TURKEY WORKING TO EXPEDITE FUEL EXPORT TO IRAQ,

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 004880 SIPDIS E.O. 12958: DECL: 08/05/2010 TAGS: ECIN EPET ETRD PREL IZ TU SUBJECT: TURKEY WORKING TO EXPEDITE FUEL EXPORT TO IRAQ, BUT HARBUR GATE REMAINS BOTTLENECK REF: A. ANKARA 4609 ¶B. ANKARA 4367 Classified By: Economic Counselor Thomas Goldberger for reasons 1.4 (b) and (d) ¶1. (C) Summary: The GOT seems to be doing its best to maximize truck traffic at Habur Gate, but shipping flow through the gate will remain an on-going problem for a variety of reasons, particularly because the single gate will remain a bottleneck and because civilian and military needs in Iraq appear set to continue to grow. Late payments to Turkish petroleum product shippers from SOMO will also continue to be a problem that could threaten to interrupt civilian supplies. While there will be a modest expansion of capacity at Habur in a year or so, the only long-term solution is construction of a second border crossing, which remains stymied by Turkish and Iraqi inability to agree on a location and supporting road network. End Summary. Urging Turkish Customs to Maximize Throughput at Habur: -------------- -------------- ¶2. (C) Following Ref A's reports of severe tightness in fuel supplies in Iraq, post continued to engage the GOT to urge that every possible measure be taken to maximize throughput of fuel supplies at the congested Habur Gate. Charge relayed this message by phone and diplomatic note to MFA Deputy Under Secretary Ender Arat. MFA subsequently informed Embassy that SIPDIS it had "issued instructions to alleviate the situation" and there did appear to be an improvement on the ground. Customs Director General Sezai Ucarmak and Habur Gate Director Rostem assured Econ Counselor on August 8 that the GOT was doing its best to facilitate truck processing. They provided figures that showed an increase in processing, and - in any event - asserted that they were surpassing their perceived informal quota of 1000 daily tankers southbound (as well as prioritizing tankers over freight). They admitted that there had been some changes in personnel, but asserted that the gate was open 24/7 for truck processing. The customs officials noted that fewer trucks chose to use night-time hours (during a recent trip to Habur, ODC logistics officer learned that semi-official processing facilitators did not work at night, so truckers would have to "get all the boxes checked" on their own). They asserted that the gate was therefore operating at maximum physical capacity, and additional staffing would not alleviate the situation. The customs officials complained that the Iraqis batched convoys of trucks, and would sometimes not accept trucks from the Turkish side (this has not been confirmed by other sources). Contrary to previous reporting (Ref B),the gate director said that the waiting line was about 7 km (vice what he said was erroneous reports of 70 km; the relatively short line was corroborated by ODC Officer on the ground.) ¶3. (SBU) In an August 10 meeting with Econ Counselor, Customs Under Secretary Cihat Ancin corroborated these assertions. He said that with increased security and cooperation on the Iraqi side, two-way processing could increase from current 5,300 to 6,000 trucks. Both interlocutors stressed near term projects to expand processing capacity at the gate. Measures to Ease Habur Gate Congestion: -------------- ¶4. (SBU) Aside from building a second crossing (Per Ref A, still stymied by disagreements about location),two other initiatives are in the works to expand existing capacity; however, neither will be completed quickly and neither is likely to fully solve the bottle neck. 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. According to Under Secretary Ancin, the processing capacity would increase by SIPDIS 30%. He expects construction to take 15 months, but gate capacity could be reduced by as much as 50% during this period, although Turkish officials are making strenuous efforts to avoid and minimize disruptions. Ancin said, for example, that the Sirnak Governor's Office will set apart additional areas to relieve accumulation at the gate (ODC Officer saw this area.) Note: We have received assurances that the construction would be phased to minimize disruption, but assume that in reality there will be some periodic reduction of flow. End Note. ¶5. (SBU) Another initiative is to create a pipeline across the border. State-owned Turkish Petroleum International Co. (TPIC) Vice President Sadi Gungor described its project to Energy Officer on August 11. He said that TPIC has completed the Turkish portion of the 15 km pipeline, but is waiting for SOMO to arrange Iraqi approval and to coordinate setting up receiving and measuring mechanisms. TPIC aimed to pump up to 1500 tons per day, the equivalent of 100 tankers. The TPIC rep stressed their willingness to help improve the situation in Iraq, including partnering with and representing U.S. firms. He expressed extreme frustration with the challenges of working with the Iraqi side. Gungor described TPIC's efforts to establish a rail connection for shipping fuel via Syria (again for 1500 tons per day or 100 tanker equivalent); he said that unfortunately this scheme had been dropped because of unreasonable demands from Syria and security problems. SOMO Late Payments a Threat to the System: -------------- ¶6. (SBU) The TPIC rep said that as of the week of August 15, TPIC had stopped shipping gasoline to SOMO, because SOMO non-payment and/or arrears had breached $1 billion (of which TPIC held $200 million as the major shipper from Turkey). He said that this amount was beyond any reasonable limit; moreover, he asserted that it was a conscious financing mechanism on the part of the ITG. This number exceeded the then estimate from MFA of $600 million overdue (with another $300 million reportedly on the verge of becoming arrears). ¶7. (C) MFA officials subsequently told Econ Counselor that SOMO then paid $230 million on August 17, bringing total due from SOMO to Turkish companies to $600 million, of which $520 million was in arrears. SOMO promised another payment of $150 million by August 19. MFA pointed out that SOMO had doubled its orders from Turkish companies as of July 1, increasing Turkish companies involved to 30 from 16, as an explanation for the growth in arrears. ¶8. (C) Comment: Although Post believes that the Turks have made sincere short term efforts to facilitate fuel shipments to Iraq, Habur Gate will remain a troublesome bottleneck, creating episodic problems requiring intervention by U.S. military logistics officers in the areas, as well as by the Embassy. GOT Customs appears to be effectively balancing the demands of tankers and freighters, in the face of hot temperatures and tempers and periodic lines. GOT has put in place a number of initiatives to increase processing capacity, but the vexing problem of scarce resource capacity will endure as long as there is just one gate. TPIC's claim that it has stopped shipping fuel to SOMO (without any effect on sustainment shipping) is difficult to measure on the ground, but corroborates our fears that the pervasive issue of SOMO non-payment is not sustainable. Large private companies had already exited the business and state company TPIC appears to have reached its limit on exposure to SOMO in the face of no collateral or guarantees. End Comment. MCELDOWNEY