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Cablegate: Bot Problems Still Unresolved

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

150711Z Oct 03

UNCLAS SECTION 01 OF 02 ANKARA 006423

SIPDIS


SENSITIVE


STATE FOR E, EB/CBED, EB/IFD AND EUR/SE
DEPT PASS OPIC
NSC FOR BRYZA
USDOC FOR 4212/ITS/MAC/OEURA/CPD/DDEFALCO
USDOE FOR CHARLES WASHINGTON
TREASURY FOR OSIA


E.O. 12958: N/A
TAGS: EINV ENRG ECON PREL TU
SUBJECT: BOT PROBLEMS STILL UNRESOLVED


REF: A. ANKARA 6144
B. ANKARA 5811
C. ANKARA 5646


This cable is sensitive but unclassified, not for internet
distrubution. Please handle accordingly.


1. (SBU) According to representatives from Enron and Doga
(Edison Mission), the Turkish government is making no serious
effort to resolve BOT problems, and the Energy Ministry
(MENR) and Energy Market Regulaory Authority (EMRA) remain at
odds on how to proceed. Enron's lawyer recently told
EconCouns and Econoff that his latest discussions with the
MENR have been futile, while Doga told us that they have not
revisited the issue with the MENR recently. Although Enron
is reluctant to start formal negotiations with the Turkish
government, it remains engaged with the MENR and EMRA to
develop a common approach to resolving the problem. Doga, on
the other hand, seems content waiting for the MENR to act.


2. (SBU) Enron's lawyers told us the MENR and EMRA had
different demands from Enron. The MENR wants Enron to reduce
its sales price and sets this price reduction as a
precondition to EMRA's license release. EMRA, on the other
hand, wants Enron to relinquish GOT purchase guarantees in
its existing contracts.


3. (SBU) Enron views the MENR as its contracting partner,
not EMRA, believing that EMRA only has a monitoring role over
BOT companies. As reported in Reftel B, Enron wants to
receive the operating license from EMRA before starting
negotiations with MENR on price and buy out options. Enron
reportedly told the MENR that it is willing to use a
stair-step-down approach to lower prices between 2004 and
2009 with the conditions that EMRA grants an unconditional
license, and the GOT forfeits its 2009 buy out option. Enron
officials claim that the MENR does not understand the
contract; for example, MENR officials seemed surprised to
learn that the government could buy out the company in 2009
for no money. Enron says an early buy out option would offer
a quick fix to BOT problems, but Turkey does not have the
financial means to implement this option.


4. (SBU) In a separate meeting with Econoff and
Econspecialist (Reftel A), EMRA officials denied the
allegations that they were setting conditions to issue
licenses to BOT companies. Instead, EMRA blamed the MENR for
using licenses as leverage to negotiate lower electricity
prices. According to EMRA, the BOT companies will eventually
lower prices as the market forces are activated, and Turkey
should not scare off the investors in the energy sector in an
attempt to achieve a more competitive market with several
participants over the longer term. Enron argues that BOT
companies' operational costs would be higher if the market is
less than 100 percent. Moreover, these companies would face
difficulties meeting contractual obligations with suppliers
in an uncertain market. BOT companies' lenders also are
concerned about Turkey's changing regulatory environment,
according to Enron.


5. (SBU) From Enron's perspective, both EMRA and the MENR
are intent on setting up a free market through eliminating
long term contracts with price and purchase guarantees.
Enron argues, however, that such a system would only be
practical if there is flexibility in the market. According to
Enron, there is a buyer for every megawatt of electricity
produced under the current system. Both EMRA and the MENR
continue to blame each other for not taking action to resolve
the problem in what Enron calls a bad cop and worse cop
scenario.


6. (SBU) Enron told us that it wants to continue doing
business in Turkey, but litigation is the only alternative if
the government does not adopt a constructive approach to
these problems. During the arbitration process, Turkey would
still be obligated to pay the companies. Enron suggested,
however, that both EXIM and OPIC could be exposed without a
timely resolution.


7. (SBU) MENR Undersecretary Demirbilek recently confirmed
to EconCouns that the Ministry continued to work on resolving
Enron's licensing problem and was hopeful that they would
reach a compromise soon. Demirbilek did not comment on the
conditions EMRA allegedly set to issue licenses. On the Doga
license, Demirbilek was less hopeful, saying there were
serious outstanding difficulties.
8. (SBU) Comment. BOT problems are likely to remain bogged
down by the bureacracy unless someone in the Energy Ministry
takes bold steps to reach a solution. Newly appointed
bureaucrats in the Energy Ministry do not appear to
understand BOT contracts and appear willing to wait until
these companies to voluntarily lower prices. At the same
time, anyone who acts to help a foreign investor could face
corruption charges as evidenced in other cases. End Comment.
EDELMAN

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