GOVERNMENT FINALIZES DEAL WITH AES ON MARITSA

UNCLAS SECTION 01 OF 02 SOFIA 002026

SIPDIS

E.O. 12958: N/A
TAGS: ENRG PREL ETRD PGOV BU
SUBJECT: GOVERNMENT FINALIZES DEAL WITH AES ON MARITSA
EAST ONE



1. (U) SUMMARY: Representatives of the Bulgarian
government signed December 7 the underlying financial
agreements with AES and four financial institutions to
construct a new 670 MW coal-fired power plant. The
financial agreements represent the biggest ever
greenfield investment in the Bulgaria and largest
greenfield investment in East Central Europe for 2005.
The project, the recipient of extensive Embassy
advocacy efforts, will contribute to Bulgaria's goal of
being a major electricity exporter for the region. It
is expected to bring 2,000 new jobs during the
construction phase of the project and another 200
permanent jobs once the plant becomes operational. The
signing ceremony was widely and favorably covered by
the local media. END SUMMARY.

AES DEAL TOP CHARTS FOR REGIONAL GREENFIELD INVESTMENT
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2. (U) Prime Minister Sergey Stanishev hosted a well-
publicized signing ceremony at the Council of
Ministers' building for the signing of AES financial
agreements on December 7. The ceremony was attended by
the CEO and President of AES Paul Hanrahan, Ambassador
Beyrle and high-level government officials and
parliamentarians. Press coverage of the event was
extensive. In remarks following the ceremony, Economy
and Energy Minister Ovcharov highlighted the
government's commitment to the project. He indicated
that the project is the largest green field investment
in Central and Eastern Europe for 2005, which would
guarantee the future development of the Bulgarian
energy sector and preserve Bulgaria's position as an
exporter of electricity to its neighboring countries.
Additionally, he said the implementation of the project
would enhance Bulgarian energy security and help the
country attract more foreign investment.

PROJECT WILL BENEFIT BOTH US AND EUROPE
--------------


4. (U) The project, known as Maritsa East 1 (ME1),will
also enhance Bulgaria's cooperation and ties with the
EU. A consortium of European banks (CALYON, ING Bank,
BNP Paribas and the European Bank for Reconstruction
and Development) will provide 70 percent of the
financing while a leading European developer (Alstom
Power) will construct the power plant. AES will
provide equity investment in the amount of 30 percent
of the total cost of the project.


5. (U) AES has been developing the ME1 project since
1999 but suffered significant delays in realizing its
implementation, partly due to company's own corporate
financial problems. The project calls for the
construction of a new 670 MW lignite fired power plant
for a total project cost of 1.1 billion euro. AES
intends to build two units with a total capacity of 670
MW and will use lignite from the Maritsa East Mines as
fuel. The implementation of the project is expected to
ensure development of the power system with minimal
expenses and enhance the competitiveness of the
Bulgarian power sector. The project will comply with
the European environmental requirements and will keep
the emissions of sulphur oxides, dust and nitrogen
oxides within the European norms. Construction is
expected to start in the spring of 2006 and the plant
is scheduled to be operational in 2008.


6. (U) The ME1 project will bring a number of benefits
in terms of trade and business, including 2,000 new
jobs within the project time-span; orders to local
companies amounting to 200 million Bulgaria leva; and
80 million Bulgarian leva annual revenues for the
Maritsa East Mines from lignite supplies.

USG SUPPORT FOR THE PROJECT
--------------


7. (U) The US Embassy Sofia advocacy efforts helped to
clear many of the political hurdles necessary for AES
to make the largest foreign investment ever in
Bulgaria. The Embassy was able to facilitate the
approval of a political letter of support for the
project, which was needed to guarantee the 1.1 billion
Euro financing package to build the plant.
Specifically, the Commercial Service, Political-
Economic Section and the Executive Office supported AES
executives through introductions to key governmental
officials, lobbying our contact in the Prime Minister's
office for political support, delivering letters of
support from Commerce Secretary Evans and State
Department Assistant Secretary Wayne, and lobbying the
Council of Ministers.


8. (U) COMMENT: The ME1 project will greatly
contribute to meeting Bulgaria's electricity needs in
an environmentally responsible way. More important for
the GOB, it will help Bulgaria maintain its position as
a regional energy hub. As the largest foreign
investment program ever in Bulgaria, the ME1 deal
should help the government address the severe
macroeconomic external deficits and boost Bulgaria's
image as a country with a favorable investment regime.
AES investment undoubtedly will pave the way for
additional foreign investments and provide new
opportunities for local subcontractors. End Comment.
BEYRLE