US embassy cable - 05ATHENS2031

UNCLAS SECTION 01 OF 02 ATHENS 002031 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: BEXP, ECON, EINV, AMB 
SUBJECT: AMBASSADOR DISCUSSES ISSUES REGARDING CINERGY'S 
NATURAL GAS INVESTMENT IN GREECE WITH MINISTER OF 
DEVELOPMENT 
 
 1. (U) Ambassador called on Minister of Development Sioufas 
to discuss difficulties being experienced by U.S. company 
Cinergy in the development of the natural gas market in the 
Attica peninsula of Greece (including Athens).  Cinergy, 
together with Shell and the Greek natural gas company DEPA, 
formed EPA Attiki (EPA), a company to provide natural gas to 
the Attica peninsula.  Cinergy, through EPA, has alleged that 
a subcontracting company, EKOFA, has failed in its obligation 
to promote natural gas to consumers and provide a fixed 
number of new hook-ups, causing EPA to lose a substantial 
amount of money.   Cinergy local representative, Gerasimos 
Contomichalos, approached Ambassador about the problems, and 
asked for Embassy assistance. 
 
2. (U) Ambassador began the meeting by noting that his number 
one priority was to promote U.S. investment in Greece, and to 
make sure that existing investments went as smoothly as 
possible, as current investors were the best spokesmen for 
potential investors.  The Ambassador then quickly outlined 
Cinergy,s position for Sioufas, who was well-versed on the 
issue.  Sioufas observed that last year's change in 
government from PASOK to ND had been a positive experience 
for all foreign investors in Greece, and that he and his 
ministry had been personally involved in settling other 
concerns raised by U.S. investors in previous disputes; he 
and the Ministry support U.S. investment in Greece. 
 
3.  (SBU) On the matter at hand, Sioufas claimed that Cinergy 
was not receiving accurate information from its local 
representative.  Instead, he noted that EPA had never raised 
any concerns regarding EKOFA from 2002 to 2004.  Only when 
the government changed in March 2004 did EPA complain about 
EKOFA,s performance.  Sioufas claimed that as a result of 
EPA,s first complaints, Hellenic Petroleum and the Ministry 
changed EKOFA,s board of directors, installing a more 
dynamic chairman, and that as a result EKOFA was beginning to 
meet its marketing obligations. 
 
4.  (SBU) Sioufas noted that EKOFA had been instructed to 
provide first priority on hook-ups to hospitals and schools. 
He also said that EPA chairman, Andreas Papandreou, resigned 
in May.  (Note: Andreas is the brother of PASOK party leader 
Giorgos Papandreou.)  As a result DEPA appointed the current 
chairman, Theodoros Behrakis.  Sioufas alleged that EPA has 
also failed in its contractual obligations, and that as a 
result of poor management and its own failures, has resorted 
to casting blame on EKOFA to protect itself.  As an example 
of EPA,s operational problems he noted that when he tried to 
make the Ministry of Development building a flagship for 
converting other government buildings to natural gas, EPA 
claimed it would take 3-4 months to run the spur line from 
the gas main; a distance of some 15 feet.  This type of 
performance, coupled with poor management, were EPA,s true 
problems. 
 
5. (SBU) Sioufas also stated that the GoG has been supporting 
the EPA natural gas project, providing 60 million euros worth 
of European Union Structural Adjustment funds and starting an 
advertising campaign.  He observed that he has sent two of 
his closest associates, Mr. Papagiannis and Ms. Kostopoulou, 
to EPA to resolve this problem.  He could not understand how 
EPA could remain quiet for two years, then suddenly after the 
change of government, come up with a legal demand for 200 
million euros in compensation for damages suffered.  He noted 
that the total value of the capital investment in the project 
for Shell and Cinergy was no more than 177 million euro. 
Ambassador pointed out that, whatever the lawyers first 
claimed, Cinergy was now seeking only nine million euros in 
compensation from EKOFA and dissolution of the marketing 
partnership. 
 
6. (SBU) Ambassador told Sioufas that he was here to get the 
GoG,s version of events, and to help resolve the problem. 
He further assured the Minister that he took the issue 
seriously, as Cinergy was one of the flagship US investments 
in Greece.  Sioufas, in turn, assured Ambassador that he had 
instructed his people to find a mutually acceptable 
resolution for all parties, and that his Secretary General 
Nikos Stefanou was at Cinergy,s or Ambassador,s disposal 
for further work on this topic.  He closed by suggesting that 
Cinergy find a neutral third-party auditor to investigate 
EPA,s management and then make its own conclusion about the 
true state of affairs.  He noted that the natural gas project 
had been a successful investment, and would in time and with 
higher oil prices, become a profitable venture, especially in 
the event of a change of management at EPA. The Minister also 
repeatedly noted the good intentions and the pro-American 
feelings of the heads of the two state companies involved in 
the issue Christodoulou of Hellenic Petroleum and Moisis of 
DEPA. 
 
7. (SBU) Comment:  There has been little effective marketing 
for natural gas in the Attica region thus far, which is the 
essence of Cinergy,s complaint.  On the other hand, thus far 
we don,t see a government or EKO (Hellenic Petroleum) effort 
underway to push Cinergy or Shell out of the sector, just the 
normal clash of companies seeking explanations when the 
operational results are disappointing.  Embassy will continue 
to help Cinergy work out its problems with its state-owned 
supplier and marketing agent.  End Comment. 
OLESEN