PUTIN VISIT RESULTS IN SUBSTANTIAL DEBT

C O N F I D E N T I A L ALGIERS 000451

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/13/16
TAGS: ECON ETRD PGOV PREL RS AG
SUBJECT: PUTIN VISIT RESULTS IN SUBSTANTIAL DEBT
FORGIVENESS, BUT ARMS PURCHASES REMAIN UNCLEAR

Classified By: Ambassador Richard W. Erdman,
Reasons 1.4 (b) and (d).

SUMMARY AND COMMENT
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1. (C) Russian President Putin's March 10 visit to Algeria,
the first by a Russian president, has produced a substantial
debt forgiveness package, some commercial and investment
agreements, and talk about a possible energy clearing house
deal. But the details of the debt forgiveness package and
possible arms purchases (especially MiGs) so far remain
elusive, and no one in a position to know is talking.
Speculation about MiGs has ranged from 14 to 36, or perhaps
even none. In addition, aspects of the visit, including the
last-minute shortening of the visit from two days to seven
hours, the fact that the visit was switched to a Friday (the
Muslim holiday day on which the GOA has expressly told
mission visits should not be scheduled),and the sudden
disappearance of the Russian ambassador from State functions
where he would normally be present, have spurred quiet
diplomatic speculation that beneath positive-sounding
rhetoric, there may have been some problems. That said, in
his State lunch toast, President Bouteflika said the visit
would enhance the "strategic partnership" between Algeria and
Russia that was launched during his own 2001 visit to Moscow,
and MFA Secretary General Lamamra told Ambassador March 14,
on the margins of A/S Welch's visit, that the visit had been
a "great success" and that the $4.7 billion debt forgiveness
package was similar in size but not in percentage to the
package recently extended to Syria. We will continue to
probe GOA and Russian contacts here, but it's clear at this
stage that neither are inclined to share details about the
military package. We would be interested in anything Embassy
Moscow can learn from their end. (End summary and comment.)



UNCERTAINTY OVER DEBT FORGIVENESS TERMS
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2. (C) Uncertainty remains regarding the details of the
Algerian debt forgiveness agreed upon during President
Putin's visit. The official government daily newspaper El
Moudjahid and Algerian radio reported that Algeria and Russia
agreed upon an accord whereby Russia would cancel Algeria's
USD 4.7 billion in debt in exchange for the purchase of goods
and services worth the same amount. (Note: Russian-Algerian
trade totaled USD 364 million in 2005, according to press
reports. End note.) The Tunisian Ambassador told Ambassador,
however, that Russia had offered Algeria well before the
visit a debt forgiveness package whereby Moscow would forgive
70 percent of Algiers' debt outright and offer debt swaps for
the remaining 30 percent. Originally, the Algerians had
accepted this approach. However, once the Russians offered
the Syrians 100% forgiveness, the Algerians back-tracked and
demanded the same treatment. Disagreement over this issue,
according to the sometimes conspiratorial-minded Tunisian
Ambassador led the Russians to shorten the visit in order to
pressure the Algerians. When Ambassador asked MFA Secretary
General Lamamra if there had been disagreement over the terms
because of the Syrian treatment, Lamamra confirmed that 4.7
billion had been forgiven. While this had not been the same
percentage the Syrians had received, he said it had been
roughly the same amount in dollar terms.


3. (C) The Algerian press picked up an announcement by the
head of MiG to Russian television claiming that Algeria
agreed to purchase some USD 7.5 billion worth of Russian
arms. So far DATT has not been able to confirm or deny the
sale with any Algerian military officers, and the Russian
Ambassador notably absented himself from State functions
surrounding the March 11-13 visit of the South Korean
President, as if he wanted to avoid probing questions from
his ambassadorial colleagues. Nor is it clear if such an
arms deal was part of the debt forgiveness scheme or
comprised a separate agreement. Russian news agency Interfax
reported that the deal included 36 MiG-29 fighters, 28
Sukhoi-30s, 16 Yak-130 training planes, 40 tanks, and eight
battalions of S-300PMU2 rocket systems. The Ukrainian
Ambassador to Algeria told Ambassador he understood that 14
used MiGs had been purchased as well as 40 tanks. However,
according to an Algerian contact with established connections
to the Algerian military, the total value of the arms deal
was closer to USD 3 billion and involved 28 MiG-29 fighters,
30 SU-30s, a squadron of Yak-130s, and an unspecified number

of tanks and other ground equipment. As a possible indication
that the deal did not meet Russian expectations, a European
military attache told DATT that the Russian Chief of Staff
has postponed a planned March visit to Algiers until sometime
in the November-December time period although it is not known
if the postponement was related to the planned arms sale.

PRESUMED DISCUSSIONS ON NATURAL GAS
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4. (C) According to the Ukrainian Ambassador to Algeria, the
Russians included a large number of individuals from Gazprom.
In this regard, the Ukrainian Ambassador expressed concern
to Ambassador March 13 that Russia was trying to undercut the
value of Ukraine as a transit point for natural gas. While a
final deal had not emerged, a large Gazprom delegation would
return to Algeria in April for talks. El Moudjahid
subsequently reported Minister of Energy and Mines Chakib
Khelil's March 13 interview with Russian daily Prima Novosti
in which he said Algerian state-owned energy company
Sonatrach was "inclined" to pursue an exchange of quotas with
Gazprom.


5. (C) Under such a clearing arrangement, because of the
difficulties Russia faced in exporting LNG directly to the
U.S., Sonatrach would ship LNG to U.S. markets on behalf of
Gazprom while Gazprom (in addition to its own exports) would
supply Europe an equal value of natural gas on behalf of
Algeria through its pipeline. Khelil revealed that Sonatrach
and Gazprom had begun negotiations regarding a possible LNG
project in Russia, although he noted there were no specific
projects at this time. The two sides, he indicated, were
merely exchanging information and studying the question of
investment. Khelil noted that Russia and Algeria were the
first countries to begin discussions of a gas exporters
"club," which held its first meeting in December 1999. He
stressed that the club was not an organization similar to
OPEC, but rather a forum for gas exporters to exchange
information. Khelil further highlighted the Russian
exploration and extraction companies currently present in
Algeria, including the firms Rusnaft and Stroytrawgaz.

OTHER ACCORDS SIGNED
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6. (U) In addition to the agreement regarding the
disposition of Algeria's debt, Russian Foreign Minister
Sergey Lavrov and Algerian Foreign Minister Mohamed Bedjaoui
signed agreements intending to eliminate double taxation
between Algeria and Russia, protect investments, and
establish cooperation between the two countries' chambers of
commerce. Algerian and Russian media noted railway and
energy contracts were also signed at the ceremony. The
Algerian Minister of Transport noted privately to Ambassador,
however, that an agreement related to air links were not
significant since the existing air links were unprofitable
due to the lack of passenger traffic.


7. (U) Lavrov told Algerian radio and print media after his
meeting with Bedjaoui that their talks also covered ways to
"revive" economic cooperation between the two countries
through trade to a level commensurate with their political
relations. Bedjaoui added that their talks also focused on
international and strategic issues, including Iraq, Iran's
nuclear program, and the Western Sahara.


ERDMAN