UKRAINE: MINISTER DZHARTY ON VANCO PSA NEGOTIATIONS

UNCLAS KYIV 004132 SIPDIS SIPDIS SENSITIVE DOE FOR LEKIMOFF, CCALIENDO E.O. 12958: DECL: NA TAGS: EPET ENRG UP SUBJECT: UKRAINE: MINISTER DZHARTY ON VANCO PSA NEGOTIATIONS Sensitive but Unclassified. Not for Internet Distribution. ¶1. (SBU) Ambassador called on Environment Minister Vasyl Dzharty October 26 to advocate for foreign investment in Ukraine's off-shore and to request an update on the GOU's Production Sharing Agreement (PSA) talks with U.S. company Vanco. Dzharty stated he favored foreign investment for developing Ukraine's off-shore, and said he had nothing against Vanco or the company's winning of the March Kerch Bloc tender. The award was not at issue. Dzharty recognized that Vanco had included its most desired terms and profit splits in its draft PSA, and now the GOU and Vanco needed to find a compromise that was good for Vanco and for the GOU. (Note: The Environment and Energy Ministries are the two lead ministries for PSA negotiations.) ¶2. (SBU) Dzharty said consultations to date had exhibited a "good positive tendency"; the number of GOU comments was decreasing with each new draft. (Note: Vanco told us most GOU comments were cosmetic; fewer than ten were substantive.) However, both sides had failed to consider relevant Ukrainian legislation in the Vanco PSA draft, Dzharty explained, and for this reason the Cabinet of Ministers had ordered on October 18 that a new working group write a GOU draft. ¶3. (SBU) The new working group, which would include a Vanco representative, would begin work October 30. (Note: This is nine days sooner than the November 8 deadline given by the CabMin to form the group. Vanco has confirmed it will attend the October 30 session.) Ambassador relayed that Vanco had told him they were ready to work quickly to keep to the aggressive work schedule laid out in its original bid. Vanco was confident it could reach compromises with the GOU on all contested issues. Ambassador expressed optimism that the draft PSA would be signed in December, as originally planned. Dzharty replied that the PSA was a thirty-year project and "one shouldn't make haste when doing a big deal." Comment -------------- ¶4. (SBU) Dzharty appeared to understand that the PSA will be a negotiated agreement, which suggests his previously inflammatory press comments denouncing Vanco's initial proposal may have been a negotiating ploy. While his comment on needing time to do the deal right sounds like sensible policy, it could also provide cover for the GOU to delay. Whether the GOU is acting in good faith or is seeking to delay will be more clear during the course of the negotiations. Taylor