LUGAR CODEL: GERMANS EMPHASIZE NEED FOR

C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 001244

STATE FOR EUR/CE AND H
USDA FOR FAS/OFSO, FAS/ONA, AND FAS/OSTA
H PLEASE PROVIDE TO SENATOR LUGAR'S OFFICE

E.O. 12958: DECL: 09/10/2018
TAGS: PGOV PREL ENRG OVIP GM
SUBJECT: LUGAR CODEL: GERMANS EMPHASIZE NEED FOR
COOPERATION WITH RUSSIANS ON ENERGY

Classified By: Classified by Deputy Chief of Mission John M. Koenig for

reasons 1.4 (b) & (d)


1. (C) Begin Summary: During Senator Lugar's September 1-2
visit to Berlin, which focused on energy security, the range
of interlocutors (government, business, parliament) told
Lugar that Germany has had a long history of cooperation with
Russia on energy, that Russia consistently has been a
reliable partner, and that Germany wants and expects this
mutually beneficial relationship to continue. The recent
crisis in Georgia, while a cause for concern, would not alter
Germany's energy landscape. This remains Germany's reality in
assessing next steps with both Russia and Georgia. On the
important issue of gas supplies, Germany expects the
Nordstream project to remain on track and will continue, in
principle, to support the Nabucco pipeline project even
though the economic case for Nabucco remains highly
questionable. End Summary.


2. (C) Senator Lugar and four staff members of the Senate
Foreign Relations Committee visited Berlin September 1-2 and
met with Foreign Minister Steinmeier (privately),MFA State
Secretary Silberberg (in a separate lunch meeting),senior
representatives of the three major energy companies in
Germany (RWE, E.ON/Ruhrgas, and Wintershall),members of the
Bundestag Committees on Energy and Foreign Affairs, Ministry
of Environment State Secretary Machnig and Ministry of
Agriculture State Secretary Lindemann. Although the central
theme of the visit was energy security, Senator Lugar also
touched on the Georgia crisis, climate change, and global
food security.

Georgia
--------------


3. (C) German government officials (FM State Secretary
Silberberg and Chancellery Chief of Staff de Maiziere)
emphasized the importance of working cooperatively within the
EU on Georgia. Silberberg said the EU/Russia relationship
"can't remain the same" and stressed the need for
international mechanisms such as the EU's observer mission to
which Germany was contributing 15 members. On the economic
side, Germany was working closely within the EU to "re-launch
the Georgian economy" and discussions would commence on
forging closer economic ties with Georgia, including a
possible free trade arrangement. The channel with Russia
needed to "remain open", but it could not be business as
usual. De Maiziere highlighted the difficulties in bringing
the EU together on Georgia ("when we use strong words, we are
not together; when we use weak words we are together") and
noted the division of labor taking place between the French
and the Germans with the French working on the larger EU
members and the Germans on the smaller ones (read: Baltics)
to calm fears and forge consensus. De Maiziere recounted
frustration that the Russians are able "to sit and wait". He
expressed strong relief that Russia had not found anyone to
recognize Abkhazia and South Ossetia and noted that economic
realities in Russia (investor capital flight, Russia's need
to sell its gas to Europe) would help moderate extremes in
Russian behavior.

Energy Security: We Need Russia
--------------


4. (C) Both the MFA and Chancellery pointed to Germany's
long-term history with Russian gas. The MFA emphasized that
"Germany has never had a problem" and pointed to only three
instances of disruption of Russian gas to Europe (Ukraine in
2005; Belarus and the Czech Republic more recently) and in
the case of Ukraine, the MFA argued that the dispute centered
around selling at world market prices which Russia had been
encouraged to do during its WTO accession talks. In
contrast, the Chancellery emphasized strongly the need for
diversifying supply of gas in light of Russia's behavior ("We
do not want to be so dependent on Russian natural gas") and
questioned the U.S. opposition to Germany's initiative to
create IRENA (The International Renewable Energy Agency)
which de Maiziere argued would help further the goal of
diversifying energy supply.


5. (C) Lugar's meetings with senior representatives of
Germany's three major energy companies reinforced strongly
our appreciation that key Germans view Russia as a reliable
and essential partner in supplying Germany with natural gas.

-- RWE: as a member of the Nabucco consortium, RWE's Chief
Commercial Officer Stefan Judisch emphasized the challenges
of the Nabucco pipeline, but noted that RWE remains committed
to the project. Judisch mentioned the difficulties in
securing transit arrangements with Turkey, pointing to the
need for an independent organization to serve as an "arbiter"
of supply. Judisch also acknowledged the challenges in
supplying the Nabucco pipeline; he referred to Kazakhstan,
Turkmenistan, Azerbaijan, and Iraq further down the road as
possible though not committed suppliers. The largest
potential supplier (Iran) was a political no-go. He opined
that Nabucco will be built "only if there are credible gas
commitments and that today these are insufficient." He
encouraged U.S. officials to lean on the Iraqi government to
pass the energy legislation that could make Iraq a potential
supplier. Turkmenistan, he added, was a questionable
supplier as Russia was now offering a desirable price for
Turkmenistan gas, but Judisch cautioned that once the
"Nabucco threat" went away, Russia would probably play
"hardball with Turkmenistan"; therefore, Turkmenistan needed
diversity to protect its own bargaining power. Judisch also
held out the potential for Egyptian and Saudi gas for
Nabucco, but said the "U.S. needed to play a role in pressing
Egypt to pursue "responsible energy policies".
-- E.ON/Ruhrgas -- In Lugar's meeting with E.ON, E.ON Board
Member Dr. Jochen Weise argued strongly for Russia as a
reliable and dependable partner, blamed the Ukrainians for
lack of transparency in their energy policies, and encouraged
further upstream investment into Russia which he emphasized
would strengthen German/Russian mutual dependence. That
mutual dependence, he argued, "was like a marriage" and that
meant that Russia needed Germany as much as Germany needed
Russia. He underscored his belief that Russian actions in
supplying Europe with gas have been driven more "by a
commercial rationale than political motives", but conceded
that the two are sometimes intertwined. Ultimately, he
contended, greater mutual dependence would lead to a
moderation of Russia's behavior.

--Wintershall -- Wintershall Board Member Dr. Reiner Seele
delivered a similarly strong message regarding the
German/Russian energy relationship, but took the argument
even a step further. He acknowledged that doing business
with Russia was still premised on factors diverged widely
from transparency and normal business practices and blamed
Shell and BP for the problems they have encountered in
Russia. Wintershall's relations with Gazprom/Russia had been
built carefully over many years through the cultivation of
personal relationships. These relationships were key to
Wintershall's long term contracts and ensured that Russia
would remain a reliable partner to Germany. Steele argued
that doing business with Russia Russian-style solidified the
relationship; novice newcomers to the Russian energy market
do not understand these dynamics. Like E.ON, Wintershall
argued that Gazprom makes business decisions on economic
calculations, but conceded that the politics of energy was
part of "the business calculation" and needed to be factored
in making commercial risk assessments.

Food Security/Biotechnology: Problem is the Consumer
-------------- --------------


6. (C) On a separate topic, Lugar met MinAg State Secretary
Lindemann to press the importance of opening international
markets to biotech products -- particularly in the third
world where food scarcity and food prices have escalated into
a food security problem. Senator Lugar pointed out that some
developing countries have been reluctant to accept food aid
assistance from the World Food Program (WFP) because the EU
biotech policy has led them to believe that biotech is
unsafe; he contended that this false perception contributed
to the hunger situation in the developing world. Lindemann
explained that consumer resistance and politics made it
difficult for biotech to be more accepted in Germany and
cited the upcoming local elections in Bavaria where farmers
are an important constituent group. Despite the opposition,
Lindemann agreed that new technology should play a role in
improving hunger and nutrition in third world countries.
Lindemann acknowledged that the EU's adventitious presence
regulation is unreasonable, but stated that the EU is trying
to revise regulations that will enable biotech derived feed
to be imported into the EU, particularly the next generation
of Roundup Ready soybeans (RR2). Lindemann strongly
emphasized the need to develop harmonized global standards to
facilitate the use of biotech products. Lindemann also
emphasized the need to reform the FAO and sought U.S.
support, and also expressed his disappointment with the
results of the WTO trade negotiations.

Comment
--------------


7. (C) While German views on both Georgia and energy
security were somewhat predictable, the depth and strength of
Germany industry convictions on the merits of doing business
with Russia were a sober reminder of the expedient pragmatism
that drives German energy interests in Russia -- a pragmatism
that undoubtedly helps shape German policy on both the
Georgia crisis and the EU's political response. End Comment
TIMKEN JR