TURKEY: EURASIA SENIOR ADVISOR MANN'S JULY

C O N F I D E N T I A L SECTION 01 OF 02 ISTANBUL 001421

SIPDIS

USDOC FOR NEWMAN AND FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: DECL: 08/18/2015
TAGS: BEXP ENRG GR SENV TU
SUBJECT: TURKEY: EURASIA SENIOR ADVISOR MANN'S JULY
ISTANBUL MEETINGS

Classified By: Classified by P/E Section Chief Stuart Smith. Reasons 1

.4 (b/d)



1. (C) Summary: In a July 20 meeting in Istanbul with Raphel
Moissis, the CEO of the Public Gas Corporation of Greece
(DEPA),Senior Advisor for Eurasia Ambassador Steven R. Mann
discussed the Greek-Turkey gas interconnector, prospects for
Italian-Greek cooperation on the Greece-Otranta line,
progress on the Burgas-Alexandropolous oil bypass pipeline,
and Russian interest in the Southeast European Gas Ring.
Amb. Mann cautioned Moissis on cooperation with Iran. End
summary.


2. (C) On July 20, 2005, Senior Advisor for Eurasia
Ambassador Steven R. Mann met at the Ciragan Hotel in
Istanbul with DEPA CEO Raphael Moissis and Greek Ministry of
Development General Secretary Nikolaos Stephanos, at
Moisses, request. The discussion started with
congratulations on the July 3 ceremonial opening of the
Greek-Turkey gas interconnector. Moissis said that Turkish
Prime Minister Erdogan pledged gas through the connector
within one year. Construction is continuing on both sides of
the border; Moissis said, "We started last but will catch
up." Moissis turned quickly to the prospects for sending gas
into Italy via Greece. Edison and the Energy Ministers of
Italy and Greece have signed an internal agreement for Edison
and DEPA to have a 50-50 partnership in a trans-Adriatic
line. Botas can come in as a third party. Botas, DEPA and
Edison have agreed to a transit tariff. They are now doing
netback analysis to see what will be a feasible price/source
of gas.

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Details on the Interconnector
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2. (C) Moissis explained details on the interconnector: the
Karacabey-to-Kipi segment is still to be constructed, but the
pipe and the workers are ready. Kipi-Alexandropolous and
Alexandropolous-Kamatini are being built by two different
firms in accordance with the previous Greek-Soviet IGA
involving Prometheus Group (Kopelousas). The agreement gave
Kopelousas Group the right to build a new pipeline "by
analogous terms" with the main Greek line it constructed in

1990. Kopelousas Group and DEPA have not reached agreement
on what those terms are, although the right of way has been
secured. There is an 8-10 million Euro difference between
the sides and the government fears Parliamentary and press
criticism if they give in to Kopelousas Group's demands.
This is why the Alexandropolous-Kamatini segment is delayed.

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Good Prospects in Italy
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3. (C) The results of the April 4 Italian election meant
that prospects declined for the Brindisi LNG terminal but
boosted the Greece-Otranto line. An Italian-Greek
ministerial agreement relating to this was signed June 25.
All signs now are that Edison is moving at full speed. They
will sign the final IGA on this pipeline in Rome in
September. One complication: a Swiss firm, EGL, approached
DEPA this year. EGL is proposing its own trans-Adriatic
pipeline: Bulgaria-FYROM-Albania-Italy. Their market: 5 BCM
for EGL-owned power stations in Italy (per Edison, 2.5 BCM is
a more credible figure). EGL also wants to launch a gas
trading business. EGL has proposed a compromise, linking
with the Greeks but abandoning the Bulgarian and FYROM links.
They would get gas from Turkey, via the northern route.
EGL, Edison and DEPA met in Milan during the week of July 11
to discuss the possibilities. Edison and DEPA were skeptical
and left the meeting with the burden of proof remaining on
EGL.

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Caution on Iran
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4. (C) Moissis said that Iran is considering Greece as a
possible entry point for gas to the EU. Mann urged them to
be cautious. He warned about U.S. sanctions and opined that
the time may be ripe for a renewed U.S. drive against
sanctions violators. They discussed the problems of the
upstream and the limitations of Shah Deniz Phase 1. DEPA has
been talking to Statoil, which is interested in accelerating
Shah Deniz Phase 1 and using excess Turkish gas for onward
shipment.

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Russian Influence?
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5. (C) Moissis warned that Russia has approached DEPA,
Edison and EGL. Blue Stream is eager to sell gas but Moissis
is disturbed by the prospect of major Russian influence on
the long-desired Southeast European Gas Ring. "What's the
point to create this new ring and have it dominated by
Russian gas?" asked Moissis. Mann drew a distinction as
follows: that we never oppose Russian gas deals in the
region; that we firmly oppose Iranian gas; but we always
fight for Caspian exports. He noted also that in IEA and USG
studies, Caspian gas comes into the European market cheaper
than nearly any other supplier. Moissis said that in 2009
Edison would be ready for 3 BCM of purchases, going to 5 BCM
in 2010 and 8 BCM in 2012.

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Burgas-Alexandropolous
--------------


6. (C) Stephanos had responsibility for this issue, and he
briefed on progress of this oil bypass pipeline. A GIC has
been formed (group of incentive companies) to look at
throughput guarantees. The GIC includes TNK-BP, Sibneft,
Rosneft and others. Chevron-Texaco may join but so far there
are only Russian companies included. The pipeline will be
equity-financed, with no public debt. They envision a 2009
start. Mann cautioned that Russian companies are used to the
Transneft model, and this would be a problem for a modern
pipeline. Stephanos said that Transneft had been irresolute,
Vainshtok was interested, then dropped from sight.


7. (C) Explaining the delays in this line, Stephanos said
that after January 2003, despite support from LATSIS Group,
Hellenic Petroleum, and Prometheus Group, the project fell
out of favor with the Greek government. Now a new government
is in charge and is supporting the project. Stephanos
brushed away environmental problems -- "That's the Turkish
objection. Anyway, the people of Alexandropolous want it."
Mann outlined U.S. policy on bypass pipelines and gave a
brief overview of Turkish environmental concerns about
bypasses.
JONES