[Wikilieals] JAPAN OFFERS FAVORABLE ASSESSMENT OF SAKHALIN 2

Viewing cable 07TOKYO163, JAPAN OFFERS FAVORABLE ASSESSMENT OF SAKHALIN 2

Reference ID Created Released Classification Origin
07TOKYO163 2007-01-15 22:36 2011-05-10 05:00 CONFIDENTIAL Embassy Tokyo

VZCZCXRO8126
OO RUEHFK RUEHKSO RUEHNH
DE RUEHKO #0163/01 0152236
ZNY CCCCC ZZH
O 152236Z JAN 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9782
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 5472
RUEHLO/AMEMBASSY LONDON PRIORITY 1671
RUEHMO/AMEMBASSY MOSCOW PRIORITY 1464
RUEHUL/AMEMBASSY SEOUL PRIORITY 1563
RUEHTC/AMEMBASSY THE HAGUE PRIORITY 1050
RUEHFK/AMCONSUL FUKUOKA PRIORITY 9532
RUEHNH/AMCONSUL NAHA PRIORITY 2012
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 2987
RUEHKSO/AMCONSUL SAPPORO PRIORITY 0551
RHMCSUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RHHMUNA/HQ USPACOM HONOLULU HI PRIORITY
RHMFISS/COMUSJAPAN YOKOTA AB JA PRIORITY
RUAGAAA/COMUSKOREA SEOUL KOR PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 3008
RUEAIIA/CIA WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 000163

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/12/2016
TAGS: PREL ENRG EPET RU JA
SUBJECT: JAPAN OFFERS FAVORABLE ASSESSMENT OF SAKHALIN 2
DEAL

REF: TOKYO 7113

Classified By: Charge d’ Affaires Joseph R. Donovan. Reasons 1.4 (B) (
D)

¶1. (C) Summary. The Kremlin,s aggressive move to increase
Gazprom,s stake in the Sakhalin 2 project was largely driven
by Russian domestic political considerations, MOFA Russian
Division officials told poloffs recently. Royal Dutch Shell
(RDS) worsened things when it committed a &big blunder8 and
&double-crossed8 the Russians. Japanese officials, after
warning Moscow that any unilateral decision to shut down
Sakhalin 2 would turn the matter into a &very serious
diplomatic issue,8 finally convinced President Putin to
treat the Sakhalin 2 problem as a commercial, rather than a
political problem. Surprisingly, MOFA believes that the
successful outcome has benefited overall Russia-Japan
relations and may facilitate discussion in other areas,
including the Northern Territories issue. End Summary.

—————–
Domestic Politics
—————–

¶2. (C) On December 28, poloffs met with MOFA European Affairs
Bureau Russian Division Director Kuninori Matsuda to review
events connected with the Sakhalin 2 consortium,s recent
decision to increase Russian Gazprom,s stake in the joint
energy project. According to Matsuda, Russia,s current
policy with regard to the Sakhalin 2 energy project, and in
particular Moscow’s recent moves to increase Gazprom,s share
in the project, have largely been driven by Russian domestic
political considerations. Russia,s current political scene
is dominated by supporters of the three major political
figures, Matsuda asserted, two of whom have positioned
themselves to run in the presidential election: First Deputy
Premier Medvedev, Deputy Premier and Defense Minister Ivanov,
and Deputy Chief of Staff Sechin, who supports Putin. From
MOFA,s perspective, President Putin,s decision not to seek
re-election in the March 2007 presidential election has
motivated some of the president,s supporters to manufacture
a crisis by creating political problems (including perhaps,
he speculated, the assassination of Litvinenko in London).
Sechin,s group wants to change the constitution in order to
allow Putin to be re-elected, Matsuda said.

¶3. (C) Further complicating the Sakhalin 2 issue, Matsuda
continued, is the fact Medvedev and Sechin serve as
presidents of Gazprom and Rosneft, respectively. MOFA has
heard rumors that Putin would like to be appointed president
of Gazprom after leaving the Kremlin ) a platform that he
would use as a springboard for the 2012 presidential
election. Based on the nexus that exists between high-level
Russian government officials and the energy sector, MOFA had
advised senior Japanese officials that &Gazprom is a
presidential matter so it will be tough to stop8 the
Sakhalin 2 restructuring.

——————-
Royal Dutch Blunder
——————-

¶4. (C) Royal Dutch Shell (RDS) also committed a &big
blunder,8 Matsuda stated. During negotiations held in 2006,
RDS and Gazprom agreed to an equity swap that increased the
Russian company,s share in the Sakhalin 2 project. In
exchange, Gazprom agreed to pay RDS a commission for use of
the Siberian oil fields. However, just a few days after the
negotiations concluded, RDS, without consulting other
Sakhalin 2 consortium members, announced that cost overruns
on the energy project had increased from USD 10 billion to 20
billion. Matsuda pointed out that the revelation had the
immediate effect of devaluing Gazprom,s equity in the
venture, and put off by at least 10 years the time when
Russian officials could hope to begin to recoup any profits
from the project. Mitsui and Mitsubishi, who were not

TOKYO 00000163 002 OF 002

informed of the decision until the last minute, were also
&upset8 by RDS, &double-cross8 of the Russians, Matsuda
claimed.

—————————–
Japan Limits Political Damage
—————————–

¶5. (C) Japanese government efforts then focused on trying to
convince President Putin to treat the Sakhalin 2 issue as a
commercial, rather than a political problem, Matsuda
explained. Tokyo told Kremlin officials that any unilateral
decision to shut down Sakhalin 2 would turn the matter into a
&very serious diplomatic issue.8 Japanese officials argued
that a unilateral shutdown would disrupt much-needed energy
investment in Russia by Japanese companies. Matsuda also
revealed that PM Abe telephoned Putin to press Tokyo,s case.

¶6. (C) Moscow, Matsuda noted, eventually agreed to return to
the commercial negotiations. Those talks focused on three
areas: 1) Gazprom,s participation in the project, 2) cost
overruns, and 3) ecological concerns. The consortium members
eventually convinced Russian officials that the cost overruns
were legitimate. Matsuda observed that, after Gazprom had
secured its participation on advantageous terms, &the
ecological issues went away.8

——————-
Bittersweet Win-Win
——————-

¶7. (C) Matsuda, saying that Tokyo had managed to avoid a
worse case scenario, outlined Japan,s gains from the
recently concluded Sakhalin 2 deal. The consortium brought
Gazprom into Sakhalin 2 as a major stakeholder, a step that
would &guarantee8 the project. As partners in Gazprom,
Putin and other high-level Russian officials would also
provide direct political support for the energy deal.
Matsuda insisted that the financial arrangement for the
consortium partners was &satisfactory,8 and that the
companies &would not have to worry about a class-action suit
by stockholders.8

¶8. (C) Reaching agreement on Sakhalin 2 increased the
likelihood that the two sides would be able to reach an
accommodation on future deals, &Sakhalin 3, 4, 5, and 6,8
Matsuda suggested. MOFA also believes that the diplomatic
discussion improved the overall atmospherics between Russia
and Japan and might facilitate discussion in other areas,
including the Northern Territories issue. In a parting
remark, Matsuda asserted in a half-joking manner that the
U.S., which had been &very active8 in communicating with
Japan at start of the Sakhalin 2 situation, &suddenly
stopped calling8 after Kremlin officials allegedly told
Washington that Exxon,s investment in Sakhalin 1 would not
be affected.
DONOVAN

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