Turkey makes hesitant start in another attempt to harness nuclear power

By bne IntelliNews February 28, 2008

Bernard Kennedy in Ankara -

Turkey is about to make its fourth attempt to harness nuclear power in four decades, but even some of the most ardent supporters of nuclear energy are dubious about the outcome.

A competition to find a contractor to build a pioneer nuclear plant near Mersin on the Mediterranean Coast was due to be launched on February 21, but had to be put off due to a bureaucratic delay in the finalisation of a regulation. No new date has yet been announced.

The government, the private sector and international observers are looking to nuclear power to help alleviate Turkey's upcoming power bottleneck - at least in the medium term. But Omer Ersun, a retired ambassador and a specialist on nuclear issues, describes the planned competition as a "dead end."

Financial haze

In January, Ersun drafted a public statement signed by 34 nuclear experts criticising November's nuclear energy law and alleging that it would lead neither to the acquisition of national nuclear technology nor to the commissioning of nuclear reactors. Sidelined by the Energy Ministry and TAEK, Ersun argues that the government is trying to buy a reactor "like you would buy nuts in the market."

Rather than selecting its preferred technology, drafting a detailed specification and opening a tender, the ministry is calling for proposals from the private sector on the basis of a brief agency guideline requiring the use of tried-and-tested technology, a minimum capacity of 600 MW per unit and a life-span of at least 40 years. The guideline permits light, heavy or boiling water reactors. "Nuclear energy requires heavy up-front investment," says Ersun. "Suppliers of reactors are not going to invest billions of dollars for the love of Turkey. But the ministry has said that the private sector will take the lead and the government has no preparations to set aside any funds."

Uncertainty about the financing of the plant was also voiced at a nuclear power conference in Istanbul in January. "The terms envisage that the plant could be built on a private basis or in partnership with the government, but in practice only the latter is possible," said one participant.

Ironically, it is problems similar to these that have delayed the development of conventional power plant projects and added to the perceived urgency of the nuclear programme. Power consumption reached a higher-than-expected 189.5bn kilowatt hours in 2007, and the Energy Market Regulatory Agency (EPDK) expects it to go on growing by 6.3-8.4% annually. Since liberalisation in 2001, public investment in power generation capacity has fallen, but licensed private investors have hesitated to fill the gap in the absence of official purchase and price guarantees.

Power shortages are expected to kick in long before the five or more years needed for nuclear capacity to come on stream. The belated government response has included a price hike and revival of plans to privatise power distribution on a regional basis. Various investment incentives are under consideration. In the nuclear contest, would-be suppliers are to compete on the basis of the amount of electricity they intend to produce and the price they demand from state-owned trading company TETAS. Even so, price guarantees are not expected to be provided for more than 15 years.

Financing is not the only issue that threatens to disrupt the nuclear programme. Opposition parties have taken November's law to the Constitutional Court on the grounds that it fails to fix basic parameters and procedures, and leaves the public to pick up the costs of decommissioning. Private sector sources wonder whether a TAEK stipulation calling for "60% local input" can be achieved or even assessed. Corruption allegations, which played a role in the cancellation of previous tenders, are likely to resurface. Local residents and environmentalists will latch on to all these issues, as well raise the spectre of the Chernobyl disaster, underline the risk of earthquakes and question the capacity of the administration to monitor nuclear safety.

Diplomatic optimism

The government, however, has been consistent in its enthusiasm for nuclear power, especially given the high cost of natural gas, which accounts for about 45% of electricity output. Natural gas imports, mainly from Russia, have contributed to a current account deficit of some 7.5% of GDP. Many observers believe that this situation and the threat of a power shortage will be more than sufficient to overcome environmentalist opposition. "I don't think it's a non-starter this time," says an Ankara-based diplomat, who is following the issue closely. "In every country you have your pro-nuclear and anti-nuclear lobbies... The tender documents will be dictated by the companies that get the job in the end."

The diplomat expects to see a battle between US and German firms supplying third-generation technology. South Korean and Japanese-owned suppliers are also viewed as potential investors. "I don't see the French coming in because of the stress in bilateral relations," the diplomat adds, in a reference to the opposition of French President Nicolas Sarkozy to Turkish membership of the EU.

As for the compulsory local partners, "Enka and Alarko, and the energy arms of the two leading conglomerates, Koc and Sabanci, have the best chance," analyst Ovunc Mantu of Eczacibasi Securities in Istanbul believes. "Koc Holding is aiming to take a good share of both distribution and generation," he underlines. The energy wing of the Zorlu group is another contender.

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