US embassy cable - 05ADANA51

UNCLAS SECTION 01 OF 02 ADANA 000051 
 
SIPDIS 
 
SENSITIVE 
 
NOT FOR INTERNET DISTRO 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, MARR, MOPS, IZ, JO, TU, ADANA 
SUBJECT: COMMERCIAL LOGISTICS SUPPORT TO U.S. MILITARY IN IRAQ 
GROWING IN TURKEY 
 
 
1.(SBU)  Summary:  AMCON Adana PO met on March 11 with 
representatives from U.S. firm Kellogg, Brown and Root (KBR) and 
PWC, a Kuwaiti company awarded a U.S. military PRIME VENDOR 
contract, in Mersin to review their coalition sustainment 
support operations in southern Turkey along the northern ground 
line of communication.  Both reported progress in building their 
business platforms within Turkey to expand their regional 
support to U.S. military clients in northern Iraq and reviewed 
their current projects with PO. KBR wondered aloud whether 2003 
Turkish purchasing guidelines still were relevant for Turkey - 
see para. 5. End Summary. 
 
KBR says billing problems behind it 
 
2.(SBU)  KBR has gradually built a Mersin presence of 6 U.S. 
expatriate staff (with several more coming) from its initial 2 
Adana staff since the pre-war period when it was conceived that 
they would support a posited transition of the Fourth Mechanized 
Infantry division to Iraq through a "northern front."  They made 
an appeal to the U.S. government to do " all (the U.S. 
government)  can to open the Habur gate wider to get sustainment 
(non-fuel) cargo through to Iraq more quickly." 
 
3.(SBU)  KBR's office manager, when PO inquired, acknowledged 
that lagging invoice payment to Turkish vendors has been an 
issue over the last 2 months, but said that the issue had become 
an action item for its vice president in Baghdad, who had 
ordered the establishment of an "aging invoice system" to better 
track the billing and vendor system in KBR use in the region. 
According to KBR's Mersin manager, this has resulted in invoices 
over thirty days old being reduced dramatically in the last 
month and a "healthy discussion with Turkish vendors on partial 
payments, where necessary."  He said that he had had no major 
discussions with Turkish vendors about overdue invoices in about 
a month, whereas such discussions were common in the prior 
month.  He said that many of those earlier discussions had 
involved sums from several hundred thousand to several million 
dollars in value.  (Note: Several AMCON Adana contacts have 
reported total sums over four million dollars in the last three 
months, but generally corroborate improved KBR payment 
performance recently.  End Note.) 
 
Some issues due to Turks adjusting to modern corporate finance, 
says KBR 
 
4.(SBU)  A KBR purchasing director also explained that many 
Turkish firms new to working with federal acquisition 
regulations and what he called "real world modern finance" just 
did not understand when invoices became valid per KBR and "when 
the real clock starts."  He said that KBR tries hard to settle 
all invoices within thirty days of delivery to an authorized 
contractor or receiving agent in Iraq, but many Turkish vendors 
considered the clock to start on invoices when KBR employees in 
Mersin did pre-shipment visual inspections.  He explained such 
inspections were really just due diligence prior to delivery 
since the prospect of exchange and return in normal commercial 
terms were not reality when doing business with those in Iraq. 
"It has been a learning process, but both sides are getting 
better now," he said, " and people are raising their quotes to 
us as they come to see longer delivery and payment terms as part 
of the vendor process for Iraq." 
 
~And consolidating regional purchasing and shipment in Turkey 
 
5.(SBU)  Still, compared to Kuwait where they said KBR 
experiences brimming ports and little industrial base from which 
to source industrial goods and solutions, Turkey is proving to 
be a viable source for many of KBR's internal needs to support 
its U.S. military logistics capacity (LOGCAP) project.  The 
office in Mersin particularly predicted growth above its USD 12 
million monthly purchasing operation in Mersin to upwards of USD 
20 million within about three months as it streamlined its 
operation in Jordan, where they said there was little industrial 
base and difficulty getting access to escorts for delivery in 
western Iraq.  They said that they were already bringing in 
U.S.-sourced goods via the Mersin port as well and looked to 
increase that flow both from redirected shipments originally 
intended for Aqaba and increased overall throughput from the 
U.S.  They also emphasized that they were sourcing 
Turkish-procured goods from all over Turkey, not particularly 
from southern or southeastern Turkey. 
Seeking greater sourcing flexibility in Turkey 
6.(SBU) KBR managers also referred to a  2003 U.S. 
military-provided Turkish General Staff (TGS)  set of guidelines 
for approved Turkish vendors from which they could source goods 
and services, saying that they would prefer fewer limits on 
their sourcing to increase product range, delivery windows and 
competition. 
 
PWC building up in Turkey, too 
 
7.(SBU)    PWC, a Kuwaiti company awarded a U.S. military PRIME 
VENDOR contract, and operating in Turkey with partner, IMISK, is 
building a state of the art automated, modern warehouse in 
Tarsus to transship MRE and UGR's as well as bottled water and 
refrigerated fresh fruits and vegetables to U.S. military dining 
facilities in northern Iraq.  They expect delivery of the 
warehouse in late April or early May 2005.  They are awaiting 
approval to warehouse MRE's and UGR's from the TGS in the new 
Tarsus warehouse which Defense Logistics Agency (DLA) would 
deliver to Mersin by sea from U.S. ports.  Currently those same 
goods are delivered less efficiently through Turkey by truck 
from U.S. warehouses in central and western Europe. 
 
8. (U) Baghdad minimize considered. 
 
 
REID