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C O N F I D E N T I A L SECTION 01 OF 04 ROME 001308 
 
SIPDIS 
 
EEB FOR SE GRAY 
EEB FOR DAS HENGEL 
EEB FOR DAS BRYZA 
EEB FOR AMBASSADOR MANN 
EEB FOR CBA SR FRANK MERMOUD 
 
E.O. 12958: DECL: 10/28/2018 
 
TAGS: PGOV PREL ECON ENRG IT RU AZ

SUBJECT: ITALIAN ENERGY ISSUES: SPECIAL ENVOY C. BOYDEN 
GRAY DISCUSSES CASPIAN ENERGY; ENI SOUTH STREAM RUSSIAN 
TROUBLES; SKEPTICISM OVER 20-20-20 AND CHOOSING BETWEEN 
U.S. AND FRENCH NUCLEAR TECHNOLOGY 
 


REF: A) ROME 451 B) ROME 1101 
 
ROME 00001308  001.4 OF 004 
 
 
Classified By: Minister Counselor Thomas L. Delare 
for reasons 1.4 b, d and e 
 


¶1.  (C) SUMMARY: On October 9 and 10, 2008, Special Envoy C. 
Boyden Gray visited Rome and met with key energy officials of 
the Italian Government and private sector. Major points of 
discussion revealed Italian worry about Caspian gas, namely 
whether the Turks will agree to let a sufficient amount of 
gas flow west to Greece and Italy, and whether the Azeris 
might lack the gas and/or the political will needed to make 
the Turkey-Greece-Italy pipeline project happen. Italy will 
convene a Turkey-Greece-Italy-Azerbaijan meeting in December 
or January in an effort to nail down positions. Regarding the 
South Stream pipeline, ENI officials report a lack of any 
definitive agreement to confirm their ""partnership"" with 
GAZPROM -- this project appears to be on hold.  Italian 
energy officials are deeply skeptical about Europe's 20-20-20 
emissions goals. A key GOI energy official told SE Gray that 
the nuclear energy agreement that Berlusconi will sign with 
the Russians in November will not be significant. Finally, 
the Italians seem to be leaning towards the French in their 
re-nuclearization project, though Embassy efforts have opened 
up the possibility of fast-track approval of U.S. nuclear 
technology too. End Summary 
 


--------------------------------------------- --- 
ENI HAVING TROUBLE WITH ITS RUSSIAN PARTNERS OVER SOUTH STREAM--------------------------------------------- --- 
 

¶2. (C) Sergio Garribba, Energy Advisor to Economic 
Development Minister Scajola, told SE Gray that the Italian 
energy parastatal ENI has been having serious problems with 
the Russians.  For over a year, ENI has been telling us that 
it had entered into a full 50-50 partnership with GAZPROM on 
the South Stream (Black Sea) pipeline project, and that in 
this partnership, ENI would go far beyond merely building the 
pipeline for Gazprom (as they did on Blue Stream and as they 
are doing on Nord Stream). This new arrangement would, we 
were told, have made ENI a full partner with Gazprom in the 
sale of the gas sent through the new pipe. 
 


¶3. (C) Garribba explained, however, that during the summer 
ENI asked the GOI for help. Garribba said the company is 
concerned that it has no formal contract with the Russians. 
ENI's concern was apparently peaked by the fact that the 
Russians were signing contracts with Bulgarians and others 
that did not include ENI as a partner.  Minister Scajola went 
to Moscow in an effort to get ENI the contract that it 
wanted, and proposed the formation of a ""working group"" to 
hammer out the contract's details.  The Minister provided a 
list of possible Italian participants and asked the Russians 
to do the same.  Garribba said the Russians never responded. 
""ENI has nothing on paper from the Russians on the 
partnership,"" stated Garriba, ""All they have is an agreement 
to do a study."" Garriba spoke as if South Stream is not going 
to happen.  But he said he thinks the Russians may try to 
double the capacity of Blue Stream (the pipe that goes from 
Russia to Turkey on the Eastern side of the Black Sea). He 
said that technically this route would be a lot easier. 
 


¶4. (C) ENI officials told Ambassador Gray essentially the 
same thing, stating that ENI is accused of nefarious 
collaboration with Gazprom on South Stream when all ENI has 
is the agreement with Gazprom to do a feasibility study 
though their 50-50 joint venture.  ENI, however, is 
interested in securing the contract to build South Stream, as 
well as obtaining from Gazprom rights to sell South Stream 
gas to Eastern Europe. (Under current market ceilings set by 
Italian anti-trust law, due to expire in 2010 unless renewed, 
ENI would not be able to sell the gas in Italy.) Gazprom is 
 
ROME 00001308  002.2 OF 004 
 
 
interested in selling gas directly in Italy. 
 


¶5. (C) During a separate October 21 meeting, ENI's South 
Stream manager told EconOff that, ""in my opinion, South 
Stream has less than 5 percent chance of being built in the 
next five years."" He further explained that Gazprom will face 
major problems in the near future in raising the capital it 
needs to finance projects. 
 


--------------------------------------------- --- 
SOUTHERN CORRIDOR:  ITALIANS WORRIED ABOUT AZERIS, NOT THE 
TURKS 
--------------------------------------------- --- 
 

¶6. (C) On the Turkey-Greece-Italy southern corridor project 
(TGI), SE Gray told Garribba that we think the problem is 
primarily in Turkey -- the Turks are demanding too much Azeri 
gas, and are unwilling to let a sufficient amount transit 
their country.   Garribba emphatically disagreed. He said 
Italy has an ""informal agreement"" with the Turks to let 6-7 
bcm of gas pass through TGI to the West. Garribba said that 
Italy's concerns are focused on Azeri ability and willingness 
to sell gas to the West. He said he doubted that the Azeris 
had enough gas to meet both their domestic needs and the 
requirements for TGI. SE Gray told Garribba that the USG is 
confident that the Azeris will supply the gas to western 
pipelines.  ""We can deliver the Azeris, if you can deliver 
the Turks,"" said Gray.  Garribba said he would be able to 
give a definitive answer on the Turkish position ""within four 
months.""  He explained that Italy is setting up a 
quadrilateral meeting (Italy, Greece, Turkey, and Azerbaijan) 
this December or in January 2009 in an effort to nail these 
issues down. But he said at this point he is not sure that 
the TGI pipeline will be built. 
 


¶7. (C) In a separate meeting, MFA's Economic Bureau Director 
General Magliano also indicated that Turkey is not the 
problem. Magliano told SE Gray that Italy has excellent 
relations with Turkey but not with Azerbaijan.  SE Gray told 
Magliano the same thing he told Garriba, that if Italy can 
deliver Turkey, we can deliver Azerbaijan. Magliano was 
non-committal, however, thanking SE Gray and stating that the 
GOI would call on the USG's assistance if needed. The Georgia 
crisis had created a problem for the Nabucco pipeline, he 
said, which made TGI more practical.  On the GOI's position 
for the various gas projects, he summed it up as, ""the more 
pipelines, the better"". Magliano said that following this 
principle, Italy supports TGI, Nabucco, South Stream and Nord 
Stream. 
 


¶8. (C) TGI's private sector partner on the Italian side, 
Edison, is not quite as sanguine about Turkey and worries 
that there might be problems there. Edison's CEO Quadrino 
explained to SE Gray that the plan is for Minister Scajola to 
go to Greece in the very near future, followed by a trip to 
Azerbaijan to obtain agreement.  This may lay the ground work 
for a deal with Turkey during the quadrilateral meeting later 
this year or early in 2009. Quadrino said that the goal would 
be to reach clear splits of the gas volumes. 
 


¶9. (C) Garribba warned that the first of the Caspian Sea 
pipeline projects to be finished ""will be the winner"" because 
the market for gas will be saturated. Regarding Italy's gas 
situation, Garriba said that if many of the proposed 
pipelines and LNG terminals are completed, Italy will have 
gas supplies excess to its needs.  At that point Italy would 
market gas to land-locked EU countries that lack access to 
LNG. On energy diversification, Garriba said that he would 
someday like to set limits on how much energy suppliers could 
bring in from Russia.  Companies might be told, for example, 
that only 70 of their total imports could come from Russia. 
 
 
ROME 00001308  003.2 OF 004 
 
 


--------------------------------------------- -- 
20-20-20, Russian Nuclear Agreements, French Nuclear Reactors 
--------------------------------------------- -- 
 

¶10. (C) Garribba was harshly critical of the 20-20-20 GHG 
goals, calling them unrealistic, and lamented the lack of 
coordination among environment, energy and economic 
ministries. (Note: energy companies Edison and ENI expressed 
to SE Gray similar skepticism over the 20-20-20 date and 
target goals. End note) 
 


¶11. (C) When asked about a planned November 7 Berlusconi 
visit to St. Petersburg, Russia, and about reports that some 
sort of atomic energy  agreement would be signed, Garribba at 
first didn't seem to understand what we were asking about, 
but when he caught on he laughed and threw up his hands in a 
dismissive gesture. ""Oh that,"" he said, ""That's a joke. 
That's just for public relations. That's not important.""  He 
went on to dismiss the idea that Italy would opt for Russian 
technology for its nuclear power program (Note: He is 
probably right -- the Italians ended their previous nuclear 
power project in response to the Chernobyl catastrophe -- but 
given the close relationship between Berlusconi and Putin, we 
can't be completely sure that their nuclear agreement will be 
devoid of substance. End note). 
 


¶12. (C) On nuclear power, Garriba seemed to indicate that a 
number of companies would be ""invited to invest"" in nuclear 
power as ""Italy is a free market and the GOI cannot dictate 
to private companies"".  He listed a number of possible 
candidates, all of them European (ENEL, EON, Edison).  We 
asked about U.S. companies, and Garriba responded that a 
company like Westinghouse might be asked by one of the 
""investor"" companies to supply reactors to the project. He 
added that Italy  may opt to use two different reactor 
designs. He said that the favorite technology may be French 
as most of the potential power companies that might invest in 
Italy seem to favor the Areva ERP design. He reiterated 
Minister Scajola's goal of obtaining an Italian energy mix by 
2030 of 25 percent nuclear power, 25 percent renewables and 
50 percent fossil fuels. (Note: Post was able to persuade the 
GOI to change a version of nuclear draft legislation that 
would have waived Italian certification approval to nuclear 
power plant designs certified by other EU governments.  The 
new draft applies the waiver to all designs certified by any 
OECD country. This opens the door for U.S. firms, assuming 
the legislation makes it through both houses of parliament in 
its current form. End note) 
 


-------- 
COMMENTS 
-------- 
 

¶13. (C) ENI now seems to be claiming that their South Stream 
deal with the Russians was always a bit tentative, but in 
February 2008 (REF A) ENI seemed to be gloating over what 
they apparently thought was more of a done deal. (However, 
even at the time they did tell us that they thought there was 
only a 60 percent chance that South Stream would actually be 
built). GOI uneasiness about the Azeri gas situation is 
similar to concerns Edison expressed to us last August (see 
REF B). 
 


¶14. (C) We hope Garribba is right about the lack of substance 
in whatever nuclear agreement Berlusconi signs with Putin. 
GOI officials occasionally include Russia on their lists of 
possible nuclear power plant suppliers, but others (Garribba 
included) tell us that the Russians are not really in the 
competition. Italian officials know they have to overcome 
deep safety/NIMBY concerns, concerns that were stirred up by 
the 1987 melt-down of the Chernobyl nuclear power plant. 
 
 
ROME 00001308  004.2 OF 004 
 
 


¶15. (C) While the Russians may be out of the running, we fear 
the French may have the inside track due to their lobbying 
efforts at the highest levels, and the fact that the European 
power companies that will likely build nuclear plants in 
Italy all have some type of French connection. Post will 
continue its energetic efforts to ensure that U.S. companies 
have a fair chance to market U.S. nuclear power plant 
technology in Italy. 
SPOGLI 
"