A curious sale of electricity assets in Turkey

By bne IntelliNews March 24, 2011

David O'Byrne in Istanbul -

Turkey's biggest conglomerates look set for a bidding war after Turkey's Akkok Group and its Czech partner CEZ confirmed to bne that they intend to sell off jointly-held energy assets in Turkey - though they won't yet say which ones.

The confirmation by Akkok and CEZ follows months of speculation in the Turkish and Czech media that the state-owned Czech company plans to pull out of Turkey just two years after it completed the purchase of a 37.4% stake in Turkish power company Akenerji for $302.6m. Akkok also holds 37.4%, with the remaining stake traded on the Istanbul Stock Exchange. Akenerji in turn owns a portfolio of operational power plant and new power plant projects under development, as well as Sakarya EDAS, one of Turkey's 21 regional electricity distribution companies that was bought in 2009 for $600m.

Speaking to bne, a spokesman for Akenerji confirmed that the company's owners had agreed on an asset sale and are currently finalizing details with consultants. "Once details have been confirmed, Akenerji will open a data room for bidders to consult and will invite bids," the spokesman said, explaining that only after bids have been received will Akkok and CEZ decide exactly which assets they plan to sell.

With the privatisation of Turkey's 21 state-owned regional power distribution companies effectively complete, analysts concur that Sakarya EDAS is an especially good candidate for a sale. "Sakarya EDAS was privatised at around $75 per kilowatt hour (kWh) of power distributed, but the last distribution companies to be sold went for between $130-$200 per kWh," says Selim Kunter, energy analyst at Istanbul brokerage Ekspres Invest, explaining that he expects CEZ and Akkok to offer the distributor for sale first. "Interest will be very high, as it is the only distribution company currently on the market."

With around 1.35m customers, Sakarya EDAS is not one of the country's biggest distributors, but it does offer a useful captive market for companies building a portfolio of power plants and who want captive markets to sell the power they produce, rather than sell into Turkey's nascent open power market or sign longer-term sales agreements with distributors, both at the expense of margins.

One such company is Turkey's Enerjisa, co-owned by Turkey's Sabanci Holding and Austria's Verbund, which currently operates a portfolio of 1,415 megawatts (MW) of electricity capacity. Although Enerjisa already owns Baskent EDAS, which distributes power in the Turkish capital Ankara, its consumption won't be sufficient to take all of the power produced by the 5,000 MW of power plant that Enerjisa plans to have in operation by 2015. Speaking to bne recently, Sabanci Group CEO Zafer Kurtul confirmed Enerjisa's interest in any assets that Akkok and CEZ might be interested in selling - both the Sakarya EDAS distribution company and Akenerji's generating portfolio in general.

Another company interested in Akenerji's generating portfolio is Turkish steel to logistics group Borusan. Despite having formed its own energy subsidiary, Borusan Enerji in partnership with EnBW Energie Baden - Württemberg (EnBW), Borusan has been slow to develop its planned generating portfolio and to date has only one operational plant - a 60 MW wind plant, with a 50-MW hydroelectric plant slated to come online later this year. Speaking to bne earlier in March, Borusan CEO Agah Ugur confirmed Borusan's interest. "Akenerji has an attractive portfolio and we would be interested in either buying outright or running them in partnership," said Ugur, confirming that Borusan and EnBW were already working on a strategy.

Ak attack

As one of Turkey's first private power generation companies operating for nearly two decades, CEZ and Akkok's Akenerji has built up what analysts describe as a nicely diversified portfolio, including three gas-fired plants totalling 358 MW, five small hydro plants totalling 88 MW and a 20-MW wind farm. In addition, the company has four more small hydro plants, a wind plant and a 900-MW gas plant already licensed and under development. Not an earth-shattering portfolio by any means, but enough to be of interest to latecomers like Borusan or other power companies looking to augment their own generating portfolios.

However, analysts agree that the timing of the Akenerji sale is not the most propitious, coming as it does just as Turkey is about to start the process of privatising 22 of its main state-owned power plants totalling 16,000 MW. With the state portfolio consisting of plants burning locally produced lignite and hard coal and gas, and a large number of fair-sized hydro plants, most of which offer significant potential for improved efficiency, interest from Turkey's main industrial groups is expected to be intense, with many boasting of having prepared "war chests" that they may prefer not to use up buying the Akenerji assets.

In the event this may not be an issue, at least not until it becomes clear exactly what assets are being sold.

According to analysts the peculiar nature of the sale - inviting bids before deciding which assets are for sale - hints both at the reasons behind the sale and what the likely outcome will be.

Many speculate that the motivation behind the sale is the failure of the two partners to work together effectively, and that while CEZ is looking for a way out of the partnership and generate the highest return on their investment, Akkok wants to hold onto as much of Akenerji as they can afford to buy back from their erstwhile partner. "In my opinion they will look to sell Sakarya EDAS first, then Akkok could use their share of the profits to buy back some of the generating assets," says Selim Kunter, adding that if that's the case, then the expected high interest in Sakarya EDAS and the upcoming state power plant sale could work in Akkok's favour.

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