UKRAINIANS PRESSING SLOVAKS TO BATCH CASPIAN CRUDE

C O N F I D E N T I A L BRATISLAVA 000161 SIPDIS SIPDIS E.O. 12958: DECL: 04/10/2018 TAGS: ENRG ECON EPET LO RU UP SUBJECT: UKRAINIANS PRESSING SLOVAKS TO BATCH CASPIAN CRUDE ON THE DRUZHBA REF: A. BRATISLAVA 35 ¶B. LAITINEN/SLOWINSKI EMAILS Classified By: Ambassador Vincent Obsitnik for Reasons 1.4 b) and d) ¶1. (C) The Ukrainian pipeline operator UkrTransNafta is aggressively pushing a one-day trial to "batch" 40,000 tons of Caspian crude from Brody in Ukraine to the Kralupy refinery in the Czech Republic. The goal, according to Bratislava-based UkrTransNafta representative Mikulas Rakovsky, is to test the systems and show that the Ukrainian pipeline company can coordinate with partners along the Druzhba pipeline on a trial basis. UkrTransNafta hopes to accomplish this before the end of April so that the results can be announced at the Kyiv Energy Summit that is set to take place on May 22-23. The test is reportedly designed to show that Odessa/Brody/Druzhba is a viable option for transporting Caspian crude to western markets. Rakovsky noted that the 40,000 tons of crude is already available in Brody and will be shipped pending an agreement with all of the operators along the Druzhba. ¶2. (C) Ukranian President Yushchenko is reportedly behind the efforts to achieve a successful trial before the end of the month. Rakovsky said that the Czech government and pipeline operator Mero support the project, and that Russia is not opposed to the test. Rakovsky said that President Putin told Yushchenko that Russia would guarantee supplies along the Druzhba in the future and would allow Ukraine to seek alternative routes. Yushchenko reportedly sent letters to the Slovak President and Prime Minister asking for support, and also dispatched his energy advisor, Bohdan Sokolovsky, and the Chairman of UkrTransNafta, Igor Kyriushyn, to Bratislava last week for discussions with the GOS and Slovak pipeline operator Transpetrol. ¶3. (C) Slovak PM Fico and Economy Minister Lubomir Jahnatek support the trial, but Transpetrol believes that there are several technical obstacles that must be overcome before they can approve the project. The GOS is a minority shareholder in Transpetrol. Transpetrol Board member and Yukos Finance representative Jan Kridla told EconOff that the company would benefit from a successful test, but it was their responsibility to first ensure that the test would not pose a risk to their supply commitments. (Note: Yukos Finance would likely be the greatest beneficiary since a successful test would likely increase the value of the 49 percent Transpetrol stake that it is currently trying to sell (Reftel)). Transpetrol also had concerns about violating its current agreements with Transneft, which UkrTransNafta argues will not be an issue for a one-off test. ¶4. (C) Both Rakovsky and Kridla said that Kyriushyn is under significant political pressure to complete the one-day test by the end of April, and would likely lose his position if he is not able to do so. Kyriushyn told Transpetrol that UkrTransNafta will cover all of the costs associated with the project and use its staff to overcome the technical hurdles. UkrTransNafta believes that the test can be carried out without any upgrades to the pipeline system, and that the main issue is one of cleaning. A technical team from Ukraine arrived in town on Tuesday (4/8) and is meeting with Transpetrol engineers to address the technical issues. ¶5. (C) Kridla expressed frustration that Transpetrol was under pressure from all sides: the Slovak, Czech and Ukrainian governments have all weighed in as have the neighboring pipeline operators. Kridla felt that Transpetrol had to ultimately have the support of its main customers, the Slovnaft refinery in Bratislava, which is owned by Hungarian MOL, and Ceska Refinerska (CRC),before going ahead with the test. PKN Orlen, which is the majority owner of Unipetrol, a 51 percent owner of CRC, has reportedly approved the project, but Kridla noted that there are other interests in CRC that still need to give their approval. OBSITNIK