SYRIAN OIL DEAL DEMARCHE: INDIAN RESPONSE

C O N F I D E N T I A L SECTION 01 OF 03 NEW DELHI 000166 SIPDIS SIPDIS DEPARTMENT FOR SA/INS AND EB/ESC DOE FOR DAVID PUMPHREY, TOM CUTLER, MIRIAM SALERNO E.O. 12958: DECL: 01/09/2016 TAGS: PREL EPET ENRG ETRD PGOV IN SY CH IS LE SUBJECT: SYRIAN OIL DEAL DEMARCHE: INDIAN RESPONSE REF: A. (A) 2005 STATE 230115 ¶B. (B) 2005 NEW DELHI 9343 Classified By: DCM ROBERT O. BLAKE FOR REASONS 1.4 (b) and (d) ¶1. (C) SUMMARY: In response to Ref-A demarche points, Additional Secretary Ahmad of India's Ministry of Petroleum and Natural Gas told CDA that he had had concerns about the economic benefit of the joint India-China purchase of equity in a Syrian oil field, and that -- had he known there would be such a strong subsequent U.S. objection -- he might have withheld his recommendation of approval for the deal. PolCouns and Poloff also delivered Ref-A demarche to MEA Middle East officials on January 6, who responded that while New Delhi supports US objectives regarding reforming Syrian behavior, the oil deal was a business deal worked out without GOI input. New Delhi is most concerned with avoiding increased conflicts in the region, the MEA stressed. END SUMMARY. -------------- MINISTRY OF PETROLEUM AND NATURAL GAS -------------- ¶2. (C) CDA Robert O. Blake met on January 6 with Talmiz Ahmad, Additional Secretary (for International Cooperation), India's Ministry of Petroleum and Natural Gas (MPNG) to discuss India's energy relations with Iran (septel) and to deliver Ref-A points concerning the agreement announced December 20, 2005 to sell a 37% stake owned by Petro-Canada in a Syrian oil and gas field to a joint venture of companies owned by India's Oil and Natural Gas Corporation (ONGC) Limited and the China National Petroleum Corporation pending SARG approval. The CDA left as a non-paper the demarche taking points. ¶3. (C) Noting that the USG has bilateral sanctions against Syria, the CDA underscored USG concerns that the Syrian Government (SARG) has not satisfactorily responded to UNSC resolutions mandating SARG cooperation on the investigation of the assassination of former Lebanese Prime Minister Hariri. The USG is concerned that the India-China investment would send a signal to Syria that the international situation had returned to normal and that the SARG need not change its behavior. The USG believes strong international pressure is needed to get Syria to the table, the CDA stressed. ¶4. (C) Ahmad -- who had served in India's foreign service in Saudi Arabia, as Ambassador to Oman, and in their Middle East section -- indicated that he had known Hariri and he noted the high regard Hariri had enjoyed in diplomatic circles and from the Saudi Government. Calling the SARG an authoritarian NEW DELHI 00000166 002 OF 003 regime, which would conduct actions such as the Hariri assassination "in parallel," Ahmad said such a move "made no sense, was stupid and absurd, and could have only negative consequences for Syria." Reviewing the talking points, Ahmad said he had not expected the USG objection would be so strong and that, had he known before he had recommended approval of the deal, he might not have agreed to it. ¶5. (C) He said he has not been enthusiastic about the GOI's general policy of spending large amounts of money on equity in overseas oil and gas assets -- including those "marginal assets" being unloaded by major companies seeking to reinvest cash elsewhere. He had had doubts when he agreed specifically to buying these Syrian oil field assets, which have been producing for 20 years and are expected to decline. India's ONGC and China's CNPC would share expected oil output of three million metric tons annually (about 60,000 barrel a day). An "American financial company" had brought the deal to the GOI for consideration, Ahmad said, claiming he did not remember which company, but mentioning Citicorp and Goldman Sachs. Ahmad questioned whether these finance companies had performed adequate due diligence to assure that the assets' production potential justified the price. ¶6. (C) The GOI approval process on these acquisitions has been "too rushed" and had not allowed time for prudent review, Ahmad said. The Board of the ONGC had been given 30 minutes to consider and approve the deal; then the "Empowered Committee of the Secretary" of MPNG had had two hours to consider and approve it; after which the MPNG passed it to the GOI Cabinet with a half-day time frame for approval. -------------- MINISTRY OF EXTERNAL AFFAIRS -------------- ¶7. (C) PolCouns and Poloff delivered Ref-A demarche to MEA Joint Secretary (West Asia and North Africa) M. Manimekalai, accompanied by WANA Director KG Govindan and Under Secretary Subir Dutta. PolCouns emphasized the need to encourage Syria to comply with the relevant UNSCRs and moderate its behavior, particularly in its dealings with its neighbors. Manimekalai agreed that India would like to see Syria improve its behavior, particularly in helping to resolve the regional conflicts involving Israel, Lebanon, the Palestinians, and Iraq. New Delhi believes that the governments in Damascus and Beirut are both working with the Mehlis commission "within their capabilities," she said. The Syrians are "beginning to understand" the need to reform their behavior, she argued, and outside pressure would only rally public opinion behind the regime's worst policies. NEW DELHI 00000166 003 OF 003 ¶8. (C) Regarding the oil transaction, Manimekalai pointed out that although ONGC is a majority state-owned firm, its directors made this decision purely from a business standpoint with an eye to shareholder value, and the GOI had no input in the deal. Her immediate question for us was, "are you looking at sanctions" on the companies? The whole question of Syria needs to be "handled carefully," the Joint Secretary stated, stressing that India "does not want to see another thing like what happened in Iraq." Although India does not have as much influence as the US does in the region, Manimekalai concurred that New Delhi is interested in promoting democracy as much as possible, which brings with it stability, development, and a bulwark against terrorism. MULFORD