NETHERLANDS/RUSSIA: DUTCH EXPAND ECONOMIC TIES DURING

UNCLAS SECTION 01 OF 03 THE HAGUE 001999 SIPDIS SIPDIS SENSITIVE STATE FOR EUR/WE (TSMITH),EUR/RUS (AGREENSTEIN) STATE ALSO FOR EUR/ERA, EUR/AGS, EEB/ESC/IEC/EPC (JLWRIGHT) MOSCOW FOR ESCHULTZ, AJALILI, GLYON USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT PARIS ALSO FOR OECD E.O. 12356: N/A TAGS: ENRG EPET EINV ECON RS NL SUBJECT: NETHERLANDS/RUSSIA: DUTCH EXPAND ECONOMIC TIES DURING MOSCOW VISIT REF: A) THE HAGUE 1992 B) THE HAGUE 1994 THE HAGUE 00001999 001.3 OF 003 THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY. ¶1. (SBU) SUMMARY: Dutch trade and energy officials are claiming success following Prime Minister Balkenende's recent Russia visit and the conclusion of Dutch-Russian business deals that build on existing bilateral trade and business ties. The Dutch hope that a Gasunie-Gazprom pipeline deal will reinforce their efforts to become a gas hub for Europe. The Dutch claim the deal is consistent with EU energy sector liberalization rules. Meanwhile, a Dutch-Russian business proposal to develop energy resources on the Yamal peninsula underscores the continued interest of companies like Shell in pursuing deals with Russia despite questions about Russia's reliability as a business partner and gas supplier. END SUMMARY. ¶2. (U) Dutch Prime Minister Jan Pieter Balkenende made his first official visit to Moscow November 5-8, accompanied by CEOs from 13 large Dutch companies, including Shell CEO Jeroen van der Veer (see ref A for reporting on Balkenende's views on the visit). Dutch Trade Minister Frank Heemskerk also participated in the visit and led a separate delegation of 34 small- and medium-sized enterprises. Upon Balkenende's departure, Heemskerk and his delegation proceeded to Yekaterinburg, returning to the Netherlands on November 12. Dutch View Russia Visit as a Great Success -------------- ¶3. (SBU) Tanita Nieuwenhuizen, Russia Policy Officer, Directorate of Foreign Economic Relations, Dutch Ministry of Economic Affairs (MEA),told Econoff November 13 that all delegation participants were extremely satisfied with the visit. Nieuwenhuizen, who traveled with Heemskerk, noted in particular the attention Vladimir Putin paid to the Dutch delegation, which met with the Russian President for over two hours even though the original meeting was only scheduled for 45 minutes. Femke Hoogeveen, Senior Policy Advisor for Energy, Economic and Environmental Affairs Department, Dutch Ministry of Foreign Affairs (MFA),said the visit and its associated business deals had had a "positive effect" on an already "good bilateral relationship." Business highlights from the visit included: -- A highly publicized November 6 agreement between the Dutch company Gasunie and the Russian company Gazprom, under which Gasunie will receive a 9 percent share in Nord Stream AG, the company constructing the Nord Stream Pipeline from Russia to Germany. In return, Gazprom will receive an option to acquire 9 percent in the Balgzand Bachton Line (BBL) between the Netherlands and the U.K. and permission to use the Gasunie transport network. -- A joint proposal by Russian companies and Dutch enterprises Shell, Gasunie, GasTerra, Boskalis, Van Oord, and Royal Haskoning as well as the Port of Rotterdam to develop gas and oil resources on the Yamal Peninsula in northern Siberia. Nieuwenhuizen said this proposal was the "first of its kind," as Putin had never accepted and approved a business plan at this level from a visiting delegation. -- The signing of a letter of intent between the Dutch mail carrier TNT and the Russian Post and a multimillion euro deal for the Dutch firm Custers to provide machines to the Russian Central Bank for the destruction of old banknotes. ¶4. (U) The Dutch are the second largest investor in Russia after Germany. At the end of 2006, accumulated Dutch investment in Russia totaled 11.5 billion euros ($16.9 billion),up from 8 billion euros ($11.7 billion) in 2005. In 2006, Dutch exports to Russia totaled 5.3 billion euros ($7.8 billion),with imports, predominantly crude oil, at 10.9 billion euros ($16 billion). While Nieuwenhuizen said these figures were substantially lower than those reported in the Russian press ($42 billion in trade volume and $12 billion in investments in 2007 alone),she said the Dutch were pleased that the Russians thought the bilateral trade and investment relationship was so substantial. THE HAGUE 00001999 002.3 OF 003 Dutch-Russian Framework for Business Cooperation -------------- --- ¶5. (SBU) According to Nieuwenhuizen, Dutch and Russian businesses have been formally cooperating since 2006 under a Joint Business Dialogue led by the VNO-NCW (largest Dutch employers association), and the RSPP (Russian Union of Industrialists and Entrepreneurs). Under the Dialogue's framework, working groups on Energy, Agribusiness, Transport, and Financial and Technological Cooperation meet regularly to discuss opportunities and to advise both the GONL and GOR on how to realize those opportunities. It was the working group on energy, Nieuwenhuizen added, that presented the Yamal proposal to Putin and the Russian Industry and Energy Minister Viktor Khristenko. ¶6. (SBU) Nieuwenhuizen said the GONL and GOR also cooperate under an official economic framework agreement, which includes a committee led by Dutch Economic Minister Maria van der Hoeven and Russian Minister for Agriculture Aleksey Gordeyev. The committee will meet next in Spring 2008, when Nieuwenhuizen expects another business delegation to accompany Dutch officials to Moscow. Dutch Don't Share EU Concerns Over Gasunie-Gazprom Deal -------------- -------------- ¶7. (SBU) Recent press reports indicate the EU could block the Gasunie-Gazprom deal over concerns that the agreement with Gazprom, an integrated energy producer and distributor, is inconsistent with EU efforts to liberalize the energy market and unbundle the ownership of transmission, distribution, and retail networks. In separate discussions with Econoff, officials from both the Dutch MEA and MFA discounted EU Commission fears, while also noting that the Commission had not communicated officially with the GONL about the visit. Bert Roukens, a Senior Advisor responsible for energy security and energy market liberalization at the MEA's Directorate General for Energy, said there was "still discussion" on the question of unbundling and whether the EU's proposal would apply to cross border pipelines or foreign companies without controlling shares (such as Gazprom in the case of the BBL). Hoogeveen also said Nord Stream could not be classified as a transmission network. She commented that the Dutch instead see Nord Stream as an upstream or production pipeline and not subject to the EU regulations. This, she said, was consistent with Dutch support for the EU's unbundling proposal, which "matches" the GONL policy of keeping transmission networks in government hands while putting distribution and retail in the hands of industry and restricting foreign distribution and retail companies from owning transmission networks. ¶8. (SBU) Both Roukens and Hoogeveen said the GONL shares EU concerns about over-reliance on Russian energy, but that the issue is less urgent because the Dutch have their own gas reserves. To resolve this issue and diversify energy sources, they said the GONL is looking to conclude energy agreements with third countries such as Algeria while supporting other pipelines such as Nabucco. Comment: A Risk....Will There Be a Reward? -------------- ¶9. (SBU) While some in the Dutch government have expressed great pleasure with the outcome of the visit, others have privately conveyed concerns about the business deals concluded with the Russians, noting that the Netherlands appears to have put business interests ahead of concerns over Russia's human rights record (see ref B). It also remains to be seen whether the EU will formally oppose the Gasunie-Gazprom deal or cite energy security concerns. Meanwhile, two other developments will complicate Dutch gas hub plans and point to increasing reliance on Russia in the future. First, Dutch hopes for a gas export pipeline between Norway and the Netherlands were extinguished October 19 by Norway's decision not to favor gas over oil production at its giant Troll field. Second, Algerian Minister for Energy Chakib Khelil announced November 15 that Algeria could not provide gas to the Netherlands for the coming five years. ¶10. (SBU) For Shell, the visit and Yamal proposal demonstrate the THE HAGUE 00001999 003.3 OF 003 company's continued interest in Russia, in spite of its experience at Sakhalin II. Contacts at both Shell and GasTerra have underscored the importance of Russia to meeting future European energy requirements and the importance of maintaining a presence in Russia to meeting their corporate objectives. In response to queries about Russia's reliability as a business partner and gas supplier, these contacts have questioned Gazprom's willingness to risk the loss of high-paying European customers and its ability to secure loans from Western financial institutions to fund needed investments. GALLAGHER