Cablegate: Karadeniz Stops Delivery of Electricity From

Published: Tue 2 Nov 2004 02:13 PM
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
Sensitive But Unclassified. Please Handle Accordingly.
1. (SBU) SUMMARY: According to the Turkish company Karadeniz
(KARTET), it informed the Iraq Ministry of Electricity that
as of October 26 it was no longer able to deliver electricity
from Turkey to Northern Iraq because of non-delivery of
contractual heavy fuel oil (HFO) from Iraq. According to
KARTET, the company installed 200 MW of
generation/transformer capacity at its Silopi facility, but
had received no shipments of HFO from Iraq. In good faith
efforts to advance the deal, KARTET said it purchased some
HFO and electricity from within Turkey, but was unable to
continue doing so, and blamed administrative/logistical
problems and now security problems in Iraq for the inability
of Iraq to provide the contractual HFO. End Summary.
Heavy fuel oil for electricity partial barter deal
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2. (SBU) Turkish company Karadeniz (KARTET) rep Orhan
Karadeniz explained to ECONOFF on November 1 the
circumstances which led the company to inform the Iraq
Ministry of Electricity (MOE) that it was stopping delivery
of electricity to Northern Iraq on October 26 because of
non-delivery of contracted heavy fuel oil (HFO) from the
Baiji refinery in Northern Iraq. Karadeniz said that per the
December 2003 renegotiated contract with the Iraq MOE, KARTET
was to provide 110 million kilowatt-hours per month (150 Mega
Watt average - to increase to 240 MW in 2005). For its
part, Iraq was to provide 30,000 tons of HFO per month at a
fixed price to generate the electricity to be transmitted and
to contribute to the compensation to KARTET. The partial
barter deal allowed the Iraqi MOE to at its option pay the
balance for the electricity (6.6 cents per kwh) by up to
30,000 tons of HFO at market price and/or cash. According to
Karadeniz, Iraq had delivered not a drop of HFO to date.
3. (SBU) According to Karadeniz, the Iraqi MOE had faced a
series of problems in delivering the contractual HFO. First
the main Northern Iraqi refinery at Baiji had shut down and
was then restarted. Subsequently, MOE had not been able to
work out financial/administrative arrangements with the Iraqi
State Oil Marketing Organization (SOMO). More recently,
KARTET had worked out a trilateral arrangement with MOE and
SOMO, but the security situation had become prohibitive.
According to Karadeniz, KARTET had arranged for Iraqi truck
drivers to ship the HFO to Zakho on the Iraqi side of Harbur
Gate; then Turkish truck drivers would take the shipment on
to Silopi. Karadeniz said that two "terrorist/mafia" groups
were currently stopping all truck traffic.
Good Faith Efforts to Deliver Electricity
4. (SBU) Even in light of non-delivery of Iraqi HFO,
Karadeniz said KARTET endeavored to deliver electricity in
good faith to Iraq by purchasing HFO from Turkish refineries
and/or electricity from the Turkish state electricity trading
company (TETAS). Karadeniz said that Turkish HFO was no
longer physically available from the nearby Batman refinery
and the arrangement with TETAS was very restrictive and
expensive (necessitating delivery of electricity at night
prior to the shut-down). Karadeniz said that the arrangement
with TETAS provided for the purchase of one MW from the grid
for each MW generated at Silopi. This was, however, very
restrictive if there was no generation (current situation)
and the GOT had been to date unable to be more flexible for
legal reasons. He explained that KARTET had to notify TETAS
two months in advance and then commit to a take-or-pay cap
arrangement for the amount, subject to substantial penalties
for any excess electricity taken. According to Karadeniz,
although the GOT had allowed KARTET to begin electricity
export very quickly without finalizing pricing, the company
had had to pay an excessive price to TETAS for electricity
taken off the grid for the first nine months.
5. (SBU) Karadeniz claimed that his company had complied
early with its commitment to increase and test transformer
and production capacity to 240 MW by 2005. In short, he said
his company had met all technical and contractual
requirements to provide reliable capacity at or above 200 MW.
The KARTET rep said that at this level of production, his
company could provide significant electricity as far as
Mosul. Karadeniz said his company had sought to cooperate
and be flexible and was still seeking alternative sources of
HFO, but was now aiming to rely on his plants' own
6. (SBU) In a subsequent conversation, Karadeniz said that
KARTET had been able to source a limited quantity of HFO in
Turkey to allow limited operation over the next week.
Karadeniz also said that he understood that there would be
HFO available at the Daura refinery in Baghdad and was having
his logistics people evaluate potential trucker routes based
on the security environment. He said that he would welcome
any potential help from the U.S. military.
7. (SBU) A senior official at the Turkey Ministry of Energy
said it was aware of Karadeniz, difficulties and earlier
compulsion to deliver electricity purchased from the Turkish
grid only at night. He said the GOT was working to change
the Karadeniz electricity purchase contract to provide a more
facilitative "market mechanism".
8. (SBU) COMMENT: Embassy cannot verify all the specifics,
but the Karadeniz version appears credible. Our
understanding is that the GOT in fact played a supportive
role in quickly providing special permits for the Silopi
plant to sell electricity to Iraq, but purchases from the
Turkish grid were meant to supplement, not wholly supply, the
contracted amount of electricity. Ministry of Energy
officials claim to be working to help resolve the situation,
but state that changes in legislation and/or regulation will
be required to allow significant export of electricity from
the Turkish grid.
9. (U) Baghdad Minimize Considered.
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