VZCZCXRO9543
OO RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHAK #5777/01 2771342
ZNR UUUUU ZZH
O 041342Z OCT 06
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9190
INFO RUCNRAQ/IRAQ COLLECTIVE
RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEUITH/ODC ANKARA TU//TCH//
RHMFIUU/39ABG INCIRLIK AB TU
RUEKJCS/SECDEF WASHDC//USDP:PDUSDP/ISA:EUR/ISA:NESA//
RUEHAK/USDAO ANKARA TU
RUEKJCS/JOINT STAFF WASHDC//J-3/J-4/J-5//
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFIUU/HQ USEUCOM VAIHINGEN GE
RHMFISS/HQ USCENTCOM MACDILL AFB FL
RHMFIUU/425ABS IZMIR TU//CC//
RUEPGAB/MNF-I C2X BAGHDAD IZ

UNCLAS SECTION 01 OF 02 ANKARA 005777 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
EB FOR A/S SULLIVAN 
USDOE FOR CHARLES WASHINGTON 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
 
E.O. 12958: N/A 
TAGS: ENRG ECON IZ TU
SUBJECT:  TURKEY TO RESUME FUEL SHIPMENTS TO IRAQI SOMO 
 
SENSITIVE BUT UNCLASSIFIED. 
 
¶1.  (SBU)  Summary.  Turkish and Iraqi State Oil Marketing 
Organization (SOMO) officials agreed on a new payment plan for 
approximately $950 million in arrears owed by SOMO to Turkish fuel 
product suppliers.  This agreement should allow fuel shipments from 
Turkey, including for building kerosene stocks, to resume as soon as 
SOMO can negotiate new contracts with the Turkish companies. 
Turkish officials say they were impressed by the commitment of their 
Iraqi counterparts to the new payment plan, but the first test will 
be an $80 million payment due October 20.  End Summary. 
 
¶2.  (SBU)  Foreign Trade Undersecretariat (FTU) Director General 
Sevket Ilgac confirmed that he and a delegation led by Iraqi SOMO DG 
Falah al-Amari agreed September 27 on a "minutes of meeting" 
containing a payment plan for arrears due by SOMO to Turkish 
suppliers of fuel products to SOMO.  The agreed minutes, a copy of 
which Ilgac provided (emailed to Baghdad/ECON) notes "with 
satisfaction" payments that have been received on the $650 million 
in arrears under the so-called "Category A" in the previous 
agreement.  The main operative points of the new agreement provide a 
new repayment plan for approximately $297 million in "Category B" 
arrears, which had been disputed by SOMO. 
 
------------------------------- 
New Payment Plan for Category B 
------------------------------- 
 
¶3.  (SBU)  The September 27 agreement subdivides category B into 
three new categories, the first and largest of which is $200 million 
for fuel deliveries made in January and February 2006 that were 
endorsed by SOMO ("covered by credit notes").  SOMO acknowledged its 
obligations in this category and promised to pay the $200 million in 
5 installments of $40 million each.  The first two installments are 
due together on October 20, the second two are due together on 
November 20 and the final installment is due on December 20.  The 
second subcategory covers approximately $80 million due for 
deliveries made in 2003-05.  These were also endorsed by SOMO, but 
were not included in the first payment agreement dated February 15, 
¶2006.  SOMO agreed to examine these claims and to propose a payment 
plan before November 1.  The third, and according to Ilgac, most 
problematic category, is about $17 million for deliveries that were 
not endorsed by SOMO, but where the suppliers are able to show 
evidence that SOMO took delivery.  SOMO promised to come to an 
agreement with FTU and the involved on this category before November 
¶30. 
 
----------------------------------- 
New Shipments Can Start Immediately 
----------------------------------- 
 
¶4.  (SBU)  Ilgac said that he had great personal confidence in 
al-Amari and that he was optimistic that SOMO would keep its word on 
this plan.  Al-Amari assured him that the Iraqi Finance Minister had 
approved and allocated $200 million to cover the first sub-category. 
 Ilgac said FTU is ready immediately to approve new delivery 
contracts negotiated by SOMO with Turkish supplier companies.  He 
said SOMO and suppliers were currently discussing prices and 
volumes.  New contracts could be settled and products in route to 
Iraq, he thought, before the end of the week (October 6). 
 
¶5.  (SBU)  Ilgac also said that FTU had agreed that SOMO could deal 
with a smaller subset of the 33 companies to which SOMO is indebted 
between now and the end of the year (when payments should be 
complete).  He confirmed that after that SOMO would be free to deal 
with any Turkish supplier company.  He understood that there was a 
particular need for kerosene in Iraq and said that SOMO was 
discussing this with the state-owned Turkish International Petroleum 
Company (TPIC).  He understood, however, that TPIC might not be able 
to provide all of SOMO's needs for unspecified technical reasons. 
 
¶6.  (SBU)  The new agreement also covers improved arrangements for 
payment of Turkish imports of Iraqi heavy fuel oil, as well as for 
cooperation against fuel smuggling.  Ilgac noted that the latter was 
of prime interest to both sides. 
 
ANKARA 00005777  002 OF 002 
 
 
 
------- 
Comment 
------- 
 
¶7.  (SBU)  Ilgac said that he was impressed by al-Amari's command of 
the situation and apparent personal commitment to settling the 
outstanding issues.  This must indeed be impressive to be sufficient 
to overcome SOMO's track record in honoring its debts to Turkish 
companies (this is the fourth such agreement covering substantially 
the same arrears).  Receipt of the October 20 installments will be 
an important test of Ilgac's faith and of Turkey's continued 
flexibility.  Ilgac also noted hopefully that many of the logistical 
problems at the Habur border crossing that have stymied earlier 
deliveries should be fixed following the completion of construction 
of a new facility. 
 
¶8.  (SBU)  Ilgac stressed repeatedly that the basic problem in the 
past was lack of communication by SOMO.  In the past, when SOMO was 
unable to meet its obligations, it simply didn't pay and didn't make 
an effort to contact the Turkish side.  He said that if SOMO had any 
difficulties under the new agreement, it should immediately consult 
with FTU on potential solutions.  Turkey's overriding interest, he 
stressed repeatedly, was in having a good trade relationship with 
Iraq. 
MCELDOWNEY