ISA: SWISS SUPPORT EGL DEAL, VIEW IT AS ISA AND UNSCR COMPLIANT

2007-07-19 14:17:00 07BERN664 Embassy Bern CONFIDENTIAL 07STATE79777 VZCZCXYZ0001\ PP RUEHWEB\ \ DE RUEHSW #0664/01 2001417\ ZNY CCCCC ZZH\ P 191417Z JUL 07\ FM AMEMBASSY BERN\ TO RUEHC/SECSTATE WASHDC PRIORITY 4233\ INFO RUCNMEU/EU INTEREST COLLECTIVE PRIORITY\ RHEHAAA/WHITE HOUSE WASHINGTON DC PRIORITY\ RUCNDT/USMISSION USUN NEW YORK PRIORITY 0130\ RUEHGV/USMISSION GENEVA PRIORITY 2731\ RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY\ C O N F I D E N T I A L BERN 000664 \ \ SIPDIS \ \ SIPDIS \ \ STATE FOR P, E, ISN, EUR \ \ E.O. 12958: DECL: 07/18/2017 \ TAGS: ENRG ETTC PARM SZ SUBJECT: ISA: SWISS SUPPORT EGL DEAL, VIEW IT AS ISA AND \ UNSCR COMPLIANT \ \ REF: A. STATE 79777 \ \ ¶B. STATE 22311 \ \ Classified By: POL/E Eric Lundberg, Reason 1.4 b/d \ \ 1.(C) Summary. Econoff delivered the EGL points in REF A to \ a Swiss officials from the Departments of Foreign Affairs, \ Energy, and Economic Affairs on July 18. The Swiss officials \ confirmed that EGL signed the reported multi-billion dollar \ contract with the government of Iran for 5.5 billion cubic \ meters of liquid natural gas annually. The GOS added that \ EGL's contract and the proposed TPA pipeline to deliver the \ gas to Europe would help Switzerland diversify its energy \ supply, reducing its reliance upon Russia for LNG. Hammer \ said that EDA lawyers determined that EGL's contract was \ consistent with UNSCR 1737 and 1747 and believed that the \ annual value of the contact would fall below the $20 million \ threshold wherein the Iran Sanctions Act (ISA) could be \ applied. End Summary. \ \ -------------- -------------- \ EGL Deal Signed, Contingencies are Business Confidential \ -------------- -------------- \ \ 2.(C) Econoff raised the serious concerns the USG has with \ EGL's gas contract with Iran, during a July 18 meeting with \ Swiss Foreign Affairs Department (EDA) Americas Division \ Deputy Urs Hammer, Swiss Federal Office of Energy (SOFE) \ International Affairs officer Pascal Previdoli, and Swiss \ State Secretariat for Economic Affairs (SECO) Middle East and \ African Affairs Director Rita Trier-Somazzi. SOFE's \ Previdoli confirmed that the EGL contract has been signed and \ that it could be valued in the billions of dollars depending \ on the price of the gas and the length of the contract. He \ said that there were uncertainties in the contract, as Iran \ has signed 15 LNG deals to date and did not have the capacity \ to meet all of its current commitments. He told Econoff that \ the contingencies in the EGL deal were not disclosed to the \ Swiss government because they were considered business \ confidential, but added that EGL certainly included caveats \ \ SIPDIS \ in the contract, given the unreliable nature of the supplier \ and the numerous commitments the Iranians have made. \ \ -------------- \ EGL Making No Investments in Iran \ -------------- \ \ ¶3. (C) Previdoli explained that the EGL deal was approved by \ the Swiss and EU member state governments and was part of an \ European energy security plan to diversity the continents \ supply of LNG. Russia, a country Previdoli described as \ non-transparent and prone to negative energy policies, \ remains unreliable, forcing Switzerland and Europe to arrange \ alternate suppliers of LNG to prevent a "cut off." The Swiss \ government did not oppose EGL's deal because it was only for \ the delivery of 5.5 billion cubic meters annually and did not \ entail gas or petroleum investments in Iran. The contract \ was also consistent with EU legislation and was therefore \ supported in Brussels. \ \ -------------- \ UN and ISA Compliant \ -------------- \ \ ¶4. (C) EDA's Hammer explained that the Swiss government had \ examined EGL's contract because it did not want Switzerland \ to be in violation of UNSCR 1737 or 1747. EDA's lawyers also \ examined the potential conflicts with the Iran Sanctions Act \ (ISA) and were of the opinion that the EGL deal would be \ compliant with ISA, since the annual value of the contract \ for the gas is not likely to exceed the annual $20 million \ limit. \ \ -------------- \ Pipe(line) Dreams \ -------------- \ \ ¶5. (C) SOFE's Previdoli and SECO's Trier-Somazzi explained \ that the two trans-Adriatic pipelines under construction, the \ TAP and the IGI, were competing with one another and that \ only one would be economically viable. The pipelines were at \ identical stages of planning and funding, making EGL's \ conclusion of a gas deal an important selling point for \ investors. The TPA pipeline's financial future was much \ brighter, but not certain, as there are Russian and Italian \ interests pitted against it. \ \ \ -------------- \ Comment \ -------------- \ \ ¶6. (C) Comment. The Swiss government firmly believes the EGL \ deal will benefit Swiss economic security, since it promises \ to diversify the Swiss gas supply away from Russia and \ introduce competition into the market, lowering prices. The \ government also maintains that the deal is in full conformity \ with UNSCR 1737 and 1747, and lawyers were confident that it \ would not run afoul of ISA. The Swiss government remains \ committed to the P5-plus-one negotiations and to ensuring \ that Iran not develop a nuclear weapons capability. \ According to the Swiss government, these objectives are not \ undermined by the EGL deal. \ CONEWAY \