US embassy cable - 03ANKARA4358

UNCLAS SECTION 01 OF 02 ANKARA 004358 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR EB/CBED, EB/ESC, EUR/SE 
NSC FOR QUANRUD AND BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO 
TREASURY FOR OASIA - MILLS AND LEICHTER 
 
 
E.O. 12958: N/A 
TAGS: ENRG, EINV, PREL, TU 
SUBJECT: AMBASSADOR'S FAREWELL CALL ON ENERGY MINISTER GULER 
 
 
1.  (SBU)  Summary:  In his July 9 farewell call on Energy 
Minister Guler, Ambassador highlighted the importance of 
continued cooperation in developing the East-West Energy 
Corridor and stressed that Turkey's ability to attract 
foreign investment into its domestic energy market will 
depend heavily on how it treats existing investors.  Guler, 
who emphasized his commitment to the bilateral relationship, 
spoke very positively on the BTC and Shah Deniz pipelines. 
He complained that his Ministry is faced with correcting the 
mistakes of the past several years, including the signing of 
numerous expensive energy contracts.  He agreed on the need 
to attract foreign investors into the domestic energy market, 
and insisted that he would try to resolve the issues 
surrounding the existing BOT contracts in a positive manner. 
He noted that Turkey's dispute with Russia, specifically 
Gazprom, over Blue Stream gas is based on a disagreement over 
the pricing formula; Gazprom's CEO was to arrive in Turkey 
July 10 to discuss.  Guler suggested Turkey would be 
interested in using Iraqi natural gas to produce electricity, 
which could be transferred back to Iraq.  End Summary. 
 
 
2.  (SBU)  Ambassador began his July 9 farewell call on 
Energy and Natural Resources Minister Hilmi Guler by 
expressing satisfaction with the close and successful 
bilateral cooperation over the past three years in developing 
the East-West Energy Corridor.  He reiterated the strong USG 
support for the BTC and Shah Deniz pipelines, and solicited 
the Minister's views on the areas on which he and the new 
Ambassador might cooperate. 
 
 
3.  (SBU) Minister Guler responded by affirming his strong 
personal commitment to the bilateral relationship, and 
expressed hope the close working relationship he has enjoyed 
with the Ambassador would continue.  He said both the BTC and 
Shah Deniz projects were on track, and that he was in regular 
contact with Ambassador Mann.  The Minister said the 
government was working to make up for lost time on BTC 
construction, and was optimistic that Greece and other EU 
members were interested in buying Shah Deniz gas.  Those 
countries had asked to buy Iranian gas through Turkey pending 
Shah Deniz's completion, but Guler -- aware of U.S. concerns 
-- had declined. 
 
 
4.  (SBU) The Minister complained that he faced enormous 
problems in correcting the mistakes of the past decade, 
during which one political party (ANAP) had controlled 
Turkish energy policy.  During that period, the GOT had 
signed a series of costly contracts, domestic and 
international, that were based on misinformation, 
miscalculations, or erroneous assessments of demand.  Now, 
the government had to try to attract foreign investment into 
the domestic energy market, while correcting those past 
mistakes. 
 
 
5.  (SBU) Guler argued that the GOT's recent seizure of 
energy assets controlled by the Uzan family should send a 
clear message to foreign investors that the government is 
working seriously to improve the investment environment. The 
GOT is also trying to streamline bureaucratic procedures 
facing foreign investors.  On the existing BOT projects, he 
insisted that "we are not after their profits."  Rather, he 
said, the Ministry is trying to review the contracts so that, 
from now on, the government and the companies are "on the 
same line."  His goal is to solve the problems associated 
with these contracts in a low-key, positive way. 
 
 
6.  (SBU) Ambassador welcomed the Minister's comments but 
warned that, if the government failed to handle the existing 
BOT contracts properly, it would be virtually impossible to 
attract new foreign investment into the sector, particularly 
from U.S. companies.  He urged Guler to handle the issue in a 
way that enhanced investor perceptions of the investment 
environment.  Guler agreed, but said that the Turkish partner 
in one of the companies (Doga) was spreading false rumors 
about the government's approach to hide its own contract 
violations (involving misuse of natural gas intended for 
electricity production).  He invited Ambassador to send him 
in writing a list of any specific problems U.S. companies are 
facing (which Embassy is doing). 
 
 
7.  (SBU) Guler noted that the CEO of Gazprom would visit 
July 10 to try to resolve a dispute over Blue Stream gas. 
The Minister explained that the issue involves the price 
formula.  The Russians assert that the formula in the 
contract is wrong -- the result of a misprint -- and are 
insisting that it be changed.  The change, per Guler, would 
result in a price increase of $20-30 per thousand cubic 
meters, against which the Russians are offering a $3-4 
discount.  Guler said the GOT was confident the price formula 
in the contract was correct, noting that it was identical to 
that used in the contract for the Russia West pipeline. 
 
 
 
 
 
 
 
 
8.  (SBU) The Minister expressed hope that Turkey's relations 
with Iraq would develop, and -- in a surprise move -- 
suggested Turkey would be interested in starting a natural 
gas trade with Iraq.  He explained that Turkey could import 
Iraqi natural gas, use it to generate electricity, and then 
sell the electricity back to Iraq or to other neighboring 
countries.  Alternatively, Turkey might be able to turn the 
natural gas into LPG for export to other markets.  He 
expressed an interest in forming a consortium with U.S. 
companies to pursue this idea. 
 
 
9.  (SBU) Ambassador said he would pass on the Minister's 
idea, and also took the opportunity to thank the Minister for 
meeting with the U.S. company Universal Ensco, which is 
seeking a contract to oversee part of the BTC pipeline's 
construction.  He suggested that concrete actions by the GOT 
on commercial issues would do much to justify additional U.S. 
investor interest. 
PEARSON