VZCZCXRO7595
PP RUEHIK RUEHPOD RUEHYG
DE RUEHUP #0836/01 2351231
ZNR UUUUU ZZH
P 221231Z AUG 08 ZDK
FM AMEMBASSY BUDAPEST
TO RUEHC/SECSTATE WASHDC PRIORITY 3308
INFO RUEHZG/NATO EU COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 BUDAPEST 000836 
 
CODEL 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EUR/CE AND H; H PLEASE PASS TO SENATE 
FOREIGN RELATIONS, KMEYERS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON GG RU HU
SUBJECT: HUNGARY: CODEL LUGAR SCENESETTER 
 
¶1.  (SBU) Welcome to Budapest.  Your visit comes as the 
Hungarian Government slowly re-engages following the long 
summer "cucumber season" and offers an excellent opportunity 
for discussion of Georgia and energy security.  While Hungary 
remains a committed partner in the trans-Atlantic 
relationship - providing forces in Afghanistan, Iraq, and 
Kosovo - its economic problems, reform fatigue and sharp 
political divisions have resulted in a stalemated society. 
Prime Minister Gyurcsany is on the defensive personally and 
politically: the opposition (Fidesz) continues to press him 
on all fronts, and he is increasingly embattled and isolated 
even within his own socialist party, (MSZP).  With the 
dissolution of the MSzP-Free Democrats (SzDSz) coalition last 
spring, the government is now feeling its way forward without 
a Parliamentary majority and faces it most important test of 
survival this fall when it presents the annual budget. As a 
minority government, its major preoccupation will be 
remaining in power until the 2010 elections. 
 
 
¶2.  (SBU) Foreign policy issues remain largely fire-walled 
from the domestic political tension, with consensus holding 
on Hungary's engagement in Afghanistan - despite the recent 
deaths of two bomb disposal troops in Baghlan Province - and 
its recognition of Kosovo.  All parties also agree on the 
importance of visa-free travel for Hungarians to the United 
States.  We are concluding the final agreements necessary for 
Hungary to enter the Visa Waiver Program and are hopeful they 
will be nominated for the program before the end of this 
year.  Georgia, however, has opened a sharp rhetorical rift 
between the government,s moderate response (the Prime 
Minister has made no statements about Georgia; the Foreign 
Minister has stuck tightly to the EU-NATO statements) and 
Fidesz,s strong condemnation of Russian activities (which 
has engendered sharp attacks by Hungary,s Russian 
Ambassador.) 
 
¶3.  (SBU) Energy security for Hungary remains a crucial issue 
and your schedule begins with Foreign Minister Kinga Goncz 
and recently appointed "Nabucco" Ambassador Mihaly Bayer. 
Russia supplies over eighty percent of Hungary,s gas, 
providing opportunities for both subtle and blatant influence 
on Hungarian policy. The way forward on South Stream is a 
particular concern, and following the government's 
preliminary deal with Moscow, we continue to emphasize that 
the sequencing of pipelines does matter.  We need to press 
them to follow through on their professed commitment to 
Nabucco.  Their designation of Bayer as Nabucco Ambassador is 
a step in the right direction, but they should be encouraged 
to do more - particularly by concluding a purchase agreement 
with a Central Asian supplier.  During the meeting, you may 
also wish to thank the Foreign Minister for Hungary,s offer 
of humanitarian aid to Georgia - the offer is currently being 
worked through State Department channels - and share your 
views on the issue.  The Foreign Minister has publicly 
supported the sovereignty and territorial integrity of 
Georgia but believes communication with Russia must be 
maintained. 
 
¶4.  (SBU) Prime Minister Gyurcsany will host you at lunch, 
joined by his Foreign Affairs Advisor, Karoly Banai and MFA 
State Secretary Laszlo Varkonyi.  According to Banai, the 
Prime Minister,s recent trip to potential Nabucco supplier 
countries, Azerbaijan and Turkmenistan, July 7-9, was 
designed to demonstrate that Hungary is committed to "do more 
than talk about Nabucco."  While the government has told us 
it plans to host a Nabucco summit in early 2009, it would be 
useful to inquire when they plan to publicly announce the 
event and extend invitations.  It would also be helpful to 
encourage improved transparency with regards to South Stream. 
 Hungary is currently negotiating a more substantive South 
Stream contract that may or may not include murky 
intermediary companies. 
 
¶5. (SBU) On Georgia, a strong message to the Prime Minister 
encouraging unequivocal support in international and 
multilateral fora for Georgia's independence, sovereignty and 
territorial integrity would help reinforce our encouragement 
for Hungary to be more vocal on this issue. 
 
¶6.  (SBU) Following lunch, you will meet with the CEO of MOL 
(Hungarian Gas Company) Zsolt Hernadi.  Austria,s OMV 
recently dropped a hostile takeover bid for MOL.  The 
disposition of OMV,s shares of MOL has created speculation 
that Gazprom may try to gain an ownership stake in MOL.  Over 
the past two years, we have focused on positive outreach to 
the GOH and MOL, offering assistance whenever possible. 
However, with the GOH concerned more with Moscow's reaction 
 
BUDAPEST 00000836  002 OF 002 
 
 
than with Brussels' or ours, and with MOL promoting 
Gazprom-centric projects over Nabucco, your visit provides an 
opportunity to press Hernadi on his views vis-a-vis Nabucco, 
South Stream and MOL,s relationship with Gazprom. 
 
¶7.  (SBU) We have scheduled press availability with one of 
the Hungarian daily newspapers following your meeting with 
MOL.  We are also awaiting confirmation of a meeting with 
Minister of Defense Szekeres, as well. 
 
¶8.  (SBU) Ambassador Foley will host a dinner on Friday 
evening with key opposition leaders to hear their views on 
energy as well as other foreign policy issues.  Prior to your 
departure on Saturday, the Ambassador will host a breakfast 
with key opinion leaders from academia and several foreign 
policy institutes. 
 
¶9.  (U) We look forward to welcoming you in person. 
Foley