SECURITY AND PAYMENT HEAD LIST OF TURKISH BUSINESS

UNCLAS SECTION 01 OF 02 ISTANBUL 001716 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ETRD ENRG MOPS PREL PTER TU SUBJECT: SECURITY AND PAYMENT HEAD LIST OF TURKISH BUSINESS CONCERNS IN IRAQ REF: A. ANKARA 6312 ¶B. ANKARA 6195 Sensitive but Unclassified - not for internet distribution. This cable was coordinated with Embassy Ankara. ¶1. (SBU) Summary: A range of Turkish companies active in Iraq outlined their main concerns in a November 5 meeting with Turkey Caucus co-chair Representative Ed Whitfield. Security and payment issues headed the list, with companies reporting not just serious problems in ensuring the safe delivery of their shipments, but also in problems in receiving payment for their contracts. Ercumen Aksoy, head of the Turkish-Iraq Business Council, and Mehmet Habbab, CEO of Delta Petroleum, who organized the meeting, made a strong pitch for a U.S. umbrella to ensure that payments are made for outstanding contracts. The companies who attended noted that they have a cumulative 500 million USD in payments outstanding in Iraq, and that interruption in fuel oil shipments since the beginning of October has undermined the barter system through which many Turkish contracts were financed. The problem also threatens the project by which Karadeniz Energy has provided electrical power to Iraq (ref b). Osman Karadeniz indicated that unless a way is found to ensure delivery of heavy fuel oil, the company will not be able to fulfill its part of the bargain. End Summary. ¶2. (SBU) Payment woes: Companies represented at the lunch, in addition to Delta Petroleum and Karadeniz Energy, included major shippers such as Tefirom (the first company to sign a contract with the CPA to deliver oil to Iraq),Tekfen (a major construction firm active in Iraq since the 1980s),and freight forwarders such as Ets. A. Boutros and Fils. Collectively, the companies present noted that they are owed some 500 million USD in Iraq, and that in some cases even contracts dating to the period of the Coalition Provisional Authority (CPA) have not been honored. Several companies noted that although Iraqi officials participated in the elaboration of these contracts, on attempting to pursue them now with the Iraqi interim government, a number of ministries are disclaiming responsibility for the contracts and directing them to speak to "the Americans." Only Tekfen indicated that it was experiencing no problem with payment for its work in Iraq, as a result of the fact that it is paid from the account that Iraq built up in Halk Bank in Turkey through the "Oil for Food" program. ¶3. (SBU) Umbrella: Delta Petroleum's Mehmet Habbab made a pitch for an "American umbrella" to cover Turkish companies' contracts with SOMO. He noted that Turkish businessmen currently deliver close to 7000 tons of oil products to Iraq daily, but that since SOMO took over responsibility for the contracts in July 2004 deliveries have become haphazard as payments are delayed for over 90 days. As a result, the trade functions on a "stop and go" basis, with businessmen stopping deliveries until funds are received and then restarting them. The resultant intermittent nature of the delivery system, in Habbab and his colleagues' view, creates "havoc" and constant shortages. Habbab thus suggested that the U.S. guarantee Iraqi payments in case of default-- something that he argued would not cost anything as funds are available in Iraq and the U.S. can control receipts. Such an arrangement, he argued, could contribute enormously to Iraq's recovery at a fraction of the cost of outstanding reconstruction contracts. Turgut Bozkurt, who works as an advisor with Tefirom, noted that shippers had factored 60-day payment delays into their planning, but that the delays now exceed 90 days. Companies will work even with this, he said, so long as there is a guarantee that they will be paid in the end. ¶4. (SBU) Security Issues: In addition to the payment issue, companies remain focused on their security difficulties. Even with its payment advantage, Tekfen noted that work has ground to a halt on many of its projects for security reasons. Other companies, including shippers in particular, reported similar security problems with regard to their deliveries. As Ankara and Istanbul have reported earlier, they indicated that the problem is most acute on the return trip, when trucks generally are not in convoys. Delta's Mehmet Habbab said that four of his contract drivers have been killed; other companies indicated that they have also experienced casualties. Overall, Habbab suggested that over 30 percent of the goods shipped from Turkey are squandered, representing a daily loss of 1.5 million USD per day. Looking at the larger picture, Ercument Aksoy stressed that the security situation poses serious challenges for the viability of Turkish trade in Iraq. He noted that the security problems have driven freight rates to Baghdad up from 1800 USD to nearly 4500 USD per truck from Turkey. Given that rates from Jordan and Kuwait remain a fraction of that level (he quoted a figure of 1000-1200 USD),he predicted that while Turkish exports to Iraq this year are near 1.6 billion USD, they will not be able to reach that level again next year unless the security situation improves. Habbab suggested that one solution might be for the U.S. to permit private security firms to offer security to Turkish trucks on the road all the way to Baghdad. He argued that truckers would be happy to pay for such a service, and that such an arrangement would ease the burden on U.S. military personnel. ¶5. (SBU) Energy: Among the projects hampered by the security situation is Karadeniz Holding's sale of electricity to northern Iraq. Osman Karadeniz reiterated points he made to the Embassy (ref b),noting that the company has yet to receive a single shipment of heavy fuel oil from Iraq. While earlier bureaucratic problems have been ironed out, security constraints currently preclude delivery of the supplies. This has been the case, he said, since the 101st Airborne, which co-signed the original agreement, left the country. He noted that they have no alternative to the heavy fuel oil from Iraq, since their special import permit from Turkey only applies to Iraqi fuel oil. He expressed hope, but not necessarily optimism, that the situation can be resolved in the near future. If it is not, however, he said the company will not be able to continue to supply the amount of power it promised to Iraq. Habbab suggested that if the security situation continues to preclude the fuel shipments, the U.S. might instead seek to pressure the Turkish government to allow import of fuel oil from other supply points to enable Karadeniz to fulfill its contract. SMITH