CZECH AMBASSADOR FOR ENERGY SECURITY'S TRIP TO

C O N F I D E N T I A L PRAGUE 000313

SIPDIS

NOFORN
SIPDIS

STATE FOR EUR/FO, EUR/NCE, EUR/ERA, EB/FO, EB/ESC
COMMERCE FOR 4232/ITA/MAC/MROGERS
NSC FOR MCKIBBEN

E.O. 12958: DECL: 03/22/2017
TAGS: ENRG ECON EFIN ETRD PGOV CZ RU
SUBJECT: CZECH AMBASSADOR FOR ENERGY SECURITY'S TRIP TO
WASHINGTON

REF: A. PRAGUE 206

B. STATE 09854

C. PRAGUE 77

D. PRAGUE 33

E. 06 PRAGUE 1402

Classified By: Political-Economic Counselor Michael J. Dodman
for reasons 1.4 B & D


1. (C) SUMMARY AND COMMENT: This is Vaclav Bartuska's first
trip to the U.S. in his capacity as Czech Ambassador-at-Large
for Energy Security. He was appointed to this position last
winter because the MFA saw the need for closer scrutiny and
high level interagency coordination to develop a coherent
energy policy that reflects the country's national security
interests. Although a political-scientist by training,
Bartuska has grown into his job and become quite
knowledgeable on the energy security issue. He has traveled
extensively in the region to engage in direct dialogue with
key government officials and commercial decision makers in
the Visegrad countries and Germany. Bartuska is also a
former dissident and a specialist on Russia. END SUMMARY AND
COMMENT.

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TRIP TO WASHINGTON
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2. (C/NF) Econoff met March 22 with Czech Ambassador-at-Large
for Energy Security Vaclav Bartuska to preview his visit to
Washington the week of March 26. The purpose of his trip is
to lay the groundwork on energy security issues for the April
20 visit by Foreign Minister Schwarzenberg to Washington.
Specifically, Bartuska's mission is to determine how much the
USG is willing to get involved to ward off Russian "energy
imperialism" in this region, including in the current bid by
Lukoil to purchase ConocoPhillip's minority stake in the
Czech Oil Refinery (Ceska Rafinerska -- CRC) (ref B).
Bartuska believes the USG has enough economic leverage with
Russia to have influence in the outcome of the encroaching
Russian interests in the European energy sector, and that it
is a matter of political will.

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NEXT STEPS ON CZECH ENERGY SECURITY RECOMMENDATIONS
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3. (C/NF) Bartuska informed that the Czech Energy Security
Working Group of the Czech National Security Council met
March 22 to discuss revisions to the Czech Energy Concept
Paper submitted to the EU. He said that the Ministry of
Industry and Trade (MPO) was unwilling to redraft the paper
because they believe doing so would open up a Pandora's Box
for the Greens to hijack the paper. (NOTE: The Greens do not
want any additional nuclear power plants built in the Czech
Republic but others in the coalition government do not see
how the Czech Republic can fulfill its future domestic energy
needs without it. END NOTE) Arguing that the content does
not need re-drafting since it was last done in 2004, MPO
simply wants to make some cosmetic changes. Bartuska is
fighting this, as the current content of the paper is
"fiction," based on what the Czech Republic has told the EU
it will strive for as opposed to what has been done and can
be done in reality.


4. (C) Bartuska must submit by June 2007 an assessment of
priority issues for Czech energy security, which he previewed
with econoff. He has decided to limit the focus to one
priority issue per energy source -- electricity, gas, oil,
and nuclear fuel.

-- On electricity, the focus will be on whether the Czech
Republic will have enough electricity to export and/or be
self-sufficient starting 2015. The validity of this claim
will dictate what government policy will be on nuclear energy
and coal mining policies.

-- On gas, the priority is the need to reassess what the
European gas network will look like in 15 years. Bartuska
believes that Russia will move forward with its North Stream
and Blue Stream pipeline projects no matter what, and that
the Czech Republic will likely lose it protected status as a
transit country for gas deliveries to Germany. This will not
only mean decrease in revenue for the Czech government and
decreased in the value of Czech RWE Transgas pipelines, but
the Czech Republic will also fall lower on the "pecking

order" for gas delivery from Russia.

-- On oil, the priority issue is whether Russia has enough
oil to export in 2020. Bartuska believes that Russia has
over-committed itself in terms of future oil contracts.

-- On nuclear fuel, Bartuska informed that CEZ was seeking to
move up the calendar on when it will switch from the current
supplier Westinghouse to Russian Tvel by one year. If
successful, the Czech Republic would become 100% dependent on
Russia for nuclear fuel starting in 2009 rather than 2010,
which is when the current contract with Westinghouse expires.
Nuclear fuel currently supplied 36% of Czech electricity.

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REGIONAL PIPELINE DEVELOPMENTS
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5. (C/NF) SLOVAKIA'S TRANSPETROL: Bartuska confirmed that
Czech Minister of Industry and Trade Martin Riman met with
his Slovak counterpart on March 15, accompanied by the Czech
state-owned oil pipeline company MERO. MERO made a pitch to
buy the 49% share of Transpetrol with 100% managerial rights.
Bartuska said that MERO fully realizes that Russia is likely
to get this share, but wanted to try anyways based on its
historical ties and privileged relationship with Transpetrol
(NOTE: MERO and Transpetrol were one company before
Czechoslovakia split up. END NOTE) and because it would make
commercial sense for MERO.


6. (C/NF) HUNGARY'S DECISION ON BLUE STREAM: Bartuska said
he was not/not surprised that Hungary decided to go with
Russia's Blue Stream gas pipeline project vice the EU's
Nabucco pipeline. Bartuska believes Nabucco is "dead" since
a pipeline without a viable source is meaningless. His view
is based on the belief that the Azeris do not have sufficient
supplies of gas, Turkmenistan is firmly under Russia's hands,
and while Iran has vast supplies, it remains untapped and
need much investment to do so.

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WHY IS GOVERNMENT SELLING MORE OF CEZ?
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7. (C/NF) On March 20, the government approved the sale of
approximately 7% of its 67% share in the Czech electricity
monopoly and cash cow CEZ by floating it on the Czech stock
market, which will bring the government share to 60.61% The
Ministry of Finance expects the share will being over CZK 35
billion. All government ministers voted in favor with the
exception of the Greens, who abstained. On March 23, the
media reported that CEZ was seeking to float only "bulk
shares" in hopes to allow CEZ itself to buy the government
shares. One media source questioned the wisdom of this move
given that CEZ has sufficient dividends available for the
government to tap to plug the deficit. The same source
speculated that the answer was in the money trail and alluded
to government corruption. Another element of these
developments at CEZ is that in early March, CEZ management
proposed changes to the status to limit the power of the
supervisory board (and strengthen the power of the management
board),which the government has thus far resisted.
GRABER