Cablegate: Mersin Port Facing Need for Change

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





E.O. 12958: N/A

1.(SBU) Summary: AMCON ADANA PO visited Mersin on November
24, visiting the state-run Mersin Port , nearby free zone and
its private port and the Chamber of Marine. The port, while
quite profitable for the GOT, sees capacity constraints in the
near future and badly needs modernization. The Free Zone is
also full and mulling how to react to continuing local demand
for access to its tax-free status even in the face of
potentially losing that tax concession should Turkey start EU
accession talks. The Chamber of Marine is busy planning to
start a new shipyard and drydock business in western Mersin
province, but faces local zoning hurdles at the moment. They
project high demand for their planned maintenance and repair
services as well as for their subsequent shipbuilding capacity
as Istanbul's comparable services reportedly have been
saturated. End Summary.

2.(SBU) AMCON ADANA PO visited Mersin on November 24, visiting
the state-run Mersin Port. According to the Port director and
the Chamber of Marine, the Port, run by the State Board for
Ports and Railroads, netted almost USD 50 million for the GOT in
2003 and is projected to have similar results this year.
Nevertheless, the absence of any reinvestment in the extremely
busy port, whose container capacity, pier access, and available
draft is unique in the northeastern Mediterranean was striking.
The port was brimming with containers, but the Port Authority
requirement that the Marine Agencies fully employ its
inefficient state-employed longshoremen on all cargo handling
before their own private teams' use has resulted in combinations
of private and State longshoremen services for almost each ship
who invariably work at different speeds and with different
levels of capacity and skill. Some Marine agents have even gone
so far as to pay the Port Authority for its longshoremen and
still do all unloading with its private workforce just to
streamline cargo handling.

3.(SBU) Cargo handling equipment is also lagging demand even
though the Port Authority is investing in this area to try to
match demand. Currently there are two GOT-owned standard cargo
container handling gantries and one mobile, privately-owned
similar gantry operated privately on a Port Authority
concession. The Port Authority currently is assembling two
post-PANAMAX cargo container handling gantries of Irish
manufacture with a projected completion date of February 2005.
Shipping agents welcome the new capacity cranes' acquisition,
but note that they occasionally are turning away standard size
business because of under- capacity in that category and nagging
concerns about the maintenance on the two GOT-owned gantries, in
effect limiting their cargo handling capacity.

4.(SBU) Additionally, all containers in the almost full
container yard are tracked by hand. Asked about a GPS-
transponder system's future viability and the sort automated
tracking which is common in many world container shipyards, the
Port Director said that the Port Authority was working on
automating its billing department, but that any other investment
was not covered in the State budget. The Port Director
mentioned as well that he had discussed port automation with
Hamburg Port Authority representatives in the recent past, but
nothing came of the discussion. There also is no insurance or
cargo-handling liability system to cover damages to cargo while
in on/off-loading status. Both the Chamber of Marine and nearby
small private Free Zone Port authority found these shortcomings
striking and at odds with standard commercial practice. The
only manner to seek redress for damage in cargo handling now is
to sue the GOT, which Marine Agents claim that they do
regularly, but say that eventual damages paid only reflect a
portion of prevailing commercial liability rates and come
usually only after very lengthy delays and litigation fees.

Import/ Export Commodities?

5.(SBU) According to the Chamber of Marine monthly reports,
chief Mersin Port exports (in declining quantities) are cement,
general cargo, petroleum products, marble and other minerals,
legumes, foodstuffs, assorted chemicals, sodium carbonate,
textiles and glass. Seasonally, cereals are also a major
export. The port primarily imports petroleum products,
chemicals, general cargo, foodstuffs and frozen meat, textiles
and cotton. Seasonally it also imports cereals. Petroleum and
chemicals account for two-thirds of import trade. Export trade
is far more diverse. In the last 19 months petroleum trade,
although still mainly for domestic consumption, has been
augmented by humanitarian petroleum deliveries bound for Iraq,
which arrive in Turkey both at Mersin and nearby Iskenderun

Privatizing the Port?

6.(SBU) In discussions with Chamber of Marine, local shipping
agents and the Free Zone Director, it became clear that there is
local interest in buying the port which has sufficient capital,
but these potential private operators have been frustrated by
shifting GOT terms of reference for privatization offers in the
last two years and what they consider to be excessively lofty
GOT estimates of the port's current privatized value. A Chamber
of Marine contact said that a group of local shipping agents
last year had offered the only bid in response to a
privatization tender, but had heard informally that it was only
65% of what the GOT expected and the tender had been cancelled.
A senior Mersin Free Zone authority observed that the GOT
apparently views the profitable port as a major revenue source
for the maintenance and operation of its money-losing southern
Antalya-Adana-Gaziantep-Ankara "Tee" line and that the State
Board for Ports and Railroads calculated its estimated
privatization value for the port more in terms of the capital
needed to return the railroad network to a neutral budget impact
than on the port's actual value. He also said that almost
monopoly position of the port in the northeastern Mediterranean
basin retarded competition and distorted the influence of
competitive enterprise factors in management decisions.

Port's projected future?

7.(SBU) Shipping agents and the Port Authority report 15% annual
increases in demand for port services in the last three years
and say that the rising demand is linked to increasing domestic
consumption and saturation of ports in Istanbul and Izmir. They
note that were regional Turkish trade, such as with Iraq for
whom they see Mersin as the natural "northern port," to increase
the port could not meet that demand. The Chamber of Marine
reports that in late 2003/early 2004 the Spanish Government's
Development Board produced a 3-5 year, approximately USD 500
million port expansion feasibility proposal, but that it remains
without financing or GOT endorsement. One local contact said
that the "GOT is waiting for EU (regional development) funds to
be the answer to this issue." Another contact noted that a
Brazilian consortium had expressed interest in the port
expansion project as well, but that financing was just as
unclear for that proposal.

8.(SBU) PO also toured the newly-expanded and renovated NATO
pier within the Mersin Port, which is projected to be completed
in January 2005. It abuts the joint Turkish Navy/Coast Guard
yard and partially separates the Port of Mersin from the small
Mersin Free Zone port. It has a pier, container handling yard,
fuel handling capacity and capability to host a standard
container size gantry. It was unclear whether a dedicated
standard container gantry would handle NATO-related cargo or the
port's privately-leased mobile gantry would do so. Shipping
agents and the Chamber of Marine said that informal suggestions
that the Port of Mersin expand into the Turkish Navy/Coast Guard
yard, which they contend could be relocated to an under-utilized
existing port in Tasucu, in western Mersin province, "have gone
no where. The Navy is not interested in moving."

New private shipyard in Tasucu in works

9.(SBU) Meanwhile, a group of investors drawn from the Chamber
of Marine under the AKTER consortium umbrella is busy planning
to start a new shipyard and drydock business in Tasucu in
western Mersin province, within an existing breakwater and
alongside the site of an existing NATO pier and small fishing
port. The group says that it has raised the required USD 14-16
million in capital, but it currently facing "local zoning
problems" delaying the start of the first phase of construction,
which would put in operation two medium-size drydocks and a
graving dock for repair and maintenance work. They are very
confident both about the demand for the repair and maintenance
services that they plan to offer and the second phase shipyard
for "regional cargo and freighters" that they also plan to
offer. They report that there is so much regional demand for
new cargo hulls that Istanbul-based companies already have
contacted them with offers of USD 1-2 million each for the
shipyard's accelerated construction if they can have guaranteed
priority places in the yard's future construction schedule. The
consortium projects that the dry docks and shipyard eventually
would employ 350 directly and would spark creation of three to
five thousand additional, indirect jobs related to port services

Mersin Free Zone is at capacity and pondering future in EU
10.(SBU) The Free Zone is also full and mulling how to react to
continuing local demand for access to its tax-free status even
in the face of potentially losing that tax concession should
Turkey start EU accession talks. They say that only Shannon
Airport and the Madiera Islands will continue to enjoy some sort
of declining tax-free status within the EU framework and efforts
to get the GOT to include such a construction for Turkish free
zones has borne little fruit to date. Their main exports are
finished clothing for EU markets, regional banking transactions
for most of Turkey's major bank outlets, and food products, such
as fruit and frozen foods, including U.S. poultry and Latin
American bananas for Middle East markets, including Iraq. They
also export Turkish citrus to the EU market. The Free Zone
boasts the only pier-side cold storage, at 6,500 square meters,
in the Eastern Mediterranean basin. Its operator hopes to
expand that facility another 1,000 square feet in 2005.

11.(SBU) Comment: There seems real potential for the Mersin
port, if privatized, to be a much more efficient and very
profitable enterprise. If the port is to continue to meet
rising commercial demand, let alone provide a viable outlet for
increase transshipment to Iraq, major infrastructure investment
will be required soon. GOT financing seems unlikely at this
juncture. Perhaps TDA would be interested in examining the
potential project more closely. PO was left with the impression
that the AKTER group might welcome a foreign partner with
port/shipyard operation expertise to help round out its
consortium. This may involve a several million dollar capital
investment as well by the potential foreign partner. End

12.(U) Baghdad minimize considered.


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