Turkish Council of State Rules Against Tupras

UNCLAS SECTION 01 OF 02 ANKARA 000455

SIPDIS

TREASURY FOR CPLANTIER AND MNUGENT
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
DOE FOR CHUCK WASHINGTON

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EPET ENRG EINV KTDB TU
SUBJECT: Turkish Council of State Rules Against Tupras
Privatization, but It May Be Too Late

REF: a) 05 Ankara 269, b) 05 Ankara 3258

This cable has been coordinated with Congen Istanbul.


1. (SBU) Summary: On February 2, the Council of State
(Danistay) Administrative Court suspended the $4.1
billion sale of a 51% share of state-owned oil refiner
Tupras to a Koc Holding-Shell consortium, dealing a
potential blow to Turkey's privatization program.
Because the formal transfer of ownership was completed
on January 26. It is unclear what, if any, practical
impact the court's ruling will have. However, to some
extent, the damage to Turkey's privatization process
and future privatization revenues is likely already
done. End Summary.

--------------
Administrative Court Rules Against Tupras Privatization
--------------


2. (SBU) In response to a lawsuit initiated by the
Petrol-Is labor union, Turkey's administrative court,
the Danistay, on February 2 issued an injunction
against the privatization of Tupras, Turkey's sole oil
refining company, which was announced with great
fanfare in September. Although the written ruling has
not yet been made public, rumored reasons for the
decision include the exclusive supply agreement between
Shell and Koc and the fact that the contract did not
include the required investment and employment
components.

--------------
Too Little Too Late?
--------------


3. (SBU) The practical impact of the injunction is
unclear since the transfer of the 51% stake to the Koc-
Shell group was completed on January 26, and the
proceeds from the sale have already been deposited in
Treasury accounts. Legal experts, PA officials, and a
Koc spokesperson have told the press that the transfer
is practically irreversible. A source close to Koc
told us the group's lawyers were astounded by the
ruling and cannot imagine what "legal defects" the
Danistay could have found in the transfer contract.
There is precedent, including some privatization cases,
for Danistay rulings to have no practical effect
because the administrative actions were deemed
irreversible. Furthermore, the Danistay chamber that
issued the injunction is not the specialized chamber
with jurisdiction over privatization cases.


4. (SBU) According to press reports, the PA has 30 days
from the date it receives the official Court ruling to
implement the decision. PA sources told us they have
not yet received the official Court decision. The PA
TUPRAS privatization group head pointed out that the
court decision would, however, deter future investors
in privatizations and thereby reduce GOT privatization
revenues. The PA can appeal for another review by the
Danistay.

--------------
Comment
--------------


5. (SBU) Trading in Tupras shares on the Istanbul stock
exchange has been suspended since Thursday, but the
broader exchange indices have taken the news in stride
with only small corrections Thursday and Friday. The
press, on the other hand, is playing up the story -
several mainstream, non-financial newspapers featured
the story on the front page. Whatever the final
outcome, this Danistay ruling is a blow to the overall

ANKARA 00000455 002 OF 002


privatization process, as it could deter potential
investors on Turkish privatizations.

WILSON