US embassy cable - 03ANKARA6390

UNCLAS SECTION 01 OF 02 ANKARA 006390 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB, AND EUR/SE 
STATE PASS USTR FOR LERRION 
TREASURY FOR OASIA - MILLS AND LEICHTER 
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO 
USDA FOR FAS FOR EC AND CCC/FSA 
NSC FOR MCKIBBEN AND BRYZA 
 
 
E.O. 12958: N/A 
TAGS: EINV, ECPS, ETRD, PGOV, TU 
SUBJECT: INVESTMENT DISPUTES:  PROGRESS FOR CARGILL/ADM, 
UNCERTAINTY FOR MOTOROLA 
 
REF: ANKARA 5879 
 
 
1. (SBU) Summary:  The GOT announced October 9 that it will 
will increase the quota for non-sugar sweetener producers to 
15 percent of the total sugar quota for the year that began 
September 1, which means Cargill and ADM can avoid 
potentially ruinous production cuts.  Cargill, however, is 
still awaiting government action on a proposed legislative 
amendment to resolve its zoning problem.  Motorola executives 
are cautiously optimistic that the government's actions 
against the Uzan family have increased prospects for steps 
that would result in at least partial payback of the sums 
owed to the company.  Although the Prime Minister told Brent 
Scowcroft recently that he wants to resolve this dispute, and 
company representatives are in substantive discussions with 
AK Party officials, there remain a number of difficult 
obstacles in the way of a solution.  End Summary. 
 
 
2.  (SBU) Cargill advised us late October 8 that the Council 
of Ministers had decided to increase the quota for non-sugar 
sweetener producers to 15 percent of the total sugar quota 
for the year that began on September 1.  This decision, which 
came despite loud public protests by Turkish sugar beet 
farmers, means in effect that Cargill and ADM will not have 
to cut back production to potentially ruinous levels, at 
least this year.  (Note:  Turkey's Sugar Law limits non-sugar 
sweetener production to 10 percent of the annual sugar 
production quota, which is set by the Sugar Board; however, 
the law authorizes the Council of Ministers to adjust the 
quota up or down by as much as five percentage points.) 
 
 
3,  (SBU) Unfortunately, progress on Cargill's other issue -- 
a dispute over its zoning -- has been slower.  Despite 
repeated promises by Industry Minister Ali Coskun to forward 
to the Council of Ministers a legislative amendment that 
would, in effect, grant Cargill (and others) an exemption 
from the law against industrial production on Class I 
agricultural land, the amendment has yet to move forward, 
Duiring a meeting early last week between senior Cargill 
executives and the Prime Minister, Minister Coskun again 
promised that the draft law would be on the PM's desk within 
a week.  As of COB October 9, it had not left the Industry 
Ministry. 
 
 
4.  (SBU) Meanwhile, Motorola executives and locally-hired 
lawyers have been talking with Turkish officials on the 
infamous Telsim case.  The discussions began in earnest in 
July, when Motorola executives met with Turkish officials to 
see if the government's actions against the Uzans (first 
seizing their electricity companies and then taking over 
their bank) might create an opportunity for progress.  At 
that time, Transportation and Communication Minister Yildirim 
told them that the government was seeking legal justification 
to act against Telsim, but stressed that the government would 
act carefully and according to the law.  The company also had 
extensive discussions with Erdogan advisors Cuneyd Zapsu and 
Reha Denemec, who also gave positive signals on the 
government's desire to resolve the problem in a way that 
enhanced the foreign investment environment. 
 
 
5.  (SBU) In a September 30 meeting with Brent Scowcroft, PM 
Erdogan made positive noises about resolving Motorola's 
problems, and also talked at length about the Uzans.  Other 
GOT and AK Party officials suggested to Motorola executives 
that the government was looking at two possible approaches: 
having the Telecommunications Authority cancel Telsim's 
license (for various contractual violations), and then 
selling the company's assets to another telecom company, with 
the proceeds used to pay down the Uzan's obligations; or, 
because of the huge hole found in the Uzan's Imar Bank, using 
the banking law to seize Telsim, with its license intact, 
install new management, and work out a deal for the 
newly-structured company to begin paying off the Uzan's huge 
debts. 
 
 
6.  (SBU) In an October 8 meeting with EconCouns, Reha 
Denemec suggested the most likely approach was to work 
through the Telecom Authority.  Denemec stressed, however, 
that the government had no authority to influence or force a 
decision on the Authority, which by law is an independent 
regulatory body, and that he therefore had no idea if it 
would act.  Denemec acknowldged that other approaches, such 
as using the Banking Law, were possible, but did not 
elaborate.  (Note:  Using the Banking Law would mean going 
through BRSA, which also is an independent agency.) 
 
 
7.  (SBU) Comment;  Although the Uzans' troubles have created 
an opportunity for progress, and the government appears 
serious about trying to resolve Motorola's problems, 
significant obstacles stand in the way of a resolution of 
this case.  Perhaps the biggest problem is that the Uzans owe 
huge sums to many institutions -- including, because of the 
Imar Bank scandal, to the Savings Deposit Insurance Fund -- 
and all of the creditors are looking at Telsim as the best 
potential source of repayment.  Motorola presumably would 
claim preference among creditors, since it is owed money 
directly by Telsim, not by other companies within the Uzan 
group, and its contract with Telsim included the right to 
more than 60 percent of the company's share in the event of a 
payment default.  Still, it might prove awkward for the GOT 
to agree to a deal that results in Motorola being paid but 
Turkish depositors (i.e. the Savings Deposit Insurance Fund) 
not being paid by the Uzans.  Also, while action by the 
Telecom Authority is apparently the cleanest approach from a 
legal perspective, most experts believe cancellation of 
Telsim's license would not contribute to a solution, because 
it would weaken -- and perhaps kill -- the one Uzan asset 
that appears capable of repaying at least some of the 
family's obligations.   Embassy will continue to press GOT 
officials to find a solution that is satisfactory to Motorola 
and enhances the overall investment environment. 
EDELMAN