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 004623 
 
SIPDIS 
 
SENSITIVE 
 
COMMERCE PASS ALSO FOR NEWMAN 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ETRD TU
SUBJECT: BOSPHORUS BYPASS AND THRACE DEVELOPMENT COMPANY 
 
REF: A. A. ANKARA 3419 
     ¶B. B. ANKARA 4443 
 
Sensitive But Unclassified - Please Handle Accordingly 
 
¶1.  (SBU) Summary:  Recognizing growing oil tanker congestion 
in the Bosphorus and associated environmental and safety 
risks, the Government of Turkey (GOT) has expressed support 
for construction of a bypass pipeline to avoid the Turkish 
straits, aiming to transport oil overland from the Black Sea 
to the Mediterranean (or Aegean or Adriatic) Sea.  At least 
three projects entirely in Turkey have sought permits from 
the GOT, so far without success.  Delays in granting permits 
appear to stem from concern about waiting for completion of 
Baku-Tbilisi-Ceyhan (BTC) and bureaucratic slowness and 
perhaps conflict.  USG has regularly called for the GOT to 
move forward quickly and transparently in providing 
conditional permits to allow the market to pick the best 
route or routes.  Thrace Development Company (with some 
American involvement) is concerned that a late-comer, copycat 
project across Thrace (supported by Transneft) may gain 
unfair advantage in the permitting process.  End Summary. 
 
The First Mover - Free Rider Dilemma 
------------------------------------ 
 
¶2.  (SBU) Ref A provided background on Bosphorus bypass 
projects; this cable provides an update on projects passing 
only through Turkey.  With the growth in crude oil shipped 
from Russia and the Caspian, oil tanker shipping of oil has 
increased to close to 3 million barrels per day, generally 
perceived as close to capacity.  The Montreux Convention 
guarantees free passage through the Straits, so Turkey has 
been limited in restrictions it can impose, but it has 
restricted night-time and bad-condition passage, which has 
created significant delay costs for tankers, particularly 
last winter.  A number of multiple-country cross Balkan 
pipelines have sought support and financing in recent years. 
More recently, three projects fully in Turkey have gained 
prominence, and have sought permits from the GOT.  Two have 
sought USG advocacy because of U.S. company involvement: 1) a 
trans-Thrace pipeline sponsored by Thrace Development Company 
(TDC), with participation by American Howard Lowe and Kazakh 
and Turkish interests, and 2) a Samsun-Ceyhan project with 
participation by American Enesco and Turkish Calik Energy. 
Because of American involvement in the potentially competing 
projects, USG has stressed the desire to leave choice of 
project(s) to the market.  In fact, some GOT officials have 
stated that Samsun-Ceyhan and trans-Thrace were not mutually 
exclusive.  Some observers note the special risk of the first 
investor or oil supplier committing to a new pipeline, in 
effect reducing delay costs for shippers who stay in the 
straits (free rider or first mover dilemma). 
 
Thrace Development Company Views 
-------------------------------- 
 
¶3.  (SBU) A second trans-Thrace project has recently splashed 
in the Turkish press, sponsored by Transneft and Turkish 
businessman Okan Tapan and the Anadolu Construction and 
Machinery Inc.  In recent press accounts, Tapan has claimed 
that the PM supports the project and has denied claims that 
the trans-Thrace route threatened environmentally sensitive 
zones (the terminus of Sarhos on the Aegean).  Russian 
support has been reported in the local and international 
press as on again off again, but state firm Transneft now 
appears to be actively supporting the project.  Thrace 
Development Company rep Yilmaz Oz expressed strong concerns 
to Econoff that what he called a copy-cat project filed one 
year after TDC might engender influence peddling or other 
non-transparent effects.  He pointed out potential pressure 
to seek deliverables in advance of Putin's visit in early 
September.  The TDC rep described his project's long and 
active permit application process since June 2003, and 
lamented that the Transneft project had filed its carbon copy 
application one year later.  According to the rep, the TDC 
application has been delayed at the "Council of Ministers" 
where he perceived that the MFA was holding it up.  Oz 
thanked the Embassy for previous messages to the GOT, but 
urged these to continue to come at the highest levels in 
light of the Transneft/Anadolu project's copycat nature and 
claims in the press. 
 
¶4. (U) The Sarhos proposals have sparked extensive 
environmental opposition from both local non-government 
organizations and international environmental groups.  A 
large rally was held in Sarhos at the beginning of August, 
with speakers loudly protesting the proposal.  GOT officials 
have noted that no infrastructure or deep water port exist 
for the proposed pipeline in Thrace, whereas the 
Samsun-Ceyhan pipeline would tap into some existing network 
and deep water port. 
 
Conflicting signals on permits 
------------------------------ 
 
¶5.  (SBU) Per Ref B and previous, in response to repeated USG 
queries, the GOT recently expressed the need to move forward 
on providing at least conditional permits on projects.  Some 
GOT interlocutors have admitted that a now-out-of-date 
"waiting for BTC" view had delayed the permitting process. 
Some energy officials have claimed that permit applications 
have been "thin", referring to lack of experience or 
through-put commitments.  More absurdly, some bureaucrats 
appear worried about too many pipelines, so mistakenly want 
to engage in "picking the winner".  Most likely, there is 
genuinely slow bureaucratic inertia, confusion, and special 
interests impingeing on how to manage development of viable 
bypass options.  Most recently a Ministry of Energy contact 
told Econoff, that the Minister of Energy was preparing a 
decision to clarify this process.  Embassy will continue to 
repeat its message to the GOT of the need to move forward in 
a timely and transparent way to provide conditional permits 
to let projects compete for financing and throughput 
commitments in order to let the market choose a winner.  The 
risk is that while the GOT is anxious to reduce shipments 
through the Bosphorus, procrastination on the permit issue 
could end up delaying any possible pipeline until a straits 
disaster forces the issue. 
EDELMAN