Identifier
Created
Classification
Origin
06SOFIA1696
2006-12-21 13:41:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Sofia
Cable title:  

BULGARIA LOCKS IN NEW DEAL WITH GAZPROM UNTIL 2030

Tags:  ENRG ECON RU BU 
pdf how-to read a cable
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PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSF #1696/01 3551341
ZNR UUUUU ZZH
P 211341Z DEC 06
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC PRIORITY 2997
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS SECTION 01 OF 02 SOFIA 001696 

SIPDIS

STATE FOR EUR/NCE MNORDBERG

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON RU BU
SUBJECT: BULGARIA LOCKS IN NEW DEAL WITH GAZPROM UNTIL 2030

Ref: SOFIA 1554

UNCLAS SECTION 01 OF 02 SOFIA 001696

SIPDIS

STATE FOR EUR/NCE MNORDBERG

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON RU BU
SUBJECT: BULGARIA LOCKS IN NEW DEAL WITH GAZPROM UNTIL 2030

Ref: SOFIA 1554


1. (SBU) SUMMARY: Bulgaria signed December 18 a deal with Russian
gas giant Gazprom, guaranteeing Russian natural gas deliveries and
transit until 2030. Insiders tell us the price of gas will
gradually rise 40 percent by 2012 - largely due to the termination
of the agreement to barter gas in lieu of cash transit fees. In
return for Bulgaria's concession to pay higher gas prices, Russia
will increase the amount of gas transited through Bulgaria to third
countries. The Bulgarian government is expected to receive four
times more in transit revenues over twenty years as a result of this
increase. The lack of transparency surrounding the deal, however,
raises suspicions that there are undisclosed side deals. END
SUMMARY


2. (U) Following nearly year-long talks, the Bulgarian government
has agreed with Gazprom on a new gas supply deal to replace the
current agreement which expires in 2010. A memorandum to this
effect was signed December 18 by Gazprom CEO Alexei Miller, Deputy
Minister of Economy and Energy and Chairman of the BoD of Bulgargaz
Valentin Ivanov, and the CEO of Bulgargaz Kiril Gegov. Minister of
Economy and Energy Rumen Ovcharov, who led the with Gazprom and
fiercely fought within the ruling coalition to get approval for the
deal, hailed the agreement as favorable for Bulgaria's macro
economic stability, saying Bulgaria has won "unprecedented
concessions" from Gazprom. Ovcharov has admitted that details of
the deal will not be fully disclosed at Gazprom's request; the
Russian monopoly is currently in talks with several east European
countries.

KEY PARAMETERS OF THE DEAL


3. (U) There will be a gradual rise in consumer gas prices over the
next six years:

* A 40 percent increase of consumer gas prices by 2012.
* The first increase will occur on April 1, 2007 and will be less
than 10 percent, followed by another smaller price increase in July.

* The price increase will be highest in 2007. Additional increases
will be evenly distributed over 2008, 2009, 2010, and in the last
two years (2011 and 2012) the increases will be small.
* Gas supplies will be paid only monetarily, i.e. there will be no
more barter of transit fees in the form of gas.


4. (U) In 2007 Gazprom will begin to increase the amount of gas
transiting through Bulgaria. The minimum guaranteed volume of
natural gas flowing through Bulgaria until 2030 will be 17.8 Billion
cubic meters per year. The transit quantity may increase by 5
Billion cubic meters per year after 2010. According to the Ministry
of Economy and Energy, revenues from the increased transit of
Russian gas will grow to USD 3.1 billion over twenty years from the
current USD 800 million. Under the most optimistic forecasts about
transit, revenues could reach USD 5.2 billion. The transit tariff
will increase every year indexed to the EU inflation rate.


5. (U) The government has further estimated that the new deal will
cost Bulgargaz USD 500 million by end-2012 due to increased prices.
Others put that number closer to USD 750 million. The government
claims that losses from the reduction of the amount of transit gas
through Bulgaria after 2010 could have cost state revenues between
USD 2.3 billion and USD 4.4 billion if Russia chose to divert its
gas through other routes. It appears that consumers will assume the
burden of the price increase, while the government will retain the
increased transit fees and not pass on the benefits to gas
customers.

CURRENT CONTRACT
--------------


6. (U) Bulgaria currently buys Russian gas under two different
contracts due to expire in 2010 - one for the direct supply of gas
and one for gas in exchange for transit. Bulgaria presently
receives 1.4 billion cubic meters of gas in barter for gas transit
at USD 83 per 1,000 cubic meters. The remaining 1.7 billion cubic
meters Bulgaria pays at the market price of USD 250-260 per 1,000
cubic meters. In this way, the country has managed to keep its
current domestic prices relatively low, at about USD 170 per 1,000
cubic meters.

COMMENT:


7. (SBU) The long-term contract will mean a long-term dependency on
Russian gas imports and Russian energy policies. Bulgaria's deal
with Gazprom was signed in the absence of transparent public
discussion, raising questions about who really profits from the
arrangement. We have repeatedly pressed senior leaders over the
past year that Bulgaria should avoid locking itself into long-term

SOFIA 00001696 002 OF 002


contracts and must continue to pursue alternative supply routes.
While the government agrees to the need for energy - especially
natural gas - diversity (Nabucco, Southern Corridor, Liquified
Natural Gas),this agreement takes some of the urgency out of those
efforts.
KARAGIANNIS