VZCZCXRO0285
PP RUEHDBU RUEHIK RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHKV #0599/01 0960845
ZNR UUUUU ZZH
P 060845Z APR 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 7583
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 KYIV 000599 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/UMB, EEB/ESC/IES FOR SCALLOGLY, LWRIGHT 
NSC FOR KKVIEN 
DOE FOR LEKIMOFF, CCALIENDO, KBOURDREAU 
DOC FOR CLUCYK 
 
 
E.O. 12958: N/A 
TAGS: ENRG EFIN EPET PGOV PINR PREL RS UP EUN
 
SUBJECT: EC OPTIMISTIC ON UKRAINIAN GAS PIPELINE COMMITMENTS 
 
Ref: Brussels 436 
 
Sensitive but Unclassified.  Not For Internet Distribution. 
 
Summary 
------- 
 
¶1. (SBU)  On March 31 European Commission External Relations (RELEX) 
Energy Counselor Faouzin Bensarsa told us that President Yushchenko 
and PM Tymoshenko remain on message following the March 23 
investment conference on Ukraine's gas transit system (reftel). 
Bensara, who was in Kyiv to discuss the next steps outlined in the 
conference declaration, said Yushchenko and Tymoshenko continued to 
demonstrate a shared commitment to the package of reforms Ukraine 
agreed to in the declaration.  A joint EC/GOU/donors coordination 
unit was being created to implement the technical aspects of the 
declaration, he said.  The EC would not support Ukraine's desire to 
construct an additional 60 billion cubic meters (bcm) of transit 
capacity, since the planned technical upgrades and efficiency 
measures could increase existing capacity by at least 30 bcm within 
seven years, he said.  It also saw no need to install metering 
stations at the Ukrainian border with Russia. He characterized the 
Russian reactions to the conference as "emotional" and said the EC 
would work to ensure that the planned cooperation with Ukraine would 
not disrupt the Ukraine/Russia gas relationship.  Bensara asked for 
active USG engagement to move the planned modernization of the 
pipeline system forward.  End summary. 
 
President, PM Continue to Show Unity on Pipeline 
--------------------------------------------- --- 
 
¶2. (SBU) On March 31 the DG RELEX Energy Counselor Faouzin Bensarsa 
and local Commission officials briefed us on their follow-up 
discussions with Ukrainian officials aimed at implementing the March 
23 EU/Ukraine declaration (reftel). Bensara, who met with both 
President Yushchenko and PM Tymoshenko while in Kyiv, said he saw a 
strong and shared Ukrainian commitment to the package of reforms 
foreseen in the declaration.  In particular, he said there was no 
difference of opinion between President Yushchenko and Prime 
Minister Tymoshenko on the need for reform of the GTS. 
 
¶3. (SBU) Bensara stressed that the Commission would limit its work 
to the goals outlined in the March 23 declaration.  It would avoid 
discussions on contentious issues such as privatization or the 
question of the creation of a consortium to run the pipeline.  He 
did not offer any views on the issue of "unbundling," and said that 
the EC has stopped using the expression "commercialization" in 
reference to alternative models of managing the pipeline, but did 
emphasize that Ukraine was on track to take the steps necessary to 
join the European Energy Committee. The timetables listed in the 
declaration -- the development of a gas sector reform program by the 
end of 2009 with implementation in 2010-2011 -- were realistic and 
would not change, he said.  Bensara stated that Deputy Prime 
Minister Hryhoriy Nemyria would take the lead on implementing the 
needed reforms, with support from Deputy Foreign Minister Constantin 
Yeleseyev, the Ministry of Energy, and the Presidential 
Secretariat. 
 
¶4. (SBU) Bensarsa said a coordination unit with representatives from 
the GOU, the EC and from donors would be established to implement 
the technical aspects of the declaration.  The Commission was 
prepared to offer technical and financial support to the unit.  The 
EC hopes that banks interested in financing projects related to 
reforms will begin their due diligence, but Bensarsa was not sure 
whether they would do so before reforms had been set in motion. 
Acting Director of Naftohaz Igor Didenko would be POC for the 
technical implementation of the master plan of proposed technical 
upgrades to the GTS that Naftohaz presented at the Brussels 
conference.  Bensarsa characterized the master plan as a shopping 
list of projects from which the banks (and other investors if 
interested) could choose.  He said the first meeting of the 
technical coordination unit could be held within the next few weeks. 
 
 
No Interest in Pipeline Expansion, Metering Stations 
--------------------------------------------- ------- 
 
¶5. (SBU) Bensara was careful to note, however, that the Commission 
would not actively support two projects put forth by the GOU because 
they are, in the Commission's view, politically sensitive.  The 
Commission would not push forward the Ukrainian suggestion to 
install gas meters at its eastern border with Russia, since the 
 
KYIV 00000599  002 OF 002 
 
 
Commission believed that they would not make sense economically 
unless/until European clients of Gazprom begin to purchase gas from 
the Russia/Ukraine border instead of from the Ukraine/Slovak border. 
 Bensara also believed that the GOU suggestion to increase the GTS 
capacity by 60 bcm through the construction of new pipelines was 
overly ambitious.  The Commission would focus on efforts aimed at 
expanding the efficiency of the existing network, he said.  If 
implemented, the seven year modernization plan would increase the 
capacity of the existing pipeline system by at least 25 percent 
through a combination of technical upgrades and efficiency 
measures. 
 
Russia 
------ 
 
¶6. (SBU) Bensara said Japan has shown serious interest in the GTS 
modernization project, but did not say how the Japanese might get 
engaged.  At the same time, he characterized the Russian reaction to 
the declaration as "emotional."  He also noted that the Commission 
was working to correct what he said was Russia's misunderstanding of 
the declaration.  He did show concern, however, over Russia's next 
moves, and asked if Russia had lobbied the USG in any way on the 
issue of the GTS modernization and the Brussels conference.  He also 
said the Commission would work to ensure that the cooperation with 
Ukraine on the GTS would not disrupt the implementation of the 10 
year gas contract signed by Gazprom and Naftohaz in January. 
 
Comment 
------- 
 
¶7. (SBU) It is encouraging that Bensara received a coordinated and 
unified message from President Yushchenko and Prime Minister 
Tymoshenko on the way forward for Ukraine's GTS.  Experience has 
taught us to be cautious, however, since signs of unity displayed 
before an international audience can quickly be forgotten once the 
President and Prime Minister return to the business of domestic 
politics.  Still, the EC focus on what it believes are pragmatic 
technical and regulatory steps to modernize the pipeline could allow 
it to sidestep the politics that have made genuine reform so 
difficult to achieve in Ukraine.  Bensara openly asked for USG 
engagement.  We do not know whether he spoke formally in the name of 
the EC.  However, if Brussels proposes formal collaboration, we 
would consider this a valuable avenue for achieving our overarching 
goal of helping Ukraine strengthen energy security as we committed 
in our bilateral Charter. 
TAYLOR