Identifier
Created
Classification
Origin
07SOFIA611
2007-05-17 13:44:00
CONFIDENTIAL
Embassy Sofia
Cable title:  

PUTIN PUSHES RUSSIA-TO-BULGARIA UNDERSEA GAS

Tags:  ENRG PREL EUN RU BU 
pdf how-to read a cable
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DE RUEHSF #0611/01 1371344
ZNY CCCCC ZZH
O 171344Z MAY 07
FM AMEMBASSY SOFIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3719
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE IMMEDIATE
RUEHAK/AMEMBASSY ANKARA IMMEDIATE 0700
RUEHAH/AMEMBASSY ASHGABAT IMMEDIATE 0045
RUEHKB/AMEMBASSY BAKU IMMEDIATE 0035
RUEHMO/AMEMBASSY MOSCOW IMMEDIATE 0584
RUEAIIA/CIA WASHINGTON DC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC IMMEDIATE
RHEHNSC/NSC WASHINGTON DC IMMEDIATE
C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000611

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/16/2017
TAGS: ENRG PREL EUN RU BU
SUBJECT: PUTIN PUSHES RUSSIA-TO-BULGARIA UNDERSEA GAS
PIPELINE

REF: SOFIA 582

Classified By: ALEX KARAGIANNIS, CDA, FOR REASONS 1.4 B & D

1 (C) SUMMARY: President Putin told Bulgarian Prime Minister
Stanishev May 8 that Russia is interested in building a gas
pipeline from Izobilny (Stavropol, in the Caucuses),Russia,
to Varna, Bulgaria. Russian interest in the project is
driven at least in part by a wish to bypass Ukraine's "aging"
gas-transit infrastructure. The Russian President downplayed
the potential for Caspian gas to reach Europe and held out
the prospect of Bulgaria becoming "a major transit center"
for Russian energy. The proposed pipeline would carry 30
bcm/year to Greece. Although most major details (financing,
throughput contracts) have not been addressed, both sides are
working quickly to nail down the broad outlines of the
project. They have already agreed that Russia would own 51%
and Bulgaria 49% of the international project company, which
will run from Russia to Varna and into Greece, without
utilizing any of Bulgargaz's existing infrastructure. Some
Bulgarian government officials, including Ambassador to the
U.S. Elena Poptodorova (Protect),are alarmed by the prospect
of yet another bilateral energy deal with Russia. The
majority of Bulgarian officials, however, while accepting our
arguments that they and the rest of Europe are too dependent
on Russia energy, appear to be caught up in the "every man
for himself" mindset that substitutes for an EU energy
policy. END SUMMARY


2. (C) PM Stanishev visited Moscow May 6-8. In a restricted
bilateral, Putin dwelt at length on energy, other issues
reported septel. The PM's foreign policy advisory, Vladimir
Radomirski gave us an extensive readout May 17. Putin told
Stanishev that Ukraine's gas-transit infrastructure was
falling into disrepair and needed "huge investment,"
according to Radomirski. The Russian leader implied that
Ukraine was reluctant to allow Gazprom to make the needed
investment, and Russia was therefore looking for
"alternatives." Dismissing the alternatives to Russian gas,
Putin reportedly told Stanishev that "you cannot stake too
much on Caspian gas." He asserted that Azeri reserves were

unproven and that there were "political, psychological,
economic, and technical limits" standing in the way of
Caspian gas supplies to Europe. Among the technical
impediments he cited to Stanishev was the "mountainous
seabed" of the Caspian. Russia had already demonstrated that
it could build a pipeline under the Black Sea. Moreover,
such a pipeline would help turn Bulgaria into "a major
transit center," Putin asserted.


3. (C) The Russian President expressed skepticism to
Stanishev about the prospect of filling a gas pipeline
between Turkey and Greece, asserting that Iran regularly cuts
supplies to Turkey without notice, forcing Gazprom to step in
and fill the shortfall. Turkmenistan (seeing Uzebekistan's
experience) "prefers to work through Russia," and is more
likely to support a pipeline to Pakistan and India than to
Europe. When we refuted Putin's claims, Radomirski
acknowledged that "Russia is playing a geo-strategic game on
energy," and exploiting its advantages. Radomirski added
that Bulgaria wants alternate sources, but has no real
alternative to Russian energy in the short term: "If Nabucco
can provide gas, we will buy it," Radomirski said. He also
lamented the lack of unity in the EU, which left Bulgaria and
other small countries "feeling like they are alone."
Bulgaria is also concerned that it will again be by-passed by
Blue Stream II; thus the interests in other routes.

ENERGY MINISTRY WORKING OUT DETAILS


4. (C) Deputy Minister of Energy Galina Tosheva provided
additional details about Minister of Energy and Economy
Ovcharov's Moscow meetings. She told us on May 16 that while
most of the press details about a project to expand Russian
gas transiting through Bulgaria were incorrect, it was true
that the two countries were seriously discussing the
proposal. Talks began as early as April 5, during Gazprom's
Alexy Miller's Sofia meeting with PM Stanishev, and picked up
during Stanishev's visit to Moscow when Russia presented a
draft agreement. There is no deadline to sign the agreement,
but GOB energy authorities planned to meet on May 17 with
Minister Ovcharov - who is on a 10-day forced leave during a
scandal investigation (Reftel) until May 21 - to discuss the

SOFIA 00000611 002 OF 002


Bulgarian response.


5. (C) Tosheva said Russia is in a hurry, but major
unanswered questions remain, such as where the company will
be legally headquartered, what Bulgaria will offer for its
49% share (besides technical support and operation - via
Bulgargaz - of the Bulgarian portion of the pipeline),and
whether Greece has actually agreed to purchase the gas. She
was confident that sufficient financial support exists from
Western banks and investment funds to finance the project.
Although Gazprom Bank could finance a large part of this,
Tosheva claimed Gazprom would only enter projects that were
economically sound, and for which they could get backing on
market terms.


6. (C) According to Tosheva, this project is solely for
transit, as Bulgaria currently has enough supply from its
recently amended contract with Gazprom. In the future,
Bulgaria could purchase gas, or it could be transited to
other countries (Macedonia, Turkey, Serbia and onward),but
Tosheva said that is not being discussed at this point.
There is no estimate of the costs, but Tosheva thought it
would easily be north of Euro 4 billion, based on Blue Stream
costs. Press reports of two billion (currency unclear) in
transit fees are wildly off the mark, in fact it would be
closer to the $35 million annual fees expected for the
Burgas-Alexandropoulis oil pipeline.


7. (C) When asked how "real" the project is, Tosheva shrugged
and smiled, saying there are a lot of ideas out there for
pipelines. But she quickly added that it would be better for
Bulgaria to have a pipeline go through Varna than come
through Blue Stream I or II in Turkey. She also said
Bulgaria strongly supports Nabucco and the
Turkey-Greece-Italy interconnector with a spur to Bulgaria,
and does not want this project to interfere with the
possibility that Nabucco would be built. In this context,
she expressed concern about Turkey's true intentions in
becoming a gas hub or exchange. (We explained that Turkish
energy leaders recently agreed to transit, rather than
re-sale of gas, but she seemed unaware of this position.)


8. (C) Tosheva acknowledged that Bulgaria will run up against
EU opposition, but pointed to long-term deals (and in some
cases pipelines) between Gazprom and Germany, France and
Hungary. She said there is no prohibition in the draft
agreement on working on other pipeline projects or
importing/transiting other gas. In fact, Tosheva said
Bulgaria's aim is to "have as many pipelines as possible in
order to take advantage of their geographic, strategic
position," and that "Nabucco remains the main priority."
American and Western companies would be welcome to
participate in financing and/or construction.


9. (C) COMMENT. Econ/Energy Minister Ovcharov is very much
involved in the latest discussions, and the Ministry is
clearly planning and awaiting his return to work; Tosheva,
however, couldn't answer with certainty whether the deal
would continue if Ovcharov were to lose his job. Some
knowledgeable Bulgarians have speculated that the latest
pipeline deal was a last-ditch effort by Ovcharov to make
himself appear indispensable, but Radomirski's readout of the
Putin-Stanishev talks lend credence to the notion that there
is more to this than Ovcharov's usual showmanship, and that
something had been in the works (or up the Russian sleeve)
for some time. Regardless of whether Russia's goal is to
stop Nabucco and TGI, or put pressure on Ukraine or Turkey in
negotiations regarding Blue Stream expansion, the Bulgarians
appear very interested in pursuing negotiations on this
"Black Sea Stream" proposal. Bulgarian officials accept our
arguments that they and the rest of Europe are too dependent
on Russia energy, but appear to be caught up in the "every
man for himself" mindset that substitutes for a European
energy policy. The Bulgarians know they are playing a weak
hand, but seem too eager to be at the table as Russia holds
stronger cards. Greater EU unity, and greater coordination
between Bulgaria, Greece and Turkey, could block Russian
progress, but we don't see Bulgaria leading that charge, at
least not now.
Karagiannis