RUSSIA PLAYING ENERGY HARDBALL WITH BULGARIA

C O N F I D E N T I A L SOFIA 002063 SIPDIS E.O. 12958: DECL: 12/15/2015 TAGS: PREL ENRG MARR BU RU SUBJECT: RUSSIA PLAYING ENERGY HARDBALL WITH BULGARIA REF: A. SOFIA 2025 ¶B. SOFIA 2026 Classified By: Ambassador John Beyrle, reasons 1.4(b) and (d). ¶1. (C) SUMMARY. Prime Minister Stanishev's Foreign Policy Advisor, Valentin Radomirski, told the Ambassador December 12 that a Gazprom representative gave Stanishev "an ultimatum" to either renegotiate the current agreement on the purchase of natural gas or face a cutoff. In face-to-face meeting with Stanishev that day, Gazprom vice-chairman Alexander Medvedev reportedly waved his finger in Stanishev's face and told him bluntly that Gazprom would also begin routing its gas through neighboring countries, thus denying Bulgaria transit fees, if the GOB did not agree to begin paying market prices for Russian gas by this spring. The current agreement, which allows Bulgaria to purchase Russian gas at below-market prices, does not expire until 2010. Bulgarian officials link the Russian pressure at least partly to Moscow's unhappiness over Bulgaria's stated willingness to host U.S. military facilities. END SUMMARY. ¶2. (C) Radomirski told us that in his entire diplomatic career, much of which has been spent dealing with Russia, he has never seen anyone behave so rudely toward a high-ranking official. Another Embassy contact who was in the meeting described it as "ugly," saying Medvedev's behavior toward the Bulgarian PM was dismissive and arrogant. The head of Bulgarian military intelligence asked our Defense Attache's assistance in assessing whether Medvedev was acting on behalf of Russian President Putin. Radomirski, offering his assessment of the motivation for the outburst, made a direct link to the ongoing negotiations with the U.S. over access to Bulgarian military bases, saying Russia was clearly trying to pressure Bulgaria by using its near-monopoly position in the Bulgarian energy market as a lever. ¶3. (U) Bulgaria receives gas at below-market prices under the current in-kind fee mechanism for the transit of Russian gas. In return for the transit of gas, Bulgaria pays USD 82.5 per 1000 cubic meters of gas. The transit fee is fixed at USD 1.678 per 100 km for every 1000 cubic meters of gas. With a length of 280 km, the pipeline passing through Bulgarian territory generates USD 4.68 per 1000 cubic meters of transited gas. In 2004, the state-owned Bulgargaz transited about 13.5 billion cubic meters of Russian gas to Turkey (11.5 billion c.m.),as well to Greece and Macedonia (1.8 billion c.m.). Under Gazprom's new proposal, Bulgaria would receive USD 62.24 million in cash for transiting a similar amount of gas. However, due to the in-kind fee and the lower fixed price of gas per cubic meter (82.5 USD),Bulgaria now receives a total of 750 million cubic meters of gas as transit fees, worth approximately USD 135 million at market prices. Thus, Bulgargaz stands to lose about USD 72.5 million a year under the new agreement. ¶3. (C) COMMENT. We agree with Radomirski that Medvedev's ultimatum is probably linked to unhappiness with the pro-U.S. foreign policy of the Socialist-led coalition government, particularly on the basing issue. The Russian embassy in Sofia is rumored to have provided funding to Bulgaria's extreme nationalist "Ataka" party (ref A),which is leading a PR campaign against the proposed joint bases. Medvedev's ire may also have been provoked by the signing December 7 of a billion-euro agreement with the U.S. company AES to construct a new coal-fired power plant (ref B). Some influential Russians clearly see the Bulgarian energy market as their private domain, and doubtless resent the perceived U.S. inroads. BEYRLE