US embassy cable - 03ANKARA5646

UNCLAS SECTION 01 OF 02 ANKARA 005646 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/CBED, EB/IFD AND EUR/SE 
DEPARTMENT PASS OPIC FOR ZAHNISER, MAHAFFEY 
NSC FOR BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
USDOE FOR PHUMPHREY/ROSSI 
TREASURY FOR OASIA - MILLS AND LEICHTER 
 
 
E.O. 12958: N/A 
TAGS: EINV, ENRG, EFIN, TU 
SUBJECT: A POSSIBLE SOLUTION TO THE BOT ISSUE? 
 
 
REF: A. (A) ANKARA 3976 
     B. (B) ANKARA 3343 
 
 
1.  (SBU) Summary:  An Enron executive says a "trial balloon" 
floated by the Energy Market Regulatory Authority (EMRA) has 
the potential to lead to a solution to the dispute between 
the GOT and BOT power generating companies over pricing and 
other contractual issues.  The idea would be for EMRA to 
issue a ten-year unconditional license enabling the companies 
to continue operating under their existing contracts, but 
with the understanding that EMRA might trigger a "risk event" 
in 2009 (after the companies have repaid their loans) leading 
to a buy-out.  Under those circumstances, Trakya Elektric 
(Enron) would be willing to discuss with the GOT possible 
price concessions in return for protection against a 2009 
buy-out.  The executive also suggested that OPIC/EXIM 
agreement to tell the GOT that they would call their 
guarantees at a low trigger point (i.e., in response to 
relatively limited arrears) would enable the companies to 
lower their risk premium and thereby further lower their 
prices.   Embassy will meet with EMRA President and Energy 
Ministry U/S early next week to get a better sense on whether 
the GOT is seriously considering this approach, though we 
will not mention the OPIC/EXIM guarantee issue.  End Summary. 
 
 
2.  (SBU) Enron Global Assets Vice President Lloyd Wantschek 
told us September 5 that, after months of bitter dispute with 
the GOT, he finally had seen a positive development:  a 
"trial balloon" floated by EMRA that, in his view, could 
point the way toward a satisfactory solution to the dispute. 
(Note:  As reported in reftels, the Energy Ministry has been 
using the new electricity law's requirement that companies, 
even those already in operation, apply for operating licenses 
from EMRA to pressure Trakya Elektric (Enron) and Doga Enerji 
(Edison Mission) to lower tariffs. End note) 
 
 
3.  (SBU) The idea, per Wantschek, would be for EMRA to issue 
a ten-year, unconditional license enabling the power 
companies to continue operating under their current 
contracts; however, the GOT would let it be known that it 
would seek to trigger a contractual "risk event" at the end 
of 2009, allowing it to buy out the projects for zero 
consideration in full compliance with the contracts. 
Wantschek explained that the contracts' buy-out provisions 
call for a series of payments over time, ending in 2008 (when 
the projects finish repaying lenders), so the cost to the GOT 
of a buy-out starting in 2009 would be zero, under the 
contract.  To fulfill its legal requirement under the 
Electricity Law, EMRA would attach to the license non-binding 
suggestions on how the current contractual arrangements might 
be changed to conform with the transition to a market economy. 
 
 
4.  (SBU) Wantschek said EMRA's issuance of a license along 
these lines would remove the "regulatory gun" pointed at the 
companies head and create a positive incentive for them to 
negotiate.  Under these circumstances, Trakya/Enron would be 
prepared to sit down with the Energy Ministry (after issuance 
of the license) and try to negotiate a deal in which the 
company might "tilt" its price schedule (i.e., lower its 
tariff earlier than scheduled in return for higher-than 
scheduled prices further down the road), as long as the GOT 
provided assurances there would be no zero-cost buy-out in 
2009.  If the GOT also agreed to provide the projects with 
natural gas at the same rate it charges state electricity 
producers (much less than what the projects now pay), this 
would allow them to offer a substantial reduction in tariffs. 
 
 
5.  (SBU) According to Wantschek, such a deal -- while not 
perfect -- would enable the Energy Ministry to achieve its 
goal of publicly announcing a reduction in tariffs, while 
keeping his company relatively satisfied and staying within 
the confines of the contracts.  He also suggested that the 
deal would be even more palatable if official lenders -- 
OPIC, ExIm and Hermes -- were to agree to inform the GOT (as 
part of the deal) that they would call their guarantees at a 
relatively low threshhold (eg. in response to a few months of 
arrears or arrears totaling, say, $40 million).  Such an 
explicit statement, Wantschek explained, would enable the 
company to reduce its risk premium and thereby further reduce 
costs. 
 
 
6.  (SBU)  Wantschek expressed hope that the USG would 
indicate its support to the EMRA approach (stressing the 
importance of EMRA issuing an "unconditional" license), and 
that OPIC and ExIm would consider a statement along the lines 
he described.  He subsequently called back to say he had 
discussed the idea in general terms with Energy U/S 
Demirbilek, who had invited him to return next week to talk 
with Minister Guler.  Wantschek said that, in the meantime, 
he would try to contact Doga Enerji as well as OPIC/ExIm 
officials to get their views. 
 
 
7.  (SBU) Comment and Action Request:  We plan to meet with 
EMRA President Gunay on September 8 and with Energy U/S 
Demirbilek on September 9.  In those meetings, we will try to 
get a better sense of whether EMRA and the GOT are seriously 
considering EMRA's "trial balloon," without speaking for the 
companies or mentioning the OPIC/ExIm guarantee issue. 
Embassy would welcome Washington thoughts or guidance on this 
issue. 
EDELMAN