C O N F I D E N T I A L SECTION 01 OF 02 BAKU 001205

SIPDIS

E.O. 12958: DECL: 12/29/2018
TAGS: PGOV PREL AJ ENRG TK
SUBJECT: AZERBAIJAN: READOUT OF PRESIDENT ALIYEV NOVEMBER
25 ITALY TRIP

Classified By: A/DCM Alan E. Eyre, reasons 2.4 (b,d)


1. (C) SUMMARY: According to the Italian Ambassador to
Azerbaijan, during President Aliyev's November 25 visit to
Italy he expressed a clear preference for the
Turkey-Greece-Italy pipeline project over the Nabucco one,
citing it as achievable in the short-term. It is unclear to
Embassy how accurate was the read-out received from the
Italian Ambassador in this regard. END SUMMARY.


2. (C) On December 5 Ambassador Derse met with the the
Italian Ambassador to Azerbaijan Gian Luigi Mascia, who gave
her a briefing on President Aliyev's November 25 visit to
Italy. Also present in the meeting was the Greek Ambassador
Iaonnis Metaxas (present because of joint Italy-Greece energy
concerns), and Embassy EnergyOff (notetaker).


3. (C) Mascia said that President Aliyev went to Italy at the
invitation of Italian President Napolitano and PM Berlisconi,
to discuss bilateral relations and energy issues. Aliyev
had three meetings while in Italy: with President Napolitano;
PM Berlisconi; and Edison CEO Umberto Quadrino. In the
meeting with Napolitano, in which GOAJ Energy Minister Natiq
Aliyev, FM Mammadyarov and Mascia himself also participated,
Mascia said that President Aliyev was convinced that the TGI
pipeline project had the best chances to be completed in the
short-term, but that it faced two problems, the first being
Turkish transit, where the GOAJ had "no leverage."
Napolitano told Aliyev that he was quite close to PM Erdogan,
and would talk to him, which pleased Aliyev greatly.


4. (C) Aliyev said the second problem was the "lack of a
European voice" in the Southern Corridor project. Aliyev
was disappointed with the EC, as he had expected more help in
promoting the Southern Corridor. He said there seemed to be
a 'disconnect' between Italy and Brussels, and that the EU
presence in Azerbaijan was minimal and ineffective.
Napolitano said that although Brussels and the EC were
supposedly to be supporting TGI and Nabucco equally, in
reality it was only promoting Nabucco. Napolitano said Italy

supports Nabucco, but it is not practical in the short-term.
President Aliyev agreed, saying a project of this scope was
not viable in the current global financial situation, and
that the more modest TGI project should be done first.
Aliyev said Azerbaijan was ready to commit to TGI once
problems with Turkish transit were solved. Mascia said that
both Foreign Minister Mammadyarov and Energy Minister Aliyev
seemed 'surprised' at how clearly President Aliyev expressed
his support for TGI.


5. (C) Mascia said Aliyev told his Italian interlocutors that
the GOAJ had to proceed quietly in advancing the Southern
Corridor, so as not to unduly upset Russia. Russia's
aggression in Georgia had 'changed the regional mood, and now
he had to proceed more cautiously.


6. (C) Concerning President Aliyev's November 29-30 visit to
Turkmenistan, Mascia told the Ambassador that he had heard
that "SOCAR or some other entity" would build the
trans-Caspian infrastructure necessary to bring GOTX gas
west. As to where the volumes would go, Mascia said it was
his understanding that the GOT wanted 8 bcm/a from Shah Deniz
Phase Two (SD2), with Azerbaijan willing to supply only 4
bcm/a. Mascia said that with at least 4 bcm/a from
Azerbaijan and 4 bcm/a from Turkmenistan for TGI, which he
said could be delivered through an inter-connector, there
would be enough to sanction TGI.


7. (C) Speaking about the SD1 price negotiations, Mascia said
it was his understanding that Botas was still offering
approximately USD 120 per mcm, at a time when Gazprom gas to
Europe was approximately USD 280, depending on the market.
Mascia said that President Aliyev told his Italian
interlocutors that if Turkey were not willing to pay a fair
price for SD1 and SD2 gas, he would "leave it in the ground."



8. (C) When asked about next steps, Mascia told Ambassador
Derse that Prime Minister Berlisconi would visit Azerbaijan,
ideally in 2009 to sign a TGI agreement.


9. (C) COMMENT: Embassy has not heard of such a strong
preference for TGI from President Aliyev directly, and thinks
it possible that the Italian Ambassador's enthusiasm for the

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project might have rendered him less thana fully impartial
reporter in this regard. SOCARs position is that no
determination among the vaious projects bidding for
Azerbaijani gas until and unless Turkey provides an
acceptable transit regime with which SOCAR can calculate
relative netbacks. Embassy will probe President Aliyev on
his current pipeline preferences when the opportunity
presents itself. END COMMENT.
LU