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 006612 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/CBED,EB/IFD AND EUR/SE 
DEPARTMENT PASS OPIC AND EXIM 
NSC FOR BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO 
USDOE FOR CHARLES WASHINGTON 
TREASURY FOR OASIA 
 
 
E.O. 12958: N/A 
TAGS: EINV ENRG ECON PREL TU
SUBJECT: GOT DECIDES TO TAKE OVER BOT COMPANIES 
 
REF: A. ANKARA 6423 
     ¶B. ANKARA 4386 
     ¶C. ANKARA 6538 
 
 
This cable is sensitive but unclassified, not for internet 
distribution.  Please handle accordingly. 
 
 
¶1.  (SBU)  Summary.  The longstanding disputes between Build 
Operate Transfer (BOT) electricity generation plants and the 
Turkish government may have reached a new level due to the 
government's apparent decision to take over these facilities 
on what appears to be the presumption of corruption. 
According to local press reports on October 21, the Ministry 
of Energy (MENR) is planning to take over four BOT 
electricity generation plants, including two owned by US 
investors, ENRON and Doga Eddison Mission, with OPIC and EXIM 
support.  Energy Minister Guler is quoted as saying that the 
government took action because of corruption in the 
establishment of these facilities and due to high electricity 
prices.   Both ENRON and Doga told us that they learned about 
the decision for the first time from the press and have not 
yet been officially notified by any of the Turkish 
authorities.  The Energy Market Regulatory Authority (EMRA) 
told us that they are not aware of any plans to "seize" or 
"take over" BOT companies as reported by Hurriyet newspaper 
and maintains that they are responding to BOT companies' 
applications for licences.  Post is seeking additional 
information.  End Summary. 
 
 
¶2.  (SBU)  On October 21, two leading Turkish newspapers, 
Hurriyet and Milliyet, reported that the MENR was planning to 
take over four BOT plants: ENRON's Trakya Electricity (US), 
Doga Edison Mission's Esenyurt Natural Gas facility (Capan 
family), Unimar's Marmara Ereglisi-Unimar (Japanese), and 
Gebze Dilovasi (Ova Electricity).  Energy Minister Guler told 
Hurriyet that the decision followed the State Auditing 
Board's report, which concluded that there was corruption in 
the establishment of these facilities.  Guler said that the 
problems were very complex; the investment costs were 
exaggerated, the contracts violated, and the costs of loans 
were overstated, all of which contributed to high energy 
prices. 
 
 
¶3.  (SBU) Guler stressed that the MENR has prepared 
alternative strategies depending on the BOT companies' 
response, including international arbitration.  He said that 
the cost of arbitration would be bearable but he believed 
that most of the companies will not seek international 
arbitration and risk ruining their reputation with corruption 
charges.  Guler said that the MENR was waiting for (EMRA) to 
comment on this matter. (Note: The MENR and EMRA have been at 
odds on how to deal with BOT companies as reported in reftel 
A.)  EMRA officials told us that it is not party to any 
government decision to take over BOT companies, while 
stressing that EMRA continues to review BOT companies' 
applications for licensing.  Guler also reportedly expressed 
regret that a compromise could not be reached and warned that 
BOT facilities could go through a similar process as Cukorova 
and Kepez Electricity, both owned by the notorious Uzan 
family. (reftel B).  At the same time, EMRA told us that BOT 
contracts are not concession contracts and cannot be compared 
to the Cukorova case, which was seized because the company 
refused to transfer transmission assets to the State as 
required by the Electricity Law.  Guler insisted that Turkey 
would no longer consider BOT projects but remain interested 
in establishing new electricity generation facilities with 
the BO model.  When asked about what such action means for 
Turkey's reputation in the international community, Guler 
said allegations of corruption would be bad for the companies 
reputation. 
 
 
¶4.  (SBU)  Econspecialist contacted the MENR for 
confirmation, and they did not deny the content of the press 
reports. MENR's Press Dept Head said that the Ministry had 
not issued a press release on the story, while confirming 
that the newspapers were granted a private interview with 
Minister Guler on October 20.  We also called both ENRON and 
Doga for a response: ENRON's executives currently are all in 
London attending a Board meeting, but  the General Manager 
denied the corruption charges and told us that ENRON has not 
yet been notified by the MENR. ENRON's GM questioned whether 
the GOT would eventually seize the facility as in the 
Cukorova case and wondered if the Hurriyet article was 
referring to the government's early buyout option.  He 
speculated that the MENR may be trying to force EMRA to 
negotiate conditions to issue licenses but it could also be a 
message to the companies to lower their prices. He asked us 
to share any info we receive from EMRA.  Doga also told us 
that they have not been contacted. 
 
 
¶5.  (SBU)  The lawyer of one of the BOT companies also said 
he had no prior notification from either EMRA or the MENR. 
He said that the Milliyet article, which does not quote the 
Minister directly, gives a clearer explanation of the 
government's decision.  Milliyet reported that the GOT 
decided to take action for early transfer of the BOT 
facilities back to the government.  According to Milliyet, a 
high level EMRA official said that the BOT companies could 
not reach a compromise with the GOT on the electricity prices 
after a year of discussion, and the GOT would take over these 
facilities.  The official said EMRA was planning to start the 
takeover process in mid-November. He added that EMRA would 
first prepare a list of suggestions for the companies to 
comply with and would give the companies 1-2 months to revise 
their contracts. The companies, which failed to revise the 
contracts, will be asked to transfer the facilities to the 
government early. 
 
 
¶6.  (SBU)  According to the Hurriyet report, the MENR is 
relying on the State Auditing Board's report on BOT, 
Build-Operate (BO), and Transfer-Operating-Rights (TOR) 
projects, which was released on October 17, to justify the 
impending take over.  The report states, for example, that 
there was no feasibility study for any of these projects.  It 
claims that for some projects transfer costs that the MENR is 
obligated to pay upon transfer of the facility to the 
government is different for BOT facilities with similar cost 
structures.  The report also claims that the MENR had signed 
contracts without any knowledge of the BOT's total investment 
costs and financial plans and wrongly assumed all of the 
risks.  The State Auditing Board concluded that these 
problematic contracts keep energy prices high and are a major 
impediment to creating a free energy market.  The report also 
criticizes the energy forecasts that the Energy Ministry at 
that time had made and contends that those faulty decisions 
have resulted in an excess supply of natural gas and 
excessive use of natural gas in domestic production as well. 
(Reftel C notes this government's preference for indigenous 
energy sources over natural gas.) 
 
 
¶7.  (SBU) Background.  According to the terms of the 
contracts, these BOT companies are guaranteed a set price for 
every unit of electricity generated; however, the terms of 
contract have been under dispute for a couple of years. The 
GOT wants the companies to lower electricity prices, and some 
companies have expressed a willingness to do so (reftel A). 
Ankara envisions a liberalized electricity market with no 
long-term contracts and has been seeking ways to eliminate 
these expensive contracts.  The main problem is that the GOT 
cannot afford the early buy-out option and would have to wait 
until 2009 when it can take over these companies at no cost. 
These BOT contracts are performance contracts so during any 
arbitration process the companies are legally obligated to 
continue operations and Turkey is obligated to continue 
paying for the electricity generated. 
 
 
 
 
¶8.  (SBU) Comment.  This is yet another example of the 
problems foreign companies operating in Turkey face, and the 
GOT's action continues to raise questions about Turkey's 
commitment to the rule of law and attracting further foreign 
investment. The takeover decision reflects the Justice and 
Development Party's (AK) determination to crack down on 
corruption and also could give the GOT a way out of longterm 
expensive contracts.  Another complaint that we constantly 
hear from BOT companies is that this government does not 
understand the terms of the contract.  End Comment. 
 
 
 
 
EDELMAN