BULGARIA NARROWS ITS MILITARY PRIORITIES, BUT

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 001858

SIPDIS

E.O. 12958: DECL: 10/27/2015
TAGS: MASS PREL BU NATO
SUBJECT: BULGARIA NARROWS ITS MILITARY PRIORITIES, BUT
FAMILIAR PROBLEMS REMAIN

REF: SOFIA 000187

Classified By: DCM Jeffrey D. Levine for reasons 1.4 (b) and (d)


1. (C) SUMMARY. The MOD has finally managed to narrow from
eleven to three its list of top-priority modernization
projects. Multi-role fighters are not among them. The
decision reflects belated acceptance by the MOD of the
Finance Minister's argument that there is not enough money in
next year's budget to push ahead with all eleven projects.
Despite this apparent triumph of rationality, the
modernization of the Bulgarian Armed Forces still suffers
from a lack of transparency and the absence of processes
needed to effectively prioritize, plan, program, and budget.
END SUMMARY.


2. (C) The Bulgarian Armed Forces face the challenge of
reforming and modernizing within a limited annual defense
budget of roughly $700 million. In the fall of 2004, the MOD
and General Staff completed a EUCOM-supported Strategic
Defense Review (SDR). The SDR's goal was to create a vision
for the development of the armed forces, balancing the
national interests of Bulgaria, the new security environment,
available resources, and Bulgaria's NATO responsibilities.
While the SDR provides a vision for the future, the
government has not developed the discipline and processes
needed to effectively prioritize, plan, program, and budget
for modernization.

--------------
FROM ELEVEN PRIORITY PROJECTS TO THREE...
--------------


3. (U) The fall 2004 SDR resulted in an un-prioritized list
of eleven major defense modernization projects:

- New Ground Transportation Vehicles
- New Helicopters
- New Multi-Role Fighters
- New Multipurpose Corvettes
- New Transport Planes
- Coastal Radiolocation System
- Purchase and Modernization of Used Warships
- Personal Equipment for Army Soldiers
- Communication and Information Capabilities
- Destruction of Excess Ammunition
- Nuclear, Biological, and Chemical (NBC) Detection Equipment

According to Defense Minister Bliznakov, the Council for
Economic Development approved a decision September 30 to
finance three of the eleven projects through state-guaranteed
loans:

- New helicopters from Eurocopter.
- New ground transportation vehicles from Daimler-Chrysler.
- New transport planes from Alenia Tactical Transport Systems
(an Alenia Aeronautica and Lockheed Martin joint venture).

The three companies have been waiting for months to finalize
their MOD contracts. In the meantime, the number of
helicopters to be purchased has fallen from 12 to three,
eliminating any possible economies of scale. The deadline
for payment in the contract with Eurocopter has already
passed, and the contract is now theoretically subject to
cancellation.

--------------
...AND FROM THREE TO ZERO?
--------------


4. (C) Despite the economic council's approval, Finance
Minister Oresharski refused on October 18 to include the
three projects on the annual list of activities to be
financed with sovereign guarantees in 2006. Instead,
Oresharski proposed that the state guarantee 45.7 million
euros to finance projects to improve trade and transport and
assist small businesses. Oresharski's proposal provoked an
immediate response from MOD Bliznakov, who claimed that
projects cannot be rejected after the Council for Economic
Development has approved them. Oresharski refused to budge,
and the projects are now on hold until October 2006, when the
government will consider the 2007 budget.

--------------
MULTI-ROLE FIGHTERS
--------------


5. (C) Despite the MOD's apparent acknowledgment that it
cannot afford new multi-role fighters at this time, we may
not have seen the last of this proposal. Bulgaria's MiG-29s
will reach the end of their planned service life this year,
and the MiG-21s will not be air worthy after 2006. Marketing
representatives for the F/A-18, F-16, and Gripen have been
active in Bulgaria for over a year. In July, the MOD
requested pricing and availability data on the F/A-18. We
expect to receive this information and pass it to the MOD in
mid-November. With a price tag that could exceed $1 billion,
the GOB has backed away from attempting a tender this year,
putting this off until at least 2006.


6. (C) When asked how they intend to pay for new fighters,
MOD and General Staff officials often respond with vague
ideas of a generous industry offset package that will
generate huge amounts of tax revenue to pay for the purchase.
The Bulgarians have little experience with or expertise in
large purchases involving offsets. With DSCA's help, we have
been encouraging the Bulgarians to consider leasing used
NATO-compatible aircraft, a much more affordable option.

--------------
TRANSPARENCY STILL LACKING
--------------


7. (C) The acquisition process is not transparent, and it is
often unclear how and why procurement decisions are made.
Under Bulgarian law, tenders are not required for specially
designated national security projects, and several
questionable contracts have been awarded. The MOD pushed
through the Eurocopter deal, worth between $150 and $400
million depending on how many helicopters it eventually buys,
in just two months (reftel). This was one of three
multi-million dollar military purchases in 2004 completed in
a hurried and non-transparent manner.

--------------
COMMENT
--------------


8. (C) Despite recent signs of fiscal realism on the part of
the MOD, Bulgaria's military modernization effort is at a
crossroads. If it fails to move forward with rational
modernization, it risks further degrading its military
capabilities and its ability to engage in overseas operations
in support of NATO or another coalition. We will continue to
encourage the MOD and the rest of the government to implement
the results of the SDR in a rational and transparent manner.
BEYRLE