TURKEY SIGNS ELECTRICITY AGREEMENT WITH IRAN

UNCLAS SECTION 01 OF 02 ANKARA 002894 SIPDIS USDOE FOR CHARLES WASHINGTON USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK STATE ALSO FOR EB/CBA FRANK MERMOUD SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ENRG EINV BEXP TU IR SUBJECT: TURKEY SIGNS ELECTRICITY AGREEMENT WITH IRAN REF: Ankara 2720 SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY. ¶1. (SBU) Summary: Turkey and Iran signed an electricity agreement on November 21 and pledged to continue cooperation on energy issues despite U.S. objections. The agreement calls for private sector construction of two thermal power plants and one hydropower plant and investment in trans-border transmission lines. Turkish Energy Minister Hilmi Guler said the GOT had considered and was prepared for possible U.S. sanctions. Iranian Electricity Minister Perviz Fettah said the two sides would meet again in Tehran in January. The GOT continues to develop its energy ties with Iran under the rubric of energy security, but this agreement depends on as-yet unidentified private investors to build the plants and transmission lines the two sides envision. Even if these projects eventually are realized, they are unlikely to come in time to forestall Turkey's near-term energy shortages. End summary. ¶2. (U) After several mutual visits, Turkey and Iran concluded a long-debated electricity agreement. Details include: -- Establishment of three 2,000 megawatt (MW) gas-fired electricity power plants (two in Iran; one in Turkey) by the private sector. Ownership structure: 51 percent (host country) 49 percent (other country). -- Establishment of a 10,000MW hydropower plant in Iran by the private sector which will operate the plant for a specified period of time and then transfer it to the government. -- Purchase of one billion kilowatt hours (kWh) of electricity from Iran with a provision to increase to four billion kWh in the future. -- Investment in transmission grid and infrastructure between the two countries. ¶3. (SBU) At a press conference following the signing ceremony, Iranian Energy Minister Fettah highlighted President Ahmedinejad's recent statement "there is no limit to development of the relationship between Turkey and Iran." Fettah noted the intense pace of work on energy cooperation between Turkey and Iran had brought the two countries together three times in eight months and the next meeting in Tehran was scheduled for two months hence. Responding to questions on USG reaction to the agreement, Fettah said: "Some parties may be disturbed by this agreement, but we took into account certain risks while signing it." Fettah added that Turkey and Iran were both independent and strong countries. Turkish Energy Minister Guler said: "We are aware of the embargo and we are prepared." Guler said the two sides would bring their private sectors to the next meeting to discuss detailed investment models. Guler added that work on a gas deal was in progress and other agreements would follow. ¶4. (SBU) Ministry of Energy Foreign Relations Department Head Cigdem Hatunoglu and MFA Energy Affairs Officer told us the electricity agreement between Turkey and Iran would help meet Turkey's growing energy demand (six to eight percent annually) and increase energy security. Hatunoglu characterized the agreement as one among neighbors and added that it might allow Turkey to export electricity to its neighbors thereby furthering Turkey's vision for establishing itself as an energy hub. Commenting on the gas deal with Iran, Hatunoglu said Iranian gas is an important component of Turkey's diversification strategy and could only be replaced with Iraqi gas. She noted GOT and USG interest in bringing Iraqi gas to market but noted progress is slow. ¶5. (SBU) Faruk Demir, an advisor to the Energy Minister, told us the agreement between Turkey and Iraq is important because it would (1) prepare the electricity infrastructure between the two countries for larger volumes of electricity, which could be used to meet Europe's increasing electricity demand in the future; (2) establish a partnership in electricity generation and trading; and (3) blaze a trail into Iranian markets for Turkish private companies in non-energy related sectors. Demir said the agreement contained a provision allowing Turkey to import electricity from third countries through Iran. (Note: Earlier press articles stated that the GOT ANKARA 00002894 002 OF 002 wanted to partner with Iran and Turkmenistan, to build power plants in Turkmenistan and bring the electricity to Turkey. End Note.) ¶6. (SBU) Comment: Turkey is facing a near-term electricity crisis and uses just over half of its natural gas for electricity production. If we have a tough winter and Iran decreases it's gas supply (as it has done in previous winters),peak loads could surpass available power generation and we could see some rolling black outs and brown outs in Turkey. The GOT's public relations campaign claims the agreements with Iran are necessary to improve Turkey's energy security. We believe the timeline for development is much longer than press estimates and will not address electricity shortages in the near term. Both Iran and Turkey are depending on the private sector to develop these energy projects. We are aware of only one Turkish company interested in exporting Iranian electricity and they claim to have no GOT affliation (reftel). We have not heard of any firms interested in investing in Iran's electricity sector and we continue to hear about the difficult Iranian business climate. Wilson