FM KALFIN ON ENERGY ISSUES, KOSOVO

C O N F I D E N T I A L SECTION 01 OF 03 SOFIA 001119

SIPDIS

SIPDIS

EUR FOR DAS BRYZA

E.O. 12958: DECL: 09/17/2017
TAGS: BU ECON ENRG KZ LY PGOV PREL RS TX AZ
SUBJECT: FM KALFIN ON ENERGY ISSUES, KOSOVO

REF: SOFIA 1100

Classified By: Ambassador John Beyrle for reasons 1.4 (b) and (d).


1. (C) SUMMARY: On September 13 Foreign Minister Kalfin
discussed energy issues with Amb Beyrle on the heels of his
recent trip to Central Asia. On the Burgas-Alexandropolous
pipeline (BAP),Kalfin said a coordinated effort by the other
players, and inclusion of additional shareholders such as
Chevron, might succeed in softening Russia's hard line. On
the Trans Caspian Pipeline (TCP),Kalfin said Nazarbayev was
interested, but doubted Turkmenistan's ability to meet its
commitments to supply gas. The Turkmen told Kalfin they are
ready to supply gas if there are concrete proposals. Kalfin
added that the Turkmen seem to be changing their policy of
selling gas at the border to a "formula" that includes
transit and the final price. On Nabucco, Kalfin said the
Russians and European experts argued that Azerbaijan did not
have enough gas to start the project.


2. (C) On Kosovo, Kalfin said we have to think about damage
control for the worst-case scenario, which would be a
unilateral declaration of independence and the Kosovo Serbs
breaking away. Finally, in their first meeting since Libya's
release of the Bulgarian medics, Kalfin reiterated Bulgaria's
thanks for the "decisive" U.S. support throughout the ordeal,
emphasizing that the Bulgarian public now understands better
the importance of good relations with the EU and U.S. END
SUMMARY.

Kazakhstan
--------------


3. (C) Kalfin briefed on his recent trip to Kazakhstan,
Turkmenistan and Tajikistan, his first time in the region.
He contrasted his reception in Central Asia where he was
"treated like a brother" to Russia's attitude of "now you are
against us." President Nazarbayev told him Kazakhstan is
trying to build a new cultural identity based on moderate
Islam. Kazakhstan accepts active Iranian and Chinese
interest in the economy. China is interested mainly in
resources and investing in projects. Iran is also spending
money in Kazakhstan.


4. (C) On the Burgas-Alexandropolous pipeline (BAP),
Nazarbayev told Kalfin he had asked Putin to let others in on
Russia's 51 percent, but Putin refused. New Kazakhstani
Foreign Minister Marat Tazhen said, "Russia won't be
convinced," but added that if the others held firm to a
common position it might be possible. On the Trans Caspian
Pipeline (TCP),Nazarbayev said that he was "very interested"
but did not understand the Turkmen position. He said they
signed treaties with Russia and China, "promising everybody
everything," and wondered if they would have enough gas to
meet all of their commitments. He said Azerbaijan was
receptive and believed that sooner or later the project would
be realized. He added that he expected Kazakh gas flow to
peak in 2014-15.

Turkmenistan
--------------


5. (C) Kalfin met with Turkmenistan President
Berdimuhamedov for an hour and a half. The Turkmen may be
changing their policy of selling gas at the border to a
"formula" that includes transit and the final price. They
regard the formula as a "big invention" and have begun
applying it to sales to China. The "formula" was not
realistic in terms of the market, Kalfin commented, but at
least now they were trying to think more in market terms.
Berdimuhamedov told him that Putin was pressing the Turkmen
to renew their gas agreement (although it is in effect until
2009) and offered his own formula. The Turkmen replied they
would consider Putin's offer when the current agreement
expires in 2009. Berdimuhamedov noted that Nabucco and South
Stream would be transporting "our gas, not Russia's." He
said Russia was developing oil and gas infrastructure
beneficial to itself using others' resources.


6. (C) Berdimuhamedov said Turkmenistan is ready to supply
gas now for TCP if there are concrete proposals, though there
are still "some issues" with Azerbaijan. Kalfin said
Turkmenistan is exporting gas to Iran at low prices because
of the Turkmen population in Iran, which makes no economic
sense. Not surprisingly, Ahmedinajad asked Turkmenistan for
more gas. Ashgabat now sees that the Iranians are
re-exporting the gas and may be reconsidering that policy.
On bilateral relations, Berdimuhamedov told Kalfin that
Bulgarian workers in Turkmenistan are favorably remembered
from the past and that he would offer Bulgaria an offshore
concession if Bulgaria wanted one. Kalfin said he was not
sure of Bulgaria's abilities to work a concession. The
Ambassador said the issue of TCP was clearly on the table
again, and the U.S. is interested in seeing it revived. A
Kazakh-Azeri-Turkmen summit on energy would promote progress
on TCP and other projects and would send a signal to Russia.


Burgas-Alexandropolous
--------------


7. (C) Kalfin said Bulgaria was considering ways to press
Russia to take less than a 51 percent share in BAP. Despite
gains from transit, taxes and employment, the project could
still lose money. Kalfin floated that perhaps coordinated
effort to press Russia would work, but he did not know
Nazarbayev's position, especially since the Greeks were also
talking to the Kazakhs. Bulgaria was interested in
additional shareholders in the project, such as Chevron. The
Ambassador noted Chevron's interest is tied to CPC expansion;
he had suggested to Minister of Regional Development Gagauzov
(reftel) to talk with Chevron. Kalfin said if BAP is
successful, it could only be with CPC oil.


8. (C) The Ambassador noted that a Bosporus bypass was
needed, but speculated that when Putin leaves office the
Russian commitment to BAP may not be as strong. Kalfin said
BAP was part of Putin's larger vision to expand Russian
influence; he was clearly pushing to get projects done by the
end of his term in March. The Ambassador replied that there
was no need to move fast just for Russia's sake, and
recommended that Bulgaria continue consulting with its
international lawyers on BAP.

Nabucco
--------------


9. (C) Kalfin said the Russians continue to argue that
there will not be enough Azeri gas to start the project and
that European experts were saying the same, although Iran
could provide enough gas. The Ambassador said that the
Russians were pushing disinformation, and recommended that
Bulgaria talk directly to Azerbaijan. He noted that South
Stream was a ploy against Nabucco and added that more
pressure was needed to move Nabucco along. Kalfin said there
was new Dutch coordinator for Nabucco, Van Acken, which
should help the process.

Kosovo
--------------


10. (C) The Ambassador said Washington was still
considering Bulgaria's offer to host a Troika meeting,
although others with easier flight connections also offered.
We were urging the Kosovars to do a better job in their next
round of presentations in the Troika meetings. Negotiations
may have a slim chance but we have to stick with them, and
with the Ahtissari plan. It is too early to start making
fallback plans -- it could get back to the parties and
undermine their incentive -- but we can start thinking about
them. Kalfin noted that Russian influence had practically
disappeared from the Balkans and Kosovo is one way to for it
to return. The Europeans should recognize this and
understand that Kosovo is a European, not a Russian issue.
Kalfin said we have to think about the worst case, which
would be the Kosovo Serbs breaking away, and how that would
affect the whole region. Perhaps a weak federation, such as
Montenegro and Serbia, would be a solution. If there is no
agreement, Kalfin said, we have to think of damage control
for the worst case.

Comment
--------------


11. (C) FM Kalfin's comments echo what we heard earlier
(reftel) from the Regional Development Minister: the
Bulgarians are having second thoughts about their (and
Greece's) cave-in last year ceding a majority stake to Russia
in BAP, but they still have no clear view of how to alter the
terms to better promote their interests. With a new Minister
of Energy (Petar Dimitrov) less susceptible to Russian
pressure than his predecessor, and with Kalfin actively
seeking to build direct links with the Kazakhs, Azeris and
Turkmen, the Bulgarians are at least creating the right
preconditions that might allow them to loosen the
Gazprom-Transneft stranglehold on their country. We will
continue working to schedule a Dimitrov visit to Washington
as soon as feasible. In parallel, we need to encourage
senior officials here (a) to move forward with BAP on a
timetable that serves the interests of Bulgaria, not Moscow;
and (b) to look long and hard at any proposed terms for a
South Stream project to avoid making the same mistake twice.
END COMMENT.
Beyrle