1. (C) On November 15, a delegation led by Turkish Energy
Minister Guler went to Tehran to try to conclude negotiations
begun in July 2007 to develop natural gas in Iran's large
South Pars field and to construct a dedicated pipeline to
bring Iranian gas to Turkey (reftel). The delegation also
includes BOTAS (state pipeline company) Chairman Saltuk
Duzyol, TPAO (state oil company) Chairman Mehmet Uysal and
AKP Parliamentarian Taner Yildiz, Prime Minister Erdogan,s
informal advisor on energy.



2. (C) According to Faruk Demir, an informal advisor to
Guler, the team will stay in Iran through November 19 and
will likely sign a new agreement, but gave few details. He
said a sticking point continues to be Iran's "buy back model"
for gas development, in which Turkey would be obliged to sell
gas developed in the South Pars field to the GOI at a (very
low) price set by the GOI but would be required to pay Iran
"international market prices" for gas exported to Turkey or
markets beyond. Effectively, such a deal would be a money
loser for Turkey. Demir said TPAO, which has been conducting
the negotiations with Iran, opposes the buyback model and
advised the Minister not to travel to Iran yet. However,
Guler advisor Musa Gunaydin urged Guler to go to Tehran and
conclude an agreement. (Note: Gunaydin is reportedly close
to an unnamed business with close ties to the PM that has
financial interests in an Iran gas deal. End note.)



3. (C) We also spoke with MFA Energy Department Head Berris
Ekinci about her expectations for Guler's Iran trip. Ekinci
stressed the difficulty of raising financing in today's
global climate. She estimated the cost of the deal to be as
much as USD 7 billion and speculated that nothing could move
forward without financing despite any agreements Guler may
reach. Demir also said TPAO would not have the funds
available to invest in Iran because its share in Azerbaijan's
Shah Deniz Phase II development would run about USD 2
billion.



4. (C) Comment: We know very few details about the ongoing
negotiations in Iran and will continue to seek more
information. Minister Guler has said for months that he
would go to Tehran only when an agreement was ready, so his
personal involvement in the 4-day negotiations indicates
closing a deal with Iran is a priority for him. Guler may
believe an agreement with Iran will give him a much-needed
domestic success story and increases his negotiating leverage
with other gas suppliers like Russia and Azerbaijan. He is
under considerable political pressure at home. He has long
been rumored to be on his way out to be replaced by Taner
Yildiz, the parliamentarian who is on the trip with him.
This year, the Ministry has allowed large and unpopular
utility rate increases (electricity up by more than 60% and
natural gas by more than 70%). An opposition political party
recently filed a censure motion against Guler, claiming
incompetence for the utility price increases while world
prices for oil and gas are falling.

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SILLIMAN