TURKEY AND BTC: WAITING FOR OIL AT THE GEORGIAN

UNCLAS SECTION 01 OF 03 ANKARA 005533

SIPDIS

STATE FOR EUR/SE, EB/CBA, AND EB/ESP
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
DOE FOR CHARLES WASHINGTON

SENSITIVE

EUR ALSO FOR DAS BRYZA

E.O. 12958: N/A
TAGS: EPET ENRG PHUM EINV TU BTC
SUBJECT: TURKEY AND BTC: WAITING FOR OIL AT THE GEORGIAN
BORDER

REF: A. ANKARA 5172 and previous


B. ANKARA 2380

Sensitive But Unclassified. Please Handle Accordingly.


1. (SBU) Summary: Turkey and Georgia are competing to see
which will be the limiting bottleneck for first oil in the
BTC pipeline, each side pointing vigorously at the other.
As the contest will have contractual ramifications for
settling construction delays and cost overruns, it has led
to some tension between BOTAS (Turkey's prime contractor and
operator) and the BTC Consortium (led by BP and operator for
Georgia). Mid-October is the likely date for oil at the
Turkish border, meaning first oil at Ceyhan in December at
best, and good possibility of slippage to 2006 (Ref A). End
Summary.

Construction Challenges - Who will be First and Last?
-------------- --------------


2. (SBU) EnergyOff traveled to PT1 - Pump Station One in
Turkey - on September 20, observing construction on the site
being wrapped up at a feverish pace. Key "punch" (remaining
to be completed) items that have delayed completion are:
electrical linkages and critical telecom connections and
back-ups to outside the station (Ceyhan and Baku). It is
still not clear whether Turkey will be ready first to
receive oil or Georgia will be ready first to provide oil,
respectively, at the border.


3. (SBU) The BOTAS PT1 site manager lamented the challenges
BOTAS has faced in moving construction along under its fixed
price turnkey contract. He attributed significant problems
to the excessively low winning bids from BOTAS (overall
prime contract for Turkey) and TEPE (Turkish well-connected
sub-contractor for Lot A - starting at the Georgian border -
and four pump stations; with Dutch Nacap as technical
partner). TEPE early on experienced cash flow problems due
to lack of technical expertise and delays in completing
construction camps (leading to over-spending on hotels and
restaurants for construction crews). According to the site
manager, over 152 separate sub-contractors had stepped on
the site (and there was a construction peak of over 500
employees). The manager noted that there were some design
flaws and inefficiencies, like too much concrete poured.
Cash flow problems culminated earlier this year in BOTAS
taking over the contract from TEPE, receiving loans from the
BTC consortium to complete the contract.


4. (SBU) BOTAS and the BTC Consortium have recently been at
odds about who will be ready - or not ready - first. BTC
Consortium, led by BP, represents overall oversight and the
project sponsors, and also operates the pipeline in Georgia.
BOTAS officials (on the site and in Ankara) complained to
EnergyOff that BTC had not been straight with them on when
oil would reach the border. Targets have moved around
prospective dates in September and October; BOTAS believes
that oil will be ready at the Georgian border on October 15,
and that they will be ready to receive it. (This means first
oil inauguration at Ceyhan in December at best, and good
possibility of slippage to 2006 - Ref A.) The party
responsible for a delay at transiting the border will be in
a weaker position in the inevitable contractual disputes
over cost overruns. BOTAS completed its natural gas spur
pipeline to provision the pump station, completing
comparable reinstatement on its parallel route to Lot A.


5. (SBU) According to BOTAS and BTC officials, first tanker
oil was off-loaded at Ceyhan on September 15 to implement
pre-commissioning of the tanks to enhance readiness for
first pipeline oil. EnergyOff traveled parts of Lot A near
the Georgian border, noticing extensive soil reinstatement
and reseeding and anti-erosion measures on the mountainous
route.

Human Rights Complaints Appear Trumped Up - Seeking Local
Buy-In
-------------- --------------


6. (SBU) In a visit to Ankara, the UK contact point for
OECD Guidelines for Multi-National Enterprises (the OECD
"complaint process") spoke to EnergyOff about alleged human
rights violations made by the London-based Kurdish Human
Rights Project, purportedly affecting Kurdish villagers
around Ardahan on Lot A. While the British official heard
complaints from villagers about insufficient and/or slow
resolution of construction-related damages, he did not
perceive this as being systematic and related to purported
"Kurdishness". While he (and EnergyOff in separate visits
to villages around Erzurum - Ref B) was aware of
construction-related complaints, he stated that the BTC
complaint process was open (internet based and tracked),
robust, and generous. There is not evidence of any sort of
systematic human rights abuses. Rather, he believes that
London-based Kurdish groups, and Friends of the Earth (for
alleged environmental problems) have "piled on" the
opportunity to work their target issues on a highly visible
international project. Embassy perceives that Turkey's
domestic Kurdish human rights community has not taken up the
London-based Kurdish group's anti-BTC cause.


7. (SBU) Observers note there have been valid complaints
related to slow resolution of construction related damages,
but they also note that the perception of BTC's deep pocket
and the closing of the window of opportunity for personal
enrichment have increased complaints. A Kurdish employee of
BOTAS emphasized to EnergyOff his perception that there was
no substance or traction to the complaints of the Kurdish
villagers. EnergyOff heard broad support and praise for the
employment and community assistance programs engendered by
BTC. This was supported by a random survey by EnergyOff of
interlocutors in the regional capital of Kars: Chamber of
Commerce President; restaurant and shop owners; city
officials at the museum; guides and group of army officials
picnicking at the nearby historic Armenian site of Ani.
Note: Kars suffers as a border town next to a closed border
(with Armenia),but appeared positive, bustling, and secular
(contrasting with the image portrayed in a popular novel by
Orhan Pamuk) to EnergyOff. They were also eager for the
arrival of natural gas from a distribution tender targeted
for late 2006; they notice the arrival of pipe by train for
the Shah Deniz natural gas pipeline to parallel BTC. End
Note.

Security Measures
--------------


8. (SBU) EnergyOff was impressed with visible security
features at the Pump Station and Lot A. Finishing touches
were underway on a double outside perimeter fence, a
separate inside perimeter fence, gate guard facility, and
corner guard towers. According to the site manager, there
were regular contacts with the Jandarma (Turkish military
police) force, which was completing a separate two building
permanent security facility overlooking the pump station.
He noted that there was a spate of small acts of "sabotage",
an unfortunate, but normal, feature of winding down a big
construction project. The manager said that contacts with
Jandarma had increased because of this, in particular in
light of one written threat received. EnergyOff observed a
fenced underground valve station and stretches of the buried
pipeline along Lot A. While a determined bad guy might be
able to dig down to the pipe, it would be difficult to
remain undetected given presence of significant roving
Jandarma presence and local nomads and villagers (presumably
"bought in") in the mostly tree-less and rough terrain.

Comment - First Oil Must Be Real
--------------


9. (SBU) BTC, BOTAS, and Turkey's MFA are in agreement on
not wanting to do an artificial first-oil inauguration at
Ceyhan (Ref A). BTC's current projection for first pipeline
oil export is late-December. BOTAS points out the technical
difficulties of facilitating first oil over Turkish
mountains in cold weather (crews will have to follow the
first "pig" which will lead initial plugs of liquid
nitrogen, which will precede first oil). All parties
recognize great likelihood of slippage, so first oil
inauguration may slip to 2006, and it might as well be
planned for March to aim for better weather in Ceyhan
(Reftel). While slipping from 2005 would be a
disappointment, it still does not detract from the
remarkable success of this rugged three-country project,
achieved with strong common support from the governments of
the U.S. and Turkey.

McEldowney