BULGARIANS HIRE LEGAL COUNSEL FOR SOUTH STREAM

C O N F I D E N T I A L SOFIA 000014

SIPDIS

SIPDIS

EUR FOR DAS BRYZA

E.O. 12958: DECL: 01/07/2018
TAGS: ECON ENRG PGOV BU
SUBJECT: BULGARIANS HIRE LEGAL COUNSEL FOR SOUTH STREAM

REF: A. A) 07 SOFIA 1394

B. B) 07 SOFIA 1339 AND PREVIOUS

Classified By: Charge Alex Karagiannis for reasons 1.4 (b) and (d)


1. (C) Bulgargaz, the Bulgarian state-owned energy company,
has hired the U.S. law firm Paul Hastings to advise the
Bulgarian side as it negotiates an intergovernmental
agreement with the Russians on the South Stream pipeline.
Paul Hastings partner Mark Lewis confirmed to us January 4
that his company had been brought on, initially for one
month, to help the Bulgarians draw up a document that could
be signed during the January 18 visit of President Putin.
Lewis said the Russian-proposed IGA is, as suspected, highly
slanted in Russia's favor. Lewis' firm is re-writing the
draft IGA to include language that protects Bulgarian
interests on several key points: Bulgarian majority ownership
of the pipeline on Bulgarian territory (the Russians have
proposed that Russia own 51 percent); the Bulgarian right to
participate in the under-sea portion of the pipeline, if it
so desires; the right to use excess capacity of the pipeline;
and the right to collect transit fees (the Russians are
arguing that under EU law, the GOB cannot collect such fees.)
Most importantly, Paul Hastings is recommending that
Bulgaria insist that any bilateral IGA on South Stream be
conditional on a later, multilateral IGA that Russia would
have to negotiate with all future participants in the
project. This multilateral IGA would be the "real"
agreement, while the current IGA, if it is actually signed,
would be more general, and political, in nature. Our energy
contacts tell us that they are now less certain that a
document on South Stream will actually be signed during
Putin's visit, although this is still the goal.


2. (C) Comment: Now that the Bulgarians have taken our
advice to hire competent legal counsel on South Stream
(reftels),we must make certain they -- specifically
Bulgargaz -- take this advice. The circumstances surrounding
the hiring of Paul Hastings are anything but transparent.
Lewis said he received an urgent call from a Bulgargaz
contact on December 20 asking Paul Hastings to take on the
project. This contact told Lewis Bulgargaz head Lubomir
Denchev was "instructed" by the Ministry of Economy and
Energy to hire legal counsel in early December, but had not
done so because "he forgot." Bulgaria's South Stream lead
negotiator, Deputy Minister of Economy and Energy Galina
Tosheva, learned of the hiring of Paul Hastings from the
Embassy, not from other government officials. We arranged
Tosheva's first meeting with the attorneys on January 4.
After his initial meetings with Bulgargaz and MinEnergy,
Lewis said that while these two entities are approaching the
substance of the South Stream IGA from relatively similar
standpoints, it is clear that Bulgargaz head Denchev is
decidedly more pro-Russian. Lewis confirmed that relations
between the Ministry of Economy and Energy and Bulgargaz are
not good and Paul Hastings will have to strike a delicate
balance between advising its official client (Bulgargaz) and
feeding information to the Ministry of Economy and Energy
(Tosheva). The next round of Russian-Bulgarian negotiations
is due to start January 9. With Putin due to arrive January
17, we'll be pulsing our contacts daily on how the Russians
react to Bulgaria's new proposals -- and stiffer backbone.
End Comment.


Karagiannis