US embassy cable - 03ANKARA1954

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 001954 
 
SIPDIS 
 
 
STATE ALSO FOR E, EB AND EUR/SE 
TREASURY FOR OASIA - MILLS AND LEICHTER 
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO 
NSC FOR QUANRUD AND BRYZA 
 
 
E.O. 12958: DECL: 03/25/2013 
TAGS: ENRG, EFIN, PGOV, TU 
SUBJECT: ENERGY AND THE IMF:  AN INSIGHT INTO AK ECONOMIC 
DECISION-MAKING 
 
 
REF: ANKARA 1905 
 
 
(U) Classified by EconCouns Scot Marciel.  Reason: 1.5 (b,d). 
 
 
1.  (C) Summary:  Recent debates within the government over 
energy prices and treatment of energy arrears provide 
insights into AK's economic decision-making process. 
According to a senior energy official, Finance Minister 
Unakitan and State Minister Babacan fought vigorously over 
the weekend to convince Energy Minister Guler to approve 
long-delayed electricity price increases and to withdraw a 
decree that would have allowed farmers not to pay electricity 
arrears.  Unakitan and Babacan argued that these moves were 
essential under the terms of the GOT's Letter of Intent with 
the IMF, and to enable the government to achieve its primary 
surplus targets.  Guler countered that the government had 
promised to lower energy prices and reschedule energy 
arrears, and would pay a political cost if it failed to honor 
this commitment.  As of March 25, the debate continues on 
price increases, but Guler apparently has conceded on the 
arrears issue.  End Summary. 
 
 
2.  (C) Reftel reported IMF ResRep's concerns over reports 
late last week that Energy Minister Guler had announced plans 
to lower energy prices and to reschedule substantial arrears 
owed to the state energy distribution company, TEDAS. 
ResRep worried that these moves would contravene both the 
GOT's primary surplus target and its commitment, contained in 
the draft Letter of Intent, not to offer any more tax or 
payment amnesties. 
 
 
3.  (C) On March 25, State Electricity Trading Company 
(TETTAS) Director General Hayrettin Yildirim (protect) 
briefed us on these issues.  He explained that TEDAS and 
TETTAS (which sells to TEDAS) had not been authorized to 
increase electricity prices since October 2002, despite 
steadily increasing costs.  As a result, TETTAS' financial 
situation had deteriorated to the point that last week, for 
the first time in more than a year, it was unable to make 
full payment to power generation companies.  Yildirim said he 
had written to Minister Guler and the Treasury Under 
Secretariat asking for a 7-10 percent tariff increase, the 
 
SIPDIS 
minimum needed for TETTAS to move back into the black. 
 
 
4.  (C) During a March 23 meeting at the Prime Ministry, 
Finance Minister Unakitan and State Minister for the Treasury 
Babacan had urged Energy Minister Guler to agree to the price 
increase, noting that it was essential to this year's fiscal 
targets.  Guler countered that the government had made a 
political commitment to reduce electricity prices, not raise 
them, and that in any event a price increase was not 
necessary.  He promised to provide by this weekend scenarios 
(to be developed by his personal aides, some of whom are also 
his relatives) demonstrating this point.  According to 
Yildirim, Guler also told Babacan and Unakitan that the 
existing BOT companies had agreed to reduce their prices 
sharply.  (Note:  This is not true.) 
 
 
5.  (C) The Ministers also debated the question of arrears. 
Yildirim explained that farmers who use electricity to power 
irrigation systems owed a total of TL 300 trillion (just 
under $200 million) in arrears to TEDAS.  For several years, 
the government had issued an annual decree delaying payment 
of the arrears (always just for one more year).  Last week, 
Minister Guler drafted and announced a similar decree. 
Babacan and Unakitan argued against the decree, pointing out 
that he would have a fiscal cost and would violate their 
commitment to the IMF.  Guler insisted that the government 
had made a political commitment to reschedule (i.e. defer) 
the payments, and had to honor that commitment.  He refused 
to withdraw the draft decree. 
 
 
6.  (C) Yildirim told us that Guler finally agreed on March 
24, with great reluctance, to withdraw the decree on arrears 
(though Yildirim could not confirm it had been withdrawn). 
The price increase issue remains unresolved, as Ministers 
Babacan and Unakitan await receipt of Guler's data explaining 
why the increase is not needed.  (Separately, the government 
will take 1.5 percent off of energy prices, the result of an 
earlier decision to reduce a special tax applied on 
electricity and used to fund state television and radio.) 
 
 
7.  (C) Comment:  This exchange highlights the enormous 
problems this government has agreeing to and implementing 
sound policies, not to mention its commitments to the IMF. 
Guler's views are all too common.  Babacan and Unakitan, 
neither of whom has wowed the markets (or us) with economic 
policy prowess, do at least occasionally fight the good fight 
and -- relatively speaking within AK -- have some 
understanding of the need for sound policy and working with 
the IMF. 
PEARSON