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Cablegate: U/S Jeffery's Meeting with Minister of Industry

VZCZCXRO4952
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHMO #0371/01 0421457
ZNR UUUUU ZZH
P 111457Z FEB 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 6525
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MOSCOW 000371

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
EUR/CARC, SCA (GALLAGHER, SUMAR)
DOE FOR HARBERT, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER

E.O. 12958: N/A
TAGS: EPET ENRG ECON PREL RS
SUBJECT: U/S JEFFERY'S MEETING WITH MINISTER OF INDUSTRY
AND ENERGY KHRISTENKO

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISTRIBUTION.

-------
SUMMARY
-------

1. (SBU) Minister of Industry and Energy Viktor Khristenko
told U/S Jeffery and Ambassador Burns on January 29th that
the GOR expects rising domestic gas prices and a liberalized
electricity market to raise energy efficiency in Russia as
industries and consumers adopt energy saving technologies and
practices. He said Russia hopes to learn from U.S.
experience and expected Deputy Minister Materov's visit to
the U.S. next week to begin a continuing "partnership" on
energy efficiency. Khristenko was very interested in the
U.S. and Russia sharing their respective "national energy
strategies," an idea U/S Jeffery welcomed. Khristenko said
the pending Strategic Sectors Law (reftel) has "priority
status" in the new Duma, and that he is working with the
Ministry of Natural Resources to integrate language on oil
and gas fields. He said the law would provide investors
needed clarity and certainty. End summary.

--------------------------------
ENERGY EFFICIENCY A TOP PRIORITY
--------------------------------

2. (SBU) In a January 29th meeting with U/S Jeffery, Minister
of Industry and Energy Viktor Khristenko said that improving
the Russian economy's energy efficiency is one of the most
important aspects of the GOR's energy sector strategy. He
explained that while energy efficiency technologies and
practices have been widely used in the U.S. for decades, the
concept is new to Russians who have historically expected
abundant and cheap energy. He said changing the mentality of
consumers will take time, but that economic incentives are
encouraging efficiency. He described the potential energy
savings to be squeezed out of the Russian economy as
"colossal."

3. (SBU) Khristenko highlighted liberalized domestic gas
prices as a major driver for future efficiency gains. Gas
prices are set to reach "market" levels (European prices
minus transportation costs and export taxes) by 2011 for
industrial consumers. He described this process as
politically difficult, but necessary. He added that
electricity sector reforms will also play an important role
as new investments ($20 billion in 2007 and an expected $20
billion in the first half of 2008) replace and upgrade
existing facilities with the latest technologies. According
to the GOR's plan, "100%" of commercial consumers will be
able to buy their electricity in an open market by 2011. In
addition, the GOR plans to provide consumers with better
information to make more efficient choices.

4. (SBU) Khristenko said Russia "relies on drawing from U.S.
experience" with regard to energy efficiency technologies,
standards, and regulations. He was very upbeat about the
upcoming visit to the U.S. of his Deputy Minister, Ivan
Materov, to learn from DOE counterparts and others about U.S.
energy efficiency policies and programs. He expected the
trip to be the beginning of a productive partnership on this
issue.

5. (SBU) Khristenko repeated his previously proposed
suggestion that the USG and GOR share respective "national
energy strategies." He said such an exchange would be in the
interest of global energy security. This would not be an
exercise "merely to grade each other's policies," but an
on-going process of information sharing, he explained, adding
he is "very excited" about the idea. U/S Jeffery welcomed
the idea, but did not commit to the proposal.

------------------------------------------
STRATEGIC SECTORS LAW WILL PROVIDE CLARITY
------------------------------------------

6. (SBU) Responding to U/S Jeffery's inquiry about the
pending Strategic Sectors Law (reftel), Khristenko said it is
a "priority," but he did not predict a timeframe for passage.

MOSCOW 00000371 002 OF 002


He said there are continuing discussions with the Natural
Resources Ministry to integrate definitions related to
strategic oil and gas fields. He said the proposed bill drew
from U.S. law, but claimed it was "better" because it is
specific on the sectors that would be deemed "strategic," and
thus restricted with regard to foreign investment. "It will
provide a lot of certainty and give investors confidence."
He stressed that the bill received much input from the
private sector and has been extensively discussed with
international investors.

------------------------
ECONOMIC DIVERSIFICATION
------------------------

7. (SBU) Khristenko also described the GOR's "ambitious"
efforts to diversify the Russian economy. As Minister of
both Industry and Energy he said he often has to balance
competing interests. He said high taxes in the energy sector
have actually helped steer capital to a host of other sectors
including pharmaceuticals, machine tools, and chemicals. He
said the GOR is investing heavily in science and education to
help fuel expanding industries. He said Russia's rapidly
growing economy has drawn investments in nearly all fields,
highlighting the booming car market. According to
Khristenko, just 3 years ago Russia had the world's 12th
largest car market; it has now grown to be the "5th or 6th"
largest. This growth has attracted investments in domestic
production capacity and is just one example of Russia's
economic diversification, which he said is evident in the
growth of most major industrial and commercial sectors.

8. (U) This message has been cleared by U/S Jeffery.
BURNS

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