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Iran: Tehran Has Halted Electricity Exports To Turkey

Iran has halted electricity exports to Turkey after poor returns on gas exports this year. Both problems seem to be the result of Turkey's economic downturn, but Iran also faces competition from Russia as the dominant energy supplier.

Boston, 10 May 2002 (RFE/RL) -- Iran has stopped its electricity exports to Turkey in what may be the latest sign of conflict over a contract for natural gas.

On Monday, the managing director of the regional power company in Iran's Azerbaijan province announced that the cutoff to Turkey had started on 31 March.

In an interview with the Iranian official news agency IRNA, Mirfattah Qarabagh cited what he called "commercial reasons" for the move, implying that Turkey had fallen behind on its payments for power.

Turkish officials have yet to address the issue. The Iranian utility supplied Turkey with 280 million kilowatt-hours of electricity last year, which is only a fraction of 1 percent of its total power needs.

While the shutdown may only cause problems in border areas, it marks the second energy dispute between Iran and Turkey in the past month. In April, Turkey disclosed that it was trying to renegotiate gas contracts with both Russia and Iran after it imported less than it promised to buy in the first quarter of this year.

Turkey's poor performance on its gas contract with Iran is a setback for Tehran, which took years to strike a 23-year deal with Ankara that was originally valued at over $20 billion. Last December, the first gas from Iran began to flow through a 2,500-kilometer pipeline after Turkey delayed the startup for over a year.

Now that the trade has started, the amount is so small that it hardly seems to have been worth the investment.

Both the gas and electric problems seem to stem from Turkey's 15-month-old economic crisis, which has cut the country's growth in energy use and its ability to meet its commitments.

Officials tried to argue last month that Turkey will not face hundreds of millions of dollars in penalties under its take-or-pay contracts for gas, but they were flatly contradicted by their Iranian counterparts.

Deputy Oil Minister Hamdollah Mohammad-Nejad told IRNA, "We feel totally obliged to observe all terms of the agreement, which also specifies the volume of exports." He added: "If the Turkish side fails for any reason to hit the figure, it will still have to pay the price for the whole amount even if [it] doesn't import."

Gokhan Bildaci, general manager of the Turkish state pipeline company Botas, may have angered Tehran needlessly last month when he stated that Turkey had bought 96 percent of the contracted amount from Russia, its main supplier, but only 50 to 60 percent of the agreed-upon volume from Iran.

Botas has lowered its gas-consumption estimates twice since January on its website. Most recently, it added a note without explanation reading, "The volumes are contracted, but not obliged to 'take or pay' conditions." Previously, the company has indicated that it has take-or-pay contracts with Algeria and Nigeria, as well as Russia and Iran.

Iran's problem in dealing with Turkey on the electricity problem is that it is too small a player. Last year, Turkey received far more power from Russia, Bulgaria, and Georgia. Iran may also suffer the troubles of a secondary supplier with its gas exports, as it tries to enforce its contract and waits to be paid.

In the past two months, Iranian officials have held out hopes that the pipeline through Turkey could be turned into a gateway for gas exports to Greece and the rest of Europe instead. But here again, it faces stiff competition from Russia, which has greater clout in the Turkish gas sector and is becoming heavily involved in Greece.

Competition with Russia in energy seems to be an increasing problem for Iran. In addition to the Turkish arena, Iran and Russia have been squaring off in the Caspian Sea, where the dispute over dividing resources has been driven by the conflicting formulas of Moscow and Tehran.

Iran has also felt the effects of Russian oil policy, which has gradually eroded the influence of the Organization of the Petroleum Exporting Countries. As OPEC's second-largest producer, Iran can only be hurt by Russia's drive to boost oil output, exports and, world market share.

Although cooperation remains in other areas, Russia's sway over energy markets continues to grow, leaving Iran with lower prospects and profits to the north and the west.