Identifier
Created
Classification
Origin
06BRATISLAVA911
2006-11-16 15:49:00
CONFIDENTIAL
Embassy Bratislava
Cable title:  

PUTIN TO SLOVAKIA - WHY WOULD YOU WANT TO OWN AN

Tags:  ENRG ECON EPET PREL PGOV LO RS 
pdf how-to read a cable
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TO RUEHC/SECSTATE WASHDC IMMEDIATE 0466
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C O N F I D E N T I A L SECTION 01 OF 02 BRATISLAVA 000911 

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/17/2016
TAGS: ENRG ECON EPET PREL PGOV LO RS
SUBJECT: PUTIN TO SLOVAKIA - WHY WOULD YOU WANT TO OWN AN
EMPTY PIPELINE?!

REF: A. BRATISLAVA 870

B. BRATISLAVA 816 AND PREVIOUS

Classified By: Charge Lawrence R. Silverman for reasons 1.4 b) and d)

C O N F I D E N T I A L SECTION 01 OF 02 BRATISLAVA 000911

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/17/2016
TAGS: ENRG ECON EPET PREL PGOV LO RS
SUBJECT: PUTIN TO SLOVAKIA - WHY WOULD YOU WANT TO OWN AN
EMPTY PIPELINE?!

REF: A. BRATISLAVA 870

B. BRATISLAVA 816 AND PREVIOUS

Classified By: Charge Lawrence R. Silverman for reasons 1.4 b) and d)


1. (C) Summary - Russian President Vladimir Putin sent a
blunt message on the future of the Transpetrol pipeline to
Slovak President Ivan Gasparovic when the two met in Moscow
on November 6th. In response to Gasparovic's assertion that
the Slovak's preferred option is a GOS buyback of the 49
percent stake, Putin asked "why would Slovakia need a
pipeline if it didn't have any oil to fill it?" Putin did
provide a green light, however, for Slovak plan B: GOS
approval of a sale to Gazpromneft in return for the Slovaks
regaining management control and a commitment by the Russians
to further develop the pipeline and allow for a diversity of
supply. The technical details of the agreement will be
worked out in discussions beginning in Bratislava today
(11/16) between Economy Minister Lubomir Jahnatek and
Director of Yukos Finance BV Sergei Shmelkov. Changes could
be implemented as early as Monday, November 20, at the
Transpetrol shareholders meeting (if additional items are
added to the agenda.) In the end the GOS will likely end up
with management control, at least on paper, but will not be
able to meet the original objective of promoting true
diversity of supply. End Summary.

AN OFFER YOU CAN'T REFUSE
--------------


2. (C) Prior to departing for Moscow, President Gasparovic
had told Ambassador that although he continued to favor a
Slovak buyback of the 49 percent stake in Transpetrol, he no
longer believed that this was a viable option. Gasparovic
said he had received signals that the Russians were intent to
regain this share from Yukos' Netherlands-based entities.
Economy State Secretary Peter Ziga, who was not in Moscow but
received a readout of the Moscow meetings from Minister
Jahnatek when he returned from a subsequent trip to India

November 15, confirmed that a buyback was no longer possible.
Implying that a Slovak buyback could threaten future Russian
oil supplies to Slovakia, Putin reportedly made it very clear
to Gasparovic that Russia would only consider a deal that led
to a Russian company obtaining the 49 percent stake in the
pipeline from Yukos. Minister Jahnatek received a similar
message from the head of the cabinet office, Sergey
Naryshkin. In addition to Putin's threat about the potential
for an empty pipeline, both Jahnatek and Gasparovic expressed
concerns prior to their trip about a connection between
Transpetrol and negotiations over gas contracts, which are
set to expire in 2008, as well as deals for the supply of
nuclear fuel.


3. (C) During his meeting with Gasparovic, Putin did agree to
the broad outlines of a deal whereby the GOS would approve a
sale by Yukos Finance to Gazpromneft in return for a
commitment to meet four Slovak conditions. The first, and
most important condition, is that the GOS regain management
control of the Transpetrol board by appointing three of the
five board members. The Slovaks would give up control of the
supervisory board, which they currently hold, as a part of
this arrangement (they currently appoint five of the nine
supervisory board members). The supervisory board's primary
function is to approve loans and transactions in excess of
USD 3 million. In addition, the Russians would commit to
increasing the amount of crude transiting through the
pipeline from the current 10.5 mta to 17 mta, would upgrade
the pipeline so that it could carry both Urals heavy crude
and light Caspian crude in the event that Odessa-Brody were
to move forward, and extend the pipeline to Schwechat in
Austria. Jahnatek was reportedly disappointed that the
Russians were not willing to engage in more detailed
discussions on next steps to implement the agreement while he
was in Russia.

REBGUN'S REPS IN TOWN TO NEGOTIATE
--------------


4. (C) Sergei Shmelkov, who was appointed by Yukos Oil
Receiver Eduard Rebgun as a Director of Yukos Finance BV in
August, arrived in Bratislava on 11/16 to begin negotiations
on the technical details of the plan outlined in Moscow.
Ziga told us that Minister Jahnatek is taking the lead in the
negotiations for the GOS, and would also represent the
government at the shareholders meeting on Monday, November

20. Jahnatek will seek changes to the Transpetrol
shareholder's agreement, the articles of association, and the
company's strategic plan in order to incorporate the four

BRATISLAVA 00000911 002 OF 002


conditions. Ziga stressed that the GOS would not go forward
with the November 20 meeting if Shmelkov was not negotiating
in good faith or if any the four conditions were left out of
the deal. (Comment: Jahnatek has been distrustful of Rebgun's
intentions throughout this process, and previously told us he
would only negotiate with his representatives if he got a
clear signal from Moscow to do so. End Comment.)


5. (C) The official purpose of the shareholders meeting is
to replace the two GOS board members, who were appointed by
the previous government, with new representatives. If all
shareholders agree, it is possible to add items to the agenda
at the beginning of the board meeting. Ziga did not know
whether the November 20 meeting would take additional steps,
such as changing the structure of the board or altering the
shareholders agreement. Ziga noted that a lot will depend on
the negotiations with Shmelkov. Rebgun is expected to push
for a change to the Yukos Finance representatives on the
board, and thereby strengthen his hold on Yukos' assets. The
current board had previously denied Rebgun's request to hold
a shareholders meeting because of questions about his
legitimacy to represent Yukos Finance (Ref B.)


6. (C) We do not know whether Yukos International will
contest Rebgun's ability to represent Yukos Finance at the
shareholders meeting or take other steps to stop or delay the
process. (Note: Slovak law recognizes representatives of the
company listed in the Central Securities Registrar, which in
this case is Yukos Finance BV.) Yukos International's
ability to complete the transfer of shares from Finance to
International will be severly restricted once Rebgun changes
his board members, especially if this does not go together
with a change in management control. We have heard that as
long as Rebgun maximizes shareholder value for the
Transpetrol stake and that the proceeds from any sale wind up
with the Dutch bailiff, then Yukos International would not
oppose to the transaction. When asked by the Ambassador
whether the proceeds from the sale would go through the Dutch
court system or directly to Russia, Ziga said that he did not
know, though he recognized that this could create problems in
Dutch and New York bankruptcy courts.

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


7. (C) The Slovaks are now committed to a deal with Rebgun
and his Russian associates. Regaining management control is
an important step, and may be the best that we could have
hoped for given the legal complications in the Netherlands
and pressure from Moscow. Slovakia clearly did not want a
deal with a third party from Poland or any other country in
the region, and could not get comfortable with a complicated
transaction with Yukos International that would have excluded
the Russians. The challenge for the Slovaks will be to
incorporate the three conditions relating to the future
development of the pipeline into the relevant company
documents in a way that will force the Russians to
follow-through on their commitments. This will not be easy,
especially the flow of Caspian oil through the pipeline,
since several other actors are involved and the Russians have
opposed previous attempts to offer third party access to oil
pipelines. In the end the GOS will likely have management
control, at least on paper, but will not be able to meet the
original objective of promoting true diversity of supply.


8. (C) Ziga was notably open about the state of negotiations,
much more so than he had been in recent weeks, and appeared
to be giving us a full report of the situation as he
currently understands it. He even promised to call the
Ambassador on November 20 after the conclusion of the
shareholders meeting. It is not clear if this was done out
of appreciation for our efforts, or if he has concerns about
Rebgun's willingness to abide by the framework that was
outlined in Russia. End Comment.
SILVERMAN