FICO CALLS FOR END TO CO2 PERMITS DEAL

C O N F I D E N T I A L SECTION 01 OF 02 BRATISLAVA 000365

SIPDIS

STATE FOR EUR/CE J. MOORE
STATE FOR INR/EU A. HARMATA
PRAGUE FOR LEGATT OFFICE

E.O. 12958: DECL: 8/18/2019
TAGS: PGOV KGHG SENV KCOR JA LO
SUBJECT: FICO CALLS FOR END TO CO2 PERMITS DEAL

REF: A. A. BRATISLAVA 241

B. B. BRATISLAVA 207

C. C. BRATISLAVA 195

D. D. BRATISLAVA 191

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CLASSIFIED BY: Keith A. Eddins, CDA, EXEC, DOS.
REASON: 1.4 (b),(d)

1. (C) SUMMARY: After months of defending the sale of assigned
amount unit (AAU) CO2 permits to the U.S.-registered Interblue
Group (refs A, B, and C),Prime Minister Robert Fico has
publicly acknowledged his opposition to the contract. While
cancellation of the deal will likely prevent Interblue from
exercising the option of buying additional AAUs as stipulated by
the contract, it will be difficult to undo the sale of AAUs
concluded last year (Interblue appears to have subsequently sold
those permits to third parties in Japan). Still, Fico's
concession represents an important victory for the opposition
and press, proving that domestic pressure might be enough to
move the PM on a critical issue. END SUMMARY.

EC UNABLE TO RESPOND; PRESS AND DOMESTIC OPPO STEP IN
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2. (C) In the months after full publication of the contract that
allowed the Interblue Group to buy 15 million tons of AAUs at a
below-market price of EUR 5.05, the dispute settled into a
pitched battle between the GOS and the opposition. While the
European Commission (EC) has been successful in pressuring the
GOS to take action on a number of other issues (refs A and D),
the EC did not appear to have a clear role in the Interblue
case. As Andrea Elschekova Matisova, Head of Representation of
the European Commission in Slovakia, explained, the EC is
watching the case closely but would not take any formal action.
Some of Fico's critics suggested the EC might indirectly
pressure Slovakia by blocking Slovakia's bid for an Energy
Commissioner seat in the EU, but it was clear that the primary
pressure to cancel the contract would have to come from another
source.


3. (C) Lacking the possibility for EC action, the pressure to
cancel the contract fell upon the local press and domestic
opposition. Both parties vigorously filled this role. The
opposition repeatedly called for greater transparency from Fico
and Environment Minister Viliam Tursky. Meanwhile, the press
ran stories documenting the success of Slovakia's neighbors in
concluding deals at much higher prices.

GOJ WAS PREPARED TO PAY A HIGHER PRICE?
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4. (U) Particularly damning was the recent string of stories the
press ran regarding the breakdown of negotiations between the
Japanese government's NEDO (New Energy and Industrial Technology
Development Organization) and the GOS for the sale of CO2
permits in the 2006-2007 period. Hospodarkse Noviny (HN),a
leading business daily, published a story citing correspondence
with the Japanese Embassy in Slovakia. In the article, HN says
NEDO was close to signing an agreement with Slovakia similar to
the ones signed with neighboring countries. From this
correspondence, HN concluded that NEDO was prepared to pay a
double-digit market price for Slovak AAUs. The Japanese CDA in
Slovakia was quick to ask for a correction of the article saying
that the GOJ did not offer specifics regarding price.


5. (C) In discussions we had with the Japanese Embassy before
the press stories ran, we confirmed the GOJ attempted
negotiations with the GOS in 2006-2007 but the discussion never
moved past the first step, signing a memorandum that would
provide the framework for GIS (Green Investment Schemes). As
the Japanese Embassy officials explained, the GOJ needed
assurances that a potential seller would dedicate CO2 permit
proceeds to environmental projects before moving on to
discussion of a potential sale. After such an MOU was in place,
NEDO would then proceed to step two, development of specific GIS
guidelines. Japanese officials insisted that both of these
steps would need to be fulfilled before an AAU transfer
agreement could be discussed.


6. (C) The Japanese officials said they aggressively courted the
GOS but the Slovaks did not seem to show much interest. Perhaps
operating under the assumption that ignorance is better than
criminality, former Environment Minister Jaroslav Izak
(2006-Summer 2008) said he has never heard of NEDO. Izak's
successor, Jan Chrbet, said he had no personal involvement with
any negotiations.


7. (U) In the aftermath of the HN revelations, the opposition

BRATISLAVA 00000365 002.2 OF 002


filed a criminal motion in the Prosecutor General's office.
After months of describing the sale as advantageous and
challenging the press and opposition to present proof of
wrongdoing, Fico finally conceded that he was opposed to the
contract. In the days after that admission, Fico has stepped
back his opposition by saying that cancellation should only be
one of the options.

HARD TO UNDO WHAT HAS BEEN DONE
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8. (C) While the GOS may be able to end Interblue's option to
buy AAUs in the future, it is unlikely they will be able to
recoup the 15 million tons of AAUs already sold last year.
These permits have reportedly been sold on by Interblue to third
parties. Citing anonymous sources, the press suggests Tokyo
Electric Power Company, Mitsui and Company, and Mitsubishi may
have been the buyers.


9. (C) COMMENT: Even without the EC, the opposition and press
have been able to chip away at Fico's defense of the Interblue
deal. Getting a concession from Fico on Interblue will likely
embolden the PM's opponents. With the press already beginning
investigation of another scandal related to a public tender for
coal waste processing, the spotlight should be particularly
bright on Jan Slota's SNS and the Environment Ministry it leads
according to the coalition agreement. The next casualty could
be Tursky as Fico is reportedly considering the Environment
Minister's dismissal this week. END COMMENT.
EDDINS