Wikileaks - MCCCLXV

209643 6/2/2009 10:24 09BUCHAREST370 Embassy Bucharest CONFIDENTIAL VZCZCXRO6342 PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR DE RUEHBM #0370/01 1531024 ZNY CCCCC ZZH P 021024Z JUN 09 ZDK FM AMEMBASSY BUCHAREST TO RUEHC/SECSTATE WASHDC PRIORITY 9558 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RUEHAH/AMEMBASSY ASHGABAT PRIORITY 0046 RUEHYE/AMEMBASSY YEREVAN PRIORITY RHMCSUU/DEPT OF ENERGY WASHINGTON DC PRIORITY RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY C O N F I D E N T I A L SECTION 01 OF 02 BUCHAREST 000370

SIPDIS

STATE FOR SE MORNINGSTAR, EUR/CE ASCHIEBE, EUR/ERA MMCONAHA

E.O. 12958: DECL: 06/01/2019 TAGS: ENRG, ECON, EINV, PREL, RO SUBJECT: ROMANIA: ACTIVE IN ENERGY DIPLOMACY

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Classified By: Acting DCM Blair LaBarge for reasons 1.4 (b) and (d).

1. (C) Summary. According to Ministry of Economy State Secretary (SS) Tudor Serban, Romania has been engaged in active energy diplomacy efforts with Russia, Turkmenistan, Azerbaijan, and Armenia. Underpinning Romania's efforts are a desire to advance the Nabucco project and secure for Romania better access to natural gas and oil. In terms of engagement with Russia, Serban underscored that Romania is seeking to advance beyond diplomatic dialogue to include a full range of actual projects, designed to enhance overall economic cooperation. In addition, the Ministry of Economy is also keen to invest in renewable and nuclear energy. At the same time, the economic downturn has led the Ministry to assume a more activist role in the economy. End Summary.

2. (C) EconCoun and EconOff had a surprise meeting with SS Serban, having arranged to meet instead with Minister of Economy Adriean Videanu's new personal counselor for energy issues, Florin Marza, who also sat in. Post had requested the meeting to ask about Videanu's recent trip to Moscow, and Serban clearly came to the meeting expecting the worst; he opened by saying that he was interested in hearing our concerns and resolving our problems. Assured that in this case we were only interested in continuing our ongoing dialogue with the Ministry of Economy on energy issues, Serban seemed relieved, stating that he is used to hearing complaints. EconCoun expressed our interest in the Moscow visit, with Serban responding that he did not yet have a read-out from the Minister's meetings. He added that cooperation with Russia is important for Romania and extends beyond the energy sector to the broader industrial landscape. With major producers like steelmaker ArcelorMittal suffering in the current economic climate, Serban said cooperation with Russia could help bolster Romanian industry through better-priced natural gas and other inputs. This could reduce overall costs enough to keep major industrial consumers in operation.

3. (C) In that vein, Serban added that he is disappointed that privatized companies are not doing more to protect Romanian jobs; they are "failing the test" in the first serious economic downturn since privatization began in earnest in Romania. Serban hinted darkly that the Government would "take back" assets if necessary. He said the Ministry will act to protect jobs where possible, even if doing so risks bending rules and attracting the ire of Brussels. In subsequent public statements, both Serban and Prime Minister Emil Boc have been much more explicit in outlining a vision of increased state involvement in the economy, especially in the energy sector. The plan includes reorganizing state-owned energy companies and possibly reclaiming shares in energy companies held by the Romanian Property Fund. With the focus on preserving jobs in a presidential election year, the Ministry also plans to provide discounted natural gas to key industrial consumers to help keep them in operation.

4. (C) Turning to external issues, Serban remarked on his recent visits to Armenia and Turkmenistan; both countries want to diversify their relations and reach out to the West, but they remain wary of antagonizing Russia. On Turkmenistan, Serban evinced considerable skepticism that it has significant marginal gas to commit to Europe through Nabucco, given the extensive commitments already made to Iran, China, Turkey, and Russia. Still, Serban said the Romanian relationship with Turkmenistan is amicable and broad-based. He related that the Turkmen Deputy Prime Minister (DPM) was greatly relieved when Serban opened their discussion with non-energy projects; the DPM usually talks exclusively on energy issues with foreign delegations. Romania seeks to underscore the importance of this relationship through President Basescu's upcoming trip to Turkmenistan and the recent opening of a Romanian Embassy in Ashgabat. Regarding his recent trip to Armenia, Serban opined that the rapprochement between Turkey and Armenia seemed to be going well and that the Turkish delegation had benefited from "more careful security than that given to the Romanians." When questioned about the status of the Nabucco Inter-State Agreement (ISA), Serban's personal view was that the ISA was likely to be signed by the end-of-June deadline set by the consortium, but added that if it were not, the ISA may never be completed. This thinking echoes that of PM Boc, who has said publicly that Nabucco remains Romania's top priority, but that Romania would "explore other options" (i.e. South Stream) if the ISA is not finished soon.

5. (C) Asked about electricity generation, Serban explained

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both the promise and problem of increased renewable energy use. Saying that the total installed electrical generation capacity in Romania is 10,000 MW (projected to rise to 12,000 MW by 2015), Serban noted that the Ministry had received applications for 20,000 MW (twice the installed capacity) for new wind power farms alone. The majority have proposed locations in Romania's Black Sea coastal region of Dobrogea, near the site of the existing Cernavoda nuclear power plant. Characterizing the problem as less one of grid capacity than of balance to the system, Serban said that it was technically impossible to allow all the wind projects to go forward as that would destabilize the entire grid. Even so, Serban is hoping to have 4,000-6,000 MW of wind generation capacity installed, recognizing that on a normal day only a fraction of that capacity would be used. Serban added that he is actively exploring upgrades to Romania's interconnections with its neighbors. On the issue of nuclear energy, EconCoun remarked on President Basescu's recent visit to a French nuclear power plant, adding that he hoped U.S. companies would also have fair opportunity to compete for any future nuclear projects. Serban affirmed that all interested, qualified bidders would be considered.

6. (C) Comment. Serban makes little effort to hide his view that government should play a bigger role in management of the economy, especially in the energy sector, perhaps not surprising in the face of current economic difficulties. The GOR's willingness to cut special deals to keep major industrial consumers in operation, and the reluctance to allow any further privatizations of state-owned energy companies, reflect this view. Clearly uncomfortable when asked about Property Fund holdings in state companies, Serban launched into an explanation of different dividend rules among the various companies that needed to be "clarified," something which he believed could only be done under the Ministry's stewardship. While Serban's views are one thing, it is worrying that the Prime Minister sounded some of the notes in his public remarks on the energy sector. While this stance means that the political commitment to our priority projects, such as Nabucco should remain untouched as long as they are politically feasible, it foreshadows the end of privatization and fewer investment opportunities for American firms. In an even more state-dominated energy sector, U.S. companies will have to compete with politically connected locals and informal pressure to "buy European" if they hope to share in any future contracts. End Comment. GUTHRIE-CORN