SLOVAKIA: FICO'S FAILURE TO RESOLVE INTERBLUE CO2 TRADING

C O N F I D E N T I A L SECTION 01 OF 02 BRATISLAVA 000474

SIPDIS

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

E.O. 12958: DECL: 11/9/2019
TAGS: PGOV PREL KCOR SENV ECON LO
SUBJECT: SLOVAKIA: FICO'S FAILURE TO RESOLVE INTERBLUE CO2 TRADING
SCANDAL RAISES SUSPICIONS

REF: A. BRATISLAVA 462

B. BRATISLAVA 195

BRATISLAVA 00000474 001.2 OF 002


CLASSIFIED BY: Keith Eddins, Charge d'Affaires, a.i..
REASON: 1.4 (d)

1. (C) SUMMARY: A failure to resolve the Interblue CO2 permit
scandal has prompted widespread suspicion that PM Robert Fico's
Smer political party was deeply involved in the corrupt sale,
which may ultimately cost Slovakia hundreds of millions of Euros
in lost revenue. Although Fico has tried--with a good deal of
success--to lay blame for the scandal entirely on coalition
partner Slovak National Party (SNS),his waffling on whether to
cancel or even investigate the unfavorable contract in spite of
the government's deteriorating fiscal situation has caused even
some allies to question his motives. Post has repeatedly
informed officials at different levels of government that U.S.
law enforcement authorities would likely view favorably any
request for assistance in investigating the U.S.-registered
Interblue Group. The Slovak government has yet to respond to
this offer. END SUMMARY.


CLEANING THE STABLES


2. (SBU) Despite more than six months of intense media scrutiny,
no one knows for sure who was behind the Interblue Group deal,
in which the obscure U.S.-registered company received the right
to buy Slovakia's permits for 50 to 85 million tons of CO2
emissions through 2012 at a steep discount from market value.
Fico, who all along has sought to blame it on SNS officials at
the ministry, seemed to lose patience with the scandal in
August, when he fired his third Environment Minister in a year
and dispatched Deputy PM Dusan Caplovic to clean up the ministry
and investigate the contract. Even though Caplovic has ended
his stint at the ministry (ref a),his overdue investigation
report has not been released. Caplovic recently told the media
that he believes many documents surrounding the sale were
destroyed shortly after he arrived at the ministry, implying
that a conclusive report is unlikely.


3. (C) Caplovic also backed away from his initial pledge to
cancel the Interblue contract. Within weeks of taking over the
ministry, Caplovic started saying that it might be too late to
undo last winter's sale of permits for 15 million tons of
emissions. He recently went even further by asserting that the
government has "no legal means" to cancel options granted
Interblue for future years, meaning that the contract would have
to be honored in its entirety. This claim has met with
widespread skepticism, and local newspapers have quoted numerous
contract lawyers disputing Caplovic's position. Moreover, Trend
magazine reporter Kristian Slovak (protect) told us that as of
early October, no one from the ministry had even spoken with
Interblue in several months, calling into question Fico's
assertion that he places a high priority on canceling the
contract.


4. (SBU) Interblue exercised its option to buy permits for an
additional 8 million tons of emissions last month, a move
greeted with silence by the government until it was reported in
the media last week. Fico declared on Saturday, November 7,
that no more permits will be sold to Interblue, but he has
waffled on this issue before. The same day, a Slovak newspaper
reported that a mid-October letter to Interblue from Environment
State Secretary (i.e., Deputy Secretary) Miroslav Sebek assured
the company that it need not worry about media reports
suggesting the government would not uphold the contract.


SUSPECTED SMER INVOLVEMENT


5. (C) Journalists and opposition figures have long asserted
Smer involvement in the Interblue scandal. Vladimir Tvaroska,
Finance Ministry State Secretary under the Dzurinda government,
told us that Fico has always known far more about the deal,
which was approved by his cabinet, than he publicly admitted.
Tvaroska described an early March meeting of the Economic Crisis
Council--which took place before the Interblue deal was first
reported publicly--where Fico angrily defended the contract for
20 minutes after Tvaroska suggested it be renegotiated to raise
funds for economic stimulus.


6. (SBU) In recent days, however, even members of the ruling
coalition have publicly pointed a finger at the Prime Minister.
Miroslav Jurena, an MP from the HZDS political party who likely
still carries a grudge after being fired from Fico's cabinet in
2007, said in a television interview last week that he is
troubled by reported connections between Interblue and Fico,
without specifying what these connections are. Fellow HZDS MP

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Milan Urbani asserted that Smer has shown by its inaction that
it clearly has no interest in ending the contract. While their
provocative comments were assuredly made for political reasons,
they also reflect a growing perception amongst the political
elite that Caplovic's failure to cancel or even modify the
Interblue deal is an indicator of Smer involvement.


7. (C) Trend magazine's Slovak, who has broken much of the news
surrounding the scandal, told us that while the emissions deal
was likely an SNS project in the beginning, there are
indications that Smer officials have subsequently gotten
involved. Slovak told us that SNS appointees Peter
Solcansky--former Chief of the Military Intelligence
Service--and Pavol Tehlar arranged the contract from inside the
ministry, after being approached by Norbert Havalec, a notorious
Slovak arms dealer who was acting as an informal adviser to the
ministry. Slovak believes that Havalec was working on behalf of
two Czech businessmen, Dalibor Musil and Adam Donocik, who
allegedly had ties to the Communist-era secret police.
Rastislav Kacer (protect),the former Slovak Ambassador to the
U.S., told us previously that Havalec had complained to him that
while he had, indeed, helped set up the Interblue deal, he
hadn't been paid well enough to be willing to take the blame for
it in the media. Solcansky and Tehlar were both fired from
their ministry jobs by Caplovic in September, but not before
Tehlar was appointed to a lucrative sinecure on the board of the
Recycling Fund.


8. (C) According to numerous sources, none of the various
Environment Ministers had much to do with orchestrating the
deal--rather, they were all following orders from above. It is
widely held that the first minister, Jaroslav Izak, was forced
out in July 2008 largely because he was resisting some aspect of
the deal. Slovak told us that Izak's successor, Jan Chrbet,
knew so little about Interblue Group that he conducted all of
his meetings with the company's representative, Jana Luetken,
through a interpreter--apparently not aware that Luetken, a
Swiss citizen, speaks fluent Czech.


9. (C) There has been considerable speculation in the Slovak
press that the FBI is investigating the Interblue Group. Our
contacts believe that the recent registration of Interblue
Europe in Switzerland is an effort to move the company beyond
the FBI's reach. In separate meetings over the past few months,
we have informed Deputy PM Caplovic, then-Minister of
Environment Viliam Tursky, and State Secretary (and Smer party
member) Sebek, that if the Slovak government wants to ensure a
USG investigation, they need only to request our assistance.
While our interlocutors have professed interest, we have as yet
received no requests for help.


EMBASSY COMMENT


10. (C) The Interblue scandal has now directly or indirectly led
to the sacking of three Environment Ministers, as well as Fico's
violation of the coalition agreement by wresting control of the
ministry from SNS. In addition, it now seems possible that the
contract will end up costing Slovakia hundreds of millions of
Euros in revenue over the coming years. In this context, Fico's
failure to do anything aside from firing a few SNS officials
raises many questions. Multiple sources have told us they
expect that Fico will eventually order the deal canceled, which
will almost certainly result in Interblue suing the government
in Slovak court. In such an event, they all expect Interblue to
prevail--not necessarily because it has the superior legal case,
but because they expect Slovak officials to ensure that their
friends at Interblue win the lawsuit. This would not be the
first time that Slovak courts have enforced corrupt contracts
that are no longer politically viable, setting up a win-win-lose
scenario: the government gets credit for cancelling the deal;
the company still gets paid; and the Slovak taxpayer gets stuck
with the final bill.
EDDINS