US embassy cable - 05ANKARA6550

UNCLAS SECTION 01 OF 03 ANKARA 006550 
 
SIPDIS 
 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
FCC FOR A THOMAS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: BEXP, ECPS, EINV, EFIN, ENRG, TU 
SUBJECT:  MERMOUD IN ANKARA: INVESTMENT, TELECOM, NUKES 
 
 
Sensitive But Unclassified.  Please handle accordingly. 
This message was coordinated with Consulate Istanbul. 
 
1.  (SBU)  Summary.  In October 21 Ankara meetings, 
Special Representative for Commercial and Business 
Affairs Frank Mermoud found improvements and 
opportunities in Turkey's telecom, energy, and other 
investment sectors.  Turkey has made significant progress 
on improving its investment environment and taking steps 
to increase FDI, but deficiencies in legislative and 
regulatory environment still remain.  In the short-term, 
the electricity distribution privatization is the 
strongest energy investment opportunity.  Longer-term, 
nuclear investment is an opportunity for U.S. technology. 
End Summary. 
 
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INVESTMENT CLIMATE: GOOD NEWS - BUT SILL PROBLEMS 
--------------------------------------------- ---- 
 
2.  (SBU) Treasury Deputy Under Secretary Cavit Dagdas 
emphasized that GOT had liberalized Turkey's FDI law, 
eliminating red tape and providing for notification -- 
rather than permitting -- for FDI.  Moreover, Dagdas 
stressed the promotion efforts of the CEO-level "Investor 
Advisory Council" and the working level "Coordination 
Council for Implementation of Investment Climate." 
Noting the helpful anchor of the EU, Dagdas admitted that 
there was still a lot of work to do, citing in particular 
IPR.  He insisted that new legislation had improved the 
IPR situation, but noted that there were "transitional 
problems" with pharmaceutical data exclusivity, for 
example.  In the same meeting, DDG Murat Alici described 
a new initiative to focus on SME's for FDI in Turkey.  In 
response, Mermoud agreed that Turkey had made important 
progress and settled some lingering disputes.  When 
Mermoud raised the issue of discriminatory (luxury) taxes 
on cola drinks, Dagdas replied that Treasury was under 
fiscal pressures and that changing the tax was not on the 
agenda for 2006. 
 
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PRIVATIZATION TRACK RECORD 
-------------------------- 
 
3.  (SBU)  Privatization Administration (PA) President 
Metin Kilci described the recent privatization success 
stories: Turk Telekom, TUPRAS, and Erdemir.  These would 
bring $1.3 billion to the Treasury this year -- and a 
total of $18 billion over a period of years.  Kilci was 
optimistic that the privatization of Turk Telekom (TT) 
would tak place despite court challenges and be closed 
before the end of 2005.  He said that the high 
administrative court (Danistay) was only able to offer an 
opinion, but not block, the TT concession agreement.  In 
response to Mermoud's concern that the price may have 
been bid too high, Kilci said that the liberalized 
telecom market had generated the high asset price ($12 
billion market capitalization).  He was bullish on the 
upcoming privatization targets, including electricity 
distribution (see para 7 below), port operations, and the 
sugar companies, noting that the PA was collecting 
potential investor input. 
 
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TOBB ACTIVE ON MIDDLE EAST 
-------------------------- 
 
4.  (SBU) Rifat Hisarciklioglu, the chairman of the 
leading Turkish business federation, TOBB, said he was 
disappointed there was not more U.S. FDI in Turkey, but 
was optimistic for the future.  Mermoud encouraged TOBB, 
as the leading business organization, to urge greater GOT 
engagement on bringing U.S. FDI.  TOBB could play an 
important role since its members include not just the 
leading companies but many of smaller companies, which 
offer supply chain and other opportunities. 
Hisarciklioglu described TOBB's new Israeli-Palestinian 
"Ankara Forum" initiative, which targets facilitation of 
an industrial zone in Gaza, and appreciated USAID 
support.  He hoped that OPIC and the World Bank's MIGA 
would be able to provide investment guarantees for 
projects in the zone, and also asked for clarification if 
products from the zone would have preferential access to 
the U.S. under the U.S.-Israel FTA.  Mermoud briefed on 
the state of play on BMENA business initiatives, 
highlighting the business forum being organized at the 
upcoming World Summit on Information Society. 
 
5.  (SBU)  Mermoud mentioned that Turkey's EU accession 
process will help encourage reforms in areas that have 
typically created issues for investors.  For the EU 
accession process, Hisarciklioglu's TOBB colleagues 
described how TOBB is organizing itself into 27 working 
groups to provide position papers to GOT officials 
negotiating individual chapters of EU acquis.  TOBB's 
think-tank, TEPAV/EPRI, will also conduct impact 
assessment studies on Turkey's adoption of the chapters. 
The TOBB President 
 
------------------------------------------ 
TELECOM AUTHORITY INTERESTED IN U.S. VISIT 
------------------------------------------ 
 
6.  (SBU)  In a brief meeting, Turkish Telecom Authority 
chairman Tayfun Acarer voiced interest in learning from 
the FCC's expertise, particularly as the Authority looked 
at regulation of 3G, WIMAX, and other new technologies 
(refs).  Acarer also described his objective of 
continuing to improve the competition and investment 
environments in Turkey's telecom sector.  Vice Chairman 
of the Authority, Galip Zerey, told Mermoud that he 
planned to attend the World Summit on the Information 
Society in Tunis November 18.  Acarer expressed an 
interest in visiting the FCC.  Comment: Post would 
strongly support an invitation by the FCC to Acarer.  End 
Comment. 
 
-------------- 
NUCLEAR DREAMS 
-------------- 
 
7.  (SBU)  Mermoud pressed Energy Under Secretary Sami 
Demirbilek on the GOT's process for moving forward on its 
announced goal to put in place three nuclear power 
plants.  Demirbilek stressed that under the current 
Energy Market Law, the private sector, not the 
government, must carry out energy investments.  He said 
the Energy Ministry was studying regulations for 
licensing and monitoring, but at this time there would 
not be a formal tendering.  Rather, Demirbilek said the 
GOT would welcome proposals from private companies on 
technology and tender requirements, stressing that 
"anything can happen."  Elaborating on the government's 
"facilitating role," he said the GOT had not yet made a 
decision on whether to change existing legislation. 
Responding to Mermoud's observation that the GOT had 
experienced two previous failures in aiming for nuclear 
power, Demirbilek said the GOT was now serious.  This was 
not a one-off luxury item; rather, it was part of a GOT 
decision to achieve balance in the energy portfolio. 
 
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DISTRIBUTING THE ELECTRICITY 
---------------------------- 
 
8.  (SBU) All of Mermoud's interlocutors (in particular 
the Energy Under Secretary and Privatization 
Administration President Metin Kilci) stressed the 
importance of and the imminence of the electricity 
distribution (TEDAS) privatization.  Kilci said that they 
expected the Parliament to move quickly on an amendment 
which would put in place necessary changes in the 
regulatory framework (price structure during the five- 
year transition to free market, for example).  He 
expected the tender to be launched by the end of the 
year, starting with 2-3 larger regions, out of an initial 
batch of 6 regions to be tendered.  Kilci said that there 
was no specific requirement for foreign and domestic 
participation.  Responding to EconCouns' point that 
investor input was critical to the process, Kilci 
stressed that extensive consultations with potential 
investors had been carried out. 
 
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EMBASSY COMMENT 
--------------- 
 
9.  (SBU)  A theme of Mermoud's meetings, both here and 
in Istanbul, was that Turkey has made progress in 
improving its investment climate and that investors are 
responding, although U.S. investors have not been as 
active as European counterparts.  Nevertheless, there 
remain serious impediments to foreign investment, notably 
in the judicial and regulatory realms, where foreign 
investors can not be confident of being treated on the 
same basis as local investors. 
McEldowney