AZERBAIJAN: TURKEY NAKHCHIVAN SUMMIT A SUCCESS,

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000535

SIPDIS

E.O. 12958: DECL: 06/09/2018
TAGS: PGOV PREL AJ ENRG TK
SUBJECT: AZERBAIJAN: TURKEY NAKHCHIVAN SUMMIT A SUCCESS,
THOUGH NO GAS TRANSIT BREAKTHROUGH

Classified By: Political-Economic Counselor Joan Polaschik, Reasons 1.4
(b,d)


1. (C) SUMMARY. Initial press accounts indicate that
Azerbaijani President Aliyev and Turkish Prime Minister
Erdogan's June 4 meeting in the Azerbaijani exclave of
Nakhchivan was successful, with the two countries announcing
that their positions coincide "in all spheres." However,
SOCAR Vice President Nasirov told us that there was no
progress on the specific issue of transit of Azerbaijani gas
through Turkey. Nonetheless, by definition increased
cooperation between these two countries on energy issues
increases the possibility that the two sides will find a
mutually agreeable solution, and there are indications that a
solution on Turkish transit will involve Azerbaijan selling
Turkey some of the gas expected to be produced from Shah
Deniz Phase Two. END SUMMARY.


2. (U) The June 4 meeting between Azerbaijan President Aliyev
and Turkish Prime Minister Erdogan came during the latter's
first visit to the Azerbaijani exclave of Nakhchivan, which
shares a border with Turkey. Initial press accounts indicate
the meeting was successful, with a joint statement following
the two leaders' one-on-one meeting and a joint press
conference. In the press conference, Aliyev and Erdogan
stressed their common positions on all major regional issues,
with PM Erdogan saying the positions of Azerbaijan and Turkey
"coincide in all spheres," and referring to the two countries
as "one nation - two states," with Aliyev saying the two
countries had "the same interests and the same enemies."
Erdogan said the two countries would continue to support each
other in international fora such as the UN, the Organization
of the Islamic Conference and the Council of Europe.
Agreeing, Aliyev added that the next meeting of
Turkic-speaking nations would be organized in Baku.


3. (U) During the press conference the two leaders expressed
unanimity of opinion on N-K, with President Aliyev referring
to Turkey as having demonstrated its support for Azerbaijan's
N-K position "during the adoption of the UN resolution on the
occupied Azerbaijani territories." PM Erdogan said that
resolving N-K within the framework of Azerbaijan's
territorial integrity in accordance with international norms
was "Turkey's greatest wish." He also thanked Azerbaijan for
its support to Turkey on the Northern Cyprus issue.


4. (U) Economic issues played a large role in the meeting,
especially energy and transportation. PM Erdogan pointed out
that Turkey has invested approximately USD 5.5 in
Azerbaijan's non-oil sector, that the trade turnover between
the two countries is USD 1.2 billion, with the goal of
increasing this number to USD 3 billion within two years. In
terms of large projects, the two leaders discussed
cooperation on the Kars-Nakhchivan railway line and regular
Nakhchivan-Istanbul air flights. After the one-on-one
meeting between the two leaders, the two countries' Energy
and Transportation Ministers and
supporting staff met.


5. (U) On energy, Aliyev announced that no cooperation within
the region was possible without the two countries'
participation, and that Turkey will deliver natural gas to
Nakhchivan via the Baku-Tbilisi-Erzurum gas pipeline.
Erdogan said that:

"Turkey is a transit country. At the same time, Turkey will
use the Baku-Tbilisi-Erzurum gas pipeline project to meet its
own needs. Energy ministers have received relevant
instructions on this matter. The amount of gas that will be
delivered to Turkey has yet to be defined. We also discussed
the Nabucco (gas pipeline) project. Within the existing
capacity, it's planned that natural gas will also be
delivered through Nabucco."


6. (C) The specific issue of Azerbaijani gas transit through
Turkey was not mentioned in public accounts of the meeting.
However, in June 5 conversation on the fringes of the Caspian
Oil and Gas Conference, SOCAR Vice-President for Marketing
Elshad Nasirov, one of President Aliyev's close advisors on
energy issues, told Emboff that the Turkish gas transit issue
was not broached, much less solved, when the two leaders met.


7. (C) COMMENT: According to Azerbaijan, Turkish gas transit
has to be solved for SOCAR to finalize sales and purchase

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agreements with whichever of the three competing pipeline
projects it chooses (TAP, Nabucco, TGI) to sell Shah Deniz
Phase Two (SD2) gas. As such, while it is regrettable that
no specific progress was made on this issue during this
meeting of the two countries' leaders, that Erdogan referred
to Turkey as a 'transit country' (vice 'energy hub'),and
that he referred to the Nabucco project as something that
would deliver gas to Turkey, are encouraging signs. When
Erdogan said that "the amount of gas that will be delivered
to Turkey has yet to be defined," he is referring to the GOT
desire to buy all of Shah Deniz Phase Two gas (SD2 -
approximately 13 billion cubic meters annually, starting
approximately in late 2013),or at least a minimum of 8
bcm/a. In conversations with SOCAR Embassy has learned that
SOCAR is seeking to sell some SD2 gas to Turkey, but wishes
to sell no more than 5 bcm/a, so that there is enough SD2 gas
left to sanction at least one pipeline project (although
SOCAR still holds out the hope of sanctioning two, or, with
Turkmen gas, all three). As such, it seems that the two
sides could be moving toward a solution to the Turkish
transit issue in which the GOAJ sells some SD2 gas to Turkey
at prices that are politically palpable for the GOT (i.e.
below Gazprom and Iranian prices),with Turkey allowing the
rest to transit Turkey under a fair and transparent tariff
regime, without the "15 percent netback" clause that has up
until now impeded progress on SD2 gas sales. END COMMENT.
LU