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Cablegate: Turkey: Somo Arrears Approach Breaking Point

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 006468

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ETRD EPET PREL IZ
SUBJECT: TURKEY: SOMO ARREARS APPROACH BREAKING POINT

REF: A. ANKARA 6231
B. ANKARA 6095
C. ANKARA 3842
D. BAGHDAD 2845

SENSITIVE BUT UNCLASSIFIED

1. (SBU) Angry Suppliers: MFA informed EconOff on October 26
that SOMO arrears (45 days past product delivery) to Turkish
fuel suppliers had grown to almost $900 million (out of
accounts receivable of about $1 billion). Both the Foreign
Economic Relations Board (DEIK - representing Turkish
suppliers) and TPIC (major state-owned supplier) told Embassy
that the quantity of arrears had reached maximum exposure for
suppliers. TPIC, which re-entered the SOMO business after a
major payment was made in early August, said that it was
going to stop shipping product to SOMO in a few days, and
said other (mostly smaller) shippers would likely follow
their lead. In addition, TPIC complained that SOMO just sent
a letter which they interpreted as offering little hope for
prompt payment. DEIK complained that the ITG was using a
deliberate financing strategy to avoid paying Turkish
suppliers, in contrast to timely payments made to Persian
Gulf suppliers. Embassy appreciates Baghdad's demarches to
the ITG to seek settlement of the arrears.

2. (SBU) DEIK Proposal: In a letter to the Charge, DEIK
proposed that the USG guarantee SOMO payments, in order to
assure continued delivery of fuel products to the market in
northern Iraq. Understanding that USG financial guarantees
are likely not in the cards, we transmit this to Washington
both as an indication of the desperation of suppliers and
given the importance of fuel supplies to the civil situation
in Iraq. We would appreciate a reaction to pass to the
suppliers. The text of the DEIK letter is in paragraph 5.

3. (SBU) Habur Gate woes: Meanwhile, U.S. military officers
and contractor representatives at Habur Gate report that
tensions and slow-downs are rising in the lead up to
end-of-Ramadan holiday and approaching winter, historically a
time of potential transport labor strife or reduced activity.
MFA cites SOMO's recent cancellation of 22 of 36 contracts
with Turkish suppliers (reportedly for insufficient or late
delivery of product) as the cause of a recent shortfall in
gasoline (benzine) crossing the border for SOMO. MFA insists
that the GOT Foreign Trade UnderSecretariat is not the source
of current fuel shortages, having issued export/transit
license to all shippers.

4. (SBU) Comment: Post has long noted that fuel exports will
remain challenged as long as there is just the single Habur
Gate. Although ongoing construction of a new Turkish border
facility is contributing to the delays and tensions among
drivers, the border gate does not appear to be the source of
the current problem. Customs officials have implemented
reasonable measures to facilitate passage of fuel, but not
enough fuel is now arriving at the gate. Gasoline delivery
has been particularly volatile and short in the past few
weeks. Delays and/or shortfalls will likely be exacerbated
if SOMO arrears continue to grow.

5. (U) DEIK letter to Charge, dated October 25, 2005 - text
follows:

We would like to thank you very much for your letter of
October 18, 2005. We appreciate your support and efforts to
the Business Council activities, in particular your attempts
concerning the payments to be done to the Turkish oil
companies by SOMO.

In this framework, with reference to your letter we would
like to propose an alternative way to make the relations long
lasting and stable with SOMO. As you know, so far the
paymets have been irregular and the receivables have reached
almost 1 billion USD. In order to have a more stable
relation with SOMO, we propose the US Government to
guarantee, and realize the payments if the receivables exceed
a six month period.

As the Business Council, we are aiming alternative ways to
resolve this problem and thus contribute to the bilateral
trade relations.

Thanking you very much for your kind collaboration, and
awaiting for your reply at your earliest convenience.

Ercument Aksoy, Chairman of the Turkish-Iraqi Business
Council, and
Mehmet Habbab, Vice Chairman of the Turkish-Iraqi Business
Council

MCELDOWNEY

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