Turkey State Refinery Company TUPRAS

UNCLAS ANKARA 000269

SIPDIS

STATE FOR EUR/SE, EB/IFD, AND EB/CIP
TREASURY FOR RADKINS AND MMILLS
USDOC FOR 4212/ITA/MAC/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: EPET EINV KTDB TU
SUBJECT: Turkey State Refinery Company TUPRAS
Privatization Opportunity

REF: 04 Ankara 6491


1. Summary: Following failure of an initial effort in
2004, the Government of Turkey plans to re-announce
tenders (this time) for 51% of the state refinery company
TUPRAS at the beginning of April 2005. Turkish officials
are eager for U.S. participation. End Summary.


2. TUPRAS dominates the petroleum refining and
downstream operations sector in Turkey. The company has
four main refining complexes: Batman in the Southeast,
Aliaga near Izmir, Izmit near Istanbul (the country's
largest refinery),and the Central Anatolian Refinery at
Kirikkale near Ankara. In 2002, TUPRAS' share of the
Turkish fuels and lubricants market was around 78 %, with
other major retailers including BP, ExxonMobil,
TotalFinaElf, Agip, and ConocoPhillips. TUPRAS is
Turkey's largest company in terms of revenues.


3. A previous attempt to privatize TUPRAS via sale of a
65 % stake was annulled last November when Turkey's top
administrative court found that the Privatization
Administration failed to adhere to the privatization
process requirements. A joint venture between Russian
Tatneft and local group Zorlu won the tender for a $1.3
billion sale. The court was responding to a case brought
by the Petroleum Labor Union representing TUPRAS
employees.


4. According to the Turkish Privatization Authority
(PA),the new tender will start afresh during the first
week of April. The tender will constitute a 51% block
sale in combination with an IPO of 14% of TUPRAS' stock,
potentially giving the acquiring company up to 65%
control of the refining company. The PA believes new
legislation supporting the privatization process will
reduce the potential for a legal challenge like that
which led to the cancellation of the 2004 privatization
of TUPRAS. PA seeks broader interest from Western
European and American firms to help arrive at a
successful conclusion.


5. Russian firms, which currently provide over 60% of
Turkey's natural gas, have shown strong interest in
investing in Turkey's energy sector. Russia also
provides significant oil to Turkey's Izmit refinery,
which probably drives Tatneft's interest in TUPRAS.
Energy Minister Hilmi Guler and other officials have
regularly told us that Turkey would welcome U.S.
companies' participation in the TUPRAS privatization, as
well as in other opportunities in the energy sector.

Edelman