US embassy cable - 03ANKARA7103

UNCLAS ANKARA 007103 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/CBED, EB/IFD, AND EUR/SE 
DEPARTMENT PASS OPIC, NSC FOR BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
USDOE FOR CHARLES WASHINGTON 
TREASURY FOR OSIA 
 
 
E.O. 12958: N/A 
TAGS: EINV, ENRG, ECON, PREL, TU 
SUBJECT: ENRON'S RESPONSE TO BOT PROBLEMS 
 
 
REF: A. ANKARA 6696 
     B. ANKARA 6612 
     C. ANKARA 6423 
 
 
This cable is sensitive but unclassified, not for internet 
distribution. 
 
 
1.  (SBU) Summary.  ENRON's lawyer has forwarded a proposal 
to AK Party Vice-Chair Reha Denemec in an attempt to reach a 
compromise with the Ministry of Energy (MENR) over its BOT 
project.  ENRON continues to demand an unconditional license 
and appears anxious to resolve the dispute over electricity 
prices to avoid further investigations.  ENRON's offer to 
lower prices gradually upon reduction of gas prices by BOTAS 
will put pressure on other BOT companies to do adopt a 
similar approach. However, with local elections looming, the 
GOT's eventual response will be overshadowed by politics. 
End Summary. 
 
 
2.  (SBU) On November 7, ENRON's lawyer told econoff that he 
presented Reha Denemec, AK Vice-Chair and close advisor to 
Prime Minister Erdogan, with a proposal that should form the 
basis of eventual discussions between the GOT and ENRON on 
how to resolve this BOT project's problem (reftels).  Instead 
of launching formal negotiations with the Energy Ministry and 
the Energy Market Regulatory Authority (EMRA), ENRON has 
decided to raise the issue with the Prime Minister's advisor 
because the MENR and EMRA continue to stall.  Denemec 
reportedly promised ENRON that he would intercede with the 
Ministry of Energy, and ENRON is awaiting an informal 
response. ENRON's proposal was faxed to EUR/SE. 
 
 
3.  (SBU) As reported in reftel C, ENRON wants EMRA to issue 
an unconditional provisional license to the Project for 
statutory minimum of 10 years, with agreed zero cost buyout 
by the MENR in 2010.  The provisional license would in effect 
be a 6 year license.  ENRON also insists that the GOT (TETAS 
and the MENR) pay all currently outstanding arrears, 
totalling $3.90 million as of October 31, 2003.  After the 
license is issued and all investigations and audits are 
closed, ENRON is offering to lower electricity prices. 
 
 
4.  (SBU) ENRON is considering a 25 percent price reduction 
(1.52 cents per kilowatt hour kWh) in the non-gas component 
of the power price upon reduction in the price of natural gas 
charged to the Project by BOTAS from approximately $250 per 
million cubic (Mcm) meters to about $170 Mcm. The combined 
price reduction will reduce the overall power price from 
10.67 cents kWh to 7.64 cents kWh.  ENRON would consider 
further incremental price reductions with the condition that 
the buyout provision be extended to 2012. 
 
 
5.  (SBU) ENRON fears that the problems are escalating beyond 
the dispute over electricity prices.  ENRON's lawyer cited a 
recent GOT tax audit as an example that Ankara wants to 
recover losses or generate revenue in addition to lowering 
electricity prices. GOT auditors claim that ENRON owes $140 
million in taxes, but ENRON's Turkish partner GAMMA disputes 
this amount, saying that ENRON does not owe anything. 
ENRON's lawyer complained that the tax audit was further 
harassment for BOT companies. 
 
 
6.  (SBU) Comment. ENRON's proposal appears to be a 
reasonable compromise to lower electricity prices over time; 
however, with elections looming, politics is likely to 
overshadow the GOT's eventual decision.  ENRON also is 
offering a significant discount to the GOT in return for 
protection from future investigations.  This could put a lot 
of pressure on other BOT projects to unilaterally reduce 
their prices.  Additionally, some elements in Turkey would 
use this to validate their claims that electricity prices 
should be lowered and demand renegotiations with BOTs. End 
Comment. 
EDELMAN