RUSSIAN ENERGY CHARTER PROPOSAL: NO RESPONSE

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 001120 SIPDIS DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT, AND FOR S/EEE MORNINGSTAR AND NESHEIWAT DOE FOR HEGBURG, EKIMOFF DOC FOR JBROUGHER NSC FOR MMCFAUL, JELLISON E.O. 12958: DECL: 04/30/2019 TAGS: EPET ENRG ECON PREL RS SUBJECT: RUSSIAN ENERGY CHARTER PROPOSAL: NO RESPONSE NEEDED FOR NOW Classified By: Ambassador John R. Beyrle for Reasons 1.4 (b/d) -------------- Summary -------------- ¶1. (C) President Medvedev issued on April 21 a "Conceptual Approach to the New Legal Framework for Energy Cooperation," putting down on paper the GOR's ideas for, in effect, a new global Energy Charter Treaty, replacing the existing European Energy Charter Treaty (ECT),which Russia has signed, but not yet ratified. Russia has long-simmering legal interests behind its document; however, we believe the initiative stems less from a desire for a new legal framework than from a GOR desire that Russia be (or be perceived to be) an "equal player" in international relations. While the principles offered in the Russian document do not appear particularly problematic per se, opening new negotiations on such a complex topic appears fraught with difficulty. Therefore, we see no reason, for now, for us to respond to the proposal formally. However, we do recommend a visit by Ambassador Morningstar to follow up on his discussions in Sofia. End summary. -------------- "A NEW SYSTEM OF ENERGY INSTRUMENTS" -------------- ¶2. (SBU) Seeking a "new universal international legally binding instrument" to cover "all aspects of global energy cooperation," the Kremlin issued (and sent to all G-20 members) on April 21 a paper outlining its ideas for such an instrument. While not explicitly suggested by the Kremlin, such an instrument would ostensibly replace the existing ECT, which provides the legal framework for trade and investment in the energy sector among the XX parties to the treaty. The document is not a formal proposal in itself, but instead a broad blueprint of what a future Russian proposal might look like. ¶3. (SBU) In general terms, the document covers similar themes as the existing ECT and the G8 St. Petersburg Energy Principles -- open energy markets, sovereignty over national resources, transparency, energy efficiency, etc., but it does not propose detailed language on any particular topic. Furthermore, the document contains some potentially problematic language such as on the preference for diplomatic over legal channels in dispute resolution, the desirability of "coordination" of supply and demand, and the "promotion of mutual exchange of energy business assets." -------------- RUSSIAN CONCERNS ABOUT ECT -------------- ¶4. (SBU) The document also reveals some of the GOR's long-standing complaints and concerns regarding the existing ECT. It stresses "balance" between producing and consuming countries and "mutual responsibility" for global energy security. It suggests the ECT favors "certain categories of actors" (consuming countries) to the detriment of others (producing countries such as Russia). ¶5. (SBU) The wording of the paper and statements by Medvedev both before and after its release also illustrate the importance to Russia of transit provisions. In an unpublished April 23 paper, Dr. Andrei Belyi of the Higher School of Economics points out that Gazprom is specifically concerned that the dispute settlement mechanisms of the current ECT allow the conciliator to set interim tariffs while a dispute is being resolved. Giving this kind of power to an independent authority goes against the GOR's preference for political deals, promoting instead transparent legal mechanisms for resolving transit issues. As Belyi points out, the Kremlin's preference for "diplomatic over court channels to resolve conflicts," is clearly noted in the document. ¶6. (SBU) Furthermore, the GOR claims to be seeking to produce an agreement that could apply globally, including in Russia. MOSCOW 00001120 002 OF 003 Tatiana Mitrova, of the Energy Research Institute of the Russian Academy of Sciences told us April 27 she is "absolutely sure that Russia will never sign (sic) the 'Old Energy Charter'" and that it is now up to the EU to decide whether or not they want to work on a new document. In a speech during his April 20 visit to Helsinki, Medvedev made clear that Russia does not see itself bound by the current ECT. Moreover, PM Putin said in a news conference following his meeting with visiting Bulgarian PM Stanishev on April 28 that Russia is likely to withdraw its signature from the ECT. (Note: Although Russia has not ratified it, the ECT specifically obligates signatories who have not yet ratified the treaty to abide by its provisions; this "obligation" has been disputed by the Russians. End note.) -------------- UNLIKELY TO MOVE FORWARD -------------- ¶7. (C) Ulrich Weins (protect),head of the Energy, Transportation, Science, and Environment section at the delegation of the European Commission in Moscow told us on April 23 that the EC was studying the Russian paper and would be "happy to discuss it" with Russia. However, he added that he didn't "see it going anywhere." He pointed out that even if the Russians were to propose legal amendments to the existing ECT or to propose a new treaty altogether, "it would take ages," to reach consensus on the text among all the relevant parties. Belyi notes the same problem in his paper. He writes that a new EU-Russia agreement, requiring consensus among EU members, would be very difficult in the current political atmosphere, and that a new global energy treaty would be "even harder to achieve." -------------- MOTIVATIONS -------------- ¶8. (C) Russia's recent rhetoric in the international arena and comments by analysts suggest a combination of psychological, legal, and political factors also lie behind the GOR's proposed framework. Elements of the Russian leadership appear obsessed with ensuring that agreements and conventions to which Russia subscribes include "Russian" values and norms on an equal basis as the values and norms that the GOR often feels are being foisted upon it -- including ones it claims to support, such as transparency and open markets. "Russia in Global Affairs" editor Fyodor Lukyanov compared this proposal to Medvedev's European Security Treaty, as indicative of the Russian President's penchant for grandiose concepts, apparently formulated in the absence of any consultation with key Euro-Atlantic partners. ¶9. (C) Opposition politician and former Deputy Energy Minister, Vladimir Milov (protect) told us on April 29 that he thinks the Kremlin's paper is a "PR initiative... to show that Moscow has something serious in its pocket and is not just talking about energy security." He questioned why the Kremlin did not highlight any specific complaints about the existing ECT and he dismissed as "nonsense" the GOR position that the ECT doesn't treat producers fairly. ¶10. (C) As one western oil company executive noted to us recently, the GOR's offer of a new framework could also be Russia's way of reinforcing its position that the ECT does not apply to Russia. The GOR would have a strong interest in fending off any legal claims or challenges brought against it under the ECT. There are, for example, long-standing international court cases over the Yukos affair, which could have significant financial repercussions if the courts decide that the current ECT were to apply to Russia. ¶11. (C) Russia may also be trying to demonstrate that it is not opposed to rules-based norms of transparency and open markets. Belyi, noting the difficulty of reaching agreement on any new legal instrument, suggests in his paper that the document is more an attempt by Russia "to portray itself as a constructive partner on the international energy scene," than a practical solution to energy disputes. An Italian diplomat suggested to us that the document is largely a political MOSCOW 00001120 003 OF 003 statement and not a true proposal given that Russia could have put forth a more substantive legal document for consideration. The EC's Weins said he thought the document was meant to "deflect attention" from Russia, which "has been on the defensive," as an unreliable partner in the wake of the Ukraine gas crisis. Weins also noted that the fact the document was not directed specifically to energy partners, but to the entire G-20, demonstrates its political nature. -------------- COMMENT: NO RESPONSE NECESSARY -------------- ¶12. (C) The GOR's concerns about the ECT are long-standing. However we suspect the GOR's desire for a "new system" of energy cooperation is based more on psychological, political and legal motivations than from a real interest in producing a rules-based and transparent legal framework. It is an attempt to do away with another of what it sees as 1990s relics, like production sharing agreements, signed by the "old, weak" Russia. ¶13. (C) Unless pressed or specifically requested by the Russians to do so, Embassy recommends that we refrain from responding to this document for now. Assuming the EU does not present a major public response, it is likely that the Russian "proposal" will simply linger, but without any significant consequence. If the GOR were to become more serious about open markets, open investment regimes, and rules-based and market-based economic interactions, the outline offered by the Kremlin could be taken more seriously, despite its flaws. Encouraging movement on all these issues, of course, is still our primary objective, and we would welcome a visit to Moscow by Ambassador Morningstar (following up on his surprisingly positive discussion with Energy Minister Shmatko in Sofia) to that end. BEYRLE