US embassy cable - 03ANKARA5811

UNCLAS SECTION 01 OF 02 ANKARA 005811 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/CBED, EB/IFD, EUR/SE 
DEPARTMENT PASS OPIC FOR ZAHNISER, MAHAFFEY 
NSC FOR BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
USDOE FOR PHUMPHREY/ROSSI/CWASHINGTON 
TREASURY FOR OASIA/MILLS AND LEICHTER 
 
 
E.O. 12958: N/A 
TAGS: EFIN, ENRG, TU 
SUBJECT: MORE ON ENRON BOT "TRIAL BALLOON" 
 
REF: ANKARA 5646 
 
 
1.  Summary:  ENRON's report of a GOT trial balloon to 
resolve the dispute between BOT operator Trakya (Enron) and 
the GOT (reftel) appears to have been overly optimistic. 
Yusuf Gunay, President of the Energy Market Regulatory 
Authority (EMRA), told us he had not heard of the proposal, 
while Energy Ministry U/S Sami Demirbilek sidestepped the 
issue.  Nevertheless, Gunay pledged to allow the 
Enron-invested company Trakya, along with other BOT projects, 
to continue operating without a new license and Demirbilek 
urged Enron/Trakya to initiate negotiations.  Bottom line ) 
the situation is likely to remain confused until Enron/Trakya 
and the Energy Ministry start talking.  End Summary. 
 
 
2.  In an effort to promote resolution of the dispute between 
BOT operators Trakya (Enron) and Doga (Edison Mission) and 
the GOT, EconCoun met with EMRA President Gunay and Energy 
Ministry U/S Demirbilek.  Specifically, we were following up 
on the report by Enron Global Assets Vice President Lloyd 
Wantschek (reftel) that EMRA had floated a &trial balloon8 
proposal that appeared to address Enron/Trakya,s interests. 
 
 
 
 
3.  EMRA President Gunay noted that although the September 1 
deadline had passed for receiving new operating licenses, 
EMRA did not intend to take any action to stop the BOTs from 
continuing to operate.  In fact, he had indefinitely extended 
the deadline.  Gunay described Trakya,s contract as &an 
acquired right,8 and noted that actions that could be 
perceived as breaking the contract would harm Turkey,s 
efforts to bolster its image in the international financial 
community and its desire to attract more FDI into the energy 
sector.  Gunay said his primary goal as head of EMRA was to 
move toward a system in which power sales are made in a 
competitive market. 
 
 
4.  Energy Ministry U/S Demirbilek did not help much to 
clarify the situation.  Demirbelik was aware of some aspects 
of the proposal mentioned by Enron rep Wantschek, but he did 
not indicate that any GOT proposal was on the table.  He told 
us that he had recently spoken with Wantschek, who offered 
the GOT an immediate buyout for $300 million.  Demirbilek 
told us that he did not reject the idea completely but 
considered the Enron proposal an opening position in a more 
lengthy process to reach a solution. 
 
 
5.  Demirbilek said his top priority was to lower the retail 
price of electricity in Turkey.  He noted that the 
electricity produced by Trakya was among the most expensive; 
therefore, reducing Trakya,s sales price was a high 
priority.  He offered that the Ministry would be willing to 
significantly lower the input costs for Trakya in exchange 
for Trakya concessions on the price the GOT must pay for  the 
electricity.  Specifically, the government expected to be 
able to lower the price of natural gas by as much as 30-35% 
and was also willing to reduce the capacity fee charged to 
connect to the Turkish grid.  Demirbilek urged Enron to make 
an explicit offer ) either in writing, or in a meeting with 
Energy Minister Guler, which he would arrange. It is also 
noteworthy that Demirbilek emphasized that the Ministry was 
not talking to DOGA, the other U.S. BOT.  (The Ministry 
claims that Doga may have violated its contract and is 
investigating.) 
 
 
6.  When we pressed him on Enron/Trakya,s desire to receive 
a license extension before inking a new deal, Demirbilek was 
evasive, suggesting instead that EMRA could offer a letter 
guaranteeing the license extension after negotiations are 
completed. 
 
 
7.  Wantschek also updated us on the U.S. companies' legal 
battle over whether existing operators are required to apply 
for new operating licenses under the Electricity Law.  He 
said the energy division of the Danistay (Council of State) 
had initially ruled that a) the companies were bound by the 
requirement, and b) the case should not go to the 
Constitutional Court, which the companies had requested.  The 
full Danistay is expected to review the case in the near 
future. 
8.  Comment:  Demirbilek appears willing to negotiate a 
resolution, if a deal can help him reduce domestic 
electricity prices, but complained that the companies had 
"accused" the Ministry of heavy-handed tactics when that in 
fact was not the case.  EMRA is more sympathetic ) and is 
prepared to allow Trakya to continue operating without 
approving a new license, but we doubt that Gunay will be 
willing to grant a new license or license extension without 
the endorsement of the Energy Ministry.  Doing so without the 
Ministry's explicit blessing would open him to criticism that 
he is siding with foreigners and condemning Energy Minister 
Guler's efforts to lower prices.  Embassy will remain in 
contact with Traakya and Doga and seek to facilitate a more 
constructive  dialogue between the companies and both EMRA 
and the Energy Ministry.  End Comment. 
EDELMAN