BARROSO LETTER TO POTUS ON ENERGY SECURITY

UNCLAS SECTION 01 OF 02 BRUSSELS 001862 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EPET EUN SUBJECT: BARROSO LETTER TO POTUS ON ENERGY SECURITY ¶1. (SBU) EU Commission Officials provided USEU with a copy a letter dated November 27, 2008 from EU Commission President Jose Manual Barroso's to POTUS in response to the POTUS letter to President Barroso on Energy Security. Text Follows: Begin Text. -------------- Dear Mr. President, Thank You for your letter of 17th October 2008 concerning the issue of the security of energy supplies and the importance of actively promoting the Southern Corridor to facilitate the transit of Caspian gas to Europe. I agree with you that the Southern Gas Corridor linking the European Union to the Caspian Sea and the Middle East is a strategic priority, of course, not only for us but also for producer states which themselves need to diversify in order to get the benefits of real pricing mechanisms and spread their risks. In our Central Asia Strategy, we have clearly underlined the importance of Central Asian energy sources and the necessity to develop the Southern Corridor. This has been confirmed by the European Commission as recently as 13 November in its Second Strategic Energy Review. As highlighted at the recent European Council, the Commission will be organizing, under the upcoming Czech Presidency, a high level political event in the spring of 2009 with the Caspian Sea countries and the transit countries, to which Azerbaijan, in particular will be invited. You may rest assured that we share your view of the importance of increasing political engagement with Azerbaijan. Building on existing bilateral energy cooperation, we are also currently examining, in the framework of our new Eastern Partnership initiative, what can additionally be offered to Azerbaijan and the other countries of our Eastern Neighborhood, including Armenia, Belarus, Georgia, Moldova and Ukraine, with a view to enhancing the security of energy supplies and transit routes. To have a viable Southern Corridor, we need in the first place a clear, transparent and cost-based transmission regime along the length of the corridor and we need to take seriously the supply concerns of the transited countries, including Turkey and Georgia. The Commissioner for Energy, Mr. Andris Piebalgs, recently visited Turkey and Azerbaijan. He met the respective Presidents Gul and Aliyev, and Prime Minister Erdogan. From these discussions, it is clear that the transit regime currently offered by Turkey is not acceptable to Azerbaijan and thus, cannot serve as a basis to connect the Caspian Sea states to the EU. Moreover, this transit regime does not appear to be compatible with the system within the EU, which Turkey intends to adopt. The gas transit system should not be at odds with the EU Internal Market rules. We will, with Turkey, try to resolve outstanding issues of gas transit in the immediate future, including of course Turkey,s concerns on energy security which we feel will be best dealt with by other means. We will also need larger volumes of gas for the Southern Route. Realistically, we have only Turkmenistan as near-term new supplier. To get over the Caspian Sea, we have proposed in our recent Strategic Energy Review a concerted private sector-led initiative (the Caspian Development Corporation) that will combine political, legal and commercial resources to make the link across the Caspian Sea. Both Turkey and Azerbaijan are very interested in this idea. The feasibility study for this project is to be spearheaded by the World Bank, together with the European Investment Bank and European Commission. Europe will continue to source substantial and indeed increasing quantities of its oil, gas and uranium supplies from Russia. Hence cooperation on energy with Russia remains essential. We are clearly in a situation of "inter-dependence" with Russia that, if prudently managed through a transparent regime of rules, can provide the basis for a more diverse and mutually beneficial economic relationship between us. Rules in the field of energy are as important to Russia as they are to us; only with transparent, BRUSSELS 00001862 002 OF 002 applied rules will both sides be able to invest. The European Union,s internal energy market is a rules based system, with fully regulated natural monopoly elements. Regulatory and competition law will be applied when there is a case to answer. Countries that wish to join the European Union must appreciate that fact, as must our most important suppliers. We have enforced competition rules against supplier companies when there has been a breach and we will continue to do so. To conclude, I think that we can now achieve the right conditions for the Southern Corridor. Gas will get to Turkey but a considerable quantity must transfer through Turkey to the EU. This should engender new gas field developments that will be sufficient for current and future needs. The Southern Corridor, and its members, will increase in political importance. It is that prize that Turkey must focus on. I am grateful for your interest in this important topic. We look forward to continuing our constructive dialogue and cooperation with the United States on energy issues. Yours sincerely, Jose Manual BARROSO End Text. -------------- ¶2. (SBU) Comment. Barroso's remarks on EU-Russia "inter-dependence" echo the oft repeated Commission line, that Russia needs the EU more than the EU needs Russia. Reading between the lines on Barroso's comments on using EU competition policy in the Energy field, what he does not say is that the EU is unwilling to aggressively pursue Gazprom on the basis of its market dominance and anti-competitive behavior. Barroso's remarks about the "transit regime currently offered by Turkey" refers to the 15 percent lift-off model agreed to by the Turkey-Greece-Italy Interconnector (TGI) pipeline partners. Commission officials have told us they view this agreement as problematic and not in agreement with EU rules which Turkey will have to comply with if it wants to join the Energy Community or eventually seek EU membership. End Comment. MURRAY .