TURKEY'S KARTET PERSEVERES IN ELECTRICITY EXPORTS

UNCLAS SECTION 01 OF 02 ANKARA 003712 SIPDIS ///////////////////////////////////////////// //////// ///// C O R R E C T E D C O P Y - SUBJECT LINE //// ///////////////////////////////////////////// //////// USDOE FOR CHARLES WASHINGTON USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK EXIM FOR PAMELA ROSS AND MARGARET KOSTIC OPIC FOR R CORR AND C CHIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ENRG EPET ETRD OPIC TU IZ SUBJECT: TURKEY'S KARTET PERSEVERES IN ELECTRICITY EXPORTS TO IRAQ REF: A) 05 ANKARA 5310 B) 05 ANKARA 5080 C) 05 ANKARA 4288 ANKARA 00003712 001.6 OF 002 Sensitive But Unclassified. Please handle accordingly. ¶1. (SBU) SUMMARY: Turkish Kartet Company seeks U.S. support in its quest to increase electricity exports from Turkey to northern Iraq from 250 MW to 1200 MW. Kartet says this has been blocked by Turkish energy regulator EMRA, which has called for competition, but has been unable to stir up competitors or organize a tender. It appears that Kartet's contract with Iraq is the sole short term solution for increasing Turkey's contribution to meeting Iraq's electricity needs. End Summary. ¶2. (SBU) BACKGROUND: Currently exporting 200-250 MW of electricity from its Silopi plant in Turkey to northern Iraq, Kartet Company has sought to increase its exports to 1200 MW to provide badly needed additional electricity in Iraq (refs). Both Kartet's existing and incremental licenses have been held up by the Turkish energy regulator EMRA for over one year on the grounds that there should be a competitive tender for allocation of transmission capacity from the Turkish grid (State company TEIAS). Kartet has won a court order to force EMRA to process its licenses (under then-existing, more favorable law),but EMRA has refused to implement the decision. The Turkish MFA and Ministry of Energy (MENR) are supportive of Kartet's project, but have recognized the value of competition. Kartet argues that there are no realistic competitors and Kartet is the only company with an exclusive contract with the Government of Iraq for provision of electricity from Turkey. -------------- Iraq is the Easy Part -------------- ¶3. (SBU) Kartet's Orhan Karadeniz complained on June 21 that the company had succeeded in putting in place the most difficult pieces of the contract on the Iraqi side. Kartet was now fairly regularly receiving contractually required fuel oil (in partial payment for the electricity) by tankers from Bayji Refinery. Karadeniz said that the company had worked out an arrangement at Habur Gate whereby Kartet received a preferential allocation of 50-100 tankers per day each way to service the Silopi Plant (just across the border). He also said that Iraq had reallocated some of its budget for purchasing electricity from Iran to Kartet. In the longer term, the Iraqi Government had arranged a letter of credit to secure payment for new transmission lines. The Kartet rep said that he had held discussions with the Government of Iraq on considering partial payment in the form of oil/gas or oil/gas rights in exchange for the larger potential 1200 MW delivery. He said the Iraqi side had made demarches to Turkey to move forward on implementation of the Kartet contract. -------------- The Regulator is the Obstacle -------------- ¶4. (SBU) Karadeniz complained that EMRA had held up the provision of increased electricity for over one year in pursuing a "trial and error" approach to seeking competition. The Kartet rep said EMRA's President Yusuf Gunay had given him positive signals recently that he intended to expedite the process, but he felt that EMRA would have difficulty in backing down. Karadeniz said that he intended to keep up the pressure of their legal claim against EMRA, asserting that they would have a right to liquidated damages. Noting that Gunay claimed that Turkish groups Park and Sabanci had expressed interest to EMRA, the Kartet rep stated they have no investments in place and no contracts in hand. Karadeniz said that the GOT and EMRA honoring their contract would be entirely consistent with EU legislation. Noting that Kartet's current contract would expire in January 2007, he said if their Silopi plant were shut down, there would be less than 50 MW available locally on the Turkish grid to provision northern Iraq. ¶5. (SBU) Karadeniz asked for the U.S. Government to be active in keeping both governments focused on the project as a way to meet Iraq's needs. He said that Foreign Minister Gul and Prime Minister Advisor Egemen Bagis were supportive of the project, but it would be useful to hear this from the U.S. representatives. ANKARA 00003712 002.6 OF 002 ¶6. (SBU) COMMENT: EMRA's insistence on a competitive tender process has some legitimacy in theory. However, EMRA and TEIAS have been unable to turn up serious competitors and/or fashion a competitive tender process. We will continue to press Turkish Government officials for implementation of increased exports to Iraq. Per Ref C we noted previously that some members of the Karadeniz family had been implicated but not convicted in the 2001 "White Energy Scandal". We are not in a position to be able to assess all aspects of what Karadeniz admits is a "special deal", but Kartet is the only firm which was willing to execute this contract and deal and persevere at great difficulty in its implementation. Wilson