BTC CO LIFTS MATERIAL BREACH CLAIM

1. (C) Summary: BTC Co has formally informed the GOT that
the government is no longer in material breach of its
obligations under the BTC agreements (reftel). BTC Co CEO
Michael Townshend told us he is satisfied that the GOT has
resolved all outstanding operational issues, a point he
reiterated with Energy Minister Guler in a joint press
conference May 7. Of course we will need to observe how the
BOTAS team manages in practice; in a project of this size new
challenges are sure to emerge. For today, however, the news
on BTC from Turkey is nothing but good. End summary.




2. (C) BTC Co Chief Executive Officer Michael Townshend told
econoff May 7 that he is "as satisfied as he could be" that
the GOT has resolved the outstanding operational issues
raised in BTC Co's April 7 "material breach" letter (reftel).
Townshend said the GOT had addressed the BOTAS management
issues by appointing the new BOTAS General Manager, Mehmet
Bilgic, and the new BTC Directorate Chief, Dogan Sirikci.
Townshend said he had known Sirikci for 10 years and was
satisfied that he could do the job. In addition, Townshend
said, Energy Minister Guler had confirmed the BOTAS Board had
given Sirikci increased management authority to allow him to
implement fully the BTC turnkey contract, including the
authority to make financial decisions up to USD 10 million in
value, organizational changes, and certain contracting
decisions.




3. (C) As BTC Co had requested, Minister Guler responded to
the material breach letter with a formal letter, dated May 7,
that outlines the above changes. Guler's letter also
addresses several other outstanding issues not included in
the material breach letter, including resolution of a dispute
over how the fuel tax will be applied to BTC Co and an
indication that the current "investigations" of the project
will be terminated (reftel). The letter also advises that
the Ministry will implement an action plan to ensure timely
gas supply to BTC's Pump Station I.




4. (C) Townshend delivered a written response to Minister
Guler's May 7 letter the same day, stating that, "In
consideration of the actions taken by the Turkish Government,
we are pleased to advise we now consider the right conditions
are in place for BOTAS to effectively manage the works to
completion and as of today are lifting our claim of material
breach."




5. (C) Minister Guler and Townshend held a joint press
conference May 7, where Townshend emphasized BP's continued
support for the Caspian region and the BTC project. He said
he was very pleased with the progress made on BOTAS
management issues, and was convinced the project would be
completed on time. Townshend also praised BOTAS, saying the
company should be proud of its success to bringing BTC to its
current development stage. (We have emailed the text of the
press release to E/CBED and EUR/SE).




6. (C) Comment: All in all, a very good day for BTC. The
GOT has responded to BTC Co's immediate "material breach"
concerns and more. The BOTAS management team is close to
Minister Guler and has sufficient authority to complete the
project. There will be more challenges, and we will need to
monitor how the team manages in practice. But, for now at
least, it seems the AK government has got it right on BTC.
End comment.
PEARSON