US embassy cable - 05ANKARA5533

UNCLAS SECTION 01 OF 03 ANKARA 005533 
 
SIPDIS 
 
STATE FOR EUR/SE, EB/CBA, AND EB/ESP 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
DOE FOR CHARLES WASHINGTON 
 
SENSITIVE 
 
EUR ALSO FOR DAS BRYZA 
 
E.O. 12958: N/A 
TAGS: EPET, ENRG, PHUM, EINV, TU, BTC 
SUBJECT:  TURKEY AND BTC: WAITING FOR OIL AT THE GEORGIAN 
BORDER 
 
REF: A. ANKARA 5172 and previous 
 
B.  ANKARA 2380 
 
Sensitive But Unclassified.  Please Handle Accordingly. 
 
1.  (SBU)  Summary: Turkey and Georgia are competing to see 
which will be the limiting bottleneck for first oil in the 
BTC pipeline, each side pointing vigorously at the other. 
As the contest will have contractual ramifications for 
settling construction delays and cost overruns, it has led 
to some tension between BOTAS (Turkey's prime contractor and 
operator) and the BTC Consortium (led by BP and operator for 
Georgia).  Mid-October is the likely date for oil at the 
Turkish border, meaning first oil at Ceyhan in December at 
best, and good possibility of slippage to 2006 (Ref A).  End 
Summary. 
 
Construction Challenges - Who will be First and Last? 
--------------------------------------------- ------- 
 
2.  (SBU)  EnergyOff traveled to PT1 - Pump Station One in 
Turkey - on September 20, observing construction on the site 
being wrapped up at a feverish pace.  Key "punch" (remaining 
to be completed) items that have delayed completion are: 
electrical linkages and critical telecom connections and 
back-ups to outside the station (Ceyhan and Baku).  It is 
still not clear whether Turkey will be ready first to 
receive oil or Georgia will be ready first to provide oil, 
respectively, at the border. 
 
3.  (SBU) The BOTAS PT1 site manager lamented the challenges 
BOTAS has faced in moving construction along under its fixed 
price turnkey contract.  He attributed significant problems 
to the excessively low winning bids from BOTAS (overall 
prime contract for Turkey) and TEPE (Turkish well-connected 
sub-contractor for Lot A - starting at the Georgian border - 
and four pump stations; with Dutch Nacap as technical 
partner).  TEPE early on experienced cash flow problems due 
to lack of technical expertise and delays in completing 
construction camps (leading to over-spending on hotels and 
restaurants for construction crews).  According to the site 
manager, over 152 separate sub-contractors had stepped on 
the site (and there was a construction peak of over 500 
employees).  The manager noted that there were some design 
flaws and inefficiencies, like too much concrete poured. 
Cash flow problems culminated earlier this year in BOTAS 
taking over the contract from TEPE, receiving loans from the 
BTC consortium to complete the contract. 
 
4.  (SBU) BOTAS and the BTC Consortium have recently been at 
odds about who will be ready - or not ready - first.  BTC 
Consortium, led by BP, represents overall oversight and the 
project sponsors, and also operates the pipeline in Georgia. 
BOTAS officials (on the site and in Ankara) complained to 
EnergyOff that BTC had not been straight with them on when 
oil would reach the border.  Targets have moved around 
prospective dates in September and October; BOTAS believes 
that oil will be ready at the Georgian border on October 15, 
and that they will be ready to receive it. (This means first 
oil inauguration at Ceyhan in December at best, and good 
possibility of slippage to 2006 - Ref A.)    The party 
responsible for a delay at transiting the border will be in 
a weaker position in the inevitable contractual disputes 
over cost overruns.  BOTAS completed its natural gas spur 
pipeline to provision the pump station, completing 
comparable reinstatement on its parallel route to Lot A. 
 
5.  (SBU) According to BOTAS and BTC officials, first tanker 
oil was off-loaded at Ceyhan on September 15 to implement 
pre-commissioning of the tanks to enhance readiness for 
first pipeline oil.  EnergyOff traveled parts of Lot A near 
the Georgian border, noticing extensive soil reinstatement 
and reseeding and anti-erosion measures on the mountainous 
route. 
 
Human Rights Complaints Appear Trumped Up - Seeking Local 
Buy-In 
--------------------------------------------- ------------ 
 
6.  (SBU) In a visit to Ankara, the UK contact point for 
OECD Guidelines for Multi-National Enterprises (the OECD 
"complaint process") spoke to EnergyOff about alleged human 
rights violations made by the London-based Kurdish Human 
Rights Project, purportedly affecting Kurdish villagers 
around Ardahan on Lot A.  While the British official heard 
complaints from villagers about insufficient and/or slow 
resolution of construction-related damages, he did not 
perceive this as being systematic and related to purported 
"Kurdishness".  While he (and EnergyOff in separate visits 
to villages around Erzurum - Ref B) was aware of 
construction-related complaints, he stated that the BTC 
complaint process was open (internet based and tracked), 
robust, and generous.  There is not evidence of any sort of 
systematic human rights abuses.  Rather, he believes that 
London-based Kurdish groups, and Friends of the Earth (for 
alleged environmental problems) have "piled on" the 
opportunity to work their target issues on a highly visible 
international project.  Embassy perceives that Turkey's 
domestic Kurdish human rights community has not taken up the 
London-based Kurdish group's anti-BTC cause. 
 
7.  (SBU) Observers note there have been valid complaints 
related to slow resolution of construction related damages, 
but they also note that the perception of BTC's deep pocket 
and the closing of the window of opportunity for personal 
enrichment have increased complaints.  A Kurdish employee of 
BOTAS emphasized to EnergyOff his perception that there was 
no substance or traction to the complaints of the Kurdish 
villagers.  EnergyOff heard broad support and praise for the 
employment and community assistance programs engendered by 
BTC.  This was supported by a random survey by EnergyOff of 
interlocutors in the regional capital of Kars: Chamber of 
Commerce President; restaurant and shop owners; city 
officials at the museum; guides and group of army officials 
picnicking at the nearby historic Armenian site of Ani. 
Note: Kars suffers as a border town next to a closed border 
(with Armenia), but appeared positive, bustling, and secular 
(contrasting with the image portrayed in a popular novel by 
Orhan Pamuk) to EnergyOff.  They were also eager for the 
arrival of natural gas from a distribution tender targeted 
for late 2006; they notice the arrival of pipe by train for 
the Shah Deniz natural gas pipeline to parallel BTC.  End 
Note. 
 
Security Measures 
----------------- 
 
8.  (SBU)  EnergyOff was impressed with visible security 
features at the Pump Station and Lot A.  Finishing touches 
were underway on a double outside perimeter fence, a 
separate inside perimeter fence, gate guard facility, and 
corner guard towers.  According to the site manager, there 
were regular contacts with the Jandarma (Turkish military 
police) force, which was completing a separate two building 
permanent security facility overlooking the pump station. 
He noted that there was a spate of small acts of "sabotage", 
an unfortunate, but normal, feature of winding down a big 
construction project.  The manager said that contacts with 
Jandarma had increased because of this, in particular in 
light of one written threat received.  EnergyOff observed a 
fenced underground valve station and stretches of the buried 
pipeline along Lot A.  While a determined bad guy might be 
able to dig down to the pipe, it would be difficult to 
remain undetected given presence of significant roving 
Jandarma presence and local nomads and villagers (presumably 
"bought in") in the mostly tree-less and rough terrain. 
 
Comment - First Oil Must Be Real 
-------------------------------- 
 
9.  (SBU)  BTC, BOTAS, and Turkey's MFA are in agreement on 
not wanting to do an artificial first-oil inauguration at 
Ceyhan (Ref A).  BTC's current projection for first pipeline 
oil export is late-December.  BOTAS points out the technical 
difficulties of facilitating first oil over Turkish 
mountains in cold weather (crews will have to follow the 
first "pig" which will lead initial plugs of liquid 
nitrogen, which will precede first oil).  All parties 
recognize great likelihood of slippage, so first oil 
inauguration may slip to 2006, and it might as well be 
planned for March to aim for better weather in Ceyhan 
(Reftel).  While slipping from 2005 would be a 
disappointment, it still does not detract from the 
remarkable success of this rugged three-country project, 
achieved with strong common support from the governments of 
the U.S. and Turkey. 
 
McEldowney