TURKEY-IRAQ HABUR GATE SLOWS TO A TRICKLE

UNCLAS SECTION 01 OF 02 ANKARA 001392 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ETRD EPET PREL TU IZ SUBJECT: TURKEY-IRAQ HABUR GATE SLOWS TO A TRICKLE REF: A. ANKARA 775 ¶B. ANKARA 278 ANKARA 00001392 001.2 OF 002 SENSITIVE BUT UNCLASSIFIED - COORDINATED WITH CONSULATE ADANA ¶1. (SBU) SUMMARY: fuel shipments from Turkey to SOMO in Iraq remain suspended for lack of implementation of the February 15 agreement between GOI and GOT to resolve persistent arrears. In combination with the imposition of new truck licensing regulations, particularly onerous for older trucks, southbound truck traffic has decreased by a factor of two. END SUMMARY. ¶2. (SBU) Although the GOT has long been supportive of facilitating throughput at the single bottleneck Habur Gate between Turkey and northern Iraq, traffic through this key trucking lifeline has recently declined sharply - roughly by a factor of two - due to two key factors: the continuing SOMO "humanitarian fuel" stoppage and new Turkish regulations on truck licensing. While 1200-1500 trucks was the normal daily southbound volume (tankers and trucks),the numbers in March are down to 500-700. During the best of times, we have described Habur as strained but functioning, generating a formidable backlog queue. With the above factors, the backlog still exists, but has been greatly reduced (20 km instead of 100 km). ¶3. (SBU) Despite completion of an agreement on February 15 (Ref A) - negotiated after four days of difficult discussions - SOMO loading has yet to restart. SOMO loading was stopped by the GOT on January 21 because of unsustainable SOMO arrears - and a repeated history of partial payments with arrears regularly reaching as high as $1 billion (REf B). Because of significant backlog, SOMO product continued to cross Habur Gate through mid February, but now there has been almost a month of virtually no SOMO product crossing the gate. TPIC (state owned Turkish Petroleum International Corporation and a key fuel supplier) told us that the impact of the stoppage was also cushioned by stock-piling in northern Iraq. These two mitigating factors are long gone. ¶4. (SBU) Under the February 15 agreement, SOMO would negotiate new contracts with Turkish suppliers, pay off the agreed arrears of $640 million in nine installments over 2006 with 3% interest - with two payments in March, arrange acceptable letters of credit for future deliveries, and continue discussion on about $292 million in contested amounts. All suppliers we have contacted complain bitterly that SOMO has not taken any of these steps, including no installment payments and presentation of unacceptable letters of credit. We understand that Iraqi officials at the weekly border meetings at Habur insist that SOMO has made payments. ¶5. (SBU) Suppliers also complain about a new GOT trucking rquirement for licensing all trucks and providin incentives for retiring trucks older than 22years old (prohibitive licensing fee) which has greatly reduced trucks able to traverse Habur Gate. Finally, there is on-going construction at the gate which has had a negative impact on processing speed. ¶6. (SBU) Suppliers like TPIC and Delta, and the Turkey-Iraq Business Council, which represents suppliers, express great frustration on the lack of progress and - in their view - bad faith of SOMO. They say they have the support of the GOT, but recognize that the GOT is not going to authorize any shipments until SOMO resolves the arrears problem by implementing the agreement. Meanwhile, they are left financing the significant debt and unused inventories. They tell us there are significant shortages of fuel product in northern Iraq with associated high black market prices, along with indirect knock-on effect on prices of all other goods. Although sustainment has generally been unaffected by these problems, refueling returning trucks will be more difficult - and if the problem is ever solved - there will eventually be a deluge of SOMO trucks. ANKARA 00001392 002.2 OF 002 Visit Ankara's Classified Web Site at http://www.state.sgov.gov/p/eur/ankara/ WILSON