AMBASSADOR'S FAREWELL CALL ON ENERGY MINISTER GULER

UNCLAS SECTION 01 OF 02 ANKARA 004358

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STATE FOR EB/CBED, EB/ESC, EUR/SE
NSC FOR QUANRUD AND BRYZA
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO
TREASURY FOR OASIA - MILLS AND LEICHTER


E.O. 12958: N/A
TAGS: ENRG EINV PREL TU
SUBJECT: AMBASSADOR'S FAREWELL CALL ON ENERGY MINISTER GULER



1. (SBU) Summary: In his July 9 farewell call on Energy
Minister Guler, Ambassador highlighted the importance of
continued cooperation in developing the East-West Energy
Corridor and stressed that Turkey's ability to attract
foreign investment into its domestic energy market will
depend heavily on how it treats existing investors. Guler,
who emphasized his commitment to the bilateral relationship,
spoke very positively on the BTC and Shah Deniz pipelines.
He complained that his Ministry is faced with correcting the
mistakes of the past several years, including the signing of
numerous expensive energy contracts. He agreed on the need
to attract foreign investors into the domestic energy market,
and insisted that he would try to resolve the issues
surrounding the existing BOT contracts in a positive manner.
He noted that Turkey's dispute with Russia, specifically
Gazprom, over Blue Stream gas is based on a disagreement over
the pricing formula; Gazprom's CEO was to arrive in Turkey
July 10 to discuss. Guler suggested Turkey would be
interested in using Iraqi natural gas to produce electricity,
which could be transferred back to Iraq. End Summary.



2. (SBU) Ambassador began his July 9 farewell call on
Energy and Natural Resources Minister Hilmi Guler by
expressing satisfaction with the close and successful
bilateral cooperation over the past three years in developing
the East-West Energy Corridor. He reiterated the strong USG
support for the BTC and Shah Deniz pipelines, and solicited
the Minister's views on the areas on which he and the new
Ambassador might cooperate.



3. (SBU) Minister Guler responded by affirming his strong
personal commitment to the bilateral relationship, and
expressed hope the close working relationship he has enjoyed
with the Ambassador would continue. He said both the BTC and
Shah Deniz projects were on track, and that he was in regular
contact with Ambassador Mann. The Minister said the
government was working to make up for lost time on BTC
construction, and was optimistic that Greece and other EU
members were interested in buying Shah Deniz gas. Those
countries had asked to buy Iranian gas through Turkey pending
Shah Deniz's completion, but Guler -- aware of U.S. concerns
-- had declined.



4. (SBU) The Minister complained that he faced enormous
problems in correcting the mistakes of the past decade,
during which one political party (ANAP) had controlled
Turkish energy policy. During that period, the GOT had
signed a series of costly contracts, domestic and
international, that were based on misinformation,
miscalculations, or erroneous assessments of demand. Now,
the government had to try to attract foreign investment into
the domestic energy market, while correcting those past
mistakes.



5. (SBU) Guler argued that the GOT's recent seizure of
energy assets controlled by the Uzan family should send a
clear message to foreign investors that the government is
working seriously to improve the investment environment. The
GOT is also trying to streamline bureaucratic procedures
facing foreign investors. On the existing BOT projects, he
insisted that "we are not after their profits." Rather, he
said, the Ministry is trying to review the contracts so that,
from now on, the government and the companies are "on the
same line." His goal is to solve the problems associated
with these contracts in a low-key, positive way.



6. (SBU) Ambassador welcomed the Minister's comments but
warned that, if the government failed to handle the existing
BOT contracts properly, it would be virtually impossible to
attract new foreign investment into the sector, particularly
from U.S. companies. He urged Guler to handle the issue in a
way that enhanced investor perceptions of the investment
environment. Guler agreed, but said that the Turkish partner
in one of the companies (Doga) was spreading false rumors
about the government's approach to hide its own contract
violations (involving misuse of natural gas intended for
electricity production). He invited Ambassador to send him
in writing a list of any specific problems U.S. companies are
facing (which Embassy is doing).



7. (SBU) Guler noted that the CEO of Gazprom would visit
July 10 to try to resolve a dispute over Blue Stream gas.
The Minister explained that the issue involves the price
formula. The Russians assert that the formula in the
contract is wrong -- the result of a misprint -- and are
insisting that it be changed. The change, per Guler, would
result in a price increase of $20-30 per thousand cubic
meters, against which the Russians are offering a $3-4
discount. Guler said the GOT was confident the price formula
in the contract was correct, noting that it was identical to
that used in the contract for the Russia West pipeline.









8. (SBU) The Minister expressed hope that Turkey's relations
with Iraq would develop, and -- in a surprise move --
suggested Turkey would be interested in starting a natural
gas trade with Iraq. He explained that Turkey could import
Iraqi natural gas, use it to generate electricity, and then
sell the electricity back to Iraq or to other neighboring
countries. Alternatively, Turkey might be able to turn the
natural gas into LPG for export to other markets. He
expressed an interest in forming a consortium with U.S.
companies to pursue this idea.



9. (SBU) Ambassador said he would pass on the Minister's
idea, and also took the opportunity to thank the Minister for
meeting with the U.S. company Universal Ensco, which is
seeking a contract to oversee part of the BTC pipeline's
construction. He suggested that concrete actions by the GOT
on commercial issues would do much to justify additional U.S.
investor interest.
PEARSON