VZCZCXRO5699
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHAK #2011/01 3251322
ZNR UUUUU ZZH
R 201322Z NOV 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 8065
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHIT/AMCONSUL ISTANBUL 5047
RUEHDA/AMCONSUL ADANA 3413
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/NSC WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 ANKARA 002011 
 
SENSITIVE 
SIPDIS 
 
EEB FOR SPECIAL ENVOY FOR EURASIAN ENERGY GRAY 
EEB FOR ENERGY COORDINATOR MANN 
EUR FOR DAS BRYZA 
 
E.O. 12958:N/A 
TAGS: ECON ENRG TU
SUBJECT: TURKEY PLANS TO AMEND NATURAL GAS MARKET LAW TO FREE GAS 
IMPORTS 
 
REF: Ankara 1710 
 
ANKARA 00002011  001.2 OF 002 
 
 
¶1.  (SBU) Summary:  The GOT is expediting long-awaited legislative 
amendments to liberalize the natural gas market in Turkey.  Iran's 
gas cut-off the past few winters, and increasing pressure from 
companies wanting to enter the market pushed the Energy Ministry to 
prepare a Gas Sector Strategy Paper that proposes amending the 2001 
Natural Gas Law by lifting state pipeline company BOTAS' monopoly in 
gas imports and opening the way to its unbundling.  The amendments 
are expected to be sent to the Parliament by the end of this year. 
If passed, they will make Turkey a more attractive market for gas 
sales and give a boost to regional gas projects like Nabucco and 
transit of Iraqi gas.  But the GOT may have trouble selling the 
advantages of liberalization to a skeptical Parliament, a public 
already angered by utility price increases, and a defiant BOTAS. 
End Summary. 
 
¶2. (SBU) Ministry of Energy and Natural Resources (MENR) Supply 
Security Branch Director Ozturk Selvitop said the Ministry is 
working on a Gas Sector Strategy Paper, which he hoped would be 
finalized by the end of 2008.  Selvitop said the 2001 Natural Gas 
Market Law must be amended to facilitate market liberalization. 
BOTAS still dominates the market, and only one of the four private 
companies who won the right to take over 4 bcm of BOTAS's contracts 
(approximately 10% of the total gas market) in 2005 has been able to 
get an import and trading license.  Selvitop said the Strategy Paper 
will propose amendments to the natural gas law to: 1)lift the ban on 
BOTAS signing new purchase contracts; 2) remove all restrictions on 
gas imports by the private sector (Note: the Law now bars companies 
from signing purchase contracts with supplier countries who Qready 
have contracts with BOTAS. End note.); and 3) unbundle BOTAS, in a 
way that the company keeps its monopoly position in transmission, 
but becomes a market player in gas import and trading.  Selvitop 
noted these amendments could face opposition in Parliament. 
 
¶3. (SBU) Private sector companies may be behind MENR's initiative to 
amend the law.  Kazim Turker, CEO of large construction company 
Turkerler Group, told us his company's project to build a new gas 
pipeline to import Iraqi gas has won the approval of high-level GOT 
officials including the PM, and is awaiting legislative changes 
before a gas import/export license can be granted (reftel).  This 
project cannot go forward without amendments to the Natural Gas 
law. 
 
¶4.  (SBU) E.ON Ruhrgas Turkey General Manager Cenk Pala, a former 
Department Head at BOTAS, said the 2011 expiration of Russian-BOTAS 
West-Line 1 contract for 5-6 BCM of natural gas could be an 
opportunity for private companies to make a deal with Russia and 
bring gas to the Turkish market.  Pala said E.ON is looking to 
contract its own supply for an 800MW gas-fired power plant his 
company plans to build in Denizli.  Given the gas shortages in 
Turkey the last few winters and BOTAS' financial problems, Pala 
claimed BOTAS does not have much choice but to accept more players' 
in the gas market.  The critical article in the Natural Gas Market 
Law is the one preventing private companies from importing gas from 
source countries with which BOTAS has existing contracts. "This 
practically removes all the options for private companies," said 
Pala.  Several companies, including his own, are waiting for these 
amendments before signing contracts with source countries and 
securing gas for their energy generation projects. 
 
¶5. (SBU) In public comments at the STEAM Energy Conference on 
November 13-14, MENR Undersecretary Selahattin Cimen and Energy 
Market Regulatory Authority (EMRA) President Hasan Koktas both 
supported amending the Natural Gas Market Law and reiterated their 
commitment to take the necessary steps to form a well-functioning 
gas market.  Shell Gas Turkey GM Nusret Comert, who also gave a 
presentation at the conference, said the sector wants to see a 
reduction in BOTAS' market share.  Comert added that the sector 
welcomed the GOT's recent decision to implement a cost-based pricing 
strategy, which he thought was an encouraging step for the 
companies.  He urged the GOT to unbundle BOTAS, and make the company 
a fair player in a competitive market.  (Note: We understand Shell 
is losing USD 9 million/year selling gas in Turkey. End note.) 
Commenting on the proposed amendments, OMV Gas Turkey GM Oktay Sen 
said BOTAS' pricing policies are a serious impediment to the 
functioning of a free market.  Sen noted that even after several gas 
price increases this year, BOTAS' profit margin in the price formula 
is zero.  "There is no margin left for the private sector to 
operate," said Sen, and commented that the upcoming amendments were 
necessary but might not be sufficient to give the market a 
 
ANKARA 00002011  002.2 OF 002 
 
 
jumpstart. 
 
¶6.  (SBU) AKP MP Soner Aksoy, Head of the Energy Committee, supports 
liberalizing gas imports as a way to increase gas supply to Turkey. 
However, others in Parliament seem less sure about the positive 
effects of gas market liberalization.  In a separate meeting, Ozgur 
Guven, Advisor to the U.S.-Turkey Parliamentary Friendship Caucus 
told us many MPs don't understand how opening the market will result 
in more gas to Turkey since the regional pipelines that supply 
Turkey will not change.  We responded that liberalization could have 
many positive effects, such a competition for gas prices and 
services as well as increasing private sector interest in projects 
currently under consideration like Nabucco, Turkey-Greece-Italy and 
a northern gas route from Iraq that would bring more gas to Turkey. 
 
¶7. (SBU) Comment:  The GOT's attempt to liberalize its gas market is 
a late, but positive step.  Given Turkey's increasing energy demand 
and BOTAS's financial difficulties, the GOT has little choice but to 
open the market more, supported by the push by private sector 
companies to enter the gas market.  A more liberal gas market can 
only help Turkey to meet its supply security concerns and help it 
realize important regional projects like Nabucco and a northern gas 
route from Iraq. But the GOT may have trouble selling the advantages 
of liberalization to a skeptical Parliament, a public already 
angered by utility price increases, and a defiant BOTAS.     End 
comment. 
 
 
SILLIMAN