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DE RUEHIT #0577/01 3230740
ZNR UUUUU ZZH
P 180740Z NOV 08
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 8599
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
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UNCLAS SECTION 01 OF 03 ISTANBUL 000577 
 
SENSITIVE 
SIPDIS 
 
EEB FOR A/S SULLIVAN 
SPECIAL ENVOY FOR EURASIAN ENERGY GRAY 
EEB FOR ENERGY COORDINATOR MANN 
EUR FOR DAS BRYZA 
 
E.O. 12958: N/A 
TAGS: ENRG EINV EFIN TU
SUBJECT: FACILITATING INVESTMENT IN THE TURKISH ENERGY 
SECTOR 
 
REF: ISTANBUL 553 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION 
 
¶1. (SBU) Summary:  On October 30 and 31 a high-level USG 
delegation led by Acting Deputy Secretary of Energy Jeffrey 
Kupfer discussed Turkey's energy needs and U.S. suggestions 
on ways to help facilitate investment in Turkey's energy 
sector with senior Government of Turkey (GOT) officials 
(reftels) as well as with the Turkish private sector, U.S. 
companies and representatives from international financial 
institutions.  The corporate response to the U.S. suggestions 
was quite positive.  IFC and EBRD representatives believe the 
areas of energy efficiency and renewables offer the best 
opportunities for effective cooperation with their 
institutions and look forward to meeting with OPIC to discuss 
ways to facilitate cooperation.  End Summary. 
 
¶2.  (SBU) This message reports delegation meetings with 
representatives from the International Finance Corporation 
(IFC), the European Bank for Reconstruction and Development 
(EBRD) and the Banks Association of Turkey as well as with 
the American Chamber of Commerce, international and Turkish 
energy companies and Turkish companies active in the 
renewable energy sector. 
 
Potential Financing Sources - The IFC and EBRD 
--------------------------------------------- - 
 
¶3.   (SBU) OPIC President Mosbacher accompanied by Special 
Envoy for Eurasian Energy Gray met on October 30 with IFC 
Director for Southern Europe and Central Asia Shabbaz 
Mavaddat and Southern Europe and Central Asia Regional 
Manager for Infrastructure Morgan Landy.  Mosbacher described 
the U.S. goals for supporting diversification of energy 
sources and encouraging new investment and financing options. 
 According to Mavaddat, the IFC has USD 1.5 billion invested 
in Turkey, with almost USD 700 million of that total invested 
since 2007.  The IFC is currently reviewing USD 400 to 600 
million in potential new investments, with much of this in 
the energy sector.  However, the outlook for energy sector 
investment finance outside this initiative is somewhat bleak 
due to the on-going global credit crunch.  Landy indicated 
the Turkish corporate sector is already suffering from the 
liquidity squeeze and is struggling to maintain adequate 
working capital as banks tighten credit. 
 
¶4.  (SBU) Energy sector privatization is difficult in this 
environment, particularly as the GOT no longer offers 
sovereign guarantees and pricing has not been fully 
rationalized, Landy explained.  He argued that the market has 
changed, and the GOT needs to adapt, offering more 
flexibility and tools, in order to attract bidders who can 
get financing and close a deal.  Mosbacher indicated that 
this was an area in which OPIC and EXIM could play a role and 
wanted to accelerate the financing process.  The World Bank, 
through the IFC, is already trying to identify energy 
efficient projects for investment, Landy noted.   State-owned 
plants are unlikely to upgrade in advance of privatization. 
In the meantime the GOT could offer incentives to encourage 
home and business owners to invest in energy efficient 
projects but must be careful to ensure that these projects do 
not become a financial burden, he cautioned.  Mavaddat 
indicated the IFC would be interested in working with other 
IFIs on energy efficiency projects.   OPIC, in partnership 
with the U.S. Treasury, will work to convene a meeting 
focused on ways OPIC, the IFC and other IFIs can work 
together on energy efficiency projects. 
 
¶5.   (SBU) Immediately following the IFC meeting, the U.S. 
delegation met with EBRD Chief Economist Eric Berglof to 
discuss potential areas in which the USG could work with the 
EBRD to facilitate investment in Turkey's energy sector. 
Berglof indicated that the GOT is most interested in EBRD 
support in four areas: small and medium enterprises, 
underdeveloped areas of the country, agribusiness, and energy 
efficiency.  Mosbacher noted U.S. interest in cooperating 
with the EBRD in the area of energy efficiency and support 
for renewable energy projects and explained the USG planned 
 
ISTANBUL 00000577  002 OF 003 
 
 
to send a team of technical experts to Turkey in December to 
identify and prioritize potential projects.   He invited the 
EBRD to participate in a meeting convened by the USG to bring 
international financial institutions together to discuss 
opportunities in this area.  Berglof welcomed the concept of 
a focused meeting to address this area. 
 
Corporate Perspectives 
---------------------- 
 
¶6.  (SBU) At an October 30 lunch hosted by the American 
Business Forum in Turkey (ABFT), one of two Turkish-American 
chambers of commerce, OPIC and TDA heard from U.S. energy 
companies and financial institutions about the business 
climate for foreign investment and financing of all types of 
energy projects.   U.S. companies support the idea of a TDA 
technical mission - the GE representative hopes the USG can 
advise the GOT on how to conduct the next nuclear plant 
tender.  The CEO of AES' joint venture hydro project in 
Turkey complained the GOT would neither relinquish sufficient 
control of projects nor provide sovereign guarantees.  The 
lack of predictability combined with the high cost of 
preparing a bid makes it nearly impossible for companies to 
move forward on major projects.  He observed that most wind 
power licenses are awarded to companies that are not 
competent to complete such projects, nor are in a position to 
raise the necessary financing.  These licenses will be sold 
at market prices, which he estimated 
 as starting at $30 million. 
 
¶7.  (SBU) The USG delegation met October 31 with Bankers 
Association Chairman Ersin Ozince, Secretary-General Ekrem 
Keskin, and board members representing 80% of Turkey's 
banking market, including the commercial, foreign, private, 
and development sectors.  Ozince noted that Turkey's banking 
sector is stable, has modern infrastructure, follows the 
highest banking standards, and is committed to full 
implementation of Basel II risk and capital management 
recommendations.  The US delegation explained the USG's 
interest in promoting diversification of Turkey's energy 
sources willingness to offer financing and other guarantees 
to attract U.S. investment to the sector.  Ozince and the 
bank officials welcomed the USG's offer, agreeing that Turkey 
needs serious investment in energy diversification.  Turkish 
banks have financed numerous hydrocarbon sector projects for 
the past 10-15 years, as well as energy production projects 
in hydropower and other renewable energy sources, but to 
provide enough power generation capacity significantly more 
medium- and long-term financing resources are needed.   A 
number of banking reps called for creation of a joint 
facility or group of ECAs willing to provide long-term 
financing specifically for long-term projects like pipelines. 
 Ozince thanked the USG delegation, and encouraged Turkish 
banks to explore financing options with EXIM, OPIC, and TDA. 
 
¶8.  (SBU) On October 31, the delegation met with 25 Turkish 
company representatives of the Energy Working Group of the 
Turkish Industrialists and Businessmen's Association 
(TUSIAD.)  TUSIAD member companies made presentations on 
various aspects of the Turkish energy sector.  Turkish firms 
are particularly eager to identify U.S. investors.  Mosbacher 
encouraged them to put together a road show to reach out 
directly to U.S. companies, perhaps with help from USDOC and 
TDA.   In a separate meeting with the U.S. delegation, 
Sabanci Energy Group Chairman Selahattin Hakman and CFO 
Ozlenen Aydin warmly welcomed Mosbacher's offer of up to USD 
500 million in OPIC support for investment in Turkey's energy 
sector.  Hakman was focused on the need to increase 
electricity generation capacity and was not engaged on energy 
efficiency and renewables. 
 
¶9.  (SBU) Also on October 31, the delegation met with 
representatives of three renewable power industry 
organizations, primarily representing hydro and wind power. 
The consensus from company representatives was that for the 
foreseeable future, in the absence of more aggressive GOT 
incentives and the recent drop in oil prices and thus demand 
for alternative sources of power, financing for wind power 
would be difficult.  Another spur for the development of 
 
ISTANBUL 00000577  003 OF 003 
 
 
renewables would be for Turkey to become a member of the 
Kyoto Protocol's Second Commitment Period, beginning in 2012 
and/or to become a full member of the European Electricity 
Community.  Companies also noted the lack of domestic 
manufacturing capacity for equipment, especially turbines. 
 
¶10. (U) The Delegation has cleared this cable. 
WIENER