GOC COMMITTED TO ADRIATIC LNG PROJECT

C O N F I D E N T I A L ZAGREB 000101

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/29/2017
TAGS: ENRG ECON HR ENERGY
SUBJECT: GOC COMMITTED TO ADRIATIC LNG PROJECT

Classified By: EconOff Nicholas Berliner for reasons 1.4 b&d.


1. (C) Summary: Croatian Assistant Minister of Economy for
Energy Zeljko Tomsic told Econ Off that Croatia remains
committed to building an LNG terminal on the Adriatic coast,
despite press rumors that the project may be in jeopardy.
Tomsic said that the GOC is very concerned about energy
security and does not want to become overly-reliant on
Russian gas. Tomsic's statements echo those of other senior
GOC officials and indicate the high level of support for
construction of the facility, tentatively scheduled for
completion by 2012. End Summary.


2. (C) Recent rumors in Zagreb have suggested that Croatia's
planned LNG terminal on the Adriatic could be threatened as
other members of the consortium (OMV, Total, RWE, Geoplin and
INA) lose patience with GOC efforts to renegotiate and
restructure Croatia's share in the Adria LNG Study Company.
INA Senior Adviser Stevo Kolundzic recently told Econ Off
that he was worried that efforts to create a new Croatian
consortium partner consisting of INA (10%),the state
electric monopoly HEP (10%) and the state-owned pipeline
operator PlinaCro (5%) were a threat to Croatia's credibility
as a reliable partner in the venture. Kolundzic said he
could not see a necessary role for HEP and PlinaCro in the
venture, as INA's share would provide them with required
quantities of gas. He said that he had been confident that
the terminal would be built, but for the first time worried
that overly-heavy GOC interference could unnerve the other
companies.


3. (C) Econ Off met January 23 with Zeljko Tomsic, Assistant
Minister of Economy responsible for Energy to discuss the GOC
position on the LNG terminal. Tomsic said that the project
was not in danger of failing over a disagreement among the
partners, noting plans to sign an MOU on the new consortium
structure by the end of January. He said that the GOC
considers the LNG project to be of strategic importance,
which is why the Government decided to push for a larger
share. When asked if government interference in the deal
would send the wrong signal to the other partners in the
consortium, Tomsic replied that he believed they would see
benefit in having the GOC involved in the plan as an
indication that it has sufficient political support to
overcome the likely bureaucratic, political and environmental
hurdles that plague any major project in Croatia, much less
one of these proportions. However, Tomsic said that despite
the GOC's strong support, there were still risk for the
project. He said that any pipeline bringing large volumes of
gas through the Balkans to Central Europe could undermine the
viability of LNG, but that he was confident Croatia would get
support for the project from the EU, as it would help the
diversification of supply in a region overly-dependent on
Russia. Tomsic also noted that competing LNG projects could
call into question the need for the Croatian terminal or that
the construction of re-gasification terminals could outstrip
the supply of LNG.


4. (C) Tomsic also shared his views on the Russian role in
the region. He said the GOC was cognizant of Gazprom efforts
to acquire downstream assets across Europe. When asked what
Gazprom was demanding of Croatia in ongoing negotiations for
delivery of an additional 1.5 bcm of gas to Croatia, Tomsic
said that the Russian side had pushed for concessions in
power generation and local gas distribution. (Note: As
Croatia invests in its gas pipeline network, gas distribution
companies will be set up in cities that heretofore have not
had natural gas.) He said that the Russians were gradually
acquiring assets all over the region, so it was only to be
expected that their eye would eventually fall on Croatia,
despite its still small gas market.


5. (C) Comment: The GOC has thus far demonstrated a
commitment to building the Adriatic LNG terminal, despite
what could be considered clumsiness in its dealing with the
consortium. Apart from threats to the commercial viability
of the project beyond the GOC's control, the other wild card
is potential environmental opposition. However, with the
exception of some noises on the margins, there has not yet
been any substantial controversy surrounding the terminal,
although the project being in its early stages has not yet
gathered sufficient media attention to energize potential
opponents. In that respect, Tomsic is correct that having
GOC involvement in the project will be essential to assuring
investors that this project will not share the fate of many
other projects in this country that have run aground on the
rocks of local opposition. Post will continue to watch this
issue closely. End Comment.
BRADTKE