the EU would fund 
those projects) and that small, energy dependent EU member 
states were held hostage to the energy ambitions of Italy, 
France and Germany.  He lamented that Bulgaria, the poorest 
EU member state, was still a net-contributor to the EU, 
causing a rise of Euro-skepticism in the country.  He also 
urged more U.S. engagement in Bulgaria to show that Bulgarian 
efforts on Afghanistan, missile defense and other priorities 
are appreciated and rewarded.  In particular, he called for 
inclusion of Bulgaria into the US Visa Waiver Program (a real 
sore point with the new government) and asked us to use USG 
good offices with the EU to support Bulgaria's inclusion into 
ERM-II and the Eurozone (something he described as 
"absolutely free" for the United States (reported septel)). 
He noted that the Russian presence in Bulgaria is growing 
ever stronger, with continued state-sponsored cultural 
events, high-level visits and offers of investment.  His 
government, he said, was trying to make the right decisions 
-- on rule of law, our security relationship, transparency, 
and energy diversification, but to pull this off, Bulgaria 
needs more attention, engagement and support from both 
Brussels and Washington.  SPE Morningstar agreed and promised 
to raise the PM's concerns in Washington. 
 
¶6.  (C)  Comment:  The Bulgarians will play it safe when the 
Russians come to town December 10.  Knowing they will be 
dependent on Russian gas for years to come (and being in the 
middle of long-term gas supply contract negotiations) the 
Bulgarians can't afford to kill all of the Russian-dominated 
projects agreed to by the last government.  Nor do they want 
to.  Sofia sees increasing value in South Stream as lessening 
its dependence on Ukraine as a transit country.   The 
government wants to be rid of Belene, but believes it will be 
too costly -- either in contractual kill costs or fall-out 
with Russia -- to let the project die at this time.  Once the 
Russians leave, we should up our engagement with the clearly 
frustrated Prime Minister, who is making tough decisions on 
everything from rule of law to energy, but feeling little 
support from outside partners. 
 
¶7.  (U)  SPE Morningstar cleared this message. 
SUTTON