BULGARIA: IN DAY THREE OF ENERGY CRISIS,

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000005 SIPDIS E.O. 12958: DECL: 01/07/2019 TAGS: ENRG ECON PREL PGOV SUBJECT: BULGARIA: IN DAY THREE OF ENERGY CRISIS, DIVERSIFICATION GETS A BOOST REF: SOFIA 0002 AND PREVIOUS Classified By: DCM Alex Karagiannis for reasons 1.4 (b) and (d). ¶1. (C) Summary: Bulgaria is stumbling through day three of a complete gas cut-off without major interruptions of critical services. City dwellers continue to experience reduced heat while two small towns remain completely in the cold. Manufacturing plants continue to shut operations due lack of gas. As the crisis continues, Russia's reputation as a reliable supplier is losing its luster. Politicians are increasingly focused on diversification, renewing calls for a hook-up to the Turkey-Greece-Italy interconnector and an LNG terminal in the Aegean. The silver lining of the cut-off is increasing support for a total elimination of Gazprom-owned intermediaries and greater transparency in the energy sector as a whole. End Summary. ON THE GROUND -------------- ¶2. (SBU) While natural gas accounts for only 13 percent of energy consumption, it has a disproportionate economic and social impact. Sofia's central grid for heating is gas-fired; major industries are gas-powered; and 50 percent of taxis run on gas. As industries and services reduce output, the economic effects ripple. In day three of a complete gas cut-off, the Minister of Economy and Energy announced a more restrictive nation-wide regime on gas usage. Bulgaria is drawing the maximum 4.5 mcm of gas per day from the Chiren storage facility and is draining residual gas left in the pipeline system. Politicians and experts are still debating the amount of gas available at Chiren. Estimates range from a week to 100 days at current, strictly reduced consumption. Reduced heat left city apartment buildings cold and shut scores of schools. Two small towns, Pazardjik and Razgrad (combined population of less than 100,000),remained completely without heat. The crisis is exacting a heavy toll on industry. Enterprises, including U.S. investments, around the country are suspending or curtailing manufacturing operations due to limited gas supply. Two small protests were recorded: one in front of the Russian consulate in Varna, the other at the Ukrainian Embassy in Sofia. THE FINGER-POINTING CONTINUES.... -------------- ¶3. (C) Parliament announced an extraordinary session on January 12 to discuss the cut-off. PM Stanishev is expected to report on his efforts to manage the crisis. The political opposition continued to criticize the government for its lack of preparation and mismanagement, but the barbs represent no threat to government stability at this point. Former Prime Minister Ivan Kostov demanded the Government block all assets and accounts of Gazprom in Bulgaria. The Confederation of Employers and Industrialists announced their members would file individual claims for compensation against Bulgargaz. Bulgaria's U.S.-based legal counsel for South Stream, Paul Hastings LLC, offered its services to investigate possible Bulgarian claims against entities in Ukraine and Russia. ¶4. (C) The three Gazprom-owned or linked intermediaries that technically supply Bulgaria's gas are under fire. President Parvanov urged state-owned Bulgargaz to start legal procedures for compensation against the three entities: Overgas, Wintershall and GazpromExport. Bulgargaz CEO Dimitar Gogov told Embassy January 8 he is trying to use the crisis to eliminate altogether these three well-connected entities, which have long been a thorn in the side of Bulgaria's state-owned energy company. Under Gazprom pressure, Bulgaria signed a non-transparent, tightly-held, highly complex and controversial 30-year transit contract with Gazprom and the three intermediaries in December 2006. Accordingly to Gogov, Bulgaria did not sign a supply contract at the same time, in hopes that it could negotiate the elimination of the intermediaries before the current supply contracts run out in 2010 and 2012. Negotiations with Gazprom and the intermediaries must begin in coming months to avoid a supply cut to Bulgaria. WHILE TALK OF DIVERSIFICATION BEGINS -------------- ¶5. (C) The President's January 7 National Security Council meeting focused on alternatives to Russian gas. The first SOFIA 00000005 002 OF 002 priority will be a push for a hook-up to the Turkey-Greece-Italy Interconnector. PM Stanishev announced that he had discussed using some of the EU's previously-announced stimulus package to build the interconnection to TGI with his Czech counterpart Topolanek January 7. Such a connection could, in theory, allow Bulgaria to access the gas it has agreed to buy from Azerbiajan, Turkmenistan and Egypt. The Bulgarians will also re-invigorate efforts to build an LNG terminal on the Aegean Sea. ¶6. (C) President Parvanov continues to use the gas crisis as a pretext to re-open reactors 3 and 4 at the Kozluduy Nuclear Power Plant, which were shut down in December 2006 as a precondition for joining the EU. This is a complete non-starter. According to the EBRD, reactors 3 and 4 are inherently unsafe and should never be reopened. As the shut down of the reactors is part of Bulgaria's acquis, all 27 member states would have to agree to allow Bulgaria to open the plants -- a near impossibility. The President and his supporters in the nuclear industry hope to take advantage of a provision in the acquis which allows for renegotiation in times of economic emergency. Industry experts tell us a re-start of Kozluduy would take more than a year, not the one month suggested by Parvanov. The President likely knows he is fighting a losing battle. His efforts are likely a ploy to extract more EU financial support for Kozluduy's decommissioning as well as a message that the EU will have a fight on its hands if it allows other countries with similar reactors (Lithuania, for example) to stay open any longer than agreed. ¶7. (C) Comment: While the Bulgarian Government is still unwilling to point fingers directly -- and publicly -- at Russia, there is rising support for diversification. The PM publicly pitched Nabucco. But the Russians are in overdrive to remain the prime player. Bulgarian officials still back South Stream, seeing "diversification of route" as an important part of the equation, and Ukraine's role in this crisis has only underscored, for those advocates, the need for a direct link with Russia. But Russia has lost its reputation as a reliable supplier, leaving Bulgaria no alternative but to intensify the search for diversification of source. Nabucco's light shines brighter. Bulgaria is also showing increased interest in energy transparency. The gas cut-off has given efforts to eliminate needless, Gazprom-owned intermediaries a welcome boost. We will assist. On January 14, at Embassy request, a representative of the Extractive Industries Transparency Initiative (EITI) will meet with Bulgarian officials and civil society to discuss removing intermediaries in the transit sector and bringing greater transparency to Bulgaria's energy sector as a whole. In short, we have additional opportunities. McEldowney