US embassy cable - 05ANKARA3180

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 003180 
 
SIPDIS 
 
CENTCOM/EUCOM FOR POLADS 
BAGHDAD FOR KEVIN TAECKER 
TREASURY FOR LARRY MCDONALD 
 
E.O. 12958: DECL: 06/06/2015 
TAGS: EFIN, PREL, EPET, IZ, TU 
SUBJECT: TURKS COMPLAIN SOMO STIFFING TURKISH OIL COMPANIES 
FOR $840 MILLION 
 
Classified By: Economic Counselor Thomas Goldberger for reasons 1.4 b & 
 d. 
 
1.  (C) Summary:  Turkey's Coordinator for Iraq 
Reconstruction, Ambassador Koray Targay, says the Iraqi 
Central Bank has stopped making payments to the 16 Turkish 
energy companies providing refined products to SOMO because 
of a lack of cash.  The MFA fears that the over $800 million 
in arrears threatens future supplies and poses a security 
problem for Iraq.  Turkey's largest fuel provider to Iraq 
said the problem was that Kurdish-connected "intermediaries" 
were demanding a fee.  End Summary. 
 
2.  (SBU) Targay told Econ/C SOMO is far behind in payments 
to the 16 Turkish energy companies providing refined products 
for Iraq and is behind on payments for refined products from 
Kuwait and Jordan.  Targay said the debt owed by SOMO to the 
Turkish companies reached $840 million and that Prime 
Minister Erdogan raised the problem with Iraqi Prime Minister 
Jafari during his recent visit to Turkey.  Targay understood 
that SOMO and the Oil Ministry had approved the payments but 
the Central Bank told the Turkish embassy that it did not 
have the cash.  Targay emphasized that the arrears had 
reached such a huge level that the financial viability of the 
private companies was at risk.  This could force the 
companies to stop deliveries, which could contribute to 
insecurity in Iraq.  Indeed, Targay said officials at the 
Habur Gate border crossing reported a decline in the number 
of SOMO-bound trucks crossing into Iraq from 400 per day a 
few weeks ago to 280-290 per day currently. 
 
3.  (SBU) On a secondary but related issue, Targay said the 
annual legal agreement between SOMO and the Turkish companies 
under which this trade is conducted expires at the end of 
June.  Targay said the Turkish suppliers met last week in 
Istanbul and asked SOMO to send a representative to discuss 
the payment problem and renew this "fundamental document," 
which is essential for the Turkish companies.  But according 
to Targay, SOMO responded that it was too busy to meet in 
June, which Targay found incomprehensible given the 
importance of the matter. 
 
TPIC Says Intermediaries Behind Payment Problem 
--------------------------------------------- -- 
 
4.  (SBU) We followed up with SOMO's largest supplier in 
Turkey, Turkish Petroleum International Company (TPIC), the 
trading arm of the national oil company TPAO.  TPIC was 
instrumental in meeting SOMO's needs in the early days of the 
interim government, when SOMO took over from KBR the task of 
importing refined products for Iraq.  SOMO Vice President 
Sadi Gungor told us that SOMO is behind on payments to TPIC 
to the tune of $150 million -- $650 million to all the 
Turkish firms.  (Comment:  The $840 million cited by Targay 
probably included the total amount SOMO owes for fuel 
delivered to Iraq, while Gungor was probably talking about 
payments in arrears only.) 
 
5.  (C) Gungor explained that the arrears put the Turkish 
companies in a difficult financial situation because they 
have already paid for the fuel delivered to Iraq, which is 
purchased on the international market.  Gungor said that TPIC 
will not stop making deliveries to Iraq, because "we are a 
state company" and GOT officials have intervened to urge TPIC 
to continue the deliveries.  However, Gungor expected that 
some of the private companies could not afford to continue 
deliveries without receiving some payments.  Gungor said the 
real reason for the payment stoppage was the involvement of 
"intermediaries," who were demanding a commission to 
facilitate the payments.  Gungor stressed that TPIC will not 
agree to deal with the intermediaries, who he hinted were 
connected to Kurdish figures in Iraq. 
 
Comment 
------- 
 
6.  (C) The Turks are not asking us to solve this issue for 
them.  In fact, in the positive spirit following Jafari's 
visit, the Turks are trying to find a constructive way to 
deal with the issue and have been proactive both in their 
meetings with Jafari and in Baghdad.  Their preferred 
approach is to move to a letter of credit system, but Targay 
acknowledged that this would take time.  Any way the U.S. 
could be helpful, such as by encouraging SOMO to conclude a 
new agreement (the Iraqis may not appreciate the stock the 
Turks put in "legal" documents) or by helping the CBI find 
the cash flow to draw down arrears, would seem to serve both 
Turkish and U.S. interests in stability in Iraq.  We are not 
able to rank this among all the other Iraq priorities, but it 
seems consequential from post's perspective. 
MOORE