ROMANIA AND U.S. ON SAME WAVELENGTH - DAS BRYZA AT

C O N F I D E N T I A L SECTION 01 OF 06 BUCHAREST 001653

SIPDIS

SIPDIS

DEPT FOR EUR - MATT BRYZA
DEPT FOR EUR - MPEKALA

E.O. 12958: DECL: 10/30/2016
TAGS: ENRG EPET PREL RO
SUBJECT: ROMANIA AND U.S. ON SAME WAVELENGTH - DAS BRYZA AT
REGIONAL ENERGY CONFERENCE

REF: BUCHAREST 411

Classified By: Ambassador Nicholas F. Taubman for reasons 1.5 (B) and (
D).

SUMMARY
--------------

1. (C) Deputy Assistant Secretary Matt Bryza visited
Bucharest October 26 to participate in a conference on
Regional Energy Cooperation jointly sponsored by the Romanian
Presidency, the U.S. and German Embassies, and the George C.
Marshall Center ) Romania. In this forum and in earlier
meetings in Bucharest on September 14, Bryza discussed
Romanian and European energy security issues and the
development of a "Southern Corridor" to provide a gas transit
alternative to Gazprom's monopolistic position in Europe.
Romania's Ministers of Foreign Affairs and Economy, as well
as senior Presidential and Prime Ministerial advisors have
welcomed U.S. active participation, both political and
commercial. Their message: U.S. support is essential to
diversify gas supply to the continent. End Summary.

REGIONAL ENERGY CONFERENCE FOCUSES ON DIVERSIFICATION
--------------

2. (U) The Ambassador spoke of the challenges awaiting Europe
if it does not seek to diversify energy sources in the near
and mid-term. Demand is overtaking supply, and unless new
energy sources come online, countries like Romania will not
be able to sustain their impressive growth. That means
aggressively pursuing new supply options and ensuring they
will have an avenue to market. Southern Corridor projects
such as the Nabucco pipeline are an important part of this
equation. Other energy sources such as nuclear are another.
Also key to the equation is improving energy efficiency and
moving prices to a market basis. In countries throughout the
region, Romania included, artificially cheap energy is
sending the wrong signal to inefficient industries of the
past. Helping the region move toward a 21st century economy
requires the right market signals.


3. (U) German Ambassador Lohkamp, in his welcoming remarks,
asserted that, although the media had characterized the
recent Russia-EU summit in Finland as a disappointment, much
progress had been made. Russia has always been a reliable
energy partner for Germany. We must make sure that standard
continues, he said, while calling for Europe to diversify its
sources of gas supply. A written message from Ambassador
Viktor Elbling, the German Foreign Ministry's Energy
Coordinator, noted that last January's energy crisis between
Russia and Ukraine demonstrated the lack of national
cooperation on energy and the need for diversification of
both transit routes and suppliers of natural gas. (NOTE: See
paragraph eight for Romania's views on Lahti)

4. (U) DAS Bryza recalled the Russia-Ukraine dispute of last
January and its role in illustrating Europe's vulnerability
to over-reliance on a single supply source and supplier. The
point was reinforced when &terrorists8 disrupted the flow
of gas to Georgia with well placed explosions on two gas
lines. Gazprom's monopoly on much of the European energy
market facilitates its anti-competitive behavior. While new
options like the Turkey-Greece Interconnector represent only
a fraction of supply for now, they will provide alternatives
and contribute to the healthy competition Europe's energy
markets require. Alternative supply networks will also
address the large discrepancies between the purchase price of
Central Asian gas and the sales price in Europe, which has
contributed to organized crime and other unsavory activities.


5. (U) Russia must also open itself to foreign investment if
it is to maintain its role as a reliable supplier to the
European markets. Moscow's decision to close the Shtokman
fields to foreign investment is a disappointment. Russia's
supply network will require tens of billions of dollars to
maintain, and this will require public private partnerships
to accomplish.


6. (U) Head of the Russian Foreign Ministry's Office of
International Cooperation, Mihail Ivanovici Savva, stressed
the need to balance security of supply with demand, as
&German logic dictates.8 He repeated Russian assertions
that Caspian Sea Basin hydrocarbon resources cannot replace
Russian supplies and that Russia will continue to play a role
in the transportation of Caspian energy to Western markets.
He also warned that Russia views energy as having a political
as well as economic utility.

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BASESCU: SEEING EYE TO EYE
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7. (U) In his keynote address, President Traian Basescu was
on our wavelength: Europe must diversify its energy supply to
avoid depending on a single source. He pulled no punches
with Russia, saying one cannot ignore the "accidental
damages" to the energy supply networks in neighboring
countries. The Russia-Ukraine dispute last winter raised the
question, "what political price do European countries have to
pay to get energy from a single major supplier?"


8. (U) Basescu touted the Caspian Sea as an opportunity to
break the monopoly of energy supplies from Russia. He
stressed, however, that the Caspian countries do not have
resources and capacities comparable with the Middle East. In
addition, they run the risk of remaining dependant on Russia
for transit, and face technical or political vulnerabilities.


9. (U) Finally, he remarked provocatively at the closing of
the first session that, while the EU is talking about a
united foreign policy regarding energy, each country has its
own internal policy, with different approaches to
privatization and deregulation. &How can we have a united
foreign policy when we have completely different internal
policies?8

BASESCU'S PEOPLE- ILINOIU: WORRIED ABOUT EUROPE'S DIRECTION
-------------- --------------

10. (C) In a side meeting with DAS Bryza, Basescu's chief
international relations advisor Anca Ilinoiu reinforced the
President's message. Romania fully shares U.S. concerns on
Gazprom's tactics, she said. She echoed Basescu's statements
that Gazprom was a new, more efficient Red Army, noting that
the placement of Gazprom's new gas storage units mirrors the
placement of Soviet bases during the Cold War. Projects that
Romania is pursuing have found themselves side-tracked due to
the country's anti-monopoly stance. Romania's gas imports
are the most expensive of the former Warsaw Pact countries
($285 per 1000 cubic meters) due to this and Romania's
refusal to concede sale/control of strategic energy assets to
Russia. As example, Ilinoiu recalled several Romanian
understandings with Kazakhstan that fell through following
President Putin and Nazarbayev's meeting in May. Romania
hoped to alter the dynamic in March 2007 when Nazarbayev will
pay a state visit to Bucharest.


11. (C) Ilinoiu reflected the President's doubts that the EU
would resolve or improve the issue. Basescu had been shocked
by European weakness at the EU-Russia summit in Lahti. Putin
put on an excellent performance, waxing over dismissals of
the Energy Charter, provocations in Georgia, human rights
violations and the Politkovskaya assassination. However, his
rhetoric was strong and aggressive, saying Russia was
prepared for military intervention in Georgia. The 25 EU
leaders sat there and heard it with smiles on their faces.
Only Tony Blair reflected appropriate disappointment by
leaving the Summit dinner early. Basescu commented on the
plane ride home, &What is this group we're joining?!8
After repeated incredulous complaints from the Romanian
delegation, the Finns admitted in frustration that Germany
had insisted they host the dinner.


12. (C) Ilinoiu worried that Germany's relationship with
France had become perhaps too close, with both increasingly
reliant on Russian-owned energy. As North Sea reserves
dwindle, the UK may be forced to turn to Russia as well in
the face of more expensive Norwegian liquefied natural gas
(LNG). If this happens, Europe's ability to positively
influence Russian behavior could be wholly circumscribed.
Romania has heard rumors that Germany will take up the
Moldova issue during its upcoming EU Presidency, and that a
solution has largely been outlined by Chancellor Merkel and
Putin. Think of the irony that the Moldovan problem could be
addressed by a Russian-German solution, the same way it was
created 65 years ago, she said. Germany also plans to
&fix8 Europe's energy problems. What other surprises do
they have for us during their Presidency, she wondered.


13. (C) Regarding Turkey, the other major Black Sea power,
Ilinoiu worried that Turkish intransigence is foiling
Romanian efforts at energy diversification. Romania wants to
develop additional nuclear energy capacity, with three new
reactors for domestic use and a fourth for export, largely to
Moldova to help reduce its dependence on Russian power.

BUCHAREST 00001653 003 OF 006


However, this requires expanding the Cernavoda cooling pond,
which is sourced by the Danube River. All downstream
countries would have to approve, which means Russia and
Turkey, and which Ilinoiu believed were unlikely to offer
consent. Romania is also seeking to procure LNG from Qatar,
but securing access to the Black Sea for LNG via the Turkish
Straits remains the great wildcard. While LNG is not
specifically banned, Turkey can find a whole host of reasons
to slow or keep shipments out (e.g. cumbersome safety
inspections),and has indicated it will. Ilinoiu suggested
that Romania and the U.S. press the Turks to reconsider the
Montreaux Convention, stressing that &Montreaux is not a
sacred cow.8 Some Romanian NGOs had floated the idea at
conferences in Turkey, to a terrible reception, of course.
Ilinoiu lamented that what Turkey does not understand is that
they are our major partners here. Nothing in Romania's
approach is meant as a threat to Turkey. Basescu is the only
European figure that fully supports integration of both
Turkey and the Caucuses into the EU and NATO. Our national
obsession is to remove ourselves from Russian influence.
Turkey should trust us, she said.


14. (C) In response to an inquiry from Ilinoiu, DAS Bryza
warned Ilinoiu about revisiting the Montreaux Convention. He
explained how even Turkey's top strategic thinkers
misperceived previous discussions of an expanded NATO
maritime presence in the Black Sea as a veiled attempt to
undermine the Montreaux Convention, and the limited
jurisdiction over the Straits that the Convention affords
Turkey. For many Turkish strategists, it was a short step to
seeing a broader conspiracy by the &Western Powers8 to
weaken not only the Montreaux Convention, but the Treaty of
Lausanne as well, which provides the legal foundation of the
Turkish Republic. These steps, coupled with discussions of
federalism ) and Kurdish autonomy -- in Iraq, rekindle
historical memories ) and paranoia ) in Turkey that the
U.S. seeks to dismantle the Turkish Republic. A more
effective approach to Romania's quest for LNG shipments into
the Black Sea would be for Romania and the U.S. to broach the
subject directly with Ankara, making clear we were not
calling into question the Montreaux Convention. The U.S. had
done a great deal over the past decade in helping Turkey
achieve its goal of reducing oil traffic through the Turkish
Straits by realizing the Baku-Tbilisi-Ceyhan oil pipeline.
Perhaps Ankara could now show an equally constructive
attitude with regard to LNG shipments into Romania, which
could also help Ukraine and other countries in the region
diversify their gas supplies.


15. (C) Ilinoiu then turned to Serbia, stressing the need to
keep the country on &Western pipelines of interest,8
literally and figuratively. She noted that Romania and
Serbia would soon conclude a gas pipeline connection, which
could be fed by LNG, thereby keeping Serbia oriented toward
the Euroatlantic community. Russia has indicated it may
divert Burgas-Alexandroupolis through Serbia. If Serbia is
linked to Burgas, then the country is in Russian hands, she
said. For strategic purposes, energy links to Serbia should
run through Romania. Romania and Serbia have an
understanding, and Romania is in the best position to keep
Serbia on a Western footing. She noted that, of all the
Balkan countries, Romanian and Serbia are the only two never
to go to war with each other.


16. (C) Ilinoiu mentioned that Romania's strong backing for
U.S. efforts across the board does not come without a price
tag. Romania counts on continued strong U.S. support on
Moldova, she said. Bryza stressed U.S. support for Moldova,
and for an internationalized peacekeeping force in
Transnistria.


17. (C) Bryza pressed for Romania to work with Hungary and
other countries in the region to forge a greater sense of
unity in negotiating energy deals with Russian suppliers. He
cited as particularly significant in this regard the Treaty
of Athens, signed in October 2005 and entering into force in
May 2006, which aims to harmonize gas and electricity markets
in Southeast Europe.

BASESCU'S PEOPLE) MEDAR: US ROLE HELPS COUNTER PRESSURE
-------------- -

18. (C) During an earlier visit to Bucharest, on September
14, DAS Bryza met with Basescu's National Security Advisor,
Gen. (r) Sergiu Medar to discuss energy security. Medar
expressed his strong support for U.S. involvement in

BUCHAREST 00001653 004 OF 006


developing energy alternatives in Europe, especially the
Southern Corridor of gas infrastructure extending from
Azerbaijan into Southern Europe. Despite rhetoric to the
contrary, it was clear the Kremlin wished to use natural gas
as a political tool. In order for countries such as Romania
to hold up against outside pressure, they needed to know that
they had strong support from the United States. Romania was
in a better position than many thanks to its domestic energy
resources, but internal production was dwindling. It was
"very dangerous" to risk being cut off by the only current
supplier. For this reason, Medar explained, Romania had in
March extended its supply contract with Gazprom by 25 years.


19. (C) However, Medar continued, Romania was actively
pursuing alternatives such as the Nabucco pipeline to bring
Caspian (and perhaps Trans-Caspian) gas through Turkey,
Bulgaria, Romania and Hungary to Austria and Western Europe.
It was also exploring a Liquefied Natural Gas (LNG) terminal
in cooperation with Qatar. He had been told in Washington
that Romania and other countries in the region seemed "a
little paranoid" about Russia, Medar said. However,
Gazprom's actions in Ukraine, Algeria, Hungary, Italy and
elsewhere betrayed a strategy of encircling Europe,
eliminating competition and exploiting its dominant position
for political purposes. Recent efforts to isolate and
pressure Bulgaria on the Burgas-Alexandroupolis oil pipeline
were more of the same. Even if Gazprom could be kept out,
they were always involved through middlemen and banks,
including banks with Western names and faces. U.S.
commercial and political involvement, on the other hand,
could help balance the market. American participation "will
show Gazprom that the U.S. has a stake in Europe's energy
market, you know what game Gazprom is playing, and you do not
accept it," Medar said.


20. (C) The U.S. could provide political support to those
countries looking to foster competition, Medar said, by
assuring Romania and other states that the U.S. would stand
behind them and that Turkey was onboard and willing to play
fair. A Turkey-Azeri transit agreement would be a good
signal to this effect. In Romania's case, the U.S. could
support Romania's effort to develop Qatari LNG by encouraging
Turkey not to raise barriers. While LNG was theoretically
free to pass the Turkish Straits, Ankara could always find a
way to keep it out if it wants to. With both Qatar and
Nabucco, it would be possible to say "hasta la vista,
Gazprom," said Medar. The National Security Advisor followed
up the meeting with Bryza by traveling to Washington the
following week for expert-level discussions on realizing the
Southern Corridor.

MINISTRY OF ECONOMY: HELP US GET THERE
--------------

21. (C) In a meeting with DAS Bryza on October 26, Romanian
Minister of Economy and Commerce Ioan-Codrut Seres warned
that Hungary is losing interest in Nabucco as a vehicle for
transporting Azerbaijani rather than Russian gas. Bryza
conceded that in Budapest, senior representatives of the
private oil company MOL noted that MOL's cooperation with
Gazprom on Blue Stream II, as well as its commercial reliance
on Siberian crude, made the Hungarian company increasingly
interested in supplying Russian gas through Nabucco. Seres
added that Hungarian Minister of Economy Janos Koka is much
more pro-Russian this year than last. We are seeing the same
attitude from Bulgaria recently, Seres said. Both Seres and
Prime Minister Tariceanu's chief economic and diplomatic
advisors emphasized that Nabucco is a constant agenda item at
the regular joint Romanian-Hungarian Cabinet meetings.
Romania needs U.S. support on Nabucco and the Pan European
Oil Pipeline (Constanta to Trieste) to counter growing
Russian influence. While Nabucco is attracting commercial
interest, Seres acknowledged that PEOP has yet to do the
same.


22. (C) In contrast to Hungary's wobbling, Azerbaijani
President Aliev told President Basescu during the latter's
Baku visit earlier this month that Azerbaijan was committed
to export Shah Deniz Phase II production through Nabucco.
Seres had heard the same in follow up meetings at
Azerbaijan's Ministry of Energy. Bryza suggested that the
GOR reach out to the other Nabucco developers, both
governments and companies (especially the Austrian company
OMV) to follow-up on the Basescu visit to Baku. Bryza
further suggested that Romania and Hungary place the issue of
Azerbaijani gas for Nabucco on the agenda for the next Joint

BUCHAREST 00001653 005 OF 006


Cabinet meeting of the two countries. Bryza indicated that
the U.S. could not support shipment of Iranian gas through
Nabucco. Seres agreed. He added that Romania and Azerbaijan
will conclude a bilateral agreement on energy cooperation in
the near future. Seres plans to be in Washington in early
December and asked for assistance in meeting DC principles at
State, Commerce, Energy and Defense.

FOREIGN MINISTRY: WE NEED A EUROPEAN POLICY ON ENERGY AND THE
BLACK SEA
-------------- -

23. (C) During a meeting with Deputy Foreign Minister Adrian
Vierita, EUR DAS Matt Bryza praised Romania for its role in
protecting Uzbek refugees, highlighting the need for a Black
Sea Strategy, and helping promote democracy in Georgia.
Bryza then urged that it was time to band together with
nearby countries to negotiate more mutually beneficial terms
in energy agreements with Russia. Vierita reinforced the
message that energy was high on Romania and the EU's agenda
and that Romania opposed Russia's use of energy as a
political tool. Vierita mentioned the need to prepare for
the German presidency of the European Council by talking to
the Germans about a European Neighborhood Policy "plus" (ENP
plus). He noted there was no reference to the Black Sea
Region in the pre-draft of ENP . Romania's priority was to
put the Black Sea Region at the top of the agenda, he said.


24. (C) On Georgia, Romania was trying to persuade Tbilisi
not to be too outspoken. Vierita also mentioned President
Basescu's attempt to reach out in a balanced, friendly
approach toward both Armenia and Azerbaijan during recent
visits. Bryza welcomed Romania's efforts, citing the
critical role Romania played in Georgia's Rose Revolution by
helping to restrain tension even while supporting democratic
forces.


25. (C) Vierita commented that he had heard from friends in
the business community that Russia was trying to enter into
the financial scheme of Nabucco through non-Russian firms.
Bryza said he would not be surprised and cited reports of how
Russian oligarch (and suspected organized criminal and
terrorist-supporter) Mikhail Chernoi did the same with RAFO,
using a series of Austrian front companies and banks to mask
his ownership. The Ambassador added that he had previously
told Romanian officials that if they keep selling their major
assets to the Russians they would deserve what they would
get. Vierita noted there were plans by a German company to
build gas storage in Romania. Bryza advised that Romania be
careful about sales of gas storage, which is essential both
to mitigate the impact of potential gas cutoffs and to manage
a gas distribution company efficiently.


26. (C) Citing the importance of collective action to secure
more mutually beneficial energy agreements with Russia, Bryza
welcomed the EU's Green Paper, but called for immediate
action, as the Commission would likely take a long time to
elaborate a strategy to implement the Green Paper's vision.
Bryza suggested that action be built on the Treaty of Athens
and the Southeast Energy Community to further regional
cooperation. The Ambassador emphasized the importance of
providing Russia with competition, even if it was just one
alternative pipeline. Vierita mentioned that he would be the
one responsible for crafting Romania's new approach toward
Russia.


27. (C) In September, FM Ungureanu had also stressed to Bryza
that developing alternative sources would be difficult
without a common European approach. Europe had been slow to
respond in January when Gazprom closed the tap to Ukraine.
The Energy Green Paper was a start, but the real substance of
a framework for producer and supplier relations was under
development now. Two groups existed in Europe: those who
wanted to work with Russia, and those looking for
alternatives. If we wished to advance the "alternatives"
agenda, the U.S. needed to press the Finnish Presidency right
away on an energy framework. Otherwise, the German
presidency would push the agenda toward Gazprom, energy deals
would continue to be handled bilaterally, and Gazprom would
continue to divide and conquer, killing any alternative
options. If Germany managed both the conclusion of a common
EU energy strategy and the upcoming EU-Russia Partnership
Agreement, the result would be predictable, he said.

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

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28. (C) There is no doubt in Bucharest of the importance of
U.S. involvement if Europe's energy markets are to diversify.
U.S. leadership will be required not only to mitigate
Turkish ambitions to emerge as an energy hub, but also to
push other transit countries (including Romania) to make the
necessary concessions to Turkey's role that will move
projects like Nabucco forward. DAS Bryza encouraged all
Romanian interlocutors to take action to move the agenda in
collaboration with regional governments and the companies
that will finance and build the projects, possibly by
convening a high-level meeting of the Nabucco Five, Turkey
and Azerbaijan, timed to follow Azerbaijan's pending
conclusion of a gas supply contract with Gazprom.


29. (C) In promoting European energy diversity, Romania is
well positioned to take on Gazprom thanks to its own domestic
energy resources. Romania produces approximately 40 percent
of its oil needs and 60 percent of its gas. However, we
should avoid encouraging too forward a Romanian position that
may be seen as a threat by potential partners in Ankara and
elsewhere.


30. (U) This cable has been cleared by Deputy Assistant
Secretary Matt Bryza.

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