TURKEY: SCENESETTER FOR DOE DEPUTY SECRETARY

UNCLAS SECTION 01 OF 03 ANKARA 001421

SENSITIVE
SIPDIS

STATE FOR EEB/S-EEE MARK PARRIS AND NEA/I-ASSIST MATT
AMITRANO

E.O. 12958: N/A
TAGS: ENRG ECON EPET PGOV PREL TU
SUBJECT: TURKEY: SCENESETTER FOR DOE DEPUTY SECRETARY
PONEMAN


1. (SBU) Embassy Ankara warmly welcomes your visit to Turkey
October 8-10. Our relations with Turkey are strong. While
the euphoria from the President's visit last April have
faded, the steady stream of senior visitors from Washington
has helped us convince Turkey's leaders that the
Administration's press to engage with them and seek their
input on key issues is genuine. Your visit will be seen in
that light.

POINTS TO RAISE:

-- Encourage the GoT to make the Southern Corridor its
priority. Need to conclude a fair, transparent gas pricing
and transit agreement with Azerbaijan. (paras 4-7)

-- Encourage efforts to increase the share of power Turkey
gets from renewable sources. (paras 8-9)

-- Assure the GoT of U.S. interest in being a reliable
partner for Turkey as it develops peaceful use of nuclear
energy. (para 10)

-- Stress the importance the USG places on concluding the NSG
guidelines and our willingness to address Turkish concerns
about reliable access to nuclear fuel. Affirm our
willingness to follow through on assurances of access to
nuclear fuel in the event of market disruptions, if necessary
to win support for the NSG guidelines. (para 11)

-- Express appreciation for the TAEK decision to replace the
HEU fuel in its research reactor in Istanbul with LEU fuel.
(para 12)

WATCH OUT FOR:

-- Backpedaling on Nabucco and GoT assurances that South
Stream and Nabucco are not in conflict. (paras 4-5)

-- Requests for follow-up to offers made by State ISN DAS
Eliot Kang regarding access to nuclear fuel. (para 11)


ENERGY AS SEEN THROUGH POLITICS
--------------


2. (SBU) Despite free give-aways ranging from coal to
household appliances, the ruling AK Party's support declined
in March 2009 local elections to 38 percent of the vote, down
from 47 percent in the national parliamentary elections of
July 2007. Stung by the election results, AKP is looking to
strengthen its showing in the 2011 parliamentary elections.
In that context, AKP will be looking to show voters favorable
results, including delivery of more energy at lower cost.
Before the onset of the global economic crisis, Turkey's
annual economic growth rate averaged 6 percent with an
accompanying growth rate in energy usage of 8 percent
annually. Most analysts expect economic growth will begin to
revive in 2010 and the energy sector will resume its rapid
growth. The country will need a stable and growing source of
resources to keep that growth going. Turkey now imports
about 80 percent of its energy resources. It is nearly 100
percent reliant on imported natural gas, over half of which
is used to produce electricity. Sixty-five percent of its
natural gas comes from Russia, another 17 percent from Iran.
Turkey wants to reduce its reliance on imported energy in
general (by domestic exploration, development of renewables
and efficiency),and to reduce its reliance on any one
supplier to no more than 30 percent.


3. (SBU) Aspects of Turkey's international policies also
intertwine with its energy affairs. In particular, Turkey's
movement to normalize relations with Armenia will continue to
play into energy politics and Turkey's negotiations with
Azerbaijan. Looking south, tensions with Cyprus, including
on energy exploration issues, continue to hinder Turkey's EU
aspirations and EU-Turkey energy relations. Cyprus continues
to block opening of the EU Energy Chapter because of disputes
with Turkey over offshore exploration for oil and gas
deposits.

TURKEY'S REGIONAL ENERGY ROLE
--------------


4. (SBU) From the Baku-Tbilisi-Ceyhan oil pipeline (BTC)
negotiations in the 1990s until today, Turkey and the U.S.

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have shared a strategic vision to bring new oil and gas
resources to market through new routes. Opening an east-west
corridor for gas would strengthen the ties of Central Asia
and the Caucasus with the West and decrease the dependence of
eastern and central European countries on a single gas
source. Over the past two years, we have also seen Turkey
articulate another vision that is sometimes at odds with our
shared one: to secure increased gas supply for Turkey's
domestic market as its highest priority. Turkey is pursuing
all options to ensure its energy security and enhance its
role in Eurasian energy markets. Turkey continues its
negotiations with Russia, both on hydrocarbon and nuclear
energy projects. During Russian President Putin's visit in
August, Turkey signed an agreement for the feasibility study
for South Stream, which is viewed by many as a competitor to
Nabucco. While we recognize that Turkey has an important
energy relationship with Russia, we hope Turkey will continue
to make the Southern Corridor its priority.


5. (SBU) Your visit is an important opportunity to remind the
GOT that win-win solutions are possible. A policy that
positions Turkey at the heart of an East-West energy corridor
will pull more resources to Turkey as well as Europe. With
the transit of increased gas resources, Turkey can strengthen
its own relationship with Azerbaijan, Turkmenistan, Iraq and
the EU.


6. (SBU) One important step to opening the East-West gas
corridor is concluding a Turkey-Azerbaijan gas pricing and
transit agreement. In recent meetings, Turkey and Azerbaijan
appear to have come closer than any time in the last two
years to reaching agreement on outstanding issues and are
negotiating on quantities and prices. They reportedly have
narrowed their differences on price for both Shah Deniz Phase
one and two gas. Transit fees remain the most difficult
issue, with Turkey proposing $38-45 on a sliding scale, and
Azerbaijan insisting on $32 (this would be for gas
transported via pipelines other than Nabucco, which has its
own internal transit regime). Turkey says it is now waiting
for a response to a proposal it made in Nakchevan in August.
We are told they have not discussed volumes yet, but are
working under an assumption that there would be 8 billion
cubic meters (bcm),of which 4 bcm would go to Turkey, and
Azerbaijan would be able to market the other 4 bcm.


7. (SBU) The U.S. is not a commercial partner in developing
Caspian gas or transiting it to world markets. These are
decisions that will be made by the consortia developing and
marketing their gas. The U.S. does not favor one pipeline
route or another. Our interest is strategic. It was our
shared strategic view with the Turks that made the BTC oil
pipeline a reality in the 1990s.

RENEWABLES
--------------


8. (U) In its effort to expand generation capacity and
diversify away from natural gas for electricity generation,
the Ministry of Energy has proposed new legislation that
would raise feed-in tariffs for renewable power generation to
a range of EUR 0.07/kWh - 0.25/kWh. The bill was pulled from
the parliamentary agenda at the last minute in July due to
concerns about the burden the tariffs would put on the budget
and a possible WTO objection over a local-supplier incentive
included in the bill. The Parliament is expected to take up
the bill again after it returns on October 1. You are likely
to hear from industry how necessary this legislation is to
expand the use of renewables in Turkey.


9. (U) On April 4, former Energy Minster Guler and Acting TDA
Director Leocadia Zak signed a memorandum of understanding on
cooperation on energy efficiency, renewable energy technology
and clean coal technology. Currently, there are four
projects in various stages of development: USTDA is
negotiating with Argonne National Lab to carry out training
on energy planning and modeling software; September
27-October 7, USTDA will host a visit of Turkish officials to
the US for meetings with government and private sector
officials on energy efficiency; USTDA will provide a grant
for a feasibility study on coal gasification; and USTDA will
provide technical assistance on solar power.

NUCLEAR
--------------


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10. (SBU) Turkey signed a 123 Agreement with the U.S. in June
2008 and put out a tender for its first nuclear project in
September 2008. It received only one bid, from a Russian-led
consortium with a per kilowatt price of 21 cents, which the
Turks say is too high. The GoT is considering canceling the
tender and putting it out for rebid or trying to negotiate a
lower price if they can find the legal means to do so. Last
week, the Ministry of Energy announced it had extended the
bid for yet further consideration and expects to make a
decision by the end of November. Although many--including
Energy Minister Yildiz and members of parliament--find fault
with the current tender, canceling it will be difficult and
likely bring repercussions from the Russians. If they rebid
the tender, and for future nuclear projects, the GoT has
indicated it will offer a substantially different tender,
with a public-private structure.

NON-PROLIFERATION
--------------


11. (SBU) Turkey is a key U.S. ally, has generally been
supportive of our non-pro policy, and has received US support
in improving its ability to detect and deter the transit of
WMD (including nuclear) material. A team lead by Deputy
Assistant Secretary of State Eliot Kang visited Ankara on
September 28 and pushed Turkey to agree to the draft NSG
guidelines to prevent the transfer of enrichment and
reprocessing (ENR) technology. In an effort to persuade the
GoT to support the NSG guidelines, DAS Kang offered that we
could provide written assurances (exchange of notes) that the
U.S. would provide Turkey assured access to nuclear fuel in
the event of market disruptions, consistent with the 123
Agreement. The GoT is now undergoing a policy review
regarding its position on this issue. It would be useful to
reiterate to your interlocutors the importance the USG places
on concluding these guidelines and our willingness to address
Turkish concerns about reliable access to nuclear fuel.

12. (SBU) The Turkish Atomic Energy Agency (TAEK) agreed in
September 2008 to replace the HEU fuel in its research
reactor in Istanbul with LEU fuel and we are in the final
stages of preparation for this transition. DOE is scheduled
to complete the HEU removal by the end of the year. You
should applaud the TAEK decision and urge that the process
remain on schedule.

SILLMAN

"Visit Ankara's Classified Web Site at http://www.intelink.s
gov.gov/wiki/Portal:Turkey"