VZCZCXRO5064
RR RUEHAG RUEHAST RUEHDF RUEHHM RUEHIK RUEHLN RUEHLZ RUEHMA RUEHPB
RUEHPOD RUEHROV RUEHTM
DE RUEHBS #1526/01 2741507
ZNR UUUUU ZZH
R 301507Z SEP 08
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHKB/AMEMBASSY BAKU
RUEHAH/AMEMBASSY ASHGABAT
RUEHSI/AMEMBASSY TBILISI

UNCLAS SECTION 01 OF 02 BRUSSELS 001526 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EPET EU
SUBJECT: SPECIAL ENVOY GRAY'S MEETINGS ON THE NABUCCO 
PROJECT 
 
¶1.  (SBU) Summary.  Special Envoy for Eurasian Energy C. 
Boyden Gray met separately on September 25 with Hungary's 
Nabucco Ambassador Mihaly Bayer and Jeremy Ellis, the head of 
the Nabucco Project for Germany's RWE.  Bayer laid out 
Hungary's plans to host a high-level Nabucco summit on 
January 26-27, 2009.  Bayer believes the summit is a 
necessary step to demonstrate broad political support for the 
Nabucco project.  RWE's Ellis was much more focused on 
getting the commercial side of the equation solved before 
worrying about the politics.  Ellis believes the Nabucco 
partners are working towards a viable solution with Turkey 
and that the politicians in Brussels should stay out of the 
mix until the commercial details are worked out.  End Summary. 
 
Nabucco Summit 
-------------- 
¶3.  (SBU) Hungary's Nabucco Ambassador Mihaly Bayer began the 
meeting by describing the Government of Hungary's (GOH) plans 
to host a high-level Nabucco Summit on January 26-27, 2009. 
Bayer said that the GOH wants this to be a heads-of-state 
level summit with participation from source countries 
(Azerbaijan, Turkmenistan, Iraq, and Egypt), Turkey, the 
Nabucco Countries (Hungary, Austria, Bulgaria, Germany, and 
Romania), the European Union, the U.S., and the Nabucco 
Project itself.  Bayer presented SE Gray with a formal 
invitation to the summit and asked for U.S. support in 
encouraging high-level participation from all parties.  Bayer 
said that the GOH had already delivered letters to the 
Presidents of Azerbaijan and Turkmenistan as well as the 
Prime Ministers of Iraq and Egypt.  Preliminary reactions 
from the source countries have been good, though the GOH has 
not yet received any firm commitments for attendance. 
 
¶4.  (SBU) Bayer believes the Summit is necessary to reach a 
broad agreement on political support for the Nabucco project. 
 He said that the GOH envisages the participants signing a 
"Budapest Declaration" about major principals on cooperation 
and to demonstrate political will.  The actual form and text 
such a declaration would contain has not yet been decided. 
Bayer is meeting with EU officials in Brussels about the 
summit.  He plans to advise Energy Commissioner Piebalgs's 
Cabinet that it is important for Piebalgs to travel to 
Central Asia.  Bayer said a visit to the region by EU 
President Barroso would also be very powerful, but that 
Barroso would need to do more to support Nabucco than he did 
when he visited Turkey.  Bayer criticized EU support for the 
Azerbaijan-Turkmenistan Summit which Bayer considers 
historic, but to which the EU sent a Head of Unit to read a 
canned message.  Bayer planned to travel to the U.S. this 
week to meet with Washington-based officials from State, NSC, 
and OVP.  He also planned to meet with US ExIm Bank officials 
to discuss possible funding mechanisms for Nabucco associated 
projects. 
 
¶5.  (SBU) According to Bayer, the Turkish side is more open 
to negotiations post Russia/Georgia and seems to have a 
higher awareness of the necessity for Nabucco.  Bayer 
understands Turkey's concerns about gas security of supply, 
given the Russian threat to cut off gas supplies in 2011, but 
thinks that Turkey shouldn't expect Azerbaijan to solve its 
problems.  Bayer said the Nabucco companies need to commit 40 
million euros to move forward, but without an 
Intergovernmental Agreement (IGA) Turkish Botas will not be 
able to spend any money.  Turkey has dropped demands for a 15 
percent lift off in the IGA, but has retained this demand in 
negotiations over a Host Government Agreement (HGA).  Bayer 
said that his advisors tell him that two agreements (IGA & 
HGA) are not necessary; everything can be covered by an IGA. 
Turkey can sign an HGA with the Nabucco partners if they 
want, but an HGA is not necessary from the standpoint of the 
EU Nabucco countries. 
 
Leave the Deal to Us 
-------------------- 
¶6.  (SBU) In stark contrast with Bayer's belief in the need 
for a political solution Jeremy Ellis, German RWE's Nabucco 
Project Head, told SE Gray that the Nabucco partners are hard 
at work on a commercial deal for Turkey and what they need 
least is interference from Brussels.  In Ellis's opinion, the 
EU should concentrate on Cyprus and Turkey's accession 
aspirations and not worry about the details of the IGA and 
HGA.  Ellis believes the Nabucco partners are close to 
getting a working-level agreement with Turkey on the IGA. 
The IGA is not a corporate document, but it has to be 
commercially acceptable.  The HGA is expected to be the most 
 
BRUSSELS 00001526  002 OF 002 
 
 
difficult to negotiate, but the Nabucco partners are now 
working on a draft.  The goal is to get an agreement on the 
IGA and HGA documents by the end of the year. 
 
¶7.  (SBU) Like Bayer, Ellis views Turkey as more willing to 
negotiate in the wake of the Georgia crisis.  Turkey seems to 
be waking up to the possibility that Russia will capture all 
the gas from Turkmenistan, unless Nabucco is there as an 
alternative.  Turkey and the Nabucco partners are carrying on 
an active dialog about Turkey's security of supply concerns. 
Ellis believes the Nabucco pipeline is as much for Turkey as 
it is for Europe.  One of the options they are currently 
considering is to make the pipeline bidirectional so that, if 
needed, gas could flow from the European system back into 
Turkey.  Turkey would of course then be paying the netback 
for gas routed through Europe, but this would help them in 
their concerns about the suppl of Russian gas.  The 
principal advantage forTurkey would be that it would give 
them some negotiating room with the Russians. 
 
¶8.  (SBU) RWE is also talking to Turkish officials about 
meeting their security of supply concerns by building new 
coal-fired and possibly nuclear plants and hopes to announce 
a major hydro project with Turkey in the next 10 days.  Ellis 
believes they need to arrive at an optimal solution for 
Turkey within the next two to three months and expects that 
the proposed solution will need a political push before the 
end of the year.  To this end, RWE is now trying to mobilize 
support from the German government.  Ellis reiterated, 
however, that until the companies can deliver the commercial 
side the political push is not needed. 
 
¶9.  (SBU) Ellis said he believes it is important to open up 
the possibility of gas flows from Turkmenistan as part of the 
confidence building for the Nabucco project.  He does not 
believe Russian gas is a requirement for Nabucco, but 
believes the Russians will want to come into the project as 
shippers once they see that it is actually going to be built. 
 Ellis made a plea for the U.S. to consider allowing for the 
possibility of Turkmenistan gas transiting Iran as a first 
step in getting Turkmenistan gas flowing west through 
Azerbaijan.  Ellis also mentioned possible gas flows from 
Iraq, but did not consider this a viable short term option 
for Nabucco. 
 
¶10.  (SBU) Comment.  Bayer and Ellis both make valid points 
on the steps necessary to make Nabucco a reality.  In the 
end, Nabucco's fate will depend on how successful Ellis and 
his colleagues are at hammering out a commercial deal that 
can also garner political support from all the key players. 
End Comment. 
Silverberg 
.