BULGARIANS MAKE NEW OFFER ON SOUTH STREAM IN

C O N F I D E N T I A L SOFIA 000023 SIPDIS SIPDIS EUR FOR DAS BRYZA E.O. 12958: DECL: 01/10/2018 TAGS: ECON ENRG PGOV BU SUBJECT: BULGARIANS MAKE NEW OFFER ON SOUTH STREAM IN LEAD-UP TO PUTIN VISIT REF: SOFIA 0014 AND PREVIOUS Classified By: CDA Alex Karagiannis for reasons 1.4 (b) and (d) ¶1. (C) Deputy Minister of Energy and lead Bulgarian South Stream negotiator Galina Tosheva told us January 11 that the Russians were unwilling to work from the new, Paul Hastings-drafted, South Stream intergovernmental agreement (IGA) during January 9 negotiations in Sofia (reftel). The IGA version the two sides ended up using did include some, but not all, suggestions made by Paul Hastings. Tosheva said the negotiations were difficult and they ended without result. On January 10, the Bulgarian Council of Ministers discussed South Stream during its weekly meeting, and Tosheva said when Minister of Economy and Energy Petar Dimitrov (who took part in the January 9 negotiations) returned from this meeting, he instructed her to send a new offer to the Russians. The new offer includes 50/50 ownership of the pipeline on Bulgarian territory (the Russians had wanted 51 percent ownership, while Paul Hastings recommended the Bulgarians insist on majority ownership),the Bulgarian right to collect transit fees, and a minimum yearly income for the Bulgarian treasury from the project. Tosheva thinks the Russians will refuse the Bulgarian offer, even though it contains concessions. Tosheva said President Georgi Parvanov, PM Sergei Stanishev, FM Ivailo Kalfin, and Minister Dimitrov will meet the afternoon of January 11 to discuss South Stream. If Russia turns down the Bulgarian offer, Tosheva hopes the President and PM will refuse to sign any South Stream agreement during the January 17-18 Putin visit. ¶2. (C) Comment: According to Paul Hastings attorney Mark Lewis, if the Russians accept 50 percent ownership, all decision-making authorities would need to be laid out in a subsequent shareholders agreement. He said a 50/50 split, while not ideal, is a "punt" on decision-making, not a catastrophe. If the Russians refuse this offer, and the Bulgarians do not cave in further, a South Stream IGA will not be signed during the Putin visit, and Bulgaria will be in a better position to negotiate the deal it wants. End Comment. Karagiannis