ENRON'S RESPONSE TO BOT PROBLEMS

UNCLAS ANKARA 007103

SIPDIS


SENSITIVE


STATE FOR E, EB/CBED, EB/IFD, AND EUR/SE
DEPARTMENT PASS OPIC, NSC FOR BRYZA
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO
USDOE FOR CHARLES WASHINGTON
TREASURY FOR OSIA


E.O. 12958: N/A
TAGS: EINV ENRG ECON PREL TU
SUBJECT: ENRON'S RESPONSE TO BOT PROBLEMS


REF: A. ANKARA 6696

B. ANKARA 6612

C. ANKARA 6423


This cable is sensitive but unclassified, not for internet
distribution.



1. (SBU) Summary. ENRON's lawyer has forwarded a proposal
to AK Party Vice-Chair Reha Denemec in an attempt to reach a
compromise with the Ministry of Energy (MENR) over its BOT
project. ENRON continues to demand an unconditional license
and appears anxious to resolve the dispute over electricity
prices to avoid further investigations. ENRON's offer to
lower prices gradually upon reduction of gas prices by BOTAS
will put pressure on other BOT companies to do adopt a
similar approach. However, with local elections looming, the
GOT's eventual response will be overshadowed by politics.
End Summary.



2. (SBU) On November 7, ENRON's lawyer told econoff that he
presented Reha Denemec, AK Vice-Chair and close advisor to
Prime Minister Erdogan, with a proposal that should form the
basis of eventual discussions between the GOT and ENRON on
how to resolve this BOT project's problem (reftels). Instead
of launching formal negotiations with the Energy Ministry and
the Energy Market Regulatory Authority (EMRA),ENRON has
decided to raise the issue with the Prime Minister's advisor
because the MENR and EMRA continue to stall. Denemec
reportedly promised ENRON that he would intercede with the
Ministry of Energy, and ENRON is awaiting an informal
response. ENRON's proposal was faxed to EUR/SE.



3. (SBU) As reported in reftel C, ENRON wants EMRA to issue
an unconditional provisional license to the Project for
statutory minimum of 10 years, with agreed zero cost buyout
by the MENR in 2010. The provisional license would in effect
be a 6 year license. ENRON also insists that the GOT (TETAS
and the MENR) pay all currently outstanding arrears,
totalling $3.90 million as of October 31, 2003. After the
license is issued and all investigations and audits are
closed, ENRON is offering to lower electricity prices.



4. (SBU) ENRON is considering a 25 percent price reduction
(1.52 cents per kilowatt hour kWh) in the non-gas component
of the power price upon reduction in the price of natural gas
charged to the Project by BOTAS from approximately $250 per
million cubic (Mcm) meters to about $170 Mcm. The combined
price reduction will reduce the overall power price from
10.67 cents kWh to 7.64 cents kWh. ENRON would consider
further incremental price reductions with the condition that
the buyout provision be extended to 2012.



5. (SBU) ENRON fears that the problems are escalating beyond
the dispute over electricity prices. ENRON's lawyer cited a
recent GOT tax audit as an example that Ankara wants to
recover losses or generate revenue in addition to lowering
electricity prices. GOT auditors claim that ENRON owes $140
million in taxes, but ENRON's Turkish partner GAMMA disputes
this amount, saying that ENRON does not owe anything.
ENRON's lawyer complained that the tax audit was further
harassment for BOT companies.



6. (SBU) Comment. ENRON's proposal appears to be a
reasonable compromise to lower electricity prices over time;
however, with elections looming, politics is likely to
overshadow the GOT's eventual decision. ENRON also is
offering a significant discount to the GOT in return for
protection from future investigations. This could put a lot
of pressure on other BOT projects to unilaterally reduce
their prices. Additionally, some elements in Turkey would
use this to validate their claims that electricity prices
should be lowered and demand renegotiations with BOTs. End
Comment.
EDELMAN