US embassy cable - 04ADANA153

UNCLAS SECTION 01 OF 03 ADANA 000153 
 
SIPDIS 
 
SENSITIVE 
 
EB PASS TDA 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, MARR, MCAP, EAGR, EPET, EWWT, TU, ADANA 
SUBJECT: MERSIN PORT FACING NEED FOR CHANGE 
 
1.(SBU)   Summary:  AMCON ADANA PO visited Mersin on November 
24, visiting the state-run Mersin Port , nearby free zone and 
its private port and the Chamber of Marine.  The port, while 
quite profitable for the GOT, sees capacity constraints in the 
near future and badly needs modernization.  The Free Zone is 
also full and mulling how to react to continuing local demand 
for access to its tax-free status even in the face of 
potentially losing that tax concession should Turkey start EU 
accession talks.  The Chamber of Marine is busy planning to 
start a new shipyard and drydock business in western Mersin 
province, but faces local zoning hurdles at the moment.  They 
project high demand for their planned maintenance and repair 
services as well as for their subsequent shipbuilding capacity 
as Istanbul's comparable services reportedly have been 
saturated. End Summary. 
 
2.(SBU)  AMCON ADANA PO visited Mersin on November 24, visiting 
the state-run Mersin Port.  According to the Port director and 
the Chamber of Marine, the Port, run by the State Board for 
Ports and Railroads, netted almost USD 50 million for the GOT in 
2003 and is projected to have similar results this year. 
Nevertheless, the absence of any reinvestment in the extremely 
busy port, whose container capacity, pier access, and available 
draft is unique in the northeastern Mediterranean was striking. 
The port was brimming with containers, but the Port Authority 
requirement that the Marine Agencies fully employ its 
inefficient state-employed longshoremen on all cargo handling 
before their own private teams' use has resulted in combinations 
of private and State longshoremen services for almost each ship 
who invariably work at different speeds and with different 
levels of capacity and skill.  Some Marine agents have even gone 
so far as to pay the Port Authority for its longshoremen and 
still do all unloading with its private workforce just to 
streamline cargo handling. 
 
3.(SBU)  Cargo handling equipment is also lagging demand even 
though the Port Authority is investing in this area to try to 
match demand.  Currently there are two GOT-owned standard cargo 
container handling gantries and one mobile, privately-owned 
similar gantry operated privately on a Port Authority 
concession.  The Port Authority currently is assembling two 
post-PANAMAX cargo container handling gantries of Irish 
manufacture with a projected completion date of February 2005. 
Shipping agents welcome the new capacity cranes' acquisition, 
but note that they occasionally are turning away standard size 
business because of under- capacity in that category and nagging 
concerns about the maintenance on the two GOT-owned gantries, in 
effect limiting their cargo handling capacity. 
 
4.(SBU) Additionally, all containers in the almost full 
container yard are tracked by hand.  Asked about a GPS- 
transponder system's future viability and the sort automated 
tracking which is common in many world container shipyards, the 
Port Director said that the Port Authority was working on 
automating its billing department, but that any other investment 
was not covered in the State budget.  The Port Director 
mentioned as well that he had discussed port automation with 
Hamburg Port Authority representatives in the recent past, but 
nothing came of the discussion.  There also is no insurance or 
cargo-handling liability system to cover damages to cargo while 
in on/off-loading status.  Both the Chamber of Marine and nearby 
small private Free Zone Port authority found these shortcomings 
striking and at odds with standard commercial practice.  The 
only manner to seek redress for damage in cargo handling now is 
to sue the GOT, which Marine Agents claim that they do 
regularly, but say that eventual damages paid only reflect a 
portion of prevailing commercial liability rates and come 
usually only after very lengthy delays and litigation fees. 
 
Import/ Export Commodities? 
 
5.(SBU) According to the Chamber of Marine monthly reports, 
chief Mersin Port exports (in declining quantities) are cement, 
general cargo, petroleum products, marble and other minerals, 
legumes, foodstuffs,  assorted chemicals, sodium carbonate, 
textiles and glass.  Seasonally, cereals are also a major 
export.  The port primarily imports petroleum products, 
chemicals, general cargo, foodstuffs and frozen meat, textiles 
and cotton.  Seasonally it also imports cereals.  Petroleum and 
chemicals account for two-thirds of import trade.  Export trade 
is far more diverse.   In the last 19 months petroleum trade, 
although still mainly for domestic consumption, has been 
augmented by humanitarian petroleum deliveries bound for Iraq, 
which arrive in Turkey both at Mersin and nearby Iskenderun 
ports. 
 
Privatizing the Port? 
 
6.(SBU)   In discussions with Chamber of Marine, local shipping 
agents and the Free Zone Director, it became clear that there is 
local interest in buying the port which has sufficient capital, 
but these potential private operators have been frustrated by 
shifting GOT terms of reference for privatization offers  in the 
last two years and what they consider to be excessively lofty 
GOT estimates of the port's current privatized value.  A Chamber 
of Marine contact said that a group of local shipping agents 
last year had offered the only bid in response to a 
privatization tender, but had heard informally that it was only 
65% of what the GOT expected and the tender had been cancelled. 
A senior Mersin Free Zone authority observed that the GOT 
apparently views the profitable port as a major revenue source 
for the maintenance and operation of its money-losing southern 
Antalya-Adana-Gaziantep-Ankara "Tee" line and that the State 
Board for Ports and Railroads calculated its estimated 
privatization value for the port more in terms of the capital 
needed to return the railroad network to a neutral budget impact 
than on the port's actual value.  He also said that almost 
monopoly position of the port in the northeastern Mediterranean 
basin retarded competition and distorted the influence of 
competitive enterprise factors in management decisions. 
 
Port's projected future? 
 
7.(SBU) Shipping agents and the Port Authority report 15% annual 
increases in demand for port services in the last three years 
and say that the rising demand is linked to increasing domestic 
consumption and saturation of ports in Istanbul and Izmir.  They 
note that were regional Turkish trade, such as with Iraq for 
whom they see Mersin as the natural "northern port," to increase 
the port could not meet that demand.  The Chamber of Marine 
reports that in late 2003/early 2004 the Spanish Government's 
Development Board produced a 3-5 year, approximately USD 500 
million port expansion feasibility proposal, but that it remains 
without financing or GOT endorsement.  One local contact said 
that the "GOT is waiting for EU (regional development) funds to 
be the answer to this issue."  Another contact noted that a 
Brazilian consortium had expressed interest in the port 
expansion project as well, but that financing was just as 
unclear for that proposal. 
 
8.(SBU)  PO also toured the newly-expanded and renovated NATO 
pier within the Mersin Port, which is projected to be completed 
in January 2005.  It abuts the joint Turkish Navy/Coast Guard 
yard and partially separates the Port of Mersin from the small 
Mersin Free Zone port.  It has a pier, container handling yard, 
fuel handling capacity and capability to host a standard 
container size gantry.  It was unclear whether a dedicated 
standard container gantry would handle NATO-related cargo or the 
port's privately-leased mobile gantry would do so.  Shipping 
agents and the Chamber of Marine said that informal suggestions 
that the Port of Mersin expand into the Turkish Navy/Coast Guard 
yard, which they contend could be relocated to an under-utilized 
existing port in Tasucu, in western Mersin province, "have gone 
no where.  The Navy is not interested in moving." 
 
New private shipyard in Tasucu in works 
 
9.(SBU)  Meanwhile, a group of investors drawn from the  Chamber 
of Marine under the AKTER consortium umbrella is busy planning 
to start a new shipyard and drydock business in Tasucu in 
western Mersin province, within an existing breakwater and 
alongside the site of an existing NATO pier and small fishing 
port.  The group says that it has raised the required USD 14-16 
million in capital, but it currently facing "local zoning 
problems" delaying the start of the first phase of construction, 
which would put in operation two medium-size drydocks and a 
graving dock for repair and maintenance work.  They are very 
confident both about the demand for the repair and maintenance 
services that they plan to offer and the second phase shipyard 
for "regional cargo and freighters" that they also plan to 
offer.  They report that there is so much regional demand for 
new cargo hulls that Istanbul-based companies already have 
contacted them with offers of USD 1-2 million each for the 
shipyard's accelerated construction if they can have guaranteed 
priority places in the yard's future construction schedule.  The 
consortium projects that the dry docks and shipyard eventually 
would employ 350 directly and would spark creation of three to 
five thousand additional, indirect jobs related to port services 
work. 
 
Mersin Free Zone is at capacity and pondering future in EU 
10.(SBU)  The Free Zone is also full and mulling how to react to 
continuing local demand for access to its tax-free status even 
in the face of potentially losing that tax concession should 
Turkey start EU accession talks.  They say that only Shannon 
Airport and the Madiera Islands will continue to enjoy some sort 
of declining tax-free status within the EU framework and efforts 
to get the GOT to include such a construction for Turkish free 
zones has borne little fruit to date.  Their main exports are 
finished clothing for EU markets, regional banking transactions 
for most of Turkey's major bank outlets, and food products, such 
as fruit and frozen foods, including U.S. poultry and Latin 
American bananas for Middle East markets, including Iraq.  They 
also export Turkish citrus to the EU market.  The Free Zone 
boasts the only pier-side cold storage, at 6,500 square meters, 
in the Eastern Mediterranean basin.  Its operator hopes to 
expand that facility another 1,000 square feet in 2005. 
 
11.(SBU) Comment:  There seems real potential for the Mersin 
port, if privatized, to be a much more efficient and very 
profitable enterprise.  If the port is to continue to meet 
rising commercial demand, let alone provide a viable outlet for 
increase transshipment to Iraq, major infrastructure investment 
will be required soon.  GOT financing seems unlikely at this 
juncture.  Perhaps TDA would be interested in examining the 
potential project more closely.  PO was left with the impression 
that the AKTER group might welcome a foreign partner with 
port/shipyard operation expertise to help round out its 
consortium.  This may involve a several million dollar capital 
investment as well by the potential foreign partner.  End 
Comment. 
 
12.(U)  Baghdad minimize considered. 
 
 
REID