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

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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.

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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

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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