US embassy cable - 05ANKARA5080

UNCLAS SECTION 01 OF 03 ANKARA 005080 
 
SIPDIS 
 
SENSITIVE 
 
USDOE FOR CHUCK WASHINGTON 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/CRUSNAK 
 
E.O. 12958: N/A 
TAGS: EPET, ENRG, EINV, TU, GG, IZ, AZ, BTC 
SUBJECT: DAS BRYZA MEETING WITH TURKEY ENERGY 
UNDERSECRETARY ON BTC, GAS, AND BYPASSES 
 
REF: ANKARA 4000 
 
SENSITIVE BUT UNCLASSIFIED 
 
1.  (SBU) Summary.  DAS Bryza and Turkey's senior energy 
bureaucrat agreed that the imminent completion of the BTC 
pipeline set the stage for new areas of bilateral energy 
cooperation, including on Turkish Straits "bypass" pipelines, 
supplying gas to southern and southeastern Europe, and U.S. 
investment in Turkey's energy sector.  However, such 
initiatives will require strengthening of Turkey's domestic 
legal and regulatory framework for energy investment.  Bryza 
agreed to consult with U.S. oil companies on ways to overcome 
competing proposals for bypass routes, to encourage U.S. 
corporate feedback to Turkey on its regulatory climate 
(particularly by U.S. firm AES given its interest in 
electricity distribution), and to work to develop a regular 
energy dialogue, probably under the auspices of the foreign 
ministry-led economic dialogue.  End Summary. 
 
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Gas Hub: Weak Domestic Environment 
---------------------------------- 
 
2.  (SBU) In his August 26 meeting with Energy Ministry Under 
Secretary Sami Demirbilek, State EUR/DAS Matt Bryza described 
 
SIPDIS 
how the U.S.-Turkey strategic partnership on energy issues 
had been a pillar of the bilateral relationship, as 
demonstrated by the success of the Baku-Tbilisi-Ceyhan (BTC) 
pipeline.  Now that BTC is nearly in operation, Bryza said 
the U.S. and Turkey should find new areas to advance their 
energy partnership, such as in support of oil pipelines that 
bypass and reduce the pressure on the Turkish Straits.  Even 
more significantly, Turkey has the potential to become a gas 
hub for supplying southern and southeastern Europe and, in so 
doing, provide market-based competition that would spur 
positive changes in the anti-competitive mentality of Gazprom. 
 
3.  (SBU) Demirbilek welcomed the forward-looking ideas and 
agreed that Turkey had the potential to be a gas hub, 
conveying Egyptian, Iraqi, Caucasus and Central Asian gas to 
European markets.  But, he cautioned that Turkey currently 
does not have excess gas supplies (following a modification 
this summer of one take-or-pay deal with Russia) and that, 
more importantly, its domestic regulatory and legal 
environment is not yet strong or mature enough to support a 
hub role.  In fact, if domestic regulatory shortcomings were 
not addressed, Turkey would not be able to supply its own 
natural gas needs after 2011, when a 6 bcm BOTAS purchase 
contract with Russia runs out.  Demirbilek requested U.S. 
corporate and government support in providing sound advice to 
the Turkish government on how to create a framework 
supportive of energy investment.  Such advice needed to be 
directed at Turkish agencies responsible for the investment 
climate, especially the Ministry of Finance, the Treasury, 
and the Privatization Administration, he emphasized. 
Regarding southeastern Europe, Demirbilek explained why 
Turkey had been unable to sign on to the Southeast Europe 
Energy Community Treaty in full because the treaty would have 
required Turkey to implement costly EU environmental acquis 
immediately rather than through the EU accession process. 
 
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Bypasses: Need to Overcome Company Rivalries 
-------------------------------------------- 
 
4.  (SBU) On oil "bypass" pipelines, Bryza and Demirbilek 
agreed that the Turkish Straits had reached their throughput 
capacity and that there were several bypass proposals on the 
table, including Trans-Thrace, Samsun-Ceyhan, Balkan routes, 
and Odessa-Brody.  Demirbilek argued that the risk of a major 
disruption in the Straits was a key uncertainty in global oil 
supply today.  To him, the most feasible bypass route for 
cost, environmental and safety reasons seemed to be 
Samsun-Ceyhan.  However, the major oil companies were not, he 
said for competitive reasons, able to agree on a route.  He 
suggested that the U.S. and Turkey consider calling a 
conference with oil companies at which each would be able to 
present its ideas on the best route.  The role of the 
governments would not be to officially favor any proposal, 
but to call on the companies to lay aside their rivalries and 
to support a consensus.  Bryza agreed to consider this idea, 
and consult with U.S. companies and get back to Demirbilek. 
 
-------------------------------- 
U.S. Investment in Energy Sector 
-------------------------------- 
 
5.  (SBU) On U.S. investment in Turkey's electricity 
distribution network, Demirbilek welcomed the interest of 
AES, but said that AES needed to engage more forcefully with 
the Privatization Administration, Treasury and Finance 
Ministry to give its views on how the tender could best be 
constructed to include the assurances required to encourage 
bids by experienced companies like AES.  Otherwise, the 
tender would likely go to an unqualified, "adventurous" 
bidder.  Bryza said he would discuss this with AES.  Replying 
to Bryza's inquiry about Turkey's interest in civilian 
nuclear power, Demirbilek said that Turkish planning was at a 
very early stage, examining the legal, regulatory, and 
environmental requirements a nuclear industry. 
 
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BTC Inauguration Timing 
----------------------- 
 
6.  (SBU) Demirbilek said that the GOT continued to plan a 
BTC "First Oil" in Ceyhan for November 10, although he 
acknowledged that the date could slip into December for 
technical reasons.  He hoped for high-level USG participation 
(see reftel), which Bryza said he would work to ensure. 
Bryza said he was aware that BP targeted first oil at Ceyhan 
for December, and so argued for a mid-December inauguration. 
(Note: BP latest forecasts indicate late December for first 
oil, but they believe that mid-December is still realistic 
for first tanker loading.  The risk of delay is that 
pre-commissioned oil via tanker from Supsa would have to be 
utilized instead.  End Note.)  On differences with BP and the 
Consortium over cost overruns in Turkey, Demirbilek said that 
these would be settled, after, not before, BTC becomes 
operational. 
 
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Iraq Electricity 
---------------- 
 
7.  (SBU) Demirbilek said efforts to increase Turkish 
electricity exports to northern Iraq were also stymied by 
domestic regulatory issues.  He was worried that the Energy 
Regulatory and Markets Authority (EMRA) was taking too much 
of a doctrinaire approach to licensing such exports.  In 
particular, he thought EMRA's plan to auction transmission 
rights from Turkey to Iraq was not workable.  (Post will 
followup separately with EMRA on the latest state of play.) 
 
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Georgia Gas 
----------- 
 
8.  (SBU) Demirbilek said that the Energy Ministry would not 
object to selling excess Shah Deniz gas supplies to Georgia 
if the Turkish government concluded that this would be in 
Turkey's national interest of establishing better relations 
with Georgia.  He noted that Turkey and Georgia had agreed 
this summer on an electricity swap program under which 
Georgia would supply Turkey with excess hydro-generated 
electricity in the summer months, which Turkey would return 
in the fall. 
 
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Comment 
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9.  (SBU) Both Bryza and Demirbilek agreed that there was a 
need for periodic bilateral discussions of energy issues. 
Demirbilek said that from his point of view, the best way to 
manage a dialogue was under the umbrella of the MFA-led 
economic partnership dialogue.  He said this would ensure 
inter-agency cooperation in the GOT and reduce the 
administrative burden on the MoE.  Post welcomes DAS Bryza's 
engagement on energy issues.  Demirbilek appeared hesitant to 
commit on major new initiatives, but those hesitations 
probably reflect his already heavy agenda and doubts about 
MoE's capacity to follow-through -- as well as potential 
concerns about his relationship with Turkey's major energy 
supplier, Russia.  These hesitations can probably be overcome 
through continued engagement and interaction. 
 
10.  (U) DAS Bryza has not cleared this cable. 
 
MCELDOWNEY