US embassy cable - 03ANKARA1448

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 001448 
 
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: 03/06/2013 
TAGS: ENRG, ECON, EPET, AJ, GG, KZ, TU 
SUBJECT: BTC, SHAH DENIZ, TURKEY-GREECE INTERCONNECT:  ON 
TRACK, BUT CHALLENGES REMAIN 
 
REF: A) ATHENS 638 B) ANKARA 753 C) ANKARA 528 
 
 
Classified by EconCouns Scot Marciel, Reason 1.5 (b,d) 
 
 
1. (C) Summary:  BP and BOTAS General Manager Bildaci are 
still concerned that BOTAS does not have sufficient authority 
to meet its obligations under the BTC turnkey contract.  BP 
has sent a letter to Energy Minister Guler requesting his 
personal intervention on this issue; Bildaci is raising it 
directly with Guler and Foreign Minister Yakis March 6.  TPAO 
is still waiting for a response from the World Bank on 
applicability of the negative pledge clause; officials may 
raise this issue with CBED Amb. Mann during his March 12 
visit to Ankara.  Bildaci expects BOTAS and DEPA to sign the 
Turkey-Greece Interconnector sales purchase agreement in 
March, prior to which he will seek Amb. Mann's help in 
increasing the volumes to which DEPA commits.  End summary. 
 
 
 
 
Baku-Tbilisi-Ceyhan Oil Pipeline 
-------------------------------- 
 
 
2. (C) Although BTC construction in Turkey is on schedule and 
on budget, there is still concern that BOTAS does not have 
sufficient authority to make and implement key operational 
decisions, which could ultimately slow construction and lead 
to cost overruns (ref b).  BP Associate President Woodward 
told us he raised this issue with Energy Minister Guler 
during their February 7 meeting, emphasizing that BOTAS must 
have sufficient authority to carry outs its responsibilities 
under the BTC turnkey contract.  (Note, however, that 
Woodward also told us that Turkey was in "very good shape" on 
the technical side of BTC.)  BP then followed up with a 
letter from BTC CEO Townshend to the Minister specifically 
requesting that Guler give the BOTAS General Manager the 
authority to enter into and manage contracts under USD 10 
million, and that he instruct the BOTAS Board of Directors 
that BTC funds should be managed like those of a private 
venture. 
 
 
3. (C) A BP executive told econoff that GM Bildaci, at some 
personal risk, was doing his best to meet BOTAS's obligations 
under the contract, but was obstructed by other government 
agencies at every turn.  For example, the Treasury had 
recently requested an investigation into the BOTAS BTC 
Directorate's budget based on a reported increase in 
management costs of the project.  The BP exec said this 
investigation was laughable, since BOTAS is installing the 
BTC pipe in Turkey at a cost far below the world average. 
For example, he said, the average cost of installed pipe in 
Georgia was USD 46/meter, in Azerbaijan USD 27/meter, and in 
Turkey about USD 14/meter.  Instead of taking up precious 
time with a useless investigation, the exec argued, Treasury 
should be commending BOTAS on its success in shrewdly 
negotiating the BTC sub-contracts and in keeping management 
costs as low as they are. 
 
 
4. (C) BOTAS General Manager Bildaci shares BP's frustration. 
 He told econoff March 5 that Minister Guler repeatedly 
claimed to "support" BOTAS; however, Bildaci said, he needed 
freedom more than support.  In order to manage an 
international, USD 1.4 billion contract on a strict deadline 
and budget, he could not apply to 5 different government 
agencies for approval every time he wanted to hire new 
personnel, conduct a feasibility study, or pay for 
consultants.  Bildaci said he was meeting with the Energy 
Minister and Foreign Minister on March 6 to discuss the BP 
letter.  He would argue at that meeting that BOTAS should be 
removed from the decree that oversees state entities. 
Otherwise, it would be very difficult to meet the 
requirements of the BTC turnkey contract. 
 
 
Shah Deniz Gas Pipeline/TPAO Financing 
-------------------------------------- 
 
 
5. (SBU) Ministry of Energy and BOTAS officials are pleased 
about the recent sanction of Shah Deniz, but are seeking 
details about plans for a sanction ceremony in Baku in March 
or April, claiming that they have no definitive information 
regarding an event.  The MENR Pipelines Department Head had 
not been informed that President Sezer had been invited to 
Baku, although this may be due to a lack of internal 
coordination. 
 
 
6. (SBU) The Turkish Petroleum Agency (TPAO) continues to 
assess its financing options for Shah Deniz and its other 
Caspian projects.  TPAO still has not received a definitive 
response from the World Bank regarding applicability of the 
negative pledge clause to TPAO, although TPAO officials told 
econoff there have been "indications" that the response will 
be negative.  GOT officials may raise the negative pledge 
clause issue with CBED Amb. Mann during his March 12 visit to 
Ankara. 
 
 
Turkey-Greece Interconnector 
---------------------------- 
 
 
7. (C) BOTAS General Manager Bildaci told econoff that he had 
accompanied Minister Guler to Athens for the signing of the 
intergovernmental agreement for the Interconnector 
Turkey-Greece, or "ITG" (ref a).  Like DEPA officials (ref 
a), Bildaci expects that DEPA and BOTAS will sign the gas 
sales purchase agreement (SPA) in March.  Bildaci noted that 
DEPA wanted to modify 12 articles in the draft SPA, but said 
the changes should not be deal breakers.  Now that Shah Deniz 
had been sanctioned, Bildaci said, BOTAS had more flexibility 
on price as well. 
 
 
8. (C) Bildaci said he would be seeking CBED Ambassador 
Mann's support in encouraging DEPA to commit to taking 2-3 
bcm of gas annually through the ITG, ramping up over several 
years from the 1/2 bcm to which DEPA is currently committed 
to taking.  BOTAS had the right to re-export all the Shah 
Deniz gas it would import under that sales purchase 
agreement, so he hoped to export more of it to Greece. 
 
 
9. (C) Bildaci noted that BOTAS, DEPA, and the Italian 
company Edison had recently had good negotiations in 
Istanbul, where they had discussed Edison eventually 
importing 8 bcm annually from Turkey through Greece.  The 
next step, he said, was to conduct a feasibility study of a 
Greece-Italy line. 
PEARSON