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PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV
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P 251433Z AUG 06
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC PRIORITY 0260
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHKV/AMEMBASSY KIEV PRIORITY 1529
RUEHMO/AMEMBASSY MOSCOW PRIORITY 0599
RUEHVL/AMEMBASSY VILNIUS PRIORITY 0131
RUEHWR/AMEMBASSY WARSAW PRIORITY 3329
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

S E C R E T SECTION 01 OF 03 BRATISLAVA 000720 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 08/25/2016 
TAGS: ENGR ECON EPET PREL PGOV LO RS
SUBJECT: SLOVAKIA REMAINS FOCUSED ON REGAINING TRANSPETROL 
STAKE 
 
REF: A. BRATISLAVA 673 
     ¶B. BRATISLAVA 657 
     ¶C. BRATISLAVA 618 
     ¶D. BRATISLAVA 529 
 
Classified By: Ambassador Rodolphe M. Vallee for reasons 1.4 b) and d) 
 
This is an action request.  Please see Para. 7. 
 
¶1. (S) Summary - The Ministry of Economy continues to pursue 
a deal to buy back the 49 percent stake in Transpetrol from 
Netherlands-based Yukos Finance and/or its subsidiary Yukos 
International.  This task was complicated when a Dutch judge 
appointed Yukos Oil Receiver and Russian Eduard Rebgun as the 
receiver for Yukos Finance on August 11, effectively 
splitting control over the two entities both laying claim to 
the ownership of the Transpetrol shares.  Yukos International 
remains committed to completing the sale, and Economy 
Minister Lubomir Jahnatek would support going this route if 
he could get a solid legal opinion from the Netherlands that 
Yukos International is able to complete the transaction 
alone.  Jahnatek has also contacted Rebgun and tentatively 
agreed to meet with him and the new director of Yukos Finance 
in the coming weeks.  Recognizing that Rebgun may also be 
considering other options, Jahnatek is pursuing other 
strategies that would encourage Rebgun to strike a deal with 
the GOS.  These include gaining support in Brussels for a GOS 
buyback, using Slovakia's rights as a shareholder to block 
any non-GOS deal, and possibly threatening to nationalize the 
pipeline.  Despite the legal uncertainty and strategic 
complications Minister Jahnatek remains fully committed to 
his goal of gaining control of 100 percent of the Transpetrol 
shares. End Summary. 
 
CHANGE OF CONTROL AT YUKOS FINANCE COMPLICATES THE DEAL 
--------------------------------------------- ---------- 
 
¶2. (S) On August 11, the day after the GOS reached a 
preliminary deal with Yukos Finance (YF) and Yukos 
International (YI) representatives Steve Theede and Bill 
Schoff to repurchase the Transpetrol shares (Reftel A), a 
Dutch judge gave control of YF to Yukos Oil Receiver Eduard 
Rebgun.  Rebgun immediately dismissed YF Directors David 
Godfrey and Bruce Misamore.  The split ownership of the two 
Netherlands-based Yukos entities further complicated the sale 
of the shares to the GOS.  YF remains the legal owner of 
Transpetrol shares pending the approval by the Slovak 
government of the transfer to YI.  (Note: As outlined in 
Reftel A, Minister Jahnatek agreed to approve the transfer to 
YI contingent on a YI sale to the GOS.  Although he signed a 
letter to this effect on August 10, approval of the 
Transpetrol General Assembly is required to for the transfer 
to YI.  This has not yet taken place and could now be blocked 
by Rebgun.)  Still, YI is the beneficial owner of the 
Transpetrol shares and also has physical possession of the 
shares. 
 
¶3. (S) Lawyers at the Ministry of Economy have held 
conversations with YI lawyers to determine whether the GOS 
can legally finalize the sale without the approval of YF. 
According to the Slovak lawyers, the GOS can only repurchase 
the shares from the company that is listed as the owner in 
the Slovak Commercial Registry, which in this case is YF. 
Furthermore, Slovak law does not recognize the concept of 
beneficial ownership, although it appears English law governs 
the Shareholder's Agreement.  The MOE lawyers have asked for 
clarification from YI on the difference between beneficial 
and legal ownership of the shares.  The YI lawyers are 
willing to work with the Slovaks, but have been unable to 
answer the Ministry of Economy (MOE) questions or develop an 
alternative legal strategy for completing this transaction. 
(Note: YI lawyers have explained to the GOS that they are 
focused on other legal issues, including preparing a defense 
for YI executives who are facing criminal charges in Moscow.) 
 Max Kaluzhny, a lawyer representing YI in the Netherlands, 
believes that two provisions in the 2005 Share Transfer 
Agreement between YF and YI support YI's ability to sell the 
Transpetrol shares to the GOS.  First, the agreement states 
that YF is required to take the necessary actions to complete 
the transfer of shares to YF.  Second, YI has irrevocable 
power of attorney over the shares.  Ultimately, the Dutch 
bankruptcy court would have to decide whether YI has the 
rights to sell the shares. 
 
 
WILL REBGUN PLAY BALL? 
---------------------- 
 
¶5. (S) Before moving forward with a deal that excludes YF, 
Slovak and YI officials agreed that the MOE should reach out 
to Rebgun and the new YF directors about a possible deal with 
both YI and YF.  A GOS deal with both Yukos entities (and 
thus the nod of approval from Moscow as well) would provide 
the greatest legal assurance that the sale would not be 
challenged in the future.  Even if such a deal is not 
successful, reaching out to Rebgun demonstrates to the court 
that the GOS made a good faith effort to work with YF. 
(Note: Steve Theede and David Godfrey, two of the Yukos 
officials named in the criminal case in Moscow, told us that 
they doubt that Rebgun would be willing to negotiate with the 
Slovaks.  They expect Rebgun to use a "pocket veto" and wait 
until the GOS loses its right of veto in April 2007.  End 
note.) 
 
¶6. (S) Minister Jahnatek sent a letter August 16 to Rebgun 
expressing the GOS' interest in reaching an agreement for the 
Transpetrol stake and asking for a meeting to discuss this 
possibility.  The GOS sent a similar message to Sergei 
Smelkov, a long-time Rebgun associate who was recently 
appointed as the new Board Director of YF.  Rebgun called 
Jahnatek's advisor on August 24 to say that he would be 
interested in discussing the transaction.  Rebgun noted that 
he was still in the middle of taking over YF and needed more 
time to evaluate the company's assets.  Rebgun tentatively 
agreed to meet with Jahnatek in either Moscow or Bratislava 
in two to three weeks.  MOE received a similar expression of 
interest from Smelkov. 
 
GOS LOOKING TO BOLSTER ARGUMENTS, CREATE BACKUP STRATEGIES 
--------------------------------------------- ------------- 
 
¶7. (S) In a two and half hour dinner with the Ambassador on 
August 24, Jahnatek outlined his strategy for negotiating 
with YF.  His goals for the eventual meeting with Rebgun and 
Smelkov will be (1) to determine whether Rebgun is willing to 
negotiate or already has a predetermined plan for the 
Transpetrol shares and (2) to convince Rebgun that YF does 
not have any other viable alternatives besides selling the 
Transpetrol stake to the Slovak government.  This second 
position was clearly laid out in his August 16 letter to 
Rebgun.  To help build his case, Jahnatek will raise the 
issue in Brussels when he meets with EU Energy Commissioner 
Andris Piebalgs in early September.  Jahnatek would like to 
leave Brussels with an expression of EU support for his 
government's desire to repurchase the 49 percent interest in 
Transpetrol based on a desire for energy independence and 
diversification of energy supplies, both for Slovakia and 
central Europe in general.  Jahnatek requested that we use 
our influence with the EU to help solidify European support 
for GOS independence by repurchasing the Yukos shares.  BEGIN 
ACTION REQUEST: Post requests talking points to be used by 
USEU with appropriate counterparts in the EC supporting 
Slovakia's efforts to repurchase the Yukos shares.  END 
ACTION REQUEST. 
 
¶8. (S) Jahnatek asserted that the Slovak government was 
willing to play hardball if Rebgun tries to run out the clock 
and make a deal with a third party after April 2007.  He 
stated that according to Transpetrol's Articles of 
Association the MOE, as the holder of 51 percent of the 
shares, would have to agree to a change in ownership, and 
that he would be willing to hold back the government's 
approval of any future deal.  Jahnatek suggested that he 
would prefer a legal stalemate over a sale to Gazprom or 
another company, at least until the GOS regains management 
control of the company.  He also warned that under Article 20 
of the Slovak Constitution the GOS has the right to 
nationalize the company.  Finally, Jahnatek told us that he 
met with Russian Foreign Minister Sergey Lavrov when he was 
in Moscow in late July and had received his support for a 
Slovak buyback of the shares from Yukos.  If necessary, 
Jahnatek suggested, he could ask Lavrov to weigh in with 
Rebgun. 
 
¶9. (S) If Rebgun is not willing to negotiate or appears to be 
stalling for time, Jahnatek maintained that he would pursue a 
deal with YI, assuming he could get a clear and defensible 
legal opinion from a reputable Dutch counsel that YI has the 
right to complete the transaction based solely on YI's 
beneficial ownership of the shares.  MOE officials have many 
questions about how this would work, but are willing to 
pursue this option if negotiations with Rebgun do not bear 
any fruit. 
 
FACTS AROUND SALE ALSO SHIFTING 
------------------------------- 
 
¶10. (S) The Minister had learned of Oleksandr Todiychuk's 
8/23 removal as CEO of Ukrtransnafta, the Ukrainian pipeline 
operator, and recognized that this would delay progress 
towards tranporting Caspian oil through the pipeline. 
Jahnatek identified three other options that Slovakia should 
pursue to diversify the supply of oil: 1) completing the 
connection to Schwechat with the potential of purchasing oil 
imported from Western European pipelines; 2) making the 
connection to Adria functional; and 3) connecting to 
Ingoldstadt through the Czech Republic.  He noted that full 
GOS control of Transpetrol is necessary to follow through 
with these objectives.  Jahnatek believes that the Russians 
could not boost the throughput in Druzhba by more than 1.5 
million tons of Russian crude per year, which still provides 
enough "space" for other non-Russian oil before the pipeline 
would reach its capacity of 17 million tons. 
 
¶11. (S) Jahnatek informed us that there was positive news in 
the government's long-running legal battle with Ignac Ilcisin 
over his claim to 34 percent of the Transpetrol shares, which 
account for two-thirds of the GOS shares (Reftel D).  The 
Slovak Supreme Court recently canceled the district court 
ruling allowing Ilcisin to convene an extraordinary general 
shareholder meeting of Transpetrol under Ilcisin's 
leadership.  The Supreme Court, acting on an initiative by 
the Prosecutor General who lodged an appeal on behalf of 
Transpetrol, returned the case to the district court. 
Minister Jahnatek does not expect further problems from Mr. 
Ilcisin. 
 
COMMENT 
------- 
 
¶12. (S) Minister Jahnatek, with the continued support of 
Prime Minister Fico and President Gasparovic, remains fully 
committed to regaining full control of the Shares of 
Transpetrol.  He is aware of the challenges, but also 
believes that Slovakia has no other options if they are to 
fulfill their strategic goals of diversifying supply and 
further developing the Transpetrol pipeline.  That being 
said, the minister appeared exhausted, although still 
confident, from being thrown into the political maelstrom 
from his relatively stable life in the private sector.  He is 
concurrently engaged in a battle with the electricity and 
natural gas companies over their monopoly pricing powers, as 
well as the cancellation of the previous government's 
decision to sell Bratislava airport to a consortium made up 
of Vienna's Schwechat Airport and Slovak financier Penta. 
Powerful forces are being disturbed, he noted, suggesting 
that shady private equity firm Penta was behind recent SMS 
threats to his person and demurring on Ambassador's request 
to hunt due to his "safety concerns."  He told us he was 
under particular assault from some of his own legislative 
party members, who were undermining him with PM Fico.  He 
requested subtle public support for his efforts, if possible. 
 While noting that "these are my negotiations," Jahnatek is 
extremely appreciative of U.S. support, and will continue to 
look to Steve Hellman and the Embassy for information and 
guidance.  End Comment 
 
VALLEE