VZCZCXYZ0006
PP RUEHWEB

DE RUEHRL #1166/01 2341317
ZNR UUUUU ZZH
P 211317Z AUG 08
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 2002
INFO RUEHFR/AMEMBASSY PARIS PRIORITY 9767
RUEHBS/AMEMBASSY BRUSSELS PRIORITY 0646
RUEHSI/AMEMBASSY TBILISI PRIORITY 0205
RUEHAK/AMEMBASSY ANKARA PRIORITY 0645
RUEHBM/AMEMBASSY BUCHAREST PRIORITY 0196
RUEHUP/AMEMBASSY BUDAPEST PRIORITY 0370
RUEHKV/AMEMBASSY KYIV PRIORITY 0024
RUENAAA/OLA WASHINGTON DC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY

UNCLAS BERLIN 001166 
 
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PLEASE PASS TO H FOR CODEL LUGAR AND RM/F/DFS/FO/AA/CAA 
 
E.O. 12958: N/A 
TAGS: AFIN AMGT ASEC OREP PGOV PREL GM
SUBJECT: SCENESETTER FOR SENATOR LUGAR'S VISIT TO BERLIN, 
SEPTEMBER 1-2 
 
REF: STATE 73058 
 
¶1. (U) Mr. Senator: Mission Germany warmly welcomes you to 
Berlin. Your visit comes on the heels of the historic 
opening of our new Embassy on Pariser Platz on July 4, 
preceded by the separate June visits of President Bush and 
Secretary Rice. I am pleased that we will be able to host 
two of your meetings in our magnificent new facility. The 
central theme of your visit -- energy security -- has moved 
to the top of the German foreign policy agenda -- 
particularly in light of the recent events in Georgia. 
German officials, Bundestag members, and leading energy 
companies are eager to learn about the results of your 
visits to Tbilisi, Kyiv, Baku and other key capitals in the 
region.  In Berlin, you will meet with senior 
officials/state secretaries at the Federal Chancellery, 
Ministry of Foreign Affairs, Economics Ministry, 
Environment Ministry, and Agricultural Ministry; with 
members of the Bundestag responsible for energy and foreign 
affairs; and with senior representatives from three major 
energy firms: RWE, E.ON Ruhrgas, and Wintershall AG. 
 
Political Overview 
 
¶2. (SBU): Germany increasingly is looking toward the next 
federal election, which most likely will take place in 
September 2009. Chancellor Merkel remains highly popular, 
but polls show that her Christian Democrats (CDU) and their 
Bavarian sister party (the Christian Social Union -- CSU) 
do not currently enjoy enough support to enable them to 
form a center-right coalition with the Free Democrats 
(FDP). Consequently, a "Grand Coalition" (CDU/CSU and the 
Social Democratic Party, or SPD) may well govern Germany 
even after 2009, since other majority coalitions will be 
difficult to achieve in the current fragmented political 
spectrum. The SPD -- the junior partner in the Grand 
Coalition -- is polling at a post-war nadir, with numbers 
in the low to mid-20% range, and must contend with the 
rising popularity of the new Left Party. The Left Party is 
focused primarily on rolling back reforms of the German 
welfare state, but also advocates an isolationist foreign 
policy that would undermine the transatlantic relationship. 
 
The Crisis in Georgia 
 
¶3. (SBU) The crisis in Georgia has strongly engaged 
Germany's foreign policy leadership and will be a central 
topic of discussion in your meetings at the Chancellery, 
MFA, the Economics Ministry, and with Bundestag members and 
energy companies.  After meeting with Russian President 
Medvedev on August 15 in Sochi, Chancellor Merkel visited 
Georgian President Saakashvili in Tbilisi two days later. 
Chancellery spokesman Thomas Steg subsequently warned that 
"this war in South Caucasus means a change, a profound 
break. One doesn't wish to isolate Russia; however the 
relations to Russia must be rethought."  In her recent 
visit to Tbilisi, Merkel stated clearly her belief that 
Georgia "will become a member of NATO, if it wants to." 
Merkel, however, has not changed Germany's position 
opposing offering NATO's Membership Action Plan to Georgia 
at this time. Germany also believes Ukraine is not yet 
ready for MAP because of the lack of a national consensus 
in the Ukrainian population on NATO membership. 
 
Germany's Energy Landscape 
 
¶4. (SBU) Germany's energy landscape is shaped by its heavy 
dependence on imported sources; rising consumer prices; a 
strong, diverse, and constantly growing renewable energy 
sector; and a heated ministerial debate on whether to 
lengthen the running times of nuclear plants.  Net imports 
of energy have risen steadily since 1990 although Germany 
is the EU's second largest producer of coal and nuclear 
energy.  Russia is the leading gas exporter to Germany with 
a 37% share; Norway, the Netherlands, Denmark and the UK 
supply 48%; domestic production provides 15%.  Domestically 
produced renewable energy has substantially increased in 
the last few years.  In 2007, consumption in Germany broke 
down as follows: 34% oil, 26% coal (14% hard coal, 12% 
lignite), 22% natural gas, 11% nuclear, and 6.7% 
 
renewables.  Together, coal (46%) and nuclear (22%) 
produced two thirds of Germany's electricity (renewables 
just 14%, of which one half was wind). 
 
German Energy Policy 
 
¶5. (SBU) You will be meeting with Economics Ministry State 
Secretary Peter Hintze and Environment Ministry State 
Secretary Mattias Machnig, who are from the two key 
ministries on energy issues. The Economics Ministry has 
primary responsibility for fossil fuels and the Environment 
Ministry for renewables and nuclear energy. 
 
¶6. (SBU) A series of energy policy summits hosted by 
Chancellor Merkel in 2006 failed to produce agreement on a 
national energy policy.  In 2000, Germany initiated the 
phase-out of German nuclear reactors; the last German 
reactor is due to go off line in 2020. Rising energy prices 
have generated controversy over the nuclear phase-out and 
possible power shortages in the next decade. A policy 
change on nuclear energy before the 2009 election, however, 
is unlikely. 
 
¶7. (SBU) Germany initiated a domestic Integrated Energy and 
Climate Package (IECP) in 2007 that seeks to reduce CO2 
emissions by 36.6% by 2020.  Measures to increase the share 
of renewables from the current 13% to 25/30% in 2020 have 
already passed.  More legislation to tighten requirements 
in transportation and for building insulation will go to 
Parliament in the fall. The German package is supplementary 
to the EU Emissions Trading System (ETS), which plans to 
substantially increase the share of certificates auctioned 
when the third trading period begins in 2013. The SPD-led 
Environment Ministry regards the nuclear phase-out as 
irreversible and thus supports new coal-fired generators to 
replace some nuclear power until renewables can take-over. 
However, a campaign by environmentalists to stop coal-fired 
generators across the board has already stopped several 
projects. 
 
¶8. (SBU) Germany continues to push its aggressive mid-term 
emissions target although most European countries cannot 
hope to achieve such a goal.  At the Major Economies 
Meeting (MEM) in Japan July 7-9, Germany also agreed with 
developing nations that not only should the developed world 
bear a larger burden to reduce emissions, but that they 
also must commit to doing so first -- a position with which 
we disagree. 
 
Germany and EU Energy Policy 
 
¶9. (U) The Germans oppose three key EU energy proposals: 1) 
unbundling ownership of energy utilities; 2) restricting 
foreign corporations from entering EU energy markets unless 
reciprocity is available (the EU's so-called Gazprom 
clause); and 3) creating a European super-regulator. 
 
¶10. (SBU) Germany argues that unbundling favors state-owned 
entities (such as those in France) because the split 
operation would still be controlled by the same entity -- 
the state. Germany led a blocking minority in the EU 
pushing for a compromise favoring stricter controls rather 
than forced sale of transport assets.  E.ON, however, broke 
ranks last February and negotiated a deal with the EU to 
sell its long distance power lines and swap generating 
capacity in return for an EU guarantee not to pursue anti- 
trust investigations.  RWE followed suit with a deal of its 
own involving the sale of its long distance pipelines.  In 
the last two years, the EU has initiated several anti-trust 
cases against large German energy corporations. 
 
¶11. (SBU) On the Gazprom clause, the German Government says 
it opposes the regulation on the grounds that it is too 
sector-based.  Germany likewise opposes a new European 
super-regulator because it argues current coordination 
among national regulators already serves that purpose. 
 
Germany and Russia 
 
¶12. (SBU) Germany takes a pragmatic view of its energy 
 
relationship with Russia, which it maintains is "reliable 
and independent from political change" and "built on 
economic raison d'etre." Officials note that Russia is 
equally dependent on the EU countries in order to acquire 
necessary new technology and maintain the revenue flow from 
Europe.  Germany emphasizes the importance of a diversity 
of sources in the European energy mix, including from 
Central Asia and the Caspian region.  On the other hand, 
rumors of Gazprom interest in a German energy company 
generated considerable public concern and were the main 
impetus behind investment security legislation that will go 
to the Bundestag this fall. 
 
¶13. (SBU) Berlin-based Gazprom Germania is a growing force. 
Founded in the early 1990's to handle Gazprom's Western 
European business, earnings more than doubled in the past 
year.  Yet the firm delayed its plan to buy shares in 
German municipal utilities or regional distributors because 
of uncertainties about future European energy policy. 
Gazprom Germania is investing in gas storage facilities and 
gas power stations in connection with Nordstream and plans 
a 400 million Euro ($600 million) gas power plant near the 
Polish border. 
 
Gas Pipelines: Nabucco and Nordstream 
 
¶14. (SBU) You will meet with three key energy companies: 
RWE, E.ON, and Wintershall. The Nabucco and Nordstream 
pipelines will be at the center of these discussions. 
 
-- RWE and Nabucco: 
 
¶15. (SBU) RWE, which with 10 billion Euros is Germany's 
second largest energy company, joined the Nabucco Gas 
Pipeline Consortium in February 2008.  In addition to the 
Georgian crisis, RWE remains concerned about 1) 
insufficient contractual gas supplies to justify investment 
(only Azerbaijan has committed supply to date, with Iraq on 
the drawing board); 2) Turkish attempts to secure gas for 
its domestic market (Turkey is concerned about Russian 
supply cuts and wants to secure all gas supplies from 
Azerbaijan); 3) Gazprom's rival South Stream Pipeline 
project, which is progressing faster than Nabucco; and 4) 
construction costs that have spiralled to 7.9 billion 
Euros.  RWE has up to 18 months to make a final investment 
decision.  Before the outbreak of hostilities in the 
Caucasus, RWE was eager to sign transit agreements by 
September or October this year. 
 
-- E.ON and Nordstream: 
 
¶16. (SBU) After agreement between then Chancellor Schroeder 
and Russian President Putin, Gazprom, E.ON and BASF signed 
an agreement to build the 1,200 km Nordstream pipeline from 
Vyborg, Russia to Greifswald on the German Baltic Coast. 
Gazprom holds 51% of the shares. Gazprom and E.ON plan to 
build a gas-fired power plant in Greifswald where the 
pipeline lands.  Gazprom reportedly gave E.ON and BASF 
options to take 25% shares each in drilling and 
exploitation at the Siberian gas field Yushno Russkoye, 
which will feed the pipeline.  Whereas BASF quickly reached 
agreement with Gazprom, E.ON is still negotiating.  The 
project is supported by the EU and the Merkel government, 
but Poland and the Nordic and Baltic countries have 
expressed strong reservations. 
 
-- Wintershall and Nordstream 
 
¶17. (SBU) Meanwhile, E.ON, which is Europe's largest 
commercial energy corporation, is beginning construction of 
Germany's first offshore deep water wind farm. Its gas arm, 
E.ON Ruhrgas, still enjoys a 50% share since liberalization 
of the gas market.  Ruhrgas has imported gas from Russia 
since the first pipeline to Western Europe went into 
operation in 1973 and has long term gas contracts until 
¶2026.  It owns a 6.5% share in Gazprom and is the only 
foreign entity to hold a seat on its supervisory board. 
Despite this, E.ON Ruhrgas has been unable to reach 
agreement on a share of the Russian Yushno Russkoye gas 
fields.  Recently, the company indicated it wants to reduce 
 
its dependence on Russian gas and diversify its suppliers. 
 
¶18. (SBU) Wintershall is the oil and gas subsidiary of the 
chemicals company BASF and Germany's largest oil and gas 
producer.  Wintershall founded Wingas, a joint venture with 
Gazprom that is now a major gas trader and operator of gas 
storage facilities.  Wintershall has supply contracts with 
Gazprom until 2030. In 2006, BASF agreed to take a 35% 
share in the Yushno Russkoye field which will supply 
Nordstream.  In return Gazprom increased its share in 
Wingas to 50% minus one share and took a 49% share in two 
Wintershall oil operations in Libya.  Wintershall argues 
that Nordstream will increase mutual dependence and make it 
harder for Gazprom to operate unilaterally. Wintershall 
also formed a joint venture with Gazprom, ZAO Achimgaz, in 
2003 to exploit the west Siberian Urengoi gas field. 
 
Agricultural Biotechnology 
 
¶19. (SBU) Your program will also include a meeting with the 
State Secretary of Agriculture, Gert Lindemann, where the 
major topics of discussion will be biotechnology and bio- 
energy. Germany, which generally follows the EU position on 
biotechnology, has either abstained or voted against the 
approval of new biotech events.  The formation of a Grand 
Coalition government in 2005 raised hopes for greater 
acceptance of biotechnology in German crop production 
practices.  However, Agriculture Minister Seehofer's 
enthusiasm waned as the Green Party and NGOs intensified 
their campaign against biotech.  Still, acceptance of 
biotechnology by German farmers is growing, particularly in 
the eastern part of the country where farms are larger.  In 
the first several months of 2008, German farmers registered 
an estimated 4,382 hectares of farmland for the cultivation 
of Bt corn varieties vs. 2,685 hectares for the entire 2007 
crop year.  While Merkel is more open to biotechnology, 
Seehofer leans toward the environmental groups, 
particularly Greenpeace, encouraging importers to look to 
Russia and the Ukraine for non-biotech products. 
 
¶20. (SBU) Government and industry are well aware that the 
EU's inability to approve the numerous outstanding biotech 
products could result in trade disruptions and effectively 
shut the EU from the world market for animal feed protein. 
(As the second highest ranking official at the Agriculture 
Ministry and expert on these issues, Lindemann fully 
understands the stakes in question.) Higher animal feed 
prices are beginning to intensify calls by German farmers 
and industry representatives to make changes in the EU 
approval policies.  (Note: The EU's biotech policies have 
exacerbated price hikes in animal feed by virtually closing 
the market to U.S. corn gluten feed.)  With a limited 
amount of land and strict crop rotation requirements, 
Germany is unlikely to have enough plant material to reach 
its bioenergy goals.  These developments pose a growing 
dilemma for Germany's politicians. 
 
 
TIMKEN JR