SOUTH STREAM RATIFIED; MORE ON GAS CUTS TO GREECE

C O N F I D E N T I A L SOFIA 000503 SIPDIS EUR FOR DAS BRYZA, DEPT FOR ENVOY GREY; ENERGY COORDINATOR MANN E.O. 12958: DECL: 07/23/2018 TAGS: ENRG ECON BU SUBJECT: SOUTH STREAM RATIFIED; MORE ON GAS CUTS TO GREECE REF: A. SOFIA 471 ¶B. ATHENS 1019 Classified By: CDA Alex Karagiannis for reasons 1.5 (b) and (d). ¶1. (C) After several days of contentious debate, Parliament ratified the South Stream Intergovernmental Agreement with Russia July 25. The vote was 140 in favor, 47 against. After the vote, BSP MP and former Energy Minister Rumen Ovcharov defended South Stream, saying it was in line with European energy strategy and had the blessing of the Eruopean Commission. Opposition MPs blasted the deal, saying it posed a threat to Bulgaria's national security. Meanwhile, Bulgargaz continues to move foward with the project. Bulgargaz head of international projects Denitsa Beyazova (strictly protect) told us July 24 that Bulgargaz officials are currently in Moscow to sign a confidentiality agreement to see a Russian-produced feasibility study on South Stream. She said it is becoming apparent that Bulgaria will not insist on an unbiased feasibility study, but instead will move ahead with the Russian study. The next step, she said, will be to start negotiations on the South Stream Bulgaria shareholders' agreement. Beyazova, who is suspicious of the South Stream project, recommended the USG urge the GOB to insist that state-owned Bulgargaz make use of its outside legal counsel to advise on the structuring of the shareholders' agreement. ¶2. (C) Beyazova also provided more details on Bulgargaz's role in recent gas cuts to Greece (ref A). She said Bulgargaz decided not to pump gas to Greece during scheduled pipeline maintenance in July (reftels) as part of a negotiating strategy on a potential Bulgargaz/Greek deal on gas swaps. She explained that Bulgaria is currently experiencing a .6-.7 bcm shortage of gas. In the past Gazprom could be relied upon to make up this shortfall, but this year Gazprom is refusing, probably, she said, due to Bulgargaz-Gazprom negotiations over a new long-term gas supply contract and perceived Bulgarian foot-dragging on South Stream. Bulgargaz is looking elsewhere to make up for this shortage and is in negotiations with Greece on a gas swap. Bulgaria would contract for 1 bcm of LNG to be delivered to Greece in exchange for the right to take off gas from the pipeline that would normally transit to Greece. Beyazova said Bulgargaz CEO Lubomir Denchev is currently in Athens working on this project. She added that Bulgargaz has been talking with Gaz de France about the 1 bcm LNG contract. ¶3. (C) Comment: We cannot verify Beyazova's assertions, but her claim about the gas swaps may be valid. CEO Denchev mentioned an upcoming deal on LNG with Greece in our discussion with him July 17. As head of international projects, Beyazova has access to sensitive Bulgargaz contracts and strategic plans. Her employer has noticed her low regard for South Stream, and may be shutting her out of the latest negotiations on this particular project. South Stream's ratification came as no surprise, but the confidentiality agreement and likely biased feasibility study are bad news. We are urging the government to hold to a higher standard, especially in light of the July 23 EU report which takes Bulgaria's reputation for transparent and effective money management to severe task. Karagiannis