Cablegate: Ukraine: Minister Dzharty On Vanco Psa Negotiations

VZCZCXYZ0000
RR RUEHWEB

DE RUEHKV #4132 3001526
ZNR UUUUU ZZH
R 271526Z OCT 06
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 0206
INFO RHEBAAA/DEPARTMENT OF ENERGY WASHDC

UNCLAS KYIV 004132

SIPDIS

SIPDIS
SENSITIVE

DOE FOR LEKIMOFF, CCALIENDO

E.O. 12958: DECL: NA
TAGS: EPET ENRG UP
SUBJECT: UKRAINE: MINISTER DZHARTY ON VANCO PSA NEGOTIATIONS

Sensitive but Unclassified. Not for Internet Distribution.

1. (SBU) Ambassador called on Environment Minister Vasyl Dzharty
October 26 to advocate for foreign investment in Ukraine's off-shore
and to request an update on the GOU's Production Sharing Agreement
(PSA) talks with U.S. company Vanco. Dzharty stated he favored
foreign investment for developing Ukraine's off-shore, and said he
had nothing against Vanco or the company's winning of the March
Kerch Bloc tender. The award was not at issue. Dzharty recognized
that Vanco had included its most desired terms and profit splits in
its draft PSA, and now the GOU and Vanco needed to find a compromise
that was good for Vanco and for the GOU. (Note: The Environment and
Energy Ministries are the two lead ministries for PSA
negotiations.)

2. (SBU) Dzharty said consultations to date had exhibited a "good
positive tendency"; the number of GOU comments was decreasing with
each new draft. (Note: Vanco told us most GOU comments were
cosmetic; fewer than ten were substantive.) However, both sides had
failed to consider relevant Ukrainian legislation in the Vanco PSA
draft, Dzharty explained, and for this reason the Cabinet of
Ministers had ordered on October 18 that a new working group write a
GOU draft.

3. (SBU) The new working group, which would include a Vanco
representative, would begin work October 30. (Note: This is nine
days sooner than the November 8 deadline given by the CabMin to form
the group. Vanco has confirmed it will attend the October 30
session.) Ambassador relayed that Vanco had told him they were
ready to work quickly to keep to the aggressive work schedule laid
out in its original bid. Vanco was confident it could reach
compromises with the GOU on all contested issues. Ambassador
expressed optimism that the draft PSA would be signed in December,
as originally planned. Dzharty replied that the PSA was a
thirty-year project and "one shouldn't make haste when doing a big
deal."

Comment
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4. (SBU) Dzharty appeared to understand that the PSA will be a
negotiated agreement, which suggests his previously inflammatory
press comments denouncing Vanco's initial proposal may have been a
negotiating ploy. While his comment on needing time to do the deal
right sounds like sensible policy, it could also provide cover for
the GOU to delay. Whether the GOU is acting in good faith or is
seeking to delay will be more clear during the course of the
negotiations.

Taylor

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