Turkey's canal dreams

By bne IntelliNews May 13, 2011

David O'Byrne in Istanbul -

With his party expected to win its third overall majority in general elections on June 12, Turkish Prime Minister Tayyip Erdogan appears to have set his sights on establishing his own legacy announcing his "crazy project" - "Kanal Istanbul", a 50-kilometre long, 120-metre wide canal that he plans to construct 100 km west of Istanbul between the Black Sea and the Sea of Marmara.

Capable of carrying ships of up to 300,000 deadweight tonnage, larger than the largest tankers currently in use, the canal will have no locks and will use passing places and a mooring basin midway to enable it to allow simultaneous traffic in both directions - in contrast to the Bosphorus strait, which needs to be closed in both directions to allow the largest tankers through.

The aim is a simple one. With oil production in the Caspian region expected to double to around 40m tonnes over the next decade, the number of tankers using the Bosphorus is also expected to double from a current average of 27 a day - a volume of traffic that both threatens to overload the strait and expose Istanbul to the threat of environmental disaster in the event of an accident.

A canal would both reduce the volume of traffic through the Bosphorus and, as the canal will contain none of the twists and turns of its natural neighbour, offer a safer and quicker route for tankers.

But that aim in itself is not new. Turkey has for some years been backing a project to build an oil pipeline that would bypass the Bosphorus, the Samsun Ceyhan pipeline, sponsored by a consortium of Turkey's Calik Energy and Eni, which would link the Black Sea with the Mediterranean.

Sources close to the project have confirmed to bne that the Samsum-Ceyhan pipeline remains firmly on the agenda, with the Turkish government confident in its projections that Caspian oil production will grow sufficiently to justify both the pipeline and the canal. But with Turkey obliged by the 1936 Montreux convention to allow free passage through the Bosphorus, Samsun-Ceyhan has so far failed to secure commitments of sufficient oil to ensure its viability. "The same problem applies to a canal as to a pipeline - if one is free and one has a tariff, then there has to be a group agreement between oil shippers as to how much oil they send through each," says John Roberts, Caspian energy specialist at Platts. "The only alternative is to renegotiate the Montreux treaty, which Russia for one would not be open to."

Again sources close to the project have confirmed to bne that Ankara does hope to renegotiate Montreux, despite the expected difficulties. But with Russia having apparently reneged on its promise to provide oil for Samsun-Ceyhan, many are viewing the canal as a bargaining ploy aimed to pressure Moscow to moderate its demands for a majority stake in the pipeline. Albeit one that doubles as a handy pre-election stunt.

Even so, many find the boldness of the project compelling, although many too question the rather low $10bn official cost estimate. "As a logistics engineer, I think it's a great idea," says Ergin Buyukbayram, a logistics consultant who last year produced a major report on logistics in Turkey. "But it will be very difficult to build and will cost a lot more than they predict - maybe $20bn-25bn at least."

Canal real estate

With shippers unlikely to pay to use the canal while transit through the Bosphorus is free, Turkey plans to offset at least part of the cost by selling real estate along the canal banks, with Erdogan himself pointing to continued migration to Istanbul as requiring bold plans to expand the city.

Many remain unimpressed with that idea, pointing to the tens of thousands of unsold properties on out-of-town estates built in the bubble of property speculation that pre-dated the global economic crisis. "Demand for out-of-town property is low because most jobs are inside the city, and transport links are abysmal," says one Istanbul property developer, who reckons it would take a major sea change to persuade employers to move 100 km into Thrace

Ultimately, though, the historic precedent for such massive infrastructure projects is not encouraging.

The Panama Canal was only built at the second attempt, after a massive financial scandal; the Manchester ship canal company went bankrupt twice before a rescue by Manchester City council allowed ships to sail direct to the landlocked industrial city; early income from the Suez Canal was so low that it required the development of a new way of calculating tonnage to rack up transit fees.

All this suggests that if Erdogan really does want his place in history, he may have to look to the Turkish taxpayer to foot the bill.

Turkey's canal dreams

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