SLOVENIAN ENERGY: THE RUSSIANS ARE COMING?

C O N F I D E N T I A L SECTION 01 OF 02 LJUBLJANA 000386

SIPDIS

SIPDIS

DEPT FOR EUR/NCE, EUR/ERA, EB/ESC/IEC/EPS, OES/PCI

E.O. 12958: DECL: 06/22/2016
TAGS: ECON EINV ENRG ETRD SI
SUBJECT: SLOVENIAN ENERGY: THE RUSSIANS ARE COMING?

REF: A. LJUBLJANA 0171


B. LJUBLJANA 0214

C. 10 FEBRUARY WEEKLY UPDATE

D. 7 APRIL WEEKLY UPDATE

E. 26 MAY LJUBLJANA WEEKLY UPDATE

F. LJUBLJANA 0378

Classified By: COM Thomas B. Robertson, reasons 1.4(b) and (d).


1. (C) Summary: Following a visit in May to Moscow by Slovene
Prime Minister Janez Jansa and several members of his cabinet
and a large commercial contingent (ref E),and Gazprom CEO
Alexey Miller's visit last week to Slovenia, Slovene media
reports a flurry of meetings, discussions, and rumors of
proposals which indicate that Gazprom is interested in
gaining a foothold in Slovenia. Post understands that the
principal areas of interest for Gazprom are investment in
defunct oil refinery Nafta Lendava, a possible partial
takeover of petroleum retailer Petrol, and also the
construction of a new natural gas pipeline across Slovenia.
Despite nearly daily meetings over the past week, and because
of Slovenia's reticence toward foreign investment and
previously failed agreements with the Russians, it is unclear
whether Gazprom's plans for Slovenia will be realized. End
Summary.

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Gas pipeline or Gas Terminals?
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2. (SBU) As noted ref A, compared with some of its central
and eastern European neighbors, Slovenia's current energy
relationship with Russia is limited and extends only to its
purchase of natural gas. While 60 percent of Slovenia's
needs are supplied by Russia, natural gas accounts only for
approximately 15 percent of total domestic energy usage.
With Gazprom's interest in deepening its involvement in the
Slovene energy sector, however, Slovenia's reliance on
Russian energy sources could change in the coming years.
During his recent visit to Slovenia, Gazprom CEO Miller
indicated he was interested in investing in Slovenia's
natural gas transportation infrastructure. Post contacts
note that existing pipelines could not meet demand should
Slovenia decide to raise its usage of natural gas, a
strategic direction that appears increasingly likely.


3. (SBU) In an effort to decrease Slovenia's reliance on coal
as a source of electricity production, Minister of the
Economy Andrej Vizjak has expressed interest in the
construction of natural gas-fired power plants to supplant or
replace some portion of coal-based domestic energy supply.
The GOS has completed feasibility studies for two new
facilities, both of which would require a significant
increase in current natural gas transport capacity and,
presumably, a greater reliance on Russia as an energy
supplier.


4. (SBU) Any pipeline that would be constructed would be
designed to supply Slovenia as well as Italy and potentially
other neighbors. Press reports indicate that the
construction of an additional gas pipeline on Slovenian
territory would be more palatable than the current Italian
plan for two liquefied natural gas (LNG) holding terminals
near the Italian-Slovene border in the Gulf of Trieste.
There is no evidence to indicate that the Gazprom proposal
was specifically designed to counter the terminal plans. In
press reports, however, Vizjak noted that the pipeline would
almost certainly eliminate the need to build the maritime
facilities. As reported ref D, the plans to build terminals
in the Adriatic has met with stern opposition in Slovenia,
whose residents fear a potential negative environmental
impact.

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Refinery Resurrection and Possible Petrol Investment
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5. (SBU) Gazprom may also be interested in a possible
purchase of Nafta Lendava, a GOS-owned oil refinery in
northeast Slovenia. Nafta Lendava is currently not in use
(ref A). Press reports indicate, however, that Gazprom would
be interested in taking over and restarting the refinery,
with a potential capital investment of USD 1 billion. In
addition, during his visit to Slovenia, Gazprom's Miller met

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with Marko Kryzanowski, the CEO of petroleum products
retailer (and largest Slovene company) Petrol. In a press
conference, Kryzanowski noted that he discussed sourcing
strategies with Miller but did not/not talk about potential
capital tieups. Joze Zagozen, head of the Petrol supervisory
board (and CEO of Slovene electricity distributor HSE) said,
however, that all potential offers would be reviewed
carefully. (Note: In spite of Kryzanowki's assertions, Post
understands that Gazprom is interested in at least a possible
partial acquisition of Petrol. Previous Petrol and Gazprom
CEOs have held discussions about possible investments, to
little avail. End note.)

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Comment
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6. (C) Details of Gazprom's overtures have been sketchy. The
frequency of the meetings in recent days, however, indicates
that both sides are evaluating their options very intensely.
It remains to be seen whether a deeper relationship with a
Russian energy giant is in Slovenia's best interest
particularly in light of the supply problems which Gazprom's
customers in Europe experienced earlier this year. Slovenia
currently has a relatively diversified energy sourcing
strategy (ref A),making the GOS's recent uptick in interest
in Russia as a more significant energy partner somewhat
surprising.


7. (C) Interest by Gazprom in Slovenia dates back at least a
decade, but it is unclear whether any of Gazprom's current
plans might come to fruition. The GOS historically has been
slow to act on sale of state-owned assets, particularly to
foreign investors (ref F). Both the refinery Nafta Lendava
and the retailer Petrol are owned by the state and, given
domestic resistance to the sale of strategic assets to
foreigners, it would be surprising if the GOS would allow the
purchase of a majority share by Russian interests. In the
wake of the failed further privatization of Slovenia's
largest national bank (ref F),it is uncertain whether there
is sufficient political will within Prime Minister Jansa's
government to follow through with concrete plans or whether
the recent visits will remain mere discussions. Post will
watch with great interest to see whether a Russian investor
will be able to succeed where others have not. End comment.
ROBERTSON