Identifier
Created
Classification
Origin
05ANKARA247
2005-01-15 15:29:00
CONFIDENTIAL
Embassy Ankara
Cable title:  

TURKEY'S THRACE DEVELOPMENT COMPANY AND BOSPHORUS BYPASS - ADVOCACY QUESTION

Tags:  EPET BEXP TU KZ 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000247 

SIPDIS

USDOE FOR CHARLES WASHINGTON
USDOC FOR ADVOCACY CENTER AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: DECL: 12/13/2014
TAGS: EPET BEXP TU KZ
SUBJECT: TURKEY'S THRACE DEVELOPMENT COMPANY AND BOSPHORUS BYPASS - ADVOCACY QUESTION


Classified By: ECONOMIC COUNSELOR THOMAS GOLDBERGER FOR REASONS 1.4 (B) AND (D)

This is an action request. Please see Para 4.

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000247

SIPDIS

USDOE FOR CHARLES WASHINGTON
USDOC FOR ADVOCACY CENTER AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: DECL: 12/13/2014
TAGS: EPET BEXP TU KZ
SUBJECT: TURKEY'S THRACE DEVELOPMENT COMPANY AND BOSPHORUS BYPASS - ADVOCACY QUESTION


Classified By: ECONOMIC COUNSELOR THOMAS GOLDBERGER FOR REASONS 1.4 (B) AND (D)

This is an action request. Please see Para 4.


1. (SBU) Thrace Development Company (TDC) Chairman Howard
Lowe called on Ambassador December 8 to update us on TDC's
proposed oil pipeline project that would be an alternative
"bypass" route across Turkish Thrace for oil exported from
the Black Sea that currently passes by tanker through the
Turkish Straits. Lowe described his continued frustration
with no movement on TDC's longstanding permit application to
the GOT for the proposed project. (TDC, with USG advocacy
support, has asked the Turkish Government to issue it a
"conditional permit" that would allow it time to demonstrate
the financial and environmental feasibility of the project -
or at a minimum to give TDC a timely yes or no response.)
Asked about TDC's Turkish partners, Lowe disclosed for the
first time that Mehmet Karamehmet, Chairman of the Cukurova
Group, was a partner in TDC. We noted to Lowe that some U.S.
companies had experienced questionable, even threatening,
behavior in their dealings with Mr. Karamehmet and his
companies, and advised Mr. Lowe to exercise extreme caution
in connection with Karamehmet. Lowe said that Karamehmet had
declined an offer to be taken out of the partnership, noting
that Karamehmet's share constituted 16-17 %.


2. (C) Karamehmet is known to Post as an unreliable and
unsavory business partner. Post knows of one U.S. firm that
was subject to unethical and intimidating tactics, including
death threats, to force a settlement of a business dispute
favorable to Karamehmet. Because of this, Post has advised
U.S. firms against partnering with Karamehmet. While his
extensive Cukurova Group has significant interests in some
good assets (for example, Yapi Kredi Bank and Turkcell, the
major mobile telephone operator),it has been involved in
bank failures and murky financial transactions and dealings.
These include the failure and takeover of Pamukbank in 2002
and dubious lending from Yapi Kredi to other Cukurova Group
companies, resulting in $2 billion bad debt on the bank's

balance sheet. Turkish bank regulators are obliging Cukurova
Group to make good on this debt, but to date the group has
been unable to do so. Also, Cukurova Group is ineligible to
hold a bank license because of the failure of Pamukbank.
Karamehmet has also been involved in a nasty, public battle
for control of Turkcell with the company's Finnish/Swedish
partners.


3. (SBU) Our concerns were further heightened following a
January 12 conversation with Econoff in which TDC's locally
retained consultant, lawyer Yilmaz Oz, revealed that the
other TDC partners included former Kazakh Prime Minister
Nurlan Balgimbaev and Servet Harunoglu, Fintraco Construction
Chairman. Embassy notes that the former has been linked in
court documents to the FCPA case against James Giffen related
to Kazakhstan, but is not in a position to evaluate this
information. Lowe and his partners all appear to have oil
and other business experience in Kazakhstan. Howard Lowe
last called EconOff on December 21 to check on developments
(or lack of) on Bosphorus bypass projects. He said that TDC
was making progess in discussions with Gazprom for a
potential oil throughput guarantee. Lowe again expressed
frustration on lack of progress from the GOT on permitting
their bypass project.


4. (SBU) Action request: Post has advised Lowe to excercise
extreme caution in its dealings with Karamehmet. Given this
new information about financial interests behind TDC, post
would appreciate Washington's updated guidance on how to
pursue the company's advocacy request.


5. (SBU) Background: TDC applied for a permit for its
trans-Thrace (Kiyikoy-Ibrikbaba/Saros) project in June 2003.
A Transneft (partnered with Turkish Anadolu Construction)
backed project filed an application for a copycat
trans-Thrace project in June 2004. While MENR officials
agree in principle with the Embassy's consistent message that
the market - not governments - should pick potential
Bosphorus bypass projects; in practice, the GOT Council of
Ministers has held up permits pending approval of an
acceptable route. The GOT has expressed concern about lack
of oil throughput guarantees and environment impact - in
particular associated with the trans-Thrace route. The GOT
has indicated a preference for the Samsun-Ceyhan route and
has sought to gain Russian support for this route. (Note:
Prime Minister Erdogan just returned from Moscow, seeking a
broad range of energy, economic, and political agreements.
They do not appear to have reached any solid agreement on
Bosphorus bypass. End Note) In his meeting with the
Ambassador, Howard Lowe asserted that the Samsun-Ceyhan route
was not competitive from both a cost and technical basis,
relative to TDC's proposed route and project. He asserted
that the high elevation passage would create extra costs
and/or limits to pipeline size that would affect capacity.
Additional reporting on Bosphorus bypass issues will be
provided septel.
EDELMAN