TURKEY: EMBASSY SUPPORT OF GE REQUEST FOR NUCLEAR

UNCLAS SECTION 01 OF 02 ANKARA 001687

SENSITIVE
SIPDIS

DOC FOR ADDILYN CHAMS-EDDINE
DOE FOR ROBIN COPELAND AND MICHELLE SCOTT

E.O. 12958: N/A
TAGS: EINT ENIV ENRG TU
SUBJECT: TURKEY: EMBASSY SUPPORT OF GE REQUEST FOR NUCLEAR
TENDER DELAY

REF: 07 ANKARA 2755


1. (SBU) Summary. General Electric (GE) Turkey Managing
Director Kursat Ozkan informed us September 4 that GE sent a
formal request to GOT to postpone the deadline for bids for
Turkey's first civilian nuclear power plant from September
24, 2008 to March 1, 2009 due to lack of project risk
information to make a timely bid. On September 18,
Ambassador Wilson sent a letter to Prime Minister Erdogan
supporting GE,s request for a postponement in the tender.
According to Ozkan, four of the potential six bidders asked
for a delay but Energy Minister Guler emphatically ruled out
any delay in a meeting with bidders on August 26 and Prime
Minister Erdogan said September 22 that the tender would not
be delayed. The Energy Ministry strongly believes they will
have bidders on September 24 and, if not, the GOT is allowed
under the Nuclear Power law to invest in the nuclear plant
itself, perhaps as part of a yet-to-be-structured
public-private partnership or even via new, wholly
state-owned company. End summary.

GE and the competition
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2. (SBU) Managing Director of General Electric (GE) Turkey
Kursat Ozkan told us their subsidiary GE Hitachi (GEH),a
joint venture 60% GE and 40% Hitachi, is the primary
technology and equipment supplier for the Sabanci/Iberdrola
consortium which had planned to bid on Turkey's first nuclear
tender. Sabanci will be the primary investor and Iberdrola
will be the foreign investor and plant operator. GEH is not
an equity stakeholder at this point. However, Ozkan hinted
that at the request of consortium partners, GEH will likely
take a small equity stake in the near future.


3. (SBU) Thirteen interested parties purchased the tender
document specifications: AECL Atomic Energy (Canada),Itochu
(Japan),Vinci Consortium (France),Suez-Tractebel
(France-Belgium),Atomstroyexport (Russia),KEPCO (South
Korea)-Enka Insaat (Turkey),China Nuclear Power, Unit
Investment, RWE (Germany),Iberdrola (Spain)-Sabanci
(Turkey),Alarko Holding (Turkey),Akenerji (Turkey) and
Hattat Holding. Ozkan estimates there are six to seven
consortia that are serious contenders for the bid, and four
of them have asked the GOT to delay the bid date. GE
believes two consortia are ready to bid now: KEPCO of South
Korea, in partnership with the Turkish firm ENKA, and the
Russian parastatal Atomstroyexport, possibly in conjunction
with the German company RWE.

GE,s concerns
--------------


4. (SBU) According to Ozkan, the driving factor behind GE,s
request for a delay in the process is the lack of key
information needed to calculate the project's risks, which
will affect the cost of the project, financing and insurance.
Since the initial announcement of the tender in March, the
Ministry of Energy has emphasized the primacy of price. The
winning bidder will have the lowest cost of power generation
per kilowatt hour. Insurance, financing and material costs
are very important components of the price at which the
winning consortium can generate electricity. Ozkan said GE
could not turn in a competitive price with all the current
unknowns.


5. (SBU) Specifically Ozkan cited the lack of a GOT legal
regime regarding third party liability for nuclear accidents.
(Note: Spanish Embassy commercial attach Carlos Ansede told
us that Turkey has signed, but not ratified, the Paris
Convention on nuclear liability, and that the Nuclear Power
Law refers to the Paris Convention on issues of third party
liability. End note.) Ozkan also bemoaned the lack of
price escalation or indexing for construction and other
commodities. Since the nuclear plant will be built 5 to 7
years in the future, material costs likely will increase. GE
recommended the GOT use an indexing formula, which would
increase transparency in the cost structure.

GOT sticks to the deadline

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6. (SBU) On August 26, Minister Guler met with potential
bidders for the nuclear project and told them the GOT would
not delay the tender. In a press conference following the
meeting, Guler emphatically said Turkey is in desperate need
of energy, so the project can not be delayed. Energy
Ministry Deputy Directorate General for Energy Affairs Nilgun
Acikalin told us the GOT is not sympathetic to companies'
requests to delay. She argued companies have had plenty of
time to prepare. Acikalin quickly dismissed Embassy
officer's suggestion that a delay could benefit the GOT by
bringing more bidders and hence stiffer price competition and
more technologies to chose from into the process, Acikalin
said she was sure some companies would bid and in the worse
case scenario (no bidders),the GOT was ready to step in to
form a public-private partnership to get the project done.
(Comment: as reported reftel, the nuclear power law passed in
November 2007 provides for the GOT to form either a
public-private company, or even a wholly public company, to
build a nuclear power plant. End comment.) Prime Minister
Erdogan, in a September 22 press conference, closed the
argument by announcing that there would be no delay in the
September 24 bid deadline.

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WILSON