US embassy cable - 05ISTANBUL1421

C O N F I D E N T I A L SECTION 01 OF 02 ISTANBUL 001421 
 
SIPDIS 
 
USDOC FOR NEWMAN AND FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
 
E.O. 12958: DECL: 08/18/2015 
TAGS: BEXP, ENRG, GR, SENV, TU, Istanbul 
SUBJECT: TURKEY: EURASIA SENIOR ADVISOR MANN'S JULY 
ISTANBUL MEETINGS 
 
Classified By: Classified by P/E Section Chief Stuart Smith.  Reasons 1 
 
.4 (b/d) 
 
 
1.  (C) Summary: In a July 20 meeting in Istanbul with Raphel 
Moissis, the CEO of the Public Gas Corporation of Greece 
(DEPA), Senior Advisor for Eurasia Ambassador Steven R. Mann 
discussed the Greek-Turkey gas interconnector, prospects for 
Italian-Greek cooperation on the Greece-Otranta line, 
progress on the Burgas-Alexandropolous oil bypass pipeline, 
and Russian interest in the Southeast European Gas Ring. 
Amb. Mann cautioned Moissis on cooperation with Iran.  End 
summary. 
 
2.  (C) On July 20, 2005, Senior Advisor for Eurasia 
Ambassador Steven R. Mann met at the Ciragan Hotel in 
Istanbul with DEPA CEO Raphael Moissis and Greek Ministry of 
Development General Secretary Nikolaos Stephanos, at 
Moisses, request.  The discussion started with 
congratulations on the July 3 ceremonial opening of the 
Greek-Turkey gas interconnector.  Moissis said that Turkish 
Prime Minister Erdogan pledged gas through the connector 
within one year.  Construction is continuing on both sides of 
the border; Moissis said, "We started last but will catch 
up."  Moissis turned quickly to the prospects for sending gas 
into Italy via Greece.  Edison and the Energy Ministers of 
Italy and Greece have signed an internal agreement for Edison 
and DEPA to have a 50-50 partnership in a trans-Adriatic 
line.  Botas can come in as a third party.  Botas, DEPA and 
Edison have agreed to a transit tariff.  They are now doing 
netback analysis to see what will be a feasible price/source 
of gas. 
 
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Details on the Interconnector 
----------------------------- 
 
2.  (C) Moissis explained details on the interconnector:  the 
Karacabey-to-Kipi segment is still to be constructed, but the 
pipe and the workers are ready.  Kipi-Alexandropolous and 
Alexandropolous-Kamatini are being built by two different 
firms in accordance with the previous Greek-Soviet IGA 
involving Prometheus Group (Kopelousas).  The agreement gave 
Kopelousas Group the right to build a new pipeline "by 
analogous terms" with the main Greek line it constructed in 
1990.  Kopelousas Group and DEPA have not reached agreement 
on what those terms are, although the right of way has been 
secured.  There is an 8-10 million Euro difference between 
the sides and the government fears Parliamentary and press 
criticism if they give in to Kopelousas Group's demands. 
This is why the Alexandropolous-Kamatini segment is delayed. 
 
----------------------- 
Good Prospects in Italy 
----------------------- 
 
3.  (C) The results of the April 4 Italian election meant 
that prospects declined for the Brindisi LNG terminal but 
boosted the Greece-Otranto line.  An Italian-Greek 
ministerial agreement relating to this was signed June 25. 
All signs now are that Edison is moving at full speed.  They 
will sign the final IGA on this pipeline in Rome in 
September.  One complication: a Swiss firm, EGL, approached 
DEPA this year.  EGL is proposing its own trans-Adriatic 
pipeline: Bulgaria-FYROM-Albania-Italy.  Their market: 5 BCM 
for EGL-owned power stations in Italy (per Edison, 2.5 BCM is 
a more credible figure).  EGL also wants to launch a gas 
trading business.  EGL has proposed a compromise, linking 
with the Greeks but abandoning the Bulgarian and FYROM links. 
 They would get gas from Turkey, via the northern route. 
EGL, Edison and DEPA met in Milan during the week of July 11 
to discuss the possibilities.  Edison and DEPA were skeptical 
and left the meeting with the burden of proof remaining on 
EGL. 
 
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Caution on Iran 
--------------- 
4.  (C) Moissis said that Iran is considering Greece as a 
possible entry point for gas to the EU.  Mann urged them to 
be cautious.  He warned about U.S. sanctions and opined that 
the time may be ripe for a renewed U.S. drive against 
sanctions violators.  They discussed the problems of the 
upstream and the limitations of Shah Deniz Phase 1.  DEPA has 
been talking to Statoil, which is interested in accelerating 
Shah Deniz Phase 1 and using excess Turkish gas for onward 
shipment. 
 
------------------ 
Russian Influence? 
------------------ 
 
5.  (C) Moissis warned that Russia has approached DEPA, 
Edison and EGL.  Blue Stream is eager to sell gas but Moissis 
is disturbed by the prospect of major Russian influence on 
the long-desired Southeast European Gas Ring.  "What's the 
point to create this new ring and have it dominated by 
Russian gas?" asked Moissis.  Mann drew a distinction as 
follows:  that we never oppose Russian gas deals in the 
region; that we firmly oppose Iranian gas; but we always 
fight for Caspian exports.  He noted also that in IEA and USG 
studies, Caspian gas comes into the European market cheaper 
than nearly any other supplier.  Moissis said that in 2009 
Edison would be ready for 3 BCM of purchases, going to 5 BCM 
in 2010 and 8 BCM in 2012. 
 
---------------------- 
Burgas-Alexandropolous 
---------------------- 
 
6.  (C) Stephanos had responsibility for this issue, and he 
briefed on progress of this oil bypass pipeline.  A GIC has 
been formed (group of incentive companies) to look at 
throughput guarantees.  The GIC includes TNK-BP, Sibneft, 
Rosneft and others.  Chevron-Texaco may join but so far there 
are only Russian companies included.  The pipeline will be 
equity-financed, with no public debt.  They envision a 2009 
start.  Mann cautioned that Russian companies are used to the 
Transneft model, and this would be a problem for a modern 
pipeline.  Stephanos said that Transneft had been irresolute, 
Vainshtok was interested, then dropped from sight. 
 
7.  (C) Explaining the delays in this line, Stephanos said 
that after January 2003, despite support from LATSIS Group, 
Hellenic Petroleum, and Prometheus Group, the project fell 
out of favor with the Greek government.  Now a new government 
is in charge and is supporting the project.  Stephanos 
brushed away environmental problems -- "That's the Turkish 
objection.  Anyway, the people of Alexandropolous want it." 
Mann outlined U.S. policy on bypass pipelines and gave a 
brief overview of Turkish environmental concerns about 
bypasses. 
JONES