COMMERCIAL LOGISTICS SUPPORT TO U.S. MILITARY IN IRAQ

UNCLAS SECTION 01 OF 02 ADANA 000051

SIPDIS

SENSITIVE

NOT FOR INTERNET DISTRO

E.O. 12958: N/A
TAGS: ECON ETRD MARR MOPS IZ JO TU ADANA
SUBJECT: COMMERCIAL LOGISTICS SUPPORT TO U.S. MILITARY IN IRAQ
GROWING IN TURKEY


1.(SBU) Summary: AMCON Adana PO met on March 11 with
representatives from U.S. firm Kellogg, Brown and Root (KBR) and
PWC, a Kuwaiti company awarded a U.S. military PRIME VENDOR
contract, in Mersin to review their coalition sustainment
support operations in southern Turkey along the northern ground
line of communication. Both reported progress in building their
business platforms within Turkey to expand their regional
support to U.S. military clients in northern Iraq and reviewed
their current projects with PO. KBR wondered aloud whether 2003
Turkish purchasing guidelines still were relevant for Turkey -
see para. 5. End Summary.

KBR says billing problems behind it

2.(SBU) KBR has gradually built a Mersin presence of 6 U.S.
expatriate staff (with several more coming) from its initial 2
Adana staff since the pre-war period when it was conceived that
they would support a posited transition of the Fourth Mechanized
Infantry division to Iraq through a "northern front." They made
an appeal to the U.S. government to do " all (the U.S.
government) can to open the Habur gate wider to get sustainment
(non-fuel) cargo through to Iraq more quickly."

3.(SBU) KBR's office manager, when PO inquired, acknowledged
that lagging invoice payment to Turkish vendors has been an
issue over the last 2 months, but said that the issue had become
an action item for its vice president in Baghdad, who had
ordered the establishment of an "aging invoice system" to better
track the billing and vendor system in KBR use in the region.
According to KBR's Mersin manager, this has resulted in invoices
over thirty days old being reduced dramatically in the last
month and a "healthy discussion with Turkish vendors on partial
payments, where necessary." He said that he had had no major
discussions with Turkish vendors about overdue invoices in about
a month, whereas such discussions were common in the prior
month. He said that many of those earlier discussions had
involved sums from several hundred thousand to several million
dollars in value. (Note: Several AMCON Adana contacts have
reported total sums over four million dollars in the last three
months, but generally corroborate improved KBR payment
performance recently. End Note.)

Some issues due to Turks adjusting to modern corporate finance,
says KBR

4.(SBU) A KBR purchasing director also explained that many
Turkish firms new to working with federal acquisition
regulations and what he called "real world modern finance" just
did not understand when invoices became valid per KBR and "when
the real clock starts." He said that KBR tries hard to settle
all invoices within thirty days of delivery to an authorized
contractor or receiving agent in Iraq, but many Turkish vendors
considered the clock to start on invoices when KBR employees in
Mersin did pre-shipment visual inspections. He explained such
inspections were really just due diligence prior to delivery
since the prospect of exchange and return in normal commercial
terms were not reality when doing business with those in Iraq.
"It has been a learning process, but both sides are getting
better now," he said, " and people are raising their quotes to
us as they come to see longer delivery and payment terms as part
of the vendor process for Iraq."

~And consolidating regional purchasing and shipment in Turkey

5.(SBU) Still, compared to Kuwait where they said KBR
experiences brimming ports and little industrial base from which
to source industrial goods and solutions, Turkey is proving to
be a viable source for many of KBR's internal needs to support
its U.S. military logistics capacity (LOGCAP) project. The
office in Mersin particularly predicted growth above its USD 12
million monthly purchasing operation in Mersin to upwards of USD
20 million within about three months as it streamlined its
operation in Jordan, where they said there was little industrial
base and difficulty getting access to escorts for delivery in
western Iraq. They said that they were already bringing in
U.S.-sourced goods via the Mersin port as well and looked to
increase that flow both from redirected shipments originally
intended for Aqaba and increased overall throughput from the
U.S. They also emphasized that they were sourcing
Turkish-procured goods from all over Turkey, not particularly
from southern or southeastern Turkey.
Seeking greater sourcing flexibility in Turkey
6.(SBU) KBR managers also referred to a 2003 U.S.
military-provided Turkish General Staff (TGS) set of guidelines
for approved Turkish vendors from which they could source goods
and services, saying that they would prefer fewer limits on
their sourcing to increase product range, delivery windows and
competition.

PWC building up in Turkey, too

7.(SBU) PWC, a Kuwaiti company awarded a U.S. military PRIME
VENDOR contract, and operating in Turkey with partner, IMISK, is
building a state of the art automated, modern warehouse in
Tarsus to transship MRE and UGR's as well as bottled water and
refrigerated fresh fruits and vegetables to U.S. military dining
facilities in northern Iraq. They expect delivery of the
warehouse in late April or early May 2005. They are awaiting
approval to warehouse MRE's and UGR's from the TGS in the new
Tarsus warehouse which Defense Logistics Agency (DLA) would
deliver to Mersin by sea from U.S. ports. Currently those same
goods are delivered less efficiently through Turkey by truck
from U.S. warehouses in central and western Europe.


8. (U) Baghdad minimize considered.


REID