‘We need foreign companies to invest in our energy sector.’
Demand for electricity in Turkey has increased rapidly, largely due to the fast growth of industry and population. The country’s thirst for electricity is growing by 8% a year. This presents a problem, because Turkey has limited indigenous energy sources and has to import 62% of its primary energy to meet its needs.
Annual energy imports exceeded $30 billion in 2007. To increase the production and efficiency of the energy sector, Turkey has decided to liberalise the electricity and gas markets. This is part of the economic reform program of 2000/2001 that was developed with the support of the IMF.
A new regulatory authority for the energy market, the Bureau of Privatization Management (ÖIB), is responsible for the licensing of the energy production. ÖIB wants to make sure that there will be a transparent process in which both Turkish and foreign private companies can invest in energy production. Distribution and transmission will also partly be privatized. Legislation for the liberalization was finally concluded last year.
Minister of Energy Hilmi Güler predicts that 2008 ‘will be the busiest and the most colourful year in the Turkey’s Republic’s entire energy history’. Selahattin Hakman, President of the Energy Group of the Sabanci Holding, shares the enthusiasm and urgency of the minister.
‘2008 needs to be the busiest year. If you consider the energy supply situation in Turkey we need to take considerable steps to be able to meet not only this year’s demand but especially the future’s demand of electricity in the country. This is a very big challenge, not only on the power side, but on the gas supply side as well. Iran stopped the export of gas for several weeks this winter. On that front too there are many things that need to be done.’
Sabanci Holding, established in 1967, wants to play a leading role in the privatised energy sector. It is very well placed to play such a role. It is the second largest industrial conglomerate of Turkey after the Koc Holding. It has 70 companies, 10 joint ventures and a workforce of 53.400 employees in twelve countries. Turnover in 2007 was $15.6 billion. At the end of 2006 Sabanci’s Akbank not only ranked as Turkey’s most valuable company but also was the most profitable private sector bank. As of April 16, 2007, Akbank’s market capitalization stood at US$ 17.4 billion, making it the most valuable company on the Istanbul Stock Exchange.
Other strategic business units of the Sabanci Holding are tires, automotive, retailing, cement and energy. In 1996 Sabanci established its Enerjisa Power Generating Company. Since May 2007 Enerjisa has been jointly owned and controlled by Sabanci Holding and Österreichische Elektrizitätswirtschafts-Aktiengesellschaft (Verbund).
President Hakman points out that Enerjisa has several projects to contribute to the energy supply in Turkey. ‘Already in 2005 we decided that energy – especially power – would be one of the main growth fields for the Sabanci Holding. The total generation of Enerjisa is 455 megawatts at the moment. Enerjisa is the owner and operator of four natural gas power plants in Canakkale, Adana, Mersin and Kocaeli. And four hydroelectric power plants that are located in Antalya, Kahramanmaras and Mersin.
Our target for power generation is 5000 megawatts by 2015. In the last 18 months we have developed many new projects: we got licenses for ten hydropower plants which total 950 megawatts; a license for a lignite fired power plant; and for a 920 megawatt gas fired power plant in Bandirma. Together we aim to achieve a share of at least 10% in the Turkish electricity market.
Is your company limiting itself to the generation of energy?
‘No, we want to be a vertically integrated player in the market. Enerjisa is looking to participate in gas distribution grid sell-offs in 2008. We are trying to further develop our trading activities. In order to develop these trading activities in energy like in Europe we also need to see a further opening up of the Turkish energy market, further deregulation, decreasing of the state share in the power generation. We are waiting for the privatization of the distribution companies. That will lead to a growing appetite of investors. We need not only Turkish but also foreign companies to invest in our fast expanding energy sector.’
In order to meet the growing demand of energy Turkey’s electric power generating capacity must be doubled in the next 10 years. Until 2020 there is going to be $130 billion of investment in the energy sector. This enormous expansion of the market has attracted all the big Turkish firms: from Koç and Sabanci to Calik, Anadolu, Dogan, Dogus, Alarko, Zorlu, Sanko and Polat.
One of the projects that attracted their attention was the decision by the government at the end of 2007 to built three nuclear power plants. Sabanci is one of the main competitors to built at least one of the nuclear plants. The first one should be up and running in 2014 according to the government. Isn’t that way too optimistic?
‘If you look at the Turkish energy mix I do really believe that nuclear power has to be part of the mix. Nuclear energy however definitely is not a solution for the short or mid term power supply problems of Turkey. In order to get all the necessary licenses for a nuclear plant – design, environmental and construction licenses – as well as the time which will be needed for the financing of these huge projects the construction cannot start earlier than in three or four years time. Even if you have an accelerated construction period of five years you should expect a nuclear power plant to come into operation not earlier than in 2017 or 2018.’
Did the Sabanci Holding choose a foreign partner yet to participate in a Turkish nuclear power tender?
‘The Turkish group that will build the nuclear power plant should not only be financially strong, but should also have a track record of quality and operational excellence. From the Turkish candidates Sabanci is best suited to take hold of this project. In addition to that this project needs an experienced nuclear operator. We are talking to various European and Asian companies. Furthermore we need the commitment of a technology supplier, which is not the same company as the operator. Their commitment should go beyond the usual offering of a turnkey plant. This is the first nuclear project in Turkey and so there are many aspects from the technological understanding, from the evaluation of the technology and so on which need to be developed commonly by all stakeholders of this project.’
The first nuclear power plant will be built at Akkuyu, a controversial location on the eastern Mediterranean coast near Mersin. An earlier plan was dropped in 2000 amid financial difficulties and protests from environmentalists in Turkey, Greece and Cyprus because of the danger of earthquakes in the area. What has changed since then?
‘The project was not halted because of environmental concerns. It is safe to build there. I am not an expert on earth quakes, but even in earth quake zones like in Japan it is safe to build as long as you take the necessary precautions.’
Are these Turkish nuclear plants also a reaction to the ambitious nuclear program of eighbour Iran?
‘Turkey wants nuclear power to enjoy the benefit of producing energy, not more than that not less than that. It is a power generating facility which gives us some stability and sustainability because it is not dependent on the fuel price peaks. You can calculate all the costs from day one when you go into operation. So this will be a stabilizing factor in the energy prices for Turkey. This is one issue. Secondly it is part of the strategy of fuel diversification. Turkey is highly dependent on energy imports. Diversification of sources and fuels is crucial for our energy security. Besides that, nuclear plants are very competitive sources of producing energy in the long run.’
Turkey’s ambition since the 1990s Turkey has been to develop itself as an energy corridor for oil and gas to Europe. The Baku-Tblisi-Ceyhan (BTC) oil pipeline – that started operating in June 2006 – was the first success in this respect. Are you convinced that the politicians are doing enough to realize this strategic goal?
‘It has been a common denominator of all the governments of Turkey to establish such a corridor and become an energy hub. They are committed to work on that. There are setbacks, there are problems because it is not an easy issue. It is financially not easy, economically not easy and politically not easy. There are many barriers to overcome. But there is a consensus among politicians and entrepreneurs that this is something that Turkey should not give up.’
Do you think that the growing importance of Turkey as a transit country for energy to Europe will have a positive effect on the access negotiations with the European Union?
‘I think and I firmly believe that any further development of the economic relations and cooperation on strategic issues like securing the energy sources, will bring Turkey closer to the EU. And it will bring the EU closer to Turkey. That’s why we support developments like Turkey as an energy corridor.’
The 3,300 km proposed Nabucco pipeline, an EU-project, which would bring gas from the Caspian region to Europe via Turkey, is seen by the Turkish authorities as a trump card in its EU bid. But there are many bumps in the road, not at least the competition of Russia with its own pipelines. How realistic is the Nabucco project?
‘Of course there are many strategic, political and also tactical issues involved. But I am positive that there will be solutions developed by all the stakeholders involved.
Still, one of the big technical concerns is whether enough gas can be supplied by Azerbaijan, which will be the principal source of the Nabucco pipeline, at least in the first phase.
Yes, as of today Azerbaijan is the closest source to feed the pipeline. We know however that there are also other sources. It was just announced that the Shah Deniz field of Azerbaijan will deliver earlier and more gas than was planned. On the other hand Nabucco is not only dependent on gas from Azerbaijan. East and north of Turkey there are huge gas resources. I am thinking of Iraq, Iran, Kazakhstan, Uzbekistan and Turkmenistan.’
A pipeline under the Caspian Sea – a preference by the US and the EU since the 1990s – has been met by fierce opposition from Russia and Iran. Do you foresee any possibility that it can be done in the near future?
‘I am very sure that some day this will be done. We are living in an interdependent world which can provide solutions for these kinds of problems. This will be realized sooner or later. That is my firm belief. There are obstacles of course. But something that makes sense economically – like this pipeline under de Caspian Sea – will ultimately be realized.’
There is mounting concern in Brussels about Ankara’s commitment to the Nabucco project. Turkey has failed to agree on a pricing framework for the use of the pipeline and for political reasons Turkey is resisting Gaz de France joining the Nabucco project. Are you positive that these problems can be overcome?
‘I don’t know the details of the negotiations which are being held. But if something makes sense for economic and strategic reasons it will be done in one way or another. Of course there might be some disagreements of how to share the cake and who will take what part of it, but the cake will be eaten.’
In July 2007 Turkey signed a memorandum of understanding to use Iran as a transit route for Turkmen gas and to develop Iran’s South Pars gas field to facilitate the transport of gas to Europe. The Bush administration strongly objects to the agreement between its NATO ally Turkey and the Islamic Republic. Will Turkey finalize the deal with its neighbour anyway?
‘We are a neighbour to Iran. The oldest border we have is with Iran. For almost 300 years now we are living as neighbors peaceful together. And it is quite normal that we develop economic and other relations with Iran. On the other hand Turkey is not untouched from international political problems related to Iran. These problems need to be solved on an international level.’
Iraq is another eighbour. Do you foresee more Turkish investments in this oil-rich but war-torn country?
‘Sure, Sabanci Enerjisa is from time to time looking into opportunities to invest in the energy sector of Iraq, but we have not taken any concrete steps yet. First of all the whole political situation must be settled. Once it is settled I expect Turkey and Iraq will definitely be very important economic partners.’
Selahattin Hakman was born in Istanbul in 1953 and graduated from Karlsruhe Technical University as an Electrical Engineer. He entered business life at Siemens AG Germany in 1980. In 1984 he joined in Siemens A.S. in Turkey where he worked as the Director of the Power Generation Group. In 2006 he joined Sabanci Group as the President of the Energy Group ‘Enerjisa’.