TURKEY UPBEAT ON NABUCCO POST-BUDAPEST SUMMIT

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 000155 SIPDIS EEB FOR ENERGY COORDINATOR MANN EUR FOR DAS BRYZA E.O. 12958: DECL: 02/02/2019 TAGS: ENRG EPET TU SUBJECT: TURKEY UPBEAT ON NABUCCO POST-BUDAPEST SUMMIT REF: ANKARA 138 Classified By: Ambassador Jim Jeffrey for reasons 1.4 (B) and (D) ¶1. (C) Summary. Fresh from the January 26-27 Budapest Nabucco Summit, an upbeat and confident Energy Minister Guler told the Ambassador Turkey supports this project 100% and is ready to take concrete steps to realize it. Guler offered to host the signing of an Intergovernmental Agreement (IGA) for Nabucco in Istanbul within the next six months. Turkey continues to seek some nod to its own energy needs as part of the greater project and has circulated among Nabucco partner countries a "project support agreement," formerly called a host country agreement. Guler said he realizes that he is being critized by the international community for lack of progress in gas transit talks with Azerbaijan. He described Azerbaijan's price demands as impossible and hypothesized that profit maximization, rather than geo-stratic aims to link to Europe, is the real driver of Azerbaijan's strategy. As an example, he cited Azerbaijan's willingness to sell Turkey 8 bcm coupled with its insistence that it alone obtain marketing rights for gas sales in Turkey's domestic market. Regarding gas sources for Nabucco, Ambassador said Iraq could play a role but the hydrocarbon law is a prerequist. Guler said his information was different. GOI Oil Minister Shahristani told him the hydrocarbon law is not needed. Guler said he feared early gas from Iraq would be exported through Syria rather than Turkey. Ambassador outlined U.S. steps to follow up on the Oct 2008 visit of DOE Deputy Secretary Kupfer. Guler welcomed this intiative but questioned whether it would actually lead to more U.S. investment in Turkey. On the nuclear tender, Guler said the GOT would negotiate with the Russian consortium to get a better deal and said the GOT would go ahead with a second tender soon. He expressed frustration with the Czech Republic's (EU President) disinterest in helping Turkey open the Energy Chapter of the EU Acquis despite the fact all opening benchmarks have been met. Guler confirmed Turkey requested the World Bank to conduct a study of the Caspian Development Corporation (CDC) concept and thanked the Ambassodor for U.S. support. End summary. Budapest Nabucco Summitt January 26-27 -------------- ¶2. (C) Guler told the Ambassador the timing of the summit couldn't have been better with the world focused on the need to move forward developing new gas resources and bringing them to market through diversified routes in the wake of the Russia-Ukraine gas cut off. Guler was at pains to remove any doubts the PM's statements in Brussels about linking Turkey's support for Nabucco with the opening of the energy chapter saying Turkey is 100% supportive of Nabucco and wants to make progress without delay. Guler reported a successful trip to Budapest. He confirmed that the intergovernmental agreement (IGA) for Nabucco was agreed between the partner companies (BOTAS, Bulgargas, Transgas, MOL, OMV and RWE) and had now been passed to the partner countries for consideration. Guler was hopeful the agreement would be ready for signature within 6 months and proposed holding the signing ceremony in Istanbul. ¶3. (C) In addition to the IGA, the political support agreement (PSA),formerly called the host country agreement (ref A) was also transmitted to partner countries for consideration. Guler emphasized the importance of the PSA in securing gas at a "market price" for Turkey's domestic gas market. He emphasized the principal of netback pricing was of primary concern to Turkey and that "market price" cannot mean the same price for all consumers regardless of their proximity to the gas source. The PSA is still being negotiated with Nabucco partner companies. ¶4. (C) He said he made a surprise proposal at the Summit, offering the use of BOTAS' internal pipeline network for the initial flows of Nabucco until a dedicated pipeline could be built. He said some compressor stations and other additions might need to be added but that Turkey is ready to transmit 3-5 bcm/a in a short time period. If this idea goes forward, Turkey could consider a building a loop line to Bulgaria to send gas in the near term to lessen Bulgaria's dependence on Russian gas. ANKARA 00000155 002 OF 003 ¶5. (C) Ambassador said we are optimistic about Nabucco. We are now getting some support from the Europeans on financing and he urged Turkey to take concrete steps now to move this project forward. Turkey-Azerbaijan negotiations -------------- ¶6. (C) Guler said Turkey has engaged in good faith in several negotiating sessions with Azerbaijan. We have wanted to reach agreement but couldn't. Azeris are critizing us for seeking a lower price for gas but raising the price to the extent that the Azeris are asking is not possible. We have offered to pay a "market price" based on a formula. Such a formula would be profitable for the Azeris. Because we are one of the closest markets to Shah Deniz II gas, Azerbaijan would pay low transit fees for gas sold to Turkey and would be able to earn a high return. ¶7. (C) At one point in the negotiations, Azerbaijan offered to sell 8 bcm/a to Turkey but conditioned it on marketing the gas directly into the Turkish market without a Turkish partner, Guler said. This is not acceptable so the negotiations collapsed. Turkey believes there is enough gas to send to Europe even if they sell Turkey 8 bcm. Azerbaijan can boost production to make a pipeline to Europe economical. ¶8. (C) Guler said he knows that Turkey and he himself are being criticized and blamed for the lack of agreement between Azerbaijan and Turkey. He said he wished the negotiations were trilateral so we could see for ourselves just how difficult it is to negotiate with the Azeris. Iraq gas -------------- ¶9. (C) Ambassador said Iraq can potentially be a source of gas for Nabucco and could flow through Turkey. We have good cooperation with Turkey on PKK and we want to the same on energy issues. However, we need to work together for the passage of a new hydrocarbon law in Iraq. This a political issue and we urge Turkey to work with central government in Baghdad. Guler said GOI Oil Minister Shahrastani had told him that the hydrocarbon law was not needed to move forward with gas projects. Ambassador and Guler agreed the politics in Iraq are complex and the messages coming from the KRG and central Baghdad are sometimes contradictory. Guler said he feared early gas from Iraq was destined for Syria and then Egypt for LNG. Guler suggested that Turkey could meet Syria's gas needs if Iraqi gas were to flow north. Within its gas distribution network, Turkey has three pipeline spurs that almost reach the Syrian border and could be extended thereby helping Iraq make good on its promise to sell gas to Syria while at the same time providing Iraq with a strategic link to Europe. Energy cooperation with the U.S. -------------- ¶10. (C) Ambassador explained the January 5-9 visit of a U.S. Trade and Development Mission to Istanbul and Ankara. This team is assembling a list of suggestions for follow-on studies, technical assistance or orientation visits to the U.S. that we will share with the Ministry soon. Ambassador also explained the U.S. Treasury's idea for one-stop financing for multilateral credit agencies and national export credit agencies. We passed Guler a translated version of the interagency cleared paper. Ambassador explained that Turkey must ask the World Bank or IFC to convene a discussion on this topic if the idea is to move forward. Guler promised to study our concept paper. Despite the economic crisis, energy contines and will continue to grow in Turkey. The Turkish energy sector will need USD 120 billion in investments by 2020. Guler welcomed U.S. investment in energy efficiency, renewables and all sectors of Turkey's economy and gently complained that even though the doors for foreign investment are open, U.S. investors are not coming. Nuclear tender -------------- ANKARA 00000155 003 OF 003 ¶11. (C) Ambassador told Guler he had recently met with General Electric CEO Jeff Immelt and that GE remains interested in the development of nuclear power in Turkey. Guler said there will be future tenders including the next one in Sinop and urged GE to participate. Guler defended the process for the first nuclear tender and said Turkey will work with the Russians to negotiate a lower electricity price. He expressed dismay at having had only one consortium (Russian-Turkish) offer a bid. Ambassador said the tender conditions were too risky and hoped that the conditions would be improved for the second round. Energy Chapter -------------- ¶12. (C) Guler expressed frustration with the Czech EU presidency's unwillingness to help Turkey open the Energy Chapter of the EU Accession Acquis. He said Turkey has met all the benchmarks for opening the negotiations and that the EU shouldn't allow Cyprus to block this issue. Caspian Developnent Corporation (CDC) Study Goes Forward -------------- -------------- ¶13. (C) Guler confirmed that Turkey has requested the World Bank to conduct the EU-proposed study the Caspian Development Corporation. This concept plays an important role in attracting more gas to Turkey and Europe and he thanked the Ambassador for U.S. support of this initiative. Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey Jeffrey