EU'S CASPIAN DEVELOPMENT CORPORATION

UNCLAS SECTION 01 OF 02 STATE 002532

SENSITITVE BUT UNCLASSIFIED

E.O. 12958: N/A
TAGS: CR ENRG EPET EU TK
SUBJECT: EU'S CASPIAN DEVELOPMENT CORPORATION

SUMMARY
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1. (SBU) The European Commission (EC) has proposed the
creation of the "Caspian Development Corporation (CDC),"
which it believes will accelerate Caspian natural gas and
infrastructure development, specifically from
Turkmenistan. The Commission has proposed an expedited
World Bank feasibility study on the CDC and related
concepts. The Commission has requested that the U.S.
actively support their request for a World Bank
feasibility study and the Deputies Committee has
considered the idea and approved. Posts, particularly
USEU, Embassy Ankara and Embassy Prague, may draw on the
points below in Para 5 to communicate U.S. support for a
feasibility study on the CDC concept.

BACKGROUND
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2. (SBU) The European Commission (EC) has proposed the
creation of the "Caspian Development Corporation (CDC),"
which it hopes will accelerate Caspian gas and
infrastructure development by aggregating gas demand from
European buyers and presenting Turkmenistan - and possibly
other producers - with a single credit-worthy European
client. The Commission hopes that a single buyer
providing demand and price guarantees will encourage
upstream development and the construction of transport
infrastructure across the Caspian. The CDC will need to
comply with EU competition regulations or receive a
derogation. Additionally, the CDC can set a precedent for
EU Member States unifying their negotiating efforts to
strengthen their bargaining leverage with Russia's
Gazprom.


3. (SBU) European and U.S. companies say that, if
structured correctly, the CDC could encourage upstream
development of Turkmenistan's substantial gas resources
and the construction of the necessary infrastructure to
move gas across the Caspian westward. Companies do not
anticipate that the CDC, as currently envisaged, would
negatively impact their upstream projects in the Caspian
region. However, U.S. firms have expressed concern about
the level of governmental involvement in the CDC and want
to ensure that European companies do not receive any
privileged status and that the CDC does not become a means
for subsidized or preferential sales into the European
market.


4. (SBU) The EC is proposing an expedited World Bank
feasibility study to examine options to better coordinate
Europe's efforts to promote Caspian gas production and
infrastructure development, including the creation of the
CDC. If the CDC concept is confirmed, the study would
further develop the concept, including its actual
structure and financing. The Commission has asked Turkey
to request the study, which the European Investment Bank
would then fund. Despite the fact that studies do not
need formal U.S. approval, the European Commission has
requested active U.S. support for a World Bank study.

TALKING POINTS
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5. (SBU) Agencies and Posts - particularly USEU, Embassy
Ankara and Embassy Prague - may draw on the following
points to communicate U.S. views on the CDC concept:

-- We support efforts to promote Europe's energy security
through the diversification of energy supplies.

-- We support efforts that will encourage Turkmenistan and
other Caspian countries to develop their gas reserves and
send them to Europe through a Southern Corridor for gas.

-- The United States supports the European Commission's
proposal for an expedited World Bank feasibility study to
examine, define and refine the CDC concept and/or a
similar concept that enhances coordination. We have
expressed our support to the World Bank.

-- The proposed World Bank study could help guide the CDC
concept and ensure it supports Commission goals without
impeding private sector resource development.
-- Free market forces and the private sector should be the
primary means through which gas is produced, transported
and purchased. Accordingly, we urge the Commission to
follow through on its stated commitment to include the
private sector in the CDC initiative from start to finish,
ensuring the CDC affirms transparency, competition and
market mechanisms. We must be mindful of this being a
substitute for commercial activity.

-- EU and international firms that choose not to
participate in the CDC should in no way be discriminated
against in competing for natural gas resources. The CDC
should not be a mechanism for selling gas on a subsidized
or preferential basis.

-- We cannot not support CDC if it becomes directly
involved in upstream development, as private companies
with the financial, technical and operational expertise to
bring new resources online are best positioned to
accomplish develop energy resources. The Commission
should stress to Turkmenistan the need for private
upstream investment.

-- We welcome updates on the CDC study and look forward to
cooperating with the EC on improving European energy
supply diversification and development of a Southern
Corridor for energy.
RICE