BOTAŞ to sue Greece for outstanding $300 million gas debt

The decision comes on the heels of recent statements from Energy Minister Taner Yıldız, who stated that Turkey was “not going to exercise its right to arbitration and will postpone recovery of the Greek debt until Greece gains financial stability.” The minister also ruled out the suggestion by international institutions that Greece could pay off its debt in the form of real estate, meaning the sale of Greek islands in the Aegean. Yıldız said such a move “would be taking advantage of a neighbor at a very difficult time.”

As part of a deal with the Greek natural gas company DEPA, inked in 2007, BOTAŞ has been selling the natural gas it purchases from Azerbaijan to Greece since early 2008.

Unable to repay the $300 million debt to Turkey whilst under heavy financial strain, Greece was expected to outline a plan for payment of the debt, which has been outstanding for 11 months now. BOTAŞ officials said they have taken the issue to the Swiss arbitration court -- which was stipulated as the responsible court for possible disagreements in a gas sale contract between BOTAŞ and DEPA -- and are expecting a response shortly. Sources said BOTAŞ's move was “necessary at a time when the debts are under the threat of not being paid.”

Greece received 443 million cubic meters of natural gas from Turkey in 2008 while this number increased to 721 million cubic meters in 2009. The total amount of natural gas sold to the western neighbor amounted to 660 million cubic meters last year. Following an earlier increase in price of gas imported from Azerbaijan, Turkey had to pay Azerbaijan $300 instead of the earlier estimated $120 for each cubic meter of Azerbaijani gas. Turkey considered the price increase on the natural gas it sold to Greece, too. Greece accepted the increase in prices; however, it failed to pay the $300 million extra debt incurred from the price hike in the past year. Turkey, in the meantime, paid $1.1 billion extra to Azerbaijan.

Greece expects to privatize DEPA before the end of this year. The country had earlier said it may sell its stake in the country's biggest refinery, Hellenic Petroleum (HEPr.AT). Following Yıldız's remarks, a number of Greek papers speculated that Turkey had “a hidden agenda” to eventually purchase DEPA, a claim that has surprised Turkish officials. There was also speculation aired by Turkish papers, which claimed Turkey would permanently stop selling natural gas to Greece and start using it for domestic purposes.

If the Swiss court rules in favor of BOTAŞ, Turkey will have the right to confiscate Greek belongings. According to international rules in this regard, Turkey can, for instance, seize Greek ships and airplanes at its ports in return for the unpaid debts.

Crisis talks with Merkel, Sarkozy

The leaders of Greece, France and Germany sought ways to contain the spiraling debt crisis and prevent it from further roiling global financial markets in a teleconference on Wednesday.

Fears in recent days that Greece was heading rapidly towards a chaotic default have sent the interest rates on 10-year government bonds soaring to new record highs. On Wednesday, they stood at the alarming level of 25.3 percent, more than 23 points higher than the German equivalent, suggesting investors have all but given up on Greece being able to fix its public finances.

German Chancellor Angela Merkel sought to calm fears this week and distanced herself from comments by Vice Chancellor Philipp Roesler and others who suggested a Greek bankruptcy was possible.

Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou were to discuss the situation Wednesday evening, after a government meeting Papandreou called to address urgent fiscal reforms. The finance ministers from the wider 17-nation eurozone will meet on Friday in Poland.

The main fear of a Greek bankruptcy is that it could destabilize other financially troubled European countries, potentially causing a default in Portugal, Ireland, Spain or Italy. It would also have a knock-on effect on banks, many of which are large holders of Greek government bonds. "We are confronted with the most serious challenge of a generation. This is a fight for the jobs and prosperity of families in all our member states," European Union Commission President Jose Manuel Barroso told the European Parliament in Strasbourg, France. "This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world. This is a fight for European integration itself."

EU Monetary Affairs Commissioner Olli Rehn warned against a Greek default or speculation that the debt-ridden country should abandon the euro and return to its old currency, the drachma. "Neither Greece nor the eurozone would be better off," he told lawmakers in Strasbourg. "Whatever way you look at it, it is absolutely certain that a default and/or exit of Greece from the eurozone would carry dramatic economic, social and political costs not only for Greece but also affect countries throughout the EU and beyond,” he said.

Greece relies on funds from last year's 110 billion euros ($150 billion) international bailout to continue servicing its debt and pay salaries and pensions. But the lifeline could be cut if the country continues to miss strict fiscal and reform targets set as a condition of receiving the rescue loans. The quarterly payout of the funds depends on reviews by Greece's international debt inspectors - the European Commission, European Central Bank and International Monetary Fund, known as the troika.

The next batch, worth 8 billion euros, is due in late September, but there were fears the troika would not approve its disbursement after the debt inspectors suspended their review earlier this month. They are due to resume their review in coming days. Without the next installment, the country has enough cash to keep it going only until mid-October.