UNCLAS LJUBLJANA 000653

SIPDIS


DEPT FOR EUR/NCE, EB/ESC/IEC

E.O. 12958: N/A
TAGS: ECON ENRG SI
SUBJECT: HURRICANE KATRINA AND ENERGY SUPPLY DISRUPTIONS IN
SLOVENIA

REF: SECSTATE 163206


1. (U) Summary: Econoff delivered reftel points 8 September
to Miro Vidmar, Head of the Division for Oil, Food Supplies
and Reserves at the Ministry of the Economy. Vidmar said
Slovenia was concerned with the potential for continued price
increases in the wake of the Katrina tragedy, but felt that
Slovenia was not at risk for any near term interruption in
energy supply. Vidmar said that the chief concern for the
Slovene economy was the effect that a continued rise in
gasoline prices would have on inflation and how that in turn
could impact Slovenia's adoption of the Euro. Vidmar said he
was traveling to Brussels to participate in an EU meeting on
9 September on addressing prospective shortages from an
EU-wide perspective.


2. (U) Also on 8 September, Econoff met with Ksenija Stupan,
Director of petroleum products purchasing at Petrol, the
leading energy products supplier in the Slovene market. Like
Vidmar, Stupan said that supply was not a problem currently
but that the upward pressure on gasoline prices was in part
being driven by insufficient and outdated refineries. While
Stupan did not anticipate significant near term increases in
prices at the pump, she noted shortages in refined petroleum
products could result from increasing demand from China as
well as from newer and increasingly wealthy EU member states.
End Summary.

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Price Increases the Main Concern
--------------


3. (U) Vidmar did not anticipate any oil availability risk to
Slovenia in the next 6 months, Slovenia maintains a 70 day
buffer stock of petroleum products and, in accordance with EU
guidelines, plans to increase this to 90 days over the coming
months. Vidmar said, however, that while there was enough
product available in the market, he expected price hikes to
continue for the forseeable future. He said the government
has decreased excise taxes on gasoline and other refined
petroleum products to the bare minimum and that prices would
have to rise "at least 10 percent" in the near future.
(Note: The GoS uses an excise tax as a buffer to insulate
consumers in Slovenia from dramatic increases in pump prices.
As the underlying wholesale price of gasoline has risen, the
GoS has decreased the excise tax in order to keep the retail
price relatively stable. According to Vidmar, the government
has decreased the excise taxes as much as possible and
therefore the retail price will now have to climb. End note.)


4. (U) Slovenia is currently in the process of meeting the
Maastricht criteria to adopt the Euro as its currency, with a
target date for the changeover of January 2007. While
Slovenia is well within the limits of most criteria, it has
yet to lower its inflation rate sufficient to meet the
Maastricht standard. In the past year, despite increases in
petroleum costs, Slovenia has been consistently able to push
its inflation rate lower. Vidmar speculated that continued
hikes in oil and gasoline prices could soon begin to have a
larger inflationary impact and threaten Slovenia's adoption
of the Euro.

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Refineries (or lack therof) are the Problem
--------------


5. (U) Petrol's Stupan also told Econoff she was not
concerned about a possible near term shortage of petroleum
products. She said, however, that it was an insufficient
number of refineries that was having a larger impact on the
price of gasoline than simply the increase in the price of
oil. Stupan noted that while growing demand from China was
certainly having an impact, demand from new EU member states
was also causing an upward pressure in prices. Stupan said
the refineries in the Mediterranean (that provide much of the
supply for Slovenia and other countries in the region) were
outdated and insufficient. Stupan further noted that the
demand for cleaner fuel in the EU was also exacerbating the
refinery bottleneck. Like Vidmar, Stupan acknowledged that
the GoS had little room to cut excise taxes further to
maintain prices. Stupan noted, however, that there will more
likely be a gradual uptick in energy costs rather than a near
term spike.
ROBERTSON


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2005LJUBLJ00653 - Classification: UNCLASSIFIED



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