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

180854Z Nov 04

UNCLAS SECTION 01 OF 02 ISTANBUL 001716 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ENRG MOPS PREL PTER TU
SUBJECT: SECURITY AND PAYMENT HEAD LIST OF TURKISH BUSINESS 
CONCERNS IN IRAQ 
 
REF: A. ANKARA 6312 
 
     ¶B. ANKARA 6195 
 
Sensitive but Unclassified - not for internet distribution. 
This cable was coordinated with Embassy Ankara. 
 
¶1. (SBU) Summary: A range of Turkish companies active in Iraq 
outlined their main concerns in a November 5 meeting with 
Turkey Caucus co-chair Representative Ed Whitfield.  Security 
and payment issues headed the list, with companies reporting 
not just serious problems in ensuring the safe delivery of 
their shipments, but also in problems in receiving payment 
for their contracts.  Ercumen Aksoy, head of the Turkish-Iraq 
Business Council, and Mehmet Habbab, CEO of Delta Petroleum, 
who organized the meeting, made a strong pitch for a U.S. 
umbrella to ensure that payments are made for outstanding 
contracts.  The companies who attended noted that they have a 
cumulative 500 million USD in payments outstanding in Iraq, 
and that interruption in fuel oil shipments since the 
beginning of October has undermined the barter system through 
which many Turkish contracts were financed.  The problem also 
threatens the project by which Karadeniz Energy has provided 
electrical power to Iraq (ref b).  Osman Karadeniz indicated 
that unless a way is found to ensure delivery of heavy fuel 
oil, the company will not be able to fulfill its part of the 
bargain.  End Summary. 
 
¶2. (SBU) Payment woes: Companies represented at the lunch, in 
addition to Delta Petroleum and Karadeniz Energy, included 
major shippers such as Tefirom (the first company to sign a 
contract with the CPA to deliver oil to Iraq), Tekfen (a 
major construction firm active in Iraq since the 1980s), and 
freight forwarders such as Ets. A. Boutros and Fils. 
Collectively, the companies present noted that they are owed 
some 500 million USD in Iraq, and that in some cases even 
contracts dating to the period of the Coalition Provisional 
Authority (CPA) have not been honored.  Several companies 
noted that although Iraqi officials participated in the 
elaboration of these contracts, on attempting to pursue them 
now with the Iraqi interim government, a number of ministries 
are disclaiming responsibility for the contracts and 
directing them to speak to "the Americans."  Only Tekfen 
indicated that it was experiencing no problem with payment 
for its work in Iraq, as a result of the fact that it is paid 
from the account that Iraq built up in Halk Bank in Turkey 
through the "Oil for Food" program. 
 
¶3. (SBU) Umbrella: Delta Petroleum's Mehmet Habbab made a 
pitch for an "American umbrella" to cover Turkish companies' 
contracts with SOMO.  He noted that Turkish businessmen 
currently deliver close to 7000 tons of oil products to Iraq 
daily, but that since SOMO took over responsibility for the 
contracts in July 2004 deliveries have become haphazard as 
payments are delayed for over 90 days.  As a result, the 
trade functions on a "stop and go" basis, with businessmen 
stopping deliveries until funds are received and then 
restarting them.  The resultant intermittent nature of the 
delivery system, in Habbab and his colleagues' view, creates 
"havoc" and constant shortages.  Habbab thus suggested that 
the U.S. guarantee Iraqi payments in case of default-- 
something that he argued would not cost anything as funds are 
available in Iraq and the U.S. can control receipts.  Such an 
arrangement, he argued, could contribute enormously to Iraq's 
recovery at a fraction of the cost of outstanding 
reconstruction contracts.  Turgut Bozkurt, who works as an 
advisor with Tefirom, noted that shippers had factored 60-day 
payment delays into their planning, but that the delays now 
exceed 90 days.  Companies will work even with this, he said, 
so long as there is a guarantee that they will be paid in the 
end. 
 
¶4. (SBU) Security Issues: In addition to the payment issue, 
companies remain focused on their security difficulties. 
Even with its payment advantage, Tekfen noted that work has 
ground to a halt on many of its projects for security 
reasons.  Other companies, including shippers in particular, 
reported similar security problems with regard to their 
deliveries.  As Ankara and Istanbul have reported earlier, 
they indicated that the problem is most acute on the return 
trip, when trucks generally are not in convoys.  Delta's 
Mehmet Habbab said that four of his contract drivers have 
been killed; other companies indicated that they have also 
experienced casualties.  Overall, Habbab suggested that over 
30 percent of the goods shipped from Turkey are squandered, 
representing a daily loss of 1.5 million USD per day. 
Looking at the larger picture, Ercument Aksoy stressed that 
the security situation poses serious challenges for the 
viability of Turkish trade in Iraq.  He noted that the 
security problems have driven freight rates to Baghdad up 
from 1800 USD to nearly 4500 USD per truck from Turkey. 
Given that rates from Jordan and Kuwait remain a fraction of 
that level (he quoted a figure of 1000-1200 USD), he 
predicted that while Turkish exports to Iraq this year are 
near 1.6 billion USD, they will not be able to reach that 
level again next year unless the security situation improves. 
 Habbab suggested that one solution might be for the U.S. to 
permit private security firms to offer security to Turkish 
trucks on the road all the way to Baghdad.  He argued that 
truckers would be happy to pay for such a service, and that 
such an arrangement would ease the burden on U.S. military 
personnel. 
 
¶5. (SBU) Energy: Among the projects hampered by the security 
situation is Karadeniz Holding's sale of electricity to 
northern Iraq.  Osman Karadeniz reiterated points he made to 
the Embassy (ref b), noting that the company has yet to 
receive a single shipment of heavy fuel oil from Iraq.  While 
earlier bureaucratic problems have been ironed out, security 
constraints currently preclude delivery of the supplies. 
This has been the case, he said, since the 101st Airborne, 
which co-signed the original agreement, left the country.  He 
noted that they have no alternative to the heavy fuel oil 
from Iraq, since their special import permit from Turkey only 
applies to Iraqi fuel oil.  He expressed hope, but not 
necessarily optimism, that the situation can be resolved in 
the near future.  If it is not, however, he said the company 
will not be able to continue to supply the amount of power it 
promised to Iraq.  Habbab suggested that if the security 
situation continues to preclude the fuel shipments, the U.S. 
might instead seek to pressure the Turkish government to 
allow import of fuel oil from other supply points to enable 
Karadeniz to fulfill its contract. 
 
SMITH