Identifier
Created
Classification
Origin
06LJUBLJANA567
2006-09-01 15:11:00
CONFIDENTIAL
Embassy Ljubljana
Cable title:  

PETROL DOES DEAL WITH LUKOIL AND HARRAH'S SHOULD

Tags:  ECON EINV ENRG PINR RU SI 
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FM AMEMBASSY LJUBLJANA
TO RUEHC/SECSTATE WASHDC 5127
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEKDIA/DIA WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 LJUBLJANA 000567 

SIPDIS

SIPDIS

DEPT FOR EUR/NCE. EUR/RUS, EB/ESC, EB/CBA

E.O. 12958: DECL: 08/29/2016
TAGS: ECON EINV ENRG PINR RU SI
SUBJECT: PETROL DOES DEAL WITH LUKOIL AND HARRAH'S SHOULD
ALLAY LOCAL FEARS TO MOVE AHEAD

REF: LJUBLJANA 386 (AND PREVIOUS)

Classified By: COM Thomas B. Robertson for reasons 1.4 (b) and (d)
C O N F I D E N T I A L SECTION 01 OF 02 LJUBLJANA 000567

SIPDIS

SIPDIS

DEPT FOR EUR/NCE. EUR/RUS, EB/ESC, EB/CBA

E.O. 12958: DECL: 08/29/2016
TAGS: ECON EINV ENRG PINR RU SI
SUBJECT: PETROL DOES DEAL WITH LUKOIL AND HARRAH'S SHOULD
ALLAY LOCAL FEARS TO MOVE AHEAD

REF: LJUBLJANA 386 (AND PREVIOUS)

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

1.(C) Summary: COM hosted lunch for Viktor Baraga,
Chairman of both the Petrol supervisory board and the HIT
(casinos) supervisory board, (and childhood friend of Prime
Minister Janez Jansa) on August 23. Baraga, a successful
businessman, described to us the Slovenian approach to the
economy which we think accurately reflect this government's
implied if not openly stated approach to privatization and
foreign direct investment. Baraga was candid about
Slovenia's desire to preserve and even expand Slovenian
companies by keeping them in Slovenian hands, even if that
meant the government's hands; the desire for the GOS to
develop joint ventures that ensured it retained majority
ownership; and the strong belief that Slovenia could
successfully continue its privatization process at a much
more measured pace than its neighbors to the east.


2. (C) As a businessman, Baraga agreed that the Government is
not the best manager of companies. However, as a Slovenian,
he had to acknowledge that in a country as small as his, the
various hidden agendas would continue to manipulate and
influence any plans for privatization and expansion of
Slovenian companies. In his position as chairman of the
supervisory board of HIT, Baraga claimed that he was not
deeply into the details of the potential deal between HIT and
Harrah's' but he did recommend that Harrah's raise its
profile both with the Government (Prime Minister, Finance
Minister) and within the Nova Gorica community. During lunch
Baraga also foreshadowed the transformation of Petrol into a
holding company and the plans for a joint venture with
Russia's Lukoil - which was subsequently announced on August
28 on the margins of the Bled Strategic Forum. END SUMMARY.

--------------
BARAGA: CLOSE CONFIDANT OF PRIME MINISTER
--------------


3. (C) Over the last year to eighteen months, Prime Minister

Jansa has been accused by his political opponents of stacking
supervisory and management boards of nearly all partially
government owned Slovenian companies with hand-picked
cronies, sometimes of questionable competence. This is, in
practice, no different than actions of predecessor
governments, and on the whole, the GOS has picked competent
people to assume stewardship of Slovenia's crown jewels.
Viktor Baraga is a well established business person in his
own right who runs a trading company based in Melbourne,
Australia. (He also has the title of Honorary Consul of
Australia in Slovenia). In his meeting with COM, Baraga
acknowledged that his position on the boards of HIT and
Petrol had something to do with his friendship with Jansa.
He also emphasized that he had accepted the jobs somewhat
reluctantly, but he gave every indication that he felt fully
qualified for the responsibility. It was clear that he and
the Prime Minister are in regular contact on issues related
to both Petrol and HIT. Baraga was also straightforward
about the nature of his position, and given that political
winds could easily blow him off both boards, his first
responsibility was to ensuring the health and viability of
his own business, because that's "where (his) bread is
buttered."



4. (C) Viktor Baraga's position on both the Petrol and the
HIT boards allows for a reliable insight into the real
intentions of the GOS and how it plans to expand and
diversify Slovenia's economy. Despite his decades of
exposure to western business practices, Baraga accepts the
GOS will continue to pursue the "go slow" school of economic
reform and privatization in Slovenia. He has a personally
more pragmatic view of what is best for the economy and no
fear of foreign investors, but events over the last year
indicate that while the political will for reform exists,
political realities (upcoming local elections) dictate reform
be introduced in measured doses. Baraga explained the GOS
view in very blunt terms saying that while the Government is
not the best manager of business, selling out to a foreigner
would be the GOS's choice of "last resort" and if a business
is doing well, there is no need to rush the divestiture. On
the other hand, the GOS is always interested in attracting
"strategic" partners. (Note: this tends to be a minority
partner with capital to inject into the venture, sometimes
with a promise to increase holdings in the future, but always

LJUBLJANA 00000567 002 OF 002


short of majority. End Note) Baraga described plans to turn
Petrol into a holding company and to then pursue a joint
venture deal, creating a new company, with Russia's Lukoil.
This very scenario was revealed to the public five days later
on the margins of the Bled Strategic Forum.

--------------
PETROL PENS DEAL WITH LUKOIL
--------------

5.(U) In this deal, Petrol Lukoil (PL),as the company will
be known, will jointly own all the Petrol outlets in Slovenia
and plans to double its retail network expanding through out
the Western Balkans by 2009; increase revenues to 4.5 billion
euros; and report profits of over 75 million euros. The new
company will be 51% owned by Petrol and 49% owned by Lukoil.
Lukoil's outlets in Romania, Bulgaria and Hungary were not
part of the deal because Petrol would not have been able to
retain 51% ownership. With this deal, Minister of Economy
Andrej Vizjak was apparently also able to pressure Lukoil to
at least consider investing in the rehabilitation of
Slovenia's sole oil refinery in Lendava, near the Hungarian
border. The Slovenian press, describing Petrol CEO Marko
Kryzanowski as "thrilled" over the deal, has expressed some
skepticism that it will ever get off the ground citing past
behavior of Petrol's MOU to produce electric energy with
Austrian company Estag which lapsed after nearly three years
of inactivity.

-------------- --------------
HARRAH'S: NEED TO ENGAGE THE PUBLIC AND ASSUAGE FEARS
-------------- --------------

6.(C) Baraga's message on the HIT/Harrah's deal was clear -
the Prime Minister would like a deal to happen, the Finance
Minister would like the deal to happen, although he is
perhaps less enthusiastic about the project, and Harrah's
will need to do some public relations work to alleviate fears
that it's casino will cannibalize existing casinos in the
region putting many jobs, including those of management and
management board members, at risk.

7.(C) Baraga suggested that Harrah's might consider modifying
its approach to the deal and consider it as a strategic
investment, thus leaving 51% ownership in the hands of the
Slovene partner. He noted Harrah's could still go forward
with its investment plan and maintain its control by
insisting on the management board having someone Harrah's
would select running things for the first 4-5 years, followed
by HIT. The bottom line for the GOS, and particularly Finance
Minister Bajuk was that whatever the configuration of the
deal and the project, its revenue would not drop, nor would
the number of people employed.
--------------
COMMENT
--------------


8. (C) The deal between Petrol and Lukoil does not come as a
great surprise, especially given that the GOS/Petrol seems to
have managed to secure a 51% share of the new company. It
would have been very surprising if the percentages had gone
the other way. Also interesting is that both the press and,
in private conversations, our official contacts, wants the
"American Reaction," expecting us to raise serious concerns
about such a deal with Russia. Our response has been that
"we support diversity in energy supplies and transparency in
commercial deals." The Lukoil deal is also very interesting
to look at in light of the other big deal sitting in
Slovenia's lap, the Harrah's casino proposal. The agreement
to go forward with Lukoil is no doubt a result of Petrol's
maintaining a 51% share, and hence control, of the business
activities of this new venture. Part of the slowness of the
Harrah's/HIT negotiations are a result of Slovenian fears,
especially on the local level (HIT),as Baraga has understood
them, that if Harrah's has a majority share of HIT, Slovenian
control will be lost with possible regrettable consequences.
Harrah's will continue negotiations with HIT in September,
and we hope we will have a better indication after those
meetings of whether Slovenia is prepared to forward with a
mega deal and what share of ownership will be required. End
Comment.
ROBERTSON