VZCZCXRO4106
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHBM #0105/01 0570954
ZNY CCCCC ZZH
P 260954Z FEB 10
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 0351
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 BUCHAREST 000105 
 
SIPDIS 
 
STATE FOR EUR/CE ASCHEIBE AND S/EEE SE MORNINGSTAR 
STATE PLEASE PASS TO USTDA JMERRIMAN 
 
E.O. 12958: DECL: 02/24/2020 
TAGS: ENRG ECON PREL PGOV RO
SUBJECT: ROMANIA: LNG NEVER LOOKED SO GOOD 
 
Classified By: DCM JERI GUTHRIE-CORN FOR REASONS 1.4 (B) AND (D). 
 
¶1. (C) Summary.  Excited about the possibility of developing 
a shortcut to new gas supplies, Minister of Economy and Trade 
Adriean Videanu relayed his hope to the Ambassador that the 
Azerbaijan-Georgia-Romania Interconnector (AGRI) proposal, 
which would twin liquefied natural gas (LNG) terminals in 
Georgia and Romania, would be developed quickly (reftel). 
The Minister believes that this project would be a faster, 
cheaper route than the plodding Nabucco project for bringing 
Caspian Sea gas to Europe.  Still, despite having had a 
series of very "positive" meetings with Gazprom, the 
Romanians remain unconvinced that South Stream has a viable 
future, remaining firmly in the Nabucco camp.  On reform in 
the energy sector, the Minister said plans are well-advanced 
on energy "bundling" (septel).  Videanu eagerly accepted the 
Ambassador's invitation to visit the U.S. to look at 
commercial opportunities in the energy sector and took on 
board the Ambassador's suggestions on improving government 
transparency and thinking strategically about the allocation 
of state-aid.  End Summary. 
 
¶2. (C) Videanu opened by saying that he had an "interesting" 
and "very positive" meeting with Gazprom, where South Stream 
was discussed.  Apparently fearing a negative reaction, he 
said that Romania had "a duty" to provide Gazprom with 
information needed to complete a feasibility study of South 
Stream.  Videanu added that Alexander Medvedev (Gazprom's 
Director for Exports) had asserted to him that South Stream 
was "not a competitor with Nabucco" but rather a logical next 
step given the lack of investment in upgrading and 
maintaining the natural gas pipelines in Ukraine.  Relaying 
Medvedev,s comment that Russia has gas contracts to deliver 
3.1 trillion cubic meters of gas to Western Europe between 
now and 2030, Videanu said that Gazprom,s contention is that 
South Stream would not draw on the same gas sources as 
Nabucco (i.e., Caspian Sea gas), a point on which Videanu 
seemed unconvinced.  Still, he was pleased to hear from the 
Ambassador that the U.S. Government policy should not be seen 
as directly opposing South Stream.  According to Videanu, 
Romania continues to have a positive relationship with 
Gazprom on projects to develop underground gas storage 
facilities, which may ultimately be developed in tandem with 
natural gas power generation facilities.  Still, Romania's 
latest best hope is the AGRI proposal, which Videanu felt 
could be largely developed by using existing Azeri gas.  The 
project would make use of Romania's good relationship with 
Azerbaijan, while logically building on the USTDA-financed 
feasibility study of an LNG terminal in the port of 
Constanta.  If this facility is built, Videanu said that he 
would be interested in having U.S. companies, such as 
ExxonMobil, bid on managing the project. 
 
¶3. (C) The process of bundling the existing state-owned 
energy producers into two companies is needed, according to 
the Minister, because the current situation results in "rigid 
production" and a "distorted" electricity market.  The 
motivation behind the integrated companies is to create 
"mixed production" so that the companies simply sell energy, 
without reference to the generation type.  (Note: Post will 
report in more detail on these plans septel.  End Note). 
Despite currently controlling 90 percent of the market, the 
Ministry expects that by 2017 the two companies will only 
account for half of the electricity market due to the many 
new projects that are scheduled to come on-line in the next 
seven years.  Taking note of Post's concerns about the 
equities of the Property Fund, a property restitution vehicle 
with many American shareholders that has significant stakes 
in the state-owned energy sector, Videanu replied that the 
plan was to privatize management of the two integrated 
companies and eventually float them on the Bucharest Stock 
Exchange, a plan which he believes would protect the value of 
the assets. 
 
¶4. (SBU) Turning to commercial issues, the Ambassador noted 
that Videanu is traveling to France to look at nuclear power 
and he extended an invitation for Videanu to make a similar 
visit to the U.S., a proposal which was readily accepted. 
The Ambassador also raised the case of a large prospective 
American investor in the energy sector which is interested in 
applying for state aid.  Videanu said that he understood the 
importance of taking a strategic view toward allocating 
limited state aid funds and that he would look forward to 
hearing more about this project. 
 
¶5. (SBU) With regard to Moldova, the Ambassador noted that 
the Moldovan President and Prime Minister both remain 
 
BUCHAREST 00000105  002 OF 002 
 
 
interested in energy interconnections.  Videanu agreed that 
this is also a priority for the Romanian Government, noting 
that a 110 KW electrical interconnection has been completed, 
while a separate 400 KW project, partially financed by the 
European Bank for Reconstruction and Development, is 
underway.  A gas interconnection remains strategically 
important, but Videanu said that this project remains at the 
feasibility study phase. 
 
¶6. (SBU) The Ambassador concluded by mentioning that he and 
the British, German, Austrian, and Spanish Ambassadors are 
working together to highlight areas were transparency and the 
business environment could be improved.  The Ambassador 
informed Videanu that areas such as multi-annual budgeting, 
constitutional reform, and strengthening the justice system 
are areas of common agreement.  Videanu acknowledged that 
Romania needs to continue to favorably impress foreign 
investors, many of whom are looking for progress in these 
areas.  He added that this is a Government-wide project, 
noting that the ministers meet biweekly, at the Prime 
Minister's direction, to discuss transparency and biweekly to 
identify strategies for increasing EU fund absorption. 
 
¶7. (C) Comment.  Gazprom's recent press release, stating that 
Romania has a "confirmed interest" in participating in the 
South Stream project appears to have been the genesis for 
Videanu's request to see the Ambassador soon.  He seemed 
concerned that the U.S. had drawn mistaken conclusions from 
the press coverage of his meeting with Gazprom, which hinted 
that Romania was on the verge of joining South Stream.  This 
is not the first time that Gazprom has publicly overstated 
the degree of Romanian interest in South Stream, and the 
Minister was anxious to show us that Romania had nothing to 
hide in its dealings with the company.  Rather, Romania sees 
little upside in not cooperating, especially on low-cost 
options like providing data for feasibility studies. 
Ultimately, South Stream remains a fourth choice at best for 
the Romanians, behind Black Sea LNG, Nabucco, and White 
Stream.  It also assumes that exploration currently underway 
in the Black Sea reveals no commercially viable offshore 
natural gas.  The only real surprise in the meeting was the 
degree to which the AGRI concept has seized the attention of 
Romanian policymakers, who seem willing to push it forward 
without waiting to see if the Nabucco project will really 
grow legs and stand on its own.  End Comment. 
GITENSTEIN