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Cablegate: A Possible Solution to the Bot Issue?

This record is a partial extract of the original cable. The full text of the original cable is not available.

051456Z Sep 03

UNCLAS SECTION 01 OF 02 ANKARA 005646

SIPDIS


SENSITIVE


STATE FOR E, EB/CBED, EB/IFD AND EUR/SE
DEPARTMENT PASS OPIC FOR ZAHNISER, MAHAFFEY
NSC FOR BRYZA
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO
USDOE FOR PHUMPHREY/ROSSI
TREASURY FOR OASIA - MILLS AND LEICHTER


E.O. 12958: N/A
TAGS: EINV ENRG EFIN TU
SUBJECT: A POSSIBLE SOLUTION TO THE BOT ISSUE?


REF: A. (A) ANKARA 3976
B. (B) ANKARA 3343


1. (SBU) Summary: An Enron executive says a "trial balloon"
floated by the Energy Market Regulatory Authority (EMRA) has
the potential to lead to a solution to the dispute between
the GOT and BOT power generating companies over pricing and
other contractual issues. The idea would be for EMRA to
issue a ten-year unconditional license enabling the companies
to continue operating under their existing contracts, but
with the understanding that EMRA might trigger a "risk event"
in 2009 (after the companies have repaid their loans) leading
to a buy-out. Under those circumstances, Trakya Elektric
(Enron) would be willing to discuss with the GOT possible
price concessions in return for protection against a 2009
buy-out. The executive also suggested that OPIC/EXIM
agreement to tell the GOT that they would call their
guarantees at a low trigger point (i.e., in response to
relatively limited arrears) would enable the companies to
lower their risk premium and thereby further lower their
prices. Embassy will meet with EMRA President and Energy
Ministry U/S early next week to get a better sense on whether
the GOT is seriously considering this approach, though we
will not mention the OPIC/EXIM guarantee issue. End Summary.


2. (SBU) Enron Global Assets Vice President Lloyd Wantschek
told us September 5 that, after months of bitter dispute with
the GOT, he finally had seen a positive development: a
"trial balloon" floated by EMRA that, in his view, could
point the way toward a satisfactory solution to the dispute.
(Note: As reported in reftels, the Energy Ministry has been
using the new electricity law's requirement that companies,
even those already in operation, apply for operating licenses
from EMRA to pressure Trakya Elektric (Enron) and Doga Enerji
(Edison Mission) to lower tariffs. End note)


3. (SBU) The idea, per Wantschek, would be for EMRA to issue
a ten-year, unconditional license enabling the power
companies to continue operating under their current
contracts; however, the GOT would let it be known that it
would seek to trigger a contractual "risk event" at the end
of 2009, allowing it to buy out the projects for zero
consideration in full compliance with the contracts.
Wantschek explained that the contracts' buy-out provisions
call for a series of payments over time, ending in 2008 (when
the projects finish repaying lenders), so the cost to the GOT
of a buy-out starting in 2009 would be zero, under the
contract. To fulfill its legal requirement under the
Electricity Law, EMRA would attach to the license non-binding
suggestions on how the current contractual arrangements might
be changed to conform with the transition to a market economy.


4. (SBU) Wantschek said EMRA's issuance of a license along
these lines would remove the "regulatory gun" pointed at the
companies head and create a positive incentive for them to
negotiate. Under these circumstances, Trakya/Enron would be
prepared to sit down with the Energy Ministry (after issuance
of the license) and try to negotiate a deal in which the
company might "tilt" its price schedule (i.e., lower its
tariff earlier than scheduled in return for higher-than
scheduled prices further down the road), as long as the GOT
provided assurances there would be no zero-cost buy-out in
2009. If the GOT also agreed to provide the projects with
natural gas at the same rate it charges state electricity
producers (much less than what the projects now pay), this
would allow them to offer a substantial reduction in tariffs.


5. (SBU) According to Wantschek, such a deal -- while not
perfect -- would enable the Energy Ministry to achieve its
goal of publicly announcing a reduction in tariffs, while
keeping his company relatively satisfied and staying within
the confines of the contracts. He also suggested that the
deal would be even more palatable if official lenders --
OPIC, ExIm and Hermes -- were to agree to inform the GOT (as
part of the deal) that they would call their guarantees at a
relatively low threshhold (eg. in response to a few months of
arrears or arrears totaling, say, $40 million). Such an
explicit statement, Wantschek explained, would enable the
company to reduce its risk premium and thereby further reduce
costs.


6. (SBU) Wantschek expressed hope that the USG would
indicate its support to the EMRA approach (stressing the
importance of EMRA issuing an "unconditional" license), and
that OPIC and ExIm would consider a statement along the lines
he described. He subsequently called back to say he had
discussed the idea in general terms with Energy U/S
Demirbilek, who had invited him to return next week to talk
with Minister Guler. Wantschek said that, in the meantime,
he would try to contact Doga Enerji as well as OPIC/ExIm
officials to get their views.


7. (SBU) Comment and Action Request: We plan to meet with
EMRA President Gunay on September 8 and with Energy U/S
Demirbilek on September 9. In those meetings, we will try to
get a better sense of whether EMRA and the GOT are seriously
considering EMRA's "trial balloon," without speaking for the
companies or mentioning the OPIC/ExIm guarantee issue.
Embassy would welcome Washington thoughts or guidance on this
issue.
EDELMAN

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