Publication: Eurasia Daily Monitor Volume: 5 Issue: 112

On June 11 the Turkish Privatization Administration (PA), which handles sales under the country’s privatization program, announced that it had received just five bids each for the electricity distribution grids in the capital of Ankara and the northwestern city of Sakarya. In 2006, 24 companies had pre-qualified for the Ankara tender and 30 for the tender for Sakarya. Significantly, none of the foreign companies that had pre-qualified for the tenders were among the five bidders for either network (Dunya, Referans, June 12).

There is little doubt that a combination of the global credit crunch and the domestic political uncertainty triggered by the ongoing court case for the closure of the ruling Justice and Development Party (AKP) contributed to the foreigners’ reluctance to bid for the tenders. The main reason, however, was the Turkish government’s failure to convince them that it was prepared to allow them to set prices in accordance with market conditions.

Electricity prices in Turkey have long been controlled by the state. The electricity grids had originally been scheduled to be privatized in 2006; but the sales were subsequently postponed, mainly because of investor doubts about the AKP’s commitment to liberalizing prices. The government had originally pledged to introduce what it termed an “automatic pricing mechanism” at the end of March. The mechanism would have indexed electricity prices to the cost of oil, inflation and the Turkish Lira exchange rate. In late January, however, officials from the Turkish Energy Ministry announced that the introduction of the automatic pricing mechanism had been postponed until the beginning of July (Reuters, January 28).

On January 1 the AKP raised electricity prices by 20 percent for domestic use and by 12 percent for industrial use. If the government introduces the automatic pricing mechanism in July, the price of electricity will probably need to be increased by an additional 25-30 percent. At a time when the pace of growth in the Turkish economy is already beginning to slow and inflation to rise, even a relatively small hike in the price of electricity could come with a high political cost; particularly as there is increasing speculation in Ankara that the AKP may attempt to pre-empt its likely closure (see EDM, June 6) and seek a fresh mandate by calling an early general election. The AKP compounded the uncertainty by failing to include any reference to the automatic pricing mechanism in the sales contracts for the Ankara and Sakarya networks. As a result, the pre-qualified companies were effectively asked to bid for the grids without knowing whether they would be able to set a realistic price for the electricity they would then sell to the Turkish market.

“Electricity prices have been kept artificially low,” commented Ceyhan Saldanli, the president of the Electricity Distribution Services Association. “This is the reason the foreigners have pulled out. They think there may be political intervention in electricity prices” (Dunya, June 12).

Foreign investment, together with its better access to capital and expertise, had been regarded as vital to improving the efficiency of Turkey’s distribution networks; not least in reducing waste and the high proportion of electricity that is illegally siphoned off the grids.

The AKP’s failure to address foreign investors’ concerns over the distribution networks has also raised questions about the prospects for Turkey’s first nuclear power plant, which was put out to tender in March. The plant is currently scheduled to be built in Akkuyu, near the eastern Mediterranean port of Mersin. On June 6 the government announced that to date six potential bidders had bought tender documents: Atomic Energy of Canada Limited (Canada); Itochu Corporation (Japan); Vinci Construction (France); Suez Tractebel (France-Belgium); Atostroyexport (Russia); and KEPCO (South Korea). The deadline for bids is currently September 24. Uppermost in all of the potential bidders’ minds will be the price they can expect to receive for any electricity that is produced (CNNTurk, NTV, June 5).

Even if everything goes as planned, it will be many years before the nuclear power plant at Akkuyu begins production. A more immediate concern is how Turkey is going to cover the expected shortfall between production and demand in the months ahead. The drought of 2007 resulted in a series of outages in western Turkey as the hydroelectric plants that provide much of Turkey’s electricity were unable to cope with demand (see EDM, May 29). On June 12 the pro-AKP daily Today’s Zaman quoted unnamed officials from the Turkish Energy Ministry as predicting power cuts of around two hours a day in many parts of Turkey during the summer this year. The newspaper reported that the average level of water in the 46 dams that serve Turkey’s hydroelectric plants is currently around 43 percent, compared with 59.7 percent at the same time in 2007 (Today’s Zaman, June 12).

The AKP’s failure to take adequate measures to meet Turkey’s growing demand for electricity has also triggered an unprecedented attack on Energy Minister Hilmi Guler from within the party. Soner Aksoy, the AKP chair of the Parliamentary Energy Commission, noted that the party had been in power since November 2002 and could hardly claim that it had not had enough time to draw up a coherent energy policy. Aksoy noted that the government had only recently begun to consider options such as nuclear power and renewable energy resources.

“We have already lost five years,” said Aksoy. He was scathing about Guler’s repeated declarations that he had the situation under control: “The energy minister did not keep his promises. Measures should be taken immediately” (Today’s Zaman, June 12).