BULGARIAN ENERGY MINISTER'S MEETINGS IN MOSCOW

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000310

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/27/2016
TAGS: ENRG EPET PREL RU BU
SUBJECT: BULGARIAN ENERGY MINISTER'S MEETINGS IN MOSCOW

REF: A) 05 SOFIA 2063 B) SOFIA 202 C) SOFIA 190

Classified By: Amb. John Beyrle for reasons 1.4 (b) & (d)


1. (C) SUMMARY: Economy and Energy Minister Rumen Ovcharov
called his January 31 - February 1 meetings with Russian
energy officials constructive and productive, in contrast to
the bad taste left by Gazprom's heavy-handed approach to PM
Stanishev in Sofia last December (Ref A.) Bulgaria and
Russia have agreed to finalize plans with Greece for the
Burgas-Alexandropoulis oil pipeline, slated to be announced
in mid-March in Athens. They also agreed to further postpone
renegotiation of the Gazprom contract, while exploring
expansion of the capacity and reach of the existing gas
pipeline. Regarding the proposed Belene nuclear power plant,
Ovcharov indicated the Russian Atomstroyexport offer was
clearly superior to the Skoda one, but said details of the
contractor's participation were not yet settled. END SUMMARY

GAS
---


2. (C) Ovcharov requested a meeting with Ambassador Beyrle on
February 24 to discuss his trip to Moscow, a marathon of
meetings with top Russian oil, gas and nuclear officials
including Gazprom's Miller and Medvedev, Rosatom and
Atomstroyexport, UES/Chubays, and a two-hour session with his
counterpart Viktor Khrishenko. According to Ovcharov, the
meeting with Miller and Medvedev was "totally different" in
tone from Medvedev's finger-waggling performance with PM
Stanishev in Sofia. Both sides agreed that there would be no
changes to the current Gazprom delivery contract before the
end of this year. Gazprom is looking now to determine its
long-term partnerships, and is interested in an agreement
that would offset a reduction of the currently high transit
fee with an increased flow of gas through Bulgaria to Serbia,
Greece, and possibly Italy. The current structure has
headroom for an increased gas flow of 20-30 percent, Ovcharov
said. The Russians continue to raise the threat of sending
their gas through other pipelines in Greece and Turkey (Ref
B),both as leverage against Bulgaria and in order to avoid
reliance on the route through Ukraine.


3. (C) In addition, Ovcharov was told that Russia wants to
invest in/own local thermo-electric heating plants, as well
as the current gas pipeline. The latter cannot be addressed
until the end of this year because Bulgaria is complying with
an EU directive to liberalize the sector by carving up parts
of the current Bulgargaz empire, which includes the pipeline.
Ovcharov said the Russians are looking to obtain these
assets at preferred prices, but the issue has not yet been
seriously discussed. He characterized the topic as "an open
question."

BELENE NUCLEAR PLANT
--------------


4. (C) At Rosatom and Atomstroyexport, Ovcharov's hosts said
that they want a majority stake in the company that will own
Belene NPP (Ref C.) The GOB is looking to keep a majority
for itself, but needs to attract a strategic partner, which
could well be Russian. Commenting on the February 1 tender
to develop the two blocks at Belene, Ovcharov told the
Ambassador "in confidence" that the Russian Atomstroyexport
proposal is superior to the Czech Skoda proposal on technical
grounds. The Russian proposal is to build a modern,
double-containment facility, similar to projects being built
in China; the Skoda proposal, according to Ovcharov, is based
on 30 year-old technology with only single containment. In
addition, Russia is proposing both to provide the nuclear
fuel for the plant and to take back spent fuel for long term
storage in Russia. The Czechs are only offering to provide a
terminal, said Ovcharov, not the fuel.


5. (C) In spite of the deficiencies of the Czech offer and
the fact that Gazprom Bank owns a majority in both
Atomstroyexport and Skoda, Ovcharov told us his February
15-16 trip to the Czech Republic had confirmed that theirs
was a real offer -- not a stalking horse for the
Atomstroyexport proposal. Nonetheless, he said, because of
the containment the Skoda bid does not even meet the
technical specs of the Belene tender.

BURGAS-ALEXANDROPOULIS OIL PIPELINE
--------------


6. (C) Ovcharov told us the Russians will decide soon whether
they will move forward with plans for the B-A pipeline. This
is clearly a Russian state project, with participation of

SOFIA 00000310 002 OF 002


Sibneft, TNK-BP and Rosneft very likely, although Chevron's
later participation is also envisioned. Ovcharov agreed that
the viability of B-A is linked to increased output of CPC,
which he thought Russia was looking at more seriously.


7. (C) Maintaining control of the Universal Terminal Burgas
(UTB) is still the major outstanding issue for the Bulgarians
in the B-A negotiations. The GOB wants only one terminal for
all potential oil pipelines to protect Bulgaria's Black Sea
tourist industry, and to control the shipment of the oil
through Bulgarian territory. The Russians now want a
majority stake and control over the pipeline, said Ovcharov,
in spite of last year's tripartite memorandum of
understanding which calls for an equal three-way split.
Regardless of the ultimate division of ownership, each side
will be expected to pay for its own portion of building and
operating costs. All this should be resolved in Athens by
mid-March, Ovcharov hoped, when the parties expect to give
the go-ahead to the project.

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


8. (C) Ovcharov characterized the Russian approach as more
economic -- related to energy interests -- than as an attempt
to exert political pressure on Bulgaria. The tone of
Ovcharov's discussion with Gazprom were much less
confrontational this time, but Russia's leverage over
Bulgaria (which pays about 35 percent under market price per
gas unit) is unchanged. Ovcharov agreed with Amb. Beyrle
that by tying its future even more tightly to Russian oil,
gas and nuclear fuel, Bulgaria would become further dependent
on one source for its energy needs, but he said the
Bulgarians saw very few near term alternatives: "give me a
better option and I'll take it," Ovcharov said ruefully.
Clearly, though, Russia sees Bulgaria as a reliable partner
and is comfortable with greater dependence on Bulgaria for
getting its energy to Western markets. Russia, it is
presumed, does not want to put all its eggs in the Turkish
transit basket, already heavy with the Bosphorous straits,
Blue Stream, Samsum-Ceyan, and other projects. For that
reason, Bulgaria might enjoy a bit of leverage over Russia --
in the longer run. In the near term, Bulgaria's economic
interest in maintaining the gas subsidies from Russia will
give Moscow a strong bargaining hand in discussions over the
B-A pipeline and especially the Belene project -- which
Ovcharov all but declared in the win category for Russia.
END COMMENT
Beyrle