By Daren Butler and Nerijus Adomaitis
ISTANBUL/OSLO (Reuters) - Traumatized by months of fighting between security forces and Kurdish militants which has killed hundreds, Turkey's southeast suffered an economic blow on Thursday as a major hydropower project in the region was suspended due to security concerns.
The move by Statkraft [STATKF.UL], Europe's largest producer of hydropower, came as Prime Minister Ahmet Davutoglu prepared to visit the mainly Kurdish southeast and unveil measures to boost a region stunted by a conflict which has left 40,000 dead.
The start of peace talks with Kurdistan Workers Party (PKK) militants in 2012 fueled hopes it could catch up with Turkey's richer west. The collapse of a ceasefire in July shattered the optimism and unleashed the worst violence in two decades.
Statkraft's 517 megawatt (MW) plant on the Botan river in Siirt province was to be its largest hydropower plant outside Norway and it took a charge of 2.1 billion crowns ($245.5 million) as a result of the project's suspension.
"We had to suspend the project as the end to the ceasefire between the PKK and the Turkish authorities resulted in armed incidents in the region, close to our site," Statkraft's Chief Executive Christian Rynning-Toennesen told Reuters.
The move caused dismay among business leaders from the southeast who discussed the region's problems with the prime minister in Ankara this week.
"The region was neglected economically for years and has been left behind, so such investments must absolutely not be halted," Alican Ebedinoglu, head of a business association in the region's largest city Diyarbakir, told Reuters.
He said the decision underlined the importance of halting clashes in the region and reviving the peace process, which he said was more important than any economic incentives, tax breaks or urban transformation steps that Davutoglu might unveil.
"Whatever sort of economic package is announced, it will be meaningless for as long as clashes continue," said Ebidinoglu, speaking ahead of Davutoglu's arrival in the southeastern city of Mardin on Thursday night.
The 31-year conflict has left infrastructure underdeveloped and handicapped key economic areas such as agriculture and livestock farming. It has also frustrated industrial development and mining and dashed tourism prospects.
Ancient cities like Mardin and Sanliurfa have great tourist potential and one of the areas most badly hit by the conflict, Diyarbakir's Sur district, is itself enclosed by Roman-era walls and was added to the UNESCO World Heritage list last year.
However, there is currently little hope of attracting visitors in places like Sur, where not even shopkeepers can open for business.
"The region economically does not need any state incentive. The region just needs peace now. Where there is peace, the region will develop of its own accord," Ebidinoglu said.
(Writing by Daren Butler, editing by David Evans)