Cablegate: Mermoud in Ankara: Investment, Telecom, Nukes

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

021056Z Nov 05

UNCLAS SECTION 01 OF 03 ANKARA 006550

SIPDIS

USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
FCC FOR A THOMAS

SENSITIVE

E.O. 12958: N/A
TAGS: BEXP ECPS EINV EFIN ENRG TU
SUBJECT: MERMOUD IN ANKARA: INVESTMENT, TELECOM, NUKES

Sensitive But Unclassified. Please handle accordingly.
This message was coordinated with Consulate Istanbul.

1. (SBU) Summary. In October 21 Ankara meetings,
Special Representative for Commercial and Business
Affairs Frank Mermoud found improvements and
opportunities in Turkey's telecom, energy, and other
investment sectors. Turkey has made significant progress
on improving its investment environment and taking steps
to increase FDI, but deficiencies in legislative and
regulatory environment still remain. In the short-term,
the electricity distribution privatization is the
strongest energy investment opportunity. Longer-term,
nuclear investment is an opportunity for U.S. technology.
End Summary.

--------------------------------------------- ----
INVESTMENT CLIMATE: GOOD NEWS - BUT SILL PROBLEMS
--------------------------------------------- ----

2. (SBU) Treasury Deputy Under Secretary Cavit Dagdas
emphasized that GOT had liberalized Turkey's FDI law,
eliminating red tape and providing for notification --
rather than permitting -- for FDI. Moreover, Dagdas
stressed the promotion efforts of the CEO-level "Investor
Advisory Council" and the working level "Coordination
Council for Implementation of Investment Climate."
Noting the helpful anchor of the EU, Dagdas admitted that
there was still a lot of work to do, citing in particular
IPR. He insisted that new legislation had improved the
IPR situation, but noted that there were "transitional
problems" with pharmaceutical data exclusivity, for
example. In the same meeting, DDG Murat Alici described
a new initiative to focus on SME's for FDI in Turkey. In
response, Mermoud agreed that Turkey had made important
progress and settled some lingering disputes. When
Mermoud raised the issue of discriminatory (luxury) taxes
on cola drinks, Dagdas replied that Treasury was under
fiscal pressures and that changing the tax was not on the
agenda for 2006.

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PRIVATIZATION TRACK RECORD
--------------------------

3. (SBU) Privatization Administration (PA) President
Metin Kilci described the recent privatization success
stories: Turk Telekom, TUPRAS, and Erdemir. These would
bring $1.3 billion to the Treasury this year -- and a
total of $18 billion over a period of years. Kilci was
optimistic that the privatization of Turk Telekom (TT)
would tak place despite court challenges and be closed
before the end of 2005. He said that the high
administrative court (Danistay) was only able to offer an
opinion, but not block, the TT concession agreement. In
response to Mermoud's concern that the price may have
been bid too high, Kilci said that the liberalized
telecom market had generated the high asset price ($12
billion market capitalization). He was bullish on the
upcoming privatization targets, including electricity
distribution (see para 7 below), port operations, and the
sugar companies, noting that the PA was collecting
potential investor input.

--------------------------
TOBB ACTIVE ON MIDDLE EAST
--------------------------

4. (SBU) Rifat Hisarciklioglu, the chairman of the
leading Turkish business federation, TOBB, said he was
disappointed there was not more U.S. FDI in Turkey, but
was optimistic for the future. Mermoud encouraged TOBB,
as the leading business organization, to urge greater GOT
engagement on bringing U.S. FDI. TOBB could play an
important role since its members include not just the
leading companies but many of smaller companies, which
offer supply chain and other opportunities.
Hisarciklioglu described TOBB's new Israeli-Palestinian
"Ankara Forum" initiative, which targets facilitation of
an industrial zone in Gaza, and appreciated USAID
support. He hoped that OPIC and the World Bank's MIGA
would be able to provide investment guarantees for
projects in the zone, and also asked for clarification if
products from the zone would have preferential access to
the U.S. under the U.S.-Israel FTA. Mermoud briefed on
the state of play on BMENA business initiatives,
highlighting the business forum being organized at the
upcoming World Summit on Information Society.

5. (SBU) Mermoud mentioned that Turkey's EU accession
process will help encourage reforms in areas that have
typically created issues for investors. For the EU
accession process, Hisarciklioglu's TOBB colleagues
described how TOBB is organizing itself into 27 working
groups to provide position papers to GOT officials
negotiating individual chapters of EU acquis. TOBB's
think-tank, TEPAV/EPRI, will also conduct impact
assessment studies on Turkey's adoption of the chapters.
The TOBB President

------------------------------------------
TELECOM AUTHORITY INTERESTED IN U.S. VISIT
------------------------------------------

6. (SBU) In a brief meeting, Turkish Telecom Authority
chairman Tayfun Acarer voiced interest in learning from
the FCC's expertise, particularly as the Authority looked
at regulation of 3G, WIMAX, and other new technologies
(refs). Acarer also described his objective of
continuing to improve the competition and investment
environments in Turkey's telecom sector. Vice Chairman
of the Authority, Galip Zerey, told Mermoud that he
planned to attend the World Summit on the Information
Society in Tunis November 18. Acarer expressed an
interest in visiting the FCC. Comment: Post would
strongly support an invitation by the FCC to Acarer. End
Comment.

--------------
NUCLEAR DREAMS
--------------

7. (SBU) Mermoud pressed Energy Under Secretary Sami
Demirbilek on the GOT's process for moving forward on its
announced goal to put in place three nuclear power
plants. Demirbilek stressed that under the current
Energy Market Law, the private sector, not the
government, must carry out energy investments. He said
the Energy Ministry was studying regulations for
licensing and monitoring, but at this time there would
not be a formal tendering. Rather, Demirbilek said the
GOT would welcome proposals from private companies on
technology and tender requirements, stressing that
"anything can happen." Elaborating on the government's
"facilitating role," he said the GOT had not yet made a
decision on whether to change existing legislation.
Responding to Mermoud's observation that the GOT had
experienced two previous failures in aiming for nuclear
power, Demirbilek said the GOT was now serious. This was
not a one-off luxury item; rather, it was part of a GOT
decision to achieve balance in the energy portfolio.

----------------------------
DISTRIBUTING THE ELECTRICITY
----------------------------

8. (SBU) All of Mermoud's interlocutors (in particular
the Energy Under Secretary and Privatization
Administration President Metin Kilci) stressed the
importance of and the imminence of the electricity
distribution (TEDAS) privatization. Kilci said that they
expected the Parliament to move quickly on an amendment
which would put in place necessary changes in the
regulatory framework (price structure during the five-
year transition to free market, for example). He
expected the tender to be launched by the end of the
year, starting with 2-3 larger regions, out of an initial
batch of 6 regions to be tendered. Kilci said that there
was no specific requirement for foreign and domestic
participation. Responding to EconCouns' point that
investor input was critical to the process, Kilci
stressed that extensive consultations with potential
investors had been carried out.

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EMBASSY COMMENT
---------------

9. (SBU) A theme of Mermoud's meetings, both here and
in Istanbul, was that Turkey has made progress in
improving its investment climate and that investors are
responding, although U.S. investors have not been as
active as European counterparts. Nevertheless, there
remain serious impediments to foreign investment, notably
in the judicial and regulatory realms, where foreign
investors can not be confident of being treated on the
same basis as local investors.
McEldowney

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