OPEN LETTER REACTION PART II: CZECH POLITICAL AND

C O N F I D E N T I A L SECTION 01 OF 04 PRAGUE 000475 SENSITIVE SIPDIS E.O. 12958: DECL: 08/13/2019 TAGS: PGOV ECON PREL ENRG EPET EUN EZ RU SUBJECT: OPEN LETTER REACTION PART II: CZECH POLITICAL AND ECONOMIC LEADERS CLOSELY WATCH HOW RUSSIA WIELDS INFLUENCE REF: A. PRAGUE 468 ¶B. 08 PRAGUE 623 Classified By: Charge Mary Thompson-Jones for reasons 1.4 (b) and (d). ¶1. (SBU) Summary: The Czechs have a multi-faceted relationship with Russia which varies according to the issue, as well as the fora involved (whether NATO, the EU, or on a bilateral basis). As the July 16 open letter to President Obama from Central European leaders illustrates, many in this region retain deeply-rooted suspicions of Russian aims. Yet this is not a view shared by all Czechs, some of whom simply view Russia with a level of ambivalence and skepticism (with which they treat all superpowers). When it comes to security issues, almost all Czech politicians, except for the unrepentant Communists, continue to view NATO and (to a lesser extent) EU membership as their first line of defense and/or collective action. Many Czechs also pay close attention to the country's (and Europe's) reliance on Russian energy supplies. The gas crisis this past winter, as well as the conflict in Georgia last summer, have sharpened Czech suspicions of Russia's intentions toward its neighbors and its reliability as an energy supplier. Nonetheless, there are modest (but growing) trade ties between Russia and the Czech Republic and all major Czech political parties are interested in what they see as the potential of Russian markets. End Summary. -------------- Russian Economic Engagement in Strategic Industries -------------- ¶2. (SBU) Many of our Czech interlocutors continue to raise concerns about Russian investment in the Czech Republic, and throughout the region, especially in the strategic energy, media and transportation sectors. Over the past several years the center-right Topolanek government intervened several times to prevent key Czech assets from falling into Russian hands. Last summer the Czech government successfully lobbied the owner of the Czech publishing house Ekonomia not to sell to a suspected Russian front company (registered in Dominica),out of fear that the Russians could try to use Ekonomia's publications to manipulate Czech public opinion (Reftel). In the end, Ekonomia was bought by a wealthy Czech investor, Zdenek Bakala. ¶3. (C) Czech concerns about Russian influence also extend to the air transport sector. Earlier this year the government disqualified Aeroflot from the privatization tender for Czech Airlines. No official reason was ever given, although the decision was widely attributed to concerns over the Czech Republic's national security interests and Aeroflot's reputation for poor quality service. Many observers have also raised concerns in the press over possible Russian participation in the planned privatization of Prague's Ruzyne Airport. Kunovice airport, a relatively small airport in Southeastern Moravia, is owned by Russian oligarch Iskander Machmudov. -------------- Czechs Perceive Energy as Emblematic of How Russia Attempts to Wield Influence -------------- ¶4. (C) Czech concerns, however, have been most pronounced in the energy sector. The Russian construction company OMZ already owns Skoda JS, the Czech Republic's leading nuclear engineering and supply firm. The Russian company AtomStroyExport is expected to compete with Westinghouse and the French Areva to win the semi-state electricity company CEZ's tender to build up to five new nuclear power plants in the Czech Republic and Slovakia (potentially worth as much as USD 25 billion). MFA Energy Envoy Bartuska told us that he had been very involved in lobbying Conoco-Phillips in 2007 to sell its share in Ceska Rafinerska, which runs the Czech Republic's two largest oil refineries, to Unipetrol (owned by the Polish PKL-Orlen),rather than to the Russian Lukoil. Czech MFA officials have raised concerns to us that PKL-Orlen's financial troubles could now give Lukoil an opening to gain partial control over the Czech Republic's oil refineries (e.g. Unipetrol might sell its stake to Lukoil). Shell is also reportedly considering selling its share of Ceska Rafinerska. Lukoil has bought dozens of filling stations in the Czech Republic, supplies part of Prague airport's fuel needs and has announced its intent to significantly expand its presence in the country. Some Czechs are also concerned that the German RWE Transgas could sale its ownership of the Czech gas pipeline system to Gazprom. Bartuska told us that he has been trying to educate Social Democratic (CSSD) politicians to the dangers of PRAGUE 00000475 002 OF 004 Russian ownership of Czech energy assets in case CSSD ends up playing a signficant role in the next coalition government. ¶5. (SBU) The weekly "Respekt" ran an article August 3-9 using the Obama letter to focus attention on Russia's attempts to achieve influence. It cited an internal NATO study which referenced Putin as having "repeatedly said in public that gaining control over resources and transportation routes for oil and gas can be used as an instrument to obtain political goals and prevent Europe from diversifying." Such comments help explain why Russian actions during the January gas crisis further strengthened Czech resolve to advance EU discussions on energy security. Indeed, during the EU presidency the Czechs leveraged the recent gas crisis to make progress on the diversification of sources and routes, including Nabucco and the Southern Corridor, and increasing the interconnectivity of the EU's internal gas and electricity networks. ¶6. (C) This incremental progress does not change the fact that Czech officials feel they (and the rest of the EU) must remain vigilant. The Czech Republic is dependent on Russia for roughly 70 percent of its gas, 65 percent of its oil, and (starting in 2010) 100 percent of its nuclear fuel. Thanks to the construction of the Ingolstadt-Kralupy-Litvinov (IKL) pipeline in 1994, the Czechs were able to weather disruptions to the flow of Russian crude oil - ostensibly for technical reasons - following the July 2008 signing of the U.S.-Czech Ballistic Missile Defense Agreement. These disruptions lasted through December. Similarly, connection to the German gas network and the highest gas reserves in the EU per capita, allowed the Czech Republic to survive Russia's January 2009 cut off of gas to Europe via Ukraine. MFA Energy Envoy Bartuska commented to the weekly "Respekt" that "the Kremlin will want influential Czech companies, such as CEZ and PPF, that are heavily invested in Russia, to influence Czech Foreign Policy to the benefit of Moscow's interests, in exchange for the protection of their investments in the East." Russian ownership of Czech assets, while limited, is growing and includes Skoda J.S. and two steel mills. Imports from Russia, excluding oil and gas, have grown from USD 900 million in 2005 to USD 1.6 billion in 2007. Exports to Russia have also grown, more than doubling between 2005 and 2008 from USD 1.4 billion to 4.0 billion. (By way of comparison, Czech exports to Germany were USD 44.9 billion in 2008 and imports from Germany were USD 38 billion). -------------- NATO as Czech's Pre-eminent Line of Security Defense -------------- ¶7. (SBU) Czechs from all political leanings (except for the unrepentant Communists) believe strongly in the benefits of collective security. As noted in the July 16 letter to President Obama from Central European leaders, "It is the only credible hard power security guarantee we have." MFA Security Policy Deputy Director Petr Chalupecky acknowledges that with such a small military and given the Czech history of occupation, NATO figures prominently in all of the Czech Republic's security policy planning. Czech MFA officials worry, however, about the ability of the NATO alliance to respond effectively in a crisis, and like the Balts and other Central Europeans, Czech officials remain leery of Russian intentions toward NATO. -------------- Czech Preference - Strengthen NATO -------------- ¶8. (SBU) Echoing the sentiments of the letter to Obama, MFA North and East Europe Director Daniel Kostoval commented that Russians have a talent for playing NATO allies against one another, and the Czech MFA fears this could cause a future split in the alliance. Chalupecky, who will become the Czech DCM to NATO this winter, would like to see NATO take concrete "deterrent" steps collectively to signal to Russia that it cannot act belligerently, particularly toward Russia's neighbors. As noted in the letter from Central European leaders, they believe that this "should include contingency planning, pre-positioning of forces, equipment and supplies for reinforcement in our region in case of crises as originally envisioned in the NATO-Russia Founding Act." Chalupecky noted that the Czechs particularly support the idea of more contingency planning as well as the possibility of NATO infrastructure, such as warehouses on the territory of one of the Baltic states. -------------- The Back Story on the Letter to Obama -------------- ¶9. (SBU) Touching upon the genesis of this letter to Obama, PRAGUE 00000475 003 OF 004 the drafters commented in "Respekt" that they believe there is a weakening of NATO and decreasing popularity of the U.S. in this region. Thus, they fear that the U.S. will lose its "champions" in the region, if something is not done to increase our engagement. MFA North and East Europe Director Kostoval echoed to us this sentiment and noted that Central Europeans feel a growing disengagement by the U.S. with Central Europe at a time when many would like to see precisely the reverse. According to Kostoval, this is a key reason why Czech officials continue to seek opportunities to consult regularly with U.S. officials and would like to cooperate on concrete projects in third countries, particularly in countries between the EU and Russia. -------------- Accurate Reflection of Central European Sentiment? -------------- ¶10. (C) It is important to keep in mind that the drafters of this open letter, while significant and respected figures in their respective countries, do not necessarily represent the views across the spectrum of political parties. Indeed, in the Czech Republic the left-of-center Social Democrats (CSSD) are the second largest party in the country, and their views of Russia are typically less security-oriented and more focused on the positive benefits of economic engagement with Russia. (Nevertheless, MFA Energy Envoy Bartuska told us that the government's decision to disqualify Aeroflot from the Czech Air tender had been partly driven by CSSD officials.) Thus, in order to get a more balanced sense of the broad sentiments of key politicians and economic figures, the Charge hosted a roundtable discussion on August 11 with a range of Czech opinion leaders. There was a lively debate about whether the views in this letter to Obama accurately reflect the views of Central Europeans. Some, such as CSSD Parliamentarian and head of the Foreign Affairs Committee Jan Hamacek, believe the authors of the letter are "former leaders" and more accurately reflect the views of the region in the 1990s, not today. Coca Cola Communications Director Zdenek Vilimek also noted that the letter "overestimates our (Central European) strategic importance; things are different now." Contrary to those that wrote the letter, Hamacek would not agree that Russia endangers Central Europe. He also believes that U.S. engagement with Russia does not weaken the NATO alliance, but helps to strengthen it and he cited the example of Russian assistance in Afghanistan benefiting NATO. -------------- Missile Defense Implications -------------- ¶11. (C) As noted in the July 16 letter to Obama, "regardless of the military merits of this scheme and what Washington eventually decides to do, the issue has nevertheless also become -- at least in some countries -- a symbol of America's credibility and commitment to the region." Interestingly, even those who do not subscribe to the views of the authors of the letter to Obama are in agreement that Missile Defense is very much viewed now as a symbol/bellwether of USG commitment to the region. Former Slovak Ambassador to the U.S. commented to Respekt that the American presence has meant a certain kind of intellectual leadership, and noted that this "helped us several times in the last 80 years." He goes on to state that the freezing of the Missile Defense deployment plan is a clear symbol of U.S. disengagement from this region. Masaryk University Professor (and MD supporter) Petr Suchy took this one step further and told the Charge that if the U.S. drops Missile Defense it will not only make the public feel "abandoned" by the U.S., but he fears that Russia will once again "feel free to play geo-strategic games" in this region. CSSD leader Jiri Paroubek actually launched the radar talks with the U.S. when he was PM. CSSD's opposition to missile defense comes not from conviction, but from political expediency. Polls consistently show two-thirds of Czechs oppose the radar, although the intensity of Czech opposition is low. Czechs are much more concerned about every day pocket book issues. Part of CSSD's parliamentary faction would vote in favor of the radar if party discipline were not applied. Hamacek told us that the CSSD was currently not planning to make missile defense an issue in the October 9-10 parliamentary elections. ¶12. (C) Comment: The authors of the open letter to Obama do not speak for everyone. Many in the Czech Republic, and especially within CSSD, have a more nuanced view of Russia. Nevertheless, there are several areas where the letter's authors have usefully illuminated Czech thinking: 1) Czech officials pay close attention to how Russia wields influence and are generally suspicions of Russian aims; 2) all Czech political parties (minus the Communsists) support a strong NATO alliance; and 3) many Czechs, regardless of party PRAGUE 00000475 004 OF 004 affiliation, now believe that Missile Defense has come to be seen as a de facto bellwether of U.S. commitment to the region. End Comment. Thompson-Jones