CZECH REPUBLIC: CONCERNS ABOUT RUSSIAN-OWNED

S E C R E T PRAGUE 001761

SIPDIS

SIPDIS

MOSCOW FOR SUSAN BAUER

E.O. 12958: DECL: 12/23/2015
TAGS: KNNP PARM ETRD EZ
SUBJECT: CZECH REPUBLIC: CONCERNS ABOUT RUSSIAN-OWNED
NUCLEAR EQUIPMENT MAKER AND IRAN


Classified By: CDA Cameron Munter for reasons 1.4 b+d


1. (C) SUMMARY: The Russian company OMZ, a subsidiary of
the state-run firm GAZPROM, purchased the Czech firm, Skoda
Nuclear Engineering (Skoda J.S),in April of 2004. OMZ has
two wholly owned subsidiaries that manufacture equipment for
nuclear plants. One, Izhorskie Zavody of Saint Petersburg,
is already equipping Bushehr. The other subsidiary is Skoda
J.S. of Plzen, Czech Republic. Evgeny Sergeev, Deputy CEO of
OMZ is the General Director of Izhorskie Zavody and the
Chairman of the Supervisory Board at Skoda J.S. Post has no
evidence yet that the Czech firm is in any way pursuing
business in Iran. But the connection through OMZ, together
with the recent visit to Prague by an Iranian Parliamentary
delegation which discussed nuclear cooperation with the Prime
Minister and the Minister of Industry and Trade, concerns us.
A Czech law, passed in April, 2000, prevents Czech firms
from supplying equipment or technical assistance to help in
the completion of Bushehr. Post has met with Czech officials
at the Ministries of Foreign Affairs and Trade to share our
concerns and to encourage them to see that this law is
enforced. Czech officials put faith in their regulatory
system to prevent exports intended for Iran, but could not
vouch for the reliability of Skoda Nuclear Enginering under
its new management. END SUMMARY


2. (U) Mohammed Khatami, then Iranian President, visited
OMZ's Saint Petersburg Firm, Izhorskie Zavody, in 2001. Later
that year, OMZ delivered a 100MW pressurized water reactor to
Bushehr as part of an agreement between the Russian and
Iranian Governments. In 2004, OMZ sold off its shipbuilding
and oil drilling interests and used the proceeds to acquire
complete ownership of Skoda Nuclear Engineering and Skoda
Specialty Steel, both formerly part of the Plzen-based Skoda
Holdings Group. OMZ,s stated goal was to become a giant in
the field of energy generating equipment.


3. (SBU) Czech firms have been involved with the Bushehr
plant in the past, most recently in late 1999 when the firm
ZVVZ Milevsko attempted to sell HVAC equipment to the
Iranians. Embassy Prague,s efforts to block that sale
resulted in passage of a law (99/2000) blocking the export,
either directly or indirectly, of goods, services,
documentation or information to the nuclear power plant at
Bushehr. This law, which prevented the sale of the HVAC
equipment, is still in effect.


4. (U) Emboffs met with trade licensing experts on 22
December to discuss the existing trade laws that would apply
to Skoda Nuclear. From the Ministry of Industry and Trade,
the head of the Special Materials Export Licensing Division,
Vlastimil Krepela, led a group that included Vera Vackova
from his unit and Zdenek Urban (Director) and Ladislav Ondrej
from Heavy Industries Department. They explained that the
law prohibiting exporters from taking part in the building of
Bushehr would still apply regardless of the ownership of the
company or the routing of the materials. Thus, Skoda cannot
legally ship materials from the Czech Republic to its Russian
parent OMZ, and then have them delivered to Iran as a
"work-around." The April 2000 law imposes a fine of 20
million Crowns (US$850,000) or five times the value of the
equipment supplied and these measures would apply to such
diversions.


5. (S) Ondrej noted that he had contacted a board member at
Skoda Nuclear Engineering to investigate the information
earlier supplied by the Embassy that the firm, under its new
management, could possibly be assisting in the rebuilding of
Bushehr. He presented us with an email from Miroslav Fiala
of Skoda Nuclear, which stated that the company "has not and
will not have contact with any Iraqi (sic) subject" and that
they will not take part in any building project having to do
with Bushehr." Ondrej seemed to think that this was the end
of the matter, but when pressed, admitted that he really
doesn't know the company or have any reason to have faith in
their leadership, which he claims has changed significantly
since they were bought by OMZ last year.


6. (C) Post has also shared its concerns with the licensing
officials at the MFA and with the Embassy's Office of
Regional Affairs. Post will continue to weigh on this topic
with Czech officials at all levels.
MUNTER