EDISON CEO QUADRINO BULLISH ON PROSPECTS FOR TGI

UNCLAS SECTION 01 OF 02 BRUSSELS 001709

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET EUN
SUBJECT: EDISON CEO QUADRINO BULLISH ON PROSPECTS FOR TGI

REF: BRUSSELS 1697


1. (SBU) On November 6, 2008 Ambassador Silverberg met with
Umberto Quadrino, CEO of the Italian energy firm Edison.
Quadrino was in town for meetings with EU officials, notably
Energy Commissioner Andris Piebalgs. His objective was to
promote the Turkey-Greece-Italy (TGI) gas pipeline project
and to ensure that it receives the same level of support as
the Nabucco gas pipeline project. Quadrino has been
concerned that the Commission favored Nabucco to the
exclusion of other projects. Piebalgs assured him that he
does indeed intend to promote the Southern Corridor concept
and will not favor one project over the other when he speaks
with Turkish and Azeri officials on his travels this week.
Queried by a reporter immediately after the meeting with
Quadrino, Piebalgs said "It will be the market to choose
between Nabucco and IGI-Poseidon. For the EU they are both
priorities but Edison's pipeline is more advanced."


2. (SBU) On the subject of the 15 percent lift-off clause in
the original trilateral agreement between Turkey, Greece, and
Italy, Quadrino said that the Commission did not like this
clause because it is too different from the EU transit model
and the Commission feels it sets a bad precedence for future
deals -- 15 percent of 8 bcm is much less than 15 percent of
31 bcm. Azerbaijan doesn't like the trilateral agreement
because it wants to negotiate a sales price directly with
Turkey. Because of this opposition, Edison has been
negotiating with Turkey to drop the 15 percent figure and
substitute a hard quantity of gas. Out of 11 bcm available
for export from Azerbaijan's Shah Deniz II (SD II) project,
Quadrino envisages 2-3 bcm going to Turkey, 1-1.5 bcm to
Greece, and the remainder to Italy. Quadrino said TGI can go
forward on this basis, but can't go forward if Turkey
continues with its recent insistence that it needs 8 bcm off
the top of any Azeri volumes.


3. (SBU) Edison has been working quietly on a quadrilateral
agreement between Italy, Greece, Turkey, and Azerbaijan to
replace the current trilateral agreement. Quadrino believes
they are close to an agreement and is confident that Turkey
will accept an agreement whereby Turkey will have the right
to buy a fixed quantity of the gas from Azerbaijan and the
price for that quantity will be negotiated directly between
Azerbaijan and Turkey. Quadrino believes that moving forward
on the quadrilateral agreement is important, because it will
enable the parties to proceed with commercial arrangements.
And Quadrino believes Azerbaijan will not be willing to take
the decision to develop SD II until they see the
quadrilateral transit agreement in place.


4. (SBU) Edison plans to officially circulate the
quadrilateral draft to the Turks and Azeris this week.
Quadrino said that Prime Minister Silvio Berlusconi will meet
with Turkish Prime Minister Erdogan on November 13. Shortly
after that on November 26 Berlusconi will meet with
Azerbaijani President Ilham Aliyev in Rome. Quadrino
speculated that the Aliyev-Berlusconi meeting may be the
opportunity to announce a political agreement on the
quadrilateral agreement for TGI. Edison believes Azerbaijan
will support the quadrilateral agreement if Turkey agrees,
because this will bring their bilateral negotiations with
Turkey into a multilateral setting. Azerbaijan, however, is
not likely to push forward on this agreement until Turkey has
made the commitment.


5. (SBU) Quadrino stressed that U.S. support for TGI has
been, and continues to be key. He asked for continued U.S.
support to encourage Turkey to move forward on the
quadrilateral agreement and for the U.S. to urge Azerbaijan
to commit to developing the SD II gas volumes. Quadrino was
less complimentary of EU support for the project, despite the
positive meeting he had with Piebalgs. Quadrino noted that
Piebalgs told him that the U.S. position is to support
Nabucco and not TGI.


6. (SBU) Quadrino believes that TGI is a 2011 project
whereas Nabucco is more a 2018 project. TGI can move forward
with just the SD II volumes, but Nabucco will require
additional sources beyond Azerbaijan. Quadrino contends that
allowing TGI to proceed now would actually open up the
Southern Corridor to future projects such as Nabucco down the
road. Quadrino also warned that timing is crucial, arguing
that if the Europeans don't move forward to secure Azeri
supplies now, the Azeris will commit to Russia instead. In
response to Ambassador Silverberg's question regarding rumors
that Edison has lost enthusiasm for TGI, Quadrino assured her
that this is not the case and that Edison is working very

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hard to promote TGI.


7. (SBU) Comment. Notwithstanding Quadrino's positive
meeting with Piebalgs, we have recently heard from Commission
officials (see reftel) that privately Nabucco is preferred
because it would be a much larger project (31 bcm) and would
also bring an alternate source of gas to the Gazprom
dominated Central European market whereas TGI would bring a
smaller quantity to the already diversified Italian market.
End Comment.

Silverberg
.