SLOVAK ENERGY SECURITY MEANS NUCLEAR, NOT GAS

C O N F I D E N T I A L SECTION 01 OF 02 BRATISLAVA 000190

SIPDIS

SIPDIS

DEPT FOR EUR/NCE, EB/ESC/IEC, EUR/PGI

E.O. 12958: DECL: 03/06/2016
TAGS: ECON ENRG EAGR LO
SUBJECT: SLOVAK ENERGY SECURITY MEANS NUCLEAR, NOT GAS

Classified By: Ambassador Rodolphe M. Vallee for Reasons 1.4 (B) and (D
).


1. (SBU) Summary. A March 2 lunch hosted by the Ambassador
provided new insights on energy security in Slovakia. Like
many of its neighbors, Slovakia is almost completely reliant
upon Russia for its gas, oil, and nuclear fuel. However, the
GOS believes that it was not significantly affected by the
recent Russian-Ukraine gas conflict due to its significant
short-term gas storage reserves and greater reliance on
nuclear energy, and has therefore been much less engaged in
recent regional efforts to improve energy security.
Attendees agreed that, in the long-term, Slovakia must also
diversify its sourcing of raw materials and that more nuclear
power was the best solution. End Summary.

LITTLE CONCERN ABOUT GAS/OIL SUPPLIES
--------------


2. (C) Slovakia believes that it is better prepared to
tolerate gaps in natural gas supplies than many of its
neighbors. Though the country is almost completely reliant
upon Russia for gas, it also has the capacity to store a
significant emergency reserves. Annually, Slovakia's 1.3
residential and 50,000 business and industrial users consume
between six and seven billion cubic meters of gas. Storage
facilities, which are primarily depleted natural gas
reservoirs near the border with the Czech Republic owned by
three private companies, hold approximately 2.5 billion cubic
meters. Thus, even at peak winter-time levels, the country
has at least two months of reserve gas. In addition, the
Russian/Ukraine pipeline to the west runs directly through
Slovakia and contracts guarantee the exact amounts that it
can pull from the system before the supply reaches western
Europe.


3. (C) As a result, the GOS has not taken a very active role
either domestically or as a part of EU and other regional
efforts focused on improving energy security. During an
earlier meeting with Econoffs, the Director General for
Energy at the Ministry of Economy Michal Duranko
characterized the Russian / Ukraine dispute in early January
as a private bilateral negotiation that is of little concern
to Slovakia. Separately, MFA's Director for CIS countries
Stefan Rozkopal noted that he had heard that some people were
concerned about the conflict, but that he had not really
looked into the issue. The consensus among the lunch experts
was in line with these comments; Slovakia does not see the
dispute as a significant threat to their energy security.
Milan Sedlacek from the gas transport company SPP, which is
co-owned by the GOS (51 percent) and Gaz de France and
Ruhrgas (24.5 percent each),noted that there are currently
no economically-feasible options to diversify supply. Other
lunch guests commented that even if new pipelines or
liquified natural gas (LNG) terminals are constructed, oil
and gas will still come from either Russia or the Middle
East/North Africa, neither of which has proven sufficiently
stable. At best, the GOS and neighboring countries could
focus on demand-side conservation efforts.


4. (SBU) Despite its relative indifference to regional
energy security efforts, the GOS continues to play a role in
its own marketplace. The government has actively pursued
privatizations of state assets involved in electricity
generation and transmission, as well as regional heating
companies. On the regulatory side, the GOS has strictly
controlled electricity prices and recently fined Slovnaft,
Slovakia's oil and gasoline distribution company, USD 39
million for abusing its dominant market position. At the
lunch however, Bela Keleman, Vice President for Refinery
Marketing of Slovnaft expressed little concern and indicated
that such moves are merely populist gestures that have little
overall effect.


5. (C) Crude oil is currently obtained solely from the east
via the pipeline owned by Transpetrol, which Slovakia
privatized (49 percent plus management control in 2002) to
the Russian company Yukos. Yukos has, with the approval of
the GOS, since sold its stake in Transpetrol, to another
Russian company, Russneft. Keleman noted MOL's interest in
re-examining the possibility of connecting Austria's
Schwechat refinery to its Slovnaft refinery in Bratislava
with a two-way crude pipeline, providing the only connection
between the western and eastern European systems and
diversifying crude resources and security. Investors had
considered this option some years ago, though energy security
at that time was only an afterthought.

ELECTRICITY: FOCUS ON DEVELOPING NUCLEAR ENERGY
-------------- --

BRATISLAVA 00000190 002 OF 002




6. (C) Slovakia generates more than 60 percent of its
electrical power from its two nuclear nuclear facilities,
Bohunice and Mochovce, in central Slovakia. Bohunice has
four 440 MegaWatt reactors and Mochovce has two functioning
440 MW reactors and two that are about 40 percent complete.
Under pressure from Austria, Slovakia committed under its EU
acession agreement to decommission two of the four reactors
at the Bohunice plant, one by the end of 2006 and another by
the end of 2008. Slovakia will shift from a net exporter of
electricity to a net importer with the shut-down of these
reactors. Italian firm Enel is in the final stages of
purchasing a 66 percent stake in the government electric
company, Slovenske Electrarne (SE),which controls the
nuclear facilities. As a part of the negotiation Enel has
conditionally committed to completing the two reactors at
Mohovce.


7. (C) Miroslav Pikus, who was appointed CEO of SE six weeks
ago, confirmed that Enel will build two new reactors at the
Mochovce plant within five to seven years to make up the
difference, and that SE, even in advance of the purchase by
Enel, was pushing full-speed ahead with design and planning
elements of the project. So, while Slovakia may have to
import electricity from the Czech Republic or Poland in the
interim, it does not expect to have a long-term electricity
problem. (Note: During a December tour of the Bohunice
facilities by the Ambassador, SE and nuclear regulatory
officials voiced their concerns about Enel's committment to
complete the Mochovce reactors once the privatization was
completed. End Note.) Pikus did note, however, that Slovakia
still gets all of its nuclear fuel from Russia and that SE is
investigating other sourcing options with the EU to ensure
supply security, including a potential partnership with
Westinghouse.

RENEWABLE SOURCES
--------------


8. (SBU) According to MOE figures, renewable energy sources,
almost exclusively hydroelectric generators, currently
generate 16 percent of Slovakia's electricity and should
provide up to 19 percent by 2010, 24 percent by 2020, and 27
percent by 2030. According to Pikus, however, SE does not
believe that solar, wind, or biomass will be cost-effective
in Slovakia and that only some small hydro-electric plants
(with about a 120 Megawatt capacity) can generate sufficient
profits for the company without significant state support.


9. (C) Renewable fuel sources, however, are being pursued in
Slovakia. Robert Spisak, CEO of Enviral, explained at the
lunch that his company is constructing ethanol plants in
Slovakia and that ethanol could soon become cost-competitive,
both because of technological advances and the rising price
of oil. Spisak admitted, however, that for now ethanol is
only feasible because of tax incentives and EU mandates.
(Note: Enviral is interested in purchasing genetically
modified (GMO) maize for its plants and has lobbied with
American seed companies Monsanto and Pioneer to allow GMO
production in Slovakia. End Note) Keleman disagreed,
however, and indicated that according to Slovnaft's research,
bio-diesel fuel is far more likely than Ethanol to succeed as
an alternative to gasoline in the EU marketplace.

COMMENT
--------------


10. (C) Energy security in Slovakia is focused more on
investments in nuclear facilities than diversification of
fossil fuels and Slovak energy officials are still bitter at
being pressured to close down the two reactors at Bohunice.
The experts at the lunch saw few practical solutions to the
energy dependance on Russia given the numerous financial and
political pitfalls obstacles involved with the alternatives.
As a result, the best solution for Slovakia and the rest of
Europe is to fully develop existing assets (i.e., the
reactors at Mochovce) and improve energy conservation.
According to Pikus, minimal conservation efforts could easily
reduce usage by 5 to 10 percent.
VALLEE