Identifier
Created
Classification
Origin
09ANKARA111
2009-01-22 17:21:00
CONFIDENTIAL
Embassy Ankara
Cable title:  

TURKEY: NUCLEAR TENDER FATE STILL UNCERTAIN

Tags:  ENRG TU 
pdf how-to read a cable
VZCZCXRO2758
RR RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSR
DE RUEHAK #0111/01 0221721
ZNY CCCCC ZZH
R 221721Z JAN 09
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 8544
INFO RUCNCIS/CIS COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHIT/AMCONSUL ISTANBUL 5270
RUEUITH/ODC ANKARA TU
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000111 

SIPDIS

EUR FOR DAS BRYZA
DOC FOR CHERIE RUSNAK
DOE FOR LANA EKIMOFF

E.O. 12958: DECL: 01/22/2019
TAGS: ENRG TU
SUBJECT: TURKEY: NUCLEAR TENDER FATE STILL UNCERTAIN

REF: A. 08 ANKARA 2137

B. ANKARA 0004

Classified By: Economic Counselor Dale Eppler for reasons 1.4 (B) and (
D)

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000111

SIPDIS

EUR FOR DAS BRYZA
DOC FOR CHERIE RUSNAK
DOE FOR LANA EKIMOFF

E.O. 12958: DECL: 01/22/2019
TAGS: ENRG TU
SUBJECT: TURKEY: NUCLEAR TENDER FATE STILL UNCERTAIN

REF: A. 08 ANKARA 2137

B. ANKARA 0004

Classified By: Economic Counselor Dale Eppler for reasons 1.4 (B) and (
D)


1. (C) Summary. On January 19, the Turkish Electricity
Trading and Contracting Company (TETAS) announced the results
of the final step in the bid to build Turkey's first nuclear
power plant. The Russian consortium of AtomStroyExport,
InterRAO UES and the Turkish firm Park Teknik submitted a bid
of USD 21.16 cents per kilowatt hour (kWh). The high price
was denounced by the Director of the Turkish Atomic Energy
Council (TAEK) as "ridiculous" and several academics likewise
publicly decried the price. Ultimately, the decision whether
to accept the bid will be left to the Council of Ministers
(COM). The Russian-led consortium has already submitted a
new bid envelope to TETAS which reportedly contains a
substantially lower price. A lower price, combined with
heavy Russian lobbying and the GOT's desire for a political
win before the March local elections may mean the bid is
ultimately accepted. End summary.

Further price negotiation or bid cancellation?
-------------- -


2. (C) September 2008 was the TETAS deadline for private
companies to submit bids to build Turkey's first nuclear
power plant. At that time, only one consortium (Russian
AtomStroyExport, InterRAO UES and Turkish firm Park Teknik)
submitted a bid. In December, TAEK pronounced the bid
technically acceptable. The last remaining hurdle for the
bid is the price the consortium offers for electricity, i.e.
price per kilowatt hour. The final decision whether the
bidder's price rests with the COM. There are two ways the
decision could go. First, they could reject the bid
outright. This would invalidate the tender and send the
process back to square one. Such an action would trigger a
whole new tender process and require the passage of new
tender legislation. Alternatively, the COM could open the
second price envelope recently submitted by the consortium
and/or instruct TETAS to continue negotiations with the
Russians in hopes of securing a lower price.

Why was the Russian price so high?
--------------

3. (C) There were many risks and unknowns in the tender
structure. These risks led Western firms like GE or Hitachi

to withhold bids. In contrast, the Russians priced in the
risk. For instance, since the power won't come online until
8-10 years from today and the tender formula did not allow
for any material cost escalation, they estimated the project
cost (including inflation, etc) in future prices. Also,
since the power-purchase guarantee is for 15 years only, the
Russian plan to recoup all of their investment during that
term -- meaning, this project will become quite profitable
during the 45 years the plant is supposed to operate after
the power purchase guarantee expires.

Why can the Russians now offer a lower price?
--------------

4. (C) Muzzafer Ozdemir, Director for ERG Insaat, a
construction subcontractor for Atomstroyexport in the bid,
told us that the Russians, as part of the second envelope yet
to be opened, will be offering low-cost, sovereign-backed
financing that will allow them to lower their price to an
"acceptable" level (which he declined to state, but indicated
it had already been discussed and agreed between the GOT and
the AtomStroyExport). As reported ref A, market expectations
were Euro 9-11 cents. Originally, the GOT had demanded fully
private financing for the nuclear plant, an estimated USD 10
billion.

Russians offer some sweeteners
--------------

5. (C) The Russians are aware of the perception that winning
the nuclear tender increases Turkey's energy dependence on
Russia. Accordingly, the Russians have invited a U.S. firm
into the consortium as a partner to assist in design.
Ozdemir only hinted at the firm's name, but we believe it is
Parsons, which is also part of the Russian consortium

ANKARA 00000111 002 OF 002


building a nuclear power plant in Bulgaria. There were
rumors in the press that that Turks were seeking nuclear
enrichment capability in order to lessen fuel dependence on
Russia. Ozdemir said as part of the bid, Russia agreed to
sponsor an institute to study how to use Turkey's own natural
thorium deposits for fuel. Additionally, TAEK Director Okay
Cakiroglu told us the Russians are offering to build a fuel
fabrication plant in Turkey. Such a plant would take
enriched uranium and package it for use in the reactor and
thus would not be dependent on Russia exclusively for fuel.
Ozdemir, however, said that as an engineer, he didn't
understand the meaning of "fuel fabrication" and thought this
sounded like a political statement rather than a technical
one. The reactor will be 3rd generation and will use fuel
"tablets" that can be bought from suppliers other than
Russia.


6. (C) Ozdemir said Russia has been lobby hard for the deal.
Minister Guler has traveled to Russia three times in a week,
he said. At one meeting, Guler was hosted for dinner by
Russian PM Putin and the head of AtomStroyExport.
Additionally, a U.S. businessman who was discussing this with
Energy Ministry contacts told us the Russian Ambassador in
Ankara is practically sleeping at the Energy Ministry.


7. (C) Comment: It's difficult to predict how this might
turn out, but our best guess is that the GOT will negotiate
an acceptable price with the Russians. They have many
reasons for going forward rather than starting again.
Canceling the tender would be a huge embarrassment for the
Energy Minister, who personally pushed hard for it to go
forward on strict timelines despite calls by many investors
for additional time and reducing some of the risks. With the
local elections planned for March, a successful renegotiation
of price with Russia is likely to be seen as a more
politically attractive route. Also, the Russians are
pressing hard for the tender, and may be linking this bid to
renewal of gas contracts. The GOT is unlikely to pick a
fight with the Russians without very good cause.

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

Jeffrey