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Cablegate: Croatia Eyes Regional Energy Market

VZCZCXYZ0034
RR RUEHWEB

DE RUEHVB #0729/01 1641357
ZNR UUUUU ZZH
R 131357Z JUN 06
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 6291
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS ZAGREB 000729

SIPDIS

SIPDIS

SENSITIVE

REFTEL: ZAGREB 266

E.O. 12958: N/A
TAGS: ENRG SENV HR
SUBJECT: CROATIA EYES REGIONAL ENERGY MARKET


1. (SBU) Summary: Croatia currently covers 46
percent of its overall energy needs from domestic
sources. However, the GOC predicts that by 2030 it
will only be able to cover 30 percent or less if no
other investments are made into the energy sector.
Croatia is now engaged in several regional
initiatives that will benefit its own energy needs
and give it a foothold in the larger European energy
market. End Summary.

----------------------
Pan European Pipeline
----------------------

2. (SBU) Zeljko Tomsic, Assistant Minister for
Energy and Mining in the Croatian Ministry of
Economy, blamed Slovenia for stalling the Pan
European Pipeline (PEOP) project when its
representative failed to show for the March 22
meeting of the Interstate Committee in Trieste. The
three original members of the committee (Croatia,
Serbia and Romania) were to sign a memorandum of
understanding allowing Italy and Slovenia to join
and to establish a project development company that
would invest 10 million euros for a project
feasibility study. Slovenia invoked environmental
concerns, but Tomsic said he suspects the motivation
for the pullout was more likely political and
economic. He said the other countries were willing
to address Slovenia's environmental concerns, but
are also considering an alternate route that would
bypass Slovenia.

3. (SBU) Another meeting of the Interstate Committee
was scheduled for June 12 at which time Croatia was
expected to transfer the presidency to Italy.
Tomsic said Italy is in a better position to press
Slovenia into cooperating as well as to demonstrate
the importance of the project to Europe. Tomsic said
Richard Ennis, of the NY office of ING Bank, was
invited to the meeting to discuss potential US
investors.

4. (SBU) JANAF, the Croatian pipeline transmission
company, has already offered to invest 2 million
euro in the feasibility study. The company has an
interest in contributing to the project to ensure
its future profitability.


----------------------------
Liquified Natural Gas (LNG)
----------------------------

5. (SBU) Adria LNG Study Company (ALSCo), a
consortium of international companies, is privately
funding a potential LNG pipeline project. The intent
is to build a LNG terminal at Omisalj on the island
of Krk in the Northern Adriatic with a pipeline to
supply Italy and Europe. Currently ALSCo is
solidifying its shareholder structure, updating a
feasibility study and preparing an environmental
impact study. Tomsic called the projected 2011
completion of the LNG project ambitious.

6. (SBU) The consortium includes original and new
members: Total (France), OMV Gas (Austria), INA
(Croatia), RWE Transgas (Germany), Geoplin
(Slovenia) and EON Ruhrgas (Germany). INA CEO
Tomislav Dragicevic said HEP is likely to be
accepted into the consortium after INA offered some
of its shares.

-------------
Nuclear Power
-------------

7. (SBU) Plans for building another power plant in
Krsko (Slovenia) had been on the back burner but
Croatian and Slovenian officials are once again
considering the project as a means of meeting
increasing power demands. However, Slovenia is
expected to insist on majority control of any new
facility, Tomsic said. Meanwhile, legal experts are
split over whether a ban on development of nuclear
power in Croatia, adopted by Parliament as part of
its urban development plan, is actually a law.

-------------
Wind Energy
-------------

8. (SBU) A wind farm close to Sibenik on the
Dalmatian coast is scheduled for completion by the
end of June 2006 and six more wind farms are under
construction. Tomsic said there is considerable
interest among developers, adding that the
government is reviewing its laws and tariffs on
developing and operating renewable energy sources.
One recent decision prohibits construction of wind
farms on islands or within 1 kilometer of the coast.
He said the government, however, has been too busy
with EU regulations to spend time needed on
developing other renewable sources of energy.

------------
Electricity
------------

9. (SBU) Tomsic traveled to the US in April with
Tomo Galic, chairman of the Croatian Energy
Regulatory Authority (HERA); three executives from
HEP including HEP CEO Ivan Mravak; Leo Prelec, the
CEO of the Croatian Market Operator (HROTE); and
five managers of HEP transmission System Operator.
During that visit, Tomsic said he was asked to give
a briefing on power and energy policies in Croatia.
He is preparing for a return trip in July, as well
as accompanying Minister Vukelic in June.


10. (SBU) HEP continues to work with USAID to
transition from a monopolistic national power
utility to a regulated market model utility,
according to EU standards. This includes working
with the Croatian Energy Regulatory Agency (HERA),
HEP and the Ministry of Economy on legislation,
licensing procedures, public service obligations,
tariffs, data collection and grid codes. Another
existing Regulatory Partnership exchange - the NY
Public Service Commission and the Croatian Energy
Regulatory Agency - is scheduled for early July.

FRANK

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