Turkey delays power privatisations

By bne IntelliNews January 10, 2007

Nicholas Birch in Istanbul -

Fears are growing that Turkey's government is throwing fiscal caution to the wind in an election year, after Energy Minister Hilmi Guler announced Tuesday the postponement of electricity distribution network tenders until after this November's polls.

"This is not something that should be hurried," Guler said, leaving to the Privatisation Commission the job of setting a new timetable for the sales.

Expected to raise between $1bn-1.5bn, the first three of 20 distribution sectors up for grabs were due to be opened up to tender on January 19. The IMF has made their sale a structural requirement of its ongoing loan programme.

The main reason for the government's last-minute change of heart has been clear since Prime Minister Tayyip Erdogan first mooted delays late last week. "They'll increase the [electricity] prices and we'll pick up the bill," he said, referring to the companies taking part in the tender.

The government has not raised electricity prices since it came to power in 2002, despite big increases in the price of imported gas that Turkey uses for 44% of its electricity production. The policy has hit Turkey's energy producers hard. According to industry insiders, it has also cost the state about $11bn in subsidies over the last four years.

By failing to do anything to change that now, it's not just the IMF the government looks likely to upset.

Angering the powerful

The 82 companies that accepted to participate in bidding include Sabanci Holding, Dogan Holding, Enka Insaat, Zorlu Enerji and Alarko – all of them among Turkey's biggest conglomerates. Delays are bad both for their share values and their growth strategies, analysts say.

Others worry that with a current account deficit of $35bn, Turkey is not in the position to throw away the sort of lump-sum payment the electricity privatisations would offer.

That seems exaggerated. With the state-owned Halkbank due to be sold this year for an estimated $10bn, the Treasury's revenue projections of $4.5bn from privatisations look very cautious.

While he acknowledges the postponements do nothing for Turkey's international image, Onder Karaduman, head of Turkey's leading private utility firm Akenerji, refuses to give in to the pessimism that has overtaken many of his colleagues in the sector.

Turkish courts have blocked electricity privatisation efforts twice since 1997, he points out, yet the tender procedure is still far from perfect. He criticises above all the lack of international arbitration and the fact that successful bidders are set to buy not assets but 30-year operating rights.

"If you're investing millions to improve transmission efficiency, you want to be the master of your own strategy", he says. "With this system, it's the bureaucrats who have the final word."

Yet, while he is willing to take government officials at their word when they hint that delays will be used to make improvements to the legal framework, he is highly critical of their continued failure to tackle the growing threat of energy shortages.

In a report released Monday, the World Bank warned that Turkey's lack of investment in generating capacity threatens major blackouts from 2009 onwards.

Karaduman is more pessimistic. "Never mind all the talk of a coming crisis", he says, "the crisis is here now."

In 2006, Karaduman says, Turkish electricity consumption grew 8.2% to 174bn kWh. If the trend continues, as it looks set to, consumption will be 187bn kWh this year. "It would take one large gas-fired power station to make up the difference. Has anybody built it? No."

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