C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 001560

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/07/2016
TAGS: ECON ENRG PGOV RU BU
SUBJECT: B-A OIL PIPELINE: SIGNS OF PROGRESS; BULGARIA AND
GREECE SEEK CHEVRON PARTICIPATION

REF: SOFIA 1481

Classified By: AMB. JOHN BEYRLE FOR REASONS 1.4 B & D


1. (C) SUMMARY Greek and Bulgarian officials described to EUR
DAS Matt Bryza progress on the Burgas-Alexandropoulis (B-A)
oil pipeline during his November 3 visit to Sofia. The Greek
consortium plans to transfer most of its shares to
international private sector participants, including Chevron,
and the Bulgarians will likely follow suit. In addition, the
pipeline's legal headquarters will be in Luxembourg, which
creates a much more international project than the previous
perception of a solely Russian-controlled venture. The
Bulgarians and Greeks eagerly seek Chevron's participation,
and the active involvement of the USG. END SUMMARY


2. (C) EUR DAS Matt Bryza and Ambassador Beyrle met in Sofia
on November 3 with President Parvanov, PM Stanishev, Minister
of Economy and Energy Ovcharov, Minister of Regional
Development Gagauzov, Greek Minister of Economic Development
Sioufas and Turkish Minister of Energy Guler, to discuss
regional energy issues, including the Burgas-Alexandropoulis
oil pipeline.

B-A MOVING AHEAD WITH PRIVATE PARTNERS
--------------

3. (C) The B-A pipeline is making progress in key areas,
despite the lack of an overall political agreement between
the three parties - Russia, Greece and Bulgaria. Greek
Minister of Economic Development (including energy) Sioufas
who was coincidentally in Sofia, was keen to tell Bryza that
the pipeline will be an international one, not Russian, whose
legal headquarters will be in Luxembourg and therefore
subject to EU law and regulation. Sioufas also described
forward motion on the Greek consortium for B-A, where private
companies will assume the majority of the Greek share of the
three-country project, which means private funding as well as
additional expertise and pressure on politicians to make it
happen. Bulgaria will likely follow the Greek model and
apportion equal shares to private companies Chevron and

TNK-BP, and Kazakhstani state oil company Kazmunaigaz. Since
the Bulgarian public is sensitive to foreign ownership, the
Greek model could give the GOB cover, said Gagauzov. The
three countries plan to establish the international project
company by the end of the year.


4. (C) President Parvanov confirmed that in the September 4
meeting in Athens, President Putin had explicitly endorsed
"broad participation" in the B-A project, which all present
clearly understood as a green light for foreign players like
Chevron or TNK-BP to take part in the deal on the Greek and
Bulgarian sides. Sioufas suggested Bulgaria should engage in
separate talks with Chevron, TNK-BP and
Kazmunaigaz - something Bulgaria is anxious to do. Bulgarian
Minister of Regional Development Gagauzov requested USG help
in setting up a meeting for the GOB with Chevron's London and
Moscow teams. Sioufas was eager for Bryza and Beyrle to
convey to Chevron the progress to date and Greece's
willingness to work out specifics. President Parvanov called
for increased U.S. presence in the B-A project, saying that
without U.S. government intervention and support, the project
will suffer more delays. Bryza stressed that private
companies must take the lead in determining the commercial
viability of the project, but offered to cooperate with both
Chevron and the GOB to help the parties advance their own
discussions.


5. (C) Russia,s desire for its state oil pipeline monopoly,
Transneft, to operate the pipeline raised concerns among the
Greek and Bulgarian officials. Bryza asked how Greece and
Bulgaria planned to protect their national interests if
Russian state-owned oil companies acquire majority ownership
shares of the project and Transneft becomes the pipeline
operator. Sioufas replied that Greece and Bulgaria would
insist that companies from their countries be sub-contractors
and that minority rights be guaranteed, and that
international oil companies (like Chevron) provide the oil
throughput required to secure financing. Sioufas also said
Bulgarian and Greek companies might be co-operators of the
pipeline, along with Transneft. Bulgarian officials
indicated that the GOB will ensure its rights are protected
by setting up international partners for the Universal
Terminal Burgas (UTB), while maintaining some GOB and
ownership of the terminal, said Gagauzov, whose ministry is
officially in charge of Bulgaria's pipeline activities.
Bryza picked up on this international theme and described B-A
as a potential example of Western companies, NATO and EU
member states, and Russia working together on a major energy
project, provided that Bulgaria and Greece structured the

SOFIA 00001560 002.3 OF 002


deal appropriately.


6. (C) PM Stanishev relayed his frustration that regional
energy projects took so long to develop. He pointed to the
ten-year AMBO discussions which have led nowhere, but felt
both AMBO and the Belene nuclear project must be pursued in
order to keep options open for Bulgaria's overall energy
security. He also mentioned that Bulgaria wanted to maintain
control over the UTB (pumping station) in order to
provide flexibility to build a second oil pipeline in the
future and to keep some control in their own hands.
Ambassador Beyrle stressed that these hands need to be
transparent ones. Bulgaria will seek funding from the World
Bank and others for the UTB.

TURKEY LOOKING FOR U.S. SUPPORT FOR SAMSUN-CEYAN
-------------- ---

7. (C) Guler made a strong pitch for U.S. involvement on the
Samsun-Ceyan (S-C) oil pipeline, which would compete with
Burgas-Alexandroupolis for the next major increment of
Caspian oil that will be shipped around the Turkish Straits.
At one point, Guler asked Bryza directly if the U.S.
"affirmatively supported" S-C. He described the pros of the
route as having no environmental concerns, unlike the B-A
route, and the existence of a harbor in Ceyan vs. the lack of
harbors or loading/unloading facilities in Burgas and
Alexandropoulis. Guler questioned whether it would be
feasible for the USG to "sponsor" both pipelines, and clearly
pressed Bryza in favor of S-C, pointing to Turkish experience
with BTC. Bryza reiterated what he has told Guler many times
in the past, namely, that the U.S. believes commercial
considerations will determine whether B-A or S-C is built
first, that the U.S. wishes the GOT and other developers of
S-C success in proving the project's commercial viability,
and that eventually, there might be sufficient Caspian oil
available to realize both projects.

AMBO
--------------

8. (C) Some GOB officials feel the AMBO project (Burgas to
Vlore, Albania via Macedonia) is a step ahead of B-A in
organizational planning, with routes mapped out and a
fund-raising plan. But the GOB does not
see any chances of immediate progress without attention from
the big oil companies that can provide the throughput
required to secure financing. Gagauzov, whose ministry
supports both B-A and AMBO, does not feel it is feasible to
have both pipelines starting at the same time, but thinks
they could co-exist in the future.

BELENE
--------------

9. (C) Bulgaria decided to go with the Russian
Atomstroyexport bid, PM Stanishev said, because their
design is newer, which he equated with being more secure.
Stanishev also pointed to "great interest" from France on the
Framatome (Siemens/Areva) Instrumentation and Control portion
of the Russian bid, and stressed the need for German and
French support for EU licensing reasons. He also mentioned
Russian pressure "behind the scenes." When Amb. Beyrle
pitched Westinghouse's proven track record and better prices,
the PM said the GOB was considering how to combine the two
competing bids, and said Minister Ovcharov was trying to
include as many partners as possible. Stanishev was aware of
Westinghouse's good works at Kozloduy Nuclear Power Plant.
In a nod to the controversy swirling around Bulgaria's
agreement to close four of six reactors at Kozloduy in order
to enter the EU, Parvanov noted that Bulgaria makes up for
around 50 percent of the electricity shortage in the region,
but will only have enough for its own use once Kozloduy units
3 and 4 are closed on December 31.

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

10. (C) It is clear that Bulgaria and Greece, separately and
together, are trying to come up with practical solutions to
make the B-A pipeline work. We take it as a step toward
commercial viability that the Bulgarian and Greek Governments
are now planning to sell their shares in B-A to private
investors, and to ensure that the venture will be subject to
European laws and regulations. Now might be a good time for
Chevron to reach out to the Governments of Bulgaria and
Greece, and for the USG - in Washington, Brussels and the
three capitals - to prepare for active diplomacy aimed at
aligning our
geo-political interests with commercial realities.

This cable was cleared with DAS Bryza.
BEYRLE