Nabucco-Turkey Progress - OMV Uncertain On IGA Timeline,

UNCLAS VIENNA 000595 SIPDIS, SENSITIVE E.O. 12958: N/A TAGS: ENRG PGOV BEXP AU SUBJECT: Nabucco-Turkey Progress - OMV Uncertain On IGA Timeline, Unhappy With Premature Reporting REF: (A) VIENNA 408 AND PREVIOUS ¶1. (SBU) SUMMARY: Following media reports that an Intergovernmental Agreement (IGA) on the planned Nabucco Pipeline is imminent, OMV and Nabucco contacts appear more optimistic but are concerned about media speculation and caution that not all IGA issues have been resolved. END SUMMARY. (NOTE: the Guardian and other media outlets reported in mid-May that consortium members had reached a breakthrough with Turkey on transit terms and that the IGA would be signed on June 25 - END NOTE). ¶2. (SBU) Nabucco Company Spokesman Christian Dolezal (formerly of OMV) told us that consortium members are pleased with the "decisive progress" at the May 8 energy summit in Prague, but said it?s too early to confirm the widely reported date (June 25) for signing an intergovernmental agreement and disputed ?exaggerated? reports of a comprehensive breakthrough. Dolezal expressed concern about the potential negative impact of the recent reporting with regard to Turkish political sensitivities. It is "counterproductive" to say publicly that Turkey ?accepted all EU conditions" because such reports imply Turkish capitulation, making the pipeline harder to sell within Turkey. Dolezal hoped any public relations damage within Turkey would be limited and not delay full Turkish agreement on Nabucco participation. ¶3. (SBU) Striking a more positive note, our OMV contact expects strong interest by financial institutions (including export promotion agencies and commercial banks) to participate in the Nabucco pipeline. Nabucco consortium companies would contribute one third of the project?s estimated EUR 7.9 billion cost -- and the European Investment Bank/EIB 25% -- with the rest coming from other banks and investors including export banks. The Nabucco consortium will formally approach financiers next year, he said (NOTE: we know from banking contacts in Vienna that OMV made informal approaches to commercial banks in 2008 or earlier - END NOTE). Investors can expect a high rate of return on their investments. Dolezal noted interest from Japanese and Chinese manufacturers and financiers and said much of the steel will probably come from East Asia (but also from European makers). ¶4. (U) In a press interview, Nabucco CEO Reinhard Mitschek (who recently resigned as an OMV executive to concentrate on the Nabucco Company) expects the gas price in the Central Asian region to soar. The gas price in Turkmenistan has already doubled over the last 18 months, he said. Mitschek concluded: "Even if Nabucco cannot exhaust its full potential (of 31 bcm/year),gas trading through this pipeline will be a very profitable business." COMMENT: Looking Ahead to Nabucco Commercial Opportunities - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶5. (SBU) While there is still no certainty that Nabucco will be built, consortium staff appear more confident in looking ahead to commercial and engineering details, especially now that Nabucco has EUR 200 million in European Union funds to spend on start-up costs. Post will look for ways to promote commercial participation by U.S. companies in the significant procurement opportunities that Nabucco would entail. END COMMENT. ORDWAY