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Cablegate: Another Investment Problem: The Case of the Oil

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

UNCLAS ANKARA 001861

SIPDIS


SENSITIVE


STATE FOR E, EB, AND EUR/SE
NSC FOR BRYZA AND MCKIBBEN
TREASURY FOR OASIA - MILLS AND LEICHTER
USDOC FOR DAVID DE FALCO - ITA/MARKET ACCESS AND COMPLIANCE


E.O. 12958: N/A
TAGS: EINV EPET PREL TU
SUBJECT: ANOTHER INVESTMENT PROBLEM: THE CASE OF THE OIL
COMPANIES

1. (SBU) Lawyers representing U.S.-based Toreador
Resources Corporation called on the Ambassador March 22 to
seek the Mission's assistance in resolving a problem that is
preventing Toreador from repatriating the proceeds of its $53
million capital investment in Turkey. They explained that
the Turkish Petroleum Law of 1954 included a provision that
guaranteed that foreign oil companies could repatriate their
original investments based on the prevailing exchange rate
when the investment was made. Under the law, when the
Turkish lira loses value, the Turkish Treasury was to pay the
difference. Although the lira was relatively stable for the
first twenty years after the law, Turkish Treasury began
making payments to cover the companies exchange rate losses
when the lira started to depreciate in the early 1970s.
Under this system, Toreador repatriated some $63 million in
capital investments.


2. (SBU) In 1997, however, the Court of Accounts (Sanistay)
effectively blocked further payments under the guarantee,
arguing that Treasury had misinterpreted the 1954 law.
Moreover, The Court held nine Treasury employees personally
liable for the payments that already had been made. After
one of its capital transfer applications was denied in 2001,
based on this 1997 ruling, Toreador's Madison subsidiary,
along with several other U.S. oil companies, sued the
government and won a unanimous decision in the State Council
(Danistay). Upon appeal, however, the higher Danistay
reversed the ruling. A final administrative appeal is now
pending.


3. (SBU) Toreador's lawyers say they recognize that the USG
cannot intervene in this judicial process. However, they
believe there is another way out. The Energy Ministry is now
drafting new petroleum legislation, which the lawyers believe
could include a provision reaffirming the 1954 law's exchange
rate guarantee, even if only for investments already made.
The lawyers said that, without the exchange rate protection,
Toreador stands to lose $40 million. They estimated that the
total amount at stake for all foreign oil companies was
approximately $100 million.


4. (SBU) We discussed this issue March 24 with Treasury
Director General for Foreign Investment Melek Us. She
confirmed she was well aware of the case, as nine of her
Treasury colleagues had been held personally liable for the
payments made prior to 1997. Us said Minister Babacan also
was aware of the case, and was determined to fix the problem
to protect his employees. We responded that fixing the
problem meant not only protecting the employees, but
addressing company concerns. Failure to do so, we suggested,
would make foreign investors even more wary of doing business
here, and would run completely counter to the government's
professed interest in improving the investment environment.
Us agreed, and suggested we raise the matter with the Energy
Ministry.


5. (SBU) Embassy requests guidance from State and Commerce
on the suggestion of Toreador's lawyers to urge the GOT to
include language in legislation reaffirming the exchange rate
guarantee.
EDELMAN

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