US embassy cable - 08BERLIN1050

GERMAN CHANCELLERY APPROVED GAS DEAL IN IRAN, BUT IS BLOCKING LARGER LNG PROJECTS

Identifier: 08BERLIN1050
Wikileaks: View 08BERLIN1050 at Wikileaks.org
Origin: Embassy Berlin
Created: 2008-07-31 20:10:00
Classification: SECRET
Tags: ETTC EPET PREL IR GM EINV PINR ECON PGOV
Redacted: This cable was not redacted by Wikileaks.
VZCZCXRO0660
PP RUEHBC RUEHDE RUEHDIR RUEHKUK
DE RUEHRL #1050/01 2132010
ZNY SSSSS ZZH
P 312010Z JUL 08
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 1819
INFO RUCNFRG/FRG COLLECTIVE PRIORITY
RUCNIRA/IRAN COLLECTIVE PRIORITY
RUEHTV/AMEMBASSY TEL AVIV PRIORITY 0557
RUEHJM/AMCONSUL JERUSALEM PRIORITY 0139
S E C R E T SECTION 01 OF 02 BERLIN 001050 
 
SIPDIS, 
STATE FOR P, E, EEB, EUR/CE, ISN, NEA/IR 
TREASURY FOR EDDY AND KOHLER 
 
E.O. 12958: DECL: 07/31/2033 
TAGS: ETTC, EPET, PREL, IR, GM, EINV, PINR, ECON, PGOV, 
ENRG, ETRD 
SUBJECT: GERMAN CHANCELLERY APPROVED GAS DEAL IN IRAN, BUT 
IS BLOCKING LARGER LNG PROJECTS 
 
REF: BERLIN 1038 
 
Classified By: Ecomomic Minister-Counselor Bob Pollard for reasons 1.4( 
b) and (d). 
 
1.  (C) Summary:  German Chancellery sources report that it 
knew of and approved the decision by Germany's export control 
agency (BAFA) to permit Steiner-Prematechnik-Gastec's 
(Steiner) export of machinery related to the conversion of 
natural gas to fuel to Iran.  Despite press reports alleging 
political interference in BAFA's decision, the agency claims 
it performed an extensive interagency review and acted 
strictly on the technical merits of the case.  Multiple 
senior German government officials confirmed BAFA's story. 
Further, various interlocutors contended that the project is 
not related to the production of liquified natural gas (LNG), 
but rather to the production of compressed gas for use in 
automobiles.  The government has provided no export credit 
guarantees or other assistance to Steiner.  Meanwhile, we 
heard that Chancellor Merkel is discouraging major German 
firms from any involvement in LNG projects in Iran.  End 
Summary. 
 
---------------- 
The Steiner Case 
---------------- 
 
2. (SBU)  On July 28th the German daily "Siegener Zeitung" 
reported on BAFA's year-long review and ultimate approval 
this February of Steiner's proposal to construct three 
liquefied natural gas (LNG) plants in Iran.  The project was 
reportedly valued at 100 million euros and would have 
capacity of 10,000 barrels per day.  The article alleged that 
Hartmut Schauerte (Parliamentary State Secretary at the 
Federal Ministry of Economics and the Federal 
Government's Commissioner for Small and Medium Sized 
Enterprises) had pressured BAFA to decide the case.  (In 
fact, both Schauerte and the Steiner firm claimed that his 
efforts had sealed the deal.) 
 
----------- 
BAFA's Role 
----------- 
 
3. (C)  BAFA flatly rejected the newspaper's account.  On 
July 30th, Emboffs independently contacted BAFA Vice 
President Olaf Simonsen and Georg Pietsch, BAFA Director 
General for Export Controls, as well as Martin Lutz (Foreign 
Trade Law Division, Ministry of Economics), for a readout. 
The BAFA officials' unanimous message was that their agency 
had performed a meticulous and objective review of the 
Steiner case, and reached a decision free from any outside 
political influence.  Incidentally, the law did not require 
Steiner to seek BAFA's review of its case; it did so on its 
own volition, seeking an informal notice that they could 
present to German customs authorities upon export. 
 
4. (S)  According to our contacts, BAFA made its decision 
solely on legal and technical grounds, determining that 
Steiner's request violated no German or international export 
restrictions.  Further, they claimed BAFA's review  ensured 
that no equipment in Steiner's request was subject to 
Wassenaar, Australia Group, Missile Technology Control Regime 
(MTCR) or Nuclear Suppliers Group (NSG) export restrictions. 
 As a semi-autonomous agency reporting to the Ministry of 
Economics, we further learned, BAFA makes its decisions 
without consideration of foreign policy concerns and operates 
within a German statutory (constitutional) framework 
providing the private sector a presumptive right to export 
unless specifically prohibited by domestic or international 
law and commitments.  Karl Wendling, the Economic Ministry's 
Deputy Director General for Foreign Trade Law, separately 
confirmed to EMIN that this was the normal procedure, and 
explained that BAFA had examined Steiner's equipment to 
ensure that there was "no possibility" of misuse for military 
or nuclear purposes.   Yet because of the project's 
destination (Iran) and monetary value, BAFA initiated an 
extensive interagency review process of the application 
involving the Ministries of Economics and Foreign Affairs 
(and, as suggested by Pietsch, German intelligence services). 
 
 
-------------------------------------------- 
Foreign Policy Review by Chancellery and MFA 
-------------------------------------------- 
 
 
BERLIN 00001050  002 OF 002 
 
 
5. (C)  Because of the potential sensitivity of the case, the 
government carefully reviewed the deal on foreign policy 
grounds, the Charge d'Affaires learned in a July 31 call from 
Ulrich Wilhelm, Chancellor Merkel's Spokesperson.  Other 
sources -- including Dr. Andreas Nicolin, the Chancellery's 
chief of the Foreign Trade Policy division, and Ambassador 
Viktor Elbling, MFA's Commissioner for International Energy 
Policy -- emphasized that the German Government had no legal 
grounds on which to deny Steiner's application; that the 
project's work is not to liquefy natural gas, but rather to 
prepare it for use as vehicle fuel; estimated the project's 
value was closer to 67 million euros (about $105 million, not 
the 100 million euros initially 
reported); and affirmed that Steiner had received no export 
credit guarantees or other assistance from the government. 
 
---------------------------------------- 
"Informal Pressure" against LNG Projects 
---------------------------------------- 
 
6. (C)  The government also made a clear distinction between 
the Steiner case and Iran's prospective LNG projects. 
Nicolin told EMIN that the very highest levels of the 
Chancellery, including Merkel herself, are applying "informal 
pressure" on large Germany companies to discourage their 
involvement in three large LNG projects in Iran.  Nicolin 
stated that Iran lacks the necessary LNG technology and, 
therefore, these projects remain "on ice".  Elbling likewise 
told us that the German government has made it "very clear" 
to German companies that they should not seek any LNG work in 
Iran.  (Note:  The German companies inquiring about possible 
LNG deals with Iran may include E.ON, Vattenfall, and 
Wintershall, a BASF subsidiary.)   Nicolin restated the 
German government's commitment to obstruct trade with Iran 
under existing laws and resolutions while voicing the 
oft-heard refrain that the government is under tremendous 
pressure from business to allow expanded exports to Iran (REF 
A). 
 
--------------------------------------------- 
Worries about lawsuits against the Government 
--------------------------------------------- 
 
7. (C)  There is a legal dimension to worry about, too. 
Elbling explained that, given German companies' statutory 
presumptive right to export, BAFA is 
subject to possible lawsuits from the private sector in 
German Administrative Courts for alleged wrongful denials of 
export permission or failure to approve applications in a 
reasonably timely manner.  BAFA in particular fears a high 
profile, precedent-setting suit.  If a company were to 
prevail in a suit against BAFA on this point, Elbling 
speculated, it could mean a flood 
of additional exports to Iran. 
 
8. (C) Comment:  Germany's position on Iranian exports 
continues to be that it can only prohibit them if there are 
clear legal reasons to do so.  At the same time, policy 
makers understand that this could harm Germany's image as a 
partner in international efforts to alter the Iranian 
regime's behavior and policies.  Still, the German government 
clearly has some discretion in these matters.  Post 
recommends that rather than issue a sweeping complaint 
against German business ties with Iran, Washington may wish 
to consider a message focusing on oil and gas technology, 
given Iran's vulnerability and dependence upon foreign 
assistance in this sector. 
KOENIG 

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