TURKEY AND NEXT STEPS ON GEORGIA AND SHAH DENIZ

1. (C) SUMMARY: In a December 22 meeting with Ambassador,
Energy Minister Guler reiterated Turkey's willingness to help
Georgia meet its natural gas needs this winter, which was
apparently discussed during President Saakishvili's meeting
with PM Erdogan. However, Guler said Georgia was pressuring
Turkey to sign an MOU that would apparently unconditionally
commit Turkey to the redirection of its Shah Deniz gas to
Georgia. In exchange, Georgia would undertake to provide in
future years electricity to Turkey. Guler expressed serious
reservations about making such a commitment now given the
uncertainties about near-term Shah Deniz gas, Georgia's high
price for electricity, and questions about Russian deliveries
to Turkey. After consultation with the Georgian Ambassador
to Turkey, Ambassador advised Guler that the next step for
Turkey should reflect the agreements Erdogan and Saakashvili
reached, but he declined to endorse the MOU at this time.
End Summary.



2. (C) Guler summarized PM Erdogan's meeting with
Saakashvili. Guler said Turkey remains ready to redirect a
share of its 2007 Shah Deniz gas to Georgia and Azerbaijan,
should such gas be available. He was aware of recent news
that the deliveries will be delayed. Guler said he was ready
to postpone the start of the Shah Deniz first year contract
period to July 2007 as a reasonable burden sharing approach.
He complained, however that the Azeris were rejecting this
and seeking to put too much of the burden on Turkey. He
thought President Aliyev was sincere, but that his ministers
and the Consortium were passing the ball, ducking
responsibility, and acting as if claiming ownership of all
the Shah Deniz gas.



3. (C) Guler also noted Turkey's dependence on Russia for
gas and the possibility for supply cuts or other delivery
"problems". Moreover, the Minister stressed that Turkey was
entering an election year and would have an extremely
difficult time justifying to the public why it gave up cheap
gas ($120 ptcm) in exchange for expensive alternative gas (up
to $300 ptcm) from Russia or other sources. In addition,
BOTAS faced financial difficulties, and the political
opposition and government auditors were vigilant in watching
the government's energy costs.



4. (C) Lamenting the Shah Deniz production delays, Guler
said Turkey faced a number of negative effects on its natural
gas balance for this winter. He cited uncertainty with
respect to Shah Deniz, Iran, underground storage, and
Algerian LNG supplies. On the other hand, Guler understood
Georgia's plight. He said the President described the
situation in his country as critical, including risk of civil
war, and he reviewed Georgia's supply problems in detail.



5. (C) Guler said Georgia was trying to convince Turkey to
sign an MOU that would commit Turkey to the redirection to
Georgia of its contracted SD volumes in return for future
Georgian electricity supplies. Guler felt that this was
unrealistic both because there is no Shah Deniz gas now and
Georgian electricity appears to be expensive and uncertain.
Guler noted technical problems that would hinder Georgian
electricity deliveries and observed that Georgia is at
present an electricity importer from Turkey. He hoped the
U.S. would contribute to a solution for Georgia's winter
problems. Ambassador said some ideas are under discussion in
Washington, but there has been no conclusion.



6. (C) Guler asked whether the U.S. thinks signing an MOU
along the lines suggested by Georgia is wise. Turkey would
prefer not to sign until Shah Deniz supplies and the
commercial arrangements become clear. Could Ankara tell the

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Georgian that the U.S. thinks a delay to mid-January makes
sense?



7. (C) Ambassador applauded Turkey's leadership role on
regional gas issues. He stressed that all parties must do
what they can to ensure the survival of Georgia, which is
vital to the region and achievement of the southern gas
corridor. In the short term, Georgia must be helped through
the next several months; in the medium term, arrangements
must be agreed to allocate the SD volumes effectively; and in
the long term, countries must agree on a comprehensive
transit regime to facilitate larger SD development and
additional gas deliveries to Turkey and Europe. All these
objectives would be pursued with attention to the
inter-relation among them.



8. (C) Ambassador subsequently spoke with the Georgian
Ambassador, who confirmed Tiblisi's MOU proposal. He said
that Erdogan and Saakashvili agreed during their private
meeting December 21 in Istanbul on the redirection of
Turkey's share of SD gas. Guler and the Georgian minister
came into the room at the end, where they reportedly heard
this commitment and an instruction to work out the details.
Now, explained the Georgian Ambassador, the Turkish
bureaucracy is balking. The MOU is essential for Georgia.
With temperatures dropping in Georgia and 2006 supplies about
to run out, the public is anxious. A return from Turkey
without any commitment on gas would be demoralizing and would
greatly harm Georgia's negotiating position with Russia. He
appealed for U.S. support.



9. (C) Ambassador subsequently passed the word back to
Guler that the U.S. supports Georgia, Turkey, and Azerbaijan
on issues related to Shah Deniz gas. The issue of whether or
not to sign Georgia's proposed MOU is a matter for Turkey and
Georgia. While we were not part of the discussions between
PM Erdogan and President Saakashvili, the right step now is
to take action that reflects the agreement that the two of
them reached last July. Ambassador relayed the same message
to the Georgian Ambassador, observing that he was reluctant
to endorse an MOU whose contents we don't know, but that he
would try to be helpful by aiming Turkey at the results of
the talks between Erdogan and Saakishvili (whose content is
also unclear to us).

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WILSON