TURKEY - Turkey's Energy Base Resumes Expansion; New Power Projects Emerge.

Strong economic recovery since the second quarter of 2003 has allowed the energy base in Turkey to expand at a rapid pace. This has followed recession from late 2000 and the most severe economic crisis in Turkey's modern history in 2001/02. In 2008, Turkey's primary energy consumption is anticipated to rise to 90.1m tons of oil equivalent, from 39.3m toe in 1986. The energy sources are in the following order: natural gas, oil, coal and hydropower.

Turkey has shifted rapidly to gas for electricity and other industrial uses. This has enabled the country to use less oil, with consumption this year expected to average 610,000 b/d of crude oil equivalent, down from almost 700,000 b/d in 2000. Gas consumption in 2008 is expected to average 142 MCM/day, a big increase since the country began importing natural gas in the mid-1980s.

Turkey has taken major steps in liberalising its energy market in the last six years. It established an independent regulatory body and enacted laws on electricity, natural gas, LPG, renewables and nuclear energy. Despite these crucial moves by the government, however, private energy business experts complain that the market still lacks efficient structures. They say the primary problem is the failure of privatisations undertaken in recent years, especially in the electricity sector.

In a "Common Sense Meeting" held by the pro-government daily Zaman headquarters in Istanbul in March 2008, top-level market actors discussed the main issues facing the energy business. The Minister of Energy and Natural Resources, Hilmi Guler, was the keynote speaker. Zaman published the following remarks, taken from the speeches made by prominent participants (with some editing, underlining and bracketed notes by APS):

Selahattin Hakman, head of Sabanci Holding Energy Group (one of the leading private energy groups in Turkey), said: "...Self sufficiency in energy is not an issue in today's world. As such, Turkey has to guarantee its own energy needs while occupying a central role in energy transportation, and this is possible with a diversification of energy resources and energy-providing countries... Since 2001 Turkey has adopted a competitive market model in which private...investments take the lead. Whatever model you choose, you have to fulfill its unique requirements for success. Therefore, if we are claiming that we are utilising the model of the liberal market today, all the agents within the energy market have to internalise the necessities of this model and act accordingly.

"Turkey has taken considerable steps in implementing the necessary regulations for a liberal market, but it is very hard to say that a liberal market has been formed so far, especially in the electricity business. The 'strategy paper' that was issued in 2004 defined the necessary steps towards a liberal market, but we have failed to complete the 'privatisation for electricity generation and distribution companies and this failure has crippled the liberalisation process.

"...[O]n the other hand, the electricity issue is not something that can be overcome just by the provision of a purely free market. The presence of a regulatory body is a must. A body has to stand beyond the market to ensure that all actors in the market are acting in accordance with the regulations. This is what the nature of the electricity market requires. If we are talking about a competitive market, therefore, there must be a number of players without a dominant actor that may manipulate the market in an unnatural way.

"However, the state occupies 83% of the market in Turkey. A player that enjoys such a sizable share of the market would not be accepted even if it was a private entity but, in the Turkish case, it is the state. It defines the rules in accordance with its own needs, disregarding the other players, and it may control the entrance of other players however it wishes.

Melih Turker, CEO of Turk Petrol Ofisi (a privatised and leading fuels retailer in Turkey) and head of the Oil Industry Association (PETDER). "I believe we have two important issues before us. The first one is the ability to act rapidly in a limited time to stand against the competition. The second is the ability to transform strategies into actions. This second one is extremely important.

"Law Number 5015, prepared by the Energy Market Regulatory Authority (EPDK), which introduced the very basic principles of a liberal market, is a very good thing, but there is another issue that greatly distresses us: We are not happy to be perceived as smugglers.

"Looking at the fuel business, one would see three major actors: Distributors, dealers and the state (the government, the Energy Ministry and the EPDK). All these are indispensable elements of the market. The system must be working in a flawless manner with all these actors involved simultaneously because there is 'good money' in this business. The value added that our business contributes to the economy is known by everyone. We are number one in terms of bringing in tax revenues for the state's coffers. With the new law and the introduction of the national marker requirement, a chemical put in distributed fuel to determine its authenticity, the market has shown significant progress.

"We have a more modern and positive market today compared to six or seven years before. We have some problems, as well, and we will be talking about these problems in two years. For example, there is this problem of 'oil number 10', a kind of light oil...being used instead of diesel...for its extremely cheap price. Although it is chosen for its low cost, this oil inflicts huge damages to engines and the environment. We have expressed our concerns about it to both the EPDK and [Minister] Hilmi Guler and we have called on them to act in co-ordination with the ministers of industry and environment to fight the sale of this substance.

"The last issue I want to mention is the entry of the Turkish Petroleum Corp (TPAO), a state-owned company for oil prospecting, into the fuel distribution business. It is not a matter of annoyance for us, but we find it interesting since it runs against the ideal of the liberalisation of the market.

"There are 47 distribution companies in Turkey and there is no other country in the world with so many actors in the business. I don't mean it is something bad, on the contrary I praise it since it is an indication of the existence of a free market. Entrepreneurs are easily joining the market. But since this business requires safety, technology, expertise and responsibility towards the environment, a company that has money in its pocket but lacks the competence and skill should not be allowed on the scene".

Dr. Erol Metin, secretary-general of the Oil Industry Association (PETDER): "The industry has witnessed dramatic changes in the last five years, and these changes have greatly contributed to both the country and the sector. As people committed to this business, even we sometimes stop and ask ourselves this question: 'How come all these things happened in such a small period of time?' Tax revenues have increased, quality has improved and competition has increased.

"The liberalization of the oil market may be a good example for the liberalisation of other energy resources. We had held a meeting with the International Energy Agency some two years ago. A few matters were emphasised in this meeting. It was said in this meeting that the Middle East will be holding a far more important role in global energy policies in the coming years. I now believe that this prophecy is coming true.

"Turkey is a very fast and dynamic player. As the Middle East rises in global oil policies, Turkey is also rising in importance. Ceyhan is becoming a significant focal point in the region. But we have to see that this is a very fast chess game. There are so many actors that while two players seem to be making moves, many others are getting involved. While you are poised to make a move, someone is saying "Don't do it" someone else urges us to do it. Turkey is making harmonious moves in this game and it is taking the proper steps by exploiting its strategic role in the region.

Dr. Abdurrahman Satman, head of Energy Institute, Istanbul Technical University: "Turkey is located on numerous fault lines of a seismic belt. This has advantages and disadvantages. We have a hot stove beneath us and the subterranean waters can be used in generating geothermal energy. But we lack oil.

"Turkey is certainly not floating on a sea of oil as some of its neighbours are, because it is not normal to have oil in places which experience many earthquakes. As an earthquake happens, light crude beneath the earth flows from the region while heavy oil stays in deeper layers. It is very hard and costly to drill this heavy oil.

"However, we are hopeful about finding abundant oil in the Black Sea since it is likely that the rich oil beds under the Caspian region have some extensions in the Black Sea. We have to drill the possible spots under the Black Sea by establishing offshore platforms to see if we really have oil in these places or not. But the cost of driving just one hole for oil prospecting is at least $150 million. We are drilling more than 2,000 metres into the earth, using the latest technology. I wish we had found something in these holes, but nothing has come out so far".