BOSPHORUS BYPASS AND THRACE DEVELOPMENT COMPANY

UNCLAS SECTION 01 OF 02 ANKARA 004623

SIPDIS

SENSITIVE

COMMERCE PASS ALSO FOR NEWMAN

E.O. 12958: N/A
TAGS: ENRG EPET ETRD TU
SUBJECT: BOSPHORUS BYPASS AND THRACE DEVELOPMENT COMPANY

REF: A. A. ANKARA 3419

B. B. ANKARA 4443

Sensitive But Unclassified - Please Handle Accordingly


1. (SBU) Summary: Recognizing growing oil tanker congestion
in the Bosphorus and associated environmental and safety
risks, the Government of Turkey (GOT) has expressed support
for construction of a bypass pipeline to avoid the Turkish
straits, aiming to transport oil overland from the Black Sea
to the Mediterranean (or Aegean or Adriatic) Sea. At least
three projects entirely in Turkey have sought permits from
the GOT, so far without success. Delays in granting permits
appear to stem from concern about waiting for completion of
Baku-Tbilisi-Ceyhan (BTC) and bureaucratic slowness and
perhaps conflict. USG has regularly called for the GOT to
move forward quickly and transparently in providing
conditional permits to allow the market to pick the best
route or routes. Thrace Development Company (with some
American involvement) is concerned that a late-comer, copycat
project across Thrace (supported by Transneft) may gain
unfair advantage in the permitting process. End Summary.

The First Mover - Free Rider Dilemma
--------------


2. (SBU) Ref A provided background on Bosphorus bypass
projects; this cable provides an update on projects passing
only through Turkey. With the growth in crude oil shipped
from Russia and the Caspian, oil tanker shipping of oil has
increased to close to 3 million barrels per day, generally
perceived as close to capacity. The Montreux Convention
guarantees free passage through the Straits, so Turkey has
been limited in restrictions it can impose, but it has
restricted night-time and bad-condition passage, which has
created significant delay costs for tankers, particularly
last winter. A number of multiple-country cross Balkan
pipelines have sought support and financing in recent years.
More recently, three projects fully in Turkey have gained
prominence, and have sought permits from the GOT. Two have
sought USG advocacy because of U.S. company involvement: 1) a
trans-Thrace pipeline sponsored by Thrace Development Company
(TDC),with participation by American Howard Lowe and Kazakh
and Turkish interests, and 2) a Samsun-Ceyhan project with
participation by American Enesco and Turkish Calik Energy.
Because of American involvement in the potentially competing
projects, USG has stressed the desire to leave choice of
project(s) to the market. In fact, some GOT officials have
stated that Samsun-Ceyhan and trans-Thrace were not mutually
exclusive. Some observers note the special risk of the first
investor or oil supplier committing to a new pipeline, in
effect reducing delay costs for shippers who stay in the
straits (free rider or first mover dilemma).

Thrace Development Company Views
--------------


3. (SBU) A second trans-Thrace project has recently splashed
in the Turkish press, sponsored by Transneft and Turkish
businessman Okan Tapan and the Anadolu Construction and
Machinery Inc. In recent press accounts, Tapan has claimed
that the PM supports the project and has denied claims that
the trans-Thrace route threatened environmentally sensitive
zones (the terminus of Sarhos on the Aegean). Russian
support has been reported in the local and international
press as on again off again, but state firm Transneft now
appears to be actively supporting the project. Thrace
Development Company rep Yilmaz Oz expressed strong concerns
to Econoff that what he called a copy-cat project filed one
year after TDC might engender influence peddling or other
non-transparent effects. He pointed out potential pressure
to seek deliverables in advance of Putin's visit in early
September. The TDC rep described his project's long and
active permit application process since June 2003, and
lamented that the Transneft project had filed its carbon copy
application one year later. According to the rep, the TDC
application has been delayed at the "Council of Ministers"
where he perceived that the MFA was holding it up. Oz
thanked the Embassy for previous messages to the GOT, but
urged these to continue to come at the highest levels in
light of the Transneft/Anadolu project's copycat nature and
claims in the press.


4. (U) The Sarhos proposals have sparked extensive
environmental opposition from both local non-government
organizations and international environmental groups. A
large rally was held in Sarhos at the beginning of August,
with speakers loudly protesting the proposal. GOT officials
have noted that no infrastructure or deep water port exist
for the proposed pipeline in Thrace, whereas the
Samsun-Ceyhan pipeline would tap into some existing network
and deep water port.

Conflicting signals on permits
--------------


5. (SBU) Per Ref B and previous, in response to repeated USG
queries, the GOT recently expressed the need to move forward
on providing at least conditional permits on projects. Some
GOT interlocutors have admitted that a now-out-of-date
"waiting for BTC" view had delayed the permitting process.
Some energy officials have claimed that permit applications
have been "thin", referring to lack of experience or
through-put commitments. More absurdly, some bureaucrats
appear worried about too many pipelines, so mistakenly want
to engage in "picking the winner". Most likely, there is
genuinely slow bureaucratic inertia, confusion, and special
interests impingeing on how to manage development of viable
bypass options. Most recently a Ministry of Energy contact
told Econoff, that the Minister of Energy was preparing a
decision to clarify this process. Embassy will continue to
repeat its message to the GOT of the need to move forward in
a timely and transparent way to provide conditional permits
to let projects compete for financing and throughput
commitments in order to let the market choose a winner. The
risk is that while the GOT is anxious to reduce shipments
through the Bosphorus, procrastination on the permit issue
could end up delaying any possible pipeline until a straits
disaster forces the issue.
EDELMAN