POLAND'S NAIMSKI TELLS DAS BRYZA KRAKOW SUMMIT

C O N F I D E N T I A L SECTION 01 OF 06 WARSAW 001147

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E.O. 12958: DECL: 05/14/2017
TAGS: ENRG EPET ECON PREL PO KZ UR LI AJ GG RS
NO, LO, ES, TX, DN
SUBJECT: POLAND'S NAIMSKI TELLS DAS BRYZA KRAKOW SUMMIT
POSITIVE

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Classified By: DCM K. Hillas, reasons 1.4 b, d


1. (C) Summary: Poland's Deputy Minister of Economy Piotr
Naimski told visiting DAS Bryza that the Krakow Summit had
four important results: The governments reached a political
decision that a Caspian-Odessa-Brody-Plock-Gdansk (COBPG) oil
pipeline should be constructed and that an Intergovernmental
Agreement (IGA be negotiated); the governments will create a
permanent working group at the Ministerial level; a "New
Sarmatia" company will be formed by state-owned oil companies
from the countries to promote the COBPG pipeline; the next
summit will be held in Vilnius in October to which other
interested countries will be invited. A joint communique was
issued by the Presidents of Poland, Lithuania, Azerbaijan,
Georgia, and Ukraine and the Kazakhstani Vice Minister of
Energy. Naimski noted that the Summit and cooperation was
intended to extend beyond the COBPG pipeline to other
regional energy projects. The Presidents are developing an
overall strategic vision that if they share influence on the
strategic level rather than only on specific projects they
will have a better chance of success. The Presidents agreed
that they must continue to honor Russian contracts but
diversify to assist the Caspian countries in their
development. During the Summit press conference,
Azerbaijan's President Aliyev announced that Azerbaijan will
produce enough oil by 2012 to cover the needs of the first
phase of COBPG project. Naimski believes this makes it
possibile to start the project with Azerbaijani oil, then
work on future stages with Kazakhstani oil. End Summary.

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Attendance - Kazakhstan Represented
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2. (C) Deputy Minister of Energy Piotr Naimski told
visiting DAS Bryza that the Krakow Energy Summit May 11 and
12 was a success. The meetings went very well with a spirit
of understanding between the participants that something
solid on transportation of Caspian resources to Europe must
be done. Partipants included:
Azerbaijan - President Aliyev, Natik Aliyev, Vagif Sadiksov,
Nowruz Mammadov
Georgia - President Saakashvili, Nika Gilari, Mrs. Shasidze
Lithuania - President Adamkus, Mr. Navickas
Ukraine - President Yushchenko, Minister Kluyev
Kazakhstan - Vice Minister of Energy and Mineral Resources
for oil & gas issues Kinov
Naimski stated that Kazakhstan's Kinov was designated by
President Nazarbayev to represent him in the meetings, and
fully participated in all meetings, decisions and
discussions, not hesitating to take the floor. The GOP was
pleased that Kinov attended, recognizing that President
Nazarbayev is in a difficult position with respect to Russia.
Kinov's attendance and participation is a clar sign to
Poland that Nazarbayev wants to be flexible and diversify his
activities and was a signal that Kazakhstan is open for
further cooperation with Poland. Naimski said that the
Kazakhstani delegation indicated it felt uncomfortable about
Russian pressure to conclude this agreement, and indicated a
continuing interest in trans-Caspian shipments of oil and gas
to Azerbaijan. Naimski compared the situation to the
Baku-Tbilisi-Ceyhan (BTC) project, where Kazakhstan initially
did not sign the documents, then did at the last minute. He
believes Kazakhstan may join a trans-Caspian gas export
project when there's something to join.

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Decisions Taken in Krakow

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3. (C) The Presidents signed a joint communique - written
only in English - emailed to EUR/NCE. In additions, the
Presidents agreed that an oil pipeline from the Caspian to
Odessa-Brody-Plock and Gdansk (COBPG) should be started.
They agreed to establish a permanent working group of Energy
Ministers or Ministers of Economy to work jointly at the
technical level. A company named "New Sarmatia" will be
formed by the national oil companies of the countries.
(Note: The existing pipeline consortium between Poland and
Ukraine is named Sarmatia. End Note.) Naimski stated that
this company will include Lithuania through its major
investor, Polish-based PKN Orlen. Finally, the Presidents
agreed to continue the discussions with a goal of having
concrete results before their next meeting in Vilnius in
October, to which other countries will be invited - likely
including the U.S. The Presidents agreed to keep the meeting
low key and did not discuss or comment during the press
conference on the competing meetings in Ashgabat and Astana
with President Putin.

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A Broader Strategic Vision
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4. (C) Naimski noted that the Krakow Summit did not merely
address the proposed COBPG pipeline project, but was inteded
to discuss other joint projects and a wider policy toward the
Caspian region. The Presidents discussed developing an
overall energy strategy including both oil and gas for the
region, which is based on the fact that if they work on the
strategic level and not just on specific projects they can
share their influence. They believe that the developing
countries of Turkmenistan and Azerbaijan will develop faster
and better if they have other options available than purely
Russian to sell and transport their resources. While
countries like Poland and Lithuania will continue to use
Russian resources and honor contracts with Russia, it will be
better for them to develop alternatives - such as from the
Caspian.

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Caspian-Odessa-Brody-Plock-Gdansk Pipeline Next Steps
-------------- --------------

5. (C) During the press conference, Azerbaijani President
Aliyev stated that Azerbaijan will have sufficient volumes in
2012 to fill the first phase of the COBPG pipeline - a real
boost to the GOPs plans, said Naimksi. Naimski estimated
that Azerbaijan could commit 8 million tons/year to the
project, which would make the first phase feasible. To
implement the project, the new company will prepare a real
feasability study which will include ways of attracting
commercial partners to the project in the next stage. "New
Sarmatia" will be started by the state-owned national oil
companies but the participants recognize that not all oil is
under government control. An intergovernmental agreement
(IGA) will be negotiated in parallel with company formation.
Construction will be started by the six national companies,
but then transferred to the commercial companies in the next
phase. DAS Bryza noted that there are serious questions in
the industry that operating expenses make the pipeline too
expensive compared to other options. Naimski responded that
the GOP does not agree with the Kazakhstani contention that
the pipeline will be $25 more expensive than transporting oil
through Russia to Primorsk, that's why the project needs a
real feasability study. Naimski noted that noone in Ukraine
will accept losing money on the project if the pipeline is
reversed and that the Brody-Odessa transit revenues must be

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covered by the revenue stream of the reversed flow line.

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Naimski on the Astana and Ashgabat Meeting Outcomes
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6. (C) Naimski shared with DAS Bryza the preliminary
information the GOP had received on the Astana and Ashgabat
meetings over the weekend between Presidents Putin,
Nazarbayev and Berdimuhammedov. The GOP heard that President
Nazarbayev did not want to visit Ashgabat with President
Putin so there were separate meetings in Astana and Ashgabat.
The GOP also heard that in Astana the Russians and
Kazakhstanis reached agreement on CPC expansion, but the next
day the Kazakhstanis said CPC expansion was still on the
table. Putin then went to Ashgabat, with Nazarbayev
following the next day. In Ashgabat the parties agreed to
build a 10 BCM gas pipeline from Turkmenistan to Kazakhstan
that will join the existing system into Russia. Naimski
noted that the existing gas pipeline theoretically transits
90 to 99 BCM per year but is so old is now able to only carry
80 BCM. The announcement of the new line basically takes
capacity back up to where it was. The GOP considers the
announcement as purely political. DAS Bryza asked Naimski
and the GOP to continue to reach out to Turkmenistan's
Berdimuhammedov who is isolated and under intense pressure
from Russia. Naimski replied that the GOP will continue to
reach out to Turkmenistan, apparently on Saturday
Berdimuhammedov said something about keeping other possible
gas routes on the table - a good sign to the GOP. DAS Bryza
emphasized that maintaining the political momentum is
critical, although it may be difficult with Turkmenistan. We
need to get Berdimuhammedov to say that he is going to send
gas across the Caspian to support critical gas pipeline
projects.


7. (C) DAS Bryza explained that Petronas controls a psa in
Turkmenistan for an offshore gas field close to the
Azeri-Chirag-Guneshli field in Azerbaijan that BP believes
has a similar geological structure to Shah Deniz. The
Azerbaijanis plan to visit Ashgabat by the end of the month
to discuss potential cooperation in developing the field with
the Turkmens. Azerbaijan is planning a joint Georgian,
Azerbaijani, Turkmen summit in early June with a focus on
hooking up the Petronas field to Azeri infrastructure and
moving gas West. BP is potentially interested in cooperating
with Petronas.

--
EU
--

8. (C) The governments of Poland and Lithuania mentioned EU
politics, policy, and strategy at the Summit but did not
discuss them in detail as Presidents Kaczynski and Adamkus
were representing their countries, not the EU. The
discussion in Vilnius will include more EU policy and focus,
promised Naimski. The GOP would like support from the EU for
what it's doing. Asked if EU Commissioner Piebalgs will
express his support for the initiative, Naimski replied that
he wants to be supportive. The GOP hopes that they will be
able to provide their engagement strategy with the Caspian
region to the EU as input into a broader EU strategy toward
their Eastern neighbors.

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Hungary, Nabucco and Who's Got the Gas
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9. (C) DAS Bryza explained that he met with Hungarian Prime

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Minister Gyurcsany and his advisors about the competing
Nabucco and Blue Stream gas pipeline proposals. It seemed
that the Hungarians were coming up with excuses not to do the
Nabucco project but their arguments against it made no sense
or were false. DAS Bryza hoped he had convinced the
Hungarian PM that Azerbaijan has sufficient gas for the
pipeline and that signing a long-term gas supply contract
with Russia when no other alternative is available is
tactically unwise. Bryza believed the Hungarians now
understood the need to send clear signals of support in
principle for Nabucco as a means to supply Caspian gas to
Central Europe; otherwise, the entire project may unravel.
The PM also stated that he wants to participate in the LNG
project in Croatia as well as developing regional gas storage
projects in Hungary and Serbia without Gazprom control.
Naimski asked if there is enough gas from Azerbaijan to fill
Nabucco. The GOP is concerned that Nabucco could end up with
Russian gas from Blue Stream and that Hungary is acting as a
Russian hand in Nabucco. Bryza replied that the USG supports
Nabucco only as a way to transport Caspian gas to Europe,
that Azerbaijan has sufficient gas only for Nabucco's first
phase, and that trans-Caspian and/or Iraqi gas would be
needed for Nabucco's later phases.


10. (C) DAS Bryza noted that the USG is trying to do
concrete things to support Nabucco. The USG is working with
Turkey which now seems to oppose the expansion of Blue Stream
- which recently led to Russian refusal to support the
Samsun-Ceyhan oil pipeline. Bryza added that the USG shares
the GOP's concern about the need to work with the Hungarian
government on Nabucco. For example, the USG is talking to
MOL about diversification away from Russian sources, the
regional LNG facility in Croatia, and gas storage. Naimski
asked where the gas for Nabucco would come from. Bryza
replied that OMV says is needs 8.5 to 10 BCM to make the
project feasable, with 8.5 being the minimum. They
supposedly have a deal with Azerbaijan for 5.0 BCM so only
need 3.5 BCM more. It would be bad to get the gas from
Russia unless the company could structure the deal so that
Russia is only involved in the first phase - very difficult.
BP's top gas marketing person for Europe believed that
Nabucco's developers might slow the project down to meet
Azerbaijan's gas development plans. Azerbaijan could produce
50 BCM in 2015 - 20 BCM for Azerbaijani and Georgian use,
leaving 30 BCM available for sale. Nabucco's Vienna office
wants to do the project now, but believes using Iranian gas
is too politically risky. They are talking to the Russians
but the USG has no details on the discussions.

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Scandinavian Pipeline and LNG
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11. (C) Congratulating Deputy Minister Naimski on
purchasing ExxonMobil's shares in Norwegian fields, DAS Bryza
asked Naimski to explain Poland's plans to construct a gas
pipeline from Norway to Poland via Denmark. Naimski
cautioned that the deal is not completed yet and asked that
the USG keep the details confidential until it is finalized
and announced. Polish gas company POGC is in talks with
Energinet and Gasco to join a consortium to build a pipeline
from Radvik, Denmark, South of Copenhagen to Niehoze, Poland.
The line would then connect to the Norwegian system. The
GOP is now negotiating and booking capacity for the proposed
3 BCM pipeline. POGC is in discussions with Statoil about
moving 3 BCM of gas from its new fields in Northern Norway
through Denmark to Poland. Naimski noted that purchasing the
fields positively changed the tenor of negotiations with the

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Norwegians as previously the Norwegians didn't believe the
Poles would complete the project. The new pipeline should be
operational in 2012 or 2013. The proposed LNG port project
in Swinojuscie is also moving forward and should be completed
in the same time-frame.

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Nord-Stream and Cooperation with the Baltic Countries
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12. (C) Das Bryza asked Naimski whether he believes the
proposed Nord-Stream pipeline from Russia to Germany will be
completed. Naimski stated that while some observors think
the project will be abandoned, he does not believe it will be
because too many interests are involved. DAS Bryza
encouraged Naimski to participate in a regional conference
being organized by the U.S. Ambassador in Latvia. The USG
would like Poland to act as a regional leader in the Baltics
and Scandinavia and encourage a dialogue and regional
projects on nuclear power, electric bridges and
interconnections, gas storage, pipelines and LNG. Naimski
responded that Poland is in discussions with Estonia, Latvia,
and Lithuania on all levels on wide range of projects.
Poland would like to participate with Lithuania, Estonia, and
Latvia on the new Ignalina nuclear power plant but wants the
project to be built directly by the governments rather than
private companies. The percentage ownership of each country
is not important to the GOP, but is a problem for the others.
The GOP believes the new Ignalina plant is a necessary part
of the electric bridge project between the Balts and Poland,
and that investment in this project should remain under the
control of national governments. President Adamkus is also
in talks with Sweden about an electric cable from Lithuania
to Sweden - similar to an existing cable between Sweden and
Poland. The GOP doesn't know Estonia and Latvian officials
as well as the Lithuanians. Naimski is concerned that the
Lithuanian and perhaps the Latvian governments do not have
full control over companies doing business in the energy
sector. DAS Bryza noted that the Latvians share that concern
and some companies are working with Gazprom - not because
they want to but because they are afraid and feel they have
no other options. It would be helpful if the GOP could be a
leader in the region. Naimski replied that the Latvians are
also afraid of the Poles because of their relative sizes.
The Latvians are interested in regional gas storage, but the
only possible supply is Russia. There is only enough gas
available from Norway for current consumption of the Baltics,
there is no additional gas for storage. The GOP and
Lithuania are creating a working group on gas to look at
long-term options. DAS Bryza encouraged Naimski to bring in
Latvia to assist them in exploring all of their options and
building a wall around Gazprom's investments.

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Comment
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13. (C) Despite press reports questioning the success of
the Krakow Energy Summit because of the conflicting energy
meetings in Ashgabat and Astana, the GOP is pleased with the
results from Krakow. Not only did the governments agree to
support the development of an oil pipeline from the Caspian
to Odessa-Brody and Poland, a major GOP goal, they also
agreed to a joint working group and further cooperation in
the energy sector. An important first step forward is
achieving a shared strategic vision for moving Caspian energy
resources to Central Europe, which will encourage development
in the Caspian and support USG interests in the region. It
is noteworthy that the Poles did not play up the anti-Russian

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card and agreed with their neighbors that they should focus
on what the Summit achieved rather than negative rhetoric.
We should support the Polish, Ukrainian, Lithuanian,
Azerbaijani, Kazakhstani, and Georgian efforts to continue
this dialogue, as well as encourage them to reach out to
their neighbors, especially in the Baltics and Turkmenistan.
Naimski's efforts to secure gas imports from Norway seem to
be bearing fruit, despite the doubts of many outside experts.


14. (U) DAS Bryza cleared this cable after departing post.
ASHE