PGNIG ON REPORTED GAS DEAL WITH IRAN

C O N F I D E N T I A L SECTION 01 OF 02 WARSAW 000806

SIPDIS

E.O. 12958: DECL: 07/07/2018
TAGS: ECON ENRG EPET PGOV PREL PL IR
SUBJECT: PGNIG ON REPORTED GAS DEAL WITH IRAN

REF: WARSAW DAILY 6/30/08

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Classified By: DCM Pamela Quanrud for reasons: 1.4(b,d)


1. (C) Summary: The president of Poland's state-owned gas
company, PGNiG, confirmed that his company is in discussions
with Iran to develop the Lavan gas field. However, contrary
to press reports, he stated the company is not on the verge
of signing a deal. End summary.


2. (C) On June 30, leading Polish business newspaper
Rzeczpospolita carried a front page story reporting that
Polish gas company PGNiG was close to signing a contract
worth US$2 billion with Iran,s Offshore Oil Company to
develop the Lavan gas field. The Rzeczpospolita report was
based on an article in the "Tehran Times" (ref).

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PGNiG President Confirms Negotiations, but No Deal Yet
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3. (C) On July 7, EconOff discussed the reported gas deal
with PGNiG's president, Michal Szubski. Szubski confirmed
that PGNiG is in discussions with Iran regarding investing in
the Lavan field. Two Iranian geologists have come to Poland,
bringing with them geological studies that PGNiG's engineers
are now reviewing. However, Szubski said, contrary to the
press reports, PGNiG is not on the brink of signing a
contract. He stated that the Tehran Times article claims
were inflated because "Iran wants to boast that somebody is
working with them." Szubski stated he had inherited the
negotiations from PGNiG's prior management (under the former
PiS-led government),that they were already well along when
he became president, and that they could not be broken off at
once.


4. (C) When asked about the accuracy of the reported amount
of the proposed investment -- US$2 billion -- Szubski stated
one of his worries is whether PGNiG has the financial
resources to pull off such a large deal.

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Underlying Fear of Russia
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5. (C) Szubski stated that the USG should be aware of
Russian interest in Iran, and that if Poland did not invest
there, Gazprom would fill the void. He also noted that
French companies and others are already investing in Iran.
Finally, he noted, like Libya, Iran could change for the
better, and that PGNiG wanted to be well-positioned when that
change occurred. EconOff responded that investment in Iran
now would tend to push off a Libya-style transformation. The
USG discusses with companies and governments, often at very
senior levels, its concern regarding every proposed
investment in Iran of which it learns. EconOff also noted
that new investments by European companies undermine the U.S.
and EU position in asking Russia to refrain from further
investment in Iran.

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The P-5 1 Deal: What's In It For Poland?
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6. (C) Szubski then asked whether the USG would support
Poland's search for other gas sources, and stated that PGNiG
is not large enough to compete with British and American
companies for those sources of supply that would be
acceptable to the U.S. government. EconOff noted that DAS
Bryza had told PGNiG officials during his recent visit that
the United States strongly supports bringing Norwegian gas
into the heart of Europe as soon as possible, as well as
developing southern connectors to the gas market at
Baumgarten, Austria, and additional inter-connections with
Germany. Szubski stated all of these projects are underway,
but are not sufficient, adding that Norwegian resources in
particular are limited.


7. (C) Referring to the P-5 1 package of incentives,
Szubski asked whether -- if PGNiG were to stop all
discussions with Iran -- some benefit for the company could
be written into the package. EconOff responded that the
package did not envision particular bargains for particular
companies, but that PGNiG ought to be concerned that its
activities not only diminish the credibility of a proposal
that the EU helped to craft, but could contribute to a
gathering threat to Poland's most important economic partners
and military allies. Szubski stated that he understood the
political sensitivities, and that the company surely would

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not take any action without approval from officials in the
Polish government.

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Comment
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8. (C) PGNiG clearly is considering seriously a substantial
investment in the Lavan field, although negotiations are not
as advanced as the Tehran Times had stated. (The timing of
the Tehran Times article suggests it may have been intended
to sow discord between the United States and Poland at a
delicate moment in missile defense negotiations). It is no
surprise that that PGNiG is making the business case for an
Iranian investment. Political pressure will be required to
persuade the Polish government to stop a deal. Post will
continue to raise U.S. concerns.
ASHE