VZCZCXRO7121
RR RUEHAG RUEHROV
DE RUEHKB #1006/01 2221221
ZNY CCCCC ZZH
R 101221Z AUG 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 3655
INFO RUCNMEM/EU MEMBER STATES
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUEAIIA/CIA WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEKDIA/DIA WASHDC
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 04 BAKU 001006 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 08/08/2017 
TAGS: PGOV PREL ENRG ETRN TX AJ RS
SUBJECT: PRESIDENT ALIYEV SAYS USG, AZERBAIJAN ALIGNED ON 
ENERGY 
 
Classified By: CDA Don Lu, Reasons 1.4 (b,d) 
 
¶1.  (C) SUMMARY:  In an August 2 meeting with DAS Bryza, 
President Aliyev said that USG and GOAJ energy policies were 
"perfectly aligned."  Azerbaijan had just that day signed an 
Energy MOU with Greece.  The GOAJ was increasing gas 
production, and ready to negotiate with British Petroleum 
(BP) about production service agreement extension and Azeri 
Chirag Guneshli (ACG) deep gas, although the government would 
warn BP that it had to "play fair."  Aliyev was quite upset 
at the recent Turkey-Greece-Italy (TGI) interconnector 
signing, in that Turkey, Greece and Italy seemed to be 
deciding the fate of Azerbaijani gas without involving 
Azerbaijan in the deliberations. Concerning Chevron's 
recently announced involvement in the Turkmen energy sector, 
Aliyev said that joint Turkmen-Azerbaijan development of the 
Serdar/Kyapaz field would greatly facilitate bilateral 
demarcation issues and trans-Caspian exports of oil and gas. 
Energy Minister Aliyev and State Oil Company of Azerbaijan 
(SOCAR) Vice-President Nassirov would take the lead on gas 
transit talks with Turkey, which will commence imminently. 
On the Qabala radar station, the President supported the 
Russian invitation to the U.S. side to visit, but emphasized 
that Azerbaijan should also participate in the visit.  Bryza 
also shared USG concerns about Iran and media freedom with 
President Aliyev.  END SUMMARY. 
 
QABALA AND MISSILE DEFENSE 
-------------------------- 
 
¶2. (C) Giving President Aliyev a read-out of the recent USG 
talks with Russian Deputy Foreign Minister Kisylak (reftel), 
Bryza said that on July 30 there was the first of three 
planned expert-level bilateral talks on the possibility of 
joint use of Gabala.  Bryza said that the USG realized that 
Gabala was Azerbaijan's property and would keep Azerbaijan 
fully aware of the talks as they continued, and would seek 
Azerbaijan's permission for any agreement reached between the 
USG and Russia.  "There will be nothing about you without 
you," Bryza assured President Aliyev. 
 
¶3. (C) Bryza asked the President whether Azerbaijan would 
support the Russian proposal for an American delegation to 
visit the Qabala radar station.  President Aliyev thanked 
Bryza for the briefing, asking him to keep Foreign Minister 
Mammadyarov apprised.  He agreed to support the visit of an 
American team to Qabala, but emphasized that Azerbaijan would 
also need to participate in the visit.  Bryza said one good 
outcome of the Kisylak talks was the USG-Russian agreement 
that an Iranian missile threat did exist.  Bryza asked Aliyev 
whether he had a preference as to Gabala being used merely to 
monitor, or whether it should undergo upgrades to allow it to 
play a fuller role in missile defense.  President Aliyev said 
he had no preference. 
 
GREECE-AZERBAIJAN ENERGY MOU 
---------------------------- 
 
¶4. (C) Bryza congratulated Aliyev on the just-signed 
Greek-Azerbaijan Energy MOU. The USG had encouraged Greece to 
reach out to Azerbaijan, especially after the Greek Prime 
Minister's snub of President Aliyev at the Black Sea 
Conference, when Greek PM Karamanlis instead signed a 
declaration with Russian President Putin on a possible South 
Stream gas pipeline under the Black Sea.  President Aliyev 
told Bryza that next year SOCAR would be increasing gas 
production to approximately eight billion cubic meters 
annually (bcm/a), in addition to freeing up another one bcm 
for export from decreased domestic gas use due to price 
hikes.  As such, the GOAJ would have non-Shah Deniz gas for 
export to Greece (which he had told Development Minister 
Sioufas earlier that day) and also extra for Georgia. 
 
GEORGIA 
------- 
 
¶5. (C) Bryza asked if Georgia would need Russian gas for the 
coming winter.  Aliyev said that the GOAJ now provides 
approximately 75 percent of Georgia's gas needs, and that he 
had told Georgia that the GOAJ would be able to tell at some 
point in August how much gas it would have for Georgia in the 
coming winter.  The GOAJ would give Georgia a "good price." 
 
TGI MOU 
------- 
 
 
BAKU 00001006  002 OF 004 
 
 
¶6. (C) President Aliyev expressed extreme pique at the July 
26 MOU signed among Turkey, Greece and Italy, saying these 
countries should not have come to an agreement about "our 
gas," including gas from the second phase of Shah Deniz 
development, without including Azerbaijan.  He scoffed at the 
mention of "Caspian gas" in press accounts of this MOU, 
saying that this gas would have to be Azerbaijani gas.  He 
thanked Bryza for the explicit mention of Azerbaijan in the 
State Department press release on this topic, with Bryza 
responding that the USG realized that Azerbaijan was the 
cornerstone of the Southern Corridor strategy. 
 
GAS TRANSIT TALKS W/TURKEY 
-------------------------- 
 
¶7. (C) President Aliyev said Energy Minister Aliyev and SOCAR 
Vice-President Elshad Nassirov would be the lead negotiators 
in gas transit talks with Turkey (NOTE:  Embassy subsequently 
learned that Energy Minister Aliyev, SOCAR V-P Nassirov and 
MFA Ambassador at large for Energy Shamil Aleskerov flew to 
Ankara on August 7 to begin gas transit negotiations, and 
that they are expected back in Baku August tenth.  We had 
urged Turkey and Azerbaijan to commence these talks for over 
a year.)  Bryza explained the MOU's stipulation that Turkey 
get 15 percent of transit gas reserved for itself at the 
netback price paid by Italy, adding that Guler wanted to 
establish a precedent.  The key to any gas transit 
arrangement is fair and transparent netback pricing. 
President Aliyev said that Turkish Energy Minister Guler had 
offered a twenty percent gas reservation clause to Energy 
Minister Aliyev during the recent Black Sea Conference. 
President Aliyev said the GOAJ would insist on direct deals 
with the consumers downstream of Turkey, and that Turkey not 
be allowed to re-sell the 15 percent gas that it would get. 
Bryza said that the Turkish position had "softened" over time 
to their current position of wanting to do only some "modest" 
gas marketing, rather than becoming a "mini-Gazprom" as 
investors feared. 
 
¶8. (C) Bryza relayed part of a conversation he had had 
earlier in the day with Majlis Deputy Speaker Valeh 
Alasgarov.  Alasgarov had said that European Nabucco 
consumers should sign "delivery or pay" contracts with SOCAR 
for gas delivery at the border, with SOCAR being responsible 
for ensuring adequate gas provision.  This would spur 
progress on the Nabucco pipeline.  President Aliyev agreed. 
 
TURKMENISTAN 
------------ 
 
¶9.  (C) Bryza said in general the news about Turkmenistan was 
good.  In his most recent trip to Ashgabat, he had seen more 
interest from the GOTX in the concept of Block One gas moving 
west.  Competent Body Chairman Myradov told Steve Mann and 
Bryza that the GOTX would decide where Block One gas 
(produced by Petronas) would be sold.  In Bryza's talks with 
the local Petronas managing director and the Georgian 
Ambassador, all agreed that the idea of an MOU among 
Azerbaijan, Georgia and Turkey on transparent tariffs and 
netback pricing would allow the GOTX to see how they could 
gain additional revenues by shipping gas west, vice north. 
Aliyev expressed support for this idea. 
 
¶10.  (C) Bryza told Aliyev that BP Group Managing Director 
and Chief Executive of Exploration and Production Andy Inglis 
was currently in Malaysia for discussions with Petronas. 
Bryza said he had good discussions with President of Chevron 
NeftGaz Russia Ian McDonald, who riefed him on Chevron's 
goal of developing, in cojunction with Azerbaijan, the 
offshore Serdar/Kypaz field and exporting the oil to global 
market via Azerbiajan.  President Aliyev pointed out tha 
joint Serdar/Kyapaz development would perforce o away with 
the issue of GOTX partial ownership of the ACG field, leaving 
Iran alone concerning Caspian delimitation and facilitating 
trans-Caspian shipments of oil and natural gas. 
 
KAZAKHSTAN 
---------- 
 
¶11.  (C) Aliyev mentioned his upcoming trip to Astana, saying 
that one of the main topics would be oil transportation. 
Bonds between the two countries' energy sectors were 
expanding, with contemplated joint SOCAR-Kazakh National Oil 
Company Kazmunaigas(KMG) ownership of a refinery in Ceyhan. 
Given the large volumes of Kazakh oil that could be flowing 
westward, the GOAJ was contemplating a new oil pipeline 
 
BAKU 00001006  003 OF 004 
 
 
through Georgia to the Black Sea.   The President said that 
he did not necessarily trust the Kazakh Government, in that 
it could well be using negotiations with Azerbaijan as 
leverage for extracting a commitment of CPC expansion from 
Russia.  Bryza agreed that an agreement on CPC expansion 
looked possible.  During his conversation with Bryza earlier 
in the week in Moscow, Transneft President Semyon Vaynshtok 
suggested Transneft and western oil companies were nearing a 
deal according to which the foreigners would accept a lower 
rate of return on their investment and agree to the 
Burgas-Alexandropolis pipeline in exchange for CPC expansion. 
 
TURKEY-IRAN MOU 
--------------- 
 
¶12.  (C) President Aliyev expressed surprise at the recently 
announced Turkey-Iran Energy MOU, saying that he doubted that 
Iran had 30 bcm for export to Turkey, or that the 
infrastructure was sufficient to ship the required amounts 
from Turkmenistan through Iran to Turkey.  If Turkish 
Petroleum (TPAO) engaged in South Pars development, the USG 
should sanction Turkey.  Bryza said that GOT officials had 
told the USG "not to worry," that the project would take many 
years to implement, presumably by which time there would have 
been a new situation in Iran.  He suspected that politics 
played a role in this announcement, given its proximity to 
the election and the strong anti-U.S. sentiment in Turkey. 
Bryza reiterated the USG,s opposition to energy investment 
in Iran. 
 
ODESSA-BRODY 
------------ 
 
¶13.  (C) President Aliyev sought Bryza,s  advice on 
Odessa-Brody.  Referring to the May 11 Energy Summit in 
Krakow, Aliyev said the EU should have sent a representative 
to participate, adding that an "EU umbrella" was needed for 
the cooperation among Azerbaijan, Georgia, Ukraine, Poland 
and Lithuania.  He said that the GOAJ was being offered 
partial ownership of the Sarmatia joint company formed by 
Ukraine's UkrTrransNafta and Poland's PERN project (for 
extending Odessa-Brody to Plock), and that this partial 
ownership if accepted would commit the GOAJ to Odessa-Brody. 
As it stands now, it was not clear whether Odessa-Brody would 
be a priority for the GOAJ.  Aliyev pointed out that this 
issue will doubtless re-surface at the follow-on meeting to 
Krakow, during the October summit in Lithuania. 
 
¶14.  (C) Bryza said the USG supports Odessa-Brody, and is 
working with the Polish government in this regard, though the 
U.S. also supported other commercially viable Bosporus bypass 
pipelines, like Samsun-Ceyhan, AMBO, and PEOP.  Poland wants 
Caspian oil for transit, and the U.S. would like to help 
Poland "stave off" Gazprom's potential hostile takeover bid 
of Poland,s PKN/Orlen oil company. Hungary also sought help 
to forestall a hostile takeover bid by OMV, which MOL,s CEO 
believed was really driven by Gazprom.  In this regard, Bryza 
requested help from President Aliyev to alert SOCAR to the 
desirability of increasing its investment profile in Hungary 
and Poland.  Aliyev said he would do so, as such cooperation 
with the U.S. in Central and Eastern Europe was in 
Azerbaijan,s interest. 
 
¶15. (C) Aliyev said that SOCAR had opened an office in 
Romania to pursue refining opportunities, which was going to 
be its regional office for Eastern Europe.  The GOAJ was 
looking to participate in the broader Eastern European 
market, and in this regard SOCAR needed guidance from its 
U.S. parter.  MOL has been a frequent visitor to Baku, and 
the GOAJ has good political relations with Hungary.  Bryza 
confirmed this point, saying that the Hungarian FM had been 
very impressed after her meeting with President Aliyev. 
 
BP 
-- 
 
¶16.  (C)  President Aliyev said that the GOAJ was waiting for 
a proposal from BP about PSA extension and ACG Deep Gas 
(note:  BP's Bill Schrader told Bryza earlier that day that 
after months of back and forth, all eight Azerbaijan 
International Oil Consortium (AIOC) partners had finally 
agreed to the proposal, which would be submitted to the GOAJ 
shortly.  Production from ACG deep gas can provide a 
significant boost in gas exports to Europe via the 
Turkey-Greece-Italy and Nabucco pipelines).  However, the 
GOAJ was "concerned with BP tactics," as it was reducing 
 
BAKU 00001006  004 OF 004 
 
 
production and increasing capital expenditures in an effort 
to forestall the date at which more profit oil would go to 
the GOAJ vice BP (from last quarter 2008, as currently 
scheduled, to 2010).  BP was also trying to recalculate the 
BTC's Total Transportation Costs to the detriment of GOAJ 
revenue.  The GOAJ, who had to approve BP's annual work 
projections, would not allow this to happen.  The GOAJ seeks 
agreement with BP, but it will insist on "fair play." (NOTE: 
On August 9, BP Azerbaijan President Schrader told Embassy 
that he will be meeting President Aliyev the week of August 
14th). 
 
¶17. (C) In summing up the energy part of the discussion, 
President Aliyev said that USG and GOAJ interests are fully 
aligned, perhaps more than ever before. Aliyev expressed 
gratitude for U.S. support over the past year in 
jump-starting the Southern Corridor. "Without that support, 
nothing would have happened," Aliyev said.   The GOAJ is 
strengthening its energy alliances with Greece, Poland, 
Hungary, Kazakhstan and Turkmenistan, among others.  It is 
increasing gas production, both within and outside the Shah 
Deniz consortium, and will be sending gas to Greece and 
Georgia. 
 
IRAN 
---- 
 
¶18. (C) Bryza told President Aliyev that now was no time for 
"business as usual" with Iran.  Aliyev said he could no 
longer postpone the upcoming visit of President Ahmadinejad. 
Bryza said that if such a visit is unavoidable, the USG hoped 
that no substantive agreements would come from such a visit. 
 
MEDIA FREEDOM 
------------- 
 
¶19. (C) Bryza shared USG concerns about media freedom in 
Azerbaijan with President Aliyev, suggesting that alternative 
dispute resolution might be a good substitute for the current 
practice of criminal libel prosecutions.  Aliyev said that 
the USG should talk to journalists about improving their 
professionalism, since "they listen to the Embassy." 
 
¶20.  (C) COMMENT:  As President Aliyev said, U.S. and GOAJ 
energy strategies have grown into full alignment during the 
past 18 months.  The major pending issues now are seeking to 
bring Turkmen gas westwards, and facilitating a Turkish-Azeri 
agreement on a fair and transparent gas transit regime. END 
COMMENT. 
 
¶21. (U) DAS Bryza has cleared on this cable 
LU