Cablegate: Turkish Officials Complain Rising Trucking Costs

Published: Wed 25 Feb 2004 08:49 AM
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A
REF: A. 03 ANKARA 7444
B. 03 ANKARA 7452
C. HQ CPA 0583
D. HQ CPA 0606
Sensitive but Unclassified -- not for internet distribution.
1. (SBU) SUMMARY: Turkish officials at the Trade
Undersecretariat and Turkish Petroleum International (TPIC)
warned that truck transport of fuel to Iraq under the
contract with SOMO may be suspended due to higher fees paid
to Turkish truckers. TPIC's contract called for fuel
deliveries of 90,000 tons per month. Delta Petroleum, SOMO's
other major supplier from Turkey, said it had halted its
deliveries since December, and assumed that KBR must be
supplying enough fuel to meet Iraq's domestic demand. TPIC
reported that a small amount of fuel is moving by rail via
Syria, but this option remains very limited due to the poor
condition of Iraq's rail system. The Trade official said
Turkish authorities have tried to improve processing at the
Habur border crossing, but said the government considers the
daily maximum capacity at 3,200 vehicles, well below the
government's commitment in the December talks to increase the
level to 3,700. End Summary.
2. (U) Econoff spoke with Sevket Ilgac, Deputy Director
General, Foreign Trade Secretariat, Osman Turan, Vice
President, Turkish Petroleum International (TPIC) and Mustafa
Asur, President of Delta Petroleum, about fuel deliveries
from Turkey to Iraq and the rail option via Syria. Turan
explained that following talks in December 2003 hosted by
Trade Minister Tuzmen (ref a) TPIC and SOMO agreed to begin
deliveries of kerosene within two weeks, followed by
deliveries of gasoil and gasoline. The agreement called for
bartering refined products from Turkey for fuel oil from
Iraq. According to Turan, the goal was for monthly
deliveries of 90,000 tons -- 30,000 tons each of kerosene,
gasoil and gasoline. By the end of December, TPIC began
significant deliveries of kerosene, reaching a total of
90,000 tons by early February. Turan clarified that the deal
with SOMO was on a commercial basis and was not under the
Border Trade Agreement, signed with the Hussein regime, under
which TPIC and other Turkish companies delivered goods to
Iraq in exchange for petroleum.
TPIC Warns of Suspension
3. (SBU) However, the barter deal lasted only a few weeks
because of price fluctuations and the unexpected cost of
transporting Iraqi fuel oil. Turan explained that TPIC
originally planned to use the same tanker trucks that
delivered light products (kerosene, gasoline) to Iraq to
transport heavy fuel oil to Turkey but learned that the cost
of cleaning each tanker was $500 per trip. In January, TPIC
and SOMO agreed to continue to make deliveries on a cash
4. (SBU) The change from cash to barter did not solve TPIC's
problem. Turan said TPIC will be forced to suspend all truck
deliveries on March 30 because of rising transport costs.
Turan and Ilgac said that the deal KBR's contractors reached
with truckers to end the December truckers' strike (ref b) --
raising the fee from USD 45 to USD 70 per ton -- forced TPIC
and Delta to raise their payments, too. Turan said the
higher fees put TPIC in the red, which will force the company
to stop shipments March 30, after completing delivery of
30,000 tons waiting in the queue.
5. (SBU) TPIC is talking with SOMO, seeking to renegotiate
the terms of the contract. Turan emphasized that TPIC is
ready to proceed and does not need to make money on the deal;
what the company cannot do, however, is continue to deliver
fuel to Iraq at a loss. Ilgac told us that Turkish officials
expected to meet their Iraq Transportation and Oil Ministry
officials 18-20 February to discuss road transport issues and
will raise the problems of rising trucker fees. (Note: ref
d indicates that a date for the Turkey-Iraq talks has not
been agreed and may not be possible until March.)
6. (SBU) Delta Petroleum, which had been delivering fuel to
SOMO since the summer of 2003, stopped deliveries in December
because it, too, was losing money. Delta continues to send
trucks to Iraq, but only to bring back fuel oil as part of
the barter agreement for fuel sent to SOMO in 2003. Delta
President Asur said he has tried several times to renegotiate
a deal with SOMO, but so far they have shown no interest. He
assumed that the U.S. contractor KBR was supplying enough
fuel to Iraq to satisfy domestic demand. (Note: In addition
to their soon dormant contracts with SOMO, both TPIC and
Delta continue to sell fuel to KBR subcontractors.)
Rail Through Syria
7. (SBU) The remaining option for TPIC at present is
transport by rail via Syria, although this route has very
limited capacity. In late December, talks among railroad
officials from Syria, Iraq and Turkey led to agreement to
reduce fees for rail transport: Iraq reduced its fees by 60
percent; Syria by 25 percent. Ilgac said the Syrian fees are
still very high, but he expected the Syrian government to
reduce the fees further. Currently, TPIC is able to send
only one train per week, carrying about 1,000 tons of
kerosene. Turan said TPIC would like to increase rail
deliveries to 1,000 or even 3,000 tons per day.
8. (SBU) Turan and Ilgac said the biggest problem is on the
Iraqi side. Iraqi officials told Turan that basic
improvements would cost about $28 million. Ilgac said Iraq
does not have enough working locomotives, has not come up
with any of the 200 tanker cars it said it would make
available for fuel deliveries, does not have adequate repair
and maintenance facilities, and the condition of the tracks
in Iraq is quite poor. Turkey has offered to help Syria
finance improvements and lend Iraq up to $20 million of
railroad equipment in return for bartered oil and refined
products, he added.
Habur Gate
9. (SBU) Ilgac said that the government has taken important
steps to improve the processing at the Habur Gate border with
Iraq: Customs had stationed additional personnel at Habur,
Minister Tuzmen had personally intervened with other GOT
agencies to increase the flow, and the project to modernize
the facility would begin soon, although he did not know the
exact date. Ilgac said these measures have increased the
traffic to about 3,000 vehicles per day, but said the
government now considers the maximum capacity at the gate is
about 3,200. We asked whether this indicated that Turkey was
no longer committed to increasing the flow to 3,700, as
agreed in December. Ilgac responded that it was not clear
how to increase the levels much further. In a bit of wishful
thinking, Ilgac said he hoped the bottleneck at Habur will
not be a problem much longer because of the construction of a
second border crossing at Ovakoy (which will take a year to
complete), increased deliveries by rail and increasing
production from Iraqi refineries. Comment: Daily tracking
reports from Habur indicate that despite more personnel there
continue to be significant periods every day when little or
no processing occurs. And CPA Ambassador Jones noted (ref c)
the Habur Gate facility was only being used to half its
10. (U) Baghdad Minimize considered.
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