Identifier
Created
Classification
Origin
09BRATISLAVA212
2009-05-13 14:32:00
CONFIDENTIAL
Embassy Bratislava
Cable title:  

U.S. COMPANY DENIED GAS EXPLORATION LICENSE IN

Tags:  ENRG EINV EMIN KCOR LO 
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PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSR
DE RUEHSL #0212/01 1331432
ZNY CCCCC ZZH
P 131432Z MAY 09
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC PRIORITY 2490
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEAWJA/DEPT OF JUSTICE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEKDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 BRATISLAVA 000212 

SIPDIS

STATE FOR EUR/CE K. ERTAS AND L. LOCHMAN

E.O. 12958: DECL: 05/13/2019
TAGS: ENRG EINV EMIN KCOR LO
SUBJECT: U.S. COMPANY DENIED GAS EXPLORATION LICENSE IN
SLOVAKIA

REF: A. BRATISLAVA 191

B. BRATISLAVA 195

C. BRATISLAVA 207

Classified By: CDA Keith A. Eddins for reasons 1.4 b and d

SUMMARY
-------

C O N F I D E N T I A L SECTION 01 OF 02 BRATISLAVA 000212

SIPDIS

STATE FOR EUR/CE K. ERTAS AND L. LOCHMAN

E.O. 12958: DECL: 05/13/2019
TAGS: ENRG EINV EMIN KCOR LO
SUBJECT: U.S. COMPANY DENIED GAS EXPLORATION LICENSE IN
SLOVAKIA

REF: A. BRATISLAVA 191

B. BRATISLAVA 195

C. BRATISLAVA 207

Classified By: CDA Keith A. Eddins for reasons 1.4 b and d

SUMMARY
--------------


1. (C) U.S. energy company Aspect Energy has recently been
refused licenses to explore for natural gas in southern
Slovakia. The denials, based on what the company considers
flimsy bases, follow two years of a lengthy and
nontransparent process at the Ministry of Environment. While
the exact reasons for the obstruction are not clear, the
company has seen indications that Slovak Nationalist Party
(SNS) Chairman Jan Slota has directed the denials for venal
reasons. It also appears that prominent Smer party
figures--and at least one financial sponsor--may be involved.
We have spoken with Ministry of Economy Jahnatek, Foreign
Minister Lajcak, and Fico's foreign policy advisor to bring
this to the attention of the GoS outside of the Ministry of
Environment, in the hope that recent scandals involving
Slota's people will help bring pressure to bear. End summary.


A TORTUOUS PATH TO DENIAL
--------------


2. (C) The frustrating advocacy case of Aspect Energy has
recently intensified with the denial of two of its four
applications to explore for natural gas. Aspect, a
Denver-based energy company, applied in December 2006 to the
Ministry of Environment for licenses to explore for natural
gas in four blocks in southwestern Slovakia. The
applications were filed by a Hungarian affiliate company,
Hungarian Horizon Energy (HHE).


3. (C) The license applications proceeded normally until
December 2007, at which time the Ministry informed HHE that
its applications had been denied. The company immediately
appealed, the appeal succeeded, and the license processing
resumed. In May 2008, the head of the Ministry's geology
department, a Mr. Franzen, told an HHE representative that he
had orders from his superiors not to grant HHE one particular
block, Dunajska Streda, which Aspect considers to be the most
promising. Franzen was fired the following month, reportedly

for unrelated reasons. In October 2008, then-Environment
Minister Izak was replaced by another Slovak Nationalist
Party (SNS) operative, Jan Chrbet. (Chrbet was fired last
week for his involvement in in the suspect sale of 10 million
tons of CO2 quotas to what appears to be a U.S. shell company
(refs B and C).)


4. (C) A month later, in November 2008, the Ministry denied
the Dunajska Streda block, citing mistakes in the
application. According to Aspect representatives, the
mistakes were 0.5 percent mistakes in the allocation of
license revenues to local municipalities within the
block--i.e, essentially rounding error. Aspect considers
this to be a specious reason for denying the application, and
HHE appealed the decision in January 2009. The appeal was
denied, even though the appeals committee recommended in
favor of HHE. In March, HHE filed for judicial review of the
decision. In March the Ministry also notified HHE that its
application for a second block had been denied. HHE has
appealed this decision. At the end of April, the last two
blocks were denied.


STRANGE BEHAVIOR, TROUBLING SHADOWS
--------------


5. (C) The behavior of the Ministry of Environment--long
delays, adverse decisions backed by the thinnest of reasons,
reversals, and an overall absence of transparency or
rationale--are reason enough for concern. A few other
aspects of the case make things look even worse. One is an
indication that SNS party chief Jan Slota is blocking the
deal for nationalistic reasons (Slota's bete noire, Hungary,
is the country of registration for HHE),or that he is using
his well-known hostility toward Hungary on behalf of another
company. Aspect's local lobbying company has met with
Slota's henchmen at the Avocat law firm, where it heard that

BRATISLAVA 00000212 002 OF 002


Aspect could still get the licenses; the company "just has to
pay." Pay whom, and how much, are not clear. In any case,
Aspect is acutely aware of the Foreign Corrupt Practices Act,
and has communicated at every opportunity its intent to
comply with U.S. law.


6. (C) Another troubling shadow is the presence of Bratislava
Development Company (BDC) in the competition for the Dunajska
Streda block. According to HHE, BDC suddenly appeared as an
applicant between March and August 2008, ahead of the only
other applicant registered as of March. BDC is believed to
be affiliated with--possibly owned by--Jozef Brhel, a former
MP in Vladimir Meciar's HZDS party, a beneficiary of several
Meciar-era privatizations, and one of the principal sponsors
of PM Robert Fico's Smer party. While Brhel's involvement in
BDC is not completely clear, the advocacy of Smer MP and
Economic Committee chair Maros Kondrot is: he represented BDC
in discussions with Aspect as the latter tried to unravel the
reasons for its difficulty getting licenses. While it is not
known that BDC has had a hand in blocking the licenses, the
presence of a politically connected real estate company, with
no energy experience at all, is in itself suspicious.


ASKING SMER FOR HELP
--------------


7. (C) At Aspect's request, Charge has discussed its case
with Foreign Minister Miroslav Lajcak, with PM Fico's foreign
policy advisor, Marek Estok, and with Minister of Economy
Lubomir Jahnatek, whose ministry is responsible for foreign
investment, energy, and mining. All three expressed interest
in the case, and especially in any information that might
indicate corrupt activities on the part of the Ministry of
Environment. Lajcak and Jahnatek both asked for more details
(which have been provided via letter),and Estok indicated
later that he had brought the matter up with PM Robert Fico
prior to his recent decision to sack Chrbet. Then-Ambassador
Obsitnik had also raised the Aspect case, though in more
general terms, with Foreign Minister Kubis and PM Fico during
his exit calls.


8. (C) The recent interested responses at high levels follow
an increasing, though perhaps expedient, willingness by the
Fico government to discipline SNS ministers whose corruption
has proven impossible to ignore. There are increasing signs
that SNS may get the boot in next year's elections, and even
some speculation about early elections to capitalize on
Fico's extraordinary popularity and perhaps rid him of the
odious Slota and his cronies. Still, we have yet to see any
indications that Aspect's licenses may actually move forward.
The company is weighing whether to continue the fight or
simply move on to less vexed prospects.


COMMENT: GETTING LEVERAGE FROM A POLITICAL SPAT
-------------- --


9. (C) The discovery and exploitation of natural gas in
Slovakia would seem to be an absolute strategic priority,
especially in view of Slovakia's vulnerability to Russian
whim, which was vividly illustrated in January's gas crisis.
But a potential $100 million investment by a company with
good local credentials (Aspect invested $140 million in a
similar project in Hungary last year) is being held hostage
for apparently venal reasons by a junior coalition partner
known for egregious corruption. We have little confidence
that the Fico government will investigate or take action for
any but purely political reasons, as it now seems interested
in taking goodies away from SNS or impressing the European
Commission with its probity. If Smer interests are in fact
involved, the case would seem hopeless, but as of now Slota
and his SNS cronies appear to be the salient obstacle.


EDDINS