POLISH BUSINESSMEN STAYING ABROAD WHILE KRAUZE

C O N F I D E N T I A L SECTION 01 OF 02 WARSAW 001901 SIPDIS SIPDIS DEPT FOR EUR, EUR/NCE, EUR/ERA, EEB/ESC EUR/NCE FOR LLOCHMAN AND BPUTNEY EUR/ERA FOR ELUFTMAN AND EMCCONAHA EEB/ESC FOR SGALLOGLY, JKOPP, AND DMONOSSON DOE FOR LEKIMOFF AND EROSSI E.O. 12958: DECL: 09/05/2017 TAGS: ENRG EPET PREL PO ES RS GM SUBJECT: POLISH BUSINESSMEN STAYING ABROAD WHILE KRAUZE INVESTIGATION UNFOLDS REF: WARSAW 1871 AND PREVIOUS WARSAW 00001901 001.2 OF 002 Classified By: Acting Economic Counselor Laura Griesmer, reasons 1.4 b and d ¶1. (C) Summary: David Ensor told us that the Polish investors in his company, Mercuria Energy, are staying out of Poland while the GOP investigates Polish businessman Richard Krauze. Ensor stated that the company is afraid that during the likely upcoming election campaign that PiS will use a campaign against rich businessmen to attract poorer voters. Ensor also asked for information on U.S. policy on the NordStream pipeline. End Summary. -------------- -------------- Mercuria's Polish Executives Staying Out of Poland -------------- -------------- ¶2. (C) David Ensor, Mercuria Energy Group Executive Vice President for Communications, the holding company for J&S Energy in Poland, told Acting Econ Counselor that his company is following with interest and concern the GOP accusations and investigation into the activities of businessman Richard Krauze. Ensor stated that the company's more prominent shareholders are not spending any time in Poland until the investigation concludes. ¶3. (C) Mercuria has information that the Law and Justice (PiS) party is preparing "bits of theater" that could be used by the party in the election campaign depending upon how the party is doing in polling. The company believes that J&S Energy and its principals are on the PiS target list, although not at the top of the list. A problem encountered by a rich oil man or company that would be revealed by the GOP might help PiS in its campaign, especially playing to the rich vs. poor theme. -------------- Who's Got the Storage ? -------------- ¶4. (C) The most likely target that the GOP could use against J&S is its lack of oil storage capacity. A law enacted this April requires companies to contract storage for 76 days of average imports. J&S has been unable to obtain storage in Poland and recently received a warning from the Ministry of Economy that it may be declared in violation of ;the law and fined - perhaps in the hundreds of millions of zlotys. Ensor explained that the company has contacted all GOP-owned and operated oil storage facilities and was told that no storage is available for J&S. Ministry of Economy Director of Energy Diversification Wipler recently told J&S that a company had 150,000 tons of storage available - but when J&S contacted the company, they were told no capacity was available. Repeated requests by J&S to build storage in Poland have been denied, with the explanation that the GOP wants all oil storage to be state-owned. J&S is unwilling to build storage without GOP permission as it has been told that the asset could be nationalized by the GOP. Even if the company could start building new faciltities tomorrow, it would be two years before they are available. Ensor explained that he is preparing a file to rebut any GOP claims that the company is not complying with its legal responsibilities and Mercuria will be able to react within the same news cycle if the issue arises. -------------- GOP Damaging The Business Climate -------------- ¶5. (C) Ensor also noted that the GOP is doing real damage to the Polish economy by the ongoing uncertain political environment. While small and medium-sized firms are able to stay under the radar screen and benefit from Poland's strong economic growth, larger firms in the GOP's spotlight are not so lucky. International companies are unable to make long-term plans because of the political uncertainty and unfriendly business climate and are increasingly chosing to invest in countries other than Poland. -------------- Nordstream WARSAW 00001901 002.2 OF 002 -------------- ¶6. (C) Ensor asked what the USG position on the Nordstream gas pipeline from Russia to Germany is, especially given recent Estonian statements opposing the route. Econoff explained that the U.S. position remains "Happiness is Multiple Pipelines" and that the U.S. does not oppose commercial viable pipeline routes. Although Nordstream does not appear commercially viable to us, the companies are the ultimate decision-makers. The GOP continues to oppose the pipeline but there are no direct negotiations between the company constructing the pipeline and the GOP. Ensor noted that Mercuria recently purchased an oil terminal in Estonia but its business has been affected by the cut-off of Russian oil deliveries to Estonia. Thus, Mercuria is very interested in trying to understand what the future might hold there. One eventuality the company is analyzing is whether the government of Estonia might drop its opposition to the pipeline in exchange for other concessions from Russia - such as resuming oil shipments or an overall thawing in the political and economic relationship. -------------- Comment -------------- ¶7. (C) Ensor's comments are the first we have heard that Polish businessmen are staying out of Poland in the wake of the detention order for oligarch Krauze - who remains abroad. The Business Center Club and the Polish Federation of Employers Lewiatan both published letters yesterday criticizing the GOP's campaign against Krauze but most business people remain mum. Ensor's concerns that PiS may target rich oil oligarchs and/or companies in a Robin Hood themed campaign could be justified as PiS struggles to consolidate its position. Such a campaign would appeal to PiS's support base and those Poles not benefitting from Poland's economic growth. Using J&S' lack of compliance with the new oil storage law seems a bit technical as the basis for a campaign against the company - more likely are allegations of corruption against the two Ukrainian-Poles who own the company and have been targeted by this and previous governments as part of the corrupt elite who gained from privatization in the 90's. ASHE