TURKS ASK WHETHER AZERBAIJAN IS SERIOUS ABOUT

C O N F I D E N T I A L ANKARA 002123 SIPDIS EEB FOR A/S SULLIVAN SPECIAL ENVOY FOR EURASIAN ENERGY GRAY EEB FOR ENERGY COORDINATOR MANN EUR FOR DAS BRYZA E.O. 12958: DECL: 12/16/2018 TAGS: ENRG EPET TU SUBJECT: TURKS ASK WHETHER AZERBAIJAN IS SERIOUS ABOUT CONCLUDING A GAS TRANSIT AGREEMENT Classified By: Economic Counselor Dale Eppler for reasons 1.4 (B) and ( D) ¶1. (C) MFA Energy Department Head Berris Ekinci expressed frustration with Azerbaijan after the latest round of talks on gas transit in Ankara on December 5. Ekinci, who attended the talks, told Econoff that the purpose of the talks was to finalize an agreement on a gas transit MOU first proposed on November 14 in Baku. Azerbaijan was represented by Energy Minister Natiq Aliyev and SOCAR Chairman Rovnaq Abdullayev. Ekinci said the Azeris not only were not prepared to move "one centimeter" to accommodate Turkish positions but also removed some issues that the GOT thought were agreed at the meeting from a subsequent draft of the MOU prepared by Azerbaijan. Ekinci said the GOT is starting to believe that Azerbaijan isn't in any hurry to conclude a deal and, rather than admit that fact, is trying to blame Turkey for the failed negotiations. ¶2. (C) Ekinci said Turkey is willing to accept the MOU proposal to buy only 4 bcm (half of its original demand to buy 8 bcm) and leave 7 bcm for transit across Turkey for a European pipeline project. However, Turkey needs some flexibility in the contract. Turkish Energy Minister Guler reportedly gained Minister Aliyev's agreement to include in the MOU an option to buy some of the 7 bcm, if necessary, to meet urgent demand needs in Turkey. Guler said he was not seeking resale rights for this gas. Aliyev said Turkey must pay "European prices" for the gas to which Guler reportedly agreed and asked Azerbaijan to name its price. According to Ekinci, Aliyev refused to name a price and said pricing was a commercial issue handled by SOCAR and other members of the consortium. Guler said he is available and ready to meet with all commercial partners to settle the issue of price. Aliyev did not respond to this offer. ¶3. (C) In the revised MOU that Azerbaijan sent Turkey following the December 5 meeting, neither the option to buy some of the 7 bcm nor the issue of price were mentioned. Neither the Ministry of Energy nor BOTAS (state-owned pipeline company) are satisfied with the revised MOU. No further meeting on the MOU is scheduled at this point. ¶4. (C) Comment: Ekinci expressed exasperation with what the GOT perceives as lack of cooperation and unwillingness of the Azeris to follow through on verbal commitments. Turkey's request for some contract flexibility is driven by its concern that a Russian contract for 6 bcm that expires in 2011 will not be renewed, and by uncertainty about future demand growth. As the atmosphere between the two sides sours, it will be more important than ever for the US to act as a neutral broker and avoid taking sides. Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey Jeffrey