VZCZCXRO1472
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHVB #0101 0291523
ZNY CCCCC ZZH
R 291523Z JAN 07
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 7211
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEAIIA/CIA WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L ZAGREB 000101 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 01/29/2017 
TAGS: ENRG ECON HR ENERGY
SUBJECT: GOC COMMITTED TO ADRIATIC LNG PROJECT 
 
Classified By: EconOff Nicholas Berliner for reasons 1.4 b&d. 
 
¶1.  (C) Summary: Croatian Assistant Minister of Economy for 
Energy Zeljko Tomsic told Econ Off that Croatia remains 
committed to building an LNG terminal on the Adriatic coast, 
despite press rumors that the project may be in jeopardy. 
Tomsic said that the GOC is very concerned about energy 
security and does not want to become overly-reliant on 
Russian gas.  Tomsic's statements echo those of other senior 
GOC officials and indicate the high level of support for 
construction of the facility, tentatively scheduled for 
completion by 2012.  End Summary. 
 
¶2.  (C) Recent rumors in Zagreb have suggested that Croatia's 
planned LNG terminal on the Adriatic could be threatened as 
other members of the consortium (OMV, Total, RWE, Geoplin and 
INA) lose patience with GOC efforts to renegotiate and 
restructure Croatia's share in the Adria LNG Study Company. 
INA Senior Adviser Stevo Kolundzic recently told Econ Off 
that he was worried that efforts to create a new Croatian 
consortium partner consisting of INA (10%), the state 
electric monopoly HEP (10%) and the state-owned pipeline 
operator PlinaCro (5%) were a threat to Croatia's credibility 
as a reliable partner in the venture.  Kolundzic said he 
could not see a necessary role for HEP and PlinaCro in the 
venture, as INA's share would provide them with required 
quantities of gas.  He said that he had been confident that 
the terminal would be built, but for the first time worried 
that overly-heavy GOC interference could unnerve the other 
companies. 
 
¶3.  (C) Econ Off met January 23 with Zeljko Tomsic, Assistant 
Minister of Economy responsible for Energy to discuss the GOC 
position on the LNG terminal.  Tomsic said that the project 
was not in danger of failing over a disagreement among the 
partners, noting plans to sign an MOU on the new consortium 
structure by the end of January.  He said that the GOC 
considers the LNG project to be of strategic importance, 
which is why the Government decided to push for a larger 
share.  When asked if government interference in the deal 
would send the wrong signal to the other partners in the 
consortium, Tomsic replied that he believed they would see 
benefit in having the GOC involved in the plan as an 
indication that it has sufficient political support to 
overcome the likely bureaucratic, political and environmental 
hurdles that plague any major project in Croatia, much less 
one of these proportions.  However, Tomsic said that despite 
the GOC's strong support, there were still risk for the 
project.  He said that any pipeline bringing large volumes of 
gas through the Balkans to Central Europe could undermine the 
viability of LNG, but that he was confident Croatia would get 
support for the project from the EU, as it would help the 
diversification of supply in a region overly-dependent on 
Russia.  Tomsic also noted that competing LNG projects could 
call into question the need for the Croatian terminal or that 
the construction of re-gasification terminals could outstrip 
the supply of LNG. 
 
¶4.  (C) Tomsic also shared his views on the Russian role in 
the region.  He said the GOC was cognizant of Gazprom efforts 
to acquire downstream assets across Europe.  When asked what 
Gazprom was demanding of Croatia in ongoing negotiations for 
delivery of an additional 1.5 bcm of gas to Croatia, Tomsic 
said that the Russian side had pushed for concessions in 
power generation and local gas distribution.  (Note: As 
Croatia invests in its gas pipeline network, gas distribution 
companies will be set up in cities that heretofore have not 
had natural gas.)  He said that the Russians were gradually 
acquiring assets all over the region, so it was only to be 
expected that their eye would eventually fall on Croatia, 
despite its still small gas market. 
 
¶5.  (C) Comment: The GOC has thus far demonstrated a 
commitment to building the Adriatic LNG terminal, despite 
what could be considered clumsiness in its dealing with the 
consortium.  Apart from threats to the commercial viability 
of the project beyond the GOC's control, the other wild card 
is potential environmental opposition.  However, with the 
exception of some noises on the margins, there has not yet 
been any substantial controversy surrounding the terminal, 
although the project being in its early stages has not yet 
gathered sufficient media attention to energize potential 
opponents.  In that respect, Tomsic is correct that having 
GOC involvement in the project will be essential to assuring 
investors that this project will not share the fate of many 
other projects in this country that have run aground on the 
rocks of local opposition.  Post will continue to watch this 
issue closely.  End Comment. 
BRADTKE