Cablegate: Scenesetter: Special Envoy Morningstar Visit to Paris

DE RUEHFR #1679/01 3441508
P 101508Z DEC 09




E.O. 12958: N/A
SUBJECT: Scenesetter: Special Envoy Morningstar Visit to Paris

PARIS 00001679 001.2 OF 003

1. (SBU) Embassy Paris warmly welcomes your visit on December
14-16. France is a strategic partner on global energy issues, both
in its own right, and as a policy leader within the EU. France has
a long-standing and statist policy of pursing energy independence.
It currently meets 50 percent of its energy needs domestically
(versus 23 percent in 1973), thanks mainly to the fact that it
produces 78 percent of its electricity from nuclear power. France
also places priority on diversification of oil and gas supplies.
France is sometimes at odds with other EU members over the role of
nuclear power in Europe's energy mix, and over how to engage
constructively with key natural gas supplier Russia. France's
energy consumption is made up of 40 percent electricity, 32 percent
oil, 15 percent gas, 5 percent renewables, and 4 percent coal.
Nuclear power generates 78 percent of France's electricity while 10
percent of its total energy production comes from renewables, and 2
percent through a combination of oil, gas, and coal (with the
remainder made up by imports).
Nuclear: Crown Jewels
2. (SBU) France is the second-largest nuclear energy producer in
absolute terms after the U.S. and is the country with the largest
percentage of electricity generated by nuclear power. The French
nuclear industry is active in the entire energy chain from uranium
mining to waste reprocessing. Nuclear power gives France one of the
lowest levels of greenhouse gas emissions among OECD countries, but
at a price.
3. (SBU) France's 58 nuclear reactors need life-extension
investment -- a time-consuming and costly process. In November, 18
reactors were shut down due to maintenance, fuel reloading, and
unplanned equipment failures. France is pioneering a new generation
of nuclear reactors with the EPR (European Pressurized Reactor) with
one project underway in Finland, one in France, and two more on the
drawing board (in France and China.). But France has encountered
snags in building the EPRs. The original Finnish contract is behind
schedule and 25 percent over budget. The cost of power generated at
an EPR is expected to be higher than current generation reactors, in
part because of greater safety standards.
4. (SBU) Due to concerns over waste treatment and social
acceptance, French-generated nuclear power is intended primarily for
France and exports are intentionally limited. Although still an
electricity exporter, France's exports are falling due to lack of
investment in existing nuclear plants. France also needs to
modernize its electrical grid and expand European interconnections.
President Sarkozy launched this month a blue ribbon panel to set
strategic priorities for the future of France's civil nuclear
Oil and Gas
5. (SBU) France relies on foreign imports to meet virtually all of
its oil demand -- the largest sources being Norway, Russia,
Kazakhstan, Saudi Arabia, and Libya. With one of the world's
"supermajor" oil companies (Total SA), France is sensitive to the
growing policy challenges of accessing reserves. The GOF has
substantial holdings in other French energy companies -- Electricite
de France, GDF-Suez and Areva -- and plays an active role in
high-profile decisions. France provides these companies with
critical political support, and promoting French energy majors
abroad is an integral part of French foreign policy.
6. (SBU) France has diversified its natural gas supplies (Algeria,
Norway, Russia) and supports expanding liquefied natural gas (LNG)
capacity and shipments. France has two LNG terminals, operated by
GDF-Suez, and a third under construction that belongs to Total and a
subsidiary of GDF. An additional four LNG terminal projects are
under development. Total also has leaseholds in southeastern France
which have shale gas potential. Since 2007, France's shale gas
sector has opened up for competition for what are assumed to be
limited reserves. Now in the preliminary surveying stage, the shale
gas sector will enter the exploration phase as early as next year
with exploitation a few years down the road.
7. (SBU) The GOF has participated in the EU's "Energy Dialogue"
with Russia since 2000 and leads the working group on crisis
management strategies. The GOF emphasizes the importance for the EU
of "solidarity mechanisms" to respond to possible gas supply
disruptions, or other issues that may affect member states unevenly.
France realizes that Europe cannot do without Russia to meet its
energy demand. Russian PM Vladimir Putin was in France recently for
the Fourteenth Franco-Russian Intergovernmental Seminar. Russian
and French government and industry leaders signed approximately 20
agreements and contracts in a broad range of fields including
energy, environment, infrastructure and the environment. EDF
recently acquired a 10 percent stake in the South Stream pipeline
and GDF-Suez wants to buy German interests in Gazprom's Nord Stream
project, but the deal is still under review. France is ramping up
for next year when it launches the "Year of Russia" with increased
economic, cultural, and scientific exchanges. The GOF's long-term
objective is to establish a broad-based economic zone with Russia
based on the free movement of people, goods and services.

PARIS 00001679 002.2 OF 003

8. (SBU) The GOF supports discussions on the EU energy chapter with
Turkey, although President Sarkozy opposes Turkey's bid to join the
EU as a full member. He supports a "privileged partnership" in lieu
of EU membership and suggested establishing an "economic zone of
common security" between the EU and Turkey (as well as with Russia).
French bilateral relations with Turkey have been tense, but are
improving. France recognizes the importance of good economic
relations, given Turkey's key transit role for energy supplies. The
GOF encourages projects with Turkey in the field of energy, one
being the "Solar Plan" that was launched by the current
French-Egyptian presidency of the Union for the Mediterranean. The
Plan aims to export electricity from renewable energies into the EU
that will contribute to implementing the European Energy and Climate
package. In November, a partnership agreement was signed between
French and Turkish national grid operators (RTE and TEIAS) to
promote development of the Turkish electricity market.
France, Central Asia and the Caucasus
9. (SBU) France pursues a "triangular" relationship with Russia and
Caspian Basin countries as it looks to find new oil and gas sources
and route and integrate the region into a broader political and
security regional framework. The first EU-Central Asia Forum on
security issues was held under the French EU Presidency in September
2008. More recently, France has devoted political attention to
Kazakhstan. President Sarkozy visited the country in October 2009
and announced it was the GOF's "major strategic partner" in Central
Asia. French energy majors Areva and Total have worked in
Kazakhstan for years. Total now leads the North Caspian Operating
Company, which is developing the giant Kashagan oil field in Western
Kazakhstan. France is expanding its presence in other countries of
the region as well. It recently opened an embassy in Bishek, the
Kyrgz Republic, to focus on strengthening economic exchanges and
bilateral cooperation. Azerbaijan's president visited President
Sarkozy this month in Paris.
US-French Relations: General Background
10. (SBU) You will arrive two and a half years into President
Nicolas Sarkozy's five-year term, a period marked by strong
coordination between the U.S. and France on key strategic issues.
The financial crisis and subsequent G20 response, as well as the
lead-up to the Copenhagen climate change summit, have tested this
relationship and shown that we can find ways to work together
despite fundamental differences on some issues. Since the advent of
President Sarkozy in 2007 and the election of President Obama in
2008, the U.S.-French bilateral relationship has become arguably the
best it has ever been, with a robust political relationship buoyed
by renewed support for the U.S. in public opinion. Sarkozy, is a
fierce advocate for French interests, is committed to pushing France
forward as a global leader and believes he can best advance French
interests by working in tandem with the United States rather than in
opposition to us. Politically robust government-to-government
relations do not mean, however, that France always aligns itself
with the United States. Sarkozy at times equates the health of the
relationship with the strength of U.S.-French political and
strategic cooperation in other parts of the world, rather than with
the economic relationship.
11. (SBU) Franco-American economic ties are robust. Bilateral
trade, investment and affiliate sales amount to an estimated USD 1.3
billion per day. France is the United State's eighth largest trade
partner, and the United States is France's sixth largest trade
partner. The U.S. is the top destination for French foreign
investment, with direct investment stock of USD 163 billion. There
are approximately 2,300 French subsidiaries in the U.S. that provide
more than 520,000 jobs and generate about USD 235 billion in
turnover. The U.S. is in turn the largest foreign investor in
France, with USD 75 billion in investment in 2008, and turnover of
about USD 228 billion. U.S. firms employ 650,000 people in France.
This Embassy is committed to further enhancing these economic ties.
12. (SBU) France's economy has outperformed most other EU member
states during the financial crisis, due largely to France's
extensive social safety net (e.g. long-lasting unemployment benefits
and training programs) which acts as an automatic stabilizer. But
government stimulus has also played an important role. The Sarkozy
administration pushed through a 26 billion euro stimulus package,
which -- with automatic stabilizers -- equals 2.5 percent of gross
domestic product (GDP). The government also announced a 35 billion
euro "grand emprunt" (a "recovery bond" offering) to stimulate
research and investment in innovative industries. The French
economy grew at an annual rate of 1.2 percent in 2Q09, driven
largely by a decline in the trade deficit, and by government
consumption. Unemployment increased to 9.1 percent on average in
Q209, compared to 7.4 percent in 2008, with a 23.9 percent youth
unemployment rate. To date, secondary effects of lower employment
rates have not significantly weakened what until now has been
remarkably resilient consumer demand. The dark side of all this,
however, is the soaring budget deficit, which doubled in the first
seven months of 2009 to 109 billion euros (USD 155 billion).
Because of this, Sarkozy continues to press for reforms that reduce
the burden of the state (reducing the civil service by attrition,

PARIS 00001679 003.2 OF 003

consolidating sub-national administrative layers) as well as
encourage small and medium-sized businesses (reduced paperwork, tax
exemptions, financing) and provide investment incentives.


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