Cablegate: Turkey Signs Electricity Agreement with Iran

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DE RUEHAK #2894/01 3381623
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R 041623Z DEC 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 4545
INFO RUEHIT/AMCONSUL ISTANBUL 3592
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RUEHUNV/USMISSION UNVIE VIENNA 0170
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UNCLAS SECTION 01 OF 02 ANKARA 002894

SIPDIS

USDOE FOR CHARLES WASHINGTON
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
STATE ALSO FOR EB/CBA FRANK MERMOUD

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG EINV BEXP TU IR
SUBJECT: TURKEY SIGNS ELECTRICITY AGREEMENT WITH IRAN

REF: Ankara 2720

SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY.

1. (SBU) Summary: Turkey and Iran signed an electricity agreement
on November 21 and pledged to continue cooperation on energy issues
despite U.S. objections. The agreement calls for private sector
construction of two thermal power plants and one hydropower plant
and investment in trans-border transmission lines. Turkish Energy
Minister Hilmi Guler said the GOT had considered and was prepared
for possible U.S. sanctions. Iranian Electricity Minister Perviz
Fettah said the two sides would meet again in Tehran in January.
The GOT continues to develop its energy ties with Iran under the
rubric of energy security, but this agreement depends on as-yet
unidentified private investors to build the plants and transmission
lines the two sides envision. Even if these projects eventually are
realized, they are unlikely to come in time to forestall Turkey's
near-term energy shortages. End summary.

2. (U) After several mutual visits, Turkey and Iran concluded a
long-debated electricity agreement. Details include:

-- Establishment of three 2,000 megawatt (MW) gas-fired electricity
power plants (two in Iran; one in Turkey) by the private sector.
Ownership structure: 51 percent (host country) 49 percent (other
country).

-- Establishment of a 10,000MW hydropower plant in Iran by the
private sector which will operate the plant for a specified period
of time and then transfer it to the government.

-- Purchase of one billion kilowatt hours (kWh) of electricity from
Iran with a provision to increase to four billion kWh in the
future.

-- Investment in transmission grid and infrastructure between the
two countries.

3. (SBU) At a press conference following the signing ceremony,
Iranian Energy Minister Fettah highlighted President Ahmedinejad's
recent statement "there is no limit to development of the
relationship between Turkey and Iran." Fettah noted the intense
pace of work on energy cooperation between Turkey and Iran had
brought the two countries together three times in eight months and
the next meeting in Tehran was scheduled for two months hence.
Responding to questions on USG reaction to the agreement, Fettah
said: "Some parties may be disturbed by this agreement, but we took
into account certain risks while signing it." Fettah added that
Turkey and Iran were both independent and strong countries. Turkish
Energy Minister Guler said: "We are aware of the embargo and we are
prepared." Guler said the two sides would bring their private
sectors to the next meeting to discuss detailed investment models.
Guler added that work on a gas deal was in progress and other
agreements would follow.

4. (SBU) Ministry of Energy Foreign Relations Department Head Cigdem
Hatunoglu and MFA Energy Affairs Officer told us the electricity
agreement between Turkey and Iran would help meet Turkey's growing
energy demand (six to eight percent annually) and increase energy
security. Hatunoglu characterized the agreement as one among
neighbors and added that it might allow Turkey to export electricity
to its neighbors thereby furthering Turkey's vision for establishing
itself as an energy hub. Commenting on the gas deal with Iran,
Hatunoglu said Iranian gas is an important component of Turkey's
diversification strategy and could only be replaced with Iraqi gas.
She noted GOT and USG interest in bringing Iraqi gas to market but
noted progress is slow.

5. (SBU) Faruk Demir, an advisor to the Energy Minister, told us the
agreement between Turkey and Iraq is important because it would (1)
prepare the electricity infrastructure between the two countries for
larger volumes of electricity, which could be used to meet Europe's
increasing electricity demand in the future; (2) establish a
partnership in electricity generation and trading; and (3) blaze a
trail into Iranian markets for Turkish private companies in
non-energy related sectors. Demir said the agreement contained a
provision allowing Turkey to import electricity from third countries
through Iran. (Note: Earlier press articles stated that the GOT

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wanted to partner with Iran and Turkmenistan, to build power plants
in Turkmenistan and bring the electricity to Turkey. End Note.)

6. (SBU) Comment: Turkey is facing a near-term electricity crisis
and uses just over half of its natural gas for electricity
production. If we have a tough winter and Iran decreases it's gas
supply (as it has done in previous winters), peak loads could
surpass available power generation and we could see some rolling
black outs and brown outs in Turkey. The GOT's public relations
campaign claims the agreements with Iran are necessary to improve
Turkey's energy security. We believe the timeline for development
is much longer than press estimates and will not address electricity
shortages in the near term. Both Iran and Turkey are depending on
the private sector to develop these energy projects. We are aware
of only one Turkish company interested in exporting Iranian
electricity and they claim to have no GOT affliation (reftel). We
have not heard of any firms interested in investing in Iran's
electricity sector and we continue to hear about the difficult
Iranian business climate.

Wilson

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