BULGARIA OUT IN THE COLD: DAY TWO OF GAS CUT-OFF

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000002

SIPDIS

E.O. 12958: DECL: 01/06/2019
TAGS: ENRG ECON PREL PGOV
SUBJECT: BULGARIA OUT IN THE COLD: DAY TWO OF GAS CUT-OFF

REF: SOFIA 0001

Classified By: Ambassador Nancy McEldowney for reasons 1.4 (b) and (d).


1. (C) Summary: Bulgaria endured a second day without gas
January 7. Thousands of homes and many schools report
significantly reduced - or no - heating, although the country
did not experience any major power interruptions. Several
large industrial firms are shutting down and laying off
employees for the duration of the crisis. Leading
opposition parties are calling for the PM's resignation over
his handling of the crisis. On the diplomatic front, the
Bulgarians will support the "strongest possible" statement at
the January 8 EU Foreign Ministers' meeting, calling into
question Russia and Ukraine's reliability as partners and
demanding immediate resumption of gas supplies. Time is not
on Bulgaria's side: record low temperatures are expected and
a major political crisis is looming. End Summary.

Situation on the Ground
--------------


2. (SBU) There were no large scale power outages overnight.
Many residences and schools in large cities report
significantly reduced heating. Twelve thousand residents of
the Black Sea town of Varna are without heat, although
emergency gas is being delivered to the district heating
station there to ease the transition to fuel oil. In the
capital, authorities are discussing the closure of 60 schools
due to lack of heating. Hospitals are operating normally.
City officials have ordered street lights dimmed and heat to
public transportation cut in order to save energy. Power
grid oversight officials warn of the possibility of rolling
blackouts if the crisis continues. Weather is a factor.
Snow is predicted for January 8, followed by a cold snap due
to bring record low temperatures to many parts of the country
over the weekend.

Economic Impact
--------------


3. (SBU) Already in the middle of an economic turn-down,
Bulgaria's economy is being hit hard by the gas cut. On
January 7, the Economy and Energy Minister met with the
largest industrial gas users to explain gas usage
restrictions. The Bulgarian Association of Employers
estimates a business loss of 500 million levs (347 million
USD) for each day without gas. Major plants are scaling back
and laying off employees while others, such as Neochim
Dimitrovgrad -- the largest fertilizer producer in the
Balkans -- are closing altogether. Kremikovtsi, Sofia's
embattled steel mill, is working at minimum capacity. The
Association of Bread Producers said the price of bread would
increase by five percent in the next two days.

Political Action and Reaction
--------------


4. (C) The President will convene an emergency session of
his consultative National Security Council at 2:00 pm local
time. Meanwhile, Bulgaria continues its diplomatic press.
FM Kalfin told Ambassador January 7 that Bulgaria will resist
a Czech push for the EU to mediate between Russia and
Ukraine. The Bulgarians are pushing for the strongest
possible statement coming out of Prague January 8, which
calls into question the reliability of both Russia and
Ukraine as partners and demands an immediate resumption of
supply. Kalfin also said Ukraine had confirmed press reports
that Russia had discontinued all deliveries to Ukraine on
January 7.


5. (SBU) Other members of the ruling coalition reacted
strongly to the crisis. The EU Affairs Minister termed the
crisis "energy terrorism," while the head of the
Parliamentary Foreign Affairs Committee called on NATO to
have a stronger say on matters of energy security. President
Parvanov is using the gas crisis to demand the re-opening of
units 3 and 4 of the Kozluduy Nuclear Power Plant, which were
shut down for safely reasons as a condition for Bulgaria's EU
accession. Others, including the head of the Bulgarian
Energy Holding, correctly characterized the re-opening of
Kozluduy as a complete non-starter.


Opposition Turns up the Pressure
--------------


6. (SBU) Leading opposition party GERB told Embassy January
7 that later the same day it would issue a statement

SOFIA 00000002 002.2 OF 002


demanding PM Stanishev's resignation over his "inadequate
reaction to the crisis." The GERB Chairman said PM Stanishev
and his government failed to secure alternative energy
sources and in January 2008 actually increased Bulgaria's
dependence on Russia by signing on to South Stream. While
the PM is receiving flak for his government's coziness with
Russian energy interests, there is no threat of a
no-confidence vote at this point.

Public Reaction
--------------


7. (SBU) The normally staid Bulgarian population directed
outrage at the government for not preventing or preparing for
the crisis, and for not "informing the EU" in a timely
manner, although there have been no demonstrations. Leading
commentators and media outlets stressed the need for
diversification of energy sources, including Nabucco and an
LNG terminal in Greece. Even before the crisis the Bulgarian
public was disgruntled over gas. Prices for natural gas have
more than doubled since January 1, 2007, with regular
increases coming every three months due to an unfavorable and
non-transparent contract Bulgaria signed with Gazprom and
three Gazprom-owned intermediaries in December 2006.




McEldowney