US embassy cable - 05ANKARA6468

UNCLAS SECTION 01 OF 02 ANKARA 006468 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD, EPET, PREL, IZ, Iraq 
SUBJECT: TURKEY: SOMO ARREARS APPROACH BREAKING POINT 
 
REF: A. ANKARA 6231 
     B. ANKARA 6095 
     C. ANKARA 3842 
     D. BAGHDAD 2845 
 
SENSITIVE BUT UNCLASSIFIED 
 
1.  (SBU) Angry Suppliers: MFA informed EconOff on October 26 
that SOMO arrears (45 days past product delivery) to Turkish 
fuel suppliers had grown to almost $900 million (out of 
accounts receivable of about $1 billion).  Both the Foreign 
Economic Relations Board (DEIK - representing Turkish 
suppliers) and TPIC (major state-owned supplier) told Embassy 
that the quantity of arrears had reached maximum exposure for 
suppliers.  TPIC, which re-entered the SOMO business after a 
major payment was made in early August, said that it was 
going to stop shipping product to SOMO in a few days, and 
said other (mostly smaller) shippers would likely follow 
their lead.  In addition, TPIC complained that SOMO just sent 
a letter which they interpreted as offering little hope for 
prompt payment.  DEIK complained that the ITG was using a 
deliberate financing strategy to avoid paying Turkish 
suppliers, in contrast to timely payments made to Persian 
Gulf suppliers.  Embassy appreciates Baghdad's demarches to 
the ITG to seek settlement of the arrears. 
 
2.  (SBU) DEIK Proposal: In a letter to the Charge, DEIK 
proposed that the USG guarantee SOMO payments, in order to 
assure continued delivery of fuel products to the market in 
northern Iraq.  Understanding that USG financial guarantees 
are likely not in the cards, we transmit this to Washington 
both as an indication of the desperation of suppliers and 
given the importance of fuel supplies to the civil situation 
in Iraq.  We would appreciate a reaction to pass to the 
suppliers.  The text of the DEIK letter is in paragraph 5. 
 
3.  (SBU) Habur Gate woes: Meanwhile, U.S. military officers 
and contractor representatives at Habur Gate report that 
tensions and slow-downs are rising in the lead up to 
end-of-Ramadan holiday and approaching winter, historically a 
time of potential transport labor strife or reduced activity. 
 MFA cites SOMO's recent cancellation of 22 of 36 contracts 
with Turkish suppliers (reportedly for insufficient or late 
delivery of product) as the cause of a recent shortfall in 
gasoline (benzine) crossing the border for SOMO.  MFA insists 
that the GOT Foreign Trade UnderSecretariat is not the source 
of current fuel shortages, having issued export/transit 
license to all shippers. 
 
4.  (SBU) Comment: Post has long noted that fuel exports will 
remain challenged as long as there is just the single Habur 
Gate.  Although ongoing construction of a new Turkish border 
facility is contributing to the delays and tensions among 
drivers, the border gate does not appear to be the source of 
the current problem.  Customs officials have implemented 
reasonable measures to facilitate passage of fuel, but not 
enough fuel is now arriving at the gate.  Gasoline delivery 
has been particularly volatile and short in the past few 
weeks.  Delays and/or shortfalls will likely be exacerbated 
if SOMO arrears continue to grow. 
 
5.  (U) DEIK letter to Charge, dated October 25, 2005 - text 
follows: 
 
We would like to thank you very much for your letter of 
October 18, 2005.  We appreciate your support and efforts to 
the Business Council activities, in particular your attempts 
concerning the payments to be done to the Turkish oil 
companies by SOMO. 
 
In this framework, with reference to your letter we would 
like to propose an alternative way to make the relations long 
lasting and stable with SOMO.  As you know, so far the 
paymets have been irregular and the receivables have reached 
almost 1 billion USD.  In order to have a more stable 
relation with SOMO, we propose the US Government to 
guarantee, and realize the payments if the receivables exceed 
a six month period. 
 
As the Business Council, we are aiming alternative ways to 
resolve this problem and thus contribute to the bilateral 
trade relations. 
 
Thanking you very much for your kind collaboration, and 
awaiting for your reply at your earliest convenience. 
 
Ercument Aksoy, Chairman of the Turkish-Iraqi Business 
Council, and 
Mehmet Habbab, Vice Chairman of the Turkish-Iraqi Business 
Council 
 
MCELDOWNEY