Identifier
Created
Classification
Origin
07SOFIA1023
2007-08-22 11:00:00
CONFIDENTIAL
Embassy Sofia
Cable title:  

LEGAL ADVISOR TO BULGARIA SEES DISORGANIZATION IN

Tags:  ECON ENRG BU 
pdf how-to read a cable
VZCZCXRO6897
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSF #1023/01 2341100
ZNY CCCCC ZZH
P 221100Z AUG 07
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC PRIORITY 4178
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 001023 

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/19/2017
TAGS: ECON ENRG BU
SUBJECT: LEGAL ADVISOR TO BULGARIA SEES DISORGANIZATION IN
B-A PIPELINE PLANNING

REF: SOFIA 0949

Classified By: CDA Alex Karagiannis for reasons 1.4 (B) and (D)

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 001023

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/19/2017
TAGS: ECON ENRG BU
SUBJECT: LEGAL ADVISOR TO BULGARIA SEES DISORGANIZATION IN
B-A PIPELINE PLANNING

REF: SOFIA 0949

Classified By: CDA Alex Karagiannis for reasons 1.4 (B) and (D)


1. (C) Summary: Negotiations on the Burgas-Alexandroupolis
pipeline are disorganized and behind schedule, according to
the U.S. attorneys advising the Bulgarian state-owned
companies involved in the project. The sides are still
dealing with basic issues such as the official language and
incorporation site of the project company. More complex
issues such as minority-owner rights and financing have yet
to be tackled. Russian tactics in the negotiations have been
"brutal" but Russian negotiators have been caught off-guard
by Bulgaria's spirited defense of its interests. Bulgarian
and Greek participants have made no genuine efforts to
coordinate positions before the project company's monthly
meetings, the next of which is to be held in Athens on August

27. End Summary.


NEGOTIATIONS BEHIND SCHEDULE


2. (C) In advance of the next meeting of Bulgarian, Greek
and Russian officials on the Burgas-Alexandroupolis pipeline
scheduled for August 27 in Athens, polecoffs met August 15
with Paris-based Liubomir Roglev of Paul Hastings (protect),
the U.S. legal firm hired by the Bulgarian state-owned
companies to represent them in B-A negotiations. Roglev
reiterated points made to us in July by another Paul Hastings
attorney, Mark Lewis (protect),that B-A negotiations are
behind schedule (reftel). After the last meeting of the
parties on July 12 in Sofia, Roglev, on behalf of the
Bulgarians, sent a summary of items supposedly agreed upon on
July 12. As of August 15, neither the Greeks nor the
Russians had responded. Basic issues, such as the official
language of the international project company (the Greeks and
Bulgarians support English while the Russians are insisting
on Russian) and where to register the company (the Russians
want Cyprus, while the Bulgarians and Greeks favor The
Netherlands or Luxembourg) have yet to be decided. Decisions
on larger issues, such as the protection of minority-owner
rights, construction costs and financing are being pushed
even further down the road. At this rate, according to
Roglev, a term-sheet of discussion issues, something that was

supposed to be agreed upon at the end of July, will not be
complete until the end of 2007.

NEGOTIATING POSITIONS AND TACTICS


3. (C) Roglev said he was surprised at the level of
disagreement within the Russian negotiating team. At the
July 12 meeting, the Russian side consisted of
representatives of Gazprom, Rosneft and Transneft. Roglev,
who understands Russian, said it was clear by the bickering
coming from the Russian side that they did not approach the
table with a united position. Nevertheless, Roglev
characterized Russian negotiating tactics as "brutal." He
described how, at one point, one of the Russian company
representatives pulled him aside to tell him to abandon his
effort to negotiate a deal for Bulgaria since Bulgaria was "a
small, powerless country." At other points Roglev said the
Russians treated their Bulgarian counterparts as compatriots
and appeared genuinely perplexed when the Bulgarian side
questioned or contradicted Russian proposals. Roglev also
reported that many of the Russian company representatives
appear less than familiar with the particulars of
international project financing. On more than one occasion,
Roglev said, the Russians questioned whether it was necessary
or wise to have a U.S. law firm involved in the negotiations.


4. (C) Roglev was not aware of any effort by the Greeks and
Bulgarians, as minority shareholders, to coordinate their
positions before the negotiations. He noted that after the
July 12 meeting, he had contacted a Greek counterpart about a
purely technical issue, but his question was met with
suspicion and was never answered. Roglev added that
Bulgarians and Greeks often share common concern over
EU-related matters, whereas the Russians tend to dismiss such
issues. Questions surrounding public debt limits and the
possibility that Transneft will seek to enter directly into
agreements with oil companies (which would violate EU
anti-monopoly rules) loom large, at least in the minds of the
Bulgarian participants, according to Roglev. Another
question in the back of his Bulgarian clients' minds is
whether Russia might, at any point, find a different route
for its oil and "lose interest" in B-A.

FINANCING


5. (C) Roglev said his firm's role is to help the Bulgarians
construct a deal that will attract project financing and
which will be attractive to outside buyers in the future. He

SOFIA 00001023 002 OF 002


said no one at the negotiating table is openly discussing the
future sale of interests in the pipeline to companies not
already participating, but he understands Chevron and
Kazmunaigaz are still interested. He was told that
Kazmunaigaz believes it can fill 60 percent of the 35 million
ton/year pipeline even without CPC expansion. But, he also
heard that the Russians will probably oppose Kazak
involvement in B-A. Roglev said banks have started to show
interest in the project, but mostly in terms financial
advising, not financing itself. While negotiations have not
yet touched upon estimates of the total cost of the pipeline,
Bulgarian Ministry of Economy experts quote a price tag of 1
billion euros.

Karagiannis