KARADENIZ OPTIMISTIC FOR INCREASED EXPORT OF

UNCLAS SECTION 01 OF 02 ANKARA 001003

SIPDIS

SENSITIVE

DOE FOR CHUCK WASHINGTON

E.O. 12958: N/A
TAGS: ENRG IZ TU
SUBJECT: KARADENIZ OPTIMISTIC FOR INCREASED EXPORT OF
ELECTRICITY TO IRAQ, BUT...

REF: A. ANKARA 246


B. 04 ANKARA 6195


1. (SBU) Summary: Currently exporting close to 200 MW of
electricity from its Silopi, Turkey plant to northern Iraq,
Karadeniz told us they have reached agreement with GOT to
expand capacity to 1000 MW, potentially providing electricity
all the way to Mosul. It is unclear whether or when
Karadeniz will gain approval from the Turkish energy
regulatory authority (EMRA) to actually provide this quantity
of electricity. End Summary.

Agreeement With Iraqis to Increase Exports
--------------


2. (SBU) Reftels describe the challenges of Turkish firm
Karadeniz/Kartet Energy Company's quest to increase export of
electricity from its Silopi plant in Turkey to northern Iraq.
The company is exporting close to 200 MW of electricity
across the border, but Iraq has been unable to provide fuel
oil as provided for by the partial barter arrangement in the
original deal. Karadeniz has scrambled to provision its
"mobile" plants with replacement Turkish fuel oil and has
purchased electricity off the Turkish grid to seek to
maintain its high visibility effort. Karadeniz says it has
already increased its transmission capacity to 300 MW and
worked with the Iraqi authorities to seek alternative sources
or mechanisms for provision of fuel oil or for the Iraqi side
to pay compensating damages. Orhan Karadeniz called Energy
Officer on February 16 to say that the company had reached
agreement with the GOT Ministry of Energy (MENR) and Iraqi
authorities to increase capacity to 1000 MW. According to
Karadeniz, the Government of Iraq would take care of
increasing transmission capacity in Iraq and Karadeniz would
make needed investment in Turkey.

Turkish Regulatory Approval Not Yet Secured
--------------


3. (SBU) Approval of the new deal by Turkey's energy
regulator (EMRA) is not however secured. In the past, EMRA
has asserted that Karadeniz illegally purchased and exported
electricity from the Turkish grid and TETAS (Turkish
electricity trading company) to meet its contractual
obligations. TETAS and EMRA claim that Karadeniz owes
significant back-payments for some of this electricity. Even
the provision of replacement fuel oil in Turkey has been
difficult or overly expensive- and also subject to EMRA
approval. The MENR has generally supported the project, but
notes that there are regulatory shortcomings that need to be
resolved.

If Pigs Could Fly
--------------


4. (SBU) Noting no desire to work with TETAS, Karadeniz
said they plan to import the large amount of incremental
electricity from Bulgaria and Georgia, handily adding that
they would effect the necessary investment. Energy Officer
pointed out the clear challenges in doing this without
support of TETAS, EMRA, or TEIAS (the state-owned
transmission company). (Note: This plan and required
investment strikes post as unrealistic. End Note.)

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


5. (SBU) This project offers "good news" potential
(increased provision of badly needed electricity to Iraq),
but it faces significant obstacles and challenges to make it
happen. In particular, Karadeniz will need to sort out its
problems with EMRA, which views the initial scheme as
irregular. Although there is no evidence of impropriety in
this situation, EMRA may also be leery of the Karadeniz
family's implication in the 2001 "White Energy" corruption
scandal, although Karadeniz officials were acquitted of
bribery charges in the case. End Comment.


6. (U) Baghdad Minimize Considered
EDELMAN