MEETING WITH A TURKISH COMPANY THAT PLANS TO

C O N F I D E N T I A L SECTION 01 OF 03 ISTANBUL 000981

SIPDIS

E.O. 12958: DECL: 11/09/2017
TAGS: ENRG ECON PREL IR IZ TU
SUBJECT: MEETING WITH A TURKISH COMPANY THAT PLANS TO
IMPORT IRANIAN ELECTRICITY

Classified By: Sandra Oudkirk, Deputy Principal Officer; U.S. Consulate

General Istanbul REASON: 1.4 (d)

Action request -- see paragraph 10


1. (SBU) Istanbul Pol/Econ officers met November 5 with
executives from the Kartet company and its holding company,
Karadeniz, to discuss a deal by Kartet to import electricity
from Iran. (Our discussion on Kartet,s electricity exports
to Iraq is reported septel.) Kartet director Nuray Atacik
said the company's deal with Iran's state-owned electricity
exporting company, Tavanir Holding, was mischaracterized in
the press and has no connection with the recently signed
Turkey-Iran electricity trading MOU. Kartet has signed a
10-year electricity purchase agreement with Tavanir under
which Kartet expects to import around 55 megawatts (mW) of
electricity annually from Iran -- the limit of what the local
electric grid will allow, absent significant expansion.
Atacik insisted Kartet is only buying electricity, not
investing in Iran's energy sector or electricity
infrastructure. Replying to Iran watcher's explanation of
the USG decision to designate the IRGC and Iranian banks,
Orhan Karadeniz said his company is exercising vigilance
about its Iranian partners. He urged Washington's
understanding in recognizing that Turkey is facing an energy
crisis and must import electricity from Iran, and encouraged
the USG to support a larger Turkish role (read: by his
company) in helping sell Iranian electricity to Iraq. End
summary.

Importing Iranian Electricity
--------------


2. (SBU) Following up on recent Turkish press articles
claiming that Turkey's Karadeniz Holding Company and its
electricity import/export subsidiary, Kartet, recently signed
a deal to import up to "six million megawatts (mW)" of
electricity from Iran, Iran watcher and Istanbul Econ officer
met November 5 with Karadeniz Holding Company director Orhan
Karadeniz; Kartet director Nuray Atacik; and Kartet,s
director of energy generation and investments Alican
Takunyaci. (Our discussion on Kartet,s electricity exports
to Iraq is reported septel.)


3. (SBU) Atacik, evincing frustration with the Turkish
press, explained that media reports confused and conflated
Karadeniz Holding's import deal with the much larger and
broader Turkish-Iranian MOU on electricity cooperation and
exchange. (Comment: According to Turkish press reports,
that MOU calls for the development of cross-border
electricity transmission lines through which three to six
billion kilowatt hours, or three to six million megawatt
hours, of electricity during peak hours of consumption will
be exchanged annually between Turkey and Iran. That MOU
reportedly also called for Turkish assistance in building
several power plants in Iran. Asked to comment on that MoU,
Atacik described the proposal to exchange 3-6 billion kWh
annually with Iran as wildly unrealistic, and she suggested
that under perfect current conditions, absent a drastic
expansion of the electricity grid, the maximum capacity for
annual electricity exchange would be around 1.5 billion kWh.
End comment.)


4. (SBU) Karadeniz,s deal is a ten-year electricity
purchase agreement with Iran's Tavanir Holdings. According
to Tavanir,s website, it is an Iranian state-owned
electricity generation and distribution company that employs
51,000 workers, generates 36 million kW of electricity
annually, and is currently under consideration for
privatization under Article 40 of the Iranian constitution.
Under this deal, Karadeniz envisions importing annually about
55 mW (55,000 kW) of electricity over two existing
power-lines from Iran over the next few years, as this is the
capacity limit of the local electricity grid. The deal
actually allows for the import of up to 150 mW annually, but
Atacik did not expect that in the coming few years the local
grid would expand the number of power-lines necessary to be
able to handle such an increase. Contributing to the
capacity limitations of the existing power-lines is the fact
that 60% of the existing lines are already dedicated to other
electricity transmission, allowing only 40% of the lines,
capacity to be used for this deal. At the moment, Kartet is
waiting for EMRA, Turkey's energy market regulator, to
approve Kartet's import license request, and expect the
request to be approved within the next few weeks.


5. (SBU) Atacik suggested that Karadeniz may review the deal
in a few years to see whether local expansion of the
electricity grid would allow Karadeniz to increase
electricity imports from Iran. Atacik took pains to insist
that Karadeniz is not investing in Iran's energy sector or
electrical infrastructure, but rather relying on existing
infrastructure. Atacik added that the electricity imported
from Iran will be used domestically in southeast Turkey. The
electricity that Karadeniz exports to Iraq is generated
locally in Turkish power-plants. That said, she acknowledged
that importing Iranian electricity makes it easier for
Karadeniz to export the electricity from its own power-plants
to Iraq.


6. (SBU) Atacik explained that Karadeniz Holdings, as
Turkey's only electricity import/export company, is familiar
with other electricity exporting companies throughout the
region, and is indeed a competitor to Tavanir Holdings with
regard to electricity exports to Iraq. The two companies had
been discussing off-and-on for three years a deal to import
electricity to Turkey, but both the GOI and GOT had blocked
the deal. This year, the Turkish state electricity
generation company (EUAS) decided to restrict the electricity
available for Karadeniz to export from Turkey, creating a
need for Karadeniz to import electricity from Iran, to offset
the lost electricity from EUAS and still allow Karadeniz to
export electricity to Iraq. Atacik noted that in this region
only Iran is a net producer of electricity, and sells
electricity to Afghanistan, Pakistan, and others.

Views from the Boss on dealing with Iran
--------------


7. (SBU) Karadeniz Holdings Board member Orhan Karadeniz
laid out the commercial arguments for his company's decision
to make this deal with an Iranian company. He reiterated
Atacik,s point that Iran is the region's net electricity
exporter, and underscored that Turkey's own rapidly growing
energy needs require it to expand its electricity imports
and/or increase generation inside Turkey. Warming to that
point, Karadeniz argued that if importing energy from Iran is
inevitable, not only for Turkey but for Iraq and other
friends of the United States, Washington should welcome
having a "trustworthy" company like Karadeniz Holdings
playing a key brokering role, an argument he claims he has
also made to Embassy Baghdad and to Embassy Ankara.


8. (SBU) Iran watcher shared information about the recent
USG decision to designate the IRGC, IRGC-QF, affiliated
entities, and additional Iranian banks under U.S. executive
orders, as well as the recent FATF and US Treasury advisory
notices, and cautioned Karadeniz Holdings against entering
into transactions with any named or designated entities.
Iran watcher also reviewed current ISA sanctions provisions
to discourage Turkish investment in Iran's energy sector.
Karadeniz pledged that his company is exercising vigilance
about the Iranians with whom it is working, and reaffirmed
that his company is not making any investments in Iranian
energy sectors, only buying a commodity. He acknowledged the
importance from a business and reputational risk standpoint
of avoiding any deals with sanctioned companies and entities,
and welcomed receipt of the USG designation list. "In this
region, nothing is black and white. But I am trying to make
sure we stay within a whiter shade of gray."


9. (SBU) Turning to a possible third UNSC sanctions
resolution on Iran, Karadeniz offered the personal view based
on recent travels to Iran that the current sanctions regime
is not having a significant impact on the economy or on the
regime's decision-making. He suggested that for sanctions to
work the international community would need to target Iran's
energy sector. Absent such UNSC sanctions, however, he
predicted that Russia, China, and others will continue to do
extensive energy business with Iran. He also concluded from
his travels to Iran that the international community is
"somehow losing a winning argument" to President Ahmadinejad
on why a country as rich in hydrocarbons as Iran is willing
to face international condemnation to pursue a supposedly
peaceful nuclear energy program.

Comment and action request
--------------


10. (C) Karadeniz welcomed the opportunity to meet with USG
officials and pledged continued transparency regarding the
company's electricity purchase from Iran. As noted,
Karadeniz is trying to approach this deal with Iran strictly
as a simple business transaction: Turkey needs to import
electricity, and Iran is the only regional supplier thereof.
On the other hand, he also claims to appreciate the growing
risks of doing business with Iran, pledged that he will not
do business with designated entities or individuals, clearly
values his contacts with the USG and wants his company to
stay on the right side of the international community's
efforts to press Tehran. Action request: If Washington
develops information suggesting explicit links between Iran's
Tavanir Holding company and the Iranian regime's support for
terrorism and/or WMD proliferation, post believes sharing
that linkage with Karadeniz might prompt him to reassess the
business merits of this deal. End comment.
WIENER