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C O N F I D E N T I A L SECTION 01 OF 04 BRATISLAVA 000657 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 08/07/2016 
TAGS: ENRG ECON EPET PREL PGOV LO RS
SUBJECT: SLOVAKIA APPEARS TO CHANGE COURSE ON TRANSPETROL. 
 
REF: A. A) BRATISLAVA 613 
     ¶B. B) BRATISLAVA 618 
     ¶C. C) VILNIUS 727 
 
Classified By: Charge D'Affaires Lawrence R. Silverman for reasons 1.4( 
b) and (d). 
 
 ¶1. (C) Summary. On August 3-4, Special Advisor Steve Hellman 
met with high-ranking GOS officials, including Prime Minister 
Robert Fico and Minister of Economy Lubomir Jahnatek, to 
discuss the benefits of buying back shares in Transpetrol 
from Yukos Finance rather than approving a quick sale to 
Gazprom Neft.  Before Hellman's visit, all indications 
suggested that the GOS would shortly approve a sale to 
Gazprom Neft, because they felt browbeaten by the Russians 
and had come to believe they had limited choice and leverage 
in the matter.  Through the series of meetings, GOS officials 
started to seriously reconsider the buy-back option.  To 
address GOS concerns that Yukos Finance did not want to 
negotiate with the GOS, Hellman offered to intercede with 
company officials on behalf of the GOS -- if the GOS was 
certain it wanted to pursue a buy-back option.  On August 7, 
Jahnatek announced that he will be meeting with Yukos Finance 
in Bratislava on August 9.  On August 8, Jahnatek expressed 
to CDA that the GOS fully supports the buy-back option and 
will pursue such a deal with Yukos.  End Summary. 
 
Pre-Visit State of Affairs 
-------------------------- 
 
¶2. (C) Hellman's visit was precipitated in large part by a 
July 27 meeting between Ambassador Vallee and Minister of 
Economy Jahnatek, in which the Minister implied that sale of 
Yukos stock to Gazprom Neft was imminent, and might take 
place before Yukos International bankruptcy proceedings 
started in early August (see reftel A).  Subsequent contacts 
with the GOS -- including Charge's August 2 meeting with 
Minister of Economy State Secretary Peter Ziga -- tempered 
our concerns about a quick GOS decision.  It still seemed 
apparent, however, that Gazprom Neft would gain the 49 
percent share from Yukos sometime in the next month unless 
strong action was taken.  Prior to the visit, Ambassador 
Vallee and Hellman decided to simplify USG strategy: rather 
than discuss two options -- buying back the shares or selling 
to a non-Russian competitor (such as the Polish firm PERN, 
the American firm MEZI, etc.) -- we would focus specifically 
on the buy-back option.  This was decided on the basis that 
selling Yukos shares to a non-Russian third party would not 
be a politically viable option in the minds of GOS officials, 
and mentioning it would dilute our central message. 
 
Opening Meetings 
---------------- 
 
¶3. (C) On August 3, Hellman and CDA met with Minister of 
Foreign Affairs Jan Kubis to discuss the Transpetrol 
situation.  On July 24-25, Kubis travelled to Moscow with 
Jahnatek and met with Gazprom representatives; upon his 
return he had suggested to Ambassador Vallee that sale to 
Gazprom might be acceptable as long as Slovakia regains 
management control of Transpetrol (see reftel B).  To counter 
this line of reasoning, Hellman focused on our major reasons 
for supporting a buy-back, including Slovakia's energy 
security and the financial benefits of Transpetrol ownership. 
 Kubis responded by saying, "Your basic premise is we can buy 
back the shares.  But no one is selling."  It became apparent 
that Kubis and other high-ranking GOS officials had become 
convinced that meaningful conversation with Yukos Finance had 
been cut off, and that any arguments in favor of a buy-back 
were purely theoretical under the circumstances.  The major 
challenge in upcoming meetings would be to convince the Prime 
Minister and the Minister of Economy that Yukos Finance could 
in fact be brought to the table. 
 
¶4. (SBU) The following morning, Hellman and Emboff met with 
the Marian Jusko, CEO of Slovnaft, and later with Stefan 
Czucz, Chairman of the Board of Directors at Transpetrol. 
Slovnaft, through its parent company MOL, had itself 
expressed tentative interest in purchasing Transpetrol shares 
from Yukos.  Slovnaft said their basic relationship with 
Yukos and Russian suppliers had been positive, and they 
wanted to continue receiving oil from the Urals without 
difficulty.  They believed that re-equipping their refinery 
to process Caspian crude would not be feasible, though 
Hellman tried to disabuse them of that notion.  In general, 
Slovnaft executives left an impression that they would be 
content with a Gazprom purchase as the path of least 
resistance. 
 
Prime Minister not-so-Sinister 
------------------------------ 
 
¶5. (C) After the GOS finally concluded its extended opening 
session of Parliament in the wee hours of the the morning on 
August 4, Prime Minister Fico agreed to meet with Hellman and 
CDA at the Parliament building.  The Prime Minister was 
alone, and held the meeting entirely in English without 
translation.  Fico appeared relaxed (albeit tired), and open 
to further points of view on the Transpetrol issue.  He 
opened remarks by quickly running through the range of 
possible options for the GOS, including re-purchase of Yukos 
shares for $110 million (noting that this would create a hole 
in the budget), and sale to a variety of business interests 
from Russia, Poland, and the Czech Republic.  He added that 
his Cabinet planned to discuss Transpetrol in its first 
meeting on August 9, but he could not say when a decision 
would be reached. 
 
¶6. (C) In response, Hellman made the key arguments favoring a 
buy-back.  He noted that Transpetrol has an annual net cash 
flow of $30 to $40 million per year and has no debt, meaning 
that the 49 percent stake would return $15 to $20 million 
annually -- an amount that could easily facilitate financing 
of a buy-back without having to use one korun of state funds. 
 Simply put, a buy-back makes economic sense.  He then 
started to discuss Yukos Finance's self interest, at which 
point the Prime Minister interjected, "would Yukos be 
interested in selling to us?"  Hellman emphasized the 
company's need to liquidate assets and its strong dislike of 
businesses affiliated with the Russian government.  Hellman 
also suggested that he could talk with key people in Yukos as 
needed, if the GOS were serious about a buy-back.  He also 
emphasized that after a buy-back the GOS would have the 
option to announce re-privatization of Transpetrol in 2009, 
which would give Slovakia leverage as it renegotiated its gas 
and nuclear fuel contracts in 2007. 
 
¶7. (C) The arguments we provided narrowed Fico's focus in a 
helpful way.  The Prime Minister concluded that, given his 
country's needs, he has two "relevant options": 1) to buy 
back the shares from Yukos, or 2) to approve a sale to 
Gazprom or another Russian firm.  Fico observed that selling 
to a Polish firm would only infuriate the Russians without 
benefit to Slovakia.  Selling to a Czech firm would be less 
problematic, he said, but would not be a strategic decision. 
He thanked us for providing additional information, 
particularly on the financial aspects of a Transpetrol 
buy-back, and asked us to discuss the situation with the 
Minister of Economy in greater detail. 
 
Three Hours with the Minister 
----------------------------- 
 
¶8. (C) Which we did.  In a meeting that lasted nearly three 
hours, Hellman laid out the reasons for a buy-back with 
Minister of Economy Jahnatek and Maros Kondrot, Chairman of 
the Parliamentary Committee on the Economy.  Janhatek was 
still feeling the pressure from the Russians, as he had 
emphasized in his first meeting with the Ambassador. 
Kondrot's presence at the meeting was important since he has 
been strongly in favor of a buy-back, and had expressed 
concern to the Embassy that Jahnatek might be about to sign 
off on a bad deal.  (Note: Kondrot has been in regular 
communication with the Embassy on Transpetrol over the past 
two weeks, and we would not have secured the meeting with 
Prime Minister Fico without Kondrot lobbying for it.) 
 
¶9. (C) As Hellman made the arguments for pursing a buy-back 
option, Jahnatek seemed visibly stressed and brow-beaten, as 
if to say: "I know. I know.  But how can I possibly do this?" 
 Jahnatek offered that his first idea was to buy back the 
shares, but he lamented that Yukos never gave an official 
response to his request last month for a meeting to discuss 
re-purchasing Transpetrol shares.  He feared Yukos' seeming 
lack of interest was part of a strategy to freeze the 
Minister of Economy out of the negotiating process until his 
veto power over Transpetrol expires in April 2007.  Jahnatek 
said that, under the circumstances, he was forced to find the 
best deal in which: 1) Slovakia could regain management 
control of Transpetrol; 2) pipeline flow would be increased 
from 10.4 to over 16 million tons per year, 3) the extensions 
to Schwechat and Odessa-Brody would be completed and 
operational. 
 
¶10. (C) Hellman stripped down the Slovaks' perceived problems 
and explained the real possibilities of a buy-back.  He also 
why Gazprom was not the best vehicle for reaching the goals 
outlined, particularly goal #1.  He also discussed the 
threats that Russia had made toward Lithuania, and explained 
how Slovakia actually had a much better hand of cards than 
Lithuania in this situations (see reftel C).  As Jahnatek 
slowly became convinced that it would be able to co-exist 
with Russia in the case of a buy-back, he asked if Hellman 
could arrange a response from Yukos Finance to his meeting 
requests.  He said it had always been his personal preference 
to buy back the shares, but he only had two weeks in which to 
reach a decision.  Hellman responded by telling Jahnatek that 
he would do his best to help with Yukos if the GOS was sure 
it would follow through on the buy-back option.  Jahnatek 
nodded and said, "for the first time I understood exactly 
what you said (before the translation)."  The Minister said 
that he would speak further with the Prime Minister on the 
subject later that day. 
 
¶11. (C) After the meeting concluded, Hellman held a separate 
short meeting with Kondrot to ensure he stays in close touch 
with us on this matter.  An hour later, Hellman met briefly 
with Peter Kazimir, State Secretary at the Ministry of 
Finance, to drive home the point that a buy-back of Yukos 
shares could be financed without breaking into the state 
budget.  The message was well received.  Also, before leaving 
for Russia, Hellman met briefly with PERN board member Marcin 
Jastrzebski to make sure they were clear about the direction 
we were taking. 
 
Jahnatek in Action 
------------------ 
 
¶12. (C) On the afternoon of August 4, our meeting with 
Jahnatek was announced in the local press.  Interestingly, 
the article said that Jahnatek delivered to us the message 
that the GOS preferred to buy back its shares; the U.S. 
position on the matter was not specifically mentioned. 
(Note: Hellman requested to Jahnatek during the meeting that, 
if asked by the press, he should say that we were there to 
advance U.S. commercial interests.)  The meeting between 
Hellman and Prime Minister Fico did not make the local 
papers.  Also that afternoon, Jahnatek made a request to Bill 
Shoff, Director of Finance at Yukos Finance in London, to 
come to Bratislava next week for consultations.  On the 
afternoon of August 7, after meeting with President 
Gasparovic earlier in the day, Jahnatek announced to local 
journalists that he would be meeting with representatives of 
Yukos in Bratislava on Wednesday, August 9.  Jahnatek added 
that buying back Transpetrol shares was the top priority for 
Slovakia. 
 
¶13. (C) On August 7, Ambassador Vallee heard from Steve 
Theede, the recently departed CEO of Yukos International, who 
is still involved in Yukos Finance's decision-making process. 
 Theede indicated to the Ambassador that selling Transpetrol 
shares back to Slovakia would be the preferred option for 
himself, and for other Yukos colleagues.  On the morning of 
August 8, CDA relayed this information in a telephone 
conversation with Minister Jahnatek.  Jahnatek was enthused 
by the news.  He added that he had just met with Prime 
Minister Fico and President Gasparovic, and that they were 
all in favor of pursuing the buy-back option.  The Minister 
said that he would like to reach a quick decision with Yukos 
Finance -- possibly in the next two days -- in order to avoid 
further complications.  He also asked if Hellman could talk 
to his contacts at Yukos to facilitate reaching such a deal. 
 
¶14. (C) Comment: It is striking that Minister of Economy 
Jahnatek has suddenly scheduled a meeting with Yukos Finance 
for August 9, after taking the position for several weeks 
that he couldn't strike a deal with Yukos because no one 
would talk with him.  The USG did not intercede with Yukos to 
make the meeting happen, but the credible suggestion that 
Hellman could do so seemed to spur Jahnatek into action.  It 
is still possible that this meeting with Yukos Finance is for 
show, but mounting evidence suggests that the GOS has really 
altered its course.  There is still much that needs to happen 
in order for the buy-back to become a reality, especially 
considering that a few days ago the GOS had all but decided 
to strike a deal with Gazprom.  Janhatek's present concern 
seems to be whether the GOS can come to a deal before the 
Russians intervene somehow.  In any case, we have gotten 
across the idea that the GOS has more and better options on 
Transpetrol.  Given our general concern that PM Fico tends to 
undervalue Slovakia's international role and potential 
influence, the GOS response to our message sends positive 
signals for the future.  End Comment. 
SILVERMAN