VZCZCXRO4837
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSL #0529/01 1801422
ZNY CCCCC ZZH
P 291422Z JUN 06
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC PRIORITY 0019
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 BRATISLAVA 000529 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 06/21/2016 
TAGS: ENRG ECON EPET PREL PGOV LO RS
SUBJECT: SLOVAKIA HAS ITS OWN MOTIVES FOR REPURCHASING 
TRANSPETROL 
 
REF: A. BRATISLAVA 501 
 
     ¶B. WARSAW 1314 
     ¶C. BRATISLAVA 527 
 
Classified By: Ambassador Rodolphe M. Vallee for Reasons 1.4 (B) and (D 
) 
 
¶1. (C) Summary: The Slovak government's primary aim in 
repurchasing the Transpetrol shares from Yukos Finance is to 
maintain state control in the Slovak oil pipeline. 
Meciar-era businessmen from eastern Slovakia have claims on 
34 percent of Transpetrol shares (two thirds of the 
government's 51 percent stake) that are currently the subject 
of several cases before the Slovak supreme court.  Economy 
Minister Jirko Malcharek believes an adverse court decision 
is possible, and he is therefore using his remaining days in 
office to establish the framework for a deal with Yukos 
Finance that would allow the GOS to buy back the shares. 
Since the current government is not interested giving 
approval to third-party investors from Russia, Poland or the 
U.S., efforts will now focus on Robert Fico's Smer-led 
coalition that is expected to take over the reigns of 
government on July 4. End Summary. 
 
---------------------- 
UNDOING PAST MISDEEDS? 
---------------------- 
 
¶2. (C) Minister Malcharek told us last Friday that his top 
priority in his remaining days in office is to set up the 
circumstances that would enable the Slovak Government to 
repurchase the 49 percent stake in the Transpetrol pipeline 
that is currently owned by Yukos Finance.  (Note: Given the 
recent political developments (Reftel C), it appears that the 
new government will be formed by July 4.)  Malcharek outlined 
two primary reasons for quick action by the GOS: the upcoming 
Yukos bankruptcy trial in Russia and the need to maintain 
state control by getting all of the Transpetrol shares back 
in state hands in order to undue the misdeeds of past 
governments.  Although we have heard different assessments 
from independent analysts, Malcharek was certain that as a 
100 percent subsidiary of Yukos, Netherlands-based Yukos 
Finance would be affected by a forced disposition into 
unfriendly hands during Russian bankruptcy proceedings that 
are expected to begin sometime after the G-8 Summit in July. 
Malcharek maintained that failure to secure the sale of the 
Transpetrol stake prior to the start of these proceedings 
would minimize the GOS' ability to have a say in who 
purchases the stake. 
 
¶3. (C) Malcharek told us that previous ministers of economy 
and finance facilitated "a fraudulent deal" that jeopardizes 
the future of Slovakia's majority stake in the pipeline.  A 
group of individuals with Meciar-era ties have claims on 34 
percent of the Transpetrol shares (two-thirds of the total 
GOS shares) that are currently the subject of multiple cases 
before the Slovak supreme court.  The claims date back to a 
1995 real estate dispute by an eastern Slovak company, 
CSI-CD, which is represented by Ignac Ilcisin.  CSI-CD 
received SKK 40 million (approx. USD 1.35 million) as 
property damage from the government, which was awarded to the 
company by a court executor in 1998 as a 34 percent stake in 
Transpetrol (valued in the range of USD 50 million at the 
time and approximately USD 70 million today.)  At the time, 
top officials in the Meciar government did not appeal this 
decision, which provided the verdict a degree of validity. 
There have been several court decisions both for and against 
the GOS over the years, and there are currently several 
pending cases with the Slovak supreme court. 
 
¶4. (C) Malcharek was concerned that the GOS could eventually 
lose the case due to "corrupting" influences in the courts. 
According to Transpetrol's agreement with Yukos, this would 
have further negative effects on the GOS.  In losing their 
majority status, Transpetrol would be required under the 
shareholder's agreement to transfer two percent of their 
shares to Yukos, giving the Russian oil company majority 
control of Transpetrol.  In addition, Malcharek noted that 
Transpetrol could face a penalty of USD 25 million if its 
shares dropped below 18 percent (Note: he did not provide 
details on the mechanism by which this would happen.) 
 
¶5. (C) The uncertainty surrounding a final supreme court 
decision on the outstanding claims for the 34 percent stake, 
which Malchareck maintains to have only learned about in 
January despite taking over the economic portfolio last 
October, led to the government's recent decision to not 
approve the sale of Yukos to Russneft.  During our meeting 
Malcharek said that he had met with Yukos Chief Stephen 
Theede two times in the previous two weeks to discuss a 
possible repurchase of the 49 percent stake by the Slovak 
government.  He also showed us a letter he was sending to 
Theede outlining the current GOS position: 
 
-- The transfer of the shares to a third party of a 
"strategic nature" is not viable 
-- The GOS would like to buy back the shares 
-- The GOS would be willing to reprivatize part of 
Transpetrol, but only after securing state ownership of the 
shares 
-- Malcharek would like to coordinate actions with Yukos 
Finance to avoid a forced transfer of the shares in during 
bankruptcy proceedings 
-- He proposes transferring shares to a reputable 
international bank and giving the GOS a call option to 
repurchase the shares within the next year. 
 
¶6. (C) According to Malcharek and other GOS officials, the 
government has the necessary resources to buy back the 49 
percent stake, but is seeking the call option to avoid the 
perception of making a questionable deal during the final 
days of its mandate.  The Director General for the State 
Budget at the Ministry of Finance confirmed that the 
government has the flexibility to repurchase the Transpetrol 
shares, which Russneft reportedly was planning to buy for USD 
103 million.  Although there has not been any coordination 
between Malcharek and opposition parties, Smer officials have 
told us privately that they would also be interested in the 
GOS repurchasing the Transpetrol stake from Yukos. 
 
--------------------------------- 
OUTSIDE PARTIES REMAIN INTERESTED 
--------------------------------- 
 
7 (C) As outlined in Reftel B, the Polish government has 
requested our assistance in passing a message to the GOS that 
the U.S. would support the sale to Polish pipeline operator 
PERN.  Peter Bachraty, a local Bratislava-based consultant 
representing the Polish interests in purchasing the Yukos' 
stake, approached us earlier in the week with such a request, 
though at the time he lacked the details about the channel 
through which the official request was being made.  (Note: 
Bachraty is not aware that a group of U.S. investors is also 
interested in the Transpetrol stake - See reftel and para 9 
below.)    Bachraty met on Monday (6/26) with the Prime 
Minister's Foreign Policy Advisor, who told him that it was 
unlikely that the current government would move forward on 
any private deal.  We separately received a similar message 
from Dzurinda's economic advisor yesterday (6/28).  Bachraty 
acknowledged that the Polish companies had "misplayed their 
hand" by not more aggressively pursuing a deal prior to the 
election and instead waiting until the interim period between 
elections and the formation of a new government to act. 
(Comment: Given Malcharek's position, which is not public and 
may not be known to Bachraty, it is doubtful that earlier 
intervention would have helped.  End Comment.) 
 
¶8. (C) Bachraty told us his company had thoroughly analyzed 
the legal situation surrounding Yukos (they promised to 
provide us with their analysis next week) and was not 
concerned about impact of the upcoming bankruptcy case in 
Moscow on the sale of the Transpetrol shares.  He views an 
eventual tilt in the Yukos board towards pro-Kremlin 
supporters as a greater problem that could affect Yukos 
Finance's disposition of the Transpetrol shares, especially 
if this decision is delayed for some months.  (Comment: After 
April 2007 the GOS no longer has veto authority over the 
deal.)  Bachraty also recognized that Slovnaft and its 
Hungarian parent MOL would likely oppose any deal with PERN 
since the Poles would be viewed as competitors, but feels 
that such opposition could be overcome. Given the connection 
between PKN Orlen and PERN through common ownership (the 
Polish government share) it is unlikely that MOL would view 
one more favorably than the other.  (Comment: The fact that 
the Hungarian Party, SMK, is not a part of the proposed 
coalition probably helps PERN's case. End Comment.) 
 
¶9. (C) Bachraty recognizes that the final GOS decision on 
what to do with Transpetrol will be taken by the new 
government, and noted that he was already making plans for 
his lobbying effort.  In addition to meeting with key 
officials in the new government, once they are announced, 
Bachraty plans to work with journalists on stories stressing 
the importance of diversifying energy sources.  He requested 
our assistance in building upon this message. 
 
¶10. (C)  GlobalNet Financial Solutions also remains 
interested in purchasing the pipeline stake from Yukos. 
Geoff Berlin, GlobalNet's Managing Director in Ukraine, told 
Ambassador that the financing for the deal would come 
primarily from Morris E. Zuckerman and Co., a New York based 
investment firm.  We advised Berlin on the current political 
situation and, based on our conversation with Malcharek, 
suggested that he may want to hold off making any specific 
proposals until after the new government is formed. As is the 
case for PERN, Berlin believes that GOS support for 
Globalnet's purchase of the shares would give them an 
advantage in negotiations with Yukos Finance. 
 
------- 
COMMENT 
------- 
 
¶10. (C) Based on our conversations with Malcharek and top 
officials in the PM Dzurinda's office, we doubt that the 
current government will have a change of heart and make a 
last minute decision to support any potential investor. 
Efforts to woo the current government could also backfire. 
One of Smer's top campaign promises was to review the 
privatizations and business deals enacted in the last few 
years, and Fico is unlikely to take a kind view of decisions 
made on significant investments by the outgoing Dzurinda 
government. Unless Malcharek is able to get a deal for a GOS 
buyback of shares in the next couple of days, it is unlikely 
that the new government would be in a position to take action 
until the fall at the earliest.  End Comment 
VALLEE