NORWEGIAN ENERGY: IRAN, NEW MINISTER, STATE

C O N F I D E N T I A L OSLO 000387

SIPDIS

EUR/NB (MMCDOWELL),DEPARTMENT OF ENERGY (EROSSI, TSARKUS,
JGIOVE),INR/I (SMCCORMICK),EEB/ESC (SGALLOGLY)

E.O. 12958: DECL: 07/10/2018
TAGS: ECON ENRG EPET PGOV SENV IR NO
SUBJECT: NORWEGIAN ENERGY: IRAN, NEW MINISTER, STATE
OWNERSHIP

REF: A. 7/10/08 EMAIL FROM KMJOHNSON

B. OSLO 129

C. OSLO 128

D. OSLO 126

E. 2007 OSLO 1086

Classified By: DCM Kevin M. Johnson, Reasons 1.4 (b) and (d)


1. (C) Summary. The current focus on StatoilHydro's
Iranian investments comes at a moment when the Norwegian
petroleum industry has been shaken up in a series of recent
events. Citing health reasons, while mired in a series of
scandals, Petroleum Minister Haga stepped down, replaced by
fellow Centre Party member Terje Riis-Johansen. The GON
increased its ownership stake in StatoilHydro, the world's
9th largest energy company. StatoilHydro is proceeding with
its Iranian South Pars project, maintaining that it will
honor preexisting commitments, recoup investments, and then
withdraw from Iran (Reftel C). The GON continues to state
that StatoilHydro's engagement in Iran is a business
transaction outside the government, despite the GON being the
majority shareholder. End Summary.

New Minister, Low Expectations
--------------


2. (C) Former Petroleum Minister (and Centre Party head)
Haga publicly stepped down from office on June 20 after
several scandals, including alleged home zoning violations,
failed tax reporting, the improper rental of her cabin, and
hiring consultants under dubious circumstances. As Minister,
she was privately derided by energy producers and suppliers,
and Petroleum Ministry officials, as overly-focusing on
environmental matters and largely disinterested with
hydrocarbon issues. Following an overall shake-up in PM
Stoltenberg's left-of-center government, Riis-Johansen was
appointed. An agricultural specialist by training, he is
another Centre Party member and former Agriculture Minister.
Energy industry insiders quietly inform us that he is an
underwhelming choice, weak and easily influenced by Petroleum
Ministry bureaucrats. That said, industry welcomes the
selection, believing that the new Minister will trust the
bureaucrats who understand, and appreciate, the need to focus
on hydrocarbons. (Note: Norway is the third largest global
exporter of gas and fifth of oil).

StatoilHydro in Iran: Business as Usual--then Exit, Stage
Left?
-------------- --------------


3. (C) The GON recently increased its ownership interest in
energy giant StatoilHydro to 62.55 percent, and plans to
eventually jump that up to 67 percent. Two GON-owned
companies, Statoil and Norsk Hydro, combined in October 2007
to form StatoilHydro (Reftels B-D). The company entered
into the Iranian South Pars project in 2002, holding a 37
percent minority interest. The remainder is held by an
Iranian government-owned holding company. StatoilHydro
announced that, barring technological challenges, the project
will go online in August, 2008. To date, the company has
invested approximately $520 Million USD in the project.


4. (C) Econ officer spoke with two senior StatoilHydro
executives on July 10. Both indicated that the company will
proceed with the project, recoup their investment costs, and
then leave Iran. They emphasized that the company will honor
their existing contractual commitments, but will enter into
no other Iranian commitments. One exec stressed the project
is "95 percent complete" and does not foresee anything
hindering completion.


5. (C) When commenting on today's public decision by French
energy giant Total to stop South Pars projects, both execs
quickly pointed out that the French and Norwegian corporate
interests in the projects were at different stages. Total
was involved in earliest South Pars development stages, long
since completed, while StatoilHydro is in the latest phases.
Further, citing technological, commercial industry and
negotiation delays and setbacks, StatoilHydro is two and a
half years behind schedule. Calling the present situation
"tricky," one exec commented that Helge Lund will not go to
Tehran for any public ceremony, a highly irregular move, and
atypical for the opening of any major project.

No Surprises?
--------------



6. (C) Reacting to U/S Burns recent Congressional testimony
that the USG would conduct a "serious review" of
StatoilHydro's involvement in South Pars, both executives
emphasized that the project should not be viewed as a
surprise. One exec noted that the company frequently
consulted with State officials in DC on this matter, from the
earliest project stages. The other exec called
StatoilHydro's continued discussions with State a corporate
"no surprises policy."


7. (C) Petroleum and Foreign Ministry officials have, in the
past, noted that StatoilHydro's business decisions were a
corporate decision, and outside government influences. On
July 10, a senior Petroleum Ministry official confirmed that
the GON had no official reaction to the South Pars
development, although the government is aware that this is a
sensitive USG matter.

Rough Waters Ahead?
--------------


8. (C) Comment. Post has consistently raised the issue of
StatoilHydro's problematic Iranian investments with both
StatoilHydro and the GON. The GON has maintained that
StatoilHydro's Iranian investments are business decisions
left to the company, and not a governmental issue. (Reftel
E). Meanwhile, the company consistently has stated that it
will conclude its pre-existing contractual commitments, and
do no more in Iran. Corporate execs stress that they have
informed State of the project from the earliest project
stages. StatoilHydro also differentiates between the
company's South Pars investment, and that of Total. The
French giant has completed its project, and today's public
statement relates to prospective investments. StatoilHydro's
development stage is only now approaching on-line. The
investment, particularly following U/S Burns' testimony has
drawn significant local media interest, and Post has
requested guidance on answering media inquires (Reftel A).
Understanding the tumultuous nature of the South Pars project
for the USG. StatoilHydro has sought a low public profile,
not seeking to make waves and aiming to quietly go online.
End Comment.

WHITNEY