The successful tenders of two Turkish power grids is an important step towards the liberalisation of the country's energy supply. With demand and prices rising, however, the process is still just beginning.
On 1 July, a consortium of Enerjisa - the energy arm of Turkey's Sabanci Holding - and Austrian electricity company Verbund won the tender to privatise Baskent EDAS, which supplies electricity to 2.9m customers in the Ankara region. With a bid of $1.225bn, Enerjisa beat off competition from local firms Dogan Holding, Hema Endustri Corp, Akcez consortium and Park Holding.
Akcez consortium won the bidding process for a second electricity tender for the sale of Sakarya Electricity Distribution Corporation, successfully offering $600m. The tenders had originally been planned for January 2007 but were postponed until after parliamentary elections in July that year.
Ayse Kolat, Managing Director of Raiffeisen Investment AG Turkey, which acted as sell-side advisers to both deals, told OBG that the final prices and the total number of bidders were good for a deal of this type. However, the fact that only two of the eight foreign companies who had expressed an interest in the privatisation in 2006 eventually placed bids is reason for concern. While many in the local press have speculated that the country's ongoing political instability was deterring investors, Kolat said that such risk is often overestimated. "The current political issues affecting the country are not unprecedented and foreign investors coming to Turkey expect such events over the course of 10 to 20 years investment," she added.
More important was the nature of the tender process according to Kolat. "The unpredictability of [the process] causes foreigners to withdraw from these projects. Between the time of pause and restart, there was no clear indication of when the process may resume, and when it became alive. Consequently, investor focus and priorities may have shifted elsewhere," she said.
Turkey operates a price cap on electricity that could also have warded off investors in the past. Yet a new pricing system allows energy produces to revise their prices every three months. On June 23, the Energy Market Regulatory Agency said the cost of residential and industrial electricity would be raised by 21% and 22% respectively from July 1.
Privatisation of the two power grids is part of a wider attempt by the Turkish government to liberalise its electricity network to meet growing demand in the country. Figures provided by the Turkish Electricity Transmission Company show that demand for electricity has grown by 6-8% per year since the 1990s.
Nevertheless, Turkish per capita electricity usage is only 2000kwh, well below the 6000kwh that the average Spanish citizen, living in a similar climate to Turkey, consumes per year.
As well as modernising and introducing competition in the distribution of electricity, the country's power generation capacity could also be expanded. The current capacity of 39000MW will need to be doubled in the long term, according to the Turkish Electricity Allocation Administration.
In response to rising natural gas prices, some companies are turning back to coal as a source of electricity generation. Tolga Tonguç, Assistant Chairman of Hema Endustri, a local construction firm told OBG, "With Turkey facing an energy gap by 2013, it is important to source new fuels. Turkey has 2bn tonnes of hard coal reserves, a much cleaner source than lignite coal containing no sulphur. With Turkey looking to come into line with EU standards, the environmental impact of coal power stations needs to be taken into account."
Turkey is also looking to source a greater percentage of its production from renewable energy and in recent weeks there have been a number of developments in the area of wind energy. Speaking at the Fifth Turkish Energy Forum, Energy Minister Himi told local press that a wind energy map for Turkey was being prepared with the goal of generating wind power in every city, and that he expected at least 15000MW of wind energy to be installed in the coming years, necessitating a $15-20 billion investment.
"Three new wind power plants will be operational in July in Turkey. This is an important step. Our goal is to manufacture wind turbines in Turkey. The wind turbines market has a potential of $15bn in Turkey," Guler said.
In addition, Guler confirmed that plans to construct two nuclear power plants (NPP) were going ahead. The bidding process for a 4000MW plant to be built in the southern Anatolian town of Akkuyu will end in September, with firms from Russia, Japan and France showing interest reports the international press. A second, smaller NPP is planned for Sinop in the north of the country, but details of the tender have yet to be released.
In areas where technical and financial capability are key to success, foreign investors can have an advantage over local bidders, says Kolat. With the generation market liberalising at a faster speed than the distribution market, there will be plenty of opportunities for investors in the coming years. "We may expect more partnerships, in every sector, as there are more licences and projects in Turkish companies' portfolio than can be executed with their own resources."
