TURKEY: EURASIA SENIOR ADVISOR MANN MEETINGS ON

C O N F I D E N T I A L SECTION 01 OF 04 ANKARA 006479

SIPDIS

USDOC FOR NEWMAN AND FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: DECL: 11/08/2014
TAGS: ENRG SENV BEXP TU
SUBJECT: TURKEY: EURASIA SENIOR ADVISOR MANN MEETINGS ON
ENERGY

REF: STATE 178586

Classified By: Economic Counsellor Thomas Goldberger. Reasons 1.4 (b/d
)


1. (C) SUMMARY: In November 8 meetings with Turkish
officials on energy issues, Eurasia Senior Advisor Steven
Mann stressed the importance of a level playing field for
American companies in Turkey's energy sector and unflagging
USG support for a Bosphorus bypass and expansion of natural
gas trade. Turkey is stuck with respect to approving a
bypass route, for environmental and political concerns.
Turkey and Russia are discussing potential energy
deliverables in advance of President Putin,s December 12
visit. END SUMMARY.


2. (SBU) Ambassador Mann participated in the following
meetings on energy issues on November 8:
-Minister of Energy, Hilmi Guler, accompanied by
Undersecretary, Sami Demirbilek and Pipelines Department
Head, Nilgun Acikalin
-MFA Deputy DG for Energy, Hakki Akil, accompanied by
Advisor, Basak Tug
-Energy Advisor to the President, Volkan Ediger
-MFA Deputy Undersecretary for Economic Affairs, Alev Kilic

U.S. Firms, Woes
--------------


3. (C) In meetings at the Turkish MFA and Energy Ministry
(MENR),Ambassador Mann expressed growing concern that
Turkish firms seemed to be favored over American firms with
respect to a number of energy sector opportunities. Both
Energy Minister Guler and MFA Deputy Director General Hakki
Akil categorically rejected this assertion. With respect to
U.S. firm Toreador-Madison's belief that it was suffering
illegal discrimination in conflicts with Turkish state oil
firm TPAO over Black Sea licensing, the officials said TPAO
was acting according to Turkish law concerning offshore
exploration. On the long-standing legal case about GOT
Treasury non-performance on foreign exchange rate guarantees
for repatriation of profits, MENR officials insisted that
they were waiting for the Parliament to take action on a new
law to protect foreign energy investors, capital from
taxation to the extent profits are earned in Turkey. Mann
replied that he understood that two Turkish law firms had
concluded that Toreador-Madison,s legal claims were sound.
Finally, Undersecretary Demirbilek stated that the GOT was
pushing TPAO to accelerate domestic oil and gas development
efforts, and noted that implementation of Production Sharing
Agreement legislation would encourage foreign energy firms,
participation in Turkey.

Bosphorus Bypasses ) American TDC Deserves Yea or Nay
-------------- --------------


4. (C) After rearticulating U.S. support for realization of
a commercially feasible Bosphorus Bypass project, Mann
repeated the message that American firm Thrace Development
Company (TDC) deserved a timely response on its long-standing
permit application to develop a trans-Thrace Bosphorus Bypass
project. Minister Guler responded positively to Mann,s
specific request that MENR give TDC a chance to present and
prove oil throughput guarantees and financial backing the
firm claims it already has in hand; although Mann noted that
the issue should not be a governmental concern: the investors
were taking the risk on themselves for adequate throughput of
lack thereof. Both the MENR and MFA interlocutors insisted
that Turkey,s goal was to secure a reduction in Bosphorus
oil traffic by garnering a Bosphorus Bypass with oil
throughput guarantees. Minister Guler stressed that the
Turkey intra-ministerial process was still evaluating permit
applications with respect to route and environment issues.
He said that the Turkey absolutely did not want an empty pipe
(like Odessa-Brody) and wanted to assure an environmentally
sound project. Mann said potential investors should have the
opportunity to obtain licenses that merely get them to the
next step in the long process and would allow them to take
the commercial risk of moving projects along, demonstrating
oil throughput, financial backing, and environmental
soundness. Both MENR and MFA officials insisted that the GOT
process was focused only on route and not in anyway on
specific companies. However, they noted that the potential
Samsun-Ceyhan route was in the forefront because of its use
of existing right of way and available infrastructure and a
perception that it was less problematic environmentally.
Mann repeated the USG demarche that TDC be given the
opportunity without further delay to demonstrate its
project,s potential environmental rigor, using the existing
standard of Baku-Tbilisi-Ceyhan (BTC).
Voluntary Principles Again
--------------


5. (C) Hakki Akil, GOT,s author and strongest proponent of
the proposed &Voluntary Principles for Bosphorus Tanker
Transit8, passed to Mann the newest draft of his Voluntary
Principles (Septel). They noted that this new draft
appeared more succinct and not commercially proscriptive and
together noted that the most recent USG position (State
178586) seemed to be based on an earlier draft. Mann agreed
to take a fresh look and reiterated that the essence of the
USG position was that Voluntary Principles be truly informal
and voluntary and not in any way antithetical to the
principle of the market choosing Bosphorus bypass project(s).
Akil noted that the MFA had formally requested scheduling
of a meeting in Moscow for him to present the Voluntary
Principles to gain Russian engagement for the idea. He
repeated the fundamental economic quandary that bypass first
movers would grant potentially subsidized trade for shippers
who continue to use the Straits. Akil also stated that the
newest draft of the Voluntary Principles did not call for
companies to share data. Finally, Akil asserted that
Chevron-Texaco (which invited Bosphorus bypass sponsors to
London to present their projects) was very receptive to the
Voluntary Principles as a form of insurance policy (for
potential delays and problems in transiting the Turkish
Straits),but had told him: "We cannot go alone." Mann
reminded Akil that GOT would never gain ironclad throughput
guarantees without detailed engineering and subsequent tariff
projections and this would only come after companies take
conditional permits to the marketplace. He urged the GOT to
take advantage of its privileged position of entertaining a
number of viable options that pass solely through its
territory. Echoing Akil,s assertions that the most current
approach was market oriented, Presidential Advisor Erdiger
also encouraged USG officials to give a favorable and
constructive hearing to the Voluntary Principles.

The Russians are Coming
--------------


6. (C) Press reports have been full of speculation that GOT
and Russian officials were discussing potential energy
deliverables to announce at the time of President Putin,s
(previously postponed) visit on December 12. Hakki Akil
observed that Russian Transneft applied for a trans-Thrace
oil bypass route (Note: late-comer, copy-cat for TDC,s
route. End Note) for which the company claimed it could
deliver 60 million tons per year (of 75 million tons the
company,s CEO said it controlled). Akil repeated concerns
about the difficulties with a trans-Thrace route
(environmental NGO opposition and land acquisition cost) that
put in question the possibility that a Thrace project could
ever come to pass. He admitted that the GOT was endeavoring
to convince Transneft to consider support for the
Samsun-Ceyhan route that utilized existing pipeline
right-of-way and port capacity. In response to Mann,s
queries on the Samsun-Ceyhan pipeline right of way issue,
Akil asserted that BTC controlled a 40-meter construction
zone, but the environmental assessment covered a 500-meter
zone, implying that a new Samsun-Ceyhan project could
fruitfully piggy-back on this assessment.

BTC Celebrations and Future Gas
--------------


7. (C) In the meeting with President Sezer,s Energy
Advisor, Volkan Erdiger, Mann described the status of BTC,
noting that BTC construction seemed on track for sequential
celebrations at the three key cities over the course of 2005.
Mann attributed the summer problems in Georgia to the new
administration there, specifically noting the following
factors for the new Georgian government: 1) lack of
familiarity with the project, 2) sincere concern about the
environment, 3) opportunism on the part of new players, and
4) the new president wanting to stake out political
protection (if the project causes environmental problems).
Mann reviewed the strong message stated by various USG
officials: "1) you have made commitments, 2) you don,t have
many investments, and 3) you will get follow-on natural gas."



8. (C) Erdiger noted the importance of natural gas sector
liberalization in process in Turkey. (Note: the GOT has just
announced tenders for the state pipeline company BOTAS to
transfer natural gas contracts. End Note.) Moreover, he
stressed the importance of liberalization of natural gas
distribution, and commented that Gazprom is interested in
this opportunity. All interlocutors noted that
liberalization of Turkey,s natural gas sector would
facilitate the transit of natural gas from Shah Deniz. GOT
officials and Mann also agreed on the importance of together
engaging Kazakhstan to move forward on links for oil from
Aktau to Baku.

Turkmenistan Conundrum ) and Russia
--------------


9. (C) All meetings touched on the notion of some day tying
Turkmenistan,s formidable gas reserves to the budding
East-West Corridor. Noting the history of the dashed hopes
of the Trans-Caspian Gas Pipeline, which failed because the
Turkmenistan President feared Russia,s ire, Mann said the
U.S. remained hopeful- but skeptical- for new energy links to
Turkmenistan. Mann suggested that President Niyazev show his
seriousness by reaching agreement on Caspian delimitation.
He noted that Azerbaijan,s President Aliyev was ready to
deal with Turkmenistan, but had "no one to deal with there,"
according to Aliyev. Minister Guler asked for U.S. help for
working with Russia and Iran on delimitation issues. Mann
replied that in effect the Caspian has already been divided,
but Iran hasn,t realized this; moreover, he said there was
little the USG could do about Iran, but the USG would
continue its longstanding role of supporting delimitation
efforts both technically and politically. He suggested that
Turkey would be most effective in working with Azerbaijan and
Turkmenistan. Mann voiced concern that Gazprom was still
working to derail Shah Deniz gas transit via the BTC
follow-on South Caucasus Pipeline and consequent potential
natural gas trans-shipment via Georgia and Turkey to Europe.
He urged the GOT to join the USG in warning the Georgia
Government against selling its high pressure natural gas
network to Russian interests. MENR officials spoke of
positive progress on the Nabucco gas project to Austria, but
noted that Iran was still endeavoring to join this framework.
Mann warned that Iranian participation would raise the issue
of sanctions under U.S. law and policy.

Comment
--------------


10. (C) These meetings were useful in gauging current GOT
thinking and restating U.S. positions on BTC, Bosphorus
bypasses, and natural gas transit. Although some of the big
questions in the East-West Corridor have been answered (BTC
almost in hand),the next questions are harder to answer and
will require vigilant U.S. attention: Who will step forward
to sponsor a Bosphorus oil bypass pipeline? Can Turkey
effectively liberalize and rationalize its natural gas market
to facilitate transit to Europe (the next big step in the
East-West Corridor)? Will Russian-Turkish cooperation in
energy and Russian interest in the liberalizing Turkish
natural gas sector be positive or negative? End Comment.


11. (U) Ambassador Mann has cleared this cable.
EDELMAN