Politics key to Russia-Turkey nuclear plant deal

By bne IntelliNews March 17, 2009

David O'Byrne
 in Istanbul -

Turkey's domestic political agenda looks set to play a key role in the government's decision over whether to give the go-ahead for a Russian-led consortium to construct the country's first nuclear power plant.

With Turkey's local elections scheduled for March 29, the government of Prime Minister Tayip Erdogan looks unlikely to announce any final decision on the project until April at the earliest, aware that the deeply unpopular project has already polarized public opinion.

Despite protests from other pre-qualified potential bidders - including AECL, Suez Tractobel and Unit Investment - that the global credit crisis meant they needed longer to prepare their bids, last year's tender was completed on time, with a consortium of Russia's state-owned Atomstroyexport, Inter RAO and Turkish company Park Teknik registering the sole bid to build the plant at Akkuyu on Turkey's east Mediterranean coast.

Slated to eventually consist of four separate units of 1,200 megawatts (MW) each, the planned plant would go a long way to meeting Turkey's expected growth in power demand albeit at a price, that of a guaranteed off-take which will see Turkey's power grid take 100% of the power the plant produces at an agreed fixed price up to 2030. In view of the long-term guarantee, the consortium's bid price of 21.16 euro cents/kilowatt hour (KWh) caused further controversy, being considerably higher than the 4-14c/kWh that private companies currently sell power into Turkey's slowly liberalising power market. That controversy has scarcely been dampened by the consortium's subsequent offer to drop its bid to 15.35c/kWh.

"The new bid is still expensive, but at least it is on the threshold of being acceptable," says Haluk Direkseneli, an energy consultant working for the Ankara-based International Strategic Research Organisation (USAK)."The problem is that we still don't know the details of the tender or the bid, such as who bears financial responsibility for security and for disposal of the nuclear waste," he adds, pointing out that the true cost could be significantly higher.

Russian reliance

Price aside, much criticism of the project has centred on the fact that the plant will rely on supplies of Russian uranium for fuel. With Turkey already dependent on Russia for the bulk of its natural gas imports, which in turn generates around half of the country's electricity, many see further dependence on Russian uranium as a strategic mistake.

"If the project were being assessed on purely commercial or technical grounds, then it would be a simple decision and would not have come this far," says Direskeneli, who believes that PM Erdogan is using the project as leverage for other projects his government hopes to complete and which require backing from Russia. These include plans to extend the existing Russia-Turkey Blue Stream gas line, which runs across the Black Sea to Turkey's Mediterranean energy hub at Ceyhan, and the construction of a combined oil, gas and water pipeline from Ceyhan to Israel, both of which require Russian finance to move ahead. Also planned is an oil line running from Turkey's Black Sea coast to Ceyhan to act as an alternative for tankers transiting Turkey's already overcrowded Bosphorus straits. With the bulk of tankers in the Black Sea carrying Russian-owned oil and with Russian companies backing a rival project for a pipeline through Bulgaria and Greece, Turkey desperately needs Russian support if this project is to be realised.

But while the nuclear project may succeed in leveraging Russian support for Turkey's other ambitious energy projects, it also risks hampering other investment in new power plants.

Faced with demand for power growing at an average of 8-9% per year, Turkey has been attempting the difficult task of encouraging private companies to build new power plants without off-take guarantees, while simultaneously implementing a fully liberalised power market.

Despite the problem of securing financing for projects that have no guaranteed sales contracts, Turkish companies have been quick to meet the challenge, proposing a vast array of new plants utilising domestic and imported coal, imported natural gas and, increasingly, renewable energy resources such as wind. A tender held in late 2007 for new wind power projects attracted bids for around 40,000 MW of capacity - equal to all of Turkey's existing power capacity.

However, with Turkish energy demand expected to drop this year thanks to the global crisis, and with subsequent growth expected to be slower, many fear that guaranteeing to take 100% of the power produced by a new nuclear plant at a high fixed price will prevent investment in other new power projects."This project has both political backing and off-take guarantees," says Direkseneli."Other private companies just don't have that luxury, and potentially it's a huge disincentive for them to invest."

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