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Cablegate: Investment Disputes: Progress for Cargill/Adm,

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 006390

SIPDIS


SENSITIVE


STATE FOR E, EB, AND EUR/SE
STATE PASS USTR FOR LERRION
TREASURY FOR OASIA - MILLS AND LEICHTER
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO
USDA FOR FAS FOR EC AND CCC/FSA
NSC FOR MCKIBBEN AND BRYZA


E.O. 12958: N/A
TAGS: EINV ECPS ETRD PGOV TU
SUBJECT: INVESTMENT DISPUTES: PROGRESS FOR CARGILL/ADM,
UNCERTAINTY FOR MOTOROLA

REF: ANKARA 5879


1. (SBU) Summary: The GOT announced October 9 that it will
will increase the quota for non-sugar sweetener producers to
15 percent of the total sugar quota for the year that began
September 1, which means Cargill and ADM can avoid
potentially ruinous production cuts. Cargill, however, is
still awaiting government action on a proposed legislative
amendment to resolve its zoning problem. Motorola executives
are cautiously optimistic that the government's actions
against the Uzan family have increased prospects for steps
that would result in at least partial payback of the sums
owed to the company. Although the Prime Minister told Brent
Scowcroft recently that he wants to resolve this dispute, and
company representatives are in substantive discussions with
AK Party officials, there remain a number of difficult
obstacles in the way of a solution. End Summary.


2. (SBU) Cargill advised us late October 8 that the Council
of Ministers had decided to increase the quota for non-sugar
sweetener producers to 15 percent of the total sugar quota
for the year that began on September 1. This decision, which
came despite loud public protests by Turkish sugar beet
farmers, means in effect that Cargill and ADM will not have
to cut back production to potentially ruinous levels, at
least this year. (Note: Turkey's Sugar Law limits non-sugar
sweetener production to 10 percent of the annual sugar
production quota, which is set by the Sugar Board; however,
the law authorizes the Council of Ministers to adjust the
quota up or down by as much as five percentage points.)


3, (SBU) Unfortunately, progress on Cargill's other issue --
a dispute over its zoning -- has been slower. Despite
repeated promises by Industry Minister Ali Coskun to forward
to the Council of Ministers a legislative amendment that
would, in effect, grant Cargill (and others) an exemption
from the law against industrial production on Class I
agricultural land, the amendment has yet to move forward,
Duiring a meeting early last week between senior Cargill
executives and the Prime Minister, Minister Coskun again
promised that the draft law would be on the PM's desk within
a week. As of COB October 9, it had not left the Industry
Ministry.


4. (SBU) Meanwhile, Motorola executives and locally-hired
lawyers have been talking with Turkish officials on the
infamous Telsim case. The discussions began in earnest in
July, when Motorola executives met with Turkish officials to
see if the government's actions against the Uzans (first
seizing their electricity companies and then taking over
their bank) might create an opportunity for progress. At
that time, Transportation and Communication Minister Yildirim
told them that the government was seeking legal justification
to act against Telsim, but stressed that the government would
act carefully and according to the law. The company also had
extensive discussions with Erdogan advisors Cuneyd Zapsu and
Reha Denemec, who also gave positive signals on the
government's desire to resolve the problem in a way that
enhanced the foreign investment environment.


5. (SBU) In a September 30 meeting with Brent Scowcroft, PM
Erdogan made positive noises about resolving Motorola's
problems, and also talked at length about the Uzans. Other
GOT and AK Party officials suggested to Motorola executives
that the government was looking at two possible approaches:
having the Telecommunications Authority cancel Telsim's
license (for various contractual violations), and then
selling the company's assets to another telecom company, with
the proceeds used to pay down the Uzan's obligations; or,
because of the huge hole found in the Uzan's Imar Bank, using
the banking law to seize Telsim, with its license intact,
install new management, and work out a deal for the
newly-structured company to begin paying off the Uzan's huge
debts.


6. (SBU) In an October 8 meeting with EconCouns, Reha
Denemec suggested the most likely approach was to work
through the Telecom Authority. Denemec stressed, however,
that the government had no authority to influence or force a
decision on the Authority, which by law is an independent
regulatory body, and that he therefore had no idea if it
would act. Denemec acknowldged that other approaches, such
as using the Banking Law, were possible, but did not
elaborate. (Note: Using the Banking Law would mean going
through BRSA, which also is an independent agency.)


7. (SBU) Comment; Although the Uzans' troubles have created
an opportunity for progress, and the government appears
serious about trying to resolve Motorola's problems,
significant obstacles stand in the way of a resolution of
this case. Perhaps the biggest problem is that the Uzans owe
huge sums to many institutions -- including, because of the
Imar Bank scandal, to the Savings Deposit Insurance Fund --
and all of the creditors are looking at Telsim as the best
potential source of repayment. Motorola presumably would
claim preference among creditors, since it is owed money
directly by Telsim, not by other companies within the Uzan
group, and its contract with Telsim included the right to
more than 60 percent of the company's share in the event of a
payment default. Still, it might prove awkward for the GOT
to agree to a deal that results in Motorola being paid but
Turkish depositors (i.e. the Savings Deposit Insurance Fund)
not being paid by the Uzans. Also, while action by the
Telecom Authority is apparently the cleanest approach from a
legal perspective, most experts believe cancellation of
Telsim's license would not contribute to a solution, because
it would weaken -- and perhaps kill -- the one Uzan asset
that appears capable of repaying at least some of the
family's obligations. Embassy will continue to press GOT
officials to find a solution that is satisfactory to Motorola
and enhances the overall investment environment.
EDELMAN

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