TURKEY AND IRAQ DEADLOCKED ON SECOND BORDER

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 004609

SIPDIS

E.O. 12958: DECL: 08/05/2010
TAGS: ECIN EPET ETRD PREL IZ TU
SUBJECT: TURKEY AND IRAQ DEADLOCKED ON SECOND BORDER
CROSSING AS BOTTLENECK AT HABUR CONTINUES

REF: A. ANKARA 4366


B. KIMMEL-SNOW E-MAILS DTD 8/3 AND 8/4

Classified By: Acting DCM James Moore for reasons 1.4 (b) and (d)


1. (C) Summary: With reports of increasingly tight fuel
supplies in Iraq, the Charge called the MFA Deputy Under
Secretary for Economic Affairs and wrote to the GOT to urge

SIPDIS
whatever action can be taken by Turkish customs to maximize
throughput at Habur Gate. Separately, an MFA official gave
econoff a readout on last week's Turkey-Iraq bilateral
discussions on a second border crossing. The talks appear to
be hopelessly deadlocked, with Iraq pushing a second gate
near Habur, and Turkey insisting on a second route--not just
a crossing--substantially further west. While there will be
a modest expansion of capacity at Habur in a year or so,
significant easing of congestion by means of a second
crossing seems a distant prospect. A separate but related
issue continues to be late payments by SOMO, which the GOT
fears could result in a breakdown in the fuel supply line at
any time. The GOT is trying to get SOMO officials to come to
Turkey to discuss setting up a more workable system. End
Summary.

Urging Turkish Customs to Maximize throughput at Habur:
-------------- --------------


2. (C) Following ref b's reports of severe tightness in fuel
supplies in Iraq, post endeavored to engage the GOT to urge
that every possible measure be taken to maximize throughput
of fuel supplies at the congested Habur Gate. Post
understands from the U.S. military LNO at the border that the
customs staff is doing everything it can under difficult
conditions. However, additional throughput might be
achievable if additional personnel were assigned to Habur--a
challenge that Turkish customs has had difficulty meeting in
the past.


3. (C) Charge spoke to MFA Deputy Under Secretary for
Economic Affairs Ender Arat on August 5 and asked that all
possible measures be taken. Arat confirmed our understanding
that Turkish customs had problems getting personnel to work
at Habur and had to pay a premium. On the other hand, he took
the point that it was bad for fuel shortages in Iraq to reach
such a critical stage, and acknowledged that the truck
backlog was too long, and not in Turkey's financial interest.
He undertook to talk to Customs. Post sent over a
diplomatic note, copying it to Turkish Customs. We have also
arranged a meeting with the Acting Under Secretary for
Customs in the coming days.

Second Gate Talks Deadlock:
--------------


4. (SBU) Separately, Econoff met with MFA Deputy Director
General for Economic Affairs Mehmet Gucuk for a readout of
last week's bilateral talks with Iraq on a second border
crossing that took place in Ankara July 28-29.
Representatives of the Iraqi Ministries of Transport, Trade,
and Foreign Affairs attended, as well as the director of the
Iraqi side of the border gate. The Turkish side was led by
Director General for Economic Affairs, Oguz Ozge. Gucuk
confirmed press reports that, as with the previous meeting,
the two sides remain far apart.


5. (C) According to Gucuk, the Iraqi side will only consider
a second gate near Habur, which would connect with the
existing roads on either side of the border. Gucuk said the
Turks tried to convince the Iraqis that a new route was
needed, not just a new crossing, since the roads between Iraq
and Turkey would see increased volume as Iraq stabilized and
these roads would be the main route from Europe to Iraq.
Gucuk said the Turkish side sees little utility in creating a
second border crossing that will join up with the existing
road on the Iraqi side of the border. As in the past, Gucuk
referred to Turkey's longstanding concern that the existing
route allows KDP guards to garner border fees whereas the
Turkish-proposed route near Ovakoy--though it would still
pass briefly through KDP-controlled territory--stands a
better chance of channelling border fees to the central
government. In earlier meetings, Gucuk expressed GOT
frustration that they could not get the central government in
Baghdad to understand this and to exert some control over
Barzani on this issue. Gucuk was clearly resigned to an
extended deadlock on the second gate issue. He said the
Iraqi side had wanted to issue a statement that the talks had
been useful but the Turkish side did not see the utility of
such a statement.

Measures to Ease Habur Gate Congestion:
--------------


6. (SBU) Aside from building a second crossing, two other
initiatives are in the works to expand existing capacity;
however, neither will be completed quickly and neither is
likely to meet existing volume requirements. Gucuk said that
the Union of Turkish Chambers of Commerce (TOBB) has a
contract on a Build-Operate-Transfer basis from the Turkish
State to rehabilitate and expand the Habur Gate. Gucuk said
TOBB had done a similar BOT project at the border crossing
between Turkey and Bulgaria. Post understands that TOBB will
soon take over operation of the gate and begin its work.
This may cause short-term disruption however when the work is
completed--expected in a year or so--it is expected to expand
capacity by roughly 50 percent, according to press reports.
Another initiative is to create a pipeline across the border,
as reported in ref A. While positive, these initiatives may
not be sufficient to meet peak volumes such as the current
level of truck traffic.

MFA Asserts SOMO Late Payments a Threat to the System:
-------------- --------------


7. (SBU) Gucuk again raised the problem of delayed payments
by SOMO to Turkish contractors. As of July 21, SOMO owed
Turkish suppliers $572 million, of which more than half were
in arrears. Gucuk said the GOT is concerned that the
recurring problem of SOMO paying late posed a constant threat
to the supply chain. The suppliers, many of them small
companies, could not continue to do business without
receiving more timely payments. Gucuk said that it would be
bad for Iraq if the suppliers stop shipping or seize
shipments to settle arrears. According to Gucuk, the small
suppliers do not feel they have the bargaining power
individually to convince SOMO to pay more quickly, so they
are pressing the GOT to try to work out a more comprehensive
solution. Gucuk said the MFA is working through its
Ambassador in Baghdad to request SOMO send some of its
officials to Turkey to discuss the issue. He said the
Turkish side would prefer a system using letters of credit,
or some way of putting the payment system on a sustainable
basis. Comment: Though the suppliers continue to ship, the
fact that larger private companies have exited this business
and the single largest supplier is state-owned TPIC with $173
milliion in unpaid bills lends credence to the MFA's
contention that the current situation may not be sustainable.
Even TPIC, which Gucuk has told us in the past is being
pressured by the GOT to continue shipping, has urged us to
pass word to SOMO that it cannot continue to pay late. End
Comment.

Iraq REO Minimize Considered.
MCELDOWNEY