TURKEY: INTERRUPTED FUEL SUPPLIES TO IRAQI SOMO

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000278 SIPDIS SIPDIS TREASURY FOR CHRIS PLANTIER E.O. 12958: DECL: 01/25/2011 TAGS: EPET EFIN PREL IZ TU SUBJECT: TURKEY: INTERRUPTED FUEL SUPPLIES TO IRAQI SOMO REF: EMB BAGHDAD (DELARE) EMAIL JANUARY 22 Classified By: Economic Counselor Tom Goldberger. Reasons 1.5 b and d. ¶1. (C) Summary. Turkey's Foreign Trade Undersecretariat (FTU),saying it wants to solve the payments issues as urgently as possible, has invited an Iraqi delegation to Turkey for technical talks. The FTU appears ready to discuss a staged repayment of arrears owed by SOMO to Turkish companies, but will insist that such a plan include a credible financial guarantee. If a plan were to materialize and if the Turkish suppliers receive a "substantial" initial payment, the companies would likely resume shipments, and would also look for a mechanism backed by a letter of credit to ensure that payments for future deliveries are not delayed. End Summary. -------------- --- Iraqi Delegation Invited to Discuss Payment Plan -------------- --- ¶2. (C) Sevket Ilgac, the Directory General for Agreements at the Foreign Trade Undersecretariat (FTU),who is State Minister Kurshat Tuzmen's point person on fuel deliveries to Iraq, said that the FTU had invited an Iraqi delegation to Turkey for urgent talks to resolve the issue of arrears owed to SOMO. The invitation referred to a technical committee that was agreed between FTU, Turkish companies, SOMO and the Iraqi Oil Ministry in June, but which has never met. Ilgac said that a Finance Ministry or other GOI representative would be welcome. ¶3. (C) As for the proposal described in ref, the FTU appears willing to discuss. However, a key question not addressed by Allawi and that Ilgac repeatedly emphasized is that the Turkish companies would require a credible guarantor (i.e., not SOMO) for any staged repayment plan. -------------- -------------- Companies Could Resume Shipments if Payment Received -------------- -------------- ¶4. (C) Ilgac thought that the Turkish suppliers would be willing to resume loading once there had been clear signs of good intentions from SOMO. This would include clarity on a payment scheme (including the guarantor) as well as a "substantial" partial payment (he mentioned $100 million). He stressed, however, that a solution would have to be acceptable to the Turkish companies. The GOT cannot require the companies to ship without opening itself up to legal responsibility for the arrears. ¶5. (C) For future deliveries, Ilgac thought that something like a "stand-by letter of credit" covering two months of deliveries should be agreed. An LOC could be in favor, he thought, of TPIC, the GOT-owned company that is also the largest single supplier and the one owed the largest amount of arrears (something like $200 million). ¶6. (C) One important factual point: What stopped on January 21 was loading of incoming refined fuel products onto trucks at Turkish ports. Trucks already loaded with fuel continue to make their way to SOMO and are not being prevented from doing so. FTU estimates that there is about 10 days worth of deliveries in the "pipeline." The daily CENTCOM sustainment report confirms that deliveries are continuing; 480 tankers with SOMO loads crossed the Turkish-Iraqi border on Tuesday. -------------- Comment: GOT Wants Issue Under Control -------------- ¶7. (C) Ilgac said it was important to the Turkish government that this issue get fixed as urgently as possible. No one has any interest in interrupting this crucial trade. He said the GOT had held the companies back from stopping loading for as long as possible: arrears reached a critical point ($751 million) in late December, but the GOT did not want to be accused of interference in the elections. Then, they did not want to cut supplies during the Eid/Bayram holiday. ANKARA 00000278 002 OF 002 ¶8. (C) Ilgac said that if a Turkish company or more than one Turkish company (including TPIC) were to collapse because of the financial burden of the arrears, this could put pressures on the GOT that could be negative for the bilateral relationship. The Turkish government does not have the financial resources to cover amounts of the magnitude being discussed. WILSON