IHS Global Insight Perspective | |
Significance | The government is looking to make good on its promise to accelerate the privatisation of the electricity sector—at least in distribution—as the Privatisation Administration (OIB) has successfully auctioned off regional grids in south-eastern, central, and north-western Turkey that supply power to more than 4 million consumers. |
Implications | The privatisation of the Uludag, Camlibel, Firat, and Van Golu distribution networks means that all but seven of Turkey's 21 regional power distributors have been privatised. |
Outlook | The biggest prizes in the privatisation sweepstakes—the regional distributors serving the European and Asian sides of Istanbul, Turkey's largest city—have yet to be offered, but the success of the latest round of privatisations could see OIB put those networks up for auction as soon as March. |
Another Round, Private Companies Picking Up the Tab
Turkey's ambitious plans to raise up to US$7 billion in privatisation revenues in 2010 appeared a bit more achievable last week, as the Privatisation Administration (OIB) auctioned off four regional power distribution networks, raising a total of US$1.53 billion in the process. OIB sold the Uludag, Camlibel, Firat, and Van Golu distributors via auction late on Thursday (18 February), with three private Turkish firms coming away victorious. The sale of the four networks followed close on the heels of the November 2009 privatisation of three separate regional power grids; all but seven of the country's 21 regional power grids are now in private hands or in the process of being handed over to private investors (see "Related Articles").
Despite a wave of alleged military coup plots and investigations that have engulfed Turkish society and the government, OIB has pressed ahead with its agenda, knowing that the state budget is in need of revenue and that the electricity distribution sector, in particular, is desperate for an influx of investment if the country is to avoid blackouts in the next few years. Although electricity demand growth has dropped off considerably with the economic downturn, electricity consumption is expected to recover and resume its rapid pace of acceleration in the next few years. Government sources have estimated that Turkey needs between US$3 billion and US$5 billion annually for the next five years to ensure that supplies keep up with expected demand growth.
A number of private Turkish and European utilities have made grandiose announcements about their intentions to invest billions of dollars in new installed generation capacity in Turkey over the next decade, but only time will tell if this comes to pass. Meanwhile, the Turkish government is struggling to gain traction in its efforts to privatise existing state-owned power plants, with even projects to renovated existing plants—such as the Afsin-Elbistan coal-fired plant—finding it difficult to move forward in the context of the weak economic environment. The government's proposal to build Turkey's first nuclear power plant continues to take one step back for every step forward as well, although Turkey is inching closer to striking a deal directly with Russia to carry out the project now after a court last year scrapped the tender under which a Russian-Turkish consortium was the sole bidder on the project.
In the power distribution sector, however, Turkey is gaining momentum in attracting private investment, as the latest sale demonstrates. OIB said that the Uludag power distribution network, which serves north-western Turkey and has some 10.94 gigawatts of capacity—making it the fifth-largest in the country—was sold for a winning bid of US$940 million to Limak, a private Turkish construction company. Kolin Insaat, a Turkish builder, won the auction for the Camlibel distribution network in central Turkey with an offer of US$258.5 million, while Turkish utility Aksa Elektrik won the tenders for both the Firat and Van Golu distribution networks in south-eastern Turkey with offers of US$230.25 million and US$100.1 million, respectively. The Uludag network supplies power to approximately 2.3 million customers, while the Camlibel network services 734,000 customers, the Firat network supplies power to 663,000 customers, and the Van Golu network supplies around 401,000 customers with power, according to OIB.
Outlook and Implications
OIB opted to move ahead with the privatisation of the four regional networks sold last week after the sale of three regional power distributors in November generated a better-than-expected total of US$1.15 billion. OIB did not say whether it was pleased or disappointed with last week's distributor privatisations, although Turkey's Chamber of Electricity Engineers claimed that the prices were extremely low, according to a report in Turkish daily Hurriyet. Only one non-Turkish company, AEI, based in the Cayman Islands, even offered a bid this time around, and it dropped out of the bidding for the Camlibel network well before the end of the televised auction.
Surely OIB never expected to attract much interest among foreign companies in the Firat, Van Golu, and Camlibel networks in the first place, and in the context of the weak economic environment, the sale price of US$940 million for the Uludag distribution network has to represent at least a qualified success. The fact that OIB has already knocked US$1.5 billion off its 2010 privatisation revenue goal this early in the year will also generate some satisfaction in the Turkish government. All but seven of the country's 21 regional power distributors are now in private hands (or soon will be once these latest privatisations are complete), and the OIB president said that the country's two most sought-after regional power distributors—the Bogazici network serving Istanbul's European side and the Ayedas network serving Istanbul's Asian side—could start the privatisation process as soon as next month. Offering those networks for sale could quickly help OIB meet its revenue target for privatisation this year, as well as bring in the private investment that Turkey needs to help the country meet its electricity demand needs.
Related Articles
- Turkey: 10 February 2010: Energy Minister Hopes for Third Time Lucky in Planned Tender for Turkish Power Plant
- Turkey: 8 January 2010: OIB Expects Energy Sector Privatisations in Turkey to Accelerate in 2010
- Turkey: 23 November 2009: Turkey Confirms Cancellation of Flawed Nuclear Tender
- Turkey: 13 November 2009: Enerjisa Aims for Tenfold Increase in Power Generating Capacity in Turkey by 2015
- Turkey: 11 November 2009: Court Annuls Controversial Turkish Nuclear Tender
- Turkey: 10 November 2009: OIB Launches Next Round of Privatisations of Turkish Regional Power Distributors
- Turkey: 9 November 2009: Privatisation of Three Regional Power Grids Raises US$1.15 bil. for Turkey
- Turkey: 22 October 2009: OIB Says 29 Bids Received for Privatisation of Three Electricity Distributors in Turkey
- Turkey: 26 September 2008: Privatisation of Two Regional Power Distributors Raises US$569 mil. for Turkey
- Turkey: 2 July 2008: Verbund, CEZ Triumph in Privatisation of Turkey's First Two Power Distributors