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Cablegate: Turkey's Electricity Exports to Iraq

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RR RUEHAG RUEHBC RUEHDA RUEHDE RUEHDF RUEHIHL RUEHIK RUEHKUK RUEHLZ
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DE RUEHAK #6663/01 3491024
ZNR UUUUU ZZH
R 151024Z DEC 06
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 0300
INFO RUCNRAQ/IRAQ COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHDA/AMCONSUL ADANA 1436
RUEHIT/AMCONSUL ISTANBUL 1801
RUEHDM/AMEMBASSY DAMASCUS 1614
RUEHSI/AMEMBASSY TBILISI 3077
RUEHTV/AMEMBASSY TEL AVIV 0104
RUEHSF/AMEMBASSY SOFIA 1109
RUCNMEM/EU MEMBER STATES
RUEHBS/USEU BRUSSELS
RHEBAAA/DEPARTMENT OF ENERGY WASHDC
RUEKDAI/DIA WASHDC
RUEHAK/USDAO ANKARA TU
RUEAIIA/CIA WASHDC
RUEKJCS/SECDEF WASHDC//USDP:PDUSDP/ISA:EUR/ISA:NESA//
RHEHAAA/NSC WASHDC
RUEUITH/ODC ANKARA TU
RUEKJCS/JOINT STAFF WASHDC//J-3/J-5//
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFIUU/HQ USEUCOM VAIHINGEN GE
RHMFISS/HQ USCENTCOM MACDILL AFB FL
RHMFIUU/425ABS IZMIR TU//CC//
RHMFIUU/39ABG INCIRLIK AB TU
RUEPGAB/MNF-I C2X BAGHDAD IZ

UNCLAS SECTION 01 OF 03 ANKARA 006663

SIPDIS

USDOE FOR CHARLES WASHINGTON
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG EPET ETRD TU IZ
SUBJECT: TURKEY'S ELECTRICITY EXPORTS TO IRAQ

REF: A) ANKARA 3716
B) 05 ANKARA 5310

ANKARA 00006663 001.2 OF 003


Sensitive But Unclassified. Please handle accordingly.

1. (SBU) SUMMARY: Turkey has sought to increase electricity
linkages with all its neighbors, including Iraq, but is committed to
joining the EU electricity grid (UCTE), so faces technical
constraints on connections to non UCTE countries. The recent
Turkey-Iraq Joint Economic Commission identified a shared desire to
increase electricity transfer from Turkey to Iraq and agreed to
improve the transmission line infrastructure between the two
countries. The Turkish transmission company TEIAS has plans to maKe
investment in increased transmission capacity. Meanwhile, Turkish
Kartet Company (Karadeniz Holding) has long sought to increase
electricity exports from Turkey to northern Iraq from existing 250
MW to 1200 MW, citing that it is the sole company with generation
capacity and a contract with the Government of Iraq. Kartet
complains that its current activities and expansion plans have been
blocked by Turkish energy regulator EMRA, which has called for
competition, but has been unable to stir up competitors or organize
a tender. There are growing concerns about electricity shortfall in
Turkey, so there may be reduced potential for and interest in
exports. End Summary.

--------------------------
Existing Exporter - Kartet
--------------------------

2. (SBU) Presently exporting 200-250 MW of electricity from its
Silopi plant in Turkey to northern Iraq, Kartet Company has sought
to increase its exports to 1200 MW to provide badly needed
additional electricity in Iraq (refs). Current electricity exports
are sent to an "island" in northern Iraq and the electricity is
partially paid for by shipments of heavy fuel oil to fire the power
plant. Both Kartet's existing and incremental licenses have been
held up by the Turkish energy regulator EMRA for over one year on
the grounds that there should be a competitive tender for allocation
of transmission capacity from the Turkish grid (State company
TEIAS). Kartet has won a court order to force EMRA to process its
licenses (under then-existing, more favorable law), but EMRA has
refused to implement the decision. The Turkish MFA and Ministry of
Energy (MENR) are supportive of Kartet's project, but have
recognized the value of competition. Kartet argues that there are
no realistic competitors and Kartet is the only company with an
exclusive contract with the Government of Iraq for provision of
electricity from Turkey.

---
JEC
---

3. The November 15-16 Turkish-Iraqi Joint Economic Committee (JEC)
for Economic and Technical Cooperation identified electricity as one
of a number of energy related areas to target increased cooperation.
Recognizing the urgent need for the increase of electricity
transfer from Turkey to Iraq, both sides agreed to improve
transmission line infrastructure between the two countries. Both
sides agreed to activate the bilateral synchronized 400 KW inter
connection systems, as part of the ELIJLST (Egypt, Libya, Iraq,
Jordan, Lebanon, Syria, Turkey) project. High level contacts
between energy officials over the last year have articulated the
desire to increase electricity exports to Iraq, mindful of chronic

ANKARA 00006663 002.2 OF 003


electricity shortfall there.

--------------------
Transmission Company
--------------------

4. (SBU) On the margins of a conference on optimizing Turkish
energy linkages to the EU, Turkish Transmission Company (TEIAS)
Technical Chief Doruk Ozkuk stated that TEIAS was planning to
complete 400 KV interconnection with Iraq. While the short border
linkage already has 400 KV capacity, he noted that Turkey would have
to invest in incremental domestic transmission between the border
and the national grid from existing 154 KV. At the same time,
however, Ozkuk emphasized that Turkey is focused on establishing
synchronized connection to Europe's UCTE grid system in 2007-08. He
said that the current amount of exports to Iraq was not problematic,
but TEIAS was evaluating Kartet's request for additional capacity in
light of technical requirements and UCTE regulations. TEIAS'
overall planning is based on limitations on electricity exchange
outside of Turkey and the company may allocate more of this capacity
to existing connections with Georgia and Bulgaria and a prospective
link with Greece. Ozkuk noted that there were substantial problems
with the network on the Iraqi side. Because of Iraq's problems and
because of the full commitment to joining the UCTE system, the
"Med-Ring" or ELIJLST (Egypt, Libya, Iraq, Jordan, Lebanon, Syria,
Turkey) project's momentum has slowed down.

5. (SBU) Murat Erenel, Advisor at EMRA, confirmed that the
regulator and TEIAS were determined to foster competition in exports
to Iraq by using a tender mechanism, noting that other companies
were interested. He confirmed that TEIAS has the lead on preparing
the tender, and EMRA would approve rules, procedures, and licenses.
Erenel complained that TEIAS had domestic capacity constraints; for
example, there were limitations on availability for hooking up new
wind generation. He noted that TEIAS is focused on investment nd
testing to gain connection with the EU UCTE grid.

-----------------------------
The Regulator is the Obstacle
-----------------------------

6. (SBU) Kartet's immediate problem is gaining renewal of its
existing license (for export up to 300MW), which will expire on
January 1, 2007. EMRA finally acknowledged the application by
posting it on its web-site on December 5. According to current
regulations intended to encourage competitors, the posting will
remain until December 18. Kartet's Orhan Karadeniz claims EMRA is
now concerned about the risk posed if a new application (qualified
or unqualified) turns up, forcing TEIAS to immediately organize a
tender. Karadeniz is hopeful that EMRA will still be able to
process their license, so continuity of exports is not threatened.
Karadeniz said that in the short term he was seeking to increase his
generation capacity at Silopi to reduce reliance on the Turkish
grid. He needs to gain assurance from Iraq that it can provide
additional fuel oil to fire the incremental plant capacity.
Moreover, the regulator keeping them on a one-year tether made new
investment difficult. Karadeniz said that he intended to keep up
the pressure of their legal claim against EMRA, asserting that they
would have a right to liquidated damages.

7. (SBU) Karadeniz was gloomy about prospects for increasing
exports. Karadeniz was resigned to go slower on his plans for
significantly increasing capacity because both GOT and GOI were set

ANKARA 00006663 003.2 OF 003


on doing their own investment for increased transmission capacity.
He claimed that it suited the GOI to increase its import of
electricity from Iran. Finally, he noted that looming shortfalls in
electricity capacity in Turkey reduced the interest of the GOT in
supporting increasing exports. Recent floods have hurt voltage
reliability and reduced grid capacity availability for export.

------------------------------------
Iraq has Equal or Greater Challenges
------------------------------------

8. (SBU) Kartet's Karadeniz complained that the company had
succeeded in putting in place the most difficult pieces of the
contract on the Iraqi side. Kartet was fairly regularly receiving
contractually required fuel oil (in partial payment for the
electricity) by tankers from Bayji Refinery. Karadeniz said that
the company had implemented an arrangement at Habur Gate whereby
Kartet received a preferential allocation of 50-100 tankers per day
each way to service the Silopi Plant (just across the border). He
also said that Iraq had reallocated some of its budget for
purchasing electricity from Iran to Kartet. The Kartet rep said
that he had held discussions with the Government of Iraq on
considering partial payment in the form of oil/gas or oil/gas rights
in exchange for the larger potential 1200 MW delivery. He said the
Iraqi side had made demarches to Turkey to move forward on
implementation of the Kartet contract. Karadeniz said that he
placed a lot of importance on a scheduled visit (unfortunately
delayed because his deputy was kidnapped in Baghdad) of the Iraqi
Minister of Electricity to establish the way forward.

9. (SBU) COMMENT: EMRA's insistence on a competitive tender process
has some legitimacy in theory. However, EMRA and TEIAS have been
unable to turn up serious competitors and/or fashion a competitive
tender process. We will continue to press Turkish Government
officials for implementation of increased exports to Iraq. We are
not in a position to be able to assess all aspects of what Karadeniz
admits is a "special deal", but Kartet is the only firm which was
willing to execute this deal and persevere at great difficulty in
delivering some badly needed electricity to northern Iraq.

Wilson

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