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Anne W McNeill  10/20/2006 02:47:28 PM  From  DB/Inbox:  Search Results

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C O N F I D E N T I A L        WARSAW 01167

SIPDIS
CXWARSAW:
    ACTION: ECON
    INFO:   AMB POL PAS ADM MGT ORA FCS DCM

DISSEMINATION: ECOX
CHARGE: PROG

APPROVED: CDA:KHILLAS
DRAFTED: ECON:LGRIESMER
CLEARED: ECON:RRORVIG

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OO RUEHC RUEHZL RUEHKW RUEAEPA RHEBAAA RUCPDOC
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DE RUEHWR #1167/01 1641439
ZNY CCCCC ZZH
O 131439Z JUN 06
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1028
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHKW/AMCONSUL KRAKOW PRIORITY 1143
RUEAEPA/HQ EPA WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 WARSAW 001167 
 
SIPDIS 
 
STATE FOR EUR, E, EUR/NCE, EUR/ERA, EB/ESC 
EUR FOR A/S DFRIED, DAS MPEKALA, DAS MBRYZA 
EUR/NCE FOR DKOSTELANCIK AND MSESSUMS 
EB/ESC FOR SGALLOGLY, RGARVERICK, JLEWANDOWSKI 
DOE FOR LEKIMOFF 
USDOC FOR 4232/ITA/MAX/EUR/JBURGESS, JKIMBALL, MWILSON 
PARIS PASS TO US MISSION OECD AND IEA 
STATE PASS TDA 
TDA FOR NCABOT 
 
E.O. 12958: DECL: 06/11/2016 
TAGS: ENRG EPET GG PO PREL RS SA SL UR AJ EZ
SUBJECT: POLAND: UPDATE ON ENERGY SECURITY 
 
REF: A. WARSAW 980 
 
     ¶B. WARSAW 791 
     ¶C. WARSAW 525 
 
Classified By: Charge d'Affaires Ken Hillas for reasons 1.4 b and d 
 
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Summary 
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¶1.  (C)  The Government of Poland continues to pursue its 
goal of diversifying energy resources.  On May 31, the 
Cabinet of Ministers approved a resolution prioritizing 
construction of a gas pipeline from Norway, liquified natural 
gas (LNG) terminal, and extension of the Odessa-Brody oil 
pipeline.  Ministry of Economy officials have approached 
Kazakhstan, Azerbaijan, and soon Georgia to negotiate an 
intergovernmental agreement (IGA) for Odessa-Brody.  They are 
also trying to meet U.S. companies with oil reserves in the 
Caspian to interest them in the project.  Pern, the national 
oil pipeline operator, is negotiating to purchase the 
Slovakian company Transpetrol, from Yukos.  Deputy Minister 
of Economy Naimski will be in the U.S. June 14 to 16 and then 
in Norway the week of June 19.  End Summary. 
 
¶2.  (C) Econoff met recently with Pawel Konzal, Advisor to 
Deputy Minister of Economy Naimski, Krzysztof Rogala, 
Director of the Ministry of Economy's Office for 
Diversification of Oil and Gas Supply, and Marcin 
Jastrzebski, Member of the Board of Pern, the Polish oil 
pipeline operator, as well as Kristin Hansen of the Norwegian 
Embassy to discuss Polish energy diversification plans. 
 
-------------------------------------------- 
Ministers Approve Energy Security Resolution 
-------------------------------------------- 
¶3.  (SBU)  On May 31, the Polish Cabinet of Ministers 
approved a resolution on actions to be taken to increase the 
energy security of the Republic of Poland.  The resolution 
prioritizes construction of a gas pipeline from Norway to 
Poland, construction of a liquified natural gas (LNG) 
terminal in Poland, and extending the Odessa-Brody oil 
pipeline to Plock in cooperation with the governments of 
Ukraine, Kazakhstan, Georgia, and Azerbaijan.  The document 
concludes by stating that Poland is not interested in 
investing in or receiving gas from the Northern European gas 
pipeline from Russia to Germany and that the government will 
not support construction of the line in any financial 
institution (i.e. European Investment Bank) in which Poland 
owns shares. 
 
--------------------------------------------- ------ 
Ministry of Economy - Wants an IGA for Odessa-Brody 
--------------------------------------------- ------ 
¶4.  (C)  Konzal and Rogala reiterated that Poland's Ministry 
of Economy continues to focus on energy diversification. 
Poland will first work on diversification of supply, then 
work on market liberalization.  Deputy Minister of Economy 
Naimski emphasized this point during his visit to Luxembourg 
last week for EU discussions on the internal energy market. 
On gas supply, Poland is pursuing a pipeline deal with Norway 
and an LNG port facility.  On oil supply, Poland would like 
to negotiate an IGA with the governments of Ukraine, 
Kazakhstan, Azerbaijan, and Georgia.  Econoff explained the 
complexity of negotiating the Baku-Tbilisi-Ceyhan IGA with 
just three countries, and asked why Poland didn't concentrate 
on negotiating an IGA with Ukraine and commercial deals with 
oil companies.  Konzal and Rogala countered that they were 
also pursuing that option, but felt that the larger IGA would 
be necessary to convince oil companies to join the pipeline 
consortium. 
 
--------------------------------------------- --- 
Norwegian Gas Supply - Small and Large Pipelines 
--------------------------------------------- --- 
¶5.  (C)  Rogala confirmed recent press reports that the 
Ministry of Economy had extended its "small Norwegian 
contract" for the supply of approximately .5 BCM of gas from 
Norway through Germany, which was due to expire in September. 
 Hansen of the Norwegian Embassy  cautioned that the new 
agreement is merely a shell that will allow gas supply to 
continue.  Exact quantities and prices have not yet been 
agreed.  Polish officials are also reportedly unhappy that 
the gas they receive is actually Russian gas that has been 
swapped with Norwegian supply. 
¶6.  (C)  In addition, the Ministry of Economy continues to 
discuss a larger gas supply deal with Norway for 
approximately 4 BCM for Polish domestic usage in the 2010 
time frame  Rogala noted that there are companies in Poland 
that would use the additional gas now if it were available. 
The GOP believes that this pipeline is essential to increase 
North-South deliveries of gas in Europe and reduce Polish 
dependency on Russian gas.  According to the Poles, they are 
working on two agreements with the Norwegians:  one to 
develop a consortium of approximately 18 companies and 
municipalities in Norway and Sweden to build a pipeline from 
Norway through Sweden to Poland, the second a long-term 
delivery contract with Statoil. 
 
¶7.  (C)  The Norwegian Embassy also cautioned us that the 
Poles are overly optimistic about this deal.  Currently, the 
Norwegian government is considering building a gas pipeline 
from Western Norway to Eastern Norway and perhaps on to 
Sweden and eventually Poland.  However, no decision has been 
made by the Norwegian government to build the internal 
pipeline, and the Norwegians believe that including the Poles 
in the consortium at this time will further complicate an 
already difficult negotiation.  The 2010 time frame is also 
unrealistic given the lead time necessary to negotiate and 
conclude all the necessary agreements.  The government of 
Norway is happy to sell gas to Poland or any other qualified 
purchaser, but will look for the best commercial deal. 
 
--- 
LNG 
--- 
¶8.  (C)  PriceWaterhouseCoopers is conducting a feasibility 
study for an LNG terminal on the North Baltic seacoast of 
Poland which should be completed in October.  The Ministry of 
Economy also sent signals to unnamed Middle Eastern countries 
with gas and financial resources that it would be interested 
in cooperating with them on constructing the port. 
 
------------------------ 
Odessa-Brody-Plock (OBP) 
------------------------ 
¶9.  (C)  The draft feasibility study for the pipeline 
reorientation and extension commissioned by the European 
Union will be completed in July.  Jastrzebski explained that 
Poland believes that the study is biased toward Ukraine as 
the consultants were located there, too technical, and not 
suitable for drafting a business plan or attracting 
investors.  Rogala noted that the authors were not entitled 
to negotiate with sellers or purchasers, but that Poland 
doesn't want "an empty pipe".  Deputy Minister Naimski will 
meet with the Odessa-Brody Development Group formed by Baker 
Donaldson on June 14 to discuss its potential participation 
in developing the pipeline.  The Ministry of Economy will 
also meet soon with its counterparts in Ukraine to discuss 
next steps on the project. 
 
----------- 
Transpetrol 
----------- 
 
¶10.  (C)  Rogala and Jastrzebski have been negotiating the 
purchase of Transpetrol, based in Slovakia, from Yukos.  They 
explained that Yukos originally had a deal with Rosneft for 
the sale of the assets.  However, the government of Slovakia 
did not approve Rosneft as a purchaser.  The contract for 
Rosneft's purchase has lapsed, and the GOP believes it has a 
small window in which to purchase the company.  All of the 
officials emphasized that this is a strategic deal for Orlen 
and the GOP to keep the assets out of Russian hands.  The 
purchase will complement Orlen's recent acquisitions in 
Lithuania and give Polish Oil company PKN Orlen access to 
Orlen refineries in the Czech Republic through an oil 
pipeline that is part of the deal.  There will also be only a 
30 mile distance from the pipeline to Slovakia-Austria border 
and thus easier access to Austrian refineries. 
 
---------- 
Azerbaijan 
---------- 
¶11.  (C)  Rogala and Jastrzebski were in Baku last week and 
met with the President and Board members of Socar 
(Azerbaijani State Oil Company) with their Ukrainian 
counterparts to discuss potential Azeri oil supplies for OBP. 
 Separately, they met with Azerbaijani Minister of Economy 
Natik Aliyev, to discuss the IGA.  Aliyev reportedly told 
them that the Azeris are bored of the Ukrainians' years of 
talking with nothing happening.  The government of Azerbaijan 
no longer takes the Ukrainians seriously, believing that even 
if the government of Ukraine wants to implement a project it 
is unable to follow through.  Rogala commented that it 
appeared that the Polish officials were taken seriously by 
the Azeris. 
 
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Georgia 
------- 
¶12.  (C)  The Ministry of Economy believes that even if it 
can negotiate an IGA with Kazakhstan and/or Azerbaijan for 
oil supply, including Georgia in the deal will be critical. 
However, the GOP is concerned that the central government 
still does not control Abkhazia,  that it may have lost 
control of its ports in the recent privatization, and that it 
no longer controls the energy sector.  Minister of Economy 
Wozniak will be going to Georgia June 19 to 21 to discuss 
energy issues with the Georgian government.  Deputy Minister 
Naimski would appreciate any information the USG can share 
about the current state of play in Georgia. 
 
------- 
Comment 
------- 
¶13.  (C)  While the GOP continues to pursue its goal of 
achieving energy security, post believes it would benefit 
greatly from a reiteration of the message that comprehensive 
energy security must be based on market principles.  Because 
the GOP still owns and operates its energy companies, it 
incorrectly assumes all countries and companies operate that 
way.  Thus, the current GOP is focusing its efforts on 
negotiating deals with other governments, believing the 
commercial details will follow.  For example, the Ministry of 
Economy believes that pursuing an Odessa-Brody IGA with up to 
five countries (Poland, Ukraine, Kazakhstan, Azerbaijan, and 
Georgia) is the way to make the pipeline feasible. 
Therefore, Deputy Minister Naimski would greatly benefit from 
an explanation of how the U.S. assisted Turkey, Azerbaijan, 
and Georgia to negotiate the Baku-Tbilisi-Ceyhan pipeline 
deal, from initial IGA to financial close to actual 
construction, including the participation of BP and other 
Azerbaijani-based oil companies. 
 
¶14.  (C)  While Poland should be congratulated on its 
decision to speed up IEA membership (ref b), post continues 
to believe that Naimski would benefit from discussions on how 
the U.S. and Poland can cooperate on energy security as 
detailed ref c.  Specifically, Poland should develop and 
implement a comprehensive energy security strategy, TDA could 
be a source of outside expertise for projects in the energy 
sector, Poland would benefit from EPA's Methane to Markets 
project, and Poland should consider nuclear energy and 
alternative energy sources in examining its resource options. 
  Naimski would also benefit from a detailed briefing on 
energy resources in Russia and the Caspian. 
 
HILLAS