FRANCE CONTENT TO OBSERVE RUSSIAN-UKRAINE GAS

C O N F I D E N T I A L PARIS 008684 SIPDIS STATE FOR EUR AND EB/ESC/IEC E.O. 12958: DECL 12/29/2015 TAGS: ENRG EPET ECON PREL UP RS FR SUBJECT: FRANCE CONTENT TO OBSERVE RUSSIAN-UKRAINE GAS NEGOTIATIONS WITHOUT INJECTING COMMENTS REFS: (A) State 229253 (B) KRAMER/TERRAL TELCON 12/23/2005 Classified By: Econ Counselor Ken Merten for reasons 1.4 (b) and (d). ¶1. (C) Summary. French officials agree that the Russia- Ukraine gas dispute bears watching, but do not believe that intervention by European officials recommending gradual market solutions is warranted at this time. They suspect that commenting now might even be counterproductive. Dismissing concerns about a potential cut-off of gas to Western Europe, they are relatively confident that ongoing negotiations will bear fruit. End summary. ¶2. (C) On December 23, EconOff delivered reftel points to Foreign Ministry Economic Directorate, while PolOff delivered same points to the MFA Directorate for Continental Europe. DAS-equivanlent for energy and transportation affairs, Nicole Taillefer, responded on December 29 by saying that French officials viewed this as one of many tense energy sector negotiations in the region which almost invariably ended with last-minute solutions brokered under pressure. In their view, the "risk is low" that Russian or Ukrainian authorities would seriously disrupt gas flows. Taillefer noted that Moscow's posturing included contradictory statements, saying that Russia will continue to furnish gas to Europe without disruption come what may, while at the same time saying that any Ukrainian diversions of transiting Russian gas would be considered theft. If diversions are a possibility, then European supplies could be disrupted. Nevertheless, Taillefer saw no crisis at hand, since Europe has adequate stocks. ¶3. (C) Taillefer rejected our suggestion that European officials should talk with both Ukraine and Russia to encourage them to move gradually toward a market-based arrangement. They agreed with the sentiment and with the goal of a gradual market-based solution, but saw no upside to injecting comments based on their role as a buyer of Russian gas. Likewise, France agreed that Ukraine should take this opportunity to transform its energy sector to improve efficiency, root out corruption, identify alternative energy sources, and develop domestic resources. ¶4. (C) Taillefer noted that amid much recent posturing on both sides, the Ukrainian Energy Minister is currently in Moscow to work out a negotiated solution. The Russians in particular would likely try to use any European statements about supply security to further their own arguments. Taillefer agreed with our position that a gradual market- based arrangement should be reached, but viewed this as a commercial arrangement and not a political one. She felt it could be counterproductive to intervene politically at this stage. She added a personal comment when she wondered allow whether Russia was not committing (yet another) strategic political error. ¶5. (C) Yannick Tagand, who handles energy issues in Taillefer's office, mentioned that he had coordinated with the Ukraine desk on this issue, but did not as yet have a read-out of Jean-Francois Terral's conversation with EUR DAS David Kramer, since Terral is currently on vacation. France will continue to watch the situation closely via its embassies in Moscow and Kiev, but -- at least for the time being -- will watch from the sidelines and hope for a negotiated solution. Taillefer said that even if a solution is not reached by January 1, she envisioned the possibility that the two countries might "stop the pendulum" -- i.e. maintain the status quo -- while a solution is finalized. Please visit Paris' Classified Website at: http://www.state.sgov.gov/p/eur/paris/index.c fm Stapleton