US embassy cable - 04ANKARA5306

UNCLAS SECTION 01 OF 03 ANKARA 005306 
 
SIPDIS 
 
SENSITIVE 
 
VIENNA PASS TO SECRETARY ABRAHAM DELEGATION 
 
E.O. 12958: N/A 
TAGS: EPET, EWWT, EMIN, ETRD, EINV, OVIP, TU 
SUBJECT: SECRETARY ABRAHAM'S SEPTEMBER 21 VISIT TO ISTANBUL 
- SCENE-SETTER 
 
 
 Sensitive But Unclassified.  Please Handle Accordingly. 
 
1. (SBU) Your visit to Turkey comes a few months after the 
President,s June visit to Ankara and Istanbul for bilateral 
meetings and the NATO Summit, at a time when bilateral and 
political relations are generally on track.  Your meeting 
with Energy Minister Hilmi Guler will provide an excellent 
opportunity to enhance bilateral energy cooperation and to 
promote Turkey as a hub in the East-West Energy Corridor. 
The Embassy and Consulate are working with Turkish 
authorities and businesspeople to arrange a tour of the 
Bosphorus to acquaint you with transport, environment, energy 
and political issues surrounding use of that congested 
waterway. 
 
Notional Program 
---------------- 
 
2. (SBU) We are working with the GOT to arrange a program for 
you in Istanbul on September 21.  This will start with a 
bilateral meeting at the Istanbul Airport with Energy and 
Natural Resources Minister Hilmi Guler, followed by a joint 
press availability session.  The Consulate will arrange a 
luncheon and tour of the Bosphorus, most likely to be hosted 
by the American Business Forum in Turkey (ABFT) and the 
Turkish-U.S. Business Council of the Foreign Economic 
Relations Board  (TUSBC).  Separately or as a part of this 
event, you will be able to meet with Turkish and American 
energy business people and Turkish government officials.  The 
Consul General plans to participate in your program, but the 
Ambassador has a previous commitment in Ankara.  Our Istanbul 
Consulate control officer Stuart Smith will be in contact 
with your staff as we firm up these arrangements.  Embassy 
Energy Officer David Young will also assist and will be your 
note-taker. 
 
Overview of Bilateral Relations 
------------------------------- 
 
3. (SBU) The June NATO Summit highlighted Turkey,s role in 
the alliance, in European institutions and in the Broader 
Middle East and North Africa Initiative.  Bilateral political 
relations have improved in the eighteen months since the 
Turkish Parliament,s March 1 vote on Iraq, with good 
cooperation on a host of issues.  On Iraq reconstruction, 
Turkey has become a major supplier of the Multinational 
Force- Iraq, bilateral trade is booming, and Turkish 
contractors have won a considerable share of reconstruction 
contracts.  Turkey shares our goals of democratization, 
market-based reform and integration with the world economy 
for the Middle East.  The GOT worked hard to reach a 
resolution of the Cyprus issue and it has continued on the 
path of political reforms in the hope of gaining a date for 
the start of the EU accession process this December.  Turkey 
remains very concerned about instability and insecurity in 
Iraq, particularly related to recent Turkish truck driver 
kidnappings, Iraq-based PKK terrorist presence, and recent 
action in the predominately Turkmen-populated northern Iraqi 
city of Talafar. 
 
4.  (SBU) Political: With a two-thirds majority in 
parliament, control of a majority of municipalities, and no 
viable political opposition, PM Erdogan and his AKP 
government have appeared in control.  AKP,s passage of major 
legal reform packages and constitutional amendments appears 
to have put Turkey more firmly on track to get a 
harmonization start date from the EU in December, although 
chronic problems with implementation continue to plague the 
government.  Moreover, the EU remains concerned at the GOT's 
resistance in trying to criminalize adultery.  In his 
meetings with foreign leaders, Erdogan projects confidence, 
power, and a pragmatism that seem to belie his Islamist 
firebrand past. 
 
5. (U) Economy: The Turkish economy has recovered from the 
financial and economic crisis of 2000-2001.  However, 
Turkey,s huge debt and structural weaknesses leave it 
vulnerable to external shocks and necessitate continued 
implementation of the IMF program and its accompanying fiscal 
restraint, sectoral liberalization and structural reform. 
The current AKP Government has made laudable progress on 
reducing inflation and interest rates and stabilizing the 
currency.  Nonetheless, the economy remains fragile, and 
continued implementation of reforms is essential to sustain 
growth and stability. 
 
The Turkish Straits 
------------------- 
 
5. (SBU) Turkey is concerned that rising maritime traffic, 
especially of large oil tankers, presents a safety and 
environmental risk to this unique waterway, which bisects 
Istanbul and its population of 12 million.  Oil transport has 
increased dramatically in recent years:  from 60 million tons 
in 1997 to 134 million tons in 2003, and companies are using 
larger tankers. Turkish officials emphasize that traffic in 
the Straits is safe and they continue to work on safety 
improvements consistent with Turkey,s obligations under the 
Montreux Convention. However, they warn that they are nearing 
the maximum safe capacity.   For example, tankers over 200 
meters face special difficulty managing the sharp curves and 
currents in the narrowest sections of the Straits, forcing 
them to routinely deviate outside the normal shipping 
channel, according to Turkish authorities.  Turkey restricts 
these tankers to daytime transit and only in one direction at 
a time.  In 2003, Turkey took delivery of the Vehicle Traffic 
System (VTS), constructed by Lockheed Martin, which allows 
Turkish authorities to better monitor traffic and respond 
more quickly to accidents in the Straits.  However, the VTS 
will not necessarily mean an increase in traffic, and may 
actually reduce traffic, because the authorities will be 
better able to enforce vehicle spacing and other safety 
regulations. 
 
6. (SBU) The congestion, when coupled with bad weather, has 
resulted in expensive delays for oil companies and supply 
shortages for consuming country refineries.  At one point in 
early 2004, 42 ships were waiting to enter the straits, with 
an average delay of 20 days, costing ship operators hundreds 
of thousands of dollars.  These delays have led to a renewed 
interest in pipeline projects to bypass the Straits, which 
Turkey supports.  The U.S. and Turkey have worked closely 
together to promote the development and construction of the 
Baku-Tbilisi-Ceyhan pipeline (oil on schedule to flow by 
mid-2005), which will bring oil from the Caspian to the 
Mediterranean, bypassing the straits. 
 
East-West Energy Corridor 
------------------------- 
 
7. (SBU) You may want to take the opportunity to congratulate 
the GOT on approaching realization of the Baku-Tbilisi-Ceyhan 
as the first Bosphorus Bypass project.  This is a huge 
success; but, we must work together to insure that 
construction in Georgia remains on track.  You may want to 
highlight continued support for Turkey as an energy transport 
hub to Europe and world markets, particularly for natural 
gas.  You may want to remind Minister Guler of our mutual 
support for realization of a commercially feasible Bosphorus 
Bypass project.  We continue to call for timely action on 
bypass permits to allow the market to pick a winner. 
 
8.  (SBU) You may want to remind the Minister of important 
aspects of U.S. policy related to the East-West Energy 
Corridor.  Two key aspects have been: reducing Russian 
dominance in regional oil and gas pipelines and reinforcing 
our Iran sanctions policy by providing an alternative to 
trans-Iranian lines and Iran-sourced hydrocarbons.  You may 
want to remind the Minister of our serious concerns about 
Iran and encourage him to continue to resist pressure to 
import more product from Iran.  With respect to Russia, we 
encourage Turkey to engage with the Russian government and 
companies to address Bosphorus shipping problems and 
potential solutions.  We would also encourage Turkey to use 
its commercial leverage to encourage Russia to be a 
transparent partner pursuing greater energy reform.  (Note: 
President Putin,s visit was postponed.  The Turkish press 
has reported widely on Russian companies, interest in energy 
assets in Turkey (refineries, natural gas distribution, and 
pipelines). 
 
9.  (SBU) Finally, you may want to encourage the Minister to 
promote energy opportunities with Iraq, in particular 
possible electricity export.  A Turkish energy firm currently 
exports almost 200 MW.  The Turkish pipeline company BOTAS 
has been concerned about infrequent oil flow in the 
Kirkuk-Ceyhan pipeline.  Turkish companies have been awarded 
contracts totaling USD 500 million and Turkish exports to 
Iraq have grown to more than USD 1 billion in the first half 
of 2004.  Turkey remains deeply concerned about the security 
situation in Iraq, especially related to a series of Turkish 
trucker abductions and the subsequent murder of several 
drivers.  Additional papers have been provided separately to 
you on East-West Energy Corridor issues. 
 
Investment Environment and Commercial Disputes: 
--------------------------------------------- - 
 
10.  (SBU) Turkey has had difficulty attracting adequate 
foreign investment over the years because of corruption and 
perceptions of lack of transparency and inadequate contract 
sanctity and enforcement.  Efforts to liberalize and 
privatize sectors and state companies are underway, but 
behind schedule.  U.S. companies have been involved with a 
number of investment disputes over the years.  Enron and 
Mission Edison operate Build-Operate-Transfer electric plants 
under GOT pricing guarantees, but have faced difficulties in 
gaining licenses.  Madison/Toreador and TPAO (Turkish Oil 
Company) jointly announced discovery of commercial natural 
gas in the Black Sea, but the U.S. Company is engaged in 
legal disputes over GOT Treasury non-performance under an 
exchange-rate guarantee and over adjacent block exploration 
licenses.  Denver-based Newmont Mining Corporation complains 
of GOT arbitrarily withholding operating approval despite 
timely compliance with environmental permits.  You could 
encourage the Minister to seek to resolve these cases and 
take steps to improve general investment climate. 
 
Minister Guler 
----------------- 
 
11. (SBU) Minister of Energy and Natural Resources since 
November 2002, Hilmi Guler is reputed to enjoy good relations 
and access to Prime Minister Erdogan. He is believed to be 
supportive of U.S. concerns about resisting further 
agreements with Iran.  Guler,s academic and professional 
background is in metallurgical engineering, including a 
doctorate.  He speaks English, but prefers to use an 
interpreter. 
EDELMAN