Cablegate: More On Enron Bot "Trial Balloon"

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

UNCLAS SECTION 01 OF 02 ANKARA 005811

SIPDIS

SENSITIVE

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

E.O. 12958: N/A
TAGS: EFIN ENRG TU
SUBJECT: MORE ON ENRON BOT "TRIAL BALLOON"

REF: ANKARA 5646

1. Summary: ENRON's report of a GOT trial balloon to
resolve the dispute between BOT operator Trakya (Enron) and
the GOT (reftel) appears to have been overly optimistic.
Yusuf Gunay, President of the Energy Market Regulatory
Authority (EMRA), told us he had not heard of the proposal,
while Energy Ministry U/S Sami Demirbilek sidestepped the
issue. Nevertheless, Gunay pledged to allow the
Enron-invested company Trakya, along with other BOT projects,
to continue operating without a new license and Demirbilek
urged Enron/Trakya to initiate negotiations. Bottom line )
the situation is likely to remain confused until Enron/Trakya
and the Energy Ministry start talking. End Summary.

2. In an effort to promote resolution of the dispute between
BOT operators Trakya (Enron) and Doga (Edison Mission) and
the GOT, EconCoun met with EMRA President Gunay and Energy
Ministry U/S Demirbilek. Specifically, we were following up
on the report by Enron Global Assets Vice President Lloyd
Wantschek (reftel) that EMRA had floated a &trial balloon8
proposal that appeared to address Enron/Trakya,s interests.

3. EMRA President Gunay noted that although the September 1
deadline had passed for receiving new operating licenses,
EMRA did not intend to take any action to stop the BOTs from
continuing to operate. In fact, he had indefinitely extended
the deadline. Gunay described Trakya,s contract as &an
acquired right,8 and noted that actions that could be
perceived as breaking the contract would harm Turkey,s
efforts to bolster its image in the international financial
community and its desire to attract more FDI into the energy
sector. Gunay said his primary goal as head of EMRA was to
move toward a system in which power sales are made in a
competitive market.

4. Energy Ministry U/S Demirbilek did not help much to
clarify the situation. Demirbelik was aware of some aspects
of the proposal mentioned by Enron rep Wantschek, but he did
not indicate that any GOT proposal was on the table. He told
us that he had recently spoken with Wantschek, who offered
the GOT an immediate buyout for $300 million. Demirbilek
told us that he did not reject the idea completely but
considered the Enron proposal an opening position in a more
lengthy process to reach a solution.

5. Demirbilek said his top priority was to lower the retail
price of electricity in Turkey. He noted that the
electricity produced by Trakya was among the most expensive;
therefore, reducing Trakya,s sales price was a high
priority. He offered that the Ministry would be willing to
significantly lower the input costs for Trakya in exchange
for Trakya concessions on the price the GOT must pay for the
electricity. Specifically, the government expected to be
able to lower the price of natural gas by as much as 30-35%
and was also willing to reduce the capacity fee charged to
connect to the Turkish grid. Demirbilek urged Enron to make
an explicit offer ) either in writing, or in a meeting with
Energy Minister Guler, which he would arrange. It is also
noteworthy that Demirbilek emphasized that the Ministry was
not talking to DOGA, the other U.S. BOT. (The Ministry
claims that Doga may have violated its contract and is
investigating.)

6. When we pressed him on Enron/Trakya,s desire to receive
a license extension before inking a new deal, Demirbilek was
evasive, suggesting instead that EMRA could offer a letter
guaranteeing the license extension after negotiations are
completed.

7. Wantschek also updated us on the U.S. companies' legal
battle over whether existing operators are required to apply
for new operating licenses under the Electricity Law. He
said the energy division of the Danistay (Council of State)
had initially ruled that a) the companies were bound by the
requirement, and b) the case should not go to the
Constitutional Court, which the companies had requested. The
full Danistay is expected to review the case in the near
future.
8. Comment: Demirbilek appears willing to negotiate a
resolution, if a deal can help him reduce domestic
electricity prices, but complained that the companies had
"accused" the Ministry of heavy-handed tactics when that in
fact was not the case. EMRA is more sympathetic ) and is
prepared to allow Trakya to continue operating without
approving a new license, but we doubt that Gunay will be
willing to grant a new license or license extension without
the endorsement of the Energy Ministry. Doing so without the
Ministry's explicit blessing would open him to criticism that
he is siding with foreigners and condemning Energy Minister
Guler's efforts to lower prices. Embassy will remain in
contact with Traakya and Doga and seek to facilitate a more
constructive dialogue between the companies and both EMRA
and the Energy Ministry. End Comment.
EDELMAN

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