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### Viewing cable 08ROME525, C) DELIVERING TOUGH MESSAGES TO ENI CEO PAOLO

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08ROME525 | 2008-04-24 14:02 | 2011-04-18 11:11 | CONFIDENTIAL | Embassy Rome

`

    VZCZCBSO474
    PP RUEHBS
    DE RUEHRO #0525/01 1151428
    ZNY CCCCC ZZH
    P 241428Z APR 08
    FM AMEMBASSY ROME
    TO RUEHC/SECSTATE WASHDC PRIORITY 0233
    INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
    RUEHBW/AMEMBASSY BELGRADE PRIORITY 0347
    RUEHMO/AMEMBASSY MOSCOW PRIORITY 4422
    RUEHBS/USEU BRUSSELS PRIORITY 4626
    RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
    RHEHNSC/NSC WASHDC PRIORITY

` `

    C O N F I D E N T I A L SECTION 01 OF 04 ROME 000525

    SIPDIS

    DEPARTMENT FOR EUR DAS BRYZA
    DEPARTMENT FOR E EURASIAN ENERGY COORDINATOR STEVEN MANN
    NSC FOR DEPUTY NSA JEFFREY
    DEPARTMENT FOR P STAFF
    USEU FOR SPECIAL ENVOY GRAY

    E.O. 12958: ...

    SUBJECT: (C) DELIVERING TOUGH MESSAGES TO ENI CEO PAOLO
    SCARONI ON RUSSIA AND IRAN

    REF: A) ROME 451 B) 07 STATE 16018

    Classified By: ECONOMIC MINISTER COUNSELOR TOM DELARE
    FOR REASONS 1.4 B AND D

    ¶1. (C) SUMMARY: During his May 5-6 visit to Washington, Post
    believes it would be helpful to U.S. interests if Eni CEO
    Paolo Scaroni is told very clearly of serious USG concerns
    about 1) his company's close collaboration with Russia's
    Gazprom and 2) his company's continuing involvement in Iran.
    Eni is now a major collaborator in what many see as Gazprom's
    efforts to dominate the European energy market; Eni hopes to
    build Gazprom's South Stream pipeline, a project that
    threatens to scuttle the USG- and EU-supported Nabucco
    project. Eni recently gave Gazprom increased access to North
    African natural gas fields. Eni maintains long-standing
    investments in Iran. Post is preparing to push the new
    Berlusconi government to use its equity stake in Eni and
    moral suasion to force Eni to make major changes in its
    involvement with Gazprom and Iran.  Scaroni has returned from
    previous visits to Washington with the impression that Eni's
    business activities were not matters of grave concern for us.
    It would be very useful if he returns from this trip with
    raised awareness about USG unhappiness with his company.
    Scaroni has appointments with U/S Jeffery and U/S Levey, and
    tentative appointments with Acting U/S Fried, and Deputy NSA
    Jeffrey -- Embassy Rome recommends that these tentative
    appointments be confirmed.  END SUMMARY.

    --------------------------------------------- ---
    SCARONI HOPES TO ""MAKE ENI'S CASE"" IN WASHINGTON
    --------------------------------------------- ---

    ¶2. (SBU) On March 4, 2007, Ambassador Spogli spoke on energy
    security to a group led by Giulio Tremonti, the man widely
    expected to be Silvio Berlusconi's Economy Minister.  The
    Ambassador spoke of the dangers of over-reliance on Gazprom
    and of the need to diversify Europe's sources of energy. The
    Italian energy giant (and parastatal) Eni, was not mentioned
    explicitly in the speech, but Eni knew we were talking about
    them.  Eni reps contacted us immediately,  asking for the
    chance to ""clarify misunderstandings"" about their
    relationship with the Russians. REF A reports on the briefing
    an ENI Vice President gave to Econ Counselor. Eni CEO Scaroni
    later called the Ambassador and asked for help in getting
    Washington meetings for May 5-6.  Scaroni traveled to
    Brussels April 16 as part of the same effort to ""clear up
    misunderstandings.""

    ------------------------------------
    WHAT SCARONI NEEDS TO HEAR: USG UNHAPPY WITH GAZPROM
    COLLABORATION, AND IRAN SUPPORT
    ------------------------------------

    ¶3. (C) Post would like to push the new Berlusconi government
    to force Eni to act less as a stalking horse for Gazprom
    interests.  Eni (which is 30 percent owned by the Government
    of Italy) seems to be working in support of Gazprom's efforts
    to dominate Europe's energy supply, and against
    U.S.-supported EU efforts to diversify energy supply. We
    think we have a chance of turning that around.  Giulio
    Tremonti has told Ambassador Spogli that ""Eni has gone too
    far"" in its collaboration with Gazprom.

    ------------------
    IMMEDIATE CONCERNS
    ------------------

    ¶4. (C) Of immediate concern is Eni's proposed construction of
    Gazprom's South Stream Black Sea pipeline, a project that
    threatens to scuttle Nabucco, the USG- and EU- supported
    effort to bring Caspian gas to Europe. Eni is much more than
    a mere contractor on this project -- on South Stream it is a
    50/50 equity partner with Gazprom. A senior Eni official
    recently told us that due to difficulty in reaching
    agreements with Serbia and Romania, Eni thinks there is now
    only a 60 percent chance that South Stream will actually be
    built (see REF A). We think that a strong statement of USG
    unhappiness with the project might further increase the odds
    against Eni building this pipeline.

    ¶5. (SBU) Eni will argue that South Stream does not threaten
    Nabucco.  We have pointed out to Eni that Putin himself seems
    to think that it does. (See Eurasia Daily Monitor, 5 March
    2008). Also, Gazprom CEO Alexi Miller stated on February 25,
    2008 that South Stream ""obviates"" the need for Nabucco.  Our
    position on South Stream's impact on European energy
    diversification was clearly stated by DAS Bryza on February
    26, 2008: ""South Stream definitely does not strengthen
    diversification. It strengthens dependence on one supplier.""
    (See interview with DAS Bryza on USEU web page.)

    ¶6. (SBU) Eni recently announced an agreement with Gazprom
    under which Eni would give the Russians access to natural gas
    fields in North Africa in exchange for increased Eni access
    to gas fields in Russia. COMMENT:  North African natural gas
    is often seen as an opportunity for Italy and Europe to
    diversify away from dependence on Russian gas.  Giving
    Gazprom control of North African fields clearly does damage
    to EU energy diversification efforts.

    -----------------------------------
    AND THEN THERE IS IRAN....
    -----------------------------------

    ¶7. (C) Eni has been in Iran for decades.  It currently
    provides natural gas that is used to pressurize Iranian
    petroleum wells.  Eni has escaped U.S. Iran Sanctions Act
    punishment because of a U.S.-EU understanding that in effect
    exempted countries with ""old"" investments in Iran that do not
    expand their operations.  Eni's continued presence in Iran
    has been an irritant in the U.S.-Italian relationship, and
    without doubt helps the Iranian regime.  We would like to see
    Eni leave Iran. Scaroni is likely to say that one of the
    alternatives to Russia as an energy supplier is Iran. A firm
    expression of USG unhappiness with Eni's current relationship
    with Iran is thus very important.

    -----------------------
    SCARONI IS TAKING WASHINGTON'S TEMPERATURE
    -----------------------

    ¶8. (C) Scaroni traveled to Washington February 2007 and met
    with officials at State and Treasury, including DEPSEC
    Kimmitt (see Ref B). Most of the discussions during this
    visit were focused on Iran. We have heard from contacts here
    that the purpose of Scaroni's trip was essentially to take
    Washington's temperature and to make sure he had an
    understanding of where our ""red lines"" were regarding his
    company's Iranian operations. Scaroni reportedly came back
    from that trip convinced that his company was in no danger of
    crossing any U.S. red-lines. He almost certainly has a
    similar purpose in this upcoming visit; his staff tells us he
    wants to talk about Russia, Iran, and about Eni's recent deal
    with Venezuela.

    ¶9. (C) Eni clearly has been trying to monitor USG reactions
    to its moves. On January 30, 2008, Eni VP for international
    affairs Enzo Viscuzi asked a senior USG official about USG
    reaction to Eni's involvement in the South Stream project,
    and asked if the USG is ""mad at Eni.""  We expect Scaroni to
    pose similar questions during this trip.

    ----------------------
    SCARONI, BERLUSCONI...AND RUSSIA
    ----------------------

    ¶10. (C) Paolo Scaroni was made head of Eni in 2005 by
    then-Prime Minister Silvio Berlusconi, so there is a good
    chance he will remain head of Eni after Berlusconi again
    becomes Prime Minister in May.  But Tremonti's comment about
    Eni having ""gone too far"" may indicate discontent about
    Scaroni at high levels in the Berlusconi camp. Recent press
    reports indicate that Scaroni will stay on after the change
    in government, but this has not been confirmed.  Whether or
    not he stays, our work on this issue will be complicated by
    Silvio Berlusconi's close relationship with Vladimir Putin.
    Putin stopped off in Italy to visit Berlusconi on April 17,
    2008 (en route home from Libya).  Contacts in the Foreign
    Ministry tell us that they expect Berlusconi to take direct
    control of most important aspects of the Italy-Russian
    relationship.

    --------------------
    SCARONI -- CORRUPTION ALLEGATIONS
    --------------------

    ¶11. (U) Scaroni's bio is available on the Eni web site, but
    officials meeting with Scaroni should also know that
    according to press reports, in 1992 he pleaded guilty to
    bribery (kickback) charges in connection with an electrical
    power station project in Brindisi. This was part of the
    massive ""Tangentopoli"" scandal that brought down Italy's
    post-war political parties. Scaroni was reportedly sentenced
    to one year and four months in prison, but apparently served
    no time.

    ¶12. (SBU) Other reports of Eni corruption are much more
    recent: Eni owns a 25 percent share in the TSKJ consortium.
    TSKJ is under investigation by the SEC  due to alleged

    SIPDIS
    improper payments to Nigerian officials.  Also, in March
    2008,  British and Italian authorities launched a corruption
    probe regarding the sale of a large mobile phone system in
    Italy. Officers of the Italian energy parastatal ENEL
    allegedly received kickbacks from the Egyptian firm that was
    allowed to buy the system.  Scaroni was CEO of ENEL at the
    time of this sale.

    ------------------------
    SUGGESTED TALKING POINTS
    ------------------------

    ¶13. (U) Post suggest the following talking points for use
    with Eni CEO Paolo Scaroni:

    -- The U.S. government remains deeply concerned about Eni's
    involvement in Iran.

    -- Our displeasure with Eni has been intensified in recent
    months by the way in which your company is collaborating with
    Gazprom's efforts to obtain a dominating position on the EU's
    energy supply.

    -- The USG strongly supports EU efforts to diversify the EU's
    sources of energy supply. We are encouraging the development
    of the Nabucco pipeline, a project that will bring Caspian
    gas to the EU.  But your company is poised to build Gazprom's
    South Stream pipeline, a project seen by many as a Russian
    effort to scuttle Nabucco.

    -- We are also concerned about your role in giving Gazprom
    greater access to North African natural gas fields; along
    with Caspian gas, these fields are among the only other major
    alternative sources of natural gas for Europe.

    -- You should understand that on two of our most important
    Eurasian security issues, we see your company as taking very
    short-sighted commercial decisions. We find it particularly
    disturbing that these positions are being taken by a company
    that is 1/3 owned by the Italian government.

    -- We strongly urge Eni to re-consider its participation in
    the South Stream project, and, in a broader sense, we urge
    Eni to align its policy's and programs with EU efforts to
    diversify sources of energy supply.   We also strongly
    recommend that you end your collaboration with the Iranian
    regime.

    -- You should not interpret our concerns as being
    anti-Russian. However, we think Europe should diversify its
    sources of energy, and we are concerned that in its
    partnership with Gazprom (a firm that often seems to be an
    arm of government action) your company is not working in
    support of this objective.

    -- You should know that we have similar concerns about other
    powerful market actors that, like Gazprom, do not have
    transparent decision processes.

    -------
    COMMENT
    -------

    ¶13. (C) The current South Stream vs. Nabucco situation is
    eerily reminiscent of a similar struggle during the 1990s:
    In an effort to delay or prevent the construction of a
    trans-Caspian pipeline that could have helped bring Caspian
    gas to Europe, the Russians pushed forward their Blue Stream
    project (under the Black Sea). The Russians built Blue Stream
    not for commercial reasons (it always seemed like a money
    loser) but for strategic reasons (to stop the trans-Caspian
    pipeline). The Russians succeeded: Eni built Blue Stream, and
    the Trans-Caspian pipeline has never been built.   Eni is now
    preparing to play a very similar role in another Russian
    strategic pipeline project, this time as an equity partner
    with Gazprom in the South Stream effort aimed at stopping
    Nabucco.

    ¶14. (C) Ambassador Spogli has made energy security one of
    Embassy Rome's top priorities.  The election of the new
    Italian government, along with Eni's parastatal status,
    presents us with an opportunity to address what is clearly
    the most important Italian piece of the European energy
    security puzzle:  Eni's role as facilitator for Gazprom's
    efforts to gain a semi-monopolistic and politically
    influential position in the European energy market. We would
    like to try to use our influence with the GOI (and with Eni)
    to change that, and to induce Eni to cooperate (not
    counteract) EU energy security efforts.

    ¶15. (C) We are still between governments in Italy, and many
    decision makers are not yet in place, Nevertheless, we have
    some reasons to think we might have some success in pushing a
    cautionary approach on Eni and Gazprom when we engage with
    the new Berlusconi team. Berlusconi is close to Putin, and
    that may be a problem, However, Berlusconi's people have been
    talking quite a bit about energy security, and this may
    provide an opening.  Tremonti seems especially seized with
    this issue, and (as noted) has expressed unhappiness with
    Scaroni's approach to Gazprom.  We were surprised to find Eni
    itself so uncertain about whether South Stream would actually
    be built. They seem to be ""on the fence"" regarding this
    project -- perhaps we can make them even more uncertain about
    it, and about the wisdom of their alliance with Gazprom. Eni
    also seems deeply concerned about the consequences of
    angering us -- the company has significant investments in the
    United States. It would be very helpful if Scaroni hears of
    our deep dissatisfaction (as outlined above).

    ¶16. (U) We understand Scaroni has a confirmed appointment
    with U/S Jeffery and U/S Levy,  and tentative appointments
    with Acting U/S Fried and Deputy NSA Jeffrey.  Post strongly
    recommends that these appointments be confirmed.

    SPOGLI
    "

`