1. 1 BUSINESS OPPORTUNIES IN THE TURKISH ENERGY INDUSTRY Prof.Dr.Hasan Kazdağlı Prof.Dr.Mehmet Baha Karan Prof.Dr.Selçuk Geçim Hacettepe University, Turkey

2. 2 CEVI ( CENTRE FOR ENERGY AND VALUE ISSUES) GOALS OF CEVI: 1. PLATFORM FOR ACADEMICS 2. PLATFORM FOR PRACTITIONERS

3. 3 Introduction The lands of Turkey are located at a point where Asia, Africa and Europe are closest to each other, and straddle the point where Europe and Asia meet, for which reason it is located in a geographical position of great strategic importance. Turkey’s unique geo-physical location does not only connect two continents but also, makes it a natural "energy bridge" between major oil and natural gas producing areas in the Middle East and Caspian Sea regions and consumer markets in Europe.

4. 4 Turkey is different from other countries currently queuing for EU entry: it is big, fast-growing and strategically placed. Turkey’s accession will add to the EU in many ways: its young, dynamic economy could give a boost to an ageing, sclerotic EU market; it can help the EU to bring stability to the Middle East, the Caspian and the Caucasus; and it could add to the EU’s energy security by acting as a bridge to the resource-rich regions in its neighborhood. Turkey’s development as a European energy hub looks natural, given its lucky location between countries that harbour 70 per cent of the world’s oil and gas reserve to its east, north and south, and one of the world’s biggest energy markets in the west.

5. 5 After leaving 2001 economic crisis behind, the Turkish economy has managed to grow rapidly during the last couple of years. That brings higher energy demand and new investments needs which require better structured energy sector. Although the current economic crisis slowed down the Turkish ecomomy, but high economic growth is expected after 2010.

6. 6 Turkey and the Sides of Energy Bridge Demand Side The European Union The United States Supply Side The Caspian Basin Russia The Middle East

7. 7 Turkey’s Energy Strategy Turkey has concentrated its efforts for the transportation of Caspian oil and gas reserves to Western markets on the realization of the East-West Energy Corridor, often referred to as the Silk Road of the 21st Century. The pipeline projects linking the Caucasus and Central Asia to Europe will be essential for the region’s integration with the West. Secure and commercially profitable pipelines will help bring stability and prosperity to the region.

8. 8 Pipelines and Energy Security of Europe

9. 9 Turkey as an energy hub Through the completion of the projects, it is anticipated that 6 to 7 % of global oil supply will transit Turkey by 2014 and then Ceyhan will become a major energy hub and the largest oil outlet terminal in the Eastern Mediterranean. The Ceyhan Terminal has already been designed to receive the crude oil reaching Ceyhan from Kirkuk, Baku and Samsun.

10. 10 Turkey’s Energy Profile With a rapidly growing economy Turkey has become one of the fastest growing energy markets in the world (2001- 2007). The primary energy consumption, which reached around 92 million tons of oil equivalent (toe) in 2006 will rise to 126 million toe in 2010 and 222 million toe in 2020. The limits of Turkey’s domestic energy sources in light of its growing energy demand have resulted in dependency on energy imports, primarily of oil and gas. At present, around 30 % of the total energy demand is being met by domestic resources, while the rest is being satisfied from a diversified portfolio of imports.

11. 11 Turkey’s Energy Profile Turkish energy policy has made impressive progress after the Helsinki Summit of 1999 where Turkey was declared a candidate for accession to the EU. Turkey attaches great importance to more efficient and rational functioning of the energy sector for promoting the competitiveness of the national economy.

12. 12 Turkey’s Energy Profile Substantial progress has been achieved in restructuring and liberalizing the Turkish electricity and gas markets in pursuance with the EU Directives for the purpose of integration with the EU Internal Energy Market, since the enactments of the Electricity and Natural Gas Market Laws in 2001. With the Petroleum and LPG Market Laws, competition oriented mechanisms has been put into place. An independent regulator, The Energy Market Regulatory Authority (EMRA) has been established to be in charge of regulation and supervision of the electricity, gas, petroleum and LPG markets.

13. 13 Turkey’s Energy Profile Concerning renewable energy sources, the Law on the Utilization of Renewable Energy Sources for the Purposes of Generating Electricity has been adopted in 2005 for promoting electricity production from the renewable energy sources in liberalized energy markets. A new legislation is preparing to support renewable energy sources (2009). In order to use energy efficiently, prevent waste, mitigate the burden of energy costs on the economy, and increase the efficiency in the use of energy resources and to protect the environment, the Energy Efficiency Law was enacted on 2 May 2007. Turkey aims at fully utilizing its indigenous hard coal and lignite reserves, hydro and other renewable resources such as wind and solar energy to meet the demand growth in a sustainable manner. Integration of nuclear energy into the Turkish energy mix will also be one of the main tools in responding to the growing electricity demand while avoiding increasing dependence on imported fuels. Nuclear power plants corresponding to a total installed capacity of 5000 MW are expected to be constructed very soon.

14. 14 Turkey’s Energy Profile To meet the growing demand, Turkey needs lots of investments and that requires huge financial support. There are many license applications received by Turkish Energy Market Regulatory Authority (EMRA) especially for wind, hydro and coal. Most of them are EU and US origin companies such as, International Power (British), Edison (Italy), EON (German), OMV Australia, BASF Verbung (German), Iberdrola (Spain), EnBW (German), Enel (Italy), Württemberg (German), AES (USA), GE Energy (USA), and Berggruen (USA). Russian investors consider Turkey as an investment magnet. Russian companies’ investments in Turkey reached $3.5 billion in 2008.

15. 15 Some Foreign Energy Companies Invest and Interest In Turkey

16. 16 Turkey’s Energy Profile Energy imports constitute one-fifth of the nation’s import bill. In 2007, Turkey spent $33.9 billion on the import of energy supplies, including fossil fuels, lubricants and related materials, according to the Turkish Statistics Institute. Privatization is viewed as the key for Turkey’s future energy development. The government is also encouraging private companies to build power plants to meet their own needs, and construct larger power plants sell electricity to other neighboring companies and to the state and to take over existing government-run facilities to help maintain growth in energy.

17. 17 Turkey’s Energy Profile In addition to its power distribution companies, the government is planning to sell 26 large hydroelectric dams and coal-fired power plants and 56 small river dams that have completed their economic life span. It is encouraging private companies to build and operate new hydroelectric dams and natural gas-fired power plants, operate state coal mines and geothermal facilities. Natural gas distribution rights are privatized in more than 154 cities, and began to transfer the multi-billion dollar natural gas import contracts of the state petroleum pipeline corporation BOTAŞ to private operators. Turkey also wants private companies to build new oil refineries, in addition to the existing private oil refineries concern, Tüpraş, which operates the country’s four oil refineries.

18. 18 Turkey’s Energy Profile Electricity demand in Turkey increased 8.4 percent in 2007, the world’s second highest growth rate after China. The government must spend about $4.5 billion annually on new power projects and $1 billion annually for power transmission to avoid an energy crisis. A crash program to develop power plants, with an increased role for private and foreign investors, is key to Turkey's continued economic growth, energy planners say. Turkey will need a large infusion of foreign capital to increase its generating capacity.

19. 19 Turkey’s Energy Profile The government hopes to carry out many of the projects under Build-Operate-Transfer (BOT) or Build-Operate (BO) models, where contractors would line up financing for power plants, and build and operate them as a concession for certain period of time, such as 15 years, after which they would turn them over to the Turkish state.

20. 20 Turkey needs to spend $128 billion on energy investments by the end of 2020, including $91.276 billion on new power generation facilities, to keep pace with its rapid-growth economy, but the government can only set aside $500 million a year from its tight budgets,

21. 21 Turkish Electricity Sector Electricity Demand vs GDP Growth Despite significant growth in recent years, Turkey still has the lowest electricity consumption per capita in Europe. Source: TEİAŞ Source: IEA Turkey has become one of the fastest growing energy markets in the world (8% yearly growth rate)

22. 22 Turkish Electricity Sector Electricity Demand & Capacity Projections (TEIAS) Turkey is expected to face electricity supply shortage by 2011 based on low-demand scenario… Source: TEİAŞ Low-Demand Scenario (6.3% annual growth)

23. 23 Turkish Electricity Sector Electricity Generation by Primary Energy Source (2007) Sector State-owned Company, EUAS Natural Gas is the primary source of electricity generation (191,558 GWh in 2007) in Turkey. Especially, private sector relies heavily on imported natural gas. This trend should change in line with private sector’s increasing focus in hydro and coal-fired power plants. Source: EÜAŞ

24. 24 Aims in Electricity Market More private sector presence in the market, More private sector presence in the market, Increase in foreign capital investments, Increase in foreign capital investments, Decrease in public sector investment budget, Decrease in public sector investment budget, Increasing responsibility in the protection of environment, Increasing responsibility in the protection of environment, Increasing renewable sources in electricity production Increasing renewable sources in electricity production Formation of the energy prices in a competitive environment, Formation of the energy prices in a competitive environment, Increase in efficiency, Increase in efficiency, Increase in service quality, Increase in service quality, Improvement in availability, Improvement in availability,

25. 25 Investment Opportunities In Electricity Production Market. Privatization of State owned generation. Thermal Power Plants Using Domestic and Import Coal. Hdroelectrical Power Plants. Wind Power Plants. Geothermal Power Plant. Solar Power Plants ( Prosedure will be announced very soon ) Purchasing shares or facilities of private investors (Mergers & Acquisition Transactions).

26. 26 Wholesale SUPPLY MARKETING CONSUMPTION Export Distribution Eligible Customers Domestic Production Import Non-Eligible Customers NEW GAS MARKET STRUCTURE

27. 27 WHOLESALE Current Situation in Natural Gas Market NATURAL GAS DISTRIBUTION PUBLIC PRIVATE NATURAL GAS IMPORT

28. 28 Sectoral Gas Consumption Sectoral Consumption (2008) Natural Gas Consumption in 2008: around 36.8 bcm

29. 29 DISTRIBUTION LICENSE TENDERS

30. 30 Natural Gas Market The market opening level is 80 % Natural gas wholesale price is determined freely by the parties. LNG import is libearalized and the new amendments are on the way to import natural gas without any limitations.

31. 31 OPPORTUNITY IN GAS DISTRIBUTION MARKET The infrastructure for reaching 40 million customers is completed. Foreign investors are interested in gas distribution, and there is a great potential for new merging and acquisitions. Such as; the shares in Kayseri, Bursa and İzmit municipality gas distirbution companies were already sold to foreign investors in 2008.

32. 32 Why Shall Invest in Power Market ? High and rapid growth in demand Robust and well designed legal infrastructure regarding of primary and secondary legislation Compliance with the European Union Legislation Competitive, stable, financially reliable, and transparent business environment without discrimination Independent market surveillance and regulation by Energy Market Regulatory Authority (EMRA) which is independent in its decision making process, financially and administratively autonomous body Good governance principles Cost-reflective tariff system

33. 33 Some Foreign Energy Companies Invest and Interest In Turkey

34. 34 Turkey Wind Capacity and Utilisation Turkey’s Wind Atlas Turkey

35. 35  Average annual solar radiation:1,311 kWh/m².  Average annual sunshine duration:2640 hours.  Technical potential :405 000 GWh, (DNI> 1800 kwh/m2-year).  Economic potential :131 000 GWh, (DNI> 2000 kwh/m2-year).  Solar energy is used especially as a thermal energy in Turkey. 400,000 Toe solar heating produced by 11 million m2 collectors, second in the world. annual production capacity is 1 million m².  Total installed photovoltaics capacity is approximately 1000 kW and But it is expected to increase PV usage next future. Solar Energy Potential

36. 36 New Draft Renewable Energy Law in Turkey

37. 37 The General Investment Incentive System in Turkey Incentives generally comprise a mix of tax and non-tax incentives. The investors may qualify for the following general incentives based on the location, scale, and other qualifications of the investment; Investment allowance Exemptions from customs duties and fund levies VAT exemption for machinery and equipment Exemption from certain taxes, duties and fees Grant of subsidized credits

38. 38 Incentives for priority development regions Incentives granted to investors are as follows: Free land allocation Income tax relief Employer's share for social security relief Energy support

39. 39 WHY TURKEY?  More stable political environment.  Improved Economic and investment climate.  Strategic geopolitical position between Asia and Europe.  Main bridge between Energy Sources(Caucasia and Middle East) and Indusrialized Countries(Europe).  Friendly Bureaucracy.  Growing economy with increasing demand for energy.

40. 40 -Transparent Regulatory Environment -Available Infrastructure -Trained technical manpower available -Present gap and growing demand in electricity., -Sufficient wind and solar sources. -Comittment for the renewable energy investments. WHY TURKEY?