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07KYIV941, UKRAINE: UKRTRANSNAFTA HEAD DISCUSSES ODESA-BRODY

April 20, 2007

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Reference ID Created Released Classification Origin
07KYIV941 2007-04-20 06:00 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv

VZCZCXRO1546
PP RUEHDBU RUEHIK RUEHLN RUEHVK RUEHYG
DE RUEHKV #0941/01 1100600
ZNR UUUUU ZZH
P 200600Z APR 07
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 2055
RHEBAAA/DEPARTMENT OF ENERGY WASHDC
RUEHZG/NATO EU COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUEHBI/AMCONSUL MUMBAI 0020

UNCLAS SECTION 01 OF 02 KYIV 000941 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EB/ISC/ECA - RGARVERICK, EUR/UMB 
DOE FOR LEKIMOFF, CCALIENDO 
MUMBAI FOR KLEIN 
 
E.O. 12958: N/A 
TAGS: EPET ENRG PREL RS UP
SUBJECT:  UKRAINE:  UKRTRANSNAFTA HEAD DISCUSSES ODESA-BRODY 
 
REF: Kyiv 887 
 
KYIV 00000941  001.2 OF 002 
 
 
Treat as Sensitive but Unclassified.  Contains business proprietary 
information. 
 
1. (SBU) Summary:  Meeting with Ambassador, Ihor Kyriushyn, the 
chairman of Ukraine's state oil transport company UkrTransNafta and 
Geoff Berlin of GlobalNet Financial Solutions reviewed plans to 
transport Caspian crude to Europe via the Odesa-Brody-Druzhba route 
(reftel).  Kyriushyn felt the proposal had commercial merit. 
UkrTransNafta had already obtained interest from several Central 
European refineries in deliveries of Caspian crude and is expanding 
its own oil storage capacity to be ready for re-reversing 
Odesa-Brody.  A key first question will be resolving the sale of the 
49 percent share of Slovakia's Transpetrol now held by Yukos; at a 
later stage UkrTransNafta might be interested in purchasing a 
portion.  Kyriushyn argued the extension of Odesa-Brody to Plock was 
not realistic and only could be considered at a later stage. 
Kyriushyn said they would try first to see if the deal could work 
for the various oil transport companies involved, and then would 
seek to find a way to approach the Russians about the deal. 
Ambassador encouraged Kyriushyn and Berlin to discuss the proposals 
with Washington.  End Summary. 
 
ASSERTS ODESA-BRODY-DRUZHBA COULD WORK 
 
2. (SBU) Mr. Berlin reviewed for Ambassador his company's arguments 
why a routing of Caspian crude via the  Odesa-Brody-Druzhba (OBD) 
pipeline could be competitive with current shipments via the 
Bosphorus to Trieste and then via pipeline to Germany (reftel). 
Kyriushyn and Berlin maintained the issue was transport, not new 
capacity or production.  Kyriushyn said UkrTransNafta had already 
had preliminary discussions with Slovakia's Transpetrol about the 
routing and planned talks with the Czech Republic's pipeline 
operator MERO next week.  UkrTransNafta had also talked to 
refineries about their interest in Caspian crude -- Kralupy (Czech 
Rep.) wanted 2.7 million tons/year, Ingolstadt (Germany) also 2.7 
million, and Schwechat (Austria) 4 million tons.  In addition two 
western Ukrainian refineries (Nadvyrna and Drohobych) needed major 
upgrades to continue using Urals crude and so might be able to be 
reconfigured for Caspian crude.  These volumes were big enough, 
Kyriushyn said, that the Ukrainian side would be willing to make 
concessions on transit rates to make the OBD route competitive with 
the current shipping route. 
 
TRANSPETROL OWNERSHIP MAY BE A KEY 
 
3. (SBU)  One precondition for moving forward on a consortium to 
ship via OBD was resolving the ownership of Transpetrol, Kyriushyn 
asserted.  Currently the Slovak government was trying to decide 
whether to buy the 49% share of Transpetrol held by Yukos, and 
either sell it to Russia's Gazpromneft or buy the share itself.  If 
the Slovaks agreed to sell to the Russians, they planned to insist 
that the GOS get 3 of 5 seats on the board, that Gazpromneft would 
not block any attempt to ship Caspian crude, and that they would 
agree to increase Transpetrol's capacity by 7 million tons/year. 
Currently the sale by Yukos is tied up in litigation in the 
Netherlands, Berlin noted, but they expected a ruling soon and hoped 
the sale would be finalized by June or July.  If the GOS bought 
Transpetrol, Kyriushyn said UkrTransNafta might be interested in a 
25 percent share financed by the European Investment Bank; they were 
possibly interested in a consortium with the U.S. Zuckerman group 
for the minority share. 
 
ODESA-BRODY-PLOCK:  NOT A COMMERCIAL PROPOSITION 
 
4. (SBU) Kyriushyn expressed strong doubts that the extension of 
Odesa-Brody to Plock would ever be a realistic commercial project. 
He estimated that the payback for the project would be 20 years or 
more.  The Polish government kept expressing interest, but Kyriushyn 
stated the only justification for the extension would be for 
political/strategic reasons, if the EU wanted alternative supplies 
of crude for the northern Druzhba pipeline to the refinery at 
Schwedt or onward to Wilhelmshafen. 
 
COMMERCIAL DIPLOMACY NEEDED AHEAD 
 
5. (SBU) Kyriushyn noted UkrTransNafta was already expanding its 
capacity to be in a position to make the OBD route a reality.  With 
EBRD financing, they were constructing 120,000 tons of additional 
storage at the sea terminal at Pivdenniy, as well as additional 
storage tanks in Brody.  He and Berlin estimated forming a 
consortium could take about 4 months, while building the extra 
capacity would take 2-3 years.  They argued the additional volumes 
could give the capacity expansion project attractive internal rates 
 
KYIV 00000941  002.2 OF 002 
 
 
of return for the pipeline operators. 
 
6. (SBU)  Kyriushyn and Berlin planned to move quietly to assemble 
the consortium, to avoid alarming the
 Russian side, who might 
reflexively slam on the brakes.  They asked for U.S. support for the 
project, once their analysis could demonstrate it would be viable. 
In particular, they felt diplomatic support might help with the 
Czechs, whom they expected would tend to sit on the fence.  Only 
once they had obtained agreement from the Central European pipeline 
operators and refineries would they seek to engage the Russians, 
Kryiushyn stated.  He felt the Russians might be persuaded the OBD 
route and capacity expansion would be in their interest, especially 
as it would allow additional volumes of their Urals crude to transit 
as well. 
 
CONTACTS IN WASHINGTON 
 
7. (SBU) Ambassador thanked Berlin and Kyriushyn for their briefing. 
 He said post would report on the meeting and forward an electronic 
copy of their presentation to relevant offices in the Department. 
Ambassador also suggested it would be worthwhile for Kyriushyn and 
Berlin to seek to brief EUR DAS Bryza about their project.  Berlin 
and Kyriushyn agreed. 
 
8. (SBU)  Comment:  Kyriushyn seemed clearly on board for the 
project, and after the meeting he told Econ Counselor he thought 
Fuels and Energy Minister Boyko also would support the project 
because it met two of Boyko's objectives:  it provided supply 
diversification and kept the Odesa-Brody pipeline working.  As post 
noted in reftel, there are a lot of open details about this project 
that could spell its demise if almost everything does not go right. 
Still, at this stage it seems worth exploring the option, especially 
if the commercial case can be made for OBD. 
TAYLOR

Wikileaks

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