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

150711Z Oct 03

UNCLAS SECTION 01 OF 02 ANKARA 006423 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/CBED, EB/IFD AND EUR/SE 
DEPT PASS OPIC 
NSC FOR BRYZA 
USDOC FOR 4212/ITS/MAC/OEURA/CPD/DDEFALCO 
USDOE FOR CHARLES WASHINGTON 
TREASURY FOR OSIA 
 
 
E.O. 12958: N/A 
TAGS: EINV ENRG ECON PREL TU
SUBJECT: BOT PROBLEMS STILL UNRESOLVED 
 
 
REF: A. ANKARA 6144 
     ¶B. ANKARA 5811 
     ¶C. ANKARA 5646 
 
 
This cable is sensitive but unclassified, not for internet 
distrubution. Please handle accordingly. 
 
 
¶1. (SBU) According to representatives from Enron and Doga 
(Edison Mission), the Turkish government is making no serious 
effort to resolve BOT problems, and the Energy Ministry 
(MENR) and Energy Market Regulaory Authority (EMRA) remain at 
odds on how to proceed.  Enron's lawyer recently told 
EconCouns and Econoff that his latest discussions with the 
MENR have been futile, while Doga told us that they have not 
revisited the issue with the MENR recently.  Although Enron 
is reluctant to start formal negotiations with the Turkish 
government, it remains engaged with the MENR and EMRA to 
develop a common approach to resolving the problem.  Doga, on 
the other hand, seems content waiting for the MENR to act. 
 
 
¶2.  (SBU) Enron's lawyers told us the MENR and EMRA had 
different demands from Enron.  The MENR wants Enron to reduce 
its sales price and sets this price reduction as a 
precondition to EMRA's license release.  EMRA, on the other 
hand, wants Enron to relinquish GOT purchase guarantees in 
its existing contracts. 
 
 
¶3.  (SBU) Enron views the MENR as its contracting partner, 
not EMRA, believing that EMRA only has a monitoring role over 
BOT companies.  As reported in Reftel B, Enron wants to 
receive the operating license from EMRA before starting 
negotiations with MENR on price and buy out options.  Enron 
reportedly told the MENR that it is willing to use a 
stair-step-down approach to lower prices between 2004 and 
2009 with the conditions that EMRA grants an unconditional 
license, and the GOT forfeits its 2009 buy out option.  Enron 
officials claim that the MENR does not understand the 
contract; for example, MENR officials seemed surprised to 
learn that the government could buy out the company in 2009 
for no money.  Enron says an early buy out option would offer 
a quick fix to BOT problems, but Turkey does not have the 
financial means to implement this option. 
 
 
¶4.  (SBU)  In a separate meeting with Econoff and 
Econspecialist (Reftel A), EMRA officials denied the 
allegations that they were setting conditions to issue 
licenses to BOT companies. Instead, EMRA blamed the MENR for 
using licenses as leverage to negotiate lower electricity 
prices. According to EMRA, the BOT companies will eventually 
lower prices as the market forces are activated, and Turkey 
should not scare off the investors in the energy sector in an 
attempt to achieve a more competitive market with several 
participants over the longer term.  Enron argues that BOT 
companies' operational costs would be higher if the market is 
less than 100 percent. Moreover, these companies would face 
difficulties meeting contractual obligations with suppliers 
in an uncertain market.  BOT companies' lenders also are 
concerned about Turkey's changing regulatory environment, 
according to Enron. 
 
 
¶5.  (SBU)  From Enron's perspective, both EMRA and the MENR 
are intent on setting up a free market through eliminating 
long term contracts with price and purchase guarantees. 
Enron argues, however, that such a system would only be 
practical if there is flexibility in the market. According to 
Enron, there is a buyer for every megawatt of electricity 
produced under the current system.  Both EMRA and the MENR 
continue to blame each other for not taking action to resolve 
the problem in what Enron calls a bad cop and worse cop 
scenario. 
 
 
¶6.  (SBU) Enron told us that it wants to continue doing 
business in Turkey, but litigation is the only alternative if 
the government does not adopt a constructive approach to 
these problems.  During the arbitration process, Turkey would 
still be obligated to pay the companies.  Enron suggested, 
however, that both EXIM and OPIC could be exposed without a 
timely resolution. 
 
 
¶7.  (SBU) MENR Undersecretary Demirbilek recently confirmed 
to EconCouns that the Ministry continued to work on resolving 
Enron's licensing problem and was hopeful that they would 
reach a compromise soon.  Demirbilek did not comment on the 
conditions EMRA allegedly set to issue licenses.  On the Doga 
license, Demirbilek was less hopeful, saying there were 
serious outstanding difficulties. 
¶8.  (SBU) Comment. BOT problems are likely to remain bogged 
down by the bureacracy unless someone in the Energy Ministry 
takes bold steps to reach a solution.  Newly appointed 
bureaucrats in the Energy Ministry do not appear to 
understand BOT contracts and appear willing to wait until 
these companies to voluntarily lower prices.  At the same 
time, anyone who acts to help a foreign investor could face 
corruption charges as evidenced in other cases. End Comment. 
EDELMAN