U.S. COMPANY DENIED GAS EXPLORATION LICENSE IN

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