US embassy cable - 04ZAGREB1034

UNCLAS  ZAGREB 001034 
 
SIPDIS 
 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG, ECON, ETTC, EPET, HR, SY, IZ, Trade 
SUBJECT: U.S. SANCTIONS NOT MAJOR OBSTACLE TO CROATIAN GAS 
EXPLORATION IN SYRIA, INA INTERESTED IN IRAQ 
 
Summary 
------------ 
 
1.  (SBU) On June 1 we visited INA, the majority state-owned 
oil and gas company, to inquire about its overseas activities 
in general, and its exploration activities in Syria in 
particular.  Zeljko Belosic, Member of the Board and 
executive director for Oil and Gas Exploration and Production 
noted the importance of the Syrian gas concession to INA and 
a certain degree of difficulty associated with U.S. 
sanctions.  Belosic also listed other deals afoot and noted 
that INA hoped to get back into Iraq, perhaps in cooperation 
with a Jordanian or U.S. company.  End Summary. 
 
Syria is INA's Biggest Find in 15-20 Years 
--------------------------------------------- --------- 
 
2.  (SBU) Belosic described INA (and its exploration 
subsidiary, CROSCO) projects throughout the world, including 
in Egypt, Namibia, Syria, Algeria, Tunisia, and preliminary 
efforts to get back into the Russian market.  The discussion 
quickly turned to INA's gas concession in Syria.  Belosic 
noted the importance of this concession to INA -- the company 
had sunk over $140 million into the project and had no choice 
but to continue.  It was their biggest find in the last 15-20 
years.  The project started in 1998, had three drilling rigs 
in operation, and INA would start another 5-7 rigs next year. 
 That day INA was bidding on another concession block. 
 
3.  (SBU) Almost all INA's equipment and technology was 
American -- it was the technology of choice, it was what was 
taught in Croatian universities; INA knew and trusted U.S. 
suppliers.  Most of the large equipment needed in Syria was 
in place or not yet procured.  Thus the sanctions were 
causing significant but not insurmountable problems.  For 
example, six months ago INA had signed a contract for 
chemicals with Halliburton.  The chemicals were on a truck en 
route from Dubai to Syria when the sanctions went into 
effect.  Halliburton turned the truck around and had it 
return to Dubai.  In such a case, Belosic said INA does not 
get its money back, but can only accept delivery in some 
other country.  While the monetary value of the chemicals 
whose contracts could not be fulfilled was not that 
significant -- some tens of thousands of dollars -- there 
were warehouses full of chemicals worth several millions of 
dollars that needed to be used with the new chemicals.  While 
replacement chemicals could and had to be located and 
procured, their reaction with already purchased stocks was 
unknown, and could even cause accidents if proper care was 
not taken. 
 
4.  (SBU) In another case, INA had been told by the U.S. 
company that sold them some equipment that they could not 
provide service for that equipment.  Additionally, all the 
exploration rigs were American.  In the middle of the night, 
if a $100,000 part broke down, INA would normally call up the 
American supplier, and a replacement part would be put on a 
plane the same day.  With sanctions, INA would have to look 
for a replacement, perhaps from a licensee or U.S. 
joint-venture partner, from Europe or the Far East.  Each day 
that a rig sat idle cost INA $20,000.  Nevertheless, INA had 
operated in Libya for ten years under sanctions.  It was able 
to operate by locating alternative suppliers, often paying 
three times the normal price. 
 
5.  (SBU) Belosic felt confident that INA would overcome any 
problems presented by sanctions.  In fact, he noted that if 
INA's U.S. "neighbors" in Syria, Occidental, Marathon and 
Devon, had difficulties taking advantage of their concessions 
or fulfilling their contracts, INA would be happy to make an 
offer for their rights.  Belosic also provided embassy 
officers maps of INAs concession blocks in Syria and Egypt, 
which we can supply upon request. 
 
Iraq 
---- 
 
6.  (SBU) Belosic said that, contrary to some news reports, 
INA was not yet back in Iraq.  It wanted to return -- it had 
been the last foreign company to leave Iraq just before the 
Iran-Iraq war, he said -- but the security situation was too 
difficult.  INA had had discussions with some Jordanian oil 
officials recently, and a joint venture in Iraq was a 
possibility.  (Note: King Abdullah of Jordan made an official 
 
 
visit to Croatia last week.  End note.)  INA had also 
expressed interest in cooperating in Iraq to Halliburton 
European representatives, asking them to pass the message 
back to the relevant parties.  INA had also been prepared to 
attend an "oil" meeting that had been scheduled in Basra, but 
which was then delayed. 
FRANK 
 
 
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