This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 03 BRUSSELS 001154 
 
SIPDIS 
 
DEPT FOR EUR/RUS 
 
E.O. 12958: DECL: 03/28/2016 
TAGS: PGOV PREL ENRG EPET RS XH EUN USEU BRUSSELS
SUBJECT: EUR/RUS DIRECTOR WARLICK DISCUSSES ENERGY 
SECURITY, G-8, AND FOREIGN POLICY WITH EU OFFICIALS 
 
Classified By: POLCOUNS LEE LITZENBERGER FOR REASONS 1.4 (B,D) 
 
¶1. (C) Summary: The European Commission has three main 
priorities with Russia on energy: 1) Russian ratification of 
the Energy Charter Treaty; 2) third-party access to Russian 
pipelines and; 3) a reduction in state interference in the 
oil and gas sector.  On Belarus, Russian officials have told 
the EU  that they are "pressing ahead" with a Russia/Belarus 
Union State and  Russian presidential advisor Sergei 
Yastrzhembsky has said that Russia will raise gas prices for 
Belarus starting in early 2007, a move the EU thinks will 
test the Putin/Lukashenko relationship in the year to come. 
Expectations are low for energy security at the G-8 Summit, 
but Russian Energy Minister Khristenko had recently signaled 
to Commissioner Borosso that Putin intends to "give 
something" in this area in advance of the Summit..  Putin is 
reportedly pushing the EU on two energy initiatives: "market 
reciprocity" and nuclear energy.  The EU believes Putin wants 
Russia to be the nuclear fuel provider to the rest of the 
world and will push this theme at the G-8.  End Summary. 
 
Energy Security 
--------------- 
 
¶2. (C) In meetings with EUR/RUS Director Mary Warlick on 
March 23, EU Council and Commission officials discussed the 
challenges of energy cooperation with Russia.  EU Council 
Deputy Director-General for Policy Planning and Early Warning 
Helga Schmid said that in all her years working in the 
offices of successive German Foreign Ministers, the issue of 
energy security vis-a-vis Russia was never discussed.  That 
has completely changed now, she said, and everybody realizes 
that the EU needs more unification on 
energy policy.  However, the North European Pipeline is not 
the model for future projects, she said.  The challenge for 
the EU is to move internally on energy first while persuading 
Moscow of the need for Gazprom reform and infrastructure 
investment.  The issue of energy efficiency also needs to 
"sink in" with the Russians and there is a chance this topic 
will be discussed at the May EU/Russia Summit, Schmid said. 
 
¶3. (C) While the EU focus is on security of energy supply, 
Schmid said, the Kremlin raised the issue of security of 
demand in meetings with European Commission President Jose 
Manuel Barrosso during his March 16 trip to Moscow.  With the 
recently concluded deals on natural gas deliveries and oil 
cooperation reached during Putin's visit to China,  Carl 
Hallergard, EU Council Russia policy advisor, said he expects 
to hear the message from the Russians at the EU/Russia Summit 
that, "look -- we can sell to China too!"  Hallergard added 
that Gazprom wants EU Member States to commit "to buy a 
trillion cubic meters of 
gas for the next 150 years -- and then maybe Russia will 
build a pipeline."  This is not "how it works," Hallergard 
said, and negotiations on energy cooperation with Russia 
should not proceed with this mindset. 
 
¶4.  (C) Hugues Mingarelli, European Commission Director for 
Eastern Europe, Central Asia, and the Caucasus, said that, 
from the Commission's perspective, it has three main 
priorities with Russia on energy: 1) ratify the Energy 
Charter Treaty (even though Russia has consistently refused 
to do so); 2) ensure third-party access to Gazprom's 
pipelines (even though the Kremlin does not want to hear this 
message) and; 3) reduce state interference in the oil and gas 
sector.  Mingarelli commented, however, that he expects to 
see Russia use energy more and more as a foreign policy 
instrument.  He noted that EU Commissioner Borosso, in recent 
meetings with President Putin and others in Moscow, had 
pressed for a more predictable investment environment for 
investors in the oil and gas sector, but saw little hope for 
near-term progress  Mingarelli also expressed frustration 
with the Russian lack of willingness to engage in serious 
discussions on  an EU assistance initiative to de-commission 
Russia's dangerously obsolete 
first-generation nuclear reactors and replace them with 
newer, safer reactors.  He indicated that Russia only 
appeared interested in  finding way to extend the life of 
these obsolete reactors. 
 
¶5. (C) Schmid and Hallergard also indicated that there is an 
ongoing EU discussion on creating a regional electricity 
market with Europe for the countries of Eastern Europe, 
especially Moldova and Ukraine.  Such an initiative would 
more firmly anchor these countries in Europe, making them 
less vulnerable to disruptions by Russia.  They added that 
one of the biggest problems for Ukraine is energy efficiency; 
a proposed EU/Ukraine energy treaty, that would a framework 
for cooperation,  is currently under active consideration and 
will be on the agenda at the forthcoming EU/Ukraine Summit. 
Schmid said that she raises EU concerns about the 
Russia-Ukraine gas deal every time she talks with Ukrainian 
officials and believed that she had achieved some success in 
doing so, at least certain factions of the Ukrainian 
government. 
 
Russia's 'Neighborhood' Policy 
------------------------------ 
 
¶6. (C) Jukka Leskela, EU Council Head of Unit for East Europe 
and Central Asia, said he was "worried about Russia's 
neighborhood policy -- particularly regarding Transnistria." 
On Transnistria, Hallergard suggested that it was best not to 
react to Russian propaganda after the recent customs 
declaration implementation by the Ukrainian government, 
commenting that it would "blow over" eventually.  Hallergard, 
Schmid, and Leskela all said that it was clear, given the 
reaction in Moscow over the implementation, that the 
"wallets" of at least some in the Kremlin had been hit. 
Because Russian business interests are involved on the 
Transnistria issue, it made working towards a settlement that 
much more difficult for the EU, according to Schmid. 
¶7. (C) On Belarus, March 23 had EU Heads of Government 
meeting to debate possible restrictive measures against 
Belarus for its fraudulent elections.  Schmid, Mingarelli, 
and Leskela privately told EUR/RUS Director that they favored 
including President Lukashenko on a visa ban list and, in the 
words of Leskela, "our credibility is on the line with this 
given what we have said." (Comment: On March 24, the EU 
Council subsequently issued a statement announcing 
restrictive measures against President Lukashenko. End 
Comment.)  According to Schmid, German Intelligence Service 
contacts had advised  that Lukashenko is very much hated even 
within the Belarusian elite on account of his erratic and 
mercurial behavior. 
 
¶8. (C) Schmid also noted that the Russians had told her that 
they are "pressing ahead" with a Union State of 
Russia/Belarus.  In addition, Russian presidential advisor 
Sergei Yastrzhembsky had advised her that Russia will raise 
gas prices for Belarus starting in early 2007.  As Russia 
makes a push to get more firm control of the Belarusian gas 
pipelines, as it inevitably will, combined with higher gas 
prices and 
movement on Union -- all of these factors would combine to 
test the Putin/Lukashenko relationship in the year to come, 
Hallergard said. 
 
¶9. (C) On Georgia, Hallergard commented that Russia "wants to 
be nasty right now."  He was pessimistic on any short or 
medium-term progress on South Ossetia as the Georgians, he 
said, had lost any of the good-will they had in Moscow 
following their harsh reaction to  the gas and electricity 
disruptions in January.  On South Ossetia, Hallergard said, 
"there is the full spectrum of Russian irresponsibility." 
On Ukraine, Leskela said the EU will be looking at three 
primary issues after the March 26 elections: 1) status of 
reforms; 2) whether Ukraine will be able to keep its 
commitments and continue to play a constructive role on 
Transnistria; 3) continued Ukrainian alignment with EU 
foreign policy statements. 
 
Anticipating the G-8 
-------------------- 
 
¶10. (C) Laurent Muschel, Head of Unit for Inter-Institutional 
Relations, Enlargement, and 
International Relations in the Directorate General (DG) for 
Energy and Transport of the European Commission, told Warlick 
that his expectations are low for energy security at the G-8 
Summit.  However, Russian Energy Minister Khristenko had told 
EU Energy Commissioner Borosso in recent meetings in Moscow 
that he was waiting for a decision from Putin, who he 
believed was prepared  to "give something" on energy at the 
Summit. Muschel outlined two ideas that Putin is pushing with 
the EU on energy: 1) "Market 
reciprocity" (including claims that Gazprom is being 
prevented from acquiring certain distribution assets in the 
EU); and, 2) nuclear energy (Russia wants to be the nuclear 
fuel provider to the rest of the world and would like  this 
to be a big initiative at the G-8). 
 
¶11. (C) Muschel indicated that he would welcome Russian 
nuclear initiatives at the G-8, but expressed frustration 
that the energy security statement being negotiated for 
leaders at the Summit was thus far very weak, with no real 
commitments on the important issues of transit, the Energy 
Charter Treaty or third party access.  Muschel also 
expressed concern that Russia might try to "buy" the West, 
with some industry concessions at the G-8 (e.g. on the 
Shtokman LNG transaction) without really getting to the heart 
of the matter on industry reform.  He expressed the view that 
it was a reasonable goal to push hard for the end of the 
Gazprom export monopoly; while the push not be successful, he 
believed it could lead to the reform necessary for Russian 
energy industry to be a better supplier for Europe. 
GRAY 
.