US embassy cable - 05SOFIA2026

UNCLAS SECTION 01 OF 02 SOFIA 002026 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ENRG, PREL, ETRD, PGOV, BU 
SUBJECT:  GOVERNMENT FINALIZES DEAL WITH AES ON MARITSA 
EAST ONE 
 
 
1.  (U) SUMMARY:  Representatives of the Bulgarian 
government signed December 7 the underlying financial 
agreements with AES and four financial institutions to 
construct a new 670 MW coal-fired power plant.  The 
financial agreements represent the biggest ever 
greenfield investment in the Bulgaria and largest 
greenfield investment in East Central Europe for 2005. 
The project, the recipient of extensive Embassy 
advocacy efforts, will contribute to Bulgaria's goal of 
being a major electricity exporter for the region. It 
is expected to bring 2,000 new jobs during the 
construction phase of the project and another 200 
permanent jobs once the plant becomes operational.  The 
signing ceremony was widely and favorably covered by 
the local media.  END SUMMARY. 
 
AES DEAL TOP CHARTS FOR REGIONAL GREENFIELD INVESTMENT 
--------------------------------------------- --------- 
 
2. (U) Prime Minister Sergey Stanishev hosted a well- 
publicized signing ceremony at the Council of 
Ministers' building for the signing of AES financial 
agreements on December 7.  The ceremony was attended by 
the CEO and President of AES Paul Hanrahan, Ambassador 
Beyrle and high-level government officials and 
parliamentarians. Press coverage of the event was 
extensive.  In remarks following the ceremony, Economy 
and Energy Minister Ovcharov highlighted the 
government's commitment to the project.  He indicated 
that the project is the largest green field investment 
in Central and Eastern Europe for 2005, which would 
guarantee the future development of the Bulgarian 
energy sector and preserve Bulgaria's position as an 
exporter of electricity to its neighboring countries. 
Additionally, he said the implementation of the project 
would enhance Bulgarian energy security and help the 
country attract more foreign investment. 
 
PROJECT WILL BENEFIT BOTH US AND EUROPE 
------------------------------------- 
 
4. (U) The project, known as Maritsa East 1 (ME1), will 
also enhance Bulgaria's cooperation and ties with the 
EU.  A consortium of European banks (CALYON, ING Bank, 
BNP Paribas and the European Bank for Reconstruction 
and Development) will provide 70 percent of the 
financing while a leading European developer (Alstom 
Power) will construct the power plant.  AES will 
provide equity investment in the amount of 30 percent 
of the total cost of the project. 
 
5. (U) AES has been developing the ME1 project since 
1999 but suffered significant delays in realizing its 
implementation, partly due to company's own corporate 
financial problems. The project calls for the 
construction of a new 670 MW lignite fired power plant 
for a total project cost of 1.1 billion euro.  AES 
intends to build two units with a total capacity of 670 
MW and will use lignite from the Maritsa East Mines as 
fuel.  The implementation of the project is expected to 
ensure development of the power system with minimal 
expenses and enhance the competitiveness of the 
Bulgarian power sector. The project will comply with 
the European environmental requirements and will keep 
the emissions of sulphur oxides, dust and nitrogen 
oxides within the European norms.  Construction is 
expected to start in the spring of 2006 and the plant 
is scheduled to be operational in 2008. 
 
6.  (U) The ME1 project will bring a number of benefits 
in terms of trade and business, including 2,000 new 
jobs within the project time-span; orders to local 
companies amounting to 200 million Bulgaria leva; and 
80 million Bulgarian leva annual revenues for the 
Maritsa East Mines from lignite supplies. 
 
USG SUPPORT FOR THE PROJECT 
--------------------------- 
 
7.  (U) The US Embassy Sofia advocacy efforts helped to 
clear many of the political hurdles necessary for AES 
to make the largest foreign investment ever in 
Bulgaria.  The Embassy was able to facilitate the 
approval of a political letter of support for the 
project, which was needed to guarantee the 1.1 billion 
Euro financing package to build the plant. 
Specifically, the Commercial Service, Political- 
Economic Section and the Executive Office supported AES 
executives through introductions to key governmental 
officials, lobbying our contact in the Prime Minister's 
office for political support, delivering letters of 
support from Commerce Secretary Evans and State 
Department Assistant Secretary Wayne, and lobbying the 
Council of Ministers. 
 
8. (U) COMMENT:  The ME1 project will greatly 
contribute to meeting Bulgaria's electricity needs in 
an environmentally responsible way.  More important for 
the GOB, it will help Bulgaria maintain its position as 
a regional energy hub.  As the largest foreign 
investment program ever in Bulgaria, the ME1 deal 
should help the government address the severe 
macroeconomic external deficits and boost Bulgaria's 
image as a country with a favorable investment regime. 
AES investment undoubtedly will pave the way for 
additional foreign investments and provide new 
opportunities for local subcontractors.  End Comment. 
BEYRLE