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Cablegate: Facilitating Investment in the Turkish Energy

VZCZCXRO3330
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHIT #0577/01 3230740
ZNR UUUUU ZZH
P 180740Z NOV 08
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 8599
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUEUITH/ODC ANKARA TU PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DOE WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 ISTANBUL 000577

SENSITIVE
SIPDIS

EEB FOR A/S SULLIVAN
SPECIAL ENVOY FOR EURASIAN ENERGY GRAY
EEB FOR ENERGY COORDINATOR MANN
EUR FOR DAS BRYZA

E.O. 12958: N/A
TAGS: ENRG EINV EFIN TU
SUBJECT: FACILITATING INVESTMENT IN THE TURKISH ENERGY
SECTOR

REF: ISTANBUL 553

SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION

1. (SBU) Summary: On October 30 and 31 a high-level USG
delegation led by Acting Deputy Secretary of Energy Jeffrey
Kupfer discussed Turkey's energy needs and U.S. suggestions
on ways to help facilitate investment in Turkey's energy
sector with senior Government of Turkey (GOT) officials
(reftels) as well as with the Turkish private sector, U.S.
companies and representatives from international financial
institutions. The corporate response to the U.S. suggestions
was quite positive. IFC and EBRD representatives believe the
areas of energy efficiency and renewables offer the best
opportunities for effective cooperation with their
institutions and look forward to meeting with OPIC to discuss
ways to facilitate cooperation. End Summary.

2. (SBU) This message reports delegation meetings with
representatives from the International Finance Corporation
(IFC), the European Bank for Reconstruction and Development
(EBRD) and the Banks Association of Turkey as well as with
the American Chamber of Commerce, international and Turkish
energy companies and Turkish companies active in the
renewable energy sector.

Potential Financing Sources - The IFC and EBRD
--------------------------------------------- -

3. (SBU) OPIC President Mosbacher accompanied by Special
Envoy for Eurasian Energy Gray met on October 30 with IFC
Director for Southern Europe and Central Asia Shabbaz
Mavaddat and Southern Europe and Central Asia Regional
Manager for Infrastructure Morgan Landy. Mosbacher described
the U.S. goals for supporting diversification of energy
sources and encouraging new investment and financing options.
According to Mavaddat, the IFC has USD 1.5 billion invested
in Turkey, with almost USD 700 million of that total invested
since 2007. The IFC is currently reviewing USD 400 to 600
million in potential new investments, with much of this in
the energy sector. However, the outlook for energy sector
investment finance outside this initiative is somewhat bleak
due to the on-going global credit crunch. Landy indicated
the Turkish corporate sector is already suffering from the
liquidity squeeze and is struggling to maintain adequate
working capital as banks tighten credit.

4. (SBU) Energy sector privatization is difficult in this
environment, particularly as the GOT no longer offers
sovereign guarantees and pricing has not been fully
rationalized, Landy explained. He argued that the market has
changed, and the GOT needs to adapt, offering more
flexibility and tools, in order to attract bidders who can
get financing and close a deal. Mosbacher indicated that
this was an area in which OPIC and EXIM could play a role and
wanted to accelerate the financing process. The World Bank,
through the IFC, is already trying to identify energy
efficient projects for investment, Landy noted. State-owned
plants are unlikely to upgrade in advance of privatization.
In the meantime the GOT could offer incentives to encourage
home and business owners to invest in energy efficient
projects but must be careful to ensure that these projects do
not become a financial burden, he cautioned. Mavaddat
indicated the IFC would be interested in working with other
IFIs on energy efficiency projects. OPIC, in partnership
with the U.S. Treasury, will work to convene a meeting
focused on ways OPIC, the IFC and other IFIs can work
together on energy efficiency projects.

5. (SBU) Immediately following the IFC meeting, the U.S.
delegation met with EBRD Chief Economist Eric Berglof to
discuss potential areas in which the USG could work with the
EBRD to facilitate investment in Turkey's energy sector.
Berglof indicated that the GOT is most interested in EBRD
support in four areas: small and medium enterprises,
underdeveloped areas of the country, agribusiness, and energy
efficiency. Mosbacher noted U.S. interest in cooperating
with the EBRD in the area of energy efficiency and support
for renewable energy projects and explained the USG planned

ISTANBUL 00000577 002 OF 003


to send a team of technical experts to Turkey in December to
identify and prioritize potential projects. He invited the
EBRD to participate in a meeting convened by the USG to bring
international financial institutions together to discuss
opportunities in this area. Berglof welcomed the concept of
a focused meeting to address this area.

Corporate Perspectives
----------------------

6. (SBU) At an October 30 lunch hosted by the American
Business Forum in Turkey (ABFT), one of two Turkish-American
chambers of commerce, OPIC and TDA heard from U.S. energy
companies and financial institutions about the business
climate for foreign investment and financing of all types of
energy projects. U.S. companies support the idea of a TDA
technical mission - the GE representative hopes the USG can
advise the GOT on how to conduct the next nuclear plant
tender. The CEO of AES' joint venture hydro project in
Turkey complained the GOT would neither relinquish sufficient
control of projects nor provide sovereign guarantees. The
lack of predictability combined with the high cost of
preparing a bid makes it nearly impossible for companies to
move forward on major projects. He observed that most wind
power licenses are awarded to companies that are not
competent to complete such projects, nor are in a position to
raise the necessary financing. These licenses will be sold
at market prices, which he estimated
as starting at $30 million.

7. (SBU) The USG delegation met October 31 with Bankers
Association Chairman Ersin Ozince, Secretary-General Ekrem
Keskin, and board members representing 80% of Turkey's
banking market, including the commercial, foreign, private,
and development sectors. Ozince noted that Turkey's banking
sector is stable, has modern infrastructure, follows the
highest banking standards, and is committed to full
implementation of Basel II risk and capital management
recommendations. The US delegation explained the USG's
interest in promoting diversification of Turkey's energy
sources willingness to offer financing and other guarantees
to attract U.S. investment to the sector. Ozince and the
bank officials welcomed the USG's offer, agreeing that Turkey
needs serious investment in energy diversification. Turkish
banks have financed numerous hydrocarbon sector projects for
the past 10-15 years, as well as energy production projects
in hydropower and other renewable energy sources, but to
provide enough power generation capacity significantly more
medium- and long-term financing resources are needed. A
number of banking reps called for creation of a joint
facility or group of ECAs willing to provide long-term
financing specifically for long-term projects like pipelines.
Ozince thanked the USG delegation, and encouraged Turkish
banks to explore financing options with EXIM, OPIC, and TDA.

8. (SBU) On October 31, the delegation met with 25 Turkish
company representatives of the Energy Working Group of the
Turkish Industrialists and Businessmen's Association
(TUSIAD.) TUSIAD member companies made presentations on
various aspects of the Turkish energy sector. Turkish firms
are particularly eager to identify U.S. investors. Mosbacher
encouraged them to put together a road show to reach out
directly to U.S. companies, perhaps with help from USDOC and
TDA. In a separate meeting with the U.S. delegation,
Sabanci Energy Group Chairman Selahattin Hakman and CFO
Ozlenen Aydin warmly welcomed Mosbacher's offer of up to USD
500 million in OPIC support for investment in Turkey's energy
sector. Hakman was focused on the need to increase
electricity generation capacity and was not engaged on energy
efficiency and renewables.

9. (SBU) Also on October 31, the delegation met with
representatives of three renewable power industry
organizations, primarily representing hydro and wind power.
The consensus from company representatives was that for the
foreseeable future, in the absence of more aggressive GOT
incentives and the recent drop in oil prices and thus demand
for alternative sources of power, financing for wind power
would be difficult. Another spur for the development of

ISTANBUL 00000577 003 OF 003


renewables would be for Turkey to become a member of the
Kyoto Protocol's Second Commitment Period, beginning in 2012
and/or to become a full member of the European Electricity
Community. Companies also noted the lack of domestic
manufacturing capacity for equipment, especially turbines.

10. (U) The Delegation has cleared this cable.
WIENER

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