US embassy cable - 05ANKARA492

UNCLAS SECTION 01 OF 02 ANKARA 000492 
 
SIPDIS 
 
SENSITIVE 
 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
 
E.O. 12958: N/A 
TAGS: ENRG, EINV, BEXP, TU 
SUBJECT: TURKEY: AES INTERESTED IN ELECTRICITY DISTRIBUTION 
PRIVATIZATION 
 
REF: A. ANKARA 446 
 
     B. 04 ANKARA 6797 
     C. 04 ANKARA 6963 
 
 SENSITIVE BUT UNCLASSIFIED.  BUSINESS INFORMATION. 
 
1.  (SBU) Summary: Arlington, Virginia - based power company 
AES is seriously interested in investing in Turkey's 
electricity distribution sector.  The GOT has still not 
clearly established the privatization methodology.  This is 
the second major expression of strong interest by a U.S. 
company in a Turkey privatization opportunity in a little 
over a month.  Both are approaching this often troubled 
market seriously and carefully.  End Summary. 
 
2.  (SBU) In a second visit to Turkey on January 27, five AES 
Corporation officials called on EconCounselor to discuss AES' 
serious interest in investing in Turkey's electricity 
distribution sector.  The AES officials stated that they had 
identified Turkey as a key market of interest for the company 
that maintains an extensive global presence.  They said AES 
makes strategic investments for the long-term, and with the 
exception of one case in Georgia, had not exited from any 
international investment.  Therefore, they did not enter new 
markets lightly.  They were making the rounds of the GOT 
Energy Ministry (MENR), Energy Market Regulatory Authority 
(EMRA), and Privatization Authority (PA) to pursue their 
investment decision due diligence.  As a good faith gesture 
of their ability to add value, they were providing GOT 
officials with a detailed briefing on reducing electricity 
transmission and distribution technical loss. 
 
3.  (SBU) Despite a poor track record, the Government of 
Turkey (GOT) has an ambitious privatization schedule in 2005 
(Ref A).  In the energy sector, the GOT has worked with the 
World Bank to establish both: 1) the Natural Gas Sector 
Strategy Paper, which sets forth a framework for 
privatization of gas distribution (underway) and gas import 
contracts (in tender process)(Ref B); and 2) the Electricity 
Sector Reform and Privatization Strategy Paper, which sets 
forth a timeframe for liberalization and privatization of 
electricity distribution and production sectors.  The 
electricity paper identifies the timing of privatization of 
the electricity distribution company (TEDAS) for mid 2005 
through 2006, for electricity production (EUAS) for 
2006-2009, and for the electricity trading company (TETAS) at 
a yet to be identifed date in the future.  The transmission 
company (TEIAS) would remain in the state's hands.  The 
strategy plan is ambitious, and according to EMRA and MENR 
interlocutors, there have been a number of delays already 
(some combination of seeking to get it right and inability to 
get it right). 
 
4.  (SBU) There is still uncertainty over the privatization 
methodology.  The Privatization Authority (PA) has been given 
authority to move forward on the distribution tendering 
process.  The PA has chosen to pursue Transfer of Operating 
Rights (TOR)- backed share sales as an expedient way to move 
forward that minizimizes risks of later attack from the 
judicial system and/or labor unions (persistent "nay-sayers" 
in privatization) and minimizes potentially time-consuming 
and burdensome inventorying of assets and land title.  On the 
other hand, EMRA and MENR argue for outright asset sale, as a 
cleaner, investor-friendly method of assuring control.  The 
latter method would have a potentially more direct effect on 
TEDAS' almost 30,000 employees, but would minimize 
bureaucratic and regulatory risk for new investors, they 
argue.  There appears to be room for a middle course in which 
TOR backed share sale could transition to a full-fledged 
asset sale.  MENR is identified as the process coordinator, 
but the ultimate decision for privatization of electricity 
distribution will reside with the Treasury and the Prime 
Minister. 
 
5.  (SBU) Comment: After US Steel's expression of interest in 
purchasing the GOT's stake in Erdemir Steel Company, this is 
the second recent expression of serious interest by an 
American company in Turkish privatizations (Ref C).  GOT 
interlocutors have regularly told Embassy that they would 
welcome U.S. investors in a variety of sectors, including but 
not limited to energy and telecom, so AES' interest will be 
welcomed.  GOT can ill afford any additional embarrassment of 
failed and/or delayed privatization, so it appears to be 
working assiduously to get a timely success story in 
electricity distribution.  The lively debate on privatization 
methodology will have to be resolved soon to keep investor 
interest and move forward on timely tendering.  AES is taking 
a careful approach, cognizant of the challenges and setbacks 
foreign investors have faced in Turkey.  Post will work to 
encourage timely and transparent decision-making on the part 
of the GOT and will assist AES and other potential American 
investors. 
DEUTSCH