Pressure Builds for Faster Privatization of Turkey's Power Sector as Demand Grows 5% Annually

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Researched by Industrial Info Resources (Sugar Land, Texas)--With power demand growing at about 5% per year over the past decade, pressure is building on Turkey's government to privatize the country's power-generation sector more quickly. In the last week of June, the Association of Turkish Industrialists and Businessmen published a report called "Energy Strategy" saying that the privatization of energy production should not be delayed until the energy distribution grids have been privatized.

Since the Electricity Market Law was enacted in 2001, delays have left the country at risk of a critical power shortfall that would inhibit the country's economic development. The report states that although the Ministry of Energy plans to boost investments to increase capacity in the energy sector by 150% by 2020, the privatization process must be accelerated in order to have an impact on the creation of a free market to achieve this target. Turkey's current peak generating capacity is about 40,000 megawatts (MW).

Also in the last week of June, Turkey's Energy Market Regulatory Authority approved demands from 20 members of the Turkish Electricity Distribution Corporation (TEDAS) to increase client tariffs. Now, tariffs will increase 21% for residential users and 22% for industrial users. With the pressure from the business group, this price increase could make privatization more viable and encourage more independent power producers to enter the sector.

A spot market for power is emerging in this sector shakeup, and a new 800- to 1,300-MW project to be developed by Suez Energy International (Brussels, Belgium), a division of Suez S.A. (OTC:SZEZY) (Paris) (90%) and local company Mimag-Samko (10%) will probably sell output in this market when the project is completed in 2013. The $1.5 billion project will have a fuel feed of imported coal, and sites are being inspected and permits will be applied for shortly.

Although some plants recently commissioned in Turkey have been gas-fed, Suez Energy believes that the latest wave of highly efficient coal-based generation technologies will improve the country's generation mix and improve the new project's competitiveness. Suez has a 95% interest in the 770-MW gas-fed power plant in Baymina, Turkey, commissioned in 2004. Mimag holds the remaining 5%.

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