BULGARIA: INCREMENTAL SHIFTS IN ENERGY POLICY

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000060

SIPDIS

E.O. 12958: DECL: 02/09/2019
TAGS: ENRG ECON PREL PGOV BU
SUBJECT: BULGARIA: INCREMENTAL SHIFTS IN ENERGY POLICY
TOWARD RUSSIA

REF: SOFIA 0045

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


1. (C) Summary: Traditionally Moscow's most ardent
supporter, President Parvanov showed hints of a new attitude
in his long planned visit to Moscow February 4-6. While
there he presented Putin and Medvedev with a list of
energy-related demands. When these were rebuffed, the
President pushed back, stressing the "changed circumstances"
in Bulgaria after the gas cut-off that left industry
shuttered, homes cold, and the population irate -- at the
government and Parvanov himself. While in Moscow the
Bulgarian delegation resisted Russian pressure to sign a
pre-shareholders agreement on South Stream, saying the time
was not right and the deal was not ready. Meanwhile, other
officials are increasingly outspoken on the need for
diversification and transparency in the energy sector. Over
90 percent dependent on Russia for its gas, oil and nuclear
fuel, Sofia can't afford to antagonize Moscow. But there are
signs that the temperature of this once warm relationship is
dropping. End Summary.

NO "GRAND SLAMS" THIS TIME
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2. (C) President Parvanov, who bragged about signing a
"grand slam" of energy deals with then President Putin in
January 2008, only reluctantly traveled to Moscow February
4-6 to open the long-planned "Year of Bulgaria in Russia."
Presidential Adviser Nikola Kolev told Ambassador privately
that the President was concerned about the timing of the
trip, coming on the heels of the unprecedented gas cut-off
that left Bulgaria out in the cold. FM Kalfin told
Ambassador February 9 that instead of focusing on the soft
power aspects of the visit as originally planned, Parvanov
presented Putin and President Medvedev with three demands:
the end of Gazprom-linked gas intermediaries, compensation
for the financial and "political" costs of the gas cut-off,
and access to the Gazprom network for the gas Parvanov
believes the Turkmen President promised to sell Bulgaria in
December 2008. The Bulgarian delegation also refused to sign
a South Stream pre-shareholders agreement, despite "intense"
Russian pressure.


3. (C) Putin and Medvedev summarily rebuffed Parvanov's
demands. According to Kalfin, who was in the meeting,
Parvanov pushed back, citing "changed circumstances" in
Bulgaria after the gas cut-off. Putin and Medvedev then
reportedly showed some willingness to discuss the elimination
of the Gazprom-linked intermediaries in upcoming long-term
supply contact negotiations with the Bulgarian Energy
Holding. When Parvanov mentioned Bulgaria's support for
Nabucco, Putin reportedly responded, "You can play all you
want with that little project, but I am buying all the Azeri
gas and I'm prepared to pay twice as much as anyone else for
it."

A NEW INTEREST IN DIVERSIFICATION ...
--------------


4. (C) Burned by their overwhelming dependence on Russian
gas during the gas crisis, the Bulgarians are now boldly
pursuing gas diversification projects, including expansion of
a gas storage facility, new connections with the Greek and
Turkish gas systems, and an LNG terminal in Greece. On
February 7, the head of Bulgaria's Energy Holding approached
USTDA about the possibility of studying CNG shipments in the
Black Sea as well as reversing the flow of the current gas
connections with Turkey and Greece. The Energy Holding will
also apply to take an equity stake in the Colorado-based
Direct Petroleum's gas exploration project in north-central
Bulgaria.


....AND TRANSPARENCY
--------------


5. (C) In the middle of the gas crisis, the Bulgarians
began a dialog with the transparency organization EITI and
other NGOs to shine a light on the country's gas transit
industry. In the aftermath of the crisis, FM Kalfin, who is
tasked with organizing the April 24-25 Sofia Energy Summit,
has agreed in principle to use part of the conference to
tackle issues that have plagued Bulgaria -- and neighboring
transit states -- for years: the pressure to sign secretive,
nontransparent energy deals and the use of Gazprom-linked
intermediaries to implement those deals. Kalfin has agreed

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to try to pursuade the gas transit countries in attendance to
sign a statement of transit transparency principles at the
April Summit.

COMMENT:
--------------


6. (C) Bulgaria will never be completely independent from
Russia for its energy needs and it cannot afford to
antagonize Moscow even as it chafes under Gazprom's heavy
hand. But there is safety in numbers. Unification of
transit countries on a set of transparency-focused principles
would send a message of strength to Russia. It is a message
Bulgaria -- long seen as Russia's closest alley in the EU --
seems increasingly interested in sending. But it can't do it
on its own.


McEldowney