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Cablegate: Edison: Problematic Eu Decision On Poseidon

VZCZCXRO6815
PP RUEHAG RUEHDF RUEHIK RUEHKW RUEHLZ RUEHPOD RUEHROV
DE RUEHRO #1329 1661700
ZNR UUUUU ZZH
P 151700Z JUN 07
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 8351
INFO RUCNMUC/EU CANDIDATE STATES COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHFL/AMCONSUL FLORENCE PRIORITY 2462
RUEHMIL/AMCONSUL MILAN PRIORITY 8746
RUEHNP/AMCONSUL NAPLES PRIORITY 2623
RUEHBS/USEU BRUSSELS PRIORITY 4536
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS ROME 001329

SIPDIS

SIPDIS

EUR FOR DAS MATT BRYZA
EB FOR DAS PAUL SIMONS

E.O. 12958: N/A
TAGS: ENTG ETRD AJ GR TU IT
SUBJECT: EDISON: PROBLEMATIC EU DECISION ON POSEIDON
PIPELINE CLEARS THE WAY FOR CONSTRUCTION AND SUPPLY
CONTRACTS

REF: A. ATHENS 1184

B. ROME 725

1. (U) This cable is sensitive but unclassified. Not for
internet distribution.

2. (SBU) Summary. Italian energy company Edison views the
EU Commission's May 22 ruling on third party access exemption
for the Poseidon pipeline as flawed but sufficient for
construction to proceed. Edison's final analysis is that
while the EU Commission's decision contains conditions which
reflect the Commission's bias in favor of the Nabucco
pipeline, it gives Edison and its Greek partner, DEPA,
exclusive rights to sell natural gas imported using the
Poseidon pipeline. This makes the pipeline economically
viable, and allows Edison to begin negotiations for natural
gas deliveries. End summary.

3. (SBU) In a June 4 conversation with Economic Specialist
Elio Ruggeri, the Edison official in charge of the "Poseidon"
underwater natural gas pipeline said Edison is not satisfied
with the May 22 EU Commission ruling exempting Poseidon from
EU third-party access rules. (Exemption will give Edison and
DEPA, Edison's Greek partner, exclusive rights to sell
natural gas imported into Italy using the Poseidon pipeline.
As reported in Ref B, Edison views exemption from EU
third-party access requirements essential for the Poseidon
pipeline to be economically feasible.) Ruggeri said the
exemption from third-party access requirements contains
conditions that, in Edison's view, reflect EU institutional
bias in favor of the Nabucco project. However, he emphasized
that Edison can now begin construction of the Poseidon
pipeline and negotiations for the delivery of Azeri natural
gas to Italy via Turkey and Greece.

4. (SBU) Ruggeri focused on only one of the four Commission
recommendations: that the Italian government cancel the
exemption, should Edison and DEPA not complete Poseidon's
construction by 2012. According to Ruggeri, this
recommendation, if strictly applied, all but guarantees that
the exemption will eventually be canceled. In a project the
size of the Poseidon pipeline, delays are almost certain, and
they may push Poseidon's completion past 2012.

5. (SBU) That said, Ruggeri explained, Italian law could
over-ride the EU recommendation. Specifically the Italian law
upon which the Commission based its recommendation contains
clauses that provide for a waiver under certain conditions.
Although Ruggeri did not explain the circumstances under
which the law could be waived, he said GOI regulators will
exercise the Italian law's flexibility. In a wider sense,
however, Edison interprets the Commission's decision to
include this recommendation in their decision as a symbol of
continued EU preference for the Nabucco pipeline project over
the Poseidon pipeline.

6. (SBU) Comment. Edison's confidence in the face of these
additional conditions the EU Commission proposes for
Poseidon's exemption from EU third-party access requirements
is surprising. Ruggeri made clear that while the exemption
is not all that Edison wanted, it is sufficient for Edison
and DEPA to proceed with financing and building the Poseidon
pipeline. Most importantly, Edison can begin negotiating
natural gas supply contracts for gas to fill Poseidon when it
is completed -- hopefully in 2012, or earlier. End comment.
Spogli

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