TURKEY: SOMO ARREARS APPROACH BREAKING POINT

UNCLAS SECTION 01 OF 02 ANKARA 006468 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ETRD EPET PREL IZ SUBJECT: TURKEY: SOMO ARREARS APPROACH BREAKING POINT REF: A. ANKARA 6231 ¶B. ANKARA 6095 ¶C. ANKARA 3842 ¶D. BAGHDAD 2845 SENSITIVE BUT UNCLASSIFIED ¶1. (SBU) Angry Suppliers: MFA informed EconOff on October 26 that SOMO arrears (45 days past product delivery) to Turkish fuel suppliers had grown to almost $900 million (out of accounts receivable of about $1 billion). Both the Foreign Economic Relations Board (DEIK - representing Turkish suppliers) and TPIC (major state-owned supplier) told Embassy that the quantity of arrears had reached maximum exposure for suppliers. TPIC, which re-entered the SOMO business after a major payment was made in early August, said that it was going to stop shipping product to SOMO in a few days, and said other (mostly smaller) shippers would likely follow their lead. In addition, TPIC complained that SOMO just sent a letter which they interpreted as offering little hope for prompt payment. DEIK complained that the ITG was using a deliberate financing strategy to avoid paying Turkish suppliers, in contrast to timely payments made to Persian Gulf suppliers. Embassy appreciates Baghdad's demarches to the ITG to seek settlement of the arrears. ¶2. (SBU) DEIK Proposal: In a letter to the Charge, DEIK proposed that the USG guarantee SOMO payments, in order to assure continued delivery of fuel products to the market in northern Iraq. Understanding that USG financial guarantees are likely not in the cards, we transmit this to Washington both as an indication of the desperation of suppliers and given the importance of fuel supplies to the civil situation in Iraq. We would appreciate a reaction to pass to the suppliers. The text of the DEIK letter is in paragraph 5. ¶3. (SBU) Habur Gate woes: Meanwhile, U.S. military officers and contractor representatives at Habur Gate report that tensions and slow-downs are rising in the lead up to end-of-Ramadan holiday and approaching winter, historically a time of potential transport labor strife or reduced activity. MFA cites SOMO's recent cancellation of 22 of 36 contracts with Turkish suppliers (reportedly for insufficient or late delivery of product) as the cause of a recent shortfall in gasoline (benzine) crossing the border for SOMO. MFA insists that the GOT Foreign Trade UnderSecretariat is not the source of current fuel shortages, having issued export/transit license to all shippers. ¶4. (SBU) Comment: Post has long noted that fuel exports will remain challenged as long as there is just the single Habur Gate. Although ongoing construction of a new Turkish border facility is contributing to the delays and tensions among drivers, the border gate does not appear to be the source of the current problem. Customs officials have implemented reasonable measures to facilitate passage of fuel, but not enough fuel is now arriving at the gate. Gasoline delivery has been particularly volatile and short in the past few weeks. Delays and/or shortfalls will likely be exacerbated if SOMO arrears continue to grow. ¶5. (U) DEIK letter to Charge, dated October 25, 2005 - text follows: We would like to thank you very much for your letter of October 18, 2005. We appreciate your support and efforts to the Business Council activities, in particular your attempts concerning the payments to be done to the Turkish oil companies by SOMO. In this framework, with reference to your letter we would like to propose an alternative way to make the relations long lasting and stable with SOMO. As you know, so far the paymets have been irregular and the receivables have reached almost 1 billion USD. In order to have a more stable relation with SOMO, we propose the US Government to guarantee, and realize the payments if the receivables exceed a six month period. As the Business Council, we are aiming alternative ways to resolve this problem and thus contribute to the bilateral trade relations. Thanking you very much for your kind collaboration, and awaiting for your reply at your earliest convenience. Ercument Aksoy, Chairman of the Turkish-Iraqi Business Council, and Mehmet Habbab, Vice Chairman of the Turkish-Iraqi Business Council MCELDOWNEY