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### Viewing cable 08ROME1308, ITALIAN ENERGY ISSUES: SPECIAL ENVOY C. BOYDEN

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08ROME1308 | 2008-10-29 07:07 | 2011-03-23 11:11 | CONFIDENTIAL | Embassy Rome

`

    VZCZCXRO8237
    OO RUEHAG RUEHROV
    DE RUEHRO #1308/01 3030730
    ZNY CCCCC ZZH
    O 290730Z OCT 08 ZFD
    FM AMEMBASSY ROME
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 1063
    INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
    RUEHAK/AMEMBASSY ANKARA PRIORITY 3281
    RUEHAH/AMEMBASSY ASHGABAT PRIORITY 0311
    RUEHTH/AMEMBASSY ATHENS PRIORITY 1867
    RUEHKB/AMEMBASSY BAKU PRIORITY 0111
    RUEHMO/AMEMBASSY MOSCOW PRIORITY 4462
    RUEHFR/AMEMBASSY PARIS PRIORITY 2449
    RUEHSI/AMEMBASSY TBILISI PRIORITY 0234
    RUEHFL/AMCONSUL FLORENCE PRIORITY 3252
    RUEHMIL/AMCONSUL MILAN PRIORITY 9610
    RUEHNP/AMCONSUL NAPLES PRIORITY 3408

` `

    C O N F I D E N T I A L SECTION 01 OF 04 ROME 001308

    SIPDIS

    EEB FOR SE GRAY
    EEB FOR DAS HENGEL
    EEB FOR DAS BRYZA
    EEB FOR AMBASSADOR MANN
    EEB FOR CBA SR FRANK MERMOUD

    E.O. 12958: DECL: 10/28/2018

    TAGS: PGOV PREL ECON ENRG IT RU AZ

    SUBJECT: ITALIAN ENERGY ISSUES: SPECIAL ENVOY C. BOYDEN
    GRAY DISCUSSES CASPIAN ENERGY; ENI SOUTH STREAM RUSSIAN
    TROUBLES; SKEPTICISM OVER 20-20-20 AND CHOOSING BETWEEN
    U.S. AND FRENCH NUCLEAR TECHNOLOGY

    REF: A) ROME 451 B) ROME 1101

    ROME 00001308  001.4 OF 004

    Classified By: Minister Counselor Thomas L. Delare
    for reasons 1.4 b, d and e

    ¶1.  (C) SUMMARY: On October 9 and 10, 2008, Special Envoy C.
    Boyden Gray visited Rome and met with key energy officials of
    the Italian Government and private sector. Major points of
    discussion revealed Italian worry about Caspian gas, namely
    whether the Turks will agree to let a sufficient amount of
    gas flow west to Greece and Italy, and whether the Azeris
    might lack the gas and/or the political will needed to make
    the Turkey-Greece-Italy pipeline project happen. Italy will
    convene a Turkey-Greece-Italy-Azerbaijan meeting in December
    or January in an effort to nail down positions. Regarding the
    South Stream pipeline, ENI officials report a lack of any
    definitive agreement to confirm their ""partnership"" with
    GAZPROM -- this project appears to be on hold.  Italian
    energy officials are deeply skeptical about Europe's 20-20-20
    emissions goals. A key GOI energy official told SE Gray that
    the nuclear energy agreement that Berlusconi will sign with
    the Russians in November will not be significant. Finally,
    the Italians seem to be leaning towards the French in their
    re-nuclearization project, though Embassy efforts have opened
    up the possibility of fast-track approval of U.S. nuclear
    technology too. End Summary

    --------------------------------------------- ---
    ENI HAVING TROUBLE WITH ITS RUSSIAN PARTNERS OVER SOUTH STREAM--------------------------------------------- ---

    ¶2. (C) Sergio Garribba, Energy Advisor to Economic
    Development Minister Scajola, told SE Gray that the Italian
    energy parastatal ENI has been having serious problems with
    the Russians.  For over a year, ENI has been telling us that
    it had entered into a full 50-50 partnership with GAZPROM on
    the South Stream (Black Sea) pipeline project, and that in
    this partnership, ENI would go far beyond merely building the
    pipeline for Gazprom (as they did on Blue Stream and as they
    are doing on Nord Stream). This new arrangement would, we
    were told, have made ENI a full partner with Gazprom in the
    sale of the gas sent through the new pipe.

    ¶3. (C) Garribba explained, however, that during the summer
    ENI asked the GOI for help. Garribba said the company is
    concerned that it has no formal contract with the Russians.
    ENI's concern was apparently peaked by the fact that the
    Russians were signing contracts with Bulgarians and others
    that did not include ENI as a partner.  Minister Scajola went
    to Moscow in an effort to get ENI the contract that it
    wanted, and proposed the formation of a ""working group"" to
    hammer out the contract's details.  The Minister provided a
    list of possible Italian participants and asked the Russians
    to do the same.  Garribba said the Russians never responded.
    ""ENI has nothing on paper from the Russians on the
    partnership,"" stated Garriba, ""All they have is an agreement
    to do a study."" Garriba spoke as if South Stream is not going
    to happen.  But he said he thinks the Russians may try to
    double the capacity of Blue Stream (the pipe that goes from
    Russia to Turkey on the Eastern side of the Black Sea). He
    said that technically this route would be a lot easier.

    ¶4. (C) ENI officials told Ambassador Gray essentially the
    same thing, stating that ENI is accused of nefarious
    collaboration with Gazprom on South Stream when all ENI has
    is the agreement with Gazprom to do a feasibility study
    though their 50-50 joint venture.  ENI, however, is
    interested in securing the contract to build South Stream, as
    well as obtaining from Gazprom rights to sell South Stream
    gas to Eastern Europe. (Under current market ceilings set by
    Italian anti-trust law, due to expire in 2010 unless renewed,
    ENI would not be able to sell the gas in Italy.) Gazprom is

    ROME 00001308  002.2 OF 004

    interested in selling gas directly in Italy.

    ¶5. (C) During a separate October 21 meeting, ENI's South
    Stream manager told EconOff that, ""in my opinion, South
    Stream has less than 5 percent chance of being built in the
    next five years."" He further explained that Gazprom will face
    major problems in the near future in raising the capital it
    needs to finance projects.

    --------------------------------------------- ---
    SOUTHERN CORRIDOR:  ITALIANS WORRIED ABOUT AZERIS, NOT THE
    TURKS
    --------------------------------------------- ---

    ¶6. (C) On the Turkey-Greece-Italy southern corridor project
    (TGI), SE Gray told Garribba that we think the problem is
    primarily in Turkey -- the Turks are demanding too much Azeri
    gas, and are unwilling to let a sufficient amount transit
    their country.   Garribba emphatically disagreed. He said
    Italy has an ""informal agreement"" with the Turks to let 6-7
    bcm of gas pass through TGI to the West. Garribba said that
    Italy's concerns are focused on Azeri ability and willingness
    to sell gas to the West. He said he doubted that the Azeris
    had enough gas to meet both their domestic needs and the
    requirements for TGI. SE Gray told Garribba that the USG is
    confident that the Azeris will supply the gas to western
    pipelines.  ""We can deliver the Azeris, if you can deliver
    the Turks,"" said Gray.  Garribba said he would be able to
    give a definitive answer on the Turkish position ""within four
    months.""  He explained that Italy is setting up a
    quadrilateral meeting (Italy, Greece, Turkey, and Azerbaijan)
    this December or in January 2009 in an effort to nail these
    issues down. But he said at this point he is not sure that
    the TGI pipeline will be built.

    ¶7. (C) In a separate meeting, MFA's Economic Bureau Director
    General Magliano also indicated that Turkey is not the
    problem. Magliano told SE Gray that Italy has excellent
    relations with Turkey but not with Azerbaijan.  SE Gray told
    Magliano the same thing he told Garriba, that if Italy can
    deliver Turkey, we can deliver Azerbaijan. Magliano was
    non-committal, however, thanking SE Gray and stating that the
    GOI would call on the USG's assistance if needed. The Georgia
    crisis had created a problem for the Nabucco pipeline, he
    said, which made TGI more practical.  On the GOI's position
    for the various gas projects, he summed it up as, ""the more
    pipelines, the better"". Magliano said that following this
    principle, Italy supports TGI, Nabucco, South Stream and Nord
    Stream.

    ¶8. (C) TGI's private sector partner on the Italian side,
    Edison, is not quite as sanguine about Turkey and worries
    that there might be problems there. Edison's CEO Quadrino
    explained to SE Gray that the plan is for Minister Scajola to
    go to Greece in the very near future, followed by a trip to
    Azerbaijan to obtain agreement.  This may lay the ground work
    for a deal with Turkey during the quadrilateral meeting later
    this year or early in 2009. Quadrino said that the goal would
    be to reach clear splits of the gas volumes.

    ¶9. (C) Garribba warned that the first of the Caspian Sea
    pipeline projects to be finished ""will be the winner"" because
    the market for gas will be saturated. Regarding Italy's gas
    situation, Garriba said that if many of the proposed
    pipelines and LNG terminals are completed, Italy will have
    gas supplies excess to its needs.  At that point Italy would
    market gas to land-locked EU countries that lack access to
    LNG. On energy diversification, Garriba said that he would
    someday like to set limits on how much energy suppliers could
    bring in from Russia.  Companies might be told, for example,
    that only 70 of their total imports could come from Russia.

    ROME 00001308  003.2 OF 004

    --------------------------------------------- --
    20-20-20, Russian Nuclear Agreements, French Nuclear Reactors
    --------------------------------------------- --

    ¶10. (C) Garribba was harshly critical of the 20-20-20 GHG
    goals, calling them unrealistic, and lamented the lack of
    coordination among environment, energy and economic
    ministries. (Note: energy companies Edison and ENI expressed
    to SE Gray similar skepticism over the 20-20-20 date and
    target goals. End note)

    ¶11. (C) When asked about a planned November 7 Berlusconi
    visit to St. Petersburg, Russia, and about reports that some
    sort of atomic energy  agreement would be signed, Garribba at
    first didn't seem to understand what we were asking about,
    but when he caught on he laughed and threw up his hands in a
    dismissive gesture. ""Oh that,"" he said, ""That's a joke.
    That's just for public relations. That's not important.""  He
    went on to dismiss the idea that Italy would opt for Russian
    technology for its nuclear power program (Note: He is
    probably right -- the Italians ended their previous nuclear
    power project in response to the Chernobyl catastrophe -- but
    given the close relationship between Berlusconi and Putin, we
    can't be completely sure that their nuclear agreement will be
    devoid of substance. End note).

    ¶12. (C) On nuclear power, Garriba seemed to indicate that a
    number of companies would be ""invited to invest"" in nuclear
    power as ""Italy is a free market and the GOI cannot dictate
    to private companies"".  He listed a number of possible
    candidates, all of them European (ENEL, EON, Edison).  We
    asked about U.S. companies, and Garriba responded that a
    company like Westinghouse might be asked by one of the
    ""investor"" companies to supply reactors to the project. He
    added that Italy  may opt to use two different reactor
    designs. He said that the favorite technology may be French
    as most of the potential power companies that might invest in
    Italy seem to favor the Areva ERP design. He reiterated
    Minister Scajola's goal of obtaining an Italian energy mix by
    2030 of 25 percent nuclear power, 25 percent renewables and
    50 percent fossil fuels. (Note: Post was able to persuade the
    GOI to change a version of nuclear draft legislation that
    would have waived Italian certification approval to nuclear
    power plant designs certified by other EU governments.  The
    new draft applies the waiver to all designs certified by any
    OECD country. This opens the door for U.S. firms, assuming
    the legislation makes it through both houses of parliament in
    its current form. End note)

    --------
    COMMENTS
    --------

    ¶13. (C) ENI now seems to be claiming that their South Stream
    deal with the Russians was always a bit tentative, but in
    February 2008 (REF A) ENI seemed to be gloating over what
    they apparently thought was more of a done deal. (However,
    even at the time they did tell us that they thought there was
    only a 60 percent chance that South Stream would actually be
    built). GOI uneasiness about the Azeri gas situation is
    similar to concerns Edison expressed to us last August (see
    REF B).

    ¶14. (C) We hope Garribba is right about the lack of substance
    in whatever nuclear agreement Berlusconi signs with Putin.
    GOI officials occasionally include Russia on their lists of
    possible nuclear power plant suppliers, but others (Garribba
    included) tell us that the Russians are not really in the
    competition. Italian officials know they have to overcome
    deep safety/NIMBY concerns, concerns that were stirred up by
    the 1987 melt-down of the Chernobyl nuclear power plant.

    ROME 00001308  004.2 OF 004

    ¶15. (C) While the Russians may be out of the running, we fear
    the French may have the inside track due to their lobbying
    efforts at the highest levels, and the fact that the European
    power companies that will likely build nuclear plants in
    Italy all have some type of French connection. Post will
    continue its energetic efforts to ensure that U.S. companies
    have a fair chance to market U.S. nuclear power plant
    technology in Italy.
    SPOGLI
    "

`