OMV CEO RUTTENSTORFER DISCUSSES IRAN, NABUCCO, MOL

C O N F I D E N T I A L SECTION 01 OF 03 VIENNA 002111

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/07/2017
TAGS: EPET ENRG ETTC EINV PREL AU IR HU
SUBJECT: OMV CEO RUTTENSTORFER DISCUSSES IRAN, NABUCCO, MOL

REF: VIENNA 1068

Classified By: Charge d'Affaires Scott F. Kilner for reasons 1.4 (B)(D)

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SUMMARY
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1.(C) In an August 8 meeting with the head of Austria's
largest energy company, UNVIE Ambassador Schulte, supported
by Bilateral Embassy Charge, provided a thorough review of
the United States' concerns over Iran's nuclear program,
underlining that OMV's "Heads of Agreement" with Iran
undermined multilateral diplomatic efforts to convince the
government to change course. Ruttenstorfer acknowledged the
challenge of dealing with the current regime in Tehran, but
attempted to portray the agreement as the only way his
company could maintain a long-term presence in the Iranian
market, including the possibility of Iranian participation in
the Nabucco pipeline. Separately, the French Embassy in
Vienna has also urged the Austrians not to move forward with
the South Pars project.

2.(C) Ruttenstorfer also described OMV's aggressive stance
toward its Hungarian counterpart, MOL, as motivated by
concern over "excessive" Russian penetration of Central
European energy markets, including through a possible
takeover of MOL. More likely, in our view, is that OMV
itself is worried about becoming a possible takeover target,
possibly by a Russian company or possibly by a larger Western
European competitor. End Summary.

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IRAN
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3.(C) Amb. Schulte began by explaining that, as a follow-on
to Amb. McCaw's meeting in April (Ref A),he wanted to
provide Ruttenstorfer with an update on U.S views toward
Iran's ongoing nuclear efforts. In about a month, IAEA DG El
Baradei would be issuing a new report on Iran, in which the
U.S. would be looking for answers to two questions: Has Iran
begun to cooperate with the IAEA? Has Iran suspended
activities of concern? Amb. Schulte then reviewed Iran's
history of noncompliance toward the IAEA, its very
problematic behavior in the region and, not least, efforts to
develop a long-range missile capacity, which should be of
high concern to Europe. International diplomatic efforts had
been painstakingly constructed to show the Iranian government
two clear paths: the current course, which would lead to
increased isolation and sanctions; or a change in nuclear
policy, which would offer Iran the prospect of a much more
normalized relationship with the rest of the world. The
reason why OMV's deal with Iran was so problematic, Schulte
concluded, was that it undermined the positive incentives
that the international community was trying to offer, by
giving the Iranians what they want without Iran having to
change its behavior. For this reason, we strongly hoped that
OMV would find a way to not implement the South Pars Heads of
Agreement.

4.(C) Ruttenstorfer responded to Schulte's presentation
first by acknowledging the gravity of the nuclear problem in
Iran, but then offering his rationale for OMV's continued
engagement in the country. While OMV historically had very
good relations with Gazprom, his company fully agreed with
the U.S. that Europe needed greater diversification of gas
supply. This was in fact the driving motivation behind OMV's
leadership of the Nabucco project. When one considered where
that gas could realistically be sourced, however, there were
only to viable non-Russian options: LNG from Qatar (which
was already dominated by American companies) and piped gas
from Iran. Azerbaijan was significant, but not a large
enough producer for the near-to-medium term future.
Turkmenistan had the reserves, but how could they be brought
to Europe, if not through Iran? Iran, Ruttenstorfer stressed
repeatedly, was the country of choice for most European oil
and gas companies because there was "no other option" outside
of Russia.

5.(C) Ruttenstorfer took pains to try to argue that OMV was
not naive about the current regime in Iran. The company
would make every effort not to cooperate with Iranian
entities with close ties to the Revolutionary Guard, even
though this differentiation was not a simple one to make.
Similarly, OMV would do its utmost not to finance or
otherwise support nuclear or other "problematic" programs.
The company's sole objective was to "not close the door" at
this time to participation in the long-term natural gas
development of the country. Ruttenstorfer insisted that if
OMV had said "no" when Iran offered a Heads of Agreement in
the South Pars, the door would have closed for his company --

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not only in the South Pars, but to Iranian participation in
Nabucco, which Ruttenstorfer saw as the bigger prize.
Ruttenstorfer admitted that OMV was trying to walk a fine
line, and that it was not easy.

6.(C) Finally, Ruttenstorfer stressed that if the
international community agreed that sanctions against the
Iranian oil and gas sector were necessary, and if these
restrictions were applied universally through a U.N.
resolution, OMV would abide without hesitation. Until that
happened, however, the company could not cede the ground to
its many competitors who remained active in Iran.

7.(C) Amb. Schulte reminded Ruttenstorfer that Iran had a
history of making limited, symbolic gestures in advance of
each round of UNSC debate on a new sanctions resolution. The
GOI would also undoubtedly look for easy propaganda
victories, especially in the energy sector. He asked whether
Ruttenstorfer expected any new OMV agreements with Iran in
the near future. Charge also asked about Iranian press
reports in recent days of an Austrian-Turkish-Iranian oil
consortium agreement. Ruttenstorfer replied that Iran had
awarded OMV and Turkey's Petrol Ofisi oil and gas
explorations rights to a minor tract in the "Mehr Block,"
whose output was unlikely to exceed $10 million in value per
year. Schulte replied that no such activity is helpful in
the current environment, and he again asked Ruttenstorfer to
find a way to back off from the South Pars Heads of
Agreement.

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Relations with MOL
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8. (C) Following the discussion of Iran, Charge' noted that
OMV's relations with its Hungarian counterpart, MOL, had been
the subject of considerable controversy in recent weeks. He
asked if Ruttenstorfer could clarify his company's strategy.
Ruttenstorfer replied bluntly that OMV's actions had been,
and continued to be, motivated by a concern over "excessive"
Russian penetration/domination of Central European energy
markets. Specifically, OMV was worried about a Russian
takeover MOL, giving it control of MOL's refining, storage
and distribution infrastructure (in oil as much as gas),for
which Russia is already a near monopoly supplier. This is
not a development that OMV would welcome: to depend upon
Gazprom purely as a supplier was one thing; to confront
Russian control of both supply and infrastructure in Central
Europe was quite another. As a way of fending off the latter
eventuality, Ruttenstorfer said that in June he had proposed
an OMV buyout of MOL. He frankly admitted, however, that he
had badly underestimated the "nationalist reaction" from
Hungary.


9. (C) Ruttenstorfer said that he was now simply trying to
calm the situation. More precisely, he was currently trying
to explore with MOL other, less threatening, formulas through
which OMV and MOL might combine as a unified commercial
entity in the Central European region, perhaps with joint
headquarters in Vienna and Budapest, and simultaneously limit
Russian penetration. In pursuing such discussions with MOL,
Ruttenstorfer said that he had only two non-negotiable
conditions: 1) the combined entity must have a rational
structure so as to be "manageable;" 2) the position of OMV's
two major stakeholders, the Austrian government (31.5%
through OIAG) and the Abu Dhabi government (17.6% through
IPIC),had to be preserved. The second requirement, he
underlined again, was necessary to provide future protection
against a Russian takeover.


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COMMENT
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10.(C) IRAN: While Ruttenstorfer's defense of OMV's
engagement in Iran covered little new ground, he gave us the
impression (more than previously) that he sees Iranian
participation in Nabucco as the real prize for his company.
Not only did he place strongest emphasis upon the need to
keep the door open for Iranian participation in Nabucco.
Ruttenstorfer also hinted, in response to our questions about
other deals on the offing, that there could be an important
breakthrough on Nabucco, even though "there are no concrete
discussions taking place at the moment."

11.(C) MOL: We were struck by Ruttenstorfer's contention
that OMV's actions toward MOL stemmed from a fear of
excessive Russian domination of Central European energy
markets. This line effectively turns Hungarian charges --
that OMV is in bed with the Russians to promote their
interests in Central Europe -- on their head.

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Ruttenstorfer's claim deserves to be viewed skeptically,
given OMV's long-standing cozy relationship with Gazprom,
including a new gas import agreement concluded during Russian
President Putin's visit to Vienna in May. We do believe,
however, that OMV is worried about becoming the target of a
hostile takeover itself -- perhaps from a Russian energy
company, perhaps from a larger Western European competitor.
Seen from Vienna, one plausible explanation for OMV's
aggressive stance toward MOL is that it views a takeover (or
favorable merger) as a means by which OMV can more favorably
position itself to resist unwelcome approaches of foreign
predators, from whichever direction they may come.

12.(C) Footnote on Iran: On August 9, the French Ambassador
to Austria approached Charge at a diplomatic event to mention
that, upon instructions from Paris, his Embassy had delivered
a message to both OMV and the Austrian Economics Ministry
urging that OMV not/not move forward to implement the South
Pars Heads of Agreement. The Ambassador said that this
message "was not well received."
Kilner