TURKEY: MFA SEEKS CONSENSUS OF OIL COMPANIES ON

UNCLAS SECTION 01 OF 02 ANKARA 004009

SIPDIS

SENSITIVE

USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDELFALCO
USDOC FOR ADVOCACY CENTER SAM NEWMAN

E.O. 12958: N/A
TAGS: ENRG EPET PREL TU
SUBJECT: TURKEY: MFA SEEKS CONSENSUS OF OIL COMPANIES ON
BYPASS PIPELINE

REF: A. STATE 73545


B. ISTANBUL 262

C. ANKARA 1542

D. ANKARA 2071

E. ANKARA 2721

F. ANKARA 3419

This is an action request. See para 6. Sensitive but
Unclassified

SIPDIS


1. (SBU) Summary: Turkey's MFA continues to oppose issuing
licenses now to the companies that have applied for Turkish
Straits bypass pipeline routes through Turkey. Instead, the
Ministry wants to forge a consensus among the oil companies
on "Voluntary Principles" to reduce their traffic in the
Straits and choose a bypass. The MFA will host a meeting
July 23 with interested oil companies to seek agreement on
the Voluntary Principles and has asked embassy to attend. At
the same time, a U.S. company has asked our help to get its
bypass license approved. End Summary.

BYPASS APPLICATIONS
--------------


2. (SBU) MFA DDG for Energy Hakki Akil told Econ Counselor
and Econoff July 12 that he opposed issuing licenses to the
companies seeking to build oil pipelines to bypass the
Bosphorus. Instead, Akil explained, oil companies
transporting Russian and Caspian crude via the Turkish
Straits should agree together on which bypass they want to
use. This is the first time that Akil has explicitly stated
his opposition to the application of Thrace Development
Corporation to build a bypass pipeline across the Thrace
isthmus. His remarks confirm Minister Guler's statement to
Ambassador Mann that the Energy Ministry's recommendation to
approve the license application of Thrace Development
Corporation was being blocked by the MFA. Thrace first
submitted its license application a year ago. Thrace has
filed with the Department of Commerce Advocacy Center and has
asked that the Embassy/USG arrange a meeting with senior
U.S., Turkish MFA and Thrace officials to clear the air and
state the U.S. position of support for its application. Post
also knows of one other consortia, which includes American
companies, that will likely ask for our advocacy support in
the near future.


3. (U) Drawing on guidance in ref a, econoff responded that
it is the U.S. position that market forces should determine
the optimal bypass routes. Therefore, we believe the Energy
Ministry's approach to issue a conditional license to Thrace
Development Corporation -- and other applicants -- made
sense. The conditional licenses would require the companies
to demonstrate within six months that they have financing,
throughput contracts and that they have completed
environmental impact assessments. This procedure ensures
that the companies bear the risk and demonstrates that oil
shippers will use the pipeline -- avoiding the Odesa-Brody,
to which Akil alluded.

Voluntary Principles Meeting
--------------


4. (U) Akil's approach is linked to the MFA initiative to
bring the oil shippers together to agree on Voluntary
Principles that would commit the companies to reduce their
traffic through the Turkish Straits. Akil said the UK
government has expressed its support for the proposal and
that a meeting with oil companies is scheduled for July 23 in
Istanbul to try to reach agreement on the Voluntary
Principles. A Chevron-Texaco official who will attend the
July 23 meeting told us that he thinks the Voluntary
Principles are a good idea; however, he was skeptical that
the Russian companies would join a consensus anytime soon.
Subsequent to our July 12 meeting, Akil invited an embassy
representative to attend, "to explain U.S. support for the
Voluntary Principles."


5. (SBU) We are concerned that the bypass projects will be
held hostage to Akil's desire to achieve a comprehensive
agreement (the Voluntary Principles) that would commit the
oil shippers to reduce use of the Straits and endorse
specific bypass routes. We have reported the concern of
Western oil companies about the Voluntary Principles and
their skepticism that Russian oil companies will agree to
sign on to the deal or honor their commitments. Less than
100 percent participation would provide a large bonus for
companies that remain outside the deal.


6. (SBU) Action Request: It is becoming clear that the MFA
can and will continue to block the Thrace license as long as
it continues promoting the Voluntary Principles -- a process
that could go on for quite some time. Embassy requests
Washington's guidance on attending the July 23 meeting. In
addition to lending our implicit endorsement of a non-market
approach, our attendance could undermine our advocacy on
behalf of Thrace Development Corporation. As long as talks
on the VPs continue, MFA is certain to hold up approval for
Thrace's license. We should also understand that overcoming
MFA's opposition to Thrace's application will be difficult
and will likely require U.S. intervention at a fairly senior
level.
DEUTSCH