US embassy cable - 05ANKARA6870

UNCLAS SECTION 01 OF 02 ANKARA 006870 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG, EFIN, IZ, Iraq 
SUBJECT: Iraq: Turkey Companies Need Cash to Increase Oil 
 
SENSITIVE BUT UNCLASSIFIED. 
 
Coordinated with ConGen Istanbul. 
 
1.  (SBU)  Summary.  Turkish companies supplying refined 
petroleum products to Iraq's State Oil Marketing Company 
(SOMO) say they have the physical capacity to boost 
shipments to Iraq dramatically, but are not able to do so 
unless SOMO regularizes overdue payments.  They 
appreciate the help of the U.S. Government, but suggest 
that more -- for example, creation of a special financing 
facility that could include a USG guarantee -- be done so 
that the companies can continue to finance the purchase 
and transport of product to Iraq.  Short of creating such 
a facility, the U.S. might help improve weak 
communication between the companies and SOMO, such as by 
organizing a meeting inside or outside of Iraq.  End 
Summary. 
 
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READY TO INCREASE SUPPLY, BUT NEED FINANCING 
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2.  (SBU)  Representatives of approximately 10 of the 
Turkish companies supplying oil to SOMO told Economic 
Counselor and Istanbul Pol/Econ Chief November 18 that 
they were physically able to increase their supply of 
refined oil products to Iraq by 50%.  Both their trucking 
fleets and Turkish port capacity were sufficient to 
support such an increase, they claimed.  However, they 
would be unable to maintain their current level -- much 
less increase the flow -- if SOMO does not regularize its 
payments to the supplier companies. 
 
3.  (SBU)  The companies said that as of November 18, the 
total amount receivable from SOMO was $708 million.  Of 
this, $438 million was more than 45 days overdue.  The 
companies deeply appreciated the efforts of Embassies 
Baghdad and Ankara in obtaining the recent $400 million 
payment, but said that, as small companies with shallow 
pockets, they could not continue supplying SOMO under 
such conditions.  With banks unwilling to take the risk 
of non-payment by SOMO, the companies need the financial 
reflows from SOMO payments in order to purchase new 
supplies on the international market.  Without the 
cycling of cash, they simply cannot continue working. 
 
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UNCOMMUNICATIVE, HIGH-HANDED SOMO AGGRAVATES SITUATION 
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4.  (SBU)  The company reps complained bitterly about the 
difficulty they have in communicating with SOMO.  SOMO 
officials, they said, respond neither to written letters 
nor to requests for meetings in Iraq.  When there is a 
meeting, the discussion never moves beyond pleasantries 
to the details of contracts and payments.  Furthermore, 
SOMO acts in a high-handed manner, unilaterally canceling 
contracts, deducting amounts from payments due for 
unclear reasons, and using threat of non-payment to 
extract concessions from the companies.  The companies 
gave SOMO the benefit of the doubt, noting that was not 
traditionally an importing company.  They also understood 
that the overall Iraqi budgetary situation is extremely 
tight.  But, they observed that SOMO, with the help of 
its contractor Sabro, was able to track every load of 
product entering Iraq -- why wasn't it able to keep track 
of its accounting, they asked rhetorically. 
 
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A SPECIAL FINANCING FACILITY 
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5.  (SBU)  As they have before, the companies suggested 
that the United States assist in the creation of a 
special financial facility or fund that could insure the 
companies against the risk of non-payment by SOMO.  This 
would give banks confidence to provide finance.  They 
said the companies would be prepared to make 
contributions into such a fund based on the amount of 
product they ship.  The companies also felt that a USG 
guarantee would be necessary.  In addition, the companies 
seek to have SOMO pay interest on late payments, which 
they say is not currently the case. 
 
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COMMENT:  POSSIBLE U.S.-ORGANIZED CONFAB? 
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6.  (SBU)  The company reps said they would not be in 
their business if they were not risk-takers, but that 
they could not go on without the cash they need to 
operate.  International oil markets are tough and 
unforgiving, they said.  The companies have a genuine 
self interest in supplying more product and seem ready to 
do so.  (The capacity of the border crossing is another 
subject, see septel.)  The proposal for a special 
financing facility may or may not be realistic, but it 
seems that without some kind of creative financial 
remedy, the companies will not be able to continue 
meeting Iraq's critical oil needs.  Short of such a 
facility, one thing we might be able to help address is 
improving lines of communication between the companies 
and SOMO.  The companies suggested, for example, that 
they would welcome a meeting with SOMO, arranged with 
U.S. help to ensure that the issues are actually dealt 
with, either inside or outside of Iraq. 
MCELDOWNEY