US embassy cable - 05WARSAW3422

C O N F I D E N T I A L SECTION 01 OF 02 WARSAW 003422 
 
SIPDIS 
 
STATE FOR EUR/NCE DAVE KOSTELANCIK AND MICHAEL SESSUMS 
STATE FOR EUR/SNEC STEVE MANN, EB/ESC JGARVERICK, EUR/ERA 
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS AND MWILSON 
ENERGY FOR OASIA 
 
E.O. 12958: DECL: 09/19/2015 
TAGS: ENRG, PREL, PL, GM, RS, Economy, Poland-Russia 
SUBJECT: POLISH MINISTRY OF ECONOMY UNCONCERNED ABOUT 
RUSSIAN-GERMAN GAS PIPELINE 
 
Classified By: Laura A. Griesmer, EconOff, Reasons 1.5(b,d). 
 
 1.  (C)  Summary.  Polish government officials responsible 
for energy security are unconcerned about the recent 
agreement between Germany and Russia to construct a gas 
pipeline under the Baltic Sea despite almost daily news 
articles about the proposed project.  Our contacts concede 
that the project is not in Poland's interests, but that 
Poland has little influence over what they considered a 
political decision aimed at providing Chancellor Schroeder 
support before the German elections.  They also question the 
economics of the pipeline and whether it will be constructed. 
 End summary. 
 
Public Speculation on Pipeline 
------------------------------ 
2.  (SBU)  The Polish press has had almost daily articles 
about the proposed gas pipeline between Russia and Germany 
which would cross through the Baltic, bypassing normal 
transit countries including Poland and Ukraine.  Many here 
see the pipeline as yet another example of Russia's 
demonstration of power in the region.  Center-right party 
learders have also seized on the issue in the final days of 
the parliamentary election campaign, pledging to "block" the 
deal if possible.  The issue was among the chief topics of 
discussion at a recent televised debate among party leaders. 
 
Ministry of Economy Unsurprised 
------------------------------- 
3.  (C)  Econoffs met with Halina Trymucha, Director of 
Energy Security in the Ministry of Economy to discuss her 
Ministry's assessment of the new agreement.  Trymucha 
emphasized that the Ministry was not surprised about the 
signing of the agreement, which had been discussed since 
1998.  She and other Ministry experts do not expect 
construction to ever start, especially as feasability studies 
are not available and construction costs will obviously be 
extremely high.  When asked if the construction of the 
Blue-Stream pipeline from Russia to Turkey was a similar 
example of a line that most experts felt technically and 
commercially would never happen, Trymucha did not see a 
correlation.  She believes that the agreement was signed as a 
gesture of support for Chancellor Schroeder and that 
commercial requirements, once a feasability study is 
completed, will kill the project.  Deputy Minister of Economy 
Malgorzta Ostrowska agreed that the pipeline is a business 
and political decision, which Poland does not support. 
 
Yamal II Update 
--------------- 
4.  (C)  For its part, Poland has done everything it can to 
work with Russia on building a second pipeline, Yamal II, in 
the same right-of-way as Yamal I.  In 2003, Polish and 
Russian officials agreed that a governmental decision would 
be made on Yamal II by the end of 2004.  However, according 
to Trymucha, the Russians placed conditions on the decision 
that are almost impossible to meet including: 
--  Completion of Yamal I.  This condition has not been met 
as construction was delayed a year and is now expected to be 
completed by the end of 2005. 
--  Clarification of the ownership of EuroPolGaz company. 
Russia wants 50/50 ownership of the pipeline with no third 
parties.  Polish law at the time of the establishment of 
EuroPolGaz required participation of at least three 
shareholders.  Russia is requesting that Gas Trading leave 
the partnership that includes Gazprom and PGNiG. 
--  Long-term gas contract clarification.  Russia is offering 
more gas than Poland requires and will not agree to re-export 
of the gas to other European countries. 
 
5.  (C)  An Inter-governmental committee on economic 
cooperation was established in December 2004, with Minister 
of Economy Piechota representing Poland and Minister Levitsky 
representing Russian.  Trymucha noted that the last meeting 
occured in July and that the Russians now appear to be 
waiting the outcome of Polish elections this fall to make 
decisions.  Working groups have continued to meet and the 
next meeting of the energy sub-committee is scheduled for 
September 19 to 30 to discuss the Yamal and Ambar feasability 
studies. Representatives of the European Commission and 
German Embassy are invited to the meetings. Trymucha believes 
that for the projects to move forward the Lithuanian and 
Latvian energy companies will need to become invovled.  In 
her opinion, while there's good communciation at the 
administrative level with the two countries, there is no 
cooperation on the part of the energy transmission companies, 
which will be essential to moving the projects forward. 
 
EU Not involved 
--------------- 
6.  (C)  The European Union is not involved in the 
Russia-German pipeline project and has no influence on it, 
according to Trymucha.  In 2003, Polish Minister of 
Infrastructure Marek Pol initiated a debate on European gas 
networks and requested feasability studies on the Yamal II 
and Ambar pipelines.  At that time, the Northern pipeline was 
rejected by the EU.  Piotr Serafin, Director of the 
Department of Analyses and Strategies of the Office of the 
Committee for European Integration told us that Poland raised 
the pipeline in EU fora before joining, but has not been 
active in opposing the project as Yamal II and Ambar were 
given priority by the EC.  Now that the EU might fund a 
feasability study, he opined that Poland might get more 
involved, preferring that scarce resources fund the other 
studies. 
 
More cooperation with Ukraine would be Positive 
--------------------------------------------- -- 
7.  (C)  Tighter cooperation between Poland and Ukraine on 
gas and crude oil supplies would be a good idea agreed 
Trymucha, but must be done in such a way that Russia does not 
treat them as an act of retaliation.  Both Poland and Ukraine 
have the right to diversify sources of supply. 
 
Comment 
------- 
8.  (C)  Polish officials see the proposed North Baltic 
pipeline as a politically motivated project that will not 
hold up on commercial merits.  This could be leading to a 
false sense of comfort that the pipeline will never actually 
be constructed.  Working level meetings this week on Yamal II 
and Ambar could result in some progress on those competing 
routes.  Otherwise, it will be up to commercial interests to 
take the lead to construct a viable alternative. 
Ashe