AMBASSADOR DELIVERS SOUTH STREAM POINTS

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 001288

SIPDIS

SIPDIS

EUR FOR DAS BRYZA

E.O. 12958: DECL: 10/31/2017
TAGS: ECON ENRG EU PGOV RU BG
SUBJECT: AMBASSADOR DELIVERS SOUTH STREAM POINTS

REF: A. A) SECSTATE 150552

B. B) SOFIA 1240 (NOTAL)

C. C) SOFIA 0949 (NOTAL)

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


1. (C) Summary. In response to ref A points on South
Stream, Bulgarian Minister of Economy and Energy Petar
Dimitrov told Ambassador October 31 that he welcomed and
valued the U.S. appraisal of the project. He expressed
concern that if Bulgaria did not go forward with South
Stream, Romania, Turkey, or Greece would. He said Bulgaria
would like to team up with other European Union members in
its negotiations with the Russians on South Stream, but
Russia is insisting on bilateral negotiations, and Italy,
known for its special relationship with Russia on energy, is
"controlling the dialog" on the project within the EU. He
reported that contrary to Russia's wishes, Bulgaria is
insisting that South Stream involve a new, "additional"
pipeline on Bulgarian territory, otherwise the ownership
structure of Bulgaria's existing pipeline infrastructure
would be in doubt. Dimitrov said Bulgaria is firmly
committed to Nabucco, but expressed concern about the
security of Nabucco's gas supply. If Nabucco doesn't happen,
he said, "Bulgaria needs South Stream." Separately DCM
delivered South Stream points to PM foreign policy adviser
Valentin Radomirski, who confirmed that Minister Dimitrov
would travel to Moscow in early November to sign an MOU on
South Stream, a paper he described as a single page and
"close to a nothing document." Radomirski said the
Bulgarians are aware of Russian divide and conquer tactics
and complained that Russia is consistently trying to change
the terms of negotiations on both South Stream and the
Burgas-Alexandropolous pipeline (BAP). He said pressure to
sign deals on these two projects will only increase as
Putin's January visit approaches. End Summary.


2. (C) Ambassador delivered Ref A points on South Stream to
Minister of Economy and Energy Petar Dimitrov October 31.
Dimitrov responded that he welcomed U.S. views on South
Stream and other energy projects such as BAP, the AMBO
pipeline, Nabucco, and the Belene nuclear plant. He said the
media has been delivering a consistent supply of
misinformation about all of these projects, which has served
to frighten away certain potential investors and caused
political tensions. He said Bulgaria has a clear idea of
what its interests are in the near-term, but is having
difficulty surmising the ramifications of energy deals like
South Stream "30 years out." Dimitrov described South Stream
as a controversial project - good for project partner Italy
and Western Europe, good for Bulgaria in terms of transit
fees, but unpopular with countries such as Ukraine, Moldova
and Romania, which may see their roles as transit countries
diminish due to the project. He expressed concern that if
Bulgaria did not go forward with South Stream, there would be
no hesitation on the part of Turkey, Greece and Romania to
take Bulgaria's place. Ambassador replied that the USG would
deliver the same message to all of these countries.
Ambassador urged Bulgaria to coordinate with other EU members
when negotiating with the Russians on South Stream, just as
Greece and Bulgaria are negotiating together with Russia on
BAP. Dimitrov replied that Russia is insisting on bilateral
negotiations with each of the South Stream partners, and
Italy, known for its special relationship with Russia on gas,
is "controlling the dialog" on South Stream within the EU.


3. (C) On Nabucco, Dimitrov said Bulgaria is firmly
committed but he expressed concerns over input and the route
Nabucco would take, citing the potential for political
instability in the region. The Ambassador countered by
citing the trouble-free operation of the Baku-Tbilisi-Ceyhan
oil pipeline along the same route as the South Caucasus gas
pipeline. The real issue was, however, whether Gazprom would
be able to supply sufficient gas at competitive prices for
South Stream. He urged Dimitrov to demand that Russia
identify the source of gas for South Stream and the timetable
for its development. Dimitrov said the GOB also had doubts
about the cost competitiveness of Russian gas. He said
Bulgaria had recently held discussions with Kazakhstan and
Uzbekistan about developing gas fields in those countries and
the prices offered were two to three times lower than Russian
offers.


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4. (C) Separately, DCM delivered South Stream points to PM
Foreign Policy Adviser Valentin Radomirski October 31.
Radomirski, who is on the GOB's South Stream Working Group,
confirmed Minister Dimitrov would travel to Moscow to sign an
MOU on South Stream (ref B) on/about November 6. (Note:
Dimitrov did not mention this in his meeting with the
Ambassador.) Radomirski described the MOU as a single page
and "close to a nothing document" which leaves the details to
a future Intergovernmental Agreement. (Note: Post has early
versions of this one-page MOU.) He said the Russians are
consistently showing bad faith in their negotiations on BAP
and South Stream, but pressure to sign deals on these
projects will only increase as Putin's January visit
approaches. Radomirski also stated that Bulgaria wants
Russia to specify where the pipeline extension would exit
Bulgaria -- Greece, Romania, Serbia, Macedonia. Bulgaria
wants diversity of sources, and at a minimum, diversity of
pipelines. He suspected that the Russian bureaucracy has 1)
not thought through all the routing issues; 2) does not want
to give Putin bad news; and 3) will step up pressure on
Bulgaria and others in divide and conquer tactics. He
welcomed the idea of hiring an expert to advise Bulgaria but
thought it would be more advantageous after the MOU is signed
and the EU has additional clarity on its energy policy.
(Comment: We believe that is too late.)


5. (C) Comment: It is clear Dimitrov has been influenced
by Gazprom's propaganda casting doubt on Nabucco's prospects,
and the GOB is again feeling Russian pressure aimed at the
"inevitability factor" for South Stream. We will reach out
to all members of Bulgaria's South Stream working group to
lay out the facts about Azerbaijan and Nabucco and reinforce
the need for the GOB to obtain legal counsel when negotiating
the IGA with the Russians. (Note: Ambassador provided
Dimitrov with a list of legal advisers recommended by USAID.)
Ambassador also invited Dimitrov and 1-3 close advisers to
visit the United States for energy and investment
consultations as part of a Voluntary Visitor Program. As
soon as we receive dates from the Minster, we will work with
Department to set up a program that will showcase for
Dimitrov, a relative newcomer to the field of energy (ref C),
how the U.S. views and regulates energy. Such a trip would
offer a strategic chance to drive home the USG's views on
South Stream in advance of Putin's expected visit to Sofia in
January 2008. End Comment.


Beyrle