UNCLAS SOFIA 001692

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EUR/NCE, PM/DTCC - BLUE LANTERN COORDINATOR

E.O. 12958: N/A
TAGS: KOMC ETTC BU
SUBJECT: BLUE LANTERN, APPLICATION 05-050020397:
TRANSACTION LEGITIMATE

REF: STATE 195470


1. (SBU) SUMMARY: In response to reftel instructions, Poloff
met with TEREM Executive Director Mariyan Yovchev on December
18 and spoke with MoD Arms Control Director Nikola Mihaylov
on December 19. Post believes this transaction to be
legitimate and has no information to recommend against its
approval. END SUMMARY.


2. (SBU) TEREM is a Bulgarian defense contractor which
specializes in repair of military vehicles, ships and
armaments; the destruction of excess munitions; and the
manufacture of industrial explosives. It also maintains a
little-used capacity for the production of heavy trucks and
military vehicles -- particularly transmission systems.
TEREM SHC is wholly owned by the Bulgarian Ministry of
Defense, and the MoD is its principal client. In recent
years, the Department of State has repeatedly contracted
directly with TEREM for destruction of excess arms and
munitions of the Bulgarian MoD through PM WRA's Small
Arms/Light Weapons destruction program.


3. (SBU) In 2002, TEREM was implicated in a scandal involving
transfer of dual-use equipment to Iraq via Syria (03 Sofia
273). However, subsequent personnel changes at TEREM and the
Ministry of Defense, as well as the firm's state-owned
status, lead us to believe that this scandal does not
indicate the firm to be an unreliable recipient of U.S.
Munitions List (USML) items. In particular, we have no
information to indicate that this transaction is anything
other than legitimate.


4. (SBU) In response to reftel questions, Yovchev described
TEREM as subcontractor to Elbit Systems on the Mi-17/Mi-24
refurbishment contract. In this role, he said, TEREM is
responsible for placing all necessary orders for parts.
Yovchev stated that the renovation work will be performed at
TEREM's "Letets" plant in Sofia -- not in Israel. He was
puzzled by reftel question on why the parts would be shipped
through Israel. According to him, TEREM's plan is to ship
them directly to Bulgaria from the U.S.. TEREM acknowledged
understanding the restrictions that apply to USML articles,
and stated categorically that the items were for Bulgarian
use and not for re-export.


5. (SBU) On December 19, Poloff spoke with Nikola Mihaylov,
head of the MoD's Arms Control Department. He confirmed that
the items in reftel application were for the MoD's use, and
that Major General Tsokov was the appropriate authorized
signatory.

Comment:


6. (SBU) Bulgaria has proven itself a reliable NATO ally, and
we believe that its renovation of its helicopter fleet is
fully compatible with U.S. interests. Unless concerns
described in paragraph 3 or discrepancies over the delivery
route of reftel equipment (via Israel vs. directly to BG) are
indicative of an ineligibility, Post recommends approval of
the proposed transaction. END COMMENT.

KARAGIANNIS