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ZNR UUUUU ZZH
R 300606Z SEP 09
FM USEU BRUSSELS
TO RUEHKV/AMEMBASSY KYIV
RUEHMO/AMEMBASSY MOSCOW
RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 02 BRUSSELS 001316 
 
SENSITIVE 
SIPDIS 
 
DOE FOR PDAS JONATHAN ELKIND 
 
E.O. 12958: N/A 
TAGS: ECON EPET EUN
SUBJECT: MOVING TOWARD GREATER U.S.-EU ENERGY COOPERATION 
ON UKRAINE 
 
Sensitive but Unclassified - not for Internet distribution. 
 
¶1.  (SBU)  Summary.  Special Envoy for Eurasian Energy 
Richard Morningstar and DOE PDAS for Policy and International 
Affairs Jonathan Elkind met with EU Commission officials on 
September 18 to discuss ways to move forward toward greater 
U.S.-EU Energy Cooperation on Ukraine.  Both sides emphasized 
the importance of presenting a consistent message to Ukraine 
about the need for reforms in the energy sector.  There was a 
general consensus that the U.S. and the EU should urge the 
EBRD and World Bank to insist that Ukraine meet the 
conditionalities for reform before providing any funding. 
The EU side emphasized, however, that funding from the IMF is 
more essential for Ukraine's economy and argued for 
"flexibility" in distributing the next tranche, even if 
conditions had not been met.  Both sides agreed the IMF would 
make the final determination.  Going forward it was agreed 
that the U.S. and EU should work to increase information 
exchanges (especially at the level of our respective Missions 
in Ukraine), to better coordinate our efforts to encourage 
reforms.  The EU side welcomed the U.S.-EU Energy Council as 
a forum to give political impetus to these efforts, but 
stressed the ongoing need for continued coordination at an 
informal working level.  End Summary. 
 
¶2.  (SBU)  On September 18 Special Envoy for Eurasian Energy 
Richard Morningstar and DOE PDAS for International Affairs 
Jonathon Elkind met with EU Commission officials from 
DG-RELEX and DG-TREN to discuss opportunities for greater 
U.S.-EU energy cooperation on Ukraine.  In the course of the 
two-hour long session, participants from both sides agreed 
that it is important for the U.S. and the EU to present a 
coordinated and consistent message to the Government of 
Ukraine (GoU) about the need for reform in the energy sector. 
 Nonetheless, DG-RELEX officials declined an offer for the 
USG to join the EC and EBRD on October 2nd to deliver a joint 
message to the GOU. (Comment: Their hesitance to accept close 
USG engagement came in distinct contrast to the firm embrace 
from more senior EC officials, including Energy Commissioner 
Piebalgs. End Comment.) 
 
¶3.  (SBU)  Hugues Mingarelli, Deputy Director General of 
RELEX, laid out a list of EU priorities for energy relations 
with Ukraine: 
 
- Nuclear Safety.  The EU has been a major donor on 
Chernobyl, and is currently carrying out a safety review of 
the other Ukrainian nuclear plants. 
 
- Grid Integration.  The EU's goal is to integrate the 
Ukrainian electricity and gas grids into the European system. 
 To this end, the EU has been working to get Ukraine to join 
the Energy Community.   DG-RELEX is pleased with the progress 
on this front, noting that Ukraine's draft gas law appears 
compatible with the EU acquis. 
 
- Energy Efficiency.  The EU views improving energy 
efficiency in Ukraine as a key part of rationalizing the 
energy market there.  The Commission is pleased with the 
initiative to this end proposed by the Swedish EU Presidency. 
 DG-RELEX noted that if you could move Ukrainian energy 
efficiency up to the level of western European countries you 
could completely eliminate their need for imported Russian 
gas.  The EU is already providing 15 million euros for 
improving energy efficiency via the European Bank for 
Regional Development (EBRD). 
 
- Modernization of Gas Transit.  This is a major component of 
the EU's assistance to Ukraine.  The GOU signed an action 
plan with the EU in March of 2009.  The aim of this plan is 
to promote transparent and efficient operation of the line. 
To monitor progress, the EU has established a Technical 
Coordination Unit with the IFIs.  The next meeting of the TCU 
will be Oct 22-24 in Kyiv.  The U.S. has asked to be an 
observer to the TCU. 
 
¶4.  (SBU)  On the question of the loan packages for Ukraine 
from international financial institutions (IFIs), both sides 
agreed to remain firm with Ukraine about the need to meet the 
conditionalities for reform imposed by the EBRD and World 
Bank (WB).  The consensus was that GoU needs to recognize the 
necessity of implementing reforms in the energy sector and 
that it should not be rewarded for non-compliance.  There was 
also a consensus that the EBRD and WB loans are not essential 
to Ukraine's solvency.  DG-RELEX judged that Ukraine's 
 
BRUSSELS 00001316  002 OF 002 
 
 
progress on meeting the conditionalities has been lackluster 
so far and indicated that if things continue at this pace it 
is doubtful that Ukraine will get IFI funding in October. 
 
¶5.  (SBU)  Going forward the EU considers the next critical 
period for Ukraine to be October 2009 to January 2010.  The 
EU remains concerned that there will be a repeat of the 
Russia-Ukraine gas crisis, with the EU once again faced with 
gas cutoffs to vulnerable Member States.  There was a general 
acknowledgement of the difficulties faced by Prime Minister 
Tymoshenko going into the Presidential election on January 
¶17.  DG-RELEX pointed out that the gas situation will be used 
as a political tool by all the candidates.  As such, 
Mingarelli pointed to the difficulty Tymoshenko would face in 
trying to raise domestic gas prices and asked "How can we ask 
her to commit political suicide?" 
 
¶6.  (SBU)  On the question of funding from the International 
Monetary Fund (IMF), DG-RELEX officials cautioned that if 
Ukraine does not secure the next tranche of IMF funding 
(Note: Fourth tranche of $3.8 billion is scheduled for 
disbursement in mid-November, pending October review. End 
Note.) there could be serious consequences for Ukraine's 
economy.  As such, DG-RELEX representatives advocated for 
"flexibility" in evaluating Ukraine's progress on loan 
conditionalities and disbursement of the next tranche.  Both 
sides agreed the IMF would be in the lead in determining the 
fate of the loan. 
 
¶7.  (SBU)  On next steps, the group agreed the U.S. and the 
EU should work to better coordinate efforts on Ukraine. 
DG-RELEX suggested the first step will be to encourage the 
respective Missions in Ukraine to work together more closely 
and share information about our respective initiatives. 
(Note: The Commission has proposed Oct 23 in Kyiv to meet 
with U.S. officials to review ongoing technical assistance 
programs.  End note.) Participants welcome the U.S.-EU Energy 
Council as a forum for discussions on Ukraine, but also 
emphasized the importance of continued informal working-level 
exchanges. 
 
¶8.  (SBU) Ambassador Morningstar and PDAS Elkind have cleared 
this cable. 
 
Murray 
.