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