KOSOVO: COM ADVISES ENERGY MINISTER TO MAINTAIN

C O N F I D E N T I A L PRISTINA 000260

SIPDIS

SIPDIS

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E.O. 12958: DECL: 04/03/2017
TAGS: EAID ECON ENRG PGOV PREL YI
SUBJECT: KOSOVO: COM ADVISES ENERGY MINISTER TO MAINTAIN
RELATIONSHIP WITH WORLD BANK

REF: 06 KOSOVO 545

Classified By: COM Tina Kaidanow for reasons 1.4 (B) and (D).


1. (C) Summary. After hearing the World Bank's proposal
(described by a World Bank team visiting Kosovo the week of
March 26) to suspend temporarily its involvement in the
multi-billion dollar Kosovo C project, COM told Minister of
Energy and Mining Ceku to mend relations with the Bank in
order to continue cooperation in the energy field. She
emphasized that it was not in Kosovo's interest to break
relations with the Bank, especially during the ongoing final
status process and in advance of a donors conference, which
the Bank is to co-organize. While COM listened with sympathy
to the Minister's frustrations about the World Bank, she
noted that he must find a way to work and cooperate with the
Bank and not antagonize it with unhelpful statements or
uncoordinated actions. After COM's strong prodding, Ceku
agreed to write a letter to the Bank making clear that the
PISG will not conduct further actions on Kosovo C without the
Bank's transaction advisor in place, and would respect the
agreement between the Bank and the PISG on energy sector
development policy. The Minister has done the right thing,
but we fear continuous conflict between the Bank and Kosovo
on the energy sector if the Bank continues its unremitting
policy of delay and obstruction. End Summary.

COM URGES ENERGY MINISTER TO IMPROVE RELATIONS WITH THE WORLD
BANK


2. (C) On April 2 COM, USAID Director and econoff met with
Ethem Ceku, the Minister of Energy and Mining (MEM),to urge
him to make peace with the World Bank in order to continue
their cooperation on the multi-billion dollar energy sector
development project known as Kosovo C. The April 2 meeting
followed a two-hour meeting between COM and Minister Ceku on
March 26, in which she urged him to avoid any rupture with
the Bank at the upcoming March 28 Kosovo C Project Steering
Board meeting and told him there would be no USG support for
such a break. Ceku absorbed COM's advice but chose anyway to
complain about the Bank at the PSC meeting, venting his
frustrations with the Bank's failure to secure a transaction
adviser (promised initially for October 2006) and other
perceived delays in the process.


3. (C) At the April 2 meeting, COM told Ceku that his March
28 comments directed against the World Bank at the PSC
meeting had been extremely unhelpful and exacerbated an
already strained relationship. She noted that in all
likelihood, word of his criticism at the PSC meeting and his
threat to sever ties with the Bank had immediately gotten
back to the Bank's headquarters (despite the fact that the
PSC ultimately agreed to keep the project intact),sparking
Bank officials to take preemptive action by threatening a
suspension of the Kosovo C project due to alleged
"irregularities" in the MEM's actions regarding the tender.
The COM noted that while the USG strongly disagreed with any
proposed delay in the Kosovo C project, cooler heads must
prevail and the PISG must improve its relationship with the
Bank. The importance of this relationship was especially
salient, she added, given the ongoing final status process
and the donors conference which the Bank will co-organize
with the European Commission -- at which Kosovo might receive
as much as USD two billion in pledges. The COM told the
Minister firmly that Kosovo must take no further action
directed at the four short-listed consortia for Kosovo C
prior to the arrival of the Bank's transaction advisor, and
must respect the letter of energy sector development policy
to avoid negative spillover in other areas, particularly the
development of the donors conference.

MINISTER CEKU FRUSTRATED WITH WORLD BANK'S INVOLVEMENT IN
KOSOVO C AND ENERGY SECTOR


4. (C) Minister Ceku expressed deep frustration with the
Bank, noting that it has not fulfilled its commitment to send
the transaction, legal and environmental advisors according
to timeline established by the Ministry and the Bank in June
2006 (reftel) for the Kosovo C project. He complained that
the Bank seems intent on undermining the PISG's efforts to
improve the energy sector, including unbundling the Kosovo
Energy Corporation (KEK),rehabilitating the excavators, and

awarding a mining license for Sibovc mine -- all of which
were well beyond the scope of the Kosovo C project. Ceku
noted with some bitterness that the World Bank believes its
transaction advisor should be involved in nearly every aspect
of the energy sector, yet has delayed its involvement in the
project and impeded Kosovo's progress. COM sympathized with
the Minister's concerns, emphasizing the USG view that the
process must move forward in a timely way for the good of
Kosovo. Nevertheless, she insisted, he must find a way to
work with the Bank and avoid action they would perceive as
provocative or uncoordinated. COM assured Ceku that the USG
will stay engaged in this process to help it move forward as
quickly as possible.

COM CONVINCES CEKU TO SEND LETTER TO REAFFIRM KOSOVO'S
COMMITMENT TO COOPERATE WITH THE BANK


5. (C) COM told Ceku that it was vitally important that he
send a letter to reaffirm Kosovo's commitment to cooperate
with the World Bank. The letter, she advised, should
reaffirm his promise that the PISG will not conduct further
actions on Kosovo C outside the purview of the soon-to-arrive
transaction advisor and would respect the agreement between
the Bank and the PISG on energy sector development policy.
Ceku agreed to send such a letter as soon as possible. (Note:
The letter was delivered as promised to the Bank's Pristina
office on April 3, with a text in line with COM's guidance.)


6. (C) Comment: We will continue to work closely with the
PISG, and in particular Minister Ceku, to ensure that Kosovo
does not overtly antagonize the World Bank. Although his
initial, emotional reaction to the continuing frustrations
with the Bank was to sever ties, Ceku understands that such a
move would not be in Kosovo's best interests. At the same
time, we cannot help but be dismayed at the Bank's attitude
toward Kosovo C and the Minister himself. The significant
delays in the project frankly lie more at the hands of the
World Bank than anywhere else; we have both economic
development and commercial interests in moving the project
forward as quickly as possible, and we fail to see how a
further, long-term hiatus in the process will do anyone any
good -- Kosovo, the U.S. or the Bank itself. Post is
grateful for continued Washington engagement in this issue,
and we believe that a show of interest from Washington to the
Bank will help them undertake a more objective review of
their responsibilities towards Kosovo and the damage that
will result if they once again put the brakes on this
critical project. End Comment.


7. (SBU) Post does not/not clear this message for release
to UN Special Envoy Ahtisaari.
KAIDANOW