VZCZCXRO3579
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHLJ #0567/01 2441511
ZNY CCCCC ZZH
R 011511Z SEP 06
FM AMEMBASSY LJUBLJANA
TO RUEHC/SECSTATE WASHDC 5127
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
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RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 LJUBLJANA 000567 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/NCE. EUR/RUS, EB/ESC, EB/CBA 
 
E.O. 12958: DECL: 08/29/2016 
TAGS: ECON EINV ENRG PINR RU SI
SUBJECT: PETROL DOES DEAL WITH LUKOIL AND HARRAH'S SHOULD 
ALLAY LOCAL FEARS TO MOVE AHEAD 
 
REF: LJUBLJANA 386 (AND PREVIOUS) 
 
Classified By: COM Thomas B. Robertson for reasons 1.4 (b) and (d) 
 
1.(C)   Summary:  COM hosted lunch for Viktor Baraga, 
Chairman of both the Petrol supervisory board and the HIT 
(casinos) supervisory board, (and childhood friend of Prime 
Minister Janez Jansa) on August 23.  Baraga, a successful 
businessman, described to us the Slovenian approach to the 
economy which we think accurately reflect this government's 
implied if not openly stated approach to privatization and 
foreign direct investment.  Baraga was candid about 
Slovenia's desire to preserve and even expand Slovenian 
companies by keeping them in Slovenian hands, even if that 
meant the government's hands; the desire for the GOS to 
develop joint ventures that ensured it retained majority 
ownership; and the strong belief that Slovenia could 
successfully continue its privatization process at a much 
more measured pace than its neighbors to the east. 
 
¶2. (C) As a businessman, Baraga agreed that the Government is 
not the best manager of companies. However, as a Slovenian, 
he had to acknowledge that in a country as small as his, the 
various hidden agendas would continue to manipulate and 
influence any plans for privatization and expansion of 
Slovenian companies.  In his position as chairman of the 
supervisory board of HIT, Baraga claimed that he was not 
deeply into the details of the potential deal between HIT and 
Harrah's' but he did recommend that Harrah's raise its 
profile both with the Government (Prime Minister, Finance 
Minister) and within the Nova Gorica community.  During lunch 
Baraga also foreshadowed the transformation of Petrol into a 
holding company and the plans for a joint venture with 
Russia's Lukoil -  which was subsequently announced on August 
28 on the margins of the Bled Strategic Forum.  END SUMMARY. 
 
----------------------------------------- 
BARAGA: CLOSE CONFIDANT OF PRIME MINISTER 
----------------------------------------- 
 
¶3. (C) Over the last year to eighteen months, Prime Minister 
Jansa has been accused by his political opponents of stacking 
supervisory and management boards of nearly all partially 
government owned Slovenian companies with hand-picked 
cronies, sometimes of questionable competence.  This is, in 
practice, no different than actions of predecessor 
governments, and on the whole, the GOS has picked competent 
people to assume stewardship of Slovenia's crown jewels. 
Viktor Baraga is a well established business person in his 
own right who runs a trading company based in Melbourne, 
Australia. (He also has the title of Honorary Consul of 
Australia in Slovenia).  In his meeting with COM, Baraga 
acknowledged that his position on the boards of HIT and 
Petrol had something to do with his friendship with Jansa. 
He also emphasized that he had accepted the jobs somewhat 
reluctantly, but he gave every indication that he felt fully 
qualified for the responsibility.  It was clear that he and 
the Prime Minister are in regular contact on issues related 
to both Petrol and HIT.  Baraga was also straightforward 
about the nature of his position, and given that political 
winds could easily blow him off both boards, his first 
responsibility was to ensuring the health and viability of 
his own business, because that's "where (his) bread is 
buttered." 
 
 
¶4. (C)  Viktor Baraga's position on both the Petrol and the 
HIT boards allows for a reliable insight into the real 
intentions of the GOS and how it plans to expand and 
diversify Slovenia's economy.  Despite his decades of 
exposure to western business practices, Baraga accepts the 
GOS will continue to pursue the "go slow" school of economic 
reform and privatization in Slovenia.  He has a personally 
more pragmatic view of what is best for the economy and no 
fear of foreign investors, but events over the last year 
indicate that while the political will for reform exists, 
political realities (upcoming local elections) dictate reform 
be introduced in measured doses. Baraga explained the GOS 
view in very blunt terms saying that while the Government is 
not the best manager of business, selling out to a foreigner 
would be the GOS's choice of "last resort" and if a business 
is doing well, there is no need to rush the divestiture.  On 
the other hand, the GOS is always interested in attracting 
"strategic" partners. (Note: this tends to be a minority 
partner with capital to inject into the venture, sometimes 
with a promise to increase holdings in the future, but always 
 
LJUBLJANA 00000567  002 OF 002 
 
 
short of majority. End Note) Baraga described plans to turn 
Petrol into a holding company and to then pursue a joint 
venture deal, creating a new company, with Russia's Lukoil. 
This very scenario was revealed to the public five days later 
on the margins of the Bled Strategic Forum. 
 
---------------------------- 
PETROL PENS DEAL WITH LUKOIL 
---------------------------- 
 
5.(U) In this deal, Petrol Lukoil (PL), as the company will 
be known, will jointly own all the Petrol outlets in Slovenia 
and plans to double its retail network expanding through out 
the Western Balkans by 2009; increase revenues to 4.5 billion 
euros; and report profits of over 75 million euros. The new 
company will be 51% owned by Petrol and 49% owned by Lukoil. 
Lukoil's outlets in Romania, Bulgaria and Hungary were not 
part of the deal because Petrol would not have been able to 
retain 51% ownership.  With this deal, Minister of Economy 
Andrej Vizjak was apparently also able to pressure Lukoil to 
at least consider investing in the rehabilitation of 
Slovenia's sole oil refinery in Lendava, near the Hungarian 
border. The Slovenian press, describing Petrol CEO Marko 
Kryzanowski as "thrilled" over the deal, has expressed some 
skepticism that it will ever get off the ground citing past 
behavior of Petrol's MOU to produce electric energy with 
Austrian company Estag which lapsed after nearly three years 
of inactivity. 
 
--------------------------------------------- -------- 
HARRAH'S: NEED TO ENGAGE THE PUBLIC AND ASSUAGE FEARS 
--------------------------------------------- -------- 
 
6.(C)  Baraga's message on the HIT/Harrah's deal was clear - 
the Prime Minister would like a deal to happen, the Finance 
Minister would like the deal to happen, although he is 
perhaps less enthusiastic about the project, and Harrah's 
will need to do some public relations work to alleviate fears 
that it's casino will cannibalize existing casinos in the 
region putting many jobs, including those of management and 
management board members, at risk. 
 
7.(C) Baraga suggested that Harrah's might consider modifying 
its approach to the deal and consider it as a strategic 
investment, thus leaving 51% ownership in the hands of the 
Slovene partner.  He noted Harrah's could still go forward 
with its investment plan and maintain its control by 
insisting on the management board having someone Harrah's 
would select running things for the first 4-5 years, followed 
by HIT. The bottom line for the GOS, and particularly Finance 
Minister Bajuk was that whatever the configuration of the 
deal and the project, its revenue would not drop, nor would 
the number of people employed. 
------- 
COMMENT 
------- 
 
¶8. (C)  The deal between Petrol and Lukoil does not come as a 
great surprise, especially given that the GOS/Petrol seems to 
have managed to secure a 51% share of the new company.  It 
would have been very surprising if the percentages had gone 
the other way.  Also interesting is that both the press and, 
in private conversations, our official contacts,  wants the 
"American Reaction," expecting us to raise serious concerns 
about such a deal with Russia.  Our response has been that 
"we support diversity in energy supplies and transparency in 
commercial deals."  The Lukoil deal is also very interesting 
to look at in light of the other big deal sitting in 
Slovenia's lap, the Harrah's casino proposal.  The agreement 
to go forward with Lukoil is no doubt a result of Petrol's 
maintaining a 51% share, and hence control, of the business 
activities of this new venture.  Part of the slowness of the 
Harrah's/HIT negotiations are  a result of Slovenian fears, 
especially on the local level (HIT), as Baraga has understood 
them, that if Harrah's has a majority share of HIT, Slovenian 
control will be lost with possible regrettable consequences. 
Harrah's will continue negotiations with HIT in September, 
and we hope we will have a better indication after those 
meetings of whether Slovenia is prepared to forward with a 
mega deal and what share of ownership will be required.  End 
Comment. 
ROBERTSON