VZCZCBSO474
PP RUEHBS
DE RUEHRO #0525/01 1151428
ZNY CCCCC ZZH
P 241428Z APR 08
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 0233
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHBW/AMEMBASSY BELGRADE PRIORITY 0347
RUEHMO/AMEMBASSY MOSCOW PRIORITY 4422
RUEHBS/USEU BRUSSELS PRIORITY 4626
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 04 ROME 000525 
 
SIPDIS 
 
DEPARTMENT FOR EUR DAS BRYZA 
DEPARTMENT FOR E EURASIAN ENERGY COORDINATOR STEVEN MANN 
NSC FOR DEPUTY NSA JEFFREY 
DEPARTMENT FOR P STAFF 
USEU FOR SPECIAL ENVOY GRAY 
 
E.O. 12958: ...

SUBJECT: (C) DELIVERING TOUGH MESSAGES TO ENI CEO PAOLO 
SCARONI ON RUSSIA AND IRAN 
 

REF: A) ROME 451 B) 07 STATE 16018 
 
Classified By: ECONOMIC MINISTER COUNSELOR TOM DELARE 
FOR REASONS 1.4 B AND D 
 
¶1. (C) SUMMARY: During his May 5-6 visit to Washington, Post 
believes it would be helpful to U.S. interests if Eni CEO 
Paolo Scaroni is told very clearly of serious USG concerns 
about 1) his company's close collaboration with Russia's 
Gazprom and 2) his company's continuing involvement in Iran. 
Eni is now a major collaborator in what many see as Gazprom's 
efforts to dominate the European energy market; Eni hopes to 
build Gazprom's South Stream pipeline, a project that 
threatens to scuttle the USG- and EU-supported Nabucco 
project. Eni recently gave Gazprom increased access to North 
African natural gas fields. Eni maintains long-standing 
investments in Iran. Post is preparing to push the new 
Berlusconi government to use its equity stake in Eni and 
moral suasion to force Eni to make major changes in its 
involvement with Gazprom and Iran.  Scaroni has returned from 
previous visits to Washington with the impression that Eni's 
business activities were not matters of grave concern for us. 
It would be very useful if he returns from this trip with 
raised awareness about USG unhappiness with his company. 
Scaroni has appointments with U/S Jeffery and U/S Levey, and 
tentative appointments with Acting U/S Fried, and Deputy NSA 
Jeffrey -- Embassy Rome recommends that these tentative 
appointments be confirmed.  END SUMMARY. 
 


--------------------------------------------- --- 
SCARONI HOPES TO ""MAKE ENI'S CASE"" IN WASHINGTON 
--------------------------------------------- --- 
 

¶2. (SBU) On March 4, 2007, Ambassador Spogli spoke on energy 
security to a group led by Giulio Tremonti, the man widely 
expected to be Silvio Berlusconi's Economy Minister.  The 
Ambassador spoke of the dangers of over-reliance on Gazprom 
and of the need to diversify Europe's sources of energy. The 
Italian energy giant (and parastatal) Eni, was not mentioned 
explicitly in the speech, but Eni knew we were talking about 
them.  Eni reps contacted us immediately,  asking for the 
chance to ""clarify misunderstandings"" about their 
relationship with the Russians. REF A reports on the briefing 
an ENI Vice President gave to Econ Counselor. Eni CEO Scaroni 
later called the Ambassador and asked for help in getting 
Washington meetings for May 5-6.  Scaroni traveled to 
Brussels April 16 as part of the same effort to ""clear up 
misunderstandings."" 
 


------------------------------------ 
WHAT SCARONI NEEDS TO HEAR: USG UNHAPPY WITH GAZPROM 
COLLABORATION, AND IRAN SUPPORT 
------------------------------------ 
 

¶3. (C) Post would like to push the new Berlusconi government 
to force Eni to act less as a stalking horse for Gazprom 
interests.  Eni (which is 30 percent owned by the Government 
of Italy) seems to be working in support of Gazprom's efforts 
to dominate Europe's energy supply, and against 
U.S.-supported EU efforts to diversify energy supply. We 
think we have a chance of turning that around.  Giulio 
Tremonti has told Ambassador Spogli that ""Eni has gone too 
far"" in its collaboration with Gazprom. 
 


------------------ 
IMMEDIATE CONCERNS 
------------------ 
 

¶4. (C) Of immediate concern is Eni's proposed construction of 
Gazprom's South Stream Black Sea pipeline, a project that 
threatens to scuttle Nabucco, the USG- and EU- supported 
effort to bring Caspian gas to Europe. Eni is much more than 
a mere contractor on this project -- on South Stream it is a 
50/50 equity partner with Gazprom. A senior Eni official 
recently told us that due to difficulty in reaching 
agreements with Serbia and Romania, Eni thinks there is now 
only a 60 percent chance that South Stream will actually be 
built (see REF A). We think that a strong statement of USG 
unhappiness with the project might further increase the odds 
against Eni building this pipeline. 
 



¶5. (SBU) Eni will argue that South Stream does not threaten 
Nabucco.  We have pointed out to Eni that Putin himself seems 
to think that it does. (See Eurasia Daily Monitor, 5 March 
2008). Also, Gazprom CEO Alexi Miller stated on February 25, 
2008 that South Stream ""obviates"" the need for Nabucco.  Our 
position on South Stream's impact on European energy 
diversification was clearly stated by DAS Bryza on February 
26, 2008: ""South Stream definitely does not strengthen 
diversification. It strengthens dependence on one supplier."" 
(See interview with DAS Bryza on USEU web page.) 
 


¶6. (SBU) Eni recently announced an agreement with Gazprom 
under which Eni would give the Russians access to natural gas 
fields in North Africa in exchange for increased Eni access 
to gas fields in Russia. COMMENT:  North African natural gas 
is often seen as an opportunity for Italy and Europe to 
diversify away from dependence on Russian gas.  Giving 
Gazprom control of North African fields clearly does damage 
to EU energy diversification efforts. 
 


----------------------------------- 
AND THEN THERE IS IRAN.... 
----------------------------------- 
 

¶7. (C) Eni has been in Iran for decades.  It currently 
provides natural gas that is used to pressurize Iranian 
petroleum wells.  Eni has escaped U.S. Iran Sanctions Act 
punishment because of a U.S.-EU understanding that in effect 
exempted countries with ""old"" investments in Iran that do not 
expand their operations.  Eni's continued presence in Iran 
has been an irritant in the U.S.-Italian relationship, and 
without doubt helps the Iranian regime.  We would like to see 
Eni leave Iran. Scaroni is likely to say that one of the 
alternatives to Russia as an energy supplier is Iran. A firm 
expression of USG unhappiness with Eni's current relationship 
with Iran is thus very important. 
 


----------------------- 
SCARONI IS TAKING WASHINGTON'S TEMPERATURE 
----------------------- 
 

¶8. (C) Scaroni traveled to Washington February 2007 and met 
with officials at State and Treasury, including DEPSEC 
Kimmitt (see Ref B). Most of the discussions during this 
visit were focused on Iran. We have heard from contacts here 
that the purpose of Scaroni's trip was essentially to take 
Washington's temperature and to make sure he had an 
understanding of where our ""red lines"" were regarding his 
company's Iranian operations. Scaroni reportedly came back 
from that trip convinced that his company was in no danger of 
crossing any U.S. red-lines. He almost certainly has a 
similar purpose in this upcoming visit; his staff tells us he 
wants to talk about Russia, Iran, and about Eni's recent deal 
with Venezuela. 
 

¶9. (C) Eni clearly has been trying to monitor USG reactions 
to its moves. On January 30, 2008, Eni VP for international 
affairs Enzo Viscuzi asked a senior USG official about USG 
reaction to Eni's involvement in the South Stream project, 
and asked if the USG is ""mad at Eni.""  We expect Scaroni to 
pose similar questions during this trip. 
 


---------------------- 
SCARONI, BERLUSCONI...AND RUSSIA 
---------------------- 
 

¶10. (C) Paolo Scaroni was made head of Eni in 2005 by 
then-Prime Minister Silvio Berlusconi, so there is a good 
chance he will remain head of Eni after Berlusconi again 
becomes Prime Minister in May.  But Tremonti's comment about 
Eni having ""gone too far"" may indicate discontent about 
Scaroni at high levels in the Berlusconi camp. Recent press 
reports indicate that Scaroni will stay on after the change 
in government, but this has not been confirmed.  Whether or 
not he stays, our work on this issue will be complicated by 
Silvio Berlusconi's close relationship with Vladimir Putin. 
Putin stopped off in Italy to visit Berlusconi on April 17, 
2008 (en route home from Libya).  Contacts in the Foreign 
Ministry tell us that they expect Berlusconi to take direct 
control of most important aspects of the Italy-Russian 
relationship. 
 


-------------------- 
SCARONI -- CORRUPTION ALLEGATIONS 
-------------------- 
 

¶11. (U) Scaroni's bio is available on the Eni web site, but 
officials meeting with Scaroni should also know that 
according to press reports, in 1992 he pleaded guilty to 
bribery (kickback) charges in connection with an electrical 
power station project in Brindisi. This was part of the 
massive ""Tangentopoli"" scandal that brought down Italy's 
post-war political parties. Scaroni was reportedly sentenced 
to one year and four months in prison, but apparently served 
no time. 
 


¶12. (SBU) Other reports of Eni corruption are much more 
recent: Eni owns a 25 percent share in the TSKJ consortium. 
TSKJ is under investigation by the SEC  due to alleged 
 
SIPDIS 
improper payments to Nigerian officials.  Also, in March 
2008,  British and Italian authorities launched a corruption 
probe regarding the sale of a large mobile phone system in 
Italy. Officers of the Italian energy parastatal ENEL 
allegedly received kickbacks from the Egyptian firm that was 
allowed to buy the system.  Scaroni was CEO of ENEL at the 
time of this sale. 
 


------------------------ 
SUGGESTED TALKING POINTS 
------------------------ 

 
¶13. (U) Post suggest the following talking points for use 
with Eni CEO Paolo Scaroni: 
 
-- The U.S. government remains deeply concerned about Eni's 
involvement in Iran. 
 
-- Our displeasure with Eni has been intensified in recent 
months by the way in which your company is collaborating with 
Gazprom's efforts to obtain a dominating position on the EU's 
energy supply. 
 
-- The USG strongly supports EU efforts to diversify the EU's 
sources of energy supply. We are encouraging the development 
of the Nabucco pipeline, a project that will bring Caspian 
gas to the EU.  But your company is poised to build Gazprom's 
South Stream pipeline, a project seen by many as a Russian 
effort to scuttle Nabucco. 
 
-- We are also concerned about your role in giving Gazprom 
greater access to North African natural gas fields; along 
with Caspian gas, these fields are among the only other major 
alternative sources of natural gas for Europe. 
 
-- You should understand that on two of our most important 
Eurasian security issues, we see your company as taking very 
short-sighted commercial decisions. We find it particularly 
disturbing that these positions are being taken by a company 
that is 1/3 owned by the Italian government. 
 
-- We strongly urge Eni to re-consider its participation in 
the South Stream project, and, in a broader sense, we urge 
Eni to align its policy's and programs with EU efforts to 
diversify sources of energy supply.   We also strongly 
recommend that you end your collaboration with the Iranian 
regime. 
 
-- You should not interpret our concerns as being 
anti-Russian. However, we think Europe should diversify its 
sources of energy, and we are concerned that in its 
partnership with Gazprom (a firm that often seems to be an 
arm of government action) your company is not working in 
support of this objective. 
 
-- You should know that we have similar concerns about other 
powerful market actors that, like Gazprom, do not have 
transparent decision processes. 
 


------- 
COMMENT 
------- 
 

¶13. (C) The current South Stream vs. Nabucco situation is 
eerily reminiscent of a similar struggle during the 1990s: 
In an effort to delay or prevent the construction of a 
trans-Caspian pipeline that could have helped bring Caspian 
gas to Europe, the Russians pushed forward their Blue Stream 
project (under the Black Sea). The Russians built Blue Stream 
not for commercial reasons (it always seemed like a money 
loser) but for strategic reasons (to stop the trans-Caspian 
pipeline). The Russians succeeded: Eni built Blue Stream, and 
the Trans-Caspian pipeline has never been built.   Eni is now 
preparing to play a very similar role in another Russian 
strategic pipeline project, this time as an equity partner 
with Gazprom in the South Stream effort aimed at stopping 
Nabucco. 



¶14. (C) Ambassador Spogli has made energy security one of 
Embassy Rome's top priorities.  The election of the new 
Italian government, along with Eni's parastatal status, 
presents us with an opportunity to address what is clearly 
the most important Italian piece of the European energy 
security puzzle:  Eni's role as facilitator for Gazprom's 
efforts to gain a semi-monopolistic and politically 
influential position in the European energy market. We would 
like to try to use our influence with the GOI (and with Eni) 
to change that, and to induce Eni to cooperate (not 
counteract) EU energy security efforts. 
 



¶15. (C) We are still between governments in Italy, and many 
decision makers are not yet in place, Nevertheless, we have 
some reasons to think we might have some success in pushing a 
cautionary approach on Eni and Gazprom when we engage with 
the new Berlusconi team. Berlusconi is close to Putin, and 
that may be a problem, However, Berlusconi's people have been 
talking quite a bit about energy security, and this may 
provide an opening.  Tremonti seems especially seized with 
this issue, and (as noted) has expressed unhappiness with 
Scaroni's approach to Gazprom.  We were surprised to find Eni 
itself so uncertain about whether South Stream would actually 
be built. They seem to be ""on the fence"" regarding this 
project -- perhaps we can make them even more uncertain about 
it, and about the wisdom of their alliance with Gazprom. Eni 
also seems deeply concerned about the consequences of 
angering us -- the company has significant investments in the 
United States. It would be very helpful if Scaroni hears of 
our deep dissatisfaction (as outlined above). 
 


¶16. (U) We understand Scaroni has a confirmed appointment 
with U/S Jeffery and U/S Levy,  and tentative appointments 
with Acting U/S Fried and Deputy NSA Jeffrey.  Post strongly 
recommends that these appointments be confirmed. 
 
 
SPOGLI 
"