BULGARIA, TURKEY AND GREECE WANT MORE U.S.

C O N F I D E N T I A L SECTION 01 OF 03 SOFIA 001554

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/07/2016
TAGS: ECON ENRG PGOV RU BU
SUBJECT: BULGARIA, TURKEY AND GREECE WANT MORE U.S.
INVOLVEMENT ON GAS AND SOUTHERN CORRIDOR ISSUES


Classified By: Amb. John Beyrle for reasons 1.4 B & D


1. (C) SUMMARY: Political and energy leaders from Bulgaria,
Greece and Turkey told EUR DAS Bryza on November 3 that the
U.S should play a stronger role in ensuring diversity of
energy supply - particularly gas - in the region. Bryza
stressed the need for countries in the region to work
together to secure diversified sources of gas supply, which
can increase commercial competition for European markets, and
reduce the price differential between Caspian and European
gas, (which generates enormous rents that fuel corruption,
organized crime, inefficient markets, and higher prices for
consumers). The officials shared U.S. concerns about Gazprom
possibly using coercive tactics this winter such as gas
cutoffs and predatory acquisition of Georgian energy assets.
Several requested increased U.S. involvement - use of our
bully pulpit and private sector participation in projects and
markets - to deter Gazprom from such coercive behavior.
President Parvanov said having greater involvement by Western
stakeholders would bring greater security and help small
nations such as Bulgaria in standing up to Russia. END
SUMMARY


2. (C) EUR DAS Matt Bryza and Ambassador Beyrle held separate
meetings in Sofia on November 3 with Bulgarian President
Parvanov, PM Stanishev, Foreign Minister Kalfin, Minister of
Economy and Energy Ovcharov and Minister of Regional
Development Gagauzov; Greek Minister of Economic Development
Sioufas; and Turkish Minister of Energy Guler to discuss
regional energy issues and encourage the Bulgarians and
others to stand strong in the face of increased Russian
pressure.

SOUTHERN CORRIDOR (TGI): RUSSIANS ACTING BADLY
-------------- -


3. (C) The first phase of the gas pipeline from Azerbaijan to
Turkey is almost complete and ready for gas. Turkish
Minister Guler told Bryza that he (Guler) had convened a
meeting on November 2 of representatives of the Governments
of Turkey, Bulgaria, Romania, Hungary, and Austria to scope
out a plan to advance the Nabucco pipeline with Azerbaijani
gas. Azerbaijan is worried Russia may cut gas supplies this
winter if Baku agrees to ship gas to Georgia or Turkey (in
accordance with Azerbaijan's contractual obligations). Guler
noted that BP and Statoil want to expand gas production at
Azerbaijan's Shah Deniz field and ship it to Georgia and
Turkey, but need a clear political decision from the
Government of Azerbaijan that it wishes to export the next
phase of Shah Deniz production.

NO SOLUTIONS THIS WINTER
--------------


4. (C) Guler said Turkey was ready to negotiate a gas transit
agreement with Azerbaijan, but Baku is balking. Bryza
predicted that Azerbaijan would engage Turkey in such talks
as soon as it concluded its gas supply contract with Gazprom
for this winter. Bryza described Russian threats to cut gas
supplies to Azerbaijan and Georgia as coercive and
unacceptable, and said the USG was preparing to respond to
such threats by calling into question Gazprom's reliability
and competitiveness as a gas supplier. Guler insisted that
the U.S. needs to be very vocal about Gazprom, and suggested
the U.S. could even lose support in the region if it didn't
confront Gazprom.


5. (C) In a separate meeting, Bulgarian President Parvanov
echoed Bryza,s hope that by increasing commercial
competition for European gas markets, European states could
nudge Gazprom to transform into a "normal" company.

GREEKS AND ITALIANS TAKING GAS ONLY FROM CASPIAN
-------------- ---


6. (C) Greek Minister of Economic Development Sioufas asked
about the IEA meeting on the Southern Corridor of gas
pipelines (extending from Azerbaijan through Georgia and
Turkey, and into Greece and Italy). Bryza said the IEA now
planned to convene the meeting early in 2007 for a discussion
that would encompass expanded gas production in Azerbaijan,
the Turkey-Greece-Italy and Nabucco Pipelines, and the Treaty
of Athens, (which aims to harmonize gas and electricity
markets in Southeastern Europe). Sioufas stressed that
Greece took a political and economic risk by signing a
bilateral agreement with Italy which said the two countries
would take gas from the Caspian region only, in an effort to
clear the way for Greece to diversify its sources of supply

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by securing gas from Azerbaijan. Sioufas recognized such an
approach was essential to eliciting more cooperative behavior
from Gazprom by relying on commercial competition.

TURKEY READY TO TALK GAS PIPELINES WITH IRAQ
--------------


7. (C) Turkey would like to explore all options to increase
gas flow to and through Turkey. Guler asked the USG to take
three concrete steps: 1) to assist Turkey and Iraq to bring
Iraqi gas to Europe. Turkey is ready to discuss this with
Iraq, and Bryza and Beyrle have been in touch with U.S.
Embassy Baghdad to set up a Turkey/Iraq/USG meeting in the
near future; 2) to support Samsun-Ceyan as the first
Bosphorous Bypass for oil (septel); 3) to assist in shipment
of Compressed Natural Gas from Turkmenistan through
Azerbaijan and on to Turkey by barge, boat, train or truck.
Guler felt this last project would not be economical, but
would be a symbolic signal to Russia, even if it took a few
years. Bryza pledged to work with Turkey in all three areas.

BULGARIA WANTS TO CONNECT TO TGI
--------------


8. (C) Energy Minister Ovcharov expressed general agreement
with the Southern Corridor strategy outlined by Bryza, and
noted that Bulgaria sought to build a 70 KM spur off the
Greek portion of the Turkey-Greece-Italy pipeline. Although
small in actual volume, Ovcharov felt this use of Azeri gas
would set an important precedent for helping Bulgaria and
Southeast Europe diversify their sources of gas supply. In a
separate conversation, Greek Minister of Economic Development
Sioufas said he would have to wait to see the written
proposal, but had no objections in principle.

NABUCCO
--------------


9. (C) Bulgaria is supportive of the Nabucco gas pipeline
(linking Turkey, Bulgaria, Romania, Hungary, and Austria),
but not strongly enough to take the lead. PM Stanishev asked
if the USG could help make Nabucco a priority for the EU and
to help secure gas supplies from Azerbaijan; now it is only
of interest to countries on the route. He bemoaned the lack
of political will to get the project done, and put in a plug
for U.S. financing. Guler informed Bryza that he convened
the five country shareholders in Istanbul on November 2 and
wanted to assure the USG that Turkey is supportive and wants
to expedite the project. Guler agreed on the need to work
with regional governments, but said we shouldn't trust
European countries such as Germany, Austria and Hungary,
because they all need gas and have been talking to the
Russians.


10. (C) In response to Guler's comment that Iran was ready to
participate in Nabucco, Bryza stressed that the U.S. could
support the pipeline only to transport non-Iranian (and,
especially, Azerbaijani) gas. The USG would oppose any
attempt to use Nabucco to export Iranian gas to Europe.
Bulgarian PM Stanishev suggested that Turkey's desire to be a
broker of gas sales, rather than just a transit country, was
a problem, and sought U.S. help in convincing Turkey to act
strictly according to market principles. Greek Minister of
Economic Development Sioufas also expressed concern that
Turkey not overplay its hand by trying to act as a broker of
gas sales.

BULGARIA LIKELY TO ANNOUNCE LONG-TERM CONTRACT WITH GAZPROM
-------------- --------------


11. (C) Despite Beyrle's warning against signing long-term
contracts with Gazprom since Nabucco, TGI and other options
could be on-line within five-seven years, Bulgaria is likely
to announce soon a 20-year contract. Ovcharov explained this
as a way to guarantee a source for part of their gas needs,
but stressed that Bulgaria will be able to adjust the
contract terms every three years, and expand the current
grid. Bulgaria wants to guarantee a competitive supply at
least until 2015. Although negotiations with Gazprom began
in a hostile manner last winter, Ovcharov and PM Stanishev
pointed out that they are more businesslike and "normal" now.



12. (C) Bulgaria is also discussing with Gazprom a proposal
to build new pipelines into Serbia. Ovcharov claimed
Bulgargaz would operate the new routes, but ownership could
be shared with Gazprom. Ovcharov and Stanishev took on board
Beyrle's and Bryza's exhortations to look for alternatives to

SOFIA 00001554 003 OF 003


Gazprom, to maintain control over their own infrastructure,
and to stand together with other EU members to get better
commercial terms from Gazprom. Ovcharov responded that as
soon-to-be members of the EU they would follow Brussels's
lead on energy policy, but he was concerned about the
seriousness of the EU's efforts. He said Bulgaria would
support any and all routes for diversification, including
Nabucco, TGI and Liquefied Natural Gas terminals. Turkey
would allow LNG through the Bosphorous but both Guler and
Ovcharov acknowledged this option would be expensive for
Bulgaria and Romania.

BULGARIAN ENERGY DECISIONS NEED HIGHER-LEVEL PARTICIPATION
-------------- --------------


13. (C) Concerned about Minister Ovcharov's reputation as a
lone operator with close ties to Moscow, Amb. Beyrle asked PM
Stanishev if the government had any system or body to provide
oversight on national security issues related to energy.
Stanishev seemed to take the hint and said he would consider
this idea and figure out how to better coordinate energy
security policy.

BLUE STREAM
--------------


14. (C) Ovcharov agreed with Bryza that Blue Stream was not
commercially viable, and Blue Stream,s planned expansion
would make even less commercial sense, but was being pursued
by Gazprom and the Kremlin to block Azerbaijani gas from
filling the Nabucco pipeline. Greek Minister of Economic
Development Sioufas was concerned that Italy's ENI, along
with Turkey, was planning an agreement on Blue Stream II that
would undercut Nabucco as a means of diversifying sources of
supply away from Gazprom.

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


15. (C) Bryza's visit was essential to our ongoing efforts to
get the attention of top-level Bulgarian players and share
with them our information, concerns and vision on how best to
leverage their position vis-a-vis intense Russian, (i.e.,
Gazprom) pressure. The two elected leaders, President
Parvanov and PM Stanishev, clearly understand the message and
appear to be sincerely looking for ways to cooperate with the
U.S., EU and regional governments in order to reduce Russia's
strong influence here. However, clear alternatives to
relieve the pressure are scarce or, in the case of the TGI
pipeline spur, low volume. Bulgarian Foreign Minister
Kalfin's December meetings in Washington will give us a
chance to amplify our message that Bulgaria's energy security
is of concern to us, and to provide updated information on
alternatives like Azerbaijani gas.

This cable was cleared with DAS Bryza.
BEYRLE