TURKEY: 2009 REPORT ON INVESTMENT DISPUTES AND

UNCLAS SECTION 01 OF 02 ANKARA 000828 DEPT FOR EEB/IFD/OIA - HGOETHERT, KBUTLER AND L/CID - PPEARSALL DEPT PLEASE PASS USTR SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EINV KIDE OPIC PGOV CASC TU SUBJECT: TURKEY: 2009 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION CLAIMS REF: STATE 49477 ¶1. (U) The following is Embassy Ankara's submission for the 2009 report to the U.S. Congress on expropriation claims and investment disputes, providing an update on the two ongoing cases reported in 2008 and adding two new cases that have been brought to Post's attention. ¶2. (SBU) Claimant Data: -- Claimants A are Victor and Kristy Bedoian, both U.S. citizens. They filed a Privacy Act Waiver in 2001. Victor Bedoian told us that he "technically" has a 95 percent share in the Turkish company owning the real estate in dispute, but that there are also six other partners in the venture. -- Claimants B are U.S. companies with build-operate- transfer (BOT) and transfer-of-operating-rights (TOR) contracts in dispute (company, location, value of contract in USD millions): B1. AES (BOT project),Eskisehir, 165, Gas-fired Power Plant B2. GE (BOT project),Atam Elektrik, 195, Gas-fired Power Plant B3. NRG (TOR project),Seyitomer, 200, Coal-fired Power Plant B4. NRG (TOR project),Kangal, 125, Coal-fired Power Plant -- Claimant C is Izmer A.S., a U.S. limited partnership. -- Claimant D is Merck, Sharpe & Dohme, a subsidiary of the U.S.-based Merck & Co. ¶3. (SBU) Begin text of 2007 Report: The United States is aware of four (4) claims of United States persons that may be outstanding against the Government of Turkey. ¶1. a) Claimants A b) 2001 c) Claimants A purchased and renovated a hotel and restaurant in Van for approximately USD 750,000 in 2001. Claimants A assert that they have been unable to operate their property, however, due to persistent police harassment and obstruction by local government authorities. In 2004, administrative courts decided against Claimants A in their suit to obtain a residence permit and an operating permit for the hotel. In early 2005, a Van court dismissed a civil case initiated by Claimants A, in which Claimants A sought to annul the transfer of title to a hotel which they claim was sold without their knowledge or consent. In September 2005, Claimants A lost their appeal of the decision in the civil case in the Turkish courts, which was upheld by the court in Van in February 2006. This was their last resort in the Turkish legal system. Claimants A started the process to appeal this decision under a "cancellation of rights" case at the European Court of Human Rights, in which they have also appealed the permit decisions. Post has no new information on this case. ¶2. a) Claimants B b) 2000 - 2001 c) In 2001, the Turkish Government cancelled 46 contracted (but unbuilt) power projects based on the build-operate-transfer (BOT) and transfer-of-operating- rights (TOR) models. Turkey's constitutional court ruled in 2002 that the Turkish Government would have to either honor the contracts or compensate the companies involved. Claimant B4 filed an international arbitration claim through the International Chamber of Commerce (ICC). The tribunal ruled in favor of the company but did not include any financial compensation. Claimants B1 - B3 ANKARA 00000828 002 OF 002 did not seek arbitration for their disputes. The Turkish partners of B1 and B2 chose to pursue arbitration and won their case. Claimant B4 has decided not to pursue further legal action. Post considers this case to have been settled and will not include it in future reports. ¶3. a) Claimant C b) 2003 c) Claimant C entered into a lease arrangement with the Turkish Government in 1996 to modernize and restore a retail and entertainment facility along the Izmir waterfront. In October 2002, Phase I of the restored facility opened its doors but the local government of Izmir claimed that certain documents were missing and ordered the property to close on January 8, 2003. After the intervention of the U.S. Secretary of Commerce and U.S. Ambassador, as well as high-ranking officials from the central Turkish Government, the necessary documents were obtained and the center was allowed to reopen on December 23, 2003. Despite this success, the Turkish Government is still refusing to deliver the approximately one-third of the leased property to Claimant C that is necessary for Phase II of the project, claiming that it is owed back rent. Claimant C paid this back rent, but has still not been able to take possession of the parcel of land. Claimant C has advised Post that without this land the investment will not be viable and it may be forced to abandon the project. It has already invested $35 million in Phase I and is planning to invest an additional $15 million in Phase II. Post is raising this issue with the Turkish government. ¶4. a) Claimant D b) 2009 c) Claimant D is a pharmaceutical firm with various products approved for the Turkish market. In January 2009, the Turkish Ministry of Health gave marketing approval for a copycat generic version of one of Claimant D's products, basing its decision in part on the confidential test data submitted during Claimant D's own approval process. Under Turkish law (and Turkey's European Union and World Trade Organization commitments), pharmaceutical firms enjoy six years of data exclusivity, during which generic firms cannot receive marketing approval for a copycat product without conducting their own tests. Both Post and the European Commission Delegation to Turkey have raised this issue during bilateral discussions with the Turkish Government. Claimant D attempted to resolve the issue directly with the Ministry of Health but was unsuccessful, so it has opened a lawsuit against the Ministry, alleging that the approval violated Turkish law. As of June 2009, the lawsuit is being evaluated by the Turkish courts. The annual market in Turkey for the disputed product is approximately $30 million. JEFFREY