AMBASSADOR WARNS EDISON ON ITS IRAN PROJECT

C O N F I D E N T I A L SECTION 01 OF 02 ROME 001110 NOFORN SIPDIS DEPT FOR EEB DAS HENGEL DEPT FOR SPECIAL ENVOY MORNINGSTAR E.O. 12958: DECL: SEPTEMBER 28, 2019 TAGS: ECON ENRG IR IT SUBJECT: AMBASSADOR WARNS EDISON ON ITS IRAN PROJECT REF: A. A) ROME 1035 B) ROME 928 ¶B. C) 09/10/2009 WOHLAUER'S EDISON'S NEW LINE ON THEIR IRAN OPERATIONS EMAIL ¶C. D) 09/17/2009 WOHLAUER'S EDISON MEETING EMAIL ¶D. E) 08 ROME 247 ¶E. D) 08 SECSTATE 16620 ROME 00001110 001.2 OF 002 Classified By: DCM Elizabeth Dibble for reasons 1.4b and d ¶1. (C/NF) Summary: Ambassador Thorne told Edison CEO Quadrino that his operations in Iran are helping the Iranian regime and seriously damaging his company's image in Washington. The Ambassador noted that the USG supports Southern Corridor Caspian gas projects such as Edison's TGI, but he warned Quadrino that Washington now associates Edison more with Iran than with Southern Corridor projects. Quadrino was clearly shaken by the Ambassador's message and pledged to seek ways to meet our Iran-related requests. Earlier in the conversation Quadrino had asked for U.S. support on the TGI pipeline. Edison's continuing Iran effort calls into question the effectiveness and sincerity of GOI "moral suasion" efforts. End Summary. IRAN -------------- ¶2. (C/NF) On September 24, Ambassador Thorne delivered a stern complaint about Iran to Edison CEO Umberto Quadrino. Under a January 2008 agreement with Iran, Edison has been conducting exploration activities in the Dayyer off-shore block in Iran. Despite our earlier objections to this deal (Ref E) and recent GOI claims to have exerted "moral suasion" on this project, the company has repeatedly said that the Dayyer project will continue. When the Ambassador broached the Iran issue, Quadrino's first statement was that Edison was committed to continue exploration (drilling) in the Dayyer block in 2009 and 2010. Quadrino said Edison is very interested in this block, and thinks that the presence of large hydrocarbon deposits worth billions is very likely. ¶3. (C/NF) The Ambassador replied to Quadrino that his company is damaging our efforts to maintain pressure on Iran. The Ambassador said that the company's refusal to back-off from its Iran project is also becoming a point of friction between Washington and Rome. The Ambassador told Quadrino that its Iran project is damaging Edison's reputation in Washington; the company is increasingly associated more with Iran than with Southern Corridor Caspian projects. Put on the defensive, Quadrino sought to justify Edison's presence in Iran by stating that the company has to fulfill the 2008 exploration contract or else it will incur stiff penalties. Quadrino also portrayed his company as no different than other foreign energy companies that have contracts in Iran. He cited Italian energy parastatal ENI, among others. Quadrino claimed that Edison had already walked away in 2007 from a bigger $5 billion Iran contract on the South Pars gas field, and that by comparison the $30 million Dayyer contract is significantly smaller. (Note: Quadrino was exaggerating here. He had earlier told us that the South Pars project had never moved beyond the "conversation stage.") Quadrino stated that if Edison gives up its Dayyer contract it will be "out of Iran." Almost in desperation, he emphasized that Edison only plans to finish this exploration contract and then hold-off developing the Dayyer field for a few years until "the situation in Iran improves". The Ambassador countered that Edison should be more concerned about the repercussions its continued operations in Iran will have with Washington. The Ambassador also pointed out that what sets Edison's Dayyer operations in Iran apart from the projects of other energy companies there is that we asked Edison from the very beginning not to undertake this contract. Quadrino, who was visibly uncomfortable at this point, said that he would consult internally with company headquarters on the possibilities of delaying Edison's Iran operations to at least partially met our demands. TGI NOW, NABUCCO LATER -------------- ¶4. (C/NF) Earlier in the meeting, Quadrino had made the case for Edison's TGI gas pipeline project, and he asked for USG ROME 00001110 002.2 OF 002 support. Quadrino told the Ambassador that TGI is a more feasible than Nabucco. He said Nabucco could be built "later." Quadrino cited TGI's use of existing pipeline infrastructure through Turkey and Greece, lower Azerbaijan source gas requirements (at least 7 bcm/yr versus Nabucco's 30 bcm/yr),and lower cost as key reasons why TGI could be build before Nabucco. Quadrino explained that of the 12 bcm/yr of Azerbaijan gas that would be available, Turkey wants to keep 3 to 5 bcm/yr, while the rest of the gas would be enough for TGI. Quadrino said Nabucco would, on the other hand, need other sources of gas from Iraq, Turkmenistan or Iran that would not be available until at least ten years from now. On the cost issue, Quadrino explained that the only new pipeline infrastructure that TGI would need is the Adriatic crossing from Greece to Italy at a cost of about $500 million Euros. Of this, Quadrino said the EU is already contributing 100 million Euros, so that the actual cost of building TGI would be 400 million Euros. By comparison, he said Nabucco would cost billions of Euros. Quadrino thus concluded that TGI can be launched now based on the gas available and lower cost, but that Nabucco must wait until the larger gas volumes it needs become available. Quadrino asked for USG assistance on the Turkey-Azerbaijan negotiations over gas volumes and transit. Quadrino said that Italian Economic Development (and Energy) Minister Scajola will to Turkey in October to try to obtain Turkish cooperation on TGI. COMMENTS -------------- ¶5. (C/NF) The Edison case calls into serious question the effectiveness and sincerity of Italian government "moral suasion" on Iran. To recap: on August 28, the Italian Embassy in Washington cited Edison as an example of GOI "moral suasion." Post checked with the company and discovered that Edison's only project in Iran, the Dayyer block exploration, had not been halted. On September 3, U/S Burns raised the Edison case with NSA-equivalent Bruno Archi, who pledged to "take care of it." On September 10, Edison CEO Quadrino met with CONGEN Milan staff and said he planned on continuing the project, and that there had been no recent messages from the GOI regarding Edison's Iran project. Quadrino said that successive GOI governments of both the left and the right had told him to maintain a presence in Iran in order to be in position should relations with that country improve. On September 16, Quadrino met with the U.S. Consul General in Milan. He made no mention of any pressure from the GOI, and said the Dayyer project would continue. On September 18, Ambassador Thorne raised the Edison case with PM Berlusconi, who dismissed the possibility that Edison would continue with the project. On September 24, Quadrino opened his Iran discussion with the Ambassador by stating that the company intended to continue with the Dayyer exploration project. ¶6. (C/NF) We hope that Ambassador Thorne's September 24 warning will give Quadrino pause, but in light of the above noted pattern of intransigence, we would not be surprised if he continues with his Iran project. Quadrino and Edison may have the idea that our desire to see Southern Corridor projects go forward somehow makes the USG willing to overlook Edison's Iran activity. We think this meeting with the Ambassador helped disabuse them of that notion, and we recommend that Washington officials deliver similar messages about the damage that the Iran project is doing to Edison's reputation. Ambassador Thorne recommended that Quadrino meet Ambassador Morningstar in order to get a better appreciation of USG views. Quadrino agreed that such a meeting would be beneficial. Post thinks such a meeting would help to discourage Edison from continuing its Iran project while encouraging the company's useful Southern Corridor endeavor. THORNE