ROMANIA: STATE COUNSELOR BRIEFS ON ENERGY SECURITY

C O N F I D E N T I A L SECTION 01 OF 02 BUCHAREST 000431

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E.O. 12958: DECL: 06/01/2018
TAGS: ENIV ENRG PGOV PREL RO
SUBJECT: ROMANIA: STATE COUNSELOR BRIEFS ON ENERGY SECURITY
ISSUES

Classified By: DCM Mark A. Taplin for reasons 1.4(b) and (d)


1. (C) Summary. In a May 19 meeting with EconOff, State
Counselor to the Prime Minister for Economic Affairs
Constantin Ciupagea shared the Romanian Government's current
thinking on LNG, pipelines, and the proposal for a
consolidated state energy company. Ciupagea reiterated
Romania's support for an LNG terminal in Constanta, but also
said that South Korea has expressed interest in developing a
smaller project near the port of Mangalia. On pipelines,
Ciupagea added his assessment that Turkey is "playing a
waiting game" to see how the supply situation works out. The
proposed state energy "national champion" company is gaining
ground within the Government of Romania (GOR) and appears
unlikely to encounter any significant obstacles on the part
of the EU. End summary.

LNG
---


2. (C) Ciupagea opened the meeting with a discussion of LNG
and the GOR's desire to import it by way of the Black Sea.
Mentioning the proposed feasibility study for an LNG terminal
in Constanta (USTDA is in the preliminary evaluation phase of
a project proposed by U.S. developers ETG/UGI),he said that
the GOR has every interest in getting the project done as
quickly as possible. He said that several investors have
already expressed interest in project development as soon as
the feasibility study is completed. (Comment: The fact that
other investors are interested in the project may explain
some of the reluctance ETG has encountered in finalizing a
deal with the state-controlled project beneficiary, Romgaz.
End comment).


3. (C) Without naming specific companies, Ciupagea indicated
that the GOR and potential investors have had preliminary
discussions on LNG supply with Egypt, Qatar, UAE, and other
Persian Gulf countries. He was positive on the likelihood
that Romania would be able to obtain sufficient LNG supplies
to make a terminal at Constanta feasible. However, Constanta
is not the only project under consideration. Ciupagea also
mentioned a South Korean proposal to develop a smaller (3
bcm) LNG facility in the port of Mangalia, south of Constanta
near the Bulgarian border. The benefit is that such a
facility could be serviced by smaller size vessels, which he
asserted are less problematic with regard to Bosporus transit
according to what the Turks have indicated in bilateral
meetings with Romania.

Pipelines/Regional Cooperation
--------------


4. (C) Ciupagea said Romania perceives little short-term
forward movement on any of the proposed "southern corridor"
pipeline projects. He offered his assessment that Turkey is
playing a waiting game to see how the upstream supply
situation works out before throwing their weight
significantly behind Nabucco or another project. Romania is
still pursuing internal cooperation on energy issues within
the EU. One example of this involvement is that Romania is
angling to host the new EU electricity regulatory body when
this institution is established. The hope is that Romania
will be able to leverage the existing energy exchange to
become a bigger player in the broader European electricity
market.

State Energy "Champion"
--------------


5. (C) Asked about the GOR proposal to merge the remaining
state-owned energy companies into a single national
"champion," Ciupagea said he believes this would allow the
GOR to eliminate disadvantageous long-term supply contracts
and remove the ability of certain politically-connected
enterprises to obtain preferential rates on energy supplies.
He said that Romania is receiving positive signals from the
European Commission (EC) in terms of developing a national
energy champion. This was confirmed by the EC's Chief
Representative to Romania, Niculae Idu, who told EconOff in a
separate meeting that the current EU emphasis on energy

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security means the EC would likely not oppose a merger of
state-owned companies on competition grounds. In order to
comply with existing competition rules, the GOR proposes to
establish a holding company under outside management, but
refrain from directly integrating supply and distribution
companies. (Note: As an interesting aside, Prime Minister
Calin Popescu-Tariceanu told visiting former Secretary of
State Madeleine Albright on May 22 that the GOR would welcome
foreign investment in a consolidated state energy company,
particularly in the area of energy distribution. End note).


6. (C) Comment: Ciupagea is a good contact on energy issues
and has been a reliable and open source on internal GOR
thinking. Post is somewhat surprised that the proposed
energy "national champion" appears to be gaining
institutional support. The existing state-owned assets,
which would be merged into a holding company, are not by
themselves exceptionally attractive from a business
perspective. Consolidation would be a step back from the
privatization drive that accompanied Romania's run-up to EU
membership and has the potential to create anti-competitive
conditions for the private sector. However, the proposal
does reflect a sense within the GOR that Romania needs to
more actively assert its national interests in energy
security, including through more direct state involvement.
That same determination is driving Romania's interest in
developing LNG facilities on the Black Sea coast. While
Romania has welcomed U.S. initiatives to assist, particularly
through possible USTDA funding of an LNG feasibility study
for Constanta, the reluctance of Romgaz to embrace ETG/UGI as
its partners, and the news about South Korean interest,
suggest that the GOR will go with whomever offers the best
deal, U.S. or otherwise. End Comment.
TAUBMAN