AMBASSADORS GRAY AND MANN AT THE RUSSIAN ENERGY

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002200 SIPDIS DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT EUR/CARC, SCA (GALLAGHER, SUMAR) DOE FOR FREDRIKSEN, HEGBORG, EKIMOFF DOC FOR 4231/IEP/EUR/JBROUGHER E.O. 12958: DECL: 07/08/2018 TAGS: EPET ENRG ECON PREL RS SUBJECT: AMBASSADORS GRAY AND MANN AT THE RUSSIAN ENERGY MINISTRY Classified By: M/C for Economic Affairs Eric T. Schultz for Reasons 1.4 (b/d) ¶1. (C) Summary: In a July 21 meeting with Deputy Energy Minister Anatoly Yanovsky, Ambassadors Gray and Mann raised the TNK-BP dispute, which they said was undermining investor confidence. Yanovsky responded that the GOR saw it as strictly a commercial dispute over the development of the company but that he personally hoped it would be resolved soon and praised BP's contribution to developing Russia's oil and gas sector. Yanovsky made a pitch for reviving the bilateral energy dialogue, which he said could help mitigate disputes before they became public. End Summary -------------- TNK-BP and Investment Climate -------------- ¶2. (C) Ambassador Gray noted our concerns at the worsening fight for control over TNK-BP. The company had paid out $18 billion in dividends since its formation in 2003 and was one of Russia's largest tax-payers. By any measure, it was a successful company and the criticism of its western managers seemed to us unwarranted. ¶3. (C) Yanovsky initially responded by questioning why the U.S. was interested in BP,s situation given that it was a British company. Gray explained that many of BP,s shareholders were Americans and that TNK-BP's CEO, Robert Dudley, was American. Yanovsky then responded that the Energy Ministry had little responsibility for the oil and gas sector and repeated the GOR's standard line that the dispute was commercial and that the GOR would not intervene. ¶4. (C) Ambassador Mann said the TNK-BP situation, and especially the use of state resources by one side in the dispute, sent the wrong signal to potential foreign investors, who were needed to help Russia develop its energy resources. Yanovsky agreed that investors were needed, noting how technically challenging the Shtokman project was and predicting that the future of Russia's oil and gas sector would lie increasingly in such remote and harsh places. ¶5. (C) Yanovsky went on to say that he hoped that the TNK-BP situation would soon be resolved, especially since BP had made such a positive contribution to Russia. He said he personally saw the dispute as one over the company's future, with one set of shareholders (presumably he meant AAR) interested in maximizing the company's short-term value and the other (BP) its long-term development. (Comment: A correct, and surprisingly frank, assessment.) -------------- Energy Dialogue and Bio-Fuels -------------- ¶6. (C) Towards the end of the meeting, Yanovsky raised the issue of biofuels with the observation that they required too many subsidies and caused too big an increase in food prices (echoing comments Medvedev had made at the G-8). Ambassador Gray responded that, in the U.S., oil and gas received many times the subsidies granted biofuels and that the high price of oil had contributed much more to food price increases than biofuels production, which help keep down the price of gasoline in the U.S. relative to the price of crude. However, he added that in his view it would take time to develop viable &clean8 energies and that coal would become an increasingly important bridge to that future, even in Europe where environmental concerns were strongest. ¶7. (C) Ambassador Gray raised U.S.-Russian collaboration on the development of alternative &clean8 energies. Yanovsky said he would welcome this discussion and said Russia would like to have regular meetings with the U.S. on energy issues. To that end, he reiterated Russian interest in reviving the U.S.-Russian energy dialogue. Yanovsky said an energy dialogue could be part of the broader effort to develop U.S.-Russian economic ties as a way to counterbalance political problems in the bilateral relationship. However, the dialogue should not focus on each other's foreign investment climates, as had happened before, but should MOSCOW 00002200 002 OF 002 instead stick to our respective energy policies and how they interacted with each other and with global markets. -------------- Comment -------------- ¶8. (C) Comment: During the meeting, Yanovsky expressed concern that &Russia was the last country, or certainly not the first8 that Ambassador Gray had visited in his new capacity as Special Envoy for Eurasian Energy. However, the Embassy received a letter from Deputy Prime Minister Sechin, arguably the most powerful figure in the energy sector, a few days after Ambassador Gray left apologizing for his busy schedule, noting that he had empowered Yanovsky to speak on his behalf, and expressing his general openness to USG meetings. This puts the meeting with Yanovsky in a different, more positive, light and provides an opening that we intend to follow up. ¶9. (U) This cable has been cleared by Ambassador Gray. RUBIN