RUSSIA-BULGARIA ENERGY: SOUTHSTREAM MOU TO BE

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 005242

SIPDIS

SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
DOE FOR HARBERT, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR MCKIBBEN

E.O. 12958: DECL: 10/31/2017
TAGS: EPET ENRG ECON PREL RS
SUBJECT: RUSSIA-BULGARIA ENERGY: SOUTHSTREAM MOU TO BE
SIGNED NOV 9; BAP "FAR OFF"

REF: A. SECSTATE 150552

B. SOFIA 1240

C. MOSCOW 4691

Classified By: Econ MC Eric Schultz for Reasons 1.4 (b/d)

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SUMMARY
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1. (SBU) Bulgarian Economic Officer Kiril Vachev told us
October 31 that Economy and Energy Minister Petar Dimitrov
will visit Moscow November 7-9 to sign an MOU on the proposed
Southstream gas pipeline (reftels). The MOU will signal
political support in principle but leave all details to the
future. Separately, he described the Burgas-Alexandropolous
oil pipeline (BAP) as a "very complicated" project and
predicted that its realization is far off. End summary.

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BULGARIAN "POLITICAL SUPPORT" FOR SOUTHSTREAM
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2. (SBU) In an October 31 meeting at the Bulgarian Embassy,
Economic Officer Kiril Vachev told us the Bulgarian
government supports the Russian proposal for the Southstream
gas pipeline on a political level. He indicated that Russia
has lobbied Bulgaria to support the pipeline, but not
aggressively. Vachev said Minister Dimitrov will arrive in
Moscow November 7 to negotiate the final text of the proposed
MOU with the intention of signing it on November 9.


3. (SBU) According to Vachev, the document will be an
agreement only on the most general principles. All the
technical and financial details will be left for future
negotiations. He said Bulgaria has a natural interest in
hosting such a pipeline given its strategic position in
Eastern Europe and the long-term revenue stream such a
project might generate. Asked whether the Nabucco project
will not have similar benefits, Vachev said he would need to
ask Sofia for instructions before responding. (Comment:
This could indicate the GOB has settled on, for now,
supporting Southstream or it may simply indicate Vachev,s
ignorance of the issue. In any event, we will follow up.
End comment.)

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BAP "A LONG WAY OFF"
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4. (SBU) Turning to oil, Vachev said he was not optimistic
that the BAP would materialize any time soon. He said the
Bulgarians agreed, after 15 years of talking about the BAP,
to give the Russians 51% of the project because, in effect,
the Russians had the upper hand -- "they have the oil and
could kill the project." The Russians are now pushing to
establish a company by the end of this year to manage the
BAP, but Vachev didn't believe this was possible.


5. (SBU) Vachev repeatedly said the BAP is "very
complicated," given the varying and various interests of the
three countries involved. Among the potential roadblocks he
highlighted the need to clarify the pipeline,s route and
obtain legal rights from the many landowners along it. He
believed the Greeks have a similar problem. He suggested
that environmentalists will likely raise concerns as well,
although they haven't yet.

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COMMENT
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6. (C) Ideally, any MOU on Southstream would be for a
privately owned and managed pipeline, unbundled from
suppliers (i.e. Gazprom). Failing that, the GOR, Gazprom, or
any other supplier should be, at best, a minority
shareholder. The fact that the MOU will punt tough
commercial issues down the road still gives us time to
influence the final agreement as well as to lobby on behalf
of Nabucco. On the oil front, further delays with BAP could
effect CPC expansion. As we understand it (ref C),the

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agreement on CPC expansion has a one year timeline and
depends, at least from the Russian viewpoint, on an agreement
being reached on the BAP simultaneously. End comment.
Burns