BTC, SHAH DENIZ, TURKEY-GREECE INTERCONNECT: ON

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 001448

SIPDIS


STATE FOR E, EB/CBED, EB/ESC, EUR/SE
STATE PASS NSC FOR QUANRUD AND BRYZA
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO
USDOE FOR PUMPHREY/ROSSI


E.O. 12958: DECL: 03/06/2013
TAGS: ENRG ECON EPET AJ GG KZ TU
SUBJECT: BTC, SHAH DENIZ, TURKEY-GREECE INTERCONNECT: ON
TRACK, BUT CHALLENGES REMAIN

REF: A) ATHENS 638 B) ANKARA 753 C) ANKARA 528


Classified by EconCouns Scot Marciel, Reason 1.5 (b,d)



1. (C) Summary: BP and BOTAS General Manager Bildaci are
still concerned that BOTAS does not have sufficient authority
to meet its obligations under the BTC turnkey contract. BP
has sent a letter to Energy Minister Guler requesting his
personal intervention on this issue; Bildaci is raising it
directly with Guler and Foreign Minister Yakis March 6. TPAO
is still waiting for a response from the World Bank on
applicability of the negative pledge clause; officials may
raise this issue with CBED Amb. Mann during his March 12
visit to Ankara. Bildaci expects BOTAS and DEPA to sign the
Turkey-Greece Interconnector sales purchase agreement in
March, prior to which he will seek Amb. Mann's help in
increasing the volumes to which DEPA commits. End summary.




Baku-Tbilisi-Ceyhan Oil Pipeline
--------------



2. (C) Although BTC construction in Turkey is on schedule and
on budget, there is still concern that BOTAS does not have
sufficient authority to make and implement key operational
decisions, which could ultimately slow construction and lead
to cost overruns (ref b). BP Associate President Woodward
told us he raised this issue with Energy Minister Guler
during their February 7 meeting, emphasizing that BOTAS must
have sufficient authority to carry outs its responsibilities
under the BTC turnkey contract. (Note, however, that
Woodward also told us that Turkey was in "very good shape" on
the technical side of BTC.) BP then followed up with a
letter from BTC CEO Townshend to the Minister specifically
requesting that Guler give the BOTAS General Manager the
authority to enter into and manage contracts under USD 10
million, and that he instruct the BOTAS Board of Directors
that BTC funds should be managed like those of a private
venture.



3. (C) A BP executive told econoff that GM Bildaci, at some
personal risk, was doing his best to meet BOTAS's obligations
under the contract, but was obstructed by other government
agencies at every turn. For example, the Treasury had
recently requested an investigation into the BOTAS BTC
Directorate's budget based on a reported increase in
management costs of the project. The BP exec said this
investigation was laughable, since BOTAS is installing the
BTC pipe in Turkey at a cost far below the world average.
For example, he said, the average cost of installed pipe in
Georgia was USD 46/meter, in Azerbaijan USD 27/meter, and in
Turkey about USD 14/meter. Instead of taking up precious
time with a useless investigation, the exec argued, Treasury
should be commending BOTAS on its success in shrewdly
negotiating the BTC sub-contracts and in keeping management
costs as low as they are.



4. (C) BOTAS General Manager Bildaci shares BP's frustration.
He told econoff March 5 that Minister Guler repeatedly
claimed to "support" BOTAS; however, Bildaci said, he needed
freedom more than support. In order to manage an
international, USD 1.4 billion contract on a strict deadline
and budget, he could not apply to 5 different government
agencies for approval every time he wanted to hire new
personnel, conduct a feasibility study, or pay for
consultants. Bildaci said he was meeting with the Energy
Minister and Foreign Minister on March 6 to discuss the BP
letter. He would argue at that meeting that BOTAS should be
removed from the decree that oversees state entities.
Otherwise, it would be very difficult to meet the
requirements of the BTC turnkey contract.


Shah Deniz Gas Pipeline/TPAO Financing
--------------



5. (SBU) Ministry of Energy and BOTAS officials are pleased
about the recent sanction of Shah Deniz, but are seeking
details about plans for a sanction ceremony in Baku in March
or April, claiming that they have no definitive information
regarding an event. The MENR Pipelines Department Head had
not been informed that President Sezer had been invited to
Baku, although this may be due to a lack of internal
coordination.



6. (SBU) The Turkish Petroleum Agency (TPAO) continues to
assess its financing options for Shah Deniz and its other
Caspian projects. TPAO still has not received a definitive
response from the World Bank regarding applicability of the
negative pledge clause to TPAO, although TPAO officials told
econoff there have been "indications" that the response will
be negative. GOT officials may raise the negative pledge
clause issue with CBED Amb. Mann during his March 12 visit to
Ankara.


Turkey-Greece Interconnector
--------------



7. (C) BOTAS General Manager Bildaci told econoff that he had
accompanied Minister Guler to Athens for the signing of the
intergovernmental agreement for the Interconnector
Turkey-Greece, or "ITG" (ref a). Like DEPA officials (ref
a),Bildaci expects that DEPA and BOTAS will sign the gas
sales purchase agreement (SPA) in March. Bildaci noted that
DEPA wanted to modify 12 articles in the draft SPA, but said
the changes should not be deal breakers. Now that Shah Deniz
had been sanctioned, Bildaci said, BOTAS had more flexibility
on price as well.



8. (C) Bildaci said he would be seeking CBED Ambassador
Mann's support in encouraging DEPA to commit to taking 2-3
bcm of gas annually through the ITG, ramping up over several
years from the 1/2 bcm to which DEPA is currently committed
to taking. BOTAS had the right to re-export all the Shah
Deniz gas it would import under that sales purchase
agreement, so he hoped to export more of it to Greece.



9. (C) Bildaci noted that BOTAS, DEPA, and the Italian
company Edison had recently had good negotiations in
Istanbul, where they had discussed Edison eventually
importing 8 bcm annually from Turkey through Greece. The
next step, he said, was to conduct a feasibility study of a
Greece-Italy line.
PEARSON