ENERGY MINISTER LOOKS FORWARD TO ENHANCED DIALOGUE

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 007656

SIPDIS

DOE FOR A/S HARBERT AND CHUCK WASHINGTON
USDOC FOR ITA/MAC/CRUSNAK

E.O. 12958: DECL: 12/27/2010
TAGS: ENRG BEXP IR IZ TX AJ TU
SUBJECT: ENERGY MINISTER LOOKS FORWARD TO ENHANCED DIALOGUE

REF: A. BAKU 1918

B. ANKARA 6386

Classified By: Ambassador Ross Wilson. Reasons 1.4 (b) and (d).


1. (C) Summary. Seeing opportunities for cooperation on
regional gas and oil projects as well as prospects for U.S.
private investment in Turkey's fast growing domestic energy
sector, Energy Minister Hilmi Guler looks forward to greater
dialogue and cooperation with the United States on energy
issues. Guler told Ambassador December 22 he especially
needs U.S. help deflecting EU and Iranian pressure to transit
Iranian gas to Europe, and claimed that Turkmen and Iraqi gas
projects were feasible alternative sources of supply to
Europe via Turkey. Guler also hopes for a negotiated
solution to disputed BOT contracts with independent power
producers, but said Turkey would act unilaterally if the
companies did not negotiate in good faith. Ambassador said
he had spoken with DOE Secretary Bodman about attending the
Baku-Tblisi-Ceyhan opening ceremony in Ceyhan in the Spring
and about inviting Guler to launch a bilateral energy
dialogue. Ambassador stressed his interested in
collaborating with Turkey on energy, reprising the historic
success of our cooperation on Caspian energy and
infrastructure development. End Summary.

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Minister Interested in Energy Dialogue
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2. (C) Energy Minister Guler agreed with Ambassador that
more dialogue and cooperation with the United States on
energy issues would be useful for both countries. He agreed
that there was an opportunity to build on the success of the
Baku-Tblisi-Ceyhan project and looked forward to welcoming
Secretary Bodman at the inauguration of the Ceyhan terminal

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this Spring (he said the timing could be arranged to suit the
Secretary's calendar). Guler also hoped to accept the

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American Turkish Council (ATC) invitation to attend the ATC
March 27-29 annual meeting in Washington. If the Secretary
is available, this would be a good time to launch a
high-level energy dialogue. Ambassador said that DOE's
interest is to have a very concrete and practical dialogue.
Guler replied that this is exactly what he wants, as well.

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Alternatives to Iranian Gas for Europe
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3. (C) Guler said he needs U.S. support in order to
continue to deflect European and Iranian pressure to transit
Iranian gas through Turkey to Europe. To do this would
require developing Turkmen and/or Iraqi gas exports via
Turkey. Guler said convincing Niyazov to accept a
Trans-Caspian pipeline was "not impossible" and perhaps
easier than the U.S. thought. Building a gas pipeline that
followed the route of the existing oil pipeline from northern
Iraq to the port of Ceyhan, where it could be liquified, was
another option. Guler said he could not hold out against the
EU pressure "forever" and suggested that developing these
alternatives would provide leverage with Iran on the nuclear
issue.


4. (C) Ambassador observed that countering Iran had been
one of the main motivations for BTC and the South Caucasus
Gas Pipeline projects, and we remain concerned about Iran.
While he was uncertain about the prospects for Iraqi gas
export, Ambassador described his own history with Niyazov and
the trans-Caspian idea, concluding that further work for the
foreseeable future seemed fruitless. However, the Azeris had
recently raised their Caspian gas reserve estimate and BP now
believed it might have production volumes of up to 35 bcm or
more (ref a). Turkey should work with the companies and
Azerbaijan to market this gas to Europe.

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U.S. Support Needed for Samsun-Ceyhan Project
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5. (C) Guler also said he needed U.S. support for the
Samsun-Ceyhan oil pipeline project, which would provide a new
outlet for Russian and Central Asian oil that would bypass
the congested Turkish Straits. He said the Straits had
reached its capacity limit and that an accident in Istanbul
would be devastating not only for the city, but for global
oil security. Russia, Guler said, had finally understood the
need for Straits bypasses, but that it is supporting the
Bulgaria-Greece route. Samsun-Ceyhan, however, offered a
safer route since it avoided the sensitive Aegean. He agreed
with Ambassador that the project would have to be
commercially viable. He said that U.S. oil companies'
ability to provide throughput commitments is essential and
asked for any help the U.S. Government can provide.

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U.S. Investment in Domestic Energy Sector Welcome
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6. (SBU) Guler said he looks for greater U.S. involvement
in Turkey's domestic energy sector. He is aware of and
welcomes the interest of U.S. firm AES in the planned
privatization of the electricity distribution system. He
said he would similarly welcome U.S. interest in Turkey's
planned civilian nuclear generation program, the details of
which will soon be announced. In response to the Ambassador,
Guler said he also welcomes U.S. companies' input into the
design of specifications and other technical details of
tender documents. He noted that there were many other
projects on the drawing board that could interest U.S.
companies, but said budget spending limitations agreed with
the IMF put these projects on hold. (This may be a reference
to stalled hydropower projects under the U.S.-Turkey
protocol.)


7. (SBU) Finally, Guler said he needs to negotiate changes
to the electricity tariffs in BOT contracts that the GOT
signed with independent power producers on "unfavorable
terms" before the 2001 financial crisis. He said the
companies involved were willing to change the contracts, but
that their foreign creditors and insurance companies were
objecting. He agreed with Ambassador that a negotiated
settlement was in Turkey's best interest, but added that if
this was not possible Turkey would take action in accordance
with its laws and regulations. The Presidency and the Court
of Accounts have prepared confidential reports of
improprieties in the negotiation of the contracts that, Guler
said, he would prefer not to have to make public.
WILSON