PRIME MINISTER GYURCSANY AMBIGUOUS ON NABUCCO,

C O N F I D E N T I A L SECTION 01 OF 04 BUDAPEST 001118

SIPDIS

DEPARTMENT FOR EUR/FO JGARBER AND MBRYZA, EUR/CE, EUR/RUS,
EUR/ERA, EEB/FO, PLEASE PASS TO NSC ASTERLING

E.O. 12958: DECL: 11/24/2018
TAGS: ENRG ECON EPET PGOV HU
SUBJECT: PRIME MINISTER GYURCSANY AMBIGUOUS ON NABUCCO,
RUSSIAN ENERGY PARTNERSHIP AT BAKU SUMMIT

REF: A. BUDAPEST 1021

B. BUDAPEST 1058

C. BAKU 1097

Classified By: DCM Jeffrey Levine; reasons 1.4 (b) and (d)


1. (C) SUMMARY: Hungarian Prime Minister Gyurcsany continued
to play both advocate and devil's advocate for the Nabucco
pipeline at an energy summit in Baku on November 14. He
argued forcefully for Nabucco on the grounds of its
importance to European energy security, based on his comments
to reporters after the event. At the same time, his pleas
for EU funding and for wider European engagement with the
Caspian countries seemed to highlight the project's
uncertainties over the opportunities it would offer to
suppliers and consumers on each end of the proposed pipeline.
Moreover, his proposal that Eurasian energy questions might
best be resolved via a tri-lateral partnership between the
EU, the Caspian producers, and Russia suggests that he may
have already conceded defeat for a Southern Corridor free of
Russian influence. Please see request for guidance in
paragraph 10. END SUMMARY.


TILTING THE BALANCE TOWARD NABUCCO...


2. (SBU) Speaking at a November 14 international energy
summit in Baku, which GoAJ convened to discuss transporting
Azeri oil and gas to Europe, Gyurcsany urged EU countries to
support oil refinery development in the Caspian region, share
technology across a variety of industries beyond energy, and
pursue cooperation in education, science, and research in
order to re-balance what he termed "asymmetrical" relations
between the EU and the Caspian countries. Under present
circumstances, he said, "we (the EU) need Azerbaijan and
Turkmenistan more than they need us" and "nothing will
happen" until they decide to increase their production and
sell more oil and gas to the EU.


3. (SBU) Arguing that "Nabucco is not just a business
venture, but a complex security matter," Gyurcsany called for
direct EU financial support for the project and suggested
that the EU could later sell its shares in the pipeline once
it is "stabilized." Speaking to reporters after the event,
Gyurcsany said "this conference represents a step forward,
but we still have another couple hundred to take" and added
that it was only by his threat to withhold signature from the
summit's closing declaration that he was able to secure
explicit reference to Nabucco in the document.


...AS LONG AS THE RUSSIANS DON'T MIND


4. (C) Gyurcsany's "outside the box" proposal of an energy
partnership among the European Union, the countries in the
Caspian region, and Russia made compelling headlines in
Budapest, but so far there is scant detail on how he would
see such a arrangement taking shape. Based on his view that
Caspian energy resources are unlikely to ease Europe's
dependence on Russian energy, Gyurcsany suggested that mutual
agreements could allow each party to most effectively enforce
its interests in the energy sphere.


5. (C) When asked by Ambassador Foley about the Prime
Minister's surprising proposal, Hungarian Nabucco Ambassador
Bayer claimed that Gyurcsany, speaking off the cuff about the
"zero-sum atmosphere" that pervades the Eurasian energy
discussion, said Russia should recognize the right of EU and
Caspian countries to engage in energy trade without its
interference, whereas they should also recognize Russia's
interests in the energy sphere. According to Bayer,

BUDAPEST 00001118 002 OF 004


Gyurcsany's proposal was not for a formal tri-lateral
partnership, but rather a mutual understanding among the
parties about their respective rights. (Note: While we do
not know exactly what he said in the closed summit session,
Hungarian reporters use the word "partnership" to
characterize Gyurcsany's proposal, based on their post-summit
interview with him. End note.) In response to Ambassador
Foley's direct questions, Ambassador Bayer, based on the
information available to him, assured us of the following:

- There are no plans to propose a tri-lateral agreement with
Russia at the Budapest Nabucco Summit in January.

- Hungary is not planning to invite Russia to participate in
Nabucco, although Bayer would not rule out participation by a
Russian company if the companies in the Nabucco Consortium so
choose.

- Hungary has not had any recent intergovernmental contact
with Russia on the South Stream project. To the best of his
knowledge, disagreements between the Hungarian and Russian
sides continue to hamper progress within the joint venture
responsible for the feasibility study. Bayer does not expect
an announcement on South Stream before the end of this year
or early next year that could undercut the Budapest Summit.
Bayer added that GOH is putting a great deal of effort into
this summit and would not want to take any action that would
damage its credibility.


6. (C) Opposition party members of the recently-established
Parliamentary Nabucco Committee are concerned, however, that
Gyurcsany's Baku proposal could be a prelude to an
announcement of further progress on South Stream or an
invitation to Russian participation in Nabucco. FIDESZ MP
Mihaly Balla told EconOff on November 20 that he is convinced
that the presence of Hungary's new Ambassador to Moscow,
Gyorgy Gilyan, in the Prime Minister's Baku delegation is
somehow related to Gyurcsany's proposal for partnership with
Russia. According to Balla, Gilyan has well-established
connections in Moscow and throughout the former Soviet bloc
based on his pre-1989 work as a diplomat specializing in
economic connections within the bloc. Moreover, Nabucco
Committee staffers from FIDESZ and SzDSz expressed concern
about a lack of transparency surrounding the Baku trip as the
Prime Minister's Office's failed to inform the Committee
about the planned trip. The Nabucco Committee has invited
Gyurcsany to give a full account of the Baku trip at a
Committee meeting on November 26.


NABUCCO SUMMIT PREPARATIONS ON TRACK


7. (SBU) Ambassador Bayer's goal for the January summit in
Budapest is that it will be a political summit with a
practical focus, and political statements of support will be
accompanied by frank dialogue on how to address the remaining
obstacles to the project. He is working to secure the
attendance of the highest level representatives of
Nabucco-concerned countries--suppliers, transit players, and
consumers--as well as international stakeholders such as the
European Commission and the European Bank for Reconstruction
and Development (EBRD). He also anticipates that the
Intergovernmental Agreement could be cloe enough to its
final form so that participants would be willing to initial a
draft to signify their intent to sign a final version within
a few weeks following the Summit. In the coming weeks, Bayer
plans to begin work on a Budapest Declaration for
participants to sign, in hopes that having a document
prepared in advance might prevent the late-night negotiations
on a consensus text that recently took place in Baku.


BUDAPEST 00001118 003 OF 004



8. (SBU) Bayer reiterated his request for the highest
possible U.S. representation at the Summit, but understands
that this may be difficult given our transition to a new
administration. He said Ambassador Silverberg in Brussels
had recently advised him to forward the Summit invitation to
President-elect Obama's transition team and that he had
forwarded it to the Hungarian Embassy in Washington for this
purpose.


9. (SBU) Bayer related the following list of prospective
attendees to the Budapest Summit:

- Austria: probably the new Prime Minister.

- Azerbaijan: President Aliev.

- Bulgaria: either President Parvanov or Prime Minister
Stanishev.

- Czech Republic: Prime Minister Topolanek would like to
attend, but must first coordinate his schedule with the EU
presidency calendar.

- Egypt: possibly the Energy Minister.

- Georgia: Prime Minister Mgaloblishvili.

- Germany: no word yet; Chancellor Merkel currently has two
invitations to Hungary, to the Summit and to the 20th
anniversary of Hungary's border opening with Austria, and
also is campaigning for re-election in 2009.

- Iraq: Prime Minister Maliki.

- Kazakhstan: an as yet undetermined Minister.

- Romania: uncertain due to upcoming elections.

- Turkey: Prime Minister Erdogan has given positive
indications; Prime Minister Gyurcsany hopes to obtain an
answer from him when they meet in Ankara on 27 November.

- Turkmenistan: no answer yet; Ashgabat "sounds positive
about the Summit" but also is under heavy pressure from
Russia. Bayer plans to visit Ashgabat in December and will
present an invitation from President Solyom.

- Nabucco Consortium members: Bayer expects highest-level,
probably CEO, participation.

- EBRD: no confirmation yet.

- European Commission: Commissioners Barroso and Solana are
both seriously considering attending.


AVERTING THE WORST CASE


10. (C) COMMENT: Prime Minister Gyurcsany's recent
performance in Baku suggests that Nabucco remains "a"
priority for his government, but not necessarily "the"
priority. Moreover, his overture to Russia causes us to
wonder where his true priorities lay. GOH appears to be
making every effort to ensure a successful, high-profile
summit in January, and Gyurcsany must recognize that any
announcement of deepened cooperation with Russia, whether
related to South Stream or Nabucco, would seriously undermine
the Summit and damage his government's and his own
credibility. We believe Bayer to be an earnest and
forthright interlocutor, but we realize that he is often not
fully apprised of the inner workings of the Prime Minister's

BUDAPEST 00001118 004 OF 004


office with regard to Hungary's policy on Russia and
pipelines (see Ref A and B). While we would like to
subscribe to Bayer's more benign interpretation of
Gyurcsany's remarks, we do not feel the situation warrants it
given the Prime Minister's lack of transparency to date in
his South Stream dealings. Accordingly, we consider it more
prudent to anticipate the possibility of a worst-case
scenario--a Russian invitation to Nabucco in Budapest in
January--and we again request Washington's guidance (see Ref
A) as we seek to avert rather than just respond if things go
south... or rather east.

Foley