RUSSIAN INTEREST IN INVESTMENTS IN GERMANY

UNCLAS SECTION 01 OF 03 DUSSELDORF 000049 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EINV ENRG PGOV RS GM SUBJECT: RUSSIAN INTEREST IN INVESTMENTS IN GERMANY REF: MUNICH 767 DUSSELDORF 00000049 001.2 OF 003 Sensitive but Unclassified - Contains Proprietary Information. Not for Internet Distribution ¶1. (SBU) Summary: Russian interest in buying into German/European companies, including Deutsche Telekom and energy companies has been a front page story. At the moment, in North Rhine-Westphalia (NRW) and other parts of Germany, the level of actual transactions has not come close to equaling the level of press coverage. Still, there are signs of strong Russian business/economic interest in NRW and other parts of Germany. Gazprom and the German energy giant E.ON Ruhrgas are sponsoring high visibility sporting and cultural events as part of a PR strategy to generate goodwill. Russia recently appointed Ruhrgas CEO Dr. Burghard Bergmann as Russian Honorary Consul in Duesseldorf, following similar moves involving prominent German businessmen in Stuttgart and Nuremberg. For now, the German business community seems more interested in selling to and investing in Russia than allowing Russian firms to gain a foothold in Germany, but there is still a sense here that Russian funds looking for known, safe, and profitable places to be invested, may flow west to Germany. End Summary. Sistema Eyes Deutsche Telekom -------------- ¶2. (U) In late November, Sistema chief (and 62 percent shareholder) Valdimir Yevtushenkov confirmed his company's interest in buying a quarter of Deustche Telekom, as well as that Russian President Putin had raised the issue with Chancellor Merkel during his visit to Germany. Yevtushenkov told Germany's "Der Spiegel" he plans to incorporate Sistema's mobile phone subsidiary MTS, Eastern Europe's largest mobile phone company, into DT, in exchange for 25 percent plus 1 share of DT shares. Such a deal would make Sistema the second largest DT shareholder and give them a blocking minority. The German government, which through parastatal KfW Bank directly or indirectly controls more than 30 percent of DT shares, would remain the biggest shareholder. The second largest shareholder currently is U.S. private equity firm Blackstone, which acquired 4.5 percent of DT shares in spring 2006. ¶3. (U) The Russian approach generated a major controversy and subsequently has seemed to be put on ice. An unnamed member of the DT Supervisory Board called the approach an "industrial-imperialist attack by a Russian clique motivated by power politics" and DT quickly formulated a defense strategy against Sistema's bid. Yevtushenkov told the German press Sistema would not force the issue and would not move against the wishes of the German government. He also denied that Sistema already owned DT shares. An Embassy contact with connections to DT, however, told us that Sistema recently commissioned a German bank to buy up DT shares silently. The Finance Ministry's spokesperson, however, has stated Sistema's interest in DT is not an issue for the German federal government. Speculation on Gazprom's Interest in RWE -------------- ¶4. (SBU) Germany's second largest energy company, RWE, based in Essen, may also be of interest to Russian industry, but again the issue seems to have been exaggerated in the German press. Gazprom, which supplies approximately 34 percent of Germany's natural gas needs, was reported in November to be interested in buying RWE shares owned by the City of Duesseldorf after Lord Mayor Joachim Erwin (CDU) reportedly expressed interest in selling them to eliminate his municipal debt. A senior official in the Mayor's office, however, told us the media had over-interpreted an off-hand remark by Erwin over how he wanted to make the city debt-free by 2007. Duesseldorf holds about one percent of RWE shares. The NRW cities of Essen, Dortmund and Cologne have larger shares, but made clear after this stir that they would not sell their stakes in RWE. ¶5. (U) In late November, Gazprom Germany chief Hans-Joachim Gornig told the Berlin daily "Tagesspiegel" that his company's interest in investing in Germany was "very limited at the present time," citing strong regulation of the German energy market. He also denied any exploratory talks regarding RWE, let alone negotiations on buying shares. He conceded, however, that Gazprom continues to engage in exploratory talks with German firms. Gazprom Tries to Move into German End-User Market -------------- -------------- ¶6. (U) Earlier this year, Gazprom unsuccessfully tried to swap exploration rights in its Yuzhnoi-Russkoi field for a stake in Ruhrgas' German operations. This move was rebuffed by Ruhrgas' parent, the Duesseldorf-based energy giant E.ON. Following this DUSSELDORF 00000049 002.2 OF 003 move, speculation persists that Gazprom seeks to secure a stake in the German energy market via RAG, the Essen-based conglomerate with a large energy component, once it goes public in 2007. To underline its commitment to the region, Gazprom signed an agreement this fall with one of the most prominent soccer clubs in Germany, Schalke 04 from Gelsenkirchen/NRW, making Gazprom their main sponsor for the coming years. A Schalke executive recently told the CG that Gazprom has committed to pay up to 125 million euros to the team, depending on how well it fares during coming seasons. Given Gelsenkirchen's depressed economy, Gazprom's gesture has earned the firm considerable good will in this enthusiastic soccer region. Ruhrgas CEO Appointed Russian Honorary Consul -------------- -------------- ¶7. (U) In late November, Russia announced the appointment of its new Honorary Consul in Duesseldorf, Dr. Burkhard Bergmann, CEO of Ruhrgas. Bergmann is also Deputy Chair of German industry's East Committee (Ostausschuss) and is the first and only non-Russian on the Gazprom Board in Moscow. He becomes the third prominent German businessman to receive such an appointment, after Klaus Mangold (ex-DaimlerChrysler Services CEO) was named Russian Honorary Consul for Baden-Wuertemberg and Nikolaus Wilhelm Knauf in Nuremberg for parts of Bavaria. ¶8. (SBU) At the high-profile presentation in Duesseldorf, featuring speeches by Minister President Ruettgers and the Russian Ambassador, Bergmann forecast a major role for Russians to play in NRW. There are 411,000 Russian citizens and 130 firms from Russia in the state. He highlighted Ruhrgas' past sponsorship of major Russian-German cultural projects, such as the financing of the recreation of the legendary Amber Room (Bernsteinzimmer). He also spoke about E.ON Ruhrgas plans to bring more pieces of art from major Russian art museums (e.g., Tretyakov and Pushkin) to NRW in 2007 as part of the firm's broader PR strategy. Minister President Ruettgers in his presentation listed a number of statistics attesting to the growth in ties between NRW and Russia: trade flows increased by 20 percent in 2005 and doubled in the 2003-2005 period. Three hundred firms from NRW have offices or operations in Russia. There are 55,000 Russian Jewish imigris in the state as well as some 800,000 Germans of Russian origin (Spaetaussiedler). The state has 20 sister-city relationships and 80 school partnerships. There are 700,000 native Russian speakers in NRW. Russian Ambassador Vladimir Kotenev added that 1/6 of trade between Russia and Germany is with NRW, and stated there are four partner region relationships between NRW and Russia. Russian Interest in Southern Germany -------------- ¶9. (U) Russian President Putin visited Munich October 11 after meeting the Chancellor in Dresden. Hundreds of businessmen were invited to a dinner with Putin hosted by the Munich Chamber of Commerce. In his dinner speech, Putin stressed the time is right for Russian investment in Germany and the rest of Europe -- nobody should be afraid of Russian dominance or German dependence on Russian oil and gas. Putin said he did not understand German nervousness, as Russian partners are no less capitalist than their Western counterparts. A State Chancery contact told CG Munich that while Stoiber desires to strengthen Russian-Bavarian relations and create a free trade zone between the EU and Russia, he still considers a stronger transatlantic partnership to be the priority. Russians Look to Expand Presence/Economic Ties in Frankfurt -------------- -------------- ¶10. (U) Russia has also been looking to expand its diplomatic/economic footprint in the Frankfurt area for a number of years and the November 22 symbolic dedication of the Russian Consulate General in Frankfurt has moved them a step closer. There has been much media attention and speculation surrounding establishment of a Russian Consulate General in Frankfurt over the past couple of years, but few concrete details. Earlier reports suggest that it will be a major operation (3,000 square meters) with over 200 employees. It remains unclear as to when the Consulate will officially open--Russian officials have been tight-lipped regarding the specifics. Given recent reports that nearby Wiesbaden may host the November 2007 visit by Russian President Putin, there is a sense that the Consulate may open soon. ¶11. (SBU) Comment: Increased Russian interest in Germany, at the both the economic and cultural level, reflects historical ties as well as current economic realities. Russian energy companies are awash in petrodollars that need to be invested somewhere. Russia's historic ties with Germany, as well as the DUSSELDORF 00000049 003.2 OF 003 strength and transparency of its economy, makes it a natural choice for Russian business. Germans are still quite hesitant to give Russian companies a voice in major concerns, especially assets, such as energy companies, that have national security ramifications. Chamber of Commerce officials and businessmen in NRW who deal with Russia frequently stress the difficulties they face while there, but add they expect economic and commercial ties to continue to grow and will prosper. Until now, German interest has been more to sell their products in Russia and to invest there to serve that market, rather than to encourage Russian firms to invest in Germany. End Comment. ¶12. (U) This cable has been coordinated with Embassy Berlin, with input from Consulates General Frankfurt, Munich, Hamburg and Leipzig. BOYSE