HUNGARY'S NABUCCO AMBASSADOR: LOTS OF MOTION,

C O N F I D E N T I A L BUDAPEST 000735

EUR FOR DAS BRYZA, EUR/NCE FOR MARC NORDBERG

E.O. 12958: DECL: 07/24/2018
TAGS: ENRG ECON HU
SUBJECT: HUNGARY'S NABUCCO AMBASSADOR: LOTS OF MOTION,
LITTLE PROGRESS

Classified By: A/DCM ERIC V. GAUDIOSI; REASONS 1.4 (B) AND (D).



1. (C) Summary: Over lunch with the Ambassador, Mihaly Bayer,
Hungary's Nabucco Ambassador, reviewed PM Gyurcsany's recent
trip to Azerbaijan and Turkmenistan--focusing on the PM's
call for a Nabucco Summit--and laid out his plans for the
coming months. Bayer has traveled almost continuously since
taking office in April--making for lots of motion but thus
far very little progress on Nabucco. What seemed early on an
urgency to act now has been criticized by some of our
European colleagues as a defensive maneuver to prove its
diversification credentials to Brussels, and especially
Washington ... even as it does little to diversify. End
Summary.


2. (C) Summarizing the PM's meetings in Baku and Ashgabat,
Bayer said leaders had unofficially earmarked 8 and 2-10 bcm,
respectively, for Nabucco at a future, unspecified date.
Even so, he went on, Aliyev's and Berdimuhamedov's hands were
tied by their relationships with Russia. According to Bayer,
Aliyev told Gyurcsany that "Azerbaijan won't be able to
refuse Russian offers to buy gas." "And Turkmenistan," he
added, "considers sales to Russia a sacred thing."
Turkmenistan, he surmised, was already beginning to increase
its leverage vis-a-vis Russia, including with its pipeline to
China, but would need time--and the patience of the West--to
agree to a Trans-Caspian Pipeline and FDI in its on-shore
energy sector. Bayer said Washington could help ith
both--encouraging U.S. energy companies to engage with
Turkmenistan, in off-shore deals for the time being, and
interceding to improve Turkmenistan-Azerbaijan relations.


3. (C) As widely reported in the press, Gyurcsany used his
Central Asia trip as a platform to call for a Nabucco Summit.
Bayer--charged with organizing the event--presented
February-March 2009 as the preferred timeframe and said the
PM intends to invite potential supplier states, in addition
to Consortium countries. The GOH likely will cancel, he
said, the Nabucco conference previously scheduled to follow
on the heels of AmCham Hungary's October energy conference.
He was not receptive to the idea that an expert-level meeting
in October could help set the stage for the early 2009
summit.


4. (C) Bayer also reported on his meeting with Commissioner
Piebalgs last week in Brussels, saying the two agreed that
"Russia is bluffing" on the amount of power it can project
through its energy policy. (Comment: Bayer did not elaborate
on this. End comment.) He noted that a new Nabucco
Inter-Governmental Agreement (IGA) is in draft--replacing,
and incorporating elements of, three earlier drafts--and said
he picked up a rumor that Nabucco Coordinator van Aartsen
will resign in September. (Comment: In a separate meeting,
the Romanian Ambassador to Hungary expressed displeasure with
Hungary's earlier IGA exercise. Bucharest, she said, did not
appreciate having its time and effort wasted when the GOH
failed to inform them that a new draft was in work. End
comment.)


5. (C) In addition to the IGA and Nabucco Summit, Bayer
listed among his top three priorities continued engagement
with source countries. To that end, he expressed interest in
meeting the Iraqi Oil Minister. Separately, Bayer proposed
to travel to Washington in October for Nabucco meetings and
likely will meet with visiting Senator Lugar next month.


6. (C) Finally, Bayer gave a brief readout of the "unhurried"
South Stream project, noting that Budapest had heard nothing
from Moscow since it submitted a draft joint venture contract
in early June. Although other MFA sources tell us that Bayer
has privately complained of his lack of access to information
regarding South Stream, he nonetheless opined that the slow
pace on the project reflected Russia's "uncertainty on lots
of issues"--its IGA with Serbia, gas supplies for South
Stream, etc.--but nevertheless expected final contract text
before mid-September, when Finance Minister Veres will
co-host, with his Russian counterpart, a session of the
Hungary-Russia Joint Economic Committee. (Comment: When
asked about South Stream last week, Veres claimed there had
been no discussion in "the past three months" and made no
mention of the planned September session. End comment.) The
joint venture, he said, probably would be registered by the
end of 2008.


7. (C) Comment: Local contacts tell us that Gyurcsany's
Central Asia trip--though proudly presented to us several
times by the PMO and MFA--has been roundly criticized by the
EU and member states, who perceive the PM's talks as little
more than "public relations grand-standing." The Dutch
Ambassador here, for example, has made no secret that "the
Commission" regards Gyurcsany's trip as "turning the world
upside down," adding that the initiative has further
"isolated Gyurcsany" within EU circles. Although a move from
bad-mouthing to grand-standing is still progress, critics at
home and abroad are right that even following the PM's trip,
the GOH has downplayed in the press any potential for gas
supplies from Azerbaijan and Turkmenistan. Similarly, we
note that the absence of transaction-focused MOL CEO Zsolt
Hernadi in the PM's delegation. In his stead was MOL COO
Gyorgy Mosonyi, who is, by all accounts, an able operator but
has no decision-making authority. Bayer is in similar
straits: Although MFA officials continue to comment that he
will "lay the pipeline himself if he has to," thus far he has
few breakthroughs for all his frequent flyer miles. Finally,
the GOH seems content to host a Nabucco Summit but can only
undermine its chances for success by refusing to hold
expert-level talks in advance. Having welcomed the trip and
the Summit proposal, we should now turn our attention to
encouraging the requisite follow-through, in particular
pre-Summit talks in Budapest or elsewhere. End Comment.


Foley