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Identifier
Created
Classification
Origin
06WARSAW2008
2006-09-15 14:21:00
CONFIDENTIAL
Embassy Warsaw
Cable title:  

POLAND'S PKN ORLEN DISCUSSES MAZEIKIU NAFTA,

Tags:   ENRG  ECON  ETRD  PL  AJ  KZ  RS  ES  LG  LH  PREL 
pdf how-to read a cable
VZCZCXRO4552
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHWR #2008/01 2581421
ZNY CCCCC ZZH
O 151421Z SEP 06
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2005
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHTA/AMEMBASSY ALMATY PRIORITY 0465
RUEHKB/AMEMBASSY BAKU PRIORITY 0318
RUEHMO/AMEMBASSY MOSCOW PRIORITY 2531
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
						C O N F I D E N T I A L SECTION 01 OF 04 WARSAW 002008 

SIPDIS

SIPDIS

STATE FOR EUR, EUR/NCE, EUR/ERA, EB/ESC, S/P
EUR FOR DAS PEKALA AND DAS BRYZA
S/P FOR SHELLMAN
EUR/NCE FOR DKOSTELANCIK AND BPUTNEY
EB/ESC FOR SGALLOGLY, RGARVERICK, JLEWANDOWSKI
DOE FOR LEKIMOFF
COMMERCE FOR 4232/ITA/MAC/EUR/JBURGESS, JKIMBALL, MWILSON

E.O. 12958: DECL: 09/14/2020
TAGS: ENRG ECON ETRD PL AJ KZ RS ES LG LH PREL
SUBJECT: POLAND'S PKN ORLEN DISCUSSES MAZEIKIU NAFTA,
KAZAKSHSTAN, AZERBAIJAN, ODESSA-BRODY


Classified By: CHARGE D'AFFAIRES KEN HILLAS, REASONS 1.5 B,D

-------
Summary
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1. (C) PKN Orlen's (PKNO) Deputy President Cezary Filipowicz
requested information from the USG on whether Yukos
International is considering a proposal to put the Mazeikiu
Nafta (MN) refinery shares into escrow to further protect
them from Yukos Finance. Poland is attempting to gain
support from the EU and NATO allies to ensure that the
transaction is completed. PKNO is very pleased with how MN
handled the oil supply problems caused by "technical
problems" in the Russian supply line, believing that it
proves to the Russians that MN can and will continue to
operate despite Russian interference. PKNO is interested in
purchasing the energy-related Ventspils assets in Latvia if
the Latvian government will sell more than a 38% share. PKNO
would appreciate further information on who owns the product
and supply pipelines in Latvia. Azerbaijani and Kazakhstani
onshore fields are interesting to PKNO, but PKNO would
appreciate a message to both governments from the USG
supporting Poland's interests in pursuing projects in the
countries. Discussions between Ukrainian PM Yanukovych and
PM Kaczynski last week may help move the Odessa-Brody-Plock
oil pipeline project forward. PKNO continues to be
interested in a brainstorming session with the USG and
Lithuanian governments on energy security. End Summary.



--------------------------


Mazeikiu Nafta - Putting Shares into Escrow?


--------------------------





2. (C) Cezary Filipowicz, Deputy President for Upstream and
Crude Oil Procurement at Poland's PNK Orlen (PKNO) told the
Deputy Econ Counselor that PKNO is very pleased with its
purchase of the Mazeikiu (MN) refinery and wants to complete
the transaction as soon as possible. PKNO is afraid that Mr.
Rebgun of Yukos Finance will somehow get his hands on the MN
shares currently owned by Yukos International and
subsequently block completion of the transaction. PKNO likes
the idea it said was recently suggested by S/P Energy Advisor
Steve Hellman to put the MN shares into an escrow account in
a Dutch bank to be transferred to PKNO when: 1) The European
Commission approves the transaction and 2) PKNO pays the rest
of the money it owes Yukos International to the bank for
Mazeikiu. PKNO hopes that Yukos International will consider
the proposal and make it happen because if Rebgun gets his
hands on the MN shares, the deal will never happen.
Filipowicz would appreciate any update on whether Yukos
International believes the escrow idea will work. PKNO
invited Yukos International to a meeting to discuss the
proposal, but has received no answer. Filipowicz explained
that there is actually another organization between Yukos

International DB (Dutch based) and Yukos International that
currently holds the MN shares. This organization is a
Dutch-based Paulos Formula foundation organized in the same
way that foundations were organized in World War II to
safeguard Jewish assets from the Nazis. The Foundation has
proven to be a useful tool in safeguarding the MN assets.



--------------------------


Gathering Regional Support


--------------------------





3. (C) PKNO is doing everything possible to close the deal
quickly. Polish President Kaczynski and Lithuanian President
Adamkus recently sent a joint letter to EU President Barroso
explaining the situation, asking Barroso to keep an eye on
the transaction, and requesting expeditious EC approval of
the deal. A similar letter was sent to the President of
Finland as President of the EU. The Polish, Latvian, and
Lithuanian Ministers of Defense sent a joint letter to their
NATO counterparts to make them aware of the MN supply problem
and its potential impact on the Baltic states. While they do
not expect the issue to be discussed at the NATO Summit in
Riga, they want their allies to be aware of the situation.

WARSAW 00002008 002 OF 004


Poland and Lithuania do not want to be alone in facing
Russia, stated Filipowicz. They want energy security to be
seen as a European and global problem. PKNO also does not
want to be seen by the EU as bringing about a confrontation
with Russia, although the GOP is convinced that Russia will
continue to use energy as an instrument of foreign policy.
Estonia is not on board with its neighbors yet. While there
have been some contacts with Estonian authorities, they
haven't said anything so far to support their neighbors. EU
DG for Energy Piebalgs has been especially helpful. Being a
Latvian citizen, Piebalgs has a good understanding of the
situation faced by the Baltics.



--------------------------



--------------------------


PKNO Pleased with how MN Responded to Oil Supply Cut-off


--------------------------



--------------------------





4. (C) Filipowicz said PKNO is actually glad that the
Russians cut off the oil when they did. This gave PKNO and
MN the opportunity to prove they can handle such supply
problems. PKNO is very happy with how MN Manager English
overcame the problems. English put into place contracts with
Venezuelan suppliers, which, while not as reliable as Russian
suppliers, are a viable option. Despite the supply
pipeline's "technical problems," MN was able to increase
supply in August over July. The Russians have now learned
that they can't stop the MN sale to PKNO by playing with the
supply as MN has alternatives. While the Russians might be
able to pretend that there are technical problems with the
supply pipeline, they can't possibly play the same game with
tankers. Thus, PKNO doesn't expect further supply problems
using Butinge and Primorsk.



--------------------------


Future Plans - First Ventspils


--------------------------





5. (C) According to Filipowicz, the Latvian government is
considering a tender of the Ventspils system. PKNO is very
interested if it: 1) can puchase more than the 38% share on
offer; and 2) can separate energy assets from real estate and
non-energy related assets. Ventspils could supply oil to MN,
since according to PKNO, it is better located and more
reliable than Butinge. The 1 million ton tank farm would
provide storage capacity which PKNO desperately needs to
ensure supply at MN if other supplies are cut-off. Owning
the Ventspils and Mazeikiu pipelines would make it possible
for PKNO to easily export to Estonia and Latvia.



--------------------------


Who Owns the Pipes?


--------------------------





6. (C) PKNO still has questions about the Latvian pipeline
system. The Soviet Army owned product pipelines throughout
the USSR that supported military installations and were never
defined on maps. PKNO would like to buy both the crude and
product pipelines in Latvia, but is concerned that
Transneftoprodukt (with unknown Russian ownership) owns some
portion of the product pipeline. Can the Latvian government
or the USG confirm this? PKNO believes that the product and
crude pipelines in Lithuania are owned by MN, but that the
crude pipeline in Latvia is owned by the government, while
the product pipeline belongs to some combination of
government and Transneftoprodukt. Any information on this
would be greatly appreciated by PKNO.



--------------------------


Possible Investment in Azerbaijan


--------------------------





7. (C) PKNO is considering potential investments in oil
fields in Azerbaijan and Kazakhstan, explained Filipowicz.
One of the problems with investing in Azerbaijan is that PKNO
believes that the Azeris are afraid of the Russians and,
therefore, of letting PKNO invest in the fields there. The
Poles would appreciate a signal from the USG to the
Ajerbaijani Government that letting PKNO invest in Azerbaijan

WARSAW 00002008 003 OF 004


is a good idea. The Ministry of Economy had long talks with
an Azerbaijani delegation this week and the Poles have
indentified some target fields in which they are potentially
interested in investing.



--------------------------


Kazakhstan is the Real Goal


--------------------------





8. (C) PKNO is even more interested in working with
Kazakhstan, but this effort lost momentum when PKNO won the
MN tender over competing Kazmunaigaz. The Kazakhs were
apparently shocked they lost to the Poles, whom they had not
considered serious competition. Now that some time has
passed, PKNO wants to propose swapping a percentage of PKNO
assets in Europe for Kazmunaigaz assets in Kazakhstan. This
would give Kazakhstan its first foothold in Europe. To
conclude the deal, PKNO needs the support of President
Nazarbayev and his son-in-law Kulambayev. Here too, the GOP
would appreciate a signal from the USG to the Kazakhs that it
is all right to work with Poland. President Kaczynski will
send a letter to President Nazarbayev next week with
political proposals that PKNO hopes will help the business
relationship to grow. If the swap idea does not work, PKNO
will consider purchasing portions of onshore fields in
Kazakhstan, as an investor and not an operator.



--------------------------


Odessa-Brody-Plock


--------------------------





9. (C) The President of PKNO sent a letter to Ukrainian PM
Yanukovych asking for his help in organizing the
Odessa-Brody-Plock pipeline project and moving it forward.
Ukraine's Deputy Minister of Economy responded with a letter
received by PKNO the week of September 11 in which the tone
was "working on the pipeline would be nice but,..." In the
meantime, the GOP invited Yanukovych to the September 6-8
Economic Forum in Krynica, where he met with Prime Minister
Kasczynski. The two leaders agreed that the project should
go forward and that they would support it. Subsequently,
Ukrainian Minister of Economy Boyko urgently called
Filipowicz begging him to come quickly to the Ukraine to
discuss Odessa-Brody-Plock. A team from PKNO and the
Ministry of Economy is in Kiew on September 15 to discuss the
project with Boyko. Filipowicz hopes that the high-level
attention will finally lead to progress on the pipeline.



--------------------------


Further Steps with the USG


--------------------------





10. (C) When S/P Energy Advisor Steve Hellman was in Warsaw
in August he discussed with Filipowicz the idea of a
brainstorming session between the USG, the Government of
Poland and the Government of Lithuania on Baltic regional
energy security issues. Filipowicz would appreciate knowing
whether the USG has any further thoughts on such a session.
He is ready to go to the U.S. at any time to discuss further
PKNO's plans and challenges.



--------------------------


Comment


--------------------------





11. (C) PKN Orlen's Filipowicz is one of the most respected
and knowledgable experts in Poland's energy industry, and an
early supporter of the Odessa-Brody-Plock pipeline.
Especially refreshing is that he has developed and is
executing a realistic action plan for expanding his company
and addressing future energy security issues. Post would
appreciate Department assistance in providing a response to
PKNO regarding its requests for information on whether Yukos
International will consider placing the Mazeikiu shares into
escrow, which entities own the supply and product pipelines
in Latvia, and whether the USG can and will discuss Poland's
interest in acquisitions with the Governments of Azerbaijan
and Kazakhstan.

WARSAW 00002008 004 OF 004



HILLAS