Identifier
Created
Classification
Origin
07BRATISLAVA40
2007-01-19 16:30:00
CONFIDENTIAL
Embassy Bratislava
Cable title:  

SLOVAKS LOOK TO RUSSIA FOR TRANSPETROL SOLUTION,

Tags:  ENRG ECON EPET PREL PGOV LO RS 
pdf how-to read a cable
VZCZCXRO3105
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSL #0040/01 0191630
ZNY CCCCC ZZH
O 191630Z JAN 07
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0616
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHKV/AMEMBASSY KYIV PRIORITY 0007
RUEHSK/AMEMBASSY MINSK PRIORITY 0071
RUEHMO/AMEMBASSY MOSCOW PRIORITY 0621
RUEHVB/AMEMBASSY ZAGREB PRIORITY 0192
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 04 BRATISLAVA 000040 

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/18/2017
TAGS: ENRG ECON EPET PREL PGOV LO RS
SUBJECT: SLOVAKS LOOK TO RUSSIA FOR TRANSPETROL SOLUTION,
ENERGY SECURITY

REF: A. 2006 BRATISLAVA 972

B. 2006 BRATISLAVA 927

C. WARSAW 121

Classified By: Ambassador Rodolphe M. Vallee for reasons 1.4 (B) and (D
)

C O N F I D E N T I A L SECTION 01 OF 04 BRATISLAVA 000040

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/18/2017
TAGS: ENRG ECON EPET PREL PGOV LO RS
SUBJECT: SLOVAKS LOOK TO RUSSIA FOR TRANSPETROL SOLUTION,
ENERGY SECURITY

REF: A. 2006 BRATISLAVA 972

B. 2006 BRATISLAVA 927

C. WARSAW 121

Classified By: Ambassador Rodolphe M. Vallee for reasons 1.4 (B) and (D
)


1. (C) Summary - In stark contrast to the strong concerns
about Russia's reliability as an energy partner expressed
this past week throughout Central Europe, Slovak Economy
Minister Lubomir Jahnatek believes the Russian-Belarus spat
illustrates the need to strengthen ties with Moscow.
Jahnatek has spent much of the past week defending the GOS's
courting of Moscow, and publicly declaring his intention to
finalize a deal with Russian officials for the 49 percent
Transpetrol stake before Prime Minister Fico travels to
Russia in late March. Jahnatek admitted to us privately
January 18 that the GOS is unlikely to complete a deal since
he has had no communication with Moscow or Yukos Oil receiver
Eduard Rebgun since mid-November. He nevertheless continues
to believe that the GOS has only two options, approving a
sale to a Russian company or completing a GOS buyback of the
shares from Yukos Finance, the only Dutch Yukos entity that
Jahnatek considers as having a legitimate ownership claim on
the Transpetrol shares. Jahnatek specifically excluded any
deal with an third party, especially if the deal was
concluded with Yukos International, which Jahnatek views as
an illegitimate entity with no legal Slovak law claim to the
Transpetrol shares, although he admitted to the press that
there were conflicting Dutch rulings which make control
unclear. Polish energy company PERN therefore can not expect
GOS support of any deal worked out with Yukos International.


2. (C) Summary continued - While stressing that energy
security requires enhancing ties with Moscow, Jahnatek also
acknowledged that after the recent pipeline shutdown the GOS
needs to do more to develop transit alternatives. The
Minister is in touch with his Hungarian and Croatian

counterparts regarding enhancements to the Adria pipeline and
additional storage options, and also with Ukraine regarding
the possibility of receiving Russian crude via Odessa Brody
(and thus bypassing Belarus.) End Summary.

RUSSIA ALONE CAN PROVIDE SECURITY OF SUPPLY...
-------------- -


3. (SBU) With both the southern and northern spurs of the
Druzhba pipeline shut off and officials from Central Europe
and the wider EU calling on Russia to end the crisis, Economy
Minister Jahnatek gave a press conference on January 10
expressing the Slovak government's support for Russia and
highlighting the strong ties between the two countries. To
drive home this point, Jahnatek stressed, somewhat
disengenuously, that Slovakia "had been the last country to
have its oil supply turned off." He stated that Prime
Minister Fico is planning a trip to Moscow in late March,
during which Fico would finalize a deal for the Transpetrol
shares currently owned by Yukos. Fico's Russia trip was
later confirmed by officials at MFA. Jahnatek stated that
Belarus was at fault for the shut down, and noted that the
GOS may have to consider alternatives, such as an
Odessa-Brody option tied to Russia through non-Druzhba
pipelines connecting to Odessa through southern Ukraine
pipelines, which would bypass Belarus while continuing to
bring cheaper Urals crude to Slovakia.


4. (C) During a January 18 lunch meeting with the Ambassador,
Jahnatek reiterated that the only way to ensure security of
supply, at least over the short term, was to maintain solid
relations with Moscow. According to Jahnatek, true security
of supply will come if only one partner (presumably Russian)
has an interest in both supply and transit assets. The
minister was particularly critical of Poland, blaming the
Polish government's antagonistic relations with Moscow as the
primary reason for the difficulties it is experiencing in
both energy and trade negotiations with Russia. As had been
the case in our previous meetings with him, Jahnatek showed
himself fearful of Russian retaliation if the GOS were to
take a more aggressive stance in negotiations.

...IF ONLY THEY WOULD COMMUNICATE WITH THE SLOVAKS
-------------- --------------


5. (C) Despite the public statements praising the close

BRATISLAVA 00000040 002 OF 004


Russian/Slovak relations, Jahnatek admitted in private that
he has made no progress in negotiations over the Transpetrol
stake since November. The minister has not communicated with
Yukos Oil Receiver Eduard Rebgun or with GOR officials to
reconcile discrepancies between the deal agreed to with Putin
and the negotiating position taken by Rebgun. Jahnatek
claimed to have a written agreement from his November visit
to Moscow, yet observed that "Russians are not always
disciplined" and had not yet followed through on their
commitments. He noted several complicating factors including
the dismissal of Gazpromneft's CEO Aleksandr Ryazanov and his
subsequent replacement by two officials and the fact that his
counterpart, Russian Minister for Economic Development
Narishkin, does not control things "from top to bottom."

WATCH WHAT YOU EAT
--------------


6. (C) The biggest obstacle, outside of the legal
complications in the Netherlands, was Rebgun. Jahnatek
stated that Rebgun was playing a dangerous game and that
ultimately one of three things would happen to him: he would
come out with his true negotiating position, would be
dismissed, or would "eat sushi," an apparent reference to the
death of Litvinenko in London. Given these complications,
Jahnatek acknowledged that he would not be able to complete a
deal before Fico travels to Moscow, dismissing his earlier
comments as essentially "throwing a bone" to the media.

NO OTHER OPTIONS FOR TRANSPETROL
--------------


7. (C) In an interview on January 14, Jahnatek said that the
easiest solution would be if Yukos Finance and Yukos
International came to an agreement to sell the shares to the
GOS, with the understanding that the money would be held by
the Amsterdam court until the various legal cases were
resolved. Jahnatek again showed that these comments were
essentially for the media and not based on any ongoing
negotiations. He told us that despite previous claims, the
Russians (it was not clear if this was only Rebgun or other
officials as well) have no intention of returning the
proceeds from any sale of the Transpetrol stake to the
Amsterdam court for distribution to the Yukos Finance
creditors. Yukos International has always claimed that it
would be willing to go along with a sale to any party, even a
Yukos Finance sale to a Russian entity, as long as the price
was right and the proceeds went to the Amsterdam court.


8. (C) Based on the continued interest by Polish energy
company PERN in the pipeline (Ref C),Ambassador outlined a
scenario for Jahnatek whereby a third party (we were careful
not to mention the Poles given Jahnatek's earlier reaction)
would negotiate a deal directly with Yukos International
based on its beneficial ownership of the Transpetrol shares
and present the completed deal, upon Dutch court approval, to
the GOS for its approval. Such a hypothetical deal would
give the Slovaks everything they want from the Russians plus
potentially an additional ownership interest above the 51
percent now owned. If nothing else, the Ambassador noted,
the existence of such a deal would improve the GOS'
negotiating position with the Russians. Minister Jahnatek
strongly opposed any consideration of such a deal, stating
emphatically that the only two options were a Slovak buyback
or a deal with a Russian company that would give the GOS
management control. He characterized Yukos International as
an "illegal shareholder" and stressed that the GOS could
never do a deal with them because they were not recognized by
Slovak law. Jahnatek did not envision any court decisions in
the Netherlands changing his standpoint on this issue.


9. (C) Jahnatek understands that the Transpetrol deal is not
about money or the partial ownership of a relatively
insignificant pipeline, but that is about political influence
in the region. He therefore does not believe that any party
other than the Slovak government or a Russian company can
complete a deal. (Note: we have heard from other sources
that Smer party "investor" Juraj Siroky is also interested in
buying the Transpetrol stake. Jahnatek is widely known to
have "received" his ministerial position from Siroky, and
likewise nominated several people close to Siroky to the
Transpetrol boards. (Ref B) End Note.)


10. (C) As we had heard previously from State Secretary Ziga

BRATISLAVA 00000040 003 OF 004


(Refs A and B),Jahnatek believes that the Slovak government
is currently in a good position with regard to Transpetrol.
The Transpetrol board, three of four of which are Yukos
International nominees, is considered to be friendly to the
government, and right now all of the interested parties are
"chasing" the minister. Jahnatek views Slovakia as Russia's
most reliable partner in the region, and claimed that recent
increases in oil deliveries to Slovakia while other countries
are experiencing declines confirmed his belief. He does not
expect the loss of veto authority in April to significantly
affect Slovakia's ability to influence the sale of the 49
percent stake in Transpetrol.

DIVERSITY IN TRANSIT ROUTES FOR RUSSIAN OIL
--------------


11. (C) In addition to generating interest in Transpetrol,
the recent shutoff of supplies also highlighted Slovakia's
precarious position regarding its oil reserves. Based on EU
requirements, Slovakia was required to have 73 days of
reserves of oil and oil products as of last year, building to
a minimum 90-day reserve by 2008. According to local energy
analysts, Slovnaft and the GOS together have less than three
weeks of crude reserves, and the remainder of the 73 days
would be covered, at least in theory, by reserves of refined
fuel products. Slovnaft, together with the GOS, would
therefore have only a couple of weeks to arrange alternative
supplies if Druzhba was shut down for an extended period.


12. (C) Jahnatek told us that since the shutdown he has
engaged with his counterparts in Hungary, Croatia, Ukraine
and Russia to discuss possible alternatives. Energy security
was high on the agenda when PM Fico visited with the Croatian
Premier Sanader in Zagreb on January 16. The primary options
include obtaining crude through the Adria pipeline, reversing
Odessa-Brody and bringing in Russian crude from Samara, and
completing the connection to the Schwechat refinery in
Austria. Over the short term Adria, which is technically
capable of supplying Slovakia with 3.5 million tons per year
(4.5 million tons if a pumping station is restored) compared
with the 5.57 million tons used by Slovnaft in 2005, would
likely be the first option. Given the difficulties in
obtaining commercial contracts for oil within a short period,
together with Croatian resistance to increasing the capacity
of the pipeline, Jahnatek opined that the best option would
be to increase reserve facilities in Croatia. The GOS is in
the beginning stages of negotiations with Hungary and Croatia
on a three country agreement to encourage MOL to build
additional storage capacity in Croatia.


13. (C) The minister suggested that a more practical and
likely less costly option would be to pursue a reversal of
the Odessa-Brody pipeline so that Russian crude could come
from Samara and bypass Belarus. We had heard the same idea
from the local UkrTransnafta representative Mikulas Rakovsky,
who was recently appointed to the Transpetrol supervisory
board (Ref B). Rakovsky claimed that bringing oil from Samara
to Odessa and reversing the pipeline to Brody would provide
sufficient supplies (approx. 12 million tons/year) for
Hungary, Slovakia and the Czech Republic, at a lower cost
than options that would require shipping oil to a
Mediterranean port. The head of UkrTransNafta is scheduled
to meet with Minister Jahnatek in late January to discuss
this proposal in more detail, and the topic is also expected
to be on the agenda when PM Fico visits KYIV on February 6.


14. (C) Constructing a link between Slovnaft and Schwechat
remains a long-term goal; it will not address the more
immediate need for alternative routes. Jahnatek confirmed
that the government is moving forward with plans to undo the
environmental legislation that had halted the Schwechat
project in the past, but did not provide a timeframe for
completion. In addition, he noted that Slovnaft would need
to build additional storage at its site in Bratislava to
address the shortfall in reserves. It is also not clear that
MOL/Slovnaft will be entirely supportive of the Schwechat
connection, since they view OMV as a competitor and the
short-term benefit of the project is to provide low-cost
Urals oil to OMV in exchange for the more nebulous Slovnaft
benefit of future energy security.

COMMENT
--------------


BRATISLAVA 00000040 004 OF 004



15. (C) Jahnatek is clearly intimidated by Russia and
unwilling to take a stance that would be viewed negatively by
Moscow. At the same time he does not want to give up on
greater Slovak control of the pipeline, and understands that
the GOS must actively pursue alternative transit routes, even
if they are only alternative pathways for Russian crude. The
Polish government and PERN must now recognize that GOS will
not support an outside deal between PERN and Yukos
International, and build this into their risk-assesment for
negotiating a contract. Post remains willing to support such
a deal and advocate, as appropriate, but is not optimistic
that our engagement would lead to a shift in thinking by
Jahnatek. That being said, as Post did in convincing
Jahnatek to keep the now friendly Yukos International
directors, the existence of a deal which has received some
blessing from a Dutch court coupled with sweeteners to the
Slovak government could be the momentum needed to change
thinking here and would certainly give additional negotiating
leverage to the Slovaks in any future engagement with the
Russians. End Comment.
VALLEE