US embassy cable - 04YEREVAN698

UNCLAS SECTION 01 OF 02 YEREVAN 000698 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, ENRG, EPET, AM 
SUBJECT: PROPOSED IRAN-ARMENIA PIPELINE: STILL NO MONEY 
 
 
THIS CABLE IS SENSITIVE BUT UNCLASSIFIED.  PLEASE 
PROTECT ACCORDINGLY. 
 
Ref: YEREVAN 382 
 
------- 
SUMMARY 
------- 
 
1. (SBU) Despite recent media reports about an Iran- 
Armenia gas pipeline deal, our meeting March 22, 2004 
with Deputy Minister of Energy Areg Galstyan confirms 
that any such deal is still more a vague, albeit 
strong, desire than a real plan.  Both the Deputy 
Minister and resident European Delegation 
representative Moret dismissed press reports that the 
EU will pay for the pipeline in exchange for an early 
closure date of the Armenian Nuclear Power Plant 
(ANPP).  End Summary. 
 
--------------------------------- 
EU NOT LIKELY TO PAY FOR PIPELINE 
--------------------------------- 
 
2. (SBU) Europe's longstanding 100 million euro offer 
for Armenia to set an early closure date for ANPP has 
set the backdrop for numerous press reports that the 
European Union will pay for the Iran-Armenia gas 
pipeline in exchange for closing the nuclear plant. 
But both Deputy Minister Galstyan and Jean-Francois 
Moret, the EU's Programs Coordinator in Armenia, told 
us that the EU has never offered the money for the 
purpose of building the gas line, which Armenia wants 
in order to diversify its energy sources rather than to 
replace the production capacity of the ANPP.  The EU 
has offered money only for the purpose of replacing the 
capacity lost due to an early closure of the ANPP. 
(Note: The status of the EU's offer is in doubt since 
the bilateral meeting February 10th.  There the EU 
representative said that Armenia's concerns about 
energy diversity cast doubt on any imminent closure of 
the ANPP even with the EU money to build replacement 
capacity, and that the EU must therefore review their 
commitment to the offer.  See Reftel.  End Note). 
 
--------------------------------------------- - 
NEW GAS LINE WOULD ADD DIVERSITY, NOT CAPACITY 
--------------------------------------------- - 
 
3. (SBU) According to Mr. Galstyan, there are two 
conditions for Armenia agreeing to a date to close the 
ANPP:  it must have replacement electricity production 
capacity, and it must have a diverse base of energy 
sources.  Mr. Galstyan pointed out that the gas 
pipeline addresses the problem of diversity but does 
nothing to add capacity, which is limited by the output 
of Armenia's gas burning power plants.  The current gas 
pipeline through Georgia has significant unutilized 
capacity, and could supply enough gas to meet the 
replacement capacity of the ANPP if Armenia upgraded 
existing thermal plants or built new ones.  But 
Armenia, he notes, is unwilling to accept such a large 
share of its energy supply depending on the single gas 
line through Georgia.  While the Iran-Armenia gas line 
would surely satisfy Armenia's post-ANPP demands for a 
diverse energy supply, to also increase capacity would 
nevertheless require the development of new thermal 
power resources exceeding the cost of the pipeline. 
 
------------------- 
IF NOT THE EU, WHO? 
------------------- 
 
4. (SBU) Deputy Minister Galstyan said that he thinks 
that the likelihood of receiving European money for the 
pipeline is small, and that finding money for the 
Armenian portion of the project was still a major 
obstacle.  According to Galstyan, Iran is willing to 
construct the Iranian portion of the pipeline.  He 
hopes for USD 40 million in grants and another USD 60 
million in investment in the pipeline to finance the 
Armenian portion, but said that there were no obvious 
sources of money at this time.  He said that the talks 
about the pipeline do include ArmRusGazprom, but that 
their financial involvement can be only "secondary". 
Galstyan disparaged press reports stating the details 
of a deal with Iran, saying that no one knows anything 
yet about prices, quantity or even the destination or 
diameter of the pipeline.  These variables will 
ultimately depend on the economics of the pipeline and 
the decisions of its financiers. 
 
------- 
COMMENT 
------- 
5. (SBU) the Iran-Armenia pipeline idea has gained no 
traction over the past ten years because no one has 
been willing to pay for it.  The possible connection 
with the EU's 100 million dollar offer to close the 
ANPP does not, in itself, change the situation because 
the pipeline cannot itself meet Armenia's two necessary 
conditions for closing the ANPP:  replacement capacity 
and diversity.  Because any large-scale EU assistance 
depends on a closure date of the ANPP, the "deal" as 
often outlined in the press cannot give both sides an 
acceptable outcome. 
 
WALKER