TURKISH ELECTRICITY EXPORTS TO IRAQ CUT OVER

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000015

SIPDIS

SENSITIVE
SIPDIS

ISTANBUL PLS PASS TO AMCONSUL ADANA
EEB FOR A/S SULLIVAN
EUR FOR DAS BRYZA
SCA FOR MANN
DOE FOR HEGBURG
USTDA FOR DAN STEIN

E.O. 12958: DECL: 01/04/2014
TAGS: ENRG EPET TU EINV IZ
SUBJECT: TURKISH ELECTRICITY EXPORTS TO IRAQ CUT OVER
CONTRACT DISPUTES

REF: ANKARA 2870

Classified By: CHARGE NANCY MCELDOWNEY FOR REASONS 1.4 (B) AND (D)


1. (C) Summary. Electricity exports to Northern Iraq by the
private Turkish company Karadeniz Toptan Elektik Ticaret
(Kartet) were cut on January 2, 2008. As we foreshadowed
(ref A) a series of complicated commercial and
intergovernmental agreements were not renewed before December
31, 2007, which, along with $25 million in unpaid bills from
2007, resulted in the power cut off. The next steps to
getting the power back on rest with the GOT. The Foreign
Trade Secretariat said they have "no objection" to continued
electricity exports to Iraq but said they are awaiting an
official notification from the Ministry of Foreign Affairs
(MFA). We are working with the Ministry of Foreign Affairs
(MFA) to expedite their response. End summary.

Current status
--------------


2. (C) Kartet stopped exporting electricity to Iraq on
January 2, 2008. In order to resume operation, they must
receive heavy fuel oil (HFO) from Iraq as stipulated in a
one-month renewal of their contract agreement with the State
Oil Marketing Organization (SOMO),which was signed December
31, 2007. In order to import HFO to produce electricity for
Iraq, Kartet must receive a license from the Foreign Trade
Under Secretariat (FTU). The license procedure requires that
FTU review the SOMO-Kartet contract. According to Orhan
Cakiroglu, FTU Department Head for Agreements, application
for license renewals are usually transmitted through
diplomatic channels from the foreign government to the
Turkish Ministry of Foreign Affairs, where they are reviewed.
If the MFA agrees with the renewal, the licenses are sent to
FTU for review and issuance. Customs notification is the
last step. According to Kartet,s Istanbul Director Nuray
Atacik, this procedure has taken 15 days each year since
Kartet began exporting electricity to Iraq in 2003.
Cakiroglu declined to say how long the renewal process might
take but indicated FTU was not opposed to renewing the
license. He did hint that SOMO's 11th-hour renewal of the
Kartet contract did not constitute an emergency for FTU.


3. (C) Embassy Baghdad told us that the Iraqi Embassy in
Ankara transmitted the SOMO-Kartet agreement to Sevkat Ilgac,
Director General for Agreements at the Foreign Trade
Secretariat. FTU cannot take action on the license renewal

SIPDIS
without the approval of the MFA. According to Ministry of
Foreign Affairs (MFA) Department Head for Energy, Berris
Ekinci, the SOMO contract has been received by the MFA and is
being reviewed. Ekinci said the contract renewal was "an
issue between Kartet and the Ministry and not a
straight-forward affair" but declined to give further
details. MFA Department Head for Iraq Adin Sergen said that
the license renewal was "basically a technical issue" but
these are unusual times and said there is a "political
dimension" as well.

Kartet's basket of other outstanding issues
--------------


4. (C) A resolution to the HFO import license issue may not
solve the entire problem. Kartet has not received a letter
of credit from the Iraqi Ministry of Finance, which assures
the GOI undertakes the responsibility to pay Kartet for
exported electricity in 2008. The GOI has an unpaid debt to
Kartet of $25 million for 2007 electricity costs. Continued
electricity exports to Iraq are a technical and financial
decision for Kartet, which is a private Turkish company.
Currently, the plant is receiving HFO from a Turkish company,
in a separate commercial agreement, and is generating 100 MW
for the Turkish electrical grid. Turkey is experiencing
electricity shortages which will become more acute in the
future. We understand from the Energy Regulatory Commission
that Turkey could have as much as 2,000 MW shortfall of
electricity in the summer of 2008.

ANKARA 00000015 002 OF 002



Visit Ankara's Classified Web Site at
http://www.intelink.sgov.gov/wiki/Portal:Turk ey

MCELDOWNEY