US embassy cable - 02ANKARA9166

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 009166 
 
SIPDIS 
 
 
STATE FOR E, EB/CBED, EB/ESC, EUR/SE 
STATE PASS NSC FOR QUANRUD AND BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
USDOE FOR PUMPHREY/ROSSI 
 
 
E.O. 12958: DECL: 12/20/2012 
TAGS: ENRG, ECON, EPET, AJ, GG, KZ, TU 
SUBJECT: AMB. MANN'S VISIT TO TURKEY 
 
REF: A) ANKARA 8986 B) ATHENS 4043 C) ANKARA 6187 
 
 
Classified by Econ Couns Scot Marciel, Reason 1.5 (b,d) 
 
 
1. (C) Summary:  AK party officials, including Energy 
Minister Guler and three newly-elected parliamentarians, 
confirmed their support for the BTC and Shah Deniz projects 
to EB/CBED Ambassador Mann in his December 18-20 visit to 
Ankara.  Mann reviewed U.S. energy policy in the Caspian, 
noting that U.S.-Turkish cooperation had been key to the 
success of this policy and would be critical in the coming 
months.  Focusing on Shah Deniz in the run-up to February 
sanction, Mann suggested that the U.S. and Turkey needed to 
1) press Azerbaijan to do its part of the work as soon as 
possible; and 2) press BP to fulfill its commitments, while 
reassuring BP about the commercial conditions of the project. 
 Mann briefed the GOT on his recent meetings in Athens (ref 
b), and agreed to relay a GOT proposal on price to the 
Greeks.  BP gas executives told Mann they were still 
concerned about oversupply in the Turkish market.  Mann 
emphasized that, when assessing the economics of Shah Deniz, 
BP must take into account the effect that failure to follow 
through on the project would have on BP's other upstream 
interests in Azerbaijan, and that BP CEO Lord Browne had 
invested his personal credibility in supporting this project. 
 End summary. 
 
 
Minister Supports BTC/Shah Deniz, Mann Outlines Next Steps 
--------------------------------------------- ------------- 
 
 
2. (U) New Energy Minister Guler emphasized to Ambassador 
Mann and Ambassador Pearson in their December 19 meeting 
that, personally and as a cabinet member, he was very 
supportive of the BTC and Shah Deniz pipelines.  He assured 
us several times that he and the AK government would "do 
their part" to ensure success of these projects.  Noting that 
he appreciated the key role the U.S. had played on East-West 
energy corridor issues, Guler stressed that he looked forward 
to continued close cooperation with the U.S. 
 
 
3. (C) Mann reviewed U.S. policy in the Caspian, noting that 
the East-West Energy Corridor was important in economic, 
environmental, and energy terms, as well as strategically. 
The BTC and Shah Deniz pipelines would fundamentally shift 
the geo-strategic balance in the region, breaking the 
Caucasus' dependence on Russia for energy resources and 
energy transport.  Mann noted that U.S.-Turkish cooperation 
had been key to the success of BTC and Shah Deniz to date, 
and would be critical in the coming months. 
 
 
4. (C) On BTC, Mann emphasized that we had reached a critical 
period in the construction phase.  He urged Guler to help 
ensure that BOTAS was able to carry out its operational 
responsibilities.  On Shah Deniz, Mann stressed that there 
was much work to be done in the run-up to February 2003 
sanction.  He suggested that the U.S. and Turkey needed to 1) 
press Azerbaijan to do its part of the work as soon as 
possible; and 2) press BP to fulfill its commitments, while 
reassuring BP that the commercial conditions were 
sufficiently attractive for the company to go ahead with the 
project.  Mann noted that over the last month he had engaged 
the Azeri government and BP officials on Shah Deniz, and he 
urged Guler to do the same.  Mann suggested it would be a 
powerfully symbolic step if Minister Guler traveled to Baku 
for his first foreign visit.  Guler responded that he likely 
would be accompanying AK Party Leader Erdogan to Russia the 
following week, but he would seriously consider a separate or 
adjoining visit to Azerbaijan. 
 
 
5. (U) Guler also noted that the GOT would be engaging the 
World Bank again on the issue of TPAO financing and the 
negative pledge clause (ref c).  He said he appreciated U.S. 
engagement on the negative pledge clause in the past and 
would value our continued support with the World Bank.  Mann 
responded that he would look into this issue upon his return 
to Washington. 
 
 
GOT Request for Help on Shah Deniz, Exports to Europe 
--------------------------------------------- -------- 
 
 
6. (C) During the meeting with Energy Minister Guler, Energy 
Undersecretary Yigitguden noted that the GOT had made good 
progress on establishing a gas connection with Europe.  He 
had just returned from Brussels, where he had had a good 
meeting with the European Commissioner, who said he wanted to 
announce 2003 as the "Year of Connectors."  However, 
Yigitguden said, continued postponement of Shah Deniz 
sanction was creating problems for the GOT in its efforts 
with the Europeans.  For example, BOTAS had stopped its gas 
negotiations with Greece because of uncertainty about Shah 
Deniz.  BOTAS was unable to commit to the lower price needed 
by the Greeks without knowing whether Shah Deniz gas would be 
part of the picture.  Yigitguden suggested that BOTAS could 
propose to DEPA a multi-staged pricing structure whereby the 
average price was lower than what DEPA was paying for Russian 
gas. 
 
 
7. (C) Yigitguden requested Mann's help in 1) encouraging the 
investors to sanction Shah Deniz as soon as possible; and 2) 
supporting their efforts with the Greeks.  Mann responded 
that his meeting in Athens the previous month had been very 
positive; the Greeks were very enthusiastic about bringing 
Caspian gas into Greece (ref b).  Mann said he did not want 
to interfere in the negotiations between DEPA and BOTAS, but 
he would bring Yigitguden's proposal back to the Greeks and 
encourage them to be flexible. 
 
 
8. (C) MFA Deputy U/S for Economic Affairs Kilic also raised 
Shah Deniz with Ambassador Mann.  Kilic said that in an 
October meeting with President Aliyev in Istanbul, President 
Sezer had focused on Shah Deniz.  Sezer told Aliyev that the 
GOT believed SOCAR was impeding progress on the project, and 
was extremely displeased at the delays.  Sezer asked for -- 
and received -- Aliyev's personal intervention with SOCAR to 
ensure the success of Shah Deniz.  Ambassador Mann reiterated 
that the U.S. and Turkey needed to 1) press Azerbaijan to do 
its part of the work as soon as possible; and 2) press BP to 
fulfill its commitments, and provide the company reassurances 
about the Turkish market.  Kilic noted that the GOT believed 
-- even if Turkey only exported to Greece -- it could consume 
all of the gas for which it had contracts.  (Note: BOTAS GM 
Bildaci told econoff December 19 that, unless there was a 
significant change in other supply contracts or Turkey's gas 
consumption, it would be difficult to convince BP that Turkey 
could consume Shah Deniz gas when it came on line in 2006). 
 
 
9. (C) Mann and Kilic agreed to talk and assess next steps on 
Shah Deniz and exports to Europe after January 6, when 
Ambassador Mann would be discussing these issues with 
relevant U.S. Ambassadors at a regional Chiefs of Mission 
conference in Washington. 
 
 
AK Parliamentarians Support East-West Energy Corridor 
--------------------------------------------- -------- 
 
 
10. (C) Over lunch December 19 with newly-elected AK Party 
Parliamentarians Reha Denemec, Husnu Ordu, and Afif 
Demirkiran, Mann reiterated U.S. policy in the Caspian and 
again urged continued U.S.-Turkish cooperation.  All three 
parliamentarians were engaged, supportive, and well-informed. 
 Demirkiran noted that he did not anticipate any change in 
GOT policy on either BTC or Shah Deniz. 
 
 
BP Still has Commercial Concerns on Shah Deniz 
--------------------------------------------- - 
 
 
11. (C) Alistair Ferguson, Business Unit Leader for the 
Middle East and Mediterranean for BP Gas and Power, reviewed 
for Ambassador Mann on December 18 his unit's commercial view 
of Shah Deniz, including their continued concerns about 
oversupply in the Turkish market (ref a).  Ferguson said he 
believed the GOT had the political desire to follow through 
on Shah Deniz, but there was no commercial underpinning.  He 
noted that there were several steps the GOT could take to 
help reassure BP that Turkey would take Shah Deniz gas at the 
take-or-pay level; for example, establishment of an 
entry/exit hybrid transit tariff and some type of political 
protocol, whereby Turkish, Georgian, and Azeri leaders 
reaffirmed their commitment to the project. 
 
 
12. (C) Ambassador Mann responded that Turkish officials had 
stressed to him that they were managing the gas market issues 
in Turkey.  Mann emphasized that when BP was assessing the 
economics of the Shah Deniz project, it must take into 
account two key issues:  First, the effect that failure to 
follow through on Shah Deniz would have on BP's other 
upstream interests in Azerbaijan.  Mann noted that Shah Deniz 
and BTC were inextricably linked in President Aliyev's mind. 
Second, BP must take into account that BP CEO Lord Browne had 
invested his personal credibility in supporting this project. 
 
 
13. (U) Ambassador Mann did not have an opportunity to clear 
this cable. 
PEARSON