ISTANBUL'S JULY VOLUNTARY PRINCIPLES MEETING:

UNCLAS SECTION 01 OF 03 ISTANBUL 001346

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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