DOGA ENERGY'S RESPONSE TO BOT PROBLEMS

UNCLAS SECTION 01 OF 02 ANKARA 007180

SIPDIS


SENSITIVE


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


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

REF: A. ANKARA 7103

B. ANKARA 6696

C. ANKARA 6612

D. ANKARA 6423


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



1. (SBU) Summary. DOGA Energy sent a letter to us explaining
how it has responded to speculative reports attributed to GOT
sources about alleged corruption in the DOGA Energy BOT
Project. DOGA contends that the contracts were vetted and
approved by the relevant GOT authorities. The main source of
the allegations is the State Inspection Board's (SIB) report
to the President, which disputes the investment costs of the
projects and the pricing structure for power generation. The
documents were faxed to EUR/SE. End Summary.



2. (SBU) DOGA Energy maintains that the BOT Project, which
involves contracts for the 180 MW Esenyurt Natural Gas Power
Plant, was established following length discussions with the
Ministry of Energy, TEAS, BOTAS, SPO, and the
Undersecretariat of Treasury. The project was subsequently
review by the Danistay and approved by the Council of
Ministers.



3. (SBU) DOGA held a meeting with the State Accounting
Bureau and explained with supporting documents that the
allegations in the 2001 Report of the Supreme Council of
State Accounts (Sayistay) were untrue. In addition, all the
necessary information and documents were submitted to the
Ministry of Energy's nine-member Inspection Team. Despite
these efforts, the State Inspection Board (SIB) repeated the
same allegations in a recent Electricity Market report to the
President of the Turkish Republic and to the Parliament. The
allegations were published on the Presidential website and
also obtained by the press. DOGA argues that, although there
are no supporting documents for the allegations, the report
is making unjust accusation against its company.



4. (SBU) Like ENRON (reftels),DOGA is complaining about the
number of unnecassary audits and investigations that are
underway against the company. According to DOGA, Ministry
of Finance inspectors have conducted the required audits on
the accounts and transactions of DOGA Energy for 1998 to
2001, but the audits are now being repeated for the same
years due to the allegations in the SIB report. DOGA notes
that no irregularities or corruption will be found in the
project.



5. (SBU) DOGA asserts that the allegations set forth in the
SIB report are the result of misevaluation due to the lack of
information. Some of the allegations are listed below:


-------------- Allegation 1: The contract was signed without a precise
investment amount.
DOGA's Response: Both the implementation contract and its
annex, the feasibility report state the investment amount
clearly. The implementation contract was signed following the
approval of the Feasibility Report of the Company's
application that was submitted to the Ministry of Energy in
accordance with Law no. 3096 and the decree was published in
the Official Gazettee dated September 04, 1995 with number

18858.


-------------- Allegation 2: The Esenyurt Natural Gas Power Plant
Project has applied repetitive escalation to its investment
amount.
DOGA's Response: A high escalation ratio during the
investment period is untrue. BOT model is a financing model;
the escalation ratio that was applied to this project during
the investment period is even lower than the escalation ratio
that is widely applied at the international level.


-------------- Allegation 3: The SIB report claims that when the
productivity increased (from 120 MW to 180 MW) due to a
change in the type of power plant, the gas energy prices
should have decreased.
DOGA's Response: Gas prices were increased, which caused an
additional payment to the state natural gas monopoly BOTAS.
Moreover, neither the change (3 gas turbines instead of 2 gas
turbines and capacity increase with one steam turbine) has
increased the efficiency.



6. (SBU) Comment: GOT officials have on several occasions
suggested to us that the DOGA Energy BOT is somehow violating
its contract. Consequently, the GOT will pursue different
action with DOGA than it is with other BOT projects, such as
ENRON. Given growing negative perceptions about Turkey's
investment climate, we have warned the GOT that taking
drastic actions against DOGA would be counterproductive and
have urged officials to consider the rule of law and to treat
DOGA openly and justly. End Comment.
DEUTSCH