VZCZCXRO4552
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHWR #2008/01 2581421
ZNY CCCCC ZZH
O 151421Z SEP 06
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2005
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHTA/AMEMBASSY ALMATY PRIORITY 0465
RUEHKB/AMEMBASSY BAKU PRIORITY 0318
RUEHMO/AMEMBASSY MOSCOW PRIORITY 2531
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 04 WARSAW 002008 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR, EUR/NCE, EUR/ERA, EB/ESC, S/P 
EUR FOR DAS PEKALA AND DAS BRYZA 
S/P FOR SHELLMAN 
EUR/NCE FOR DKOSTELANCIK AND BPUTNEY 
EB/ESC FOR SGALLOGLY, RGARVERICK, JLEWANDOWSKI 
DOE FOR LEKIMOFF 
COMMERCE FOR 4232/ITA/MAC/EUR/JBURGESS, JKIMBALL, MWILSON 
 
E.O. 12958: DECL: 09/14/2020 
TAGS: ENRG ECON ETRD PL AJ KZ RS ES LG LH PREL
SUBJECT: POLAND'S PKN ORLEN DISCUSSES MAZEIKIU NAFTA, 
KAZAKSHSTAN, AZERBAIJAN, ODESSA-BRODY 
 
 
Classified By: CHARGE D'AFFAIRES KEN HILLAS, REASONS 1.5 B,D 
 
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Summary 
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¶1. (C)  PKN Orlen's (PKNO) Deputy President Cezary Filipowicz 
requested information from the USG on whether Yukos 
International is considering a proposal to put the Mazeikiu 
Nafta (MN) refinery shares into escrow to further protect 
them from Yukos Finance.  Poland is attempting to gain 
support from the EU and NATO allies to ensure that the 
transaction is completed.  PKNO is very pleased with how MN 
handled the oil supply problems caused by "technical 
problems" in the Russian supply line, believing that it 
proves to the Russians that MN can and will continue to 
operate despite Russian interference.  PKNO is interested in 
purchasing the energy-related Ventspils assets in Latvia if 
the Latvian government will sell more than a 38% share.  PKNO 
would appreciate further information on who owns the product 
and supply pipelines in Latvia.  Azerbaijani and Kazakhstani 
onshore fields are interesting to PKNO, but PKNO would 
appreciate a message to both governments from the USG 
supporting Poland's interests in pursuing projects in the 
countries.  Discussions between Ukrainian PM Yanukovych and 
PM Kaczynski last week may help move the Odessa-Brody-Plock 
oil pipeline project forward.  PKNO continues to be 
interested in a brainstorming session with the USG and 
Lithuanian governments on energy security.  End Summary. 
 
-------------------------------------------- 
Mazeikiu Nafta - Putting Shares into Escrow? 
-------------------------------------------- 
 
¶2.  (C) Cezary Filipowicz, Deputy President for Upstream and 
Crude Oil Procurement at Poland's PNK Orlen (PKNO) told the 
Deputy Econ Counselor that PKNO is very pleased with its 
purchase of the Mazeikiu (MN) refinery and wants to complete 
the transaction as soon as possible.  PKNO is afraid that Mr. 
Rebgun of Yukos Finance will somehow get his hands on the MN 
shares currently owned by Yukos International and 
subsequently block completion of the transaction.  PKNO likes 
the idea it said was recently suggested by S/P Energy Advisor 
Steve Hellman to put the MN shares into an escrow account in 
a Dutch bank to be transferred to PKNO when: 1) The European 
Commission approves the transaction and 2) PKNO pays the rest 
of the money it owes Yukos International to the bank for 
Mazeikiu.  PKNO hopes that Yukos International will consider 
the proposal and make it happen because if Rebgun gets his 
hands on the MN shares, the deal will never happen. 
Filipowicz would appreciate any update on whether Yukos 
International believes the escrow idea will work.  PKNO 
invited Yukos International to a meeting to discuss the 
proposal, but has received no answer.  Filipowicz explained 
that there is actually another organization between Yukos 
International DB (Dutch based) and Yukos International that 
currently holds the MN shares.  This organization is a 
Dutch-based Paulos Formula foundation organized in the same 
way that foundations were organized in World War II to 
safeguard Jewish assets from the Nazis.  The Foundation has 
proven to be a useful tool in safeguarding the MN assets. 
 
-------------------------- 
Gathering Regional Support 
-------------------------- 
 
¶3.  (C)  PKNO is doing everything possible to close the deal 
quickly.  Polish President Kaczynski and Lithuanian President 
Adamkus recently sent a joint letter to EU President Barroso 
explaining the situation, asking Barroso to keep an eye on 
the transaction, and requesting expeditious EC approval of 
the deal.  A similar letter was sent to the President of 
Finland as President of the EU.  The Polish, Latvian, and 
Lithuanian Ministers of Defense sent a joint letter to their 
NATO counterparts to make them aware of the MN supply problem 
and its potential impact on the Baltic states.  While they do 
not expect the issue to be discussed at the NATO Summit in 
Riga, they want their allies to be aware of the situation. 
 
WARSAW 00002008  002 OF 004 
 
 
Poland and Lithuania do not want to be alone in facing 
Russia, stated Filipowicz.  They want energy security to be 
seen as a European and global problem.  PKNO also does not 
want to be seen by the EU as bringing about a confrontation 
with Russia, although the GOP is convinced that Russia will 
continue to use energy as an instrument of foreign policy. 
Estonia is not on board with its neighbors yet.  While there 
have been some contacts with Estonian authorities, they 
haven't said anything so far to support their neighbors.  EU 
DG for Energy Piebalgs has been especially helpful.  Being a 
Latvian citizen, Piebalgs has a good understanding of the 
situation faced by the Baltics. 
 
--------------------------------------------- ----------- 
PKNO Pleased with how MN Responded to Oil Supply Cut-off 
--------------------------------------------- ----------- 
 
¶4.  (C)  Filipowicz said PKNO is actually glad that the 
Russians cut off the oil when they did.  This gave PKNO and 
MN the opportunity to prove they can handle such supply 
problems.  PKNO is very happy with how MN Manager English 
overcame the problems.  English put into place contracts with 
Venezuelan suppliers, which, while not as reliable as Russian 
suppliers, are a viable option.  Despite the supply 
pipeline's "technical problems," MN was able to increase 
supply in August over July.  The Russians have now learned 
that they can't stop the MN sale to PKNO by playing with the 
supply as MN has alternatives.  While the Russians might be 
able to pretend that there are technical problems with the 
supply pipeline, they can't possibly play the same game with 
tankers.  Thus, PKNO doesn't expect further supply problems 
using Butinge and Primorsk. 
 
------------------------------ 
Future Plans - First Ventspils 
------------------------------ 
 
¶5.  (C)  According to Filipowicz, the Latvian government is 
considering a tender of the Ventspils system.  PKNO is very 
interested if it:  1) can puchase more than the 38% share on 
offer; and 2) can separate energy assets from real estate and 
non-energy related assets.  Ventspils could supply oil to MN, 
since according to PKNO, it is better located and more 
reliable than Butinge.  The 1 million ton tank farm would 
provide storage capacity which PKNO desperately needs to 
ensure supply at MN if other supplies are cut-off.  Owning 
the Ventspils and Mazeikiu pipelines would make it possible 
for PKNO to easily export to Estonia and Latvia. 
 
------------------- 
Who Owns the Pipes? 
------------------- 
 
¶6.  (C)  PKNO still has questions about the Latvian pipeline 
system.  The Soviet Army owned product pipelines throughout 
the USSR that supported military installations and were never 
defined on maps.  PKNO would like to buy both the crude and 
product pipelines in Latvia, but is concerned that 
Transneftoprodukt (with unknown Russian ownership) owns some 
portion of the product pipeline.  Can the Latvian government 
or the USG confirm this?  PKNO believes that the product and 
crude pipelines in Lithuania are owned by MN, but that the 
crude pipeline in Latvia is owned by the government, while 
the product pipeline belongs to some combination of 
government and Transneftoprodukt.  Any information on this 
would be greatly appreciated by PKNO. 
 
--------------------------------- 
Possible Investment in Azerbaijan 
--------------------------------- 
 
¶7.  (C)  PKNO is considering potential investments in oil 
fields in Azerbaijan and Kazakhstan, explained Filipowicz. 
One of the problems with investing in Azerbaijan is that PKNO 
believes that the Azeris are afraid of the Russians and, 
therefore, of letting PKNO invest in the fields there.  The 
Poles would appreciate a signal from the USG to the 
Ajerbaijani Government that letting PKNO invest in Azerbaijan 
 
WARSAW 00002008  003 OF 004 
 
 
is a good idea.  The Ministry of Economy had long talks with 
an Azerbaijani delegation this week and the Poles have 
indentified some target fields in which they are potentially 
interested in investing. 
 
--------------------------- 
Kazakhstan is the Real Goal 
--------------------------- 
 
¶8. (C)  PKNO is even more interested in working with 
Kazakhstan, but this effort lost momentum when PKNO won the 
MN tender over competing Kazmunaigaz.  The Kazakhs were 
apparently shocked they lost to the Poles, whom they had not 
considered serious competition.  Now that some time has 
passed, PKNO wants to propose swapping a percentage of PKNO 
assets in Europe for Kazmunaigaz assets in Kazakhstan.  This 
would give Kazakhstan its first foothold in Europe.  To 
conclude the deal, PKNO needs the support of President 
Nazarbayev and his son-in-law Kulambayev.  Here too, the GOP 
would appreciate a signal from the USG to the Kazakhs that it 
is all right to work with Poland.  President Kaczynski will 
send a letter to President Nazarbayev next week with 
political proposals that PKNO hopes will help the business 
relationship to grow.  If the swap idea does not work, PKNO 
will consider purchasing portions of onshore fields in 
Kazakhstan, as an investor and not an operator. 
 
------------------ 
Odessa-Brody-Plock 
------------------ 
 
¶9.  (C)  The President of PKNO sent a letter to Ukrainian PM 
Yanukovych asking for his help in organizing the 
Odessa-Brody-Plock pipeline project and moving it forward. 
Ukraine's Deputy Minister of Economy responded with a letter 
received by PKNO the week of September 11 in which the tone 
was "working on the pipeline would be nice but,..."  In the 
meantime, the GOP invited Yanukovych to the September 6-8 
Economic Forum in Krynica, where he met with Prime Minister 
Kasczynski.  The two leaders agreed that the project should 
go forward and that they would support it.  Subsequently, 
Ukrainian Minister of Economy Boyko urgently called 
Filipowicz begging him to come quickly to the Ukraine to 
discuss Odessa-Brody-Plock.  A team from PKNO and the 
Ministry of Economy is in Kiew on September 15 to discuss the 
project with Boyko.  Filipowicz hopes that the high-level 
attention will finally lead to progress on the pipeline. 
 
-------------------------- 
Further Steps with the USG 
-------------------------- 
 
¶10.  (C)  When S/P Energy Advisor Steve Hellman was in Warsaw 
in August he discussed with Filipowicz the idea of a 
brainstorming session between the USG, the Government of 
Poland and the Government of Lithuania on Baltic regional 
energy security issues.  Filipowicz would appreciate knowing 
whether the USG has any further thoughts on such a session. 
He is ready to go to the U.S. at any time to discuss further 
PKNO's plans and challenges. 
 
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Comment 
------- 
 
¶11.  (C)  PKN Orlen's Filipowicz is one of the most respected 
and knowledgable experts in Poland's energy industry, and an 
early supporter of the Odessa-Brody-Plock pipeline. 
Especially refreshing is that he has developed and is 
executing a realistic action plan for expanding his company 
and addressing future energy security issues.  Post would 
appreciate Department assistance in providing a response to 
PKNO regarding its requests for information on whether Yukos 
International will consider placing the Mazeikiu shares into 
escrow, which entities own the supply and product pipelines 
in Latvia, and whether the USG can and will discuss Poland's 
interest in acquisitions with the Governments of Azerbaijan 
and Kazakhstan. 
 
WARSAW 00002008  004 OF 004 
 
 
 
HILLAS