Turkey: Energy Privatization In Turkey And Strategic Importance

Last Updated: 19 November 2014
Article by Engin Düzgün and Burcu Kırancı

The main philosophy of privatization in Turkey is state's providing justice and security which are its fundamental chores, and undertaking infrastructure investments which cannot be undertaken by private sector, also the managing of the economy through market mechanisms.

With privatization; the minimization of state roles in industrial and commercial are targeted and thus, development of free market economy which based on competition, soothing of state economic enterprises' financing pressures on economy, advancing of capital market and regaining of idle savings will be possible by canalizing sources to infrastructural investments through privatization.

In IX. Development Plan, which creates a general reference frame for institutions for next term by according to national policies, the main philosophy is defined as state's retreating from economic activities and creating policies which are to strengthen regulatory and supervisory mechanisms. For enabling state to focus on its main tasks- regulation and supervision; state's leaving partly or wholly from some economic activities is stipulated for the next term. So, these policies constitute the core of the privatization practices.

In IX. Development Plan

  • Sectors regarded to be left by the state wholly: sea and air transport, wagon and locomotive manufacture; sugar, tobacco and tea processes; petrochemical industry, equipment purchase, wholesale and distribution of electricity.
  • Sectors regarded to be left partly: power generation, natural-gas market, coal and other minings

In 2011-2013 middle term plan, the privatizations which are going to be implemented by Privatization Industry is mentioned.

In the Plan, retreating wholly from the distribution of electricity and sugar production; and retreating partly from the power generation, telecommunication; harbor, motorway and bridge management is targeted.

In the course of leaving the economic crisis's sphere of influence, by taking the advantage of strong parts of our social and economic structure, program's main aim and reform area is defined as enabling our economy into a sustainable growth period again, thus prospering our country.

According to 'Reform of Electric Energy Sector and Privatization Strategy Certificate of 2009', the main target is to provide electricity adequately, constantly and with high quality and low cost to all consumers. In accordance with this aim and EU Acquis Communautarie, the liberalization of electric energy sector will continue.

On the other hand; among the regulations aiming the implementation of economic criteria, which are in the core elements of accession period conducted concurrently with EU adaptation of standards, there are some articles which may affect privatization activities directly. In compliance with the decision of European Court of Justice, one of these is adopting the utilization of golden share; and the other is removing restrictions on foreign capital.

The golden share defined by European Court of Justice, the criteria regarding foreign capital and public-private collaboration will help state to enter a regulatory and supervisory consideration. Accordingly, since the alleviation of restrictions on golden share and foreign will grow the interest to privatization, this will push privatization tenders to more competitive atmosphere and pickup problems arising after privatization.

In EU Acquis Communautarie, collaboration of some investments and services' with private sectors is underlined. When the arrangements of these practices, which are growing throughout the world, are actualized in our country, too, compliance with EU and other contemporary norms in services and investments sectors can be procured.

The main target of privatization is to retreat state from the management area completely. On the other hand, it is not possible to mention a healthy economic improvement before the development of stock exchanges and capital markets. Without not solely being connected to banking sector, companies should provide sources through the export of stocks, bonds and bill of exchanges. So, if a healthy balance with this resource cost and inflation is desired, then the capital markets should be developed. The development of capital markets is possible through the direction of more of the savings to the financial markets and thus creating an economic structure that will allow the flow of these cumulating funds into the capital markets.

When considered from this point of view, with privatization practices both creating new financial sources to financial markets, thus to capital markets, which do not tend forwards to domestic and foreign source; and stopping negative pressure arising from the public demand of funds is aimed.

The most important item of Turkey's privatizations is the privatization of the energy plants and electricity distribution companies since energy is regarded as the partaking of a country's economic and politic power as well as in the international arena.

In Turkey, the operational fundamentals of electric market are defined by Electric Market Law, no 4628 which went in effect in 2001. Additionally, with Electric Market and Supply Security Strategy, a draft was made for the liberalization in sector and supply.

In the upcoming term, because of the development in conjuncture in which Turkey takes place, too, it has been thought that both this strategy certificate and Law no 4628 needs serious modifications. That is why for whom to invest in energy sector, it is contemplated that there are more suitable conjecture in near future.

Official aims as outcomes of liberalization of electric market and privatization is given below:

  • To procure a competitive market
  • Increasing generation and distribution efficiency
  • Encouraging necessary investments for long term supply safety
  • Making state as a regulatory body by diminishing public sector's significance

As a part of this thread of aims, Turkey makes very important energy privatizations.

In the year of 2012, by Privatization Administration there will be significant energy premises' and energy distribution companies' privatizations. To give general examples, tender processes has been started for the privatization of 26 hydroelectric power plants and 18 fossil fuel plants and the tender process has been started first stage technic and financial consultancies. Probably, privatization tender processes will be started after the end of the second quarter of 2012. 21 other hydroelectric power plants will be added to privatization scope if those plants' transformation processes cannot be completed on time.

In regard to privatization of these energy generation facilities and distribution companies, investor companies should note some subjects.

First of all, they should project economic, political and strategic benefits expected well; short, middle and long term benefits should be envisioned from different point of views.

If we were to say more clearly, the titles given below require strict work from the companies that wants to be involved in privatizations:

  • How the electric generation facilities are to be privatized or should be privatized
  • The analyses of current conjecture of electric generation sector in the world and in Turkey, short-middle and long term changes/developments expected and biases of sector before/after the privatization
  • The additional required investment after the privatization of the electric facilities that are named
  • Especially by keeping in the mind the crisis which is sweeping Eurozone and obligation of European investments' move to East; the conjectural structure of national and international financial markets, domestic markets, sectoral and economic development should be studied well.
  • In fossil fuel plants, study of fuel reliability, the issues like whether the fuel provider sites should be privatized along with the facilities or not must be studied well. (This title has a strategic importance in regard to Turkey's relations with Iran, Iraq and Azerbaijan and Russia.
  • For electricity purchases and sale agreements, natural gas provision agreements, coalfield usage agreements, water usage agreements and other necessary agreements that has to be prepared before/after the privatization, judiciary preparations that to be in compliance with Administration should be made in this process
  • Additionally, if there is mean to privatization process; beginning to technical, financial and judiciary studies and constant contact with the administration will be a good benefit to the investors.

(It should be noted that in Turkey beginning from 2012, all business and corporations; and beginning from 2015 all consumers should be regarded as free consumers.)

In consideration to strategic place that Turkey has gained both its own region and in the world, especially in last ten years, clarifying Turkey's will to share the power that it gained through its strategic strength and position on energy corridor would not be realistic in regard with economic data.

Especially, the privatizations will be more meaningful when thought in regard to energy sources and these powerful countries' fight for each other for these sources.

With Southern Gas Corridor which Turkey allowed Russia and Europe's hope - Nabucco Project will be completed if there is not a new incoming maneuver. In addition, the statement by Barack Obama, USA President, "We will not execute the wars in the world anymore" is extremely important. This will bring a serious change in the region and European energy zone and underline Turkey's importance in World Energy Corridor.


1 http://www.duzgunkirancilaw.com/page/turkey%E2%80%99s_strategic_importance_in_world_energy_corridor-35.html

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