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
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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