VERHOFSTADT STUMPS FOR RUSSIAN TRADE AND INVESTMENT

C O N F I D E N T I A L SECTION 01 OF 02 BRUSSELS 000785 SIPDIS SIPDIS DEPARTMENT FOR EEB/ESC, EUR/UBI AND EUR/RUS E.O. 12958: DECL: 03/09/2012 TAGS: ETRD EINV ENRG EMIN BE RU SUBJECT: VERHOFSTADT STUMPS FOR RUSSIAN TRADE AND INVESTMENT ¶1. (C) Summary: Prime Minister Verhofstadt met with Russian President Putin and leading private sector energy figures March 1-2. The trip focussed chiefly on economic issues: building ties in energy and diamond markets, promoting bilateral investment, and facilitating contact between the two countries. No major deals were signed, but Belgium remains deeply interested in helping market Russia's natural gas and diamond wealth. Verhofstadt raised political issues such as Iran and human rights, but got little new response. End Summary. ¶2. (C) During a two-day trip to Moscow, Belgian Prime Minister Guy Verhofstadt met with Russian officials and business figures in the hopes of strengthening and expanding economic cooperation between the two countries. PM Verhofstadt was accompanied by Minister of Foreign Affairs Karel De Gucht, Vice Prime Minister and Finance Minister Didier Reynders. Representatives from the private sector included Antwerp diamond traders and representatives from Belgian gas companies Electrabel, Fluxys, and Distrigaz. Agreements were initialed regarding bilateral travel and tax relations, however no major energy deals were concluded. Increasing the flow of Russian natural gas and diamonds through Belgium, negotiating a business investment treaty, and promoting Belgium's new notional tax deduction were they key business issues discussed. ¶3. (SBU) Regarding energy, Belgium proposed a three part proposal to the Russian government and Russian gas company Gazprom. First, Verhostadt pressed for a Russian project to build an underground storage facility near the port of Antwerp to house Russian gas reserves. Second, Belgium proposed a partnership to transfer Russian gas throughout Europe and most notably to the UK via an expanded Fluxys pipe network and the port of Zeebrugge. (Note: Fluxys manages Belgium's distribution grid, now split off from Distrigas retailing operations.) Third, Belgium proposed an increase in the amount of gas it buys from Russia, in the hopes of diversifying its national supply, currently dominated by Qatar. Belgium currently purchases only five percent of its gas from Russia. Reports claim progress was made on these fronts, but no agreement was signed. The presence of Electrabel CEO and Suez COO, Jean-Pierre Hansen, sparked rumors of a possible sale of Belgian gas company Distrigaz to the Russian gas firm Gazprom. These rumors were denied by officials from both sides. ¶4. (SBU) Diamond marketing dominated several meetings. Belgian diamond traders worked to persuade Russia,s partly state-owned ALROSA to channel more of its diamonds through Antwerp. ALROSA is currently the second biggest rough diamond seller worldwide. While Antwerp already buys seventy percent of ALROSA diamonds, Belgium is seeking an expanded agreement, anticipating increased competition from other trading venues. Because the European Commission has put an end to the exclusive contract with De Beers through which ALROSA previously marketed its output, ALROSA diamonds are being courted by Hong Kong, Geneva, Tel Aviv, and Dubai, as well as Antwerp. As global diamond sales expand, Belgium is keenly to retain the diamond traffic to the benefit of the Antwerp economy and banking network. ¶5. (SBU) The issues that yielded actual Agreements were transportation and taxation. The two nations signed a new motor traffic agreement intended to facilitate increased private and commercial transportation between the two countries. Another agreement will increase the number of air flights between the two parties. A treaty regarding double taxation will also be revised to help ease the minds of potential foreign investors. Additionally, the Belgian Ministry of Foreign Affairs announced it will open a Consulate in St. Petersburg to facilitate the issuing of Belgian visas. -------------- Political Issues -------------- ¶6. (U) According to Belgian press reports, Verhofstadt used Belgium's new position as a non-permanent member on the UN Security Council to encourage Russia to refrain from blocking important resolutions brought before the body. Issues such as Iran, Kosovo, and Lebanon were raised, with both countries agreeing that increased pressure must be placed on Tehran. The issue of Russia,s human rights record was broached, and the press claims Verhofstadt received reassurances from President Putin that the murder of Russian journalist and Kremlin critic Anna Politkovskaya would be fully investigated. ¶7. (C) Willy De Buck, MFA Director for Central and Eastern Europe, who accompanied Verhofstadt and De Gucht, outlined BRUSSELS 00000785 002 OF 002 the political discussions for Poloff. De Buck said Verhofstadt tried to raise Kosovo, Iran, Congo, the Middle East and Lebanon with Putin, but Putin had little desire to discuss foreign policy during a visit focused on economic and trade issues. Verhofstadt asked about Russian support for Special Envoy Ahtisaari's plan, to which Putin responded "we don't want to be more Serbian than the Serbs." The Belgians interpreted this comment as foreshadowing a "possible flexibility" by Russia on Kosovo, although support for the Serbs remained strong. Moscow would still look at how the Serbs behave. On Iran, Verhofstadt reiterated Belgium's strong nonproliferation position and the need to stand firm. De Buck said Putin "agreed," although he noted that a confrontation with Iran should be avoided. Verhofstadt tried to get Putin to engage on the Middle East and Lebanon, urging Moscow to influence Syria in order to promote stability in Lebanon and in the region. He also urged Russia "not to forget" the Congo, where international attention needed to remain focused to keep the Congo on track. De Buck said Putin had no reaction on the Middle East and Congo. IMBRIE .