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

091446Z Jun 05

UNCLAS SECTION 01 OF 02 ANKARA 003263 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ETRD IZ TU
SUBJECT: TURKEY HOPES FOR INCREASED EXPORT OF ELECTRICITY 
TO IRAQ, BUT OBSTACLES REMAIN 
 
REF: A. BAGHDAD 2298 
 
     ¶B. ANKARA 2803 
     ¶C. ANKARA 1003 
     ¶D. ANKARA 246 
 
 ¶1.  (SBU) SUMMARY: Working to build on agreements between 
the Iraqi and Turkish Governments to increase electricity 
exports from Turkey to Iraq from current 150 MW to as much as 
1200 MW (reftels), Turkish Company Kartet/Karadeniz is eager 
to fulfill this opportunity, but many obstacles remain: 
Turkish regulatory approval, building transmission capacity 
on both sides of the border, securing financing mechanisms in 
Iraq, and provisioning fuel oil in Iraq.  The Turkish energy 
regulatory body is likely to give permission to double the 
license to use existing transmission capacity for 300 MW, but 
will likely insist on opening up additional capacity for 
competitive tenders.  End Summary. 
 
¶2.  (SBU) In a June 3 conversation with Energy Officer, 
Turkish company Kartet representative Orhan Karadeniz 
expressed optimism for being able to increase electricity 
exports to Iraq from Turkey, but criticized the Turkish 
energy regulatory body (EMRA) as an obstacle.  He said that 
the Iraqi (ITG) and Turkish governments (PM, MFA and Energy 
Ministry) were very supportive, stemming from recent 
bilateral meetings (reftels).  Karadeniz said that EMRA was 
likely to renew Kartet's current license allowing a doubling 
of exports to 300 MW to fully utilize existing transmission 
capacity for export from Silopi to Northern Iraq and to help 
Iraq meet its August peak demand this year.  (Indeed, MFA 
told us on June 6 that exports could reach 300 MW this week.) 
 However, Karadeniz listed a number of obstacles to 
increasing capacity to 1200 MW by August 2006 as targeted in 
the bilateral meetings: 
 
-EMRA appeared unwilling to grant a license for increased 
capacity to 1200 MW.  Karadeniz claimed that EMRA had no 
technical, legal, or administative grounds for this position, 
given Karadeniz's exclusive deal with the Government of Iraq 
(dating from September 2003 with the CPA and IGC).  Karadeniz 
said that the Turkish production company EUAS had excess 
capacity of over 3000 MW.  He also said that Kartet had paid 
past claims to the Turkish electricity trading company TETAS, 
but was now making the case that these claims were excessive 
charges for previous purchases of electricity off the grid. 
 
-The original deal was based on provisioning of fuel oil from 
the Bayji refinery in Iraq as partial payment for the 
electricity, but this has never been available for security, 
administrative, and/or financial reasons.  This was also an 
obstacle to the smaller increase. 
 
-While Karadeniz has offered to make the investment for 
increased transmission capacity on the Turkish side, the ITG 
has agreed to finance the investment on the Iraqi side. 
However, the Iraqi government has requested that Karadeniz 
carry out the construction on both sides and accept payment 
from Iraq, introducing payment risk to Karadeniz. 
 
-Karadeniz has required the ITG to provide a bank guarantee 
for the first year of the five year take or pay contract for 
the 1200 MW transaction.  He said that this bank guarantee 
could only be provided with cash collateral in the current 
financial system in Iraq, which was a prohibitive cost. 
 
¶3.  (SBU) Ministry of Energy Under Secretary Sami Demirbilek 
told us that it was likely that EMRA would renew the 
Karadeniz license for 300 MW capacity as supported by the 
GOT.  He expressed frustration with the rigid stance of EMRA, 
which he felt went beyond its regulatory purview.  He noted 
the full support of the government and the extra capacity 
available at EUAS, so he said everyone would be better off 
allowing Karadeniz to implement the deal. 
 
¶4.  (SBU) However, EMRA representative Murat Erenel told 
Energy Officer that there was interest from about 15 Turkish 
companies, including major domestic companies such as 
Sabanci, Koc, Ak Enerji, and Zorlu, to provide the additional 
electricity wholesale exporting capacity.  Therefore, he said 
that EMRA had to support nondiscrimination and third party 
access to the grid, and thus had to support a competitive 
auction to increase export capacity from 300 MW to 1200 MW. 
Erenel has expressed concern in the past about what he termed 
the "special" deal between Kartet and the Ministry of Energy 
(Ankara reftels). 
 
¶5.  (SBU) Comment: The embattled EMRA has been engaged in a 
bitter inter-agency dogfight with the Ministry of Energy and 
the rest of the government over its independence and the 
Kartet electricity export to Iraq deal has fallen into this 
fight.  Embassy has reminded Karadeniz repeatedly that it 
must work with the regulatory authority to purchase and 
export electricity off the grid. 
 
¶6.  (U) Iraq REOs Minimize Considered 
MOORE