SCENESETTER FOR SECRETARY RICE: FOREIGN MINISTER

C O N F I D E N T I A L SECTION 01 OF 02 BUDAPEST 000946

SIPDIS

DEPARTMENT FOR EUR/NCE JAMIE LAMORE, PASS TO NSC ADAM
STERLING

E.O. 12958: DECL: 09/25/2018
TAGS: ENRG ECON EPET PGOV HU
SUBJECT: SCENESETTER FOR SECRETARY RICE: FOREIGN MINISTER
GONCZ VISIT

Classified By: P/E Counselor Eric Gaudiosi, reasons 1.4 (b, d)


1. (SBU) Foreign Minister Goncz arrives in Washington after
a banner week for the GOH. With the approval of the last in
a series of agreements needed to join our visa-waiver program
and final steps toward a deal on the Papa airbase, Budapest
can celebrate the achievement of two longstanding goals, and
so can we. Both will contribute to our bilateral
relationship, but issues remain, chief among them our concern
about Hungary,s position on energy security.


2. (SBU) The Hungarian Parliament last week broke a
months-long stalemate to establish a five-party Nabucco
Committee, which will keep a spotlight on Nabucco while
giving opposition parties the right to review documents for
competing projects such as South Stream. However, government
statements on the pipeline issue remain mixed and show little
appetite to go beyond a very measured commitment to both
projects. In a recent press interview highlighting our
bilateral relationship, Goncz essentially said the US has the
luxury of taking a strategic view of energy security because
of its geographic distance from Russia, but countries like
Hungary must take a more tactical approach. Prime Minister
Gyurcsany, after meeting last week with EU Commissioner
Barroso, echoed Barroso,s stated position that South Stream
does not endanger Nabucco and that both pipelines are
necessary.


3. (SBU) Opposition party leaders and a number of prominent
local energy policy analysts remain ardent supporters of the
Nabucco pipeline. They are actively making the case that
Nabucco should be &the8 energy priority for Hungary rather
than just &a8 priority alongside alternatives such as South
Stream. They understand that while European gas demand may
eventually justify the need for both pipelines, the
sequencing of these projects matters, and forward movement on
South Stream comes at Nabucco,s expense.


4. (C) Hungary,s Nabucco Ambassador, Mihaly Bayer, who will
accompany Goncz on a portion of her trip, has shuttled
tirelessly among Brussels, the Caspian suppliers and the
European transit countries to keep the project on track.
However, Brussels, tepid support and the Nabucco countries,
inability to finalize an Intergovernmental Agreement (IGA)
have clearly compounded the difficulties of his job. His
frustration was evident in a September 24 meeting with
Ambassador Foley when he attempted to clarify recent press
which quoted him saying that the international financial
climate would cause a six-month delay in the Nabucco project:
&I didn,t say there would be a delay. I was asked if there
would be a delay and I said I would be lucky if that were
our only problem.,8


5. (SBU) Bayer remains hopeful that the Nabucco participants
can finalize an IGA by the end of the year, which would then
allow the companies comprising the Nabucco consortium to
begin lining up financing for the project. Encouragingly,
the European Bank for Reconstruction and Development, the
European Investment Bank, and the World Bank have expressed
interest in participating. A completed IGA would also lend
considerable weight to the Nabucco Summit that the GOH will
be hosting January 27-29.


6. (C) But progress on South Stream appears to be poised for
another step forward. The local press carried stories this
week of negotiations in Budapest between Gazprom and the
Hungarian Development Bank over the feasibility study for the
Hungarian segment of the pipeline. Bayer told Ambassador
Foley that he has heard that the feasibility study is facing
delays, but another Embassy contact on the Prime Minister,s
advisory board recently told an Embassy officer that there
would be a &major announcement8 concerning South Stream in
December, which would represent another unpleasant surprise
in the run-up to the Budapest Conference.


7. (C) COMMENT AND ACTION REQUEST: The opposition parties,
strong support of Nabucco and criticism of the government,s
position have allowed the government to cast the debate as an
internal political issue and our engagement as interference.
We urge Washington officials to stress that the quest for
alternatives to Russian energy supplies and Russian-dominated
supply routes is a strategic, Euro-Atlantic concern. Further
steps on South Stream will undermine the Nabucco Summit that
the GOH keeps telling us is a key priority. The Hungarians
have heard our message that further movement on South Stream

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would be unacceptable in this light, but persist in believing
they are being held to a higher standard than other allies.
While she is in Washington, Foreign Minister Goncz needs to
hear this message again and to know that other South Stream
participants are hearing it as well.
Foley