US embassy cable - 04ANKARA6479

C O N F I D E N T I A L SECTION 01 OF 04 ANKARA 006479 
 
SIPDIS 
 
USDOC FOR NEWMAN AND FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
 
E.O. 12958: DECL: 11/08/2014 
TAGS: ENRG, SENV, BEXP, TU 
SUBJECT: TURKEY: EURASIA SENIOR ADVISOR MANN MEETINGS ON 
ENERGY 
 
REF: STATE 178586 
 
Classified By: Economic Counsellor Thomas Goldberger.  Reasons 1.4 (b/d 
) 
 
1.  (C) SUMMARY: In November 8 meetings with Turkish 
officials on energy issues, Eurasia Senior Advisor Steven 
Mann stressed the importance of a level playing field for 
American companies in Turkey's energy sector and unflagging 
USG support for a Bosphorus bypass and expansion of natural 
gas trade.  Turkey is stuck with respect to approving a 
bypass route, for environmental and political concerns. 
Turkey and Russia are discussing potential energy 
deliverables  in advance of President Putin,s December 12 
visit.  END SUMMARY. 
 
2.  (SBU) Ambassador Mann participated in the following 
meetings on energy issues on November 8: 
-Minister of Energy, Hilmi Guler, accompanied by 
Undersecretary, Sami Demirbilek and Pipelines Department 
Head, Nilgun Acikalin 
-MFA Deputy DG for Energy, Hakki Akil, accompanied by 
Advisor, Basak Tug 
-Energy Advisor to the President, Volkan Ediger 
-MFA Deputy Undersecretary for Economic Affairs, Alev Kilic 
 
U.S. Firms, Woes 
---------------- 
 
3.  (C) In meetings at the Turkish MFA and Energy Ministry 
(MENR), Ambassador Mann expressed growing concern that 
Turkish firms seemed to be favored over American firms with 
respect to a number of energy sector opportunities.  Both 
Energy Minister Guler and MFA Deputy Director General Hakki 
Akil categorically rejected this assertion.  With respect to 
U.S. firm Toreador-Madison's belief that it was suffering 
illegal discrimination in conflicts with Turkish state oil 
firm TPAO over Black Sea licensing, the officials said TPAO 
was acting according to Turkish law concerning offshore 
exploration.  On the long-standing legal case about GOT 
Treasury non-performance on foreign exchange rate guarantees 
for repatriation of profits, MENR officials insisted that 
they were waiting for the Parliament to take action on a new 
law to protect foreign energy investors, capital from 
taxation to the extent profits are earned in Turkey.  Mann 
replied that he understood that two Turkish law firms had 
concluded that Toreador-Madison,s legal claims were sound. 
Finally, Undersecretary Demirbilek stated that the GOT was 
pushing TPAO to accelerate domestic oil and gas development 
efforts, and noted that implementation of Production Sharing 
Agreement legislation would encourage foreign energy firms, 
participation in Turkey. 
 
Bosphorus Bypasses ) American TDC Deserves Yea or Nay 
--------------------------------------------- -------- 
 
4.  (C) After rearticulating U.S. support for realization of 
a commercially feasible Bosphorus Bypass project, Mann 
repeated the message that American firm Thrace Development 
Company (TDC) deserved a timely response on its long-standing 
permit application to develop a trans-Thrace Bosphorus Bypass 
project.  Minister Guler responded positively to Mann,s 
specific request that MENR give TDC a chance to present and 
prove oil throughput guarantees and financial backing the 
firm claims it already has in hand; although Mann noted that 
the issue should not be a governmental concern: the investors 
were taking the risk on themselves for adequate throughput of 
lack thereof.  Both the MENR and MFA interlocutors insisted 
that Turkey,s goal was to secure a reduction in Bosphorus 
oil traffic by garnering a Bosphorus Bypass with oil 
throughput guarantees.  Minister Guler stressed that the 
Turkey intra-ministerial process was still evaluating permit 
applications with respect to route and environment issues. 
He said that the Turkey absolutely did not want an empty pipe 
(like Odessa-Brody) and wanted to assure an environmentally 
sound project.  Mann said potential investors should have the 
opportunity to obtain licenses that merely get them to the 
next step in the long process and would allow them to take 
the commercial risk of moving projects along, demonstrating 
oil throughput, financial backing, and environmental 
soundness.  Both MENR and MFA officials insisted that the GOT 
process was focused only on route and not in anyway on 
specific companies.  However, they noted that the potential 
Samsun-Ceyhan route was in the forefront because of its use 
of existing right of way and available infrastructure and a 
perception that it was less problematic environmentally. 
Mann repeated the USG demarche that TDC be given the 
opportunity without further delay to demonstrate its 
project,s potential environmental rigor, using the existing 
standard of Baku-Tbilisi-Ceyhan (BTC). 
Voluntary Principles Again 
-------------------------- 
 
5.  (C) Hakki Akil, GOT,s author and strongest proponent of 
the proposed &Voluntary Principles for Bosphorus Tanker 
Transit8, passed to Mann the newest draft of his Voluntary 
Principles (Septel).   They noted that this new draft 
appeared more succinct and not commercially proscriptive and 
together noted that the most recent USG position (State 
178586) seemed to be based on an earlier draft.  Mann agreed 
to take a fresh look and reiterated that the essence of the 
USG position was that Voluntary Principles be truly informal 
and voluntary and not in any way antithetical to the 
principle of the market choosing Bosphorus bypass project(s). 
  Akil noted that the MFA had formally requested scheduling 
of a meeting in Moscow for him to present the Voluntary 
Principles to gain Russian engagement for the idea.   He 
repeated the fundamental economic quandary that bypass first 
movers would grant potentially subsidized trade for shippers 
who continue to use the Straits.  Akil also stated that the 
newest draft of the Voluntary Principles did not call for 
companies to share data.  Finally, Akil asserted that 
Chevron-Texaco (which invited Bosphorus bypass sponsors to 
London to present their projects) was very receptive to the 
Voluntary Principles as a form of insurance policy (for 
potential delays and problems in transiting the Turkish 
Straits), but had told him: "We cannot go alone."  Mann 
reminded Akil that GOT would never gain ironclad throughput 
guarantees without detailed engineering and subsequent tariff 
projections and this would only come after companies take 
conditional permits to the marketplace.  He urged the GOT to 
take advantage of its privileged position of entertaining a 
number of viable options that pass solely through its 
territory.  Echoing Akil,s assertions that the most current 
approach was market oriented, Presidential Advisor Erdiger 
also encouraged USG officials to give a favorable and 
constructive hearing to the Voluntary Principles. 
 
The Russians are Coming 
----------------------- 
 
6.  (C) Press reports have been full of speculation that GOT 
and Russian officials were discussing potential energy 
deliverables to announce at the time of President Putin,s 
(previously postponed) visit on December 12.  Hakki Akil 
observed that Russian Transneft applied for a trans-Thrace 
oil bypass route (Note: late-comer, copy-cat for TDC,s 
route.  End Note) for which the company claimed it could 
deliver 60 million tons per year (of 75 million tons the 
company,s CEO said it controlled).  Akil repeated concerns 
about the difficulties with a trans-Thrace route 
(environmental NGO opposition and land acquisition cost) that 
put in question the possibility that a Thrace project could 
ever come to pass.  He admitted that the GOT was endeavoring 
to convince Transneft to consider support for the 
Samsun-Ceyhan route that utilized existing pipeline 
right-of-way and port capacity.   In response to Mann,s 
queries on the Samsun-Ceyhan pipeline right of way issue, 
Akil asserted that BTC controlled a 40-meter construction 
zone, but the environmental assessment covered a 500-meter 
zone, implying that a new Samsun-Ceyhan project could 
fruitfully piggy-back on this assessment. 
 
BTC Celebrations and Future Gas 
------------------------------- 
 
7.  (C) In the meeting with President Sezer,s Energy 
Advisor, Volkan Erdiger, Mann described the status of BTC, 
noting that BTC construction seemed on track for sequential 
celebrations at the three key cities over the course of 2005. 
 Mann attributed the summer problems in Georgia to the new 
administration there, specifically noting the following 
factors for the new Georgian government: 1) lack of 
familiarity with the project, 2) sincere concern about the 
environment, 3) opportunism on the part of new players, and 
4) the new president wanting to stake out political 
protection (if the project causes environmental problems). 
Mann reviewed the strong message stated by various USG 
officials: "1) you have made commitments, 2) you don,t have 
many investments, and 3) you will get follow-on natural gas." 
 
 
8.  (C) Erdiger noted the importance of natural gas sector 
liberalization in process in Turkey.  (Note: the GOT has just 
announced tenders for the state pipeline company BOTAS to 
transfer natural gas contracts.  End Note.)  Moreover, he 
stressed the importance of liberalization of natural gas 
distribution, and commented that Gazprom is interested in 
this opportunity.  All interlocutors noted that 
liberalization of Turkey,s natural gas sector would 
facilitate the transit of natural gas from Shah Deniz.  GOT 
officials and Mann also agreed on the importance of together 
engaging Kazakhstan to move forward on links for oil from 
Aktau to Baku. 
 
Turkmenistan Conundrum ) and Russia 
----------------------------------- 
 
9.  (C) All meetings touched on the notion of some day tying 
Turkmenistan,s formidable gas reserves to the budding 
East-West Corridor.  Noting the history of the dashed hopes 
of the Trans-Caspian Gas Pipeline, which failed because the 
Turkmenistan President feared Russia,s ire, Mann said the 
U.S. remained hopeful- but skeptical- for new energy links to 
Turkmenistan.  Mann suggested that President Niyazev show his 
seriousness by reaching agreement on Caspian delimitation. 
He noted that Azerbaijan,s President Aliyev was ready to 
deal with Turkmenistan, but had "no one to deal with there," 
according to Aliyev.  Minister Guler asked for U.S. help for 
working with Russia and Iran on delimitation issues.  Mann 
replied that in effect the Caspian has already been divided, 
but Iran hasn,t realized this; moreover, he said there was 
little the USG could do about Iran, but the USG would 
continue its longstanding role of supporting delimitation 
efforts both technically and politically.  He suggested that 
Turkey would be most effective in working with Azerbaijan and 
Turkmenistan.   Mann voiced concern that Gazprom was still 
working to derail Shah Deniz gas transit via the BTC 
follow-on South Caucasus Pipeline and consequent potential 
natural gas trans-shipment via Georgia and Turkey to Europe. 
He urged the GOT to join the USG in warning the Georgia 
Government against selling its high pressure natural gas 
network to Russian interests.  MENR officials spoke of 
positive progress on the Nabucco gas project to Austria, but 
noted that Iran was still endeavoring to join this framework. 
 Mann warned that Iranian participation would raise the issue 
of sanctions under U.S. law and policy. 
 
Comment 
------- 
 
10.  (C)  These meetings were useful in gauging current GOT 
thinking and restating U.S. positions on BTC, Bosphorus 
bypasses, and natural gas transit.  Although some of the big 
questions in the East-West Corridor have been answered (BTC 
almost in hand), the next questions are harder to answer and 
will require vigilant U.S. attention: Who will step forward 
to sponsor a Bosphorus oil bypass pipeline? Can Turkey 
effectively liberalize and rationalize its natural gas market 
to facilitate transit to Europe (the next big step in the 
East-West Corridor)? Will Russian-Turkish cooperation in 
energy and Russian interest in the liberalizing Turkish 
natural gas sector be positive or negative? End Comment. 
 
11.  (U) Ambassador Mann has cleared this cable. 
EDELMAN