2011-05-01 WikiLeaks: Russian Blackmail and Energy Mafia Surround Russian Energy Projects in Bulgaria

Boyko Borisov complained about Putin to the Americans; RWE had been “sabotaged” to give up on Belene NPP project.


Bulgarians "risk being cold" this winter if the government did not move forward with the Russian energy projects. This is what Russian Prime Minister, Vladimir Putin said, off-the-record, to his Bulgarian counterpart, Boyko Borisov, during the summit in Gdansk in September, 2009. The tone of the sentence in question is not clear, we cannot judge if it was threatening enough, but obviously it seriously impressed Borisov in order for him to report it in a timely manner and for Putin’s words to find their place in the classified documents of the American diplomacy.

Borisov’s complaint about Putin’s attitude is described in a US diplomatic cable, dated October 5, 2009, released by Wikileaks [09SOFIA561]. The text does not elucidate if this has been a joke or a threat. On September 29, 2009, Borisov had asked the US government for assistance in the diversification of energy sources for Bulgaria.

“The cash-strapped new administration seeks not only to rid itself of projects of questionable commercial viability but also to increase its energy security through diversification,” the American diplomats believe.

The cable talks about the meeting between the Prime Minister and three large US energy companies, held on that same date. As a result, the government had made the commitment to engage in negotiations to use US technology to diversify its nuclear fuel supply and create a spent nuclear fuel storage facility.

The cable reveals the Americans had hoped that Borisov will fulfill its officially announced intentions, before taking office, to re-examine all Russian-linked major energy deals made by the last government of the Three Way Coalition. As time has now shown, exactly the opposite happened, and the PM’s role in the beginning of his term ended up being a fake one.

From other diplomatic cables, focused on Bulgarian energy issues, we learn with certainty that the risk for millions of Bulgarians to be left in the cold over Russian energy blackmail has been examined very seriously by Bulgarian politicians who negotiated the energy projects with Russia. This blackmail became the formula used by Russia to dictate political decisions to a seemingly independent county – member of the EU.

The Great Energy Fivesome

Contrary to public statements, the cables expose the close intertwining between the three large Russian projects: the Belene Nuclear Power Plant, the South Stream gas line, and the Burgas-Alexandroupolis oil line, which President Parvanov named the “Grand Slam,” while the Russian daily Komersant ironically called them the “Grand Dick.”

The Americans think that the Russian energy giant Gazprom is behind all these projects, directly or indirectly, through phantom companies or financing. Their definitive analyses show how the construction of Belene with Russian money and technology goes hand in hand with the future construction of Burgas-Alexandroupolis and South Stream. When questioned if this was so, former Energy Minister, Rumen Ovcharov, had made an attempt to deny it, but the current development of events demonstrates these analyses have been the very truth.

However, the three projects in the Grand Slam are not all the aces in the Russian energy deck of cards and in the game played against Bulgaria. In a conversation, held on October 19, 2006, with US Ambassador, John Beyrle, Bulgarian Energy Minister, Rumen Ovcharov, had acknowledged a link between the decision on Belene and the ongoing discussions with Gazprom to renegotiate the Russian gas supply contract with Bulgaria. [06SOFIA1481].
It becomes clear, from the same conversation, that Beyrle wanted Westinghouse to be selected as a subcontractor for the Belene project. These hopes, however, were dimmed by Ovcharov, who claimed he was a “big fan” of Westinghouse, but the inclusion of the European consortium Framatom/Areva was a mandatory prerequisite for the future EU membership of Bulgaria, and German Chancellor, Angela Merkel, had personally exerted pressure in the matter.

Gazprom is also eyeing ownership of the Bulgarian energy distribution grid, Ovcharov confides. This way, the negotiations led by the cabinet Stanishev look like 5 in 1: Belene NPP, South Stream, Burgas-Alexandroupolis, gas supplies and ownership on the distribution grid. The issue of 100% dependence from the import of Russian nuclear fuel for the Kozloduy NPP and its utilization is a separate one [06SOFIA1162].

The strongest Russian trump-card in the future projects is the nearly total dependence of Bulgaria from energy supplies, inherited from Communist times, hanging over Bulgaria as Sword of Damocles, and forcing Bulgarians to compromise, which, on its part, pushes the country into an even bigger dependency, the Americans note with concern. They further do not miss to point out the need of diversification by participation in other projects (Nabucco), development of interconnectors with neighboring countries, and the use of their nuclear fuel and utilization solutions in Kozloduy.

Dirty Energy, Energy Mafia and Dogan’s Ring of Companies

Bulgaria’s energy sector is non-transparent, corrupt and connected to individuals with ties to organized crime, American diplomats believe [06SOFIA1691]. In this scandalous cable, three names are mentioned as key players in Bulgaria's so-called "energy mafia" - Bogomil Manchev from Risk Engineering, Krassimir Georgiev from Frontier and Hristo Kovachki.

“The resources in Belene are so huge that all of the competing energy and political lobbies will be able to get a piece of the pie.” Firms close to the mainly ethnic-Turkish Movement for Rights and Freedoms and its leader Ahmed Dogan, which controls the Environmental Ministry responsible for issuing permits, also have the green light to participate, the cable’s author, Alexander Karagiannis writes.

The Belene Lemon – A Time Clock Bomb

The British daily Guardian published in December two cables from Ambassador McEldowney [09SOFIA69] [09SOFIA363], stressing on the staggering problems with the Belene project - delays, financing woes, non-transparent horse-trading and side deals, Russian influence, middle-man rent seeking, and the interests of well-connected politicians and energy oligarchs.

The Guardian editing, however, had eliminated an important part of the text, explaining how the management of the National Electric Company (NEC) and its on-site construction manager, ignored environmental, safety, and quality assurance concerns and illegally canceled several "stop work orders" issued at the site because of safety violations. It did not prepare a Quality Assurance (QA) Program Plan for the temporary structures, and instead asked the Bulgarian Ministry of Regional Development and Public Works (RDPW) to issue the approvals - which they subsequently did without oversight or proper technical documentation.

But these issues have not been missed by the RWE investor. “The Germans worry about Belene's lack of transparency and working with Atomstroyexport and Bulgarian subcontractors. Belene experts said that RWE remains "in the dark" on most on-site day-to-day and technical issues, and have not seen any of the on-site safety and environmental reports. On more than one occasion NEC prevented their contractors and subcontractors from speaking directly with RWE experts, often reminding them of their confidentiality agreements when they tried to answer RWE's questions,” the Ambassador writes.

Parallel with all this, NEC was trying to mislead the public and the investor, pretending the project is progressing ahead without any problems by calling, in the media, "Site Preparation" activities "Construction," to make it appear that the project is moving forward.

The results of these policies are now well-known – in October, 2009, RWE pulled out of the project, which was temporarily frozen.

New Government – New Chance?

The coming into power of Boyko Borisov gave new hope for diminishing Russian influence in the energy sector. The Americans note with satisfaction intentions of the GERB cabinet to re-examine participation in energy projects and the pro-western orientation of key ministers such as Djankov, Mladenov, and Traikov.

The initial decisiveness of the government is demonstrated by a letter from Prime Minister Boyko Borisov to President Obama, dated September 24, 2009, where the PM asks for advice on strategic decisions in the energy sector to achieve his goals of rooting out corruption, enhancing transparency and reducing reliance on Russia [09SOFIA538].

In October, 2009, PM Borisov met with representatives of three US energy corporations to discuss diversification alternatives, particularly American nuclear fuel for the Kozloduy NPP and solutions for the utilization of the spent fuel [09SOFIA561].

Currently, Bulgaria buys 100 percent of its nuclear fuel from Russia, and exports the spent fuel back there for a significant cost. It is the only European country, which is continuing this practice, and it makes it vulnerable to Russian fancy to increase the price or to refuse to store the spent fuel in the future, the American diplomat, who organized the meeting, analyses.

The Bulgarian Prime Minister had been seemingly convinced by the presentation because he had asked for the preparation of a draft contract for the proposed solutions. Borisov, had, once again, requested US assistance on diversification options, and support in the upcoming months, which would be crucial for the decisions for the energy future of the country, Deputy Chief of Mission Sutton notes.

Two months later, American assistance begins to materialize in Sofia, where a regional office of the US Department of Energy opens doors. Bulgaria is further visited by the Special Envoy of the United States Secretary of State for Eurasian Energy, Richard Morningstar, who meets with key figures from the cabinet. On December 9, 2009, Boyko Borisov, had railed against EU disunity in the face of Russian energy dominance, particularly in the Balkan region. He had complained before Morningstar that the EU was holding up funding for proposed interconnectors with Greece and Romania and that small, energy dependent EU member states were held hostage to the energy ambitions of Italy, France and Germany, meaning these countries’ support (mainly Italy’s) for the Russian gas line South Stream [09SOFIA696].

“The government wants to be rid of Belene, but believes it will be too costly -- either in contractual kill costs or fall-out with Russia -- to let the project die at this time,” Deputy Chief of Mission Sutton writes, when commenting on the meeting. At that time the project was already frozen, after the German strategic investor RWE withdrew in October.

“Knowing they will be dependent on Russian gas for years to come (and being in the middle of long-term gas supply contract negotiations), the Bulgarians can't afford to kill all of the Russian-dominated projects agreed to by the last government. Nor do they want to,” Sutton further comments, urging the American government for stronger commitment in order to help the “clearly frustrated” Bulgarian Prime Minister.

A day later, on December 10, a Russian delegation led by Energy Minister, Sergey Schmatko, arrives in Bulgaria to negotiate the energy projects.

The Belene Project Retreat – Drama in the Cable

“The real drama” of the December talks is the Bulgarians’ retreat regarding the Belene Nuclear Power Plant project, Susan Sutton writes in a cable, dated December 21, 2009, and titled: BULGARIA: WAIVERING ON BELENE NPP [09SOFIA711]

According to Minister Traikov, Bulgaria may consider offering Russia a majority stake in the project "initially" but the latter failed to explain to the Americans exactly what that would entail. Deputy Energy Minister Maya Hristova told them the talk of offering a majority stake to Russia was a Bulgarian strategy to buy time while Sofia searches for other strategic investors and the Bulgarian Energy Holding CEO, Galina Tosheva, said she saw any offer of an ownership stake to Russia as a national security concern, but she worried she was increasingly being over-ruled by the Ministry of Economy and Energy on Belene matters. Tosheva had explained BEH would issue a tender for an independent adviser to help Bulgaria think through the financial aspects of Belene and explore its options.
“Russia has put it on life support, with both sweeteners and new forms of pressure. If Bulgaria agrees to Russian ownership in Belene, energy security will take a dramatic step backward in Bulgaria and a huge opportunity to correct the mis-steps of the previous government will have been lost,” Sutton stresses in her comments about negotiations with Russians.

This is one of the last American cables from Bulgaria, dedicated to the energy subject, leaked by Wikileaks. In the next year, the cabinet Borisov will continue its policy of delays and foot-dragging through meetings with Putin and the inclusion of the “hairy diplomat,” the Karakachan puppy Yorgo, to end with the dramatic events from the beginning of 2011 and the exposure of top lobbyists such as Valentin Zlatev, consultant for Rosatom, and known to be particularly close to the Prime Minister.

The American position, most likely, had not changed during this time. Borisov’s position, however, did change, significantly, compared to what we read in the diplomatic cables written in the first months after him taking office. The public can only guess the proportions of Putin’s threats for “being cold,” “the new forms of pressure,” and the “sweeteners,” mixed in the Russian cocktail, served to the Bulgarian Prime Minister during the negotiations.

Cables used:

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