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Cablegate: Security and Payment Head List of Turkish Business

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

180854Z Nov 04

UNCLAS SECTION 01 OF 02 ISTANBUL 001716

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ENRG MOPS PREL PTER TU
SUBJECT: SECURITY AND PAYMENT HEAD LIST OF TURKISH BUSINESS
CONCERNS IN IRAQ

REF: A. ANKARA 6312

B. ANKARA 6195

Sensitive but Unclassified - not for internet distribution.
This cable was coordinated with Embassy Ankara.

1. (SBU) Summary: A range of Turkish companies active in Iraq
outlined their main concerns in a November 5 meeting with
Turkey Caucus co-chair Representative Ed Whitfield. Security
and payment issues headed the list, with companies reporting
not just serious problems in ensuring the safe delivery of
their shipments, but also in problems in receiving payment
for their contracts. Ercumen Aksoy, head of the Turkish-Iraq
Business Council, and Mehmet Habbab, CEO of Delta Petroleum,
who organized the meeting, made a strong pitch for a U.S.
umbrella to ensure that payments are made for outstanding
contracts. The companies who attended noted that they have a
cumulative 500 million USD in payments outstanding in Iraq,
and that interruption in fuel oil shipments since the
beginning of October has undermined the barter system through
which many Turkish contracts were financed. The problem also
threatens the project by which Karadeniz Energy has provided
electrical power to Iraq (ref b). Osman Karadeniz indicated
that unless a way is found to ensure delivery of heavy fuel
oil, the company will not be able to fulfill its part of the
bargain. End Summary.

2. (SBU) Payment woes: Companies represented at the lunch, in
addition to Delta Petroleum and Karadeniz Energy, included
major shippers such as Tefirom (the first company to sign a
contract with the CPA to deliver oil to Iraq), Tekfen (a
major construction firm active in Iraq since the 1980s), and
freight forwarders such as Ets. A. Boutros and Fils.
Collectively, the companies present noted that they are owed
some 500 million USD in Iraq, and that in some cases even
contracts dating to the period of the Coalition Provisional
Authority (CPA) have not been honored. Several companies
noted that although Iraqi officials participated in the
elaboration of these contracts, on attempting to pursue them
now with the Iraqi interim government, a number of ministries
are disclaiming responsibility for the contracts and
directing them to speak to "the Americans." Only Tekfen
indicated that it was experiencing no problem with payment
for its work in Iraq, as a result of the fact that it is paid
from the account that Iraq built up in Halk Bank in Turkey
through the "Oil for Food" program.

3. (SBU) Umbrella: Delta Petroleum's Mehmet Habbab made a
pitch for an "American umbrella" to cover Turkish companies'
contracts with SOMO. He noted that Turkish businessmen
currently deliver close to 7000 tons of oil products to Iraq
daily, but that since SOMO took over responsibility for the
contracts in July 2004 deliveries have become haphazard as
payments are delayed for over 90 days. As a result, the
trade functions on a "stop and go" basis, with businessmen
stopping deliveries until funds are received and then
restarting them. The resultant intermittent nature of the
delivery system, in Habbab and his colleagues' view, creates
"havoc" and constant shortages. Habbab thus suggested that
the U.S. guarantee Iraqi payments in case of default--
something that he argued would not cost anything as funds are
available in Iraq and the U.S. can control receipts. Such an
arrangement, he argued, could contribute enormously to Iraq's
recovery at a fraction of the cost of outstanding
reconstruction contracts. Turgut Bozkurt, who works as an
advisor with Tefirom, noted that shippers had factored 60-day
payment delays into their planning, but that the delays now
exceed 90 days. Companies will work even with this, he said,
so long as there is a guarantee that they will be paid in the
end.

4. (SBU) Security Issues: In addition to the payment issue,
companies remain focused on their security difficulties.
Even with its payment advantage, Tekfen noted that work has
ground to a halt on many of its projects for security
reasons. Other companies, including shippers in particular,
reported similar security problems with regard to their
deliveries. As Ankara and Istanbul have reported earlier,
they indicated that the problem is most acute on the return
trip, when trucks generally are not in convoys. Delta's
Mehmet Habbab said that four of his contract drivers have
been killed; other companies indicated that they have also
experienced casualties. Overall, Habbab suggested that over
30 percent of the goods shipped from Turkey are squandered,
representing a daily loss of 1.5 million USD per day.
Looking at the larger picture, Ercument Aksoy stressed that
the security situation poses serious challenges for the
viability of Turkish trade in Iraq. He noted that the
security problems have driven freight rates to Baghdad up
from 1800 USD to nearly 4500 USD per truck from Turkey.
Given that rates from Jordan and Kuwait remain a fraction of
that level (he quoted a figure of 1000-1200 USD), he
predicted that while Turkish exports to Iraq this year are
near 1.6 billion USD, they will not be able to reach that
level again next year unless the security situation improves.
Habbab suggested that one solution might be for the U.S. to
permit private security firms to offer security to Turkish
trucks on the road all the way to Baghdad. He argued that
truckers would be happy to pay for such a service, and that
such an arrangement would ease the burden on U.S. military
personnel.

5. (SBU) Energy: Among the projects hampered by the security
situation is Karadeniz Holding's sale of electricity to
northern Iraq. Osman Karadeniz reiterated points he made to
the Embassy (ref b), noting that the company has yet to
receive a single shipment of heavy fuel oil from Iraq. While
earlier bureaucratic problems have been ironed out, security
constraints currently preclude delivery of the supplies.
This has been the case, he said, since the 101st Airborne,
which co-signed the original agreement, left the country. He
noted that they have no alternative to the heavy fuel oil
from Iraq, since their special import permit from Turkey only
applies to Iraqi fuel oil. He expressed hope, but not
necessarily optimism, that the situation can be resolved in
the near future. If it is not, however, he said the company
will not be able to continue to supply the amount of power it
promised to Iraq. Habbab suggested that if the security
situation continues to preclude the fuel shipments, the U.S.
might instead seek to pressure the Turkish government to
allow import of fuel oil from other supply points to enable
Karadeniz to fulfill its contract.

SMITH

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