VZCZCXRO6330
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHAK #6403 3171421
ZNR UUUUU ZZH
R 131421Z NOV 06
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 9920
INFO RUCPDOC/USDOC WASHDC
RHEBAAA/DEPARTMENT OF ENERGY WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUEHGB/AMEMBASSY BAGHDAD 0801

UNCLAS ANKARA 006403 
 
SIPDIS 
 
USDOE FOR CHARLES WASHINGTON 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
EXIM FOR PAMELA ROSS AND MARGARET KOSTIC 
OPIC FOR R CORR AND C CHIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG PGOV EFIN TU
SUBJECT:  TURKEY ELECTION YEAR ENERGY PRICE CONTROVERSY 
 
REF: ANKARA 6380 
 
Sensitive But Unclassified.  Please handle accordingly. 
 
¶1.  (SBU)  SUMMARY:  The prices Turkish consumers pay for 
electricity and natural gas has become a hot political issue in the 
run-up to 2007 presidential and parliamentary elections.  With 
state-owned oil and gas pipeline company BOTAS reportedly on the 
brink of bankruptcy and cold weather approaching, the government is 
under strong pressure from the IMF to raise natural gas and 
electricity prices before the end of the year.  Despite the 
difficult politics, it seems very unlikely that the AK Party 
government will buck the IMF or allow BOTAS, the sole importer of 
natural gas, to default.  Thus, already stretched consumers should 
be prepared for bigger gas and electricity bills.  It will be 
interesting to watch how the government spins this pocketbook issue. 
 End Summary. 
 
------------------ 
BOTAS "BANKRUPTCY" 
------------------ 
 
¶2.  (SBU)  BOTAS' financial difficulties, while not a secret to 
insiders, hit the headlines on October 31.  The press described a 
letter BOTAS reportedly sent to the Ministry of Energy warning that 
the company would be unable to pay for contracted gas from Russia, 
Iran, Algeria and Nigeria this winter, given uncollectible 
receivables from state entities.  The letter highlighted debts owed 
by the State Electricity Generation Company (EUAS) and Ankara 
Municipality's gas distribution company EGO.  The press also 
reported that BOTAS had reached its borrowing limit with banks and 
was unable to finance purchases with bank credit. 
 
¶3.  (SBU)  BOTAS Assistant DG Riza Ciftci confirmed to us that the 
company is in a tough spot due to the GOT's policy of maintaining 
low natural gas prices to consumers to encourage extension of 
natural gas around the country.  He singled out EGO and EUAS as the 
biggest deadbeats, with debts of $1 billion and $2 billion 
respectively, and noted that BOTAS is constrained from cutting off 
service by law.  Nevertheless, Ciftcifelt BOTAS would weather these 
problems throuh a combination of government support and 
re-financing BOTAS's debt payments to banks to service about $350 
million in bank borrowing that covered building of new pipeline 
infrastructure. 
 
------------- 
IMF CONCERNED 
------------- 
 
¶4.  (SBU)  Sorting out intra-company debts among state-owned 
enterprises is also becoming a major issue for the IMF.  The Fund is 
pressuring the government to raise consumer energy prices so that 
the government budget does not bear the cost of cleaning up the 
books of BOTAS and other companies.  The IMF office here explained 
that while there is an existing formulaic mechanism for linking 
government-set consumer prices to costs, the government has not 
allowed this to operate during the recent spike in wholesale costs. 
He contrasted the continuing government control of this market with 
the gasoline and diesel market, which has been completely 
liberalized so that prices are set by supply and demand.  The lack 
of clarity about the state-owned companies' financial situation will 
also have to be cleared up before the government completes the 
planned privatization of the electricity generation and distribution 
sector. 
 
--------------------------------------- 
GOVERNMENT WILL TAKE THE POLITICAL RISK 
--------------------------------------- 
 
¶5.  (SBU)  The price hike debate highlights the interplay between 
economic reform and politics that has become highly controversial in 
this political season.  Natural gas prices were raised 5.4% at the 
beginning of November.  Although the IMF tells us this was not 
enough, Prime Minister Erdogan and Energy Minster Guler are 
frequently quoted in the press saying there will be no further 
energy price increases.  However, during the November 11 ruling AK 
Party congress, Erdogan made comments in which he seemed to begin 
preparing the public for price hikes.  This adherence to economic 
orthodoxy despite the political pressures perhaps reflects the AKP's 
belief that one of its greatest assets in the upcoming elections 
will be its success in managing the economy. 
Wilson