US embassy cable - 03ANKARA3190

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 003190 
 
SIPDIS 
 
 
STATE FOR E, EB/CBED, EB/ESC, NEA/NGA, IO, EUR/SE 
NSC FOR QUANRUD AND BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
USDOE FOR PUMPHREY/ROSSI 
 
 
E.O. 12958: DECL: 05/13/2013 
TAGS: ENRG, ECON, EPET, ETTC, GG, TU, IZ 
SUBJECT: AMBASSADOR DISCUSSES PIPELINES, BOT PROJECTS WITH 
ENERGY MINISTER 
 
REF: A) ANKARA 2953 B) ANKARA 3036 C) 2997 (BTC) 
 
 
Classified by Ambassador Robert Pearson, Reason 1.5 (b,d) 
 
 
1. (C) Summary.  Energy Minister Guler reiterated to 
Ambassador May 13 his personal commitment to completing BTC 
construction on time in Turkey, and thanked Ambassador for 
his reassurance that U.S. support for BTC had not decreased 
with the change in Iraq.  Ambassador requested GOT support 
for the sanctions lift resolution, noting that passage of the 
resolution would allow the oil from the Kirkuk-Yumurtalik 
pipeline to be sold again.  Ambassador asked for the 
Minister's help in resolving the dispute with U.S. BOT power 
plant investors Doga and Trakya, emphasizing the importance 
of a quick resolution to the U.S., particularly to OPIC and 
ExIm, which had roughly USD 500 million invested in these 
projects.  End Summary. 
 
 
Baku-Tbilisi-Ceyhan (BTC) Pipeline 
---------------------------------- 
 
 
2. (SBU) Ambassador began his May 13 meeting with Energy 
Minister Guler by congratulating him on resolving the 
outstanding management issues relating to construction of the 
BTC pipeline in Turkey (ref C).  Guler emphasized that he was 
personally following the project, and would ensure that the 
pipeline was completed on time.  Ambassador also reiterated 
continued U.S. support for BTC, noting that rumors that our 
support had decreased with recent changes in Iraq and that 
the U.S. was promoting a Kirkuk-Haifa pipeline were 
unfounded.  Guler said he was happy to hear this directly 
from the Ambassador; he did not believe U.S. support had 
changed, but now he could more authoritatively answer 
reporters, questions on this issue. 
 
 
Kirkuk-Yumurtalik and Sanctions 
------------------------------- 
 
 
3. (C) Turning to the status on the Kirkuk-Yumurtalik 
pipeline, which the GOT has raised with us previously (ref 
B), Ambassador noted that the northern oil fields and the 
pipeline were in good shape.  He said, the U.S. -- like 
Turkey -- wanted to get the oil flowing again, but first U.N. 
sanctions must be lifted.  Ambassador requested GOT support 
for the sanctions lift resolution, the passage of which would 
allow oil from the Kirkuk-Yumurtalik pipeline to be sold 
again.  Guler said he would pass the request to the GOT 
leadership, adding that quick resumption of the oil flow from 
Iraq would be a "nice gesture" by the U.S. after our recent 
bilateral problems. 
 
 
BOT Projects 
------------ 
 
 
4. (C) Ambassador raised the current dispute involving the 
U.S. build-operate-transfer (BOT) power plant investors Doga 
Energi (Edison Mission) and Trakya Elektrik (Enron) (ref A). 
He stated that the U.S. companies felt they were being forced 
to make unilateral changes to their contracts, adding that 
this atmosphere was not conducive to successful negotiations. 
 Ambassador noted that the U.S. government agencies OPIC and 
ExIm Bank had invested roughly USD 500 million in these two 
projects, and thus the U.S. had a strong interest in seeing 
the current dispute resolved as soon as possible.  He pointed 
out that the GOT knew from the earlier arrearages dispute 
involving these same companies that OPIC would aggressively 
defend its investment.  The U.S. also had an interest in the 
continued, long-term participation of U.S. companies in 
Turkey's energy sector.  Ambassador asked for the Minister's 
help in resolving this issue during the May 14-16 visit of 
OPIC, ExIm and the other export credit agencies. 
 
 
5. (C) Minister Guler responded that, although he believed 
there were "irregularities" in these BOT contracts, he was 
not pursuing a prejudiced approach toward the companies and 
he was surprised they felt this way.  He said he believed the 
irregularities were likely the fault of the Turkish partners, 
not the foreign investors.  Guler pointed out that Turkey 
simply could not afford to purchase electricity at 11-12 
cents per kilowatt hour from the BOTs when the world average 
was closer to 4-5 cents per kilowatt hour.  With electricity 
prices 3 times the world average, there was no way Turkey 
could attract foreign investment, nor could its firms' 
products compete internationally. 
 
 
6. (C) Guler said he believed that a contract was a contract, 
which was why he had approached the companies to ask for a 
"gesture" on their part, but the companies had refused.  He 
said he had not gone to the press as some politicians might 
have; rather, he had asked the companies several times in 
private meetings if they would be open to renegotiating the 
contracts.  Since the companies had refused to renegotiate, 
he was now looking at the government's rights as a party to 
the contracts.  Guler said he believed there were four 
possible outcomes:  1) the contracts continue to be 
implemented as is; 2) the contracts are canceled; 3) the GOT 
buys out the companies; and 4) the parties enter into 
international arbitration.  He said the Ministry of Energy 
was reviewing all four options for each of the BOTs; they 
would not be treated as a group.  Guler told the Ambassador 
he would try to assure the companies that he was pursing a 
positive approach, that he was only considering solutions 
allowed by the contracts, and that he would seek a resolution 
agreeable to all parties. 
 
 
Electricity Prices and IMF Commitments 
-------------------------------------- 
 
 
7. (C) Ambassador asked how the Minister planned to reconcile 
his commitment to cut electricity prices with the GOT's 
commitment to the IMF in the recent Letter of Intent to 
increase electricity prices.  The Minister responded that the 
Ministry of Energy had recently implemented several important 
cost-saving measures, including shutting down the expensive 
mobile power plants and moving to more hydro power, and 
stopping the Blue Stream gas flow for six months as allowed 
for the in the GOT's contract with the Russians.  The GOT had 
also cancelled its contract to import electricity from 
Bulgaria because the Bulgarians had not held up their end of 
the bargain by giving priority to Turkish companies for 
certain projects.  These steps had resulted in a USD two 
million per day savings to Turkey. Guler said the Ministry of 
Energy (MENR) had argued to Treasury that these savings 
compensated for not raising electricity prices in 2003. 
Treasury technicians were now working with MENR technocrats 
to confirm their calculations. 
PEARSON