TURKEY DETERMINED TO BUILD CONTROVERSIAL ILISU DAM

UNCLAS SECTION 01 OF 03 ANKARA 004462

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958:N/A
TAGS: ENGR SENV EAGR TU IZ SY
SUBJECT: TURKEY DETERMINED TO BUILD CONTROVERSIAL ILISU DAM

REF: A) ANKARA 4379
B) ANKARA 3691
C) ANKARA 3324

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1. (SBU) Summary: The Ilisu dam project on the Tigris River has
been one of the most widely criticized hydropower dam projects of
the Southeast Anatolia Project (GAP). Despite the continued
controversy, Turkey remains doggedly committed to building the dam.
The Turkish press announced recently that Prime Minister Recep
Tayyip Erdogan will lay the first foundations for the Ilisu Dam on
August 5, but Ilisu's financing is still not assured.
Environmental, archaeological, human, and political impacts have
fueled international pressure against the dam and have deterred an
earlier consortium. An Austrian-Swiss-German group is working on
securing financing. End Summary.

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Crown Jewel
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2. (SBU) The Ilisu Dam marks the last of the major dam projects to
be completed under the GAP project, the huge integrated power,
irrigation, and rural development initiative in southeast Turkey.
The 1200 MW Ilisu project, which will generate 3800 GWh of
hydroelectric power per year, will be one of the largest hydropower
projects in Turkey. This aspect is particularly enticing to Turkey
which faces a looming electricity shortage (Ref A). One MFA
official, Esen Altug, expressed the view that Ilisu Dam would be the
last jewel in the GAP crown, referring to the importance of Ilisu in
marking the "completion" of the GAP initiatives.

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Hydropower benefits
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3. (SBU) The Ilisu Dam is expected to help generate power for much
needed regional development in and around the Hasankeyf/Batman area
of undeveloped southeast Turkey, in addition to bolstering Turkey's
shortfall in energy supplies. Currently, hydropower accounts for
approximately 15-20% of the Turkish energy market. Ilisu dam output
would equate to 55% of the electricity generated by the largest GAP
dam, the Ataturk Dam on the Euphrates, which represents in turn 5%
of Turkey's total energy production.

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Local Economy Boost
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4. (SBU) In addition to the hydropower production, Ilisu is also
expected to bring jobs, irrigation capacity, and agricultural
development into the impoverished, ethnically Kurdish region.
According to GAP, over 4,000 people are expected to be directly
employed throughout the dam construction period (4-7 years). GAP
estimates this figure as representing about 11% of all construction
workers in the immediately surrounding region. The resulting total
incremental investment in the region as a result of construction and
power plant operation is estimated at 300 million Euros ($380
million). Associated activities like relocation and improvement of
the infrastructure, new roads, settlements, bridges, railroads,
electrical transmission lines and public buildings are expected to
generate approximately $200 million for the local economy.

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Financial Challenges
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5. (SBU) Turkey's State Planning Organization (SPO),which has the
lead role in managing public investment, has allocated 321 million
YTL (about $214 million) from the 2006 budget for the launching of
construction on Ilisu dam. However, the GOT Treasury must first
complete negotiations and secure the finance package before the
allocated budgetary funds can be spent. Gaining the foreign credit
needed has been elusive. The World Bank declined involvement in the
project early on, citing that the project violates the UN approved
"Convention on the Non-Navigational Uses of Trans-boundary
Waterways". Other agencies, such as EBRD and ADF, have all agreed
that any projects financed by them must comply with highest EU
environmental requirements.


6. (SBU) The initial construction contract (without tender) was
awarded to Swiss companies: Sulzer Hydro and ABB Power. The
construction was then subcontracted to a consortium of firms,
including the British civil engineering firm Balfour Beatty PLC and
Impregilo (Italy). Financing was being arranged by the Union Bank
of Switzerland (UBS) and export credit guarantees were being sought
from the export credit agencies of Austria, Germany, Italy, and
Switzerland. However, in 2000, Balfour Beatty and Impregilo pulled
out of the project, under pressure from environmental watchdogs and
growing concerns over the quality of the environmental impact

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assessment. Shortly thereafter, UBS ended its financial backing
following continuing pressure from environmental and human rights
groups.


7. (SBU) The construction contract is currently assigned to the
Austrian company, VA Tech Group, which is part of the remaining
German (Siemens)-Austrian-Swiss consortium. Financing for the
project is still awaiting necessary joint approval by the three
countries' export credit agencies. Gurdogar Sarigul, Manager of the
Environmental and Sustainable Development Sector Office at the EU
Commission Office in Ankara, confirmed that VA Tech was still
planning on financing the Ilisu Dam project, but that they were also
under pressure from the EU on Austrian compliance on environmental
matters. Currently, direct negotiations have not begun on the
approximately $1 billion dollar loan package proposed by the
consortium in May 2005. Treasury has publicly complained about the
high insurance premiums contemplated in the prospective package.
DSI has called for domestic financing of the dam in the event of
further delays or unreasonable cost in securing foreign financing.


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Environmental Impact of Ilisu
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8. (SBU) The GOT insists that Ilisu would have a positive impact on
the regional environment. In addition to regulating the flow rate
of the downstream Tigris, the dam would create some 300 square
kilometers of water surface, which the GOT says would create a
favorable habit for many types of flora and fauna.


9. (SBU) Critics point out, however, that the Environmental Impact
Assessment Report (EIAR) prepared for the Ilisu Dam site falls short
of international standards. Concerns about solid waste and
wastewater from the local cities have been voiced. Some critics
fear that the reservoir would reduce the self-purification capacity
of the river and affect the local fauna in the area. A local
Birdlife International rep shared his organization's criticism of
the EIAR and the treatment of endangered waterfowl from the project.
Additionally, health concerns over the reservoir have also been
raised, suggesting that the standing water in the reservoir would
facilitate the spread of malaria in the region. VA Tech is
currently conducting its own EIAR, and as an Austrian firm, is under
pressure and obligation to conform to EU standards.

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Human Rights Issues
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10. (SBU) One of the most controversial aspects of the Ilisu Dam
project is its impact on the local inhabitants of the rgion. The
Ilisu dam would flood some 52 villages and is estimated to
potentially affect 15,000 to 20,000 people. Other sources place
this number much higher (~78,000). Although the GOT has promised
adequate compensation for displacement, and it has prepared a robust
resettlement plan, critics are not satisfied that it will indeed be
appropriately implemented. Critics have cited past resettlement
projects in Turkey as a basis for their current concerns with the
Ilisu dam project.

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Ilisu's Impact on Cultural Heritage
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11. (SBU) The town most affected by the Ilisu dam will be
Hasankeyf, with a current population of 5000 (mostly Kurdish).
Remnants of buildings dating back to the early part of the last
millennium are still standing in the town and the area has been
touted as an important stop along the ancient Silk Road. In 1978,
the town was awarded archaeological protection by the Turkish
Ministry of Culture. In 1998, a protocol was signed between the
Ministry of Culture, DSI and the Middle East Technical University
(METU) for the execution of archaeological investigations in the
Ilisu area. The institute TACDAM (Centre for Research and
Assessment of Historic Environment) at METU has been acting as
coordinator for the archaeological research. There are current
plans to move the 22 historic sites out of the path of the reservoir
and relocate them in a newly established "culture park" which will
be situated along the banks of the reservoir. The plan is that the
sites would enjoy enhanced protection and be more accessible to
tourism.


12. (SBU) However, many critics have expressed their concerns over
the viability of relocating the sites. The current condition of the
various buildings is poor and there is concern that moving them
might destroy them even further. One critic claimed that only 15%
of the relics could be safely evacuated, leaving the remainder to be
submerged by the reservoir. Others speculate that the monuments may
not be able to be moved at all.

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Regional Political Impacts
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13. (SBU) The use of the Tigris and Euphrates Rivers by Turkey has
long been contested by its downstream neighbors, Syria and Iraq.
Both countries have repeatedly raised concerns that Turkey's GAP
project has negatively affected downstream river flows, leaving the
two countries captive to Turkey for an ensured water supply. There
is no current agreement among the three countries as to how the
trans-boundary water resources should be shared and exploited by
each country (Refs B and C),and dialogue and information exchange
is sporadic.


14. (SBU) The Turkish position is that the Ilisu dam project would
lead to both cleaner and more regular downstream water flows. For
example, DSI Planning Department head Yalcin Dikmen explained to us
that Turkey's storage of water is of great benefit to Iraq and Syria
as it regulates the flow of the Euphrates River. Before the dam
building spree, flows on the Euphrates could drop as low as 150 cms
(cubic meters per second) during the summer months. Now the flow is
stabilized at 550-1,500 cms year-round. He also pointed out that by
having water stored in Turkey, Iraq would not have to build its own
storage facilities and dams.


15. (SBU) Dikman also stated that Turkey has a more suitable
topography for dam building than either of its downstream neighbors.
Iraq's geology is more prone to evaporation problems and the use of
dams would be an inefficient means of water management for Iraq, he
asserted. As an example of how extreme evaporation effects are in
Iraq, Dikmen pointed out that to rehydrate 1 million hectares of
marshland would take 15 billion cubic meters of water. Despite
these assurances from Turkey, Syria and Iraq remain skeptical that
downstream flows will be unaffected.

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Domestic Political Dimension
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16. (SBU) A key motivation for the GOT is that the Ilisu Dam is one
of the few high-profile projects it could undertake any time soon to
show the economic development component of its Kurdish/southeast
Turkey policy. This is particularly relevant for Prime Minister
Erdogan, who is a parliamentarian from nearby Siirt, his wife's
hometown, and whose governing party, edging toward elections, has
little to boast of in the southeast. Also, DSI is a powerful
independent agency which prides itself on its engineering prowess
and it is determined to build the GAP capstone dam.

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Comment
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17. (SBU) Turkey's adamant position that it will build the Ilisu
Dam will likely hurt the already weak dialogue with Iraq and lack of
dialogue with Syria (Refs B and C). There may be merit in the
position expressed to us by the Austrian Commercial Counselor that
Austrian-German-Swiss financing (assuming unanimous support from the
three credit agencies) would assure that environment, historical,
and human rights issues would be addressed at highest
international/EU standards. Failing delivery of this financing
source, it appears unlikely that Turkey could finance this project
on its own without drastic cuts in other, badly needed public
investment projects. Turkey might find Russian, Chinese or other
funding that would not assure these standards. A responsible Ilisu
project would bring some benefits to the region for jobs and
tourism. The emphasis on the hydropower benefits are relevant, but
reflect that Turkey needs to develop a more comprehensive energy
policy that assures a welcoming and unchanging foreign investment
environment and provides for diversified sources of energy.
Turkey's stubborn commitment to build this dam - at least as much
political as economic - is symbolized by the announcement that Prime
Minister Erdogan will lay the ceremonial first foundation on August
5 in advance of arranging financing.

McEldowney