DAS BRYZA MEETING WITH TURKEY ENERGY

UNCLAS SECTION 01 OF 03 ANKARA 005080

SIPDIS

SENSITIVE

USDOE FOR CHUCK WASHINGTON
USDOC FOR 4212/ITA/MAC/OEURA/CPD/CRUSNAK

E.O. 12958: N/A
TAGS: EPET ENRG EINV TU GG IZ AZ BTC
SUBJECT: DAS BRYZA MEETING WITH TURKEY ENERGY
UNDERSECRETARY ON BTC, GAS, AND BYPASSES

REF: ANKARA 4000

SENSITIVE BUT UNCLASSIFIED


1. (SBU) Summary. DAS Bryza and Turkey's senior energy
bureaucrat agreed that the imminent completion of the BTC
pipeline set the stage for new areas of bilateral energy
cooperation, including on Turkish Straits "bypass" pipelines,
supplying gas to southern and southeastern Europe, and U.S.
investment in Turkey's energy sector. However, such
initiatives will require strengthening of Turkey's domestic
legal and regulatory framework for energy investment. Bryza
agreed to consult with U.S. oil companies on ways to overcome
competing proposals for bypass routes, to encourage U.S.
corporate feedback to Turkey on its regulatory climate
(particularly by U.S. firm AES given its interest in
electricity distribution),and to work to develop a regular
energy dialogue, probably under the auspices of the foreign
ministry-led economic dialogue. End Summary.

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Gas Hub: Weak Domestic Environment
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2. (SBU) In his August 26 meeting with Energy Ministry Under
Secretary Sami Demirbilek, State EUR/DAS Matt Bryza described

SIPDIS
how the U.S.-Turkey strategic partnership on energy issues
had been a pillar of the bilateral relationship, as
demonstrated by the success of the Baku-Tbilisi-Ceyhan (BTC)
pipeline. Now that BTC is nearly in operation, Bryza said
the U.S. and Turkey should find new areas to advance their
energy partnership, such as in support of oil pipelines that
bypass and reduce the pressure on the Turkish Straits. Even
more significantly, Turkey has the potential to become a gas
hub for supplying southern and southeastern Europe and, in so
doing, provide market-based competition that would spur
positive changes in the anti-competitive mentality of Gazprom.


3. (SBU) Demirbilek welcomed the forward-looking ideas and
agreed that Turkey had the potential to be a gas hub,
conveying Egyptian, Iraqi, Caucasus and Central Asian gas to
European markets. But, he cautioned that Turkey currently
does not have excess gas supplies (following a modification
this summer of one take-or-pay deal with Russia) and that,
more importantly, its domestic regulatory and legal
environment is not yet strong or mature enough to support a
hub role. In fact, if domestic regulatory shortcomings were
not addressed, Turkey would not be able to supply its own
natural gas needs after 2011, when a 6 bcm BOTAS purchase
contract with Russia runs out. Demirbilek requested U.S.
corporate and government support in providing sound advice to
the Turkish government on how to create a framework
supportive of energy investment. Such advice needed to be
directed at Turkish agencies responsible for the investment
climate, especially the Ministry of Finance, the Treasury,
and the Privatization Administration, he emphasized.
Regarding southeastern Europe, Demirbilek explained why
Turkey had been unable to sign on to the Southeast Europe
Energy Community Treaty in full because the treaty would have
required Turkey to implement costly EU environmental acquis
immediately rather than through the EU accession process.

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Bypasses: Need to Overcome Company Rivalries
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4. (SBU) On oil "bypass" pipelines, Bryza and Demirbilek
agreed that the Turkish Straits had reached their throughput
capacity and that there were several bypass proposals on the
table, including Trans-Thrace, Samsun-Ceyhan, Balkan routes,
and Odessa-Brody. Demirbilek argued that the risk of a major
disruption in the Straits was a key uncertainty in global oil
supply today. To him, the most feasible bypass route for
cost, environmental and safety reasons seemed to be
Samsun-Ceyhan. However, the major oil companies were not, he
said for competitive reasons, able to agree on a route. He
suggested that the U.S. and Turkey consider calling a
conference with oil companies at which each would be able to
present its ideas on the best route. The role of the
governments would not be to officially favor any proposal,
but to call on the companies to lay aside their rivalries and
to support a consensus. Bryza agreed to consider this idea,
and consult with U.S. companies and get back to Demirbilek.

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U.S. Investment in Energy Sector
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5. (SBU) On U.S. investment in Turkey's electricity
distribution network, Demirbilek welcomed the interest of
AES, but said that AES needed to engage more forcefully with
the Privatization Administration, Treasury and Finance
Ministry to give its views on how the tender could best be
constructed to include the assurances required to encourage
bids by experienced companies like AES. Otherwise, the
tender would likely go to an unqualified, "adventurous"
bidder. Bryza said he would discuss this with AES. Replying
to Bryza's inquiry about Turkey's interest in civilian
nuclear power, Demirbilek said that Turkish planning was at a
very early stage, examining the legal, regulatory, and
environmental requirements a nuclear industry.

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BTC Inauguration Timing
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6. (SBU) Demirbilek said that the GOT continued to plan a
BTC "First Oil" in Ceyhan for November 10, although he
acknowledged that the date could slip into December for
technical reasons. He hoped for high-level USG participation
(see reftel),which Bryza said he would work to ensure.
Bryza said he was aware that BP targeted first oil at Ceyhan
for December, and so argued for a mid-December inauguration.
(Note: BP latest forecasts indicate late December for first
oil, but they believe that mid-December is still realistic
for first tanker loading. The risk of delay is that
pre-commissioned oil via tanker from Supsa would have to be
utilized instead. End Note.) On differences with BP and the
Consortium over cost overruns in Turkey, Demirbilek said that
these would be settled, after, not before, BTC becomes
operational.

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Iraq Electricity
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7. (SBU) Demirbilek said efforts to increase Turkish
electricity exports to northern Iraq were also stymied by
domestic regulatory issues. He was worried that the Energy
Regulatory and Markets Authority (EMRA) was taking too much
of a doctrinaire approach to licensing such exports. In
particular, he thought EMRA's plan to auction transmission
rights from Turkey to Iraq was not workable. (Post will
followup separately with EMRA on the latest state of play.)

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Georgia Gas
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8. (SBU) Demirbilek said that the Energy Ministry would not
object to selling excess Shah Deniz gas supplies to Georgia
if the Turkish government concluded that this would be in
Turkey's national interest of establishing better relations
with Georgia. He noted that Turkey and Georgia had agreed
this summer on an electricity swap program under which
Georgia would supply Turkey with excess hydro-generated
electricity in the summer months, which Turkey would return
in the fall.

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Comment
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9. (SBU) Both Bryza and Demirbilek agreed that there was a
need for periodic bilateral discussions of energy issues.
Demirbilek said that from his point of view, the best way to
manage a dialogue was under the umbrella of the MFA-led
economic partnership dialogue. He said this would ensure
inter-agency cooperation in the GOT and reduce the
administrative burden on the MoE. Post welcomes DAS Bryza's
engagement on energy issues. Demirbilek appeared hesitant to
commit on major new initiatives, but those hesitations
probably reflect his already heavy agenda and doubts about
MoE's capacity to follow-through -- as well as potential
concerns about his relationship with Turkey's major energy
supplier, Russia. These hesitations can probably be overcome
through continued engagement and interaction.


10. (U) DAS Bryza has not cleared this cable.

MCELDOWNEY