INDEPENDENT NEWS

Cablegate: Turkish Energy Officials On Liberalization, Iran,

Published: Mon 16 Aug 2004 04:03 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 ANKARA 004601
SIPDIS
SENSITIVE
STATE ALSO FOR EB/CBED AND EUR/SE
E.O. 12958: N/A
TAGS: ENRG EPET ETRD IR TU
SUBJECT: TURKISH ENERGY OFFICIALS ON LIBERALIZATION, IRAN,
AND INVESTMENT ISSUES
REF: ANKARA 4443
This cable is sensitive but unclassified. Please handle
accordingly.
1. (SBU) SUMMARY: Turkey's BOTAS (Petroleum Pipeline
Corporation) Director Mehmet Bilgic expressed confidence in
Turkey and BOTAS' growing role as an energy transit country
for oil and gas, citing that the Baku-Tbilisi-Ceyan oil
pipeline and Shah Deniz gas pipeline (tendering process) were
on schedule. He lamented the continued problems with the
pipeline from Northern Iraq, complaining about the
significant costs incurred by BOTAS to maintain the often
unused line. Bilgic expressed frustration that BOTAS'
repeated offers to provide help in Iraq, and specifically in
maintaining the Northern Iraq pipeline, had not been taken.
While the BOTAS Director expressed support for eventual
privatization of BOTAS, he strongly criticized requirements
under the Natural Gas Law for transferring 80 percent of its
purchase contracts to the private sector in four years. He
emphasized that BOTAS' contracting parties did not want to
reveal terms or have a private entity substituted for BOTAS.
Finally, Bilgic expressed respect for U.S. policy on Iran and
Turkey's prioritization of transit of gas from the Caspian;
however, he noted that long-term Turkey could not stand in
the way of demand from Europe and supply from Iran. The
Deputy U/S at the Energy Ministry provided pessimistic views
on resolving Build-Operate-Transfer electric projects and
provided views on Bosphorus Bypass possibilities. END
SUMMARY.
BOTAS - Privatize shares not purchase contracts?
--------------------------------------------- ---
2. (SBU) In a August 9 meeting with Econoff and
EconSpecialist, Turkey's BOTAS (Petroleum Pipeline
Corporation) Director General Mehmet Bilgic expressed
confidence in the strength of his company, while noting the
challenges of developing a robust domestic network to satisfy
natural gas "take or pay" contracts (4000 km under
construction). (Note: BOTAS is Turkey's state pipeline
company, handling both oil and natural gas transit. End
Note.) According to Bilgic, Turkey had been successful in
revising its gas purchase price with Russia and would
continue discussions with Iran and Algeria. He noted that
the Baku-Tbilisi-Ceyhan (BTC) oil pipeline was on-track,
including the Turkish side. The Director said that Shah
Deniz pipeline contract tendering was underway and expected
formal ground-breaking later this year for end of 2006
completion. Bilgic lamented the on-going problems and
sabotage affecting the oil pipeline from Northern Iraq, and
complained about the costs incurred by BOTAS to maintain its
portion of the pipeline given infrequent flows. The Director
reminded Econoff that BOTAS' repeated offers to provide help
in Northern Iraq had not been taken up.
3. (SBU) While expressing support for privatization of
BOTAS' ownership, and claiming the current government
supported this, the BOTAS Director was extremely critical of
the 2001 Natural Gas Law (part of intended broad reform and
dismantling of government monopolies) which mandated transfer
of 80 percent of BOTAS' import purchase contracts by 2009.
He flatly rejected the law and said that BOTAS would not be
able to accomplish the mandate. Warming to the topic, Bilgic
said the law was a flawed reaction to the State's past
mishandling of contracts, and the law's supporters wrongly
presumed that this would create enhanced competition.
Moreover, he stressed that contracting parties (Russia and
others) did not want to reveal contract terms and would not
agree to have a private entity substituted for BOTAS (and the
implicit state guarantee). (Embassy has heard similar
complaints before from BOTAS.)
4. (SBU) Bilgic stated that BOTAS would announce a tender
for some of its contracts in ten days, so that the Energy
Market Regulatory Authority (EMRA) and others could see that
BOTAS was making a good faith effort, but repeated that
tendering of contracts was not achievable. EMRA announced
the gas purchase contract tendering process in the press on
August 12, after threatening to fine BOTAS for being
delinquent in achieving contract tendering to date.
According to the press account, TUSIAD (Turkish
Industrialists and Businessmen's Association) convinced the
PM to support BOTAS' tendering of gas contracts. The BOTAS
Director emphasized that Turkey needed to continue to focus
on freeing up and diversifying access to Turkey from all
directions. He also noted that the National Assembly would
be taking up a draft law amendment which would "improve" the
contract purchase process (there has been debate on BOTAS'
final targeted percentage of contracts). Bilgic claimed the
obligations on BOTAS should be less ambitious; rather, there
should be guidance for BOTAS to seek to transfer purchase
contracts "as it sees fit" and provide for direct
negotiations with the seller, instead of by tendering.
Iran natural gas potential - we respect U.S. policy, but...
--------------------------------------------- --------------
5. (SBU) Broaching the topic of Iran natural gas, Bilgic
stated that while U.S. policy was important and Shah Deniz
and Caspian egress was the priority, Iranian gas was
attracting great interest from Europe. He cited the number
of European companies already doing business in Iran. The
BOTAS Director said that if Turkey "had the capacity and
market, it could not continue to say no to Iran". He cited
the potential Nabucco consortium project for piping gas to
Austria, noting that ABN Amro had just announced its advisory
role. Bilgic claimed that this and other projects would
create demand for gas transiting Turkey which would exceed
Shah Deniz supply. Bilgic spoke positively of the
Turkey-Greece natural gas agreement signed late last year,
noting that Turkey had laid 220 km of pipeline on its side.
More on Bosphorus Bypass
-----------------------
6. (SBU) In a separate meeting August 10 with Econoff and
EconSpecialist, Energy Ministry Deputy U/S Selahattin Cimen
stated that the GOT clearly supported Bosporus bypass
projects (recognizing that BTC is effectively in hand).
Similar to comments from other GOT officials in reftel, he
emphasized that these projects must be private and must
guarantee transfer of certain pipeline volumes to evidence
feasibility and allow the GOT to favor those providing for
the largest volume of oil. Cimen recognized that there had
been lamentable delays, and he asserted that the GOT would
facilitate issuance of permits. He suggested that
environmental studies and now unnecessary concern about
waiting for BTC to reach close to completion had delayed
permitting until now. Comment: Cimen seemed to still
articulate an excessive role for the GOT in identifying the
competitive projects based on the throughput guarantees they
would provide. End Comment.
Threats on BOTs?
----------------
7. (SBU) Cimen stated that the Turkish energy sector was
undergoing significant transition to a freeer energy market,
but lamented that some projects "contradicted this market
model" and were not economic for Turkey. While expressing
the importance of assuring a welcoming and transparent
environment for foreign investment, he delivered an only
slightly veiled threat on the long-standing disputes with
Build-Operate-Transfer (BOT) projects (two with American
involvement- Enron Trakya and Edison Mission) over contracted
electricity pricing and government purchase contracts (or
potential government buy-out prices). Pending resolution of
these disuputes, the GOT has not delivered required licenses.
Cimen accused these companies of serious economic and
"ethical" misconduct; moreover, he suggested that if these
companies did not make a "gesture" and accept lower prices,
the GOT would have to take legal action against their
"misconduct"! Econoff responded by emphasizing the
importance of contract sanctity in assuring an attractive
environment for foreign investment. Cimen stated that the
GOT would insure that all its actions had a legal foundation.
EDELMAN
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