ISTANBUL'S JULY VOLUNTARY PRINCIPLES MEETING:

UNCLAS SECTION 01 OF 03 ISTANBUL 001346 SIPDIS SENSITIVE USDOC FOR SAM NEWMAN E.O. 12958: N/A TAGS: EPET EWWT PREL EINV SENV TU SUBJECT: ISTANBUL'S JULY VOLUNTARY PRINCIPLES MEETING: INTEREST BUT NO COMMITMENTS REF: A. STATE 178586 ¶B. ANKARA 4623 ¶C. ANKARA 4443 ¶D. ANKARA 4009 ¶E. STATE 73545 Sensitive but Unclassified. Not for internet distribution. ¶1. (SBU) Summary: Industry participants in the July 23 Istanbul voluntary principles meeting tell us that while they are "interested in and supportive in principle" of the initiative, it is unworkable unless Russian oil companies also participate. They also stressed that while consideration of bypass pipeline issues is appropriate, it should not be the exclusive focus of the principles; rather, shipping regulations must also play a key role, since oil will continue to transit the Bosphorus. All remain in close contact with MFA officials. In our last meeting, with BP on August 26, we learned that a planned MFA meeting with Russian oil companies in advance of President Putin's state visit here early next month has fallen through, so that a planned follow-on meeting in Turkey towards the end of September is also now in doubt. End Summary ¶2. (SBU) The Istanbul meeting on the voluntary principles was attended by the Foreign Ministry, the UK Consulate, Nilufer Oral, head of the Maritime Policy Center at Bilgi University, and companies including British Petroleum, ENI, Shell, Total, Chevron-Texaco and ExxonMobil. The UK was represented by Consul General Barbara Hay, who attended a luncheon for participants, but did not attend the meeting itself. We subsequently canvassed officials from a number of participating companies, including BP Turkey President Tahir Uysal, Nilufer Comert, Managing Director for Shell, and Muammar Ekin, Managing Director of Total. ¶3. (SBU) Uysal, who was accompanied by a senior advisor, Michael Bilbo, indicated that the good attendance at the meeting highlighted the fact that there is no "disalignment" within the industry. All were impressed by Orel's opening presentation about the dangers posed by straits transit, and concurred that together with oil industry, Turkey has done "all that it can do" to minimize those dangers. He characterized the MFA draft as a "good document," and that Ministry officials had made clear they were there to work with the industry as they had no "certain view" and were instead groping for a solution to problems posed by the dramatic increase in oil shipments through the Bosphorus. Uysal noted that the proposal cuts across many issues and will affect many industry interests, and so will take time to absorb: BP itself is now thinking through the implications for CPC. However, Uysal, like his colleagues at Total and Shell, said he had two principle initial caveats. First, the initiative would be meaningless without the participation of Russian companies, which were not included on July 23, and, second, while the principles were directed towards encouraging use of pipelines, this could not be the exclusive goal, since oil shipments will remain on the straits whether or not a pipeline is built. Shipping regulations must thus remain a key element. BP also questioned the need for the principles to focus on assigning a cost to Bosphorus delays. Bilbo noted that the industry had already reviewed the situation last winter, and come to the conclusion that delays could cost the industry anywhere from 300-700 million USD per season (or from 50 cents to 3 USD per barrel),depending on weather, as a result of increased chartering rates, lost production, and lower prices offered on world markets for Russian oil. ¶4. (SBU) Regarding next steps, Uysal noted that while the MFA hoped to present the principles to Russian industry before the Putin visit, that trip had now been put off, so that much will depend on the view President Putin takes in his meetings with Turkish officials. As a result of the delay, a planned follow-on meeting with the industry here may also be postponed. More generally, Uysal observed that there is a serious lack of communication between Turkish and Russian interests on the issue and the ways the two countries are impacted. He noted that BP had recently taken a senior Russian oil executive to Ankara, and that the individual had returned with a whole new perspective both on Turkey's concerns about the straits and about what would need to be done to construct a pipeline. ¶5. (SBU) Regarding the various pipeline proposals, Uysal stressed that a project could make economic sense, but would require a leader to push it forward. BP, which played this role for BTC, would not do so for a second pipeline, but Transneft could conceivably do so. Its decision to team up with the Anadolu Machinery Group on a possible Thracian bid had sparked interest throughout the Russian oil industry. As for the Russian preference for the Thrace route, Uysal attributed it to lack of knowledge of Turkey. While they saw it as the shortest route, environmental and right-of-way issues could make it much more complicated than the longer Samsun-Ceyhan alternative. Uysal noted that BP's TNK affiliate has urged Transneft to back off Thrace. Not surprisingly, Uysal saw BTC, "the first Bosphorus bypass," as the easiest alternative for avoiding the straits. Using a Heathrow analogy, he noted that proposals for a third London airport have continually been shelved in favor of expanding Heathrow. Similarly, BTC capacity could be increased from 1 to 1.4 million barrels per day with existing facilities, while additional pumping stations could expand capacity up to 2 million barrels per day. Beyond BTC, however, Uysal opined that the Samsun-Ceyhan route makes more sense, given existing right-of-ways (Bluestream to Kirikkale and then an existing Kirikkale-Ceyhan pipeline) and terminal facilities at the southern terminus. ¶6. (SBU) In closing, Uysal noted government concern about the agitation of the competing five pipeline groups for government licenses. The Finance Ministry, he noted, sees the early granting of a license as a danger, in that it could do more to block a final decision than to facilitate it. Uysal opined that it might be best to give all five groups a license, thereby rendering them meaningless. More critical will be creation of a sponsor group that will commit production to such a pipeline. Companies will want substantial guarantees from Turkey that there will be no interruption in the pipeline before they step forward, in his view. Surprisingly, Uysal opined that pipeline financing would "not be a problem." Rather, ensuring a proper legal structure could prove more difficult. ¶7. (SBU) Shell and Total officials largely echoed Uysal's point, but did so second-hand, since neither personally attended the session, as both companies were represented from the head offices in London and Paris respectively. Both Comert and Ekin indicated that in recent days they had been in contact with Hakki Akil, Director of the MFA office pursuing the issue, and both had been provided by him with minutes of the July meeting. Comert stressed that the July session was informal, and that the companies had only agreed in principle with the concerns that were reflected in the voluntary principles drafted by the Foreign Ministry. They had not, however, made any explicit commitments to support them. She noted that the issue is relatively less important to Shell than to companies like BP, since it has less oil flowing through the Bosphorus. Shell will continue to participate in the process, however, and she noted that Hakki Akil from the MFA had phoned on August 20 regarding outstanding "action items." She noted that while the MFA planned a meeting on the issue with Russian companies before Putin's early September visit to Turkey, she expected that Russian companies would react negatively to the proposal. She added that in her view the principles as they stand are too commercially prescriptive, and should focus more on environmental and security issues. ¶8. (SBU) Ekin and Altinyay noted that while Total is a relatively small player in Bosphorus shipping, its stake will increase as its Caspian projects come on line. He stressed that Total feels a strong "social responsibility" to ensure safety of oil shipments, and suggested that the voluntary principles should be along the lines of things that already exist, including limits on ship age and double hull requirements. Pipelines, he concurred, are a separate issue, involving commercial rather than security and environmental considerations. He expressed doubt, however, about whether they would prove economical, unless Turkey made life "more difficult" for those using the Bosphorus, perhaps by raising insurance requirements. Ekin noted that the big oil companies already implement most suggested measures for environmental and security protection, but concurred with a point that he said Chevron had raised on July 23 that such measures "make things tougher and tougher for ourselves, and leave more room for smaller companies" that may cut corners. ¶9. (SBU) A Leader or a Stick: Ekin concluded that the process on the voluntary standards is a difficult one that requires either a leader or a stick. The MFA is "pushing a little," he said, but other countries will have to get on board too, a task made difficult in his view by the lower level of environmental safeguards and awareness in other Black Sea states. ¶10. (SBU) Comment: From the vantage point of Istanbul industry, the MFA appears to have initiated a valuable dialogue, albeit one that they would like to see tweaked in a less commercial direction. Whether the proposal will bear fruit, however, will depend on the stance of Russian interests, something that should become clearer in coming weeks with President Putin's visit to Turkey. ARNETT