Turkey

special advertising sectionTappingPotentialIn a country where electricity pricesare among the highest in theworld and where the state oftenstruggles to meet growing demand,the business community eagerlyawaits the privatization of Turkey’selectricity network. However, thegovernment of Prime Minister RecepTayyip Erdogan seems prepared tomake the nation wait a little longerfor a liberalization of its energy market,at least until after the electionsscheduled for next November.“The government doesn’t want toaddress as vital an issue as electricityprivatization in a rush,” said EnergyMinister Hilmi Guler in January. Hisstatement casts a shadow overTurkey’s future privatization plansand may hurt its relations with theInternational Monetary Fund, whichstrongly backs the privatization.Moreover, the delay could have anegative impact on a country inurgent need of investment in electricitygeneration, as it is predictedthat existing capacity will be unableto meet rising national demand from2009 onward. In fact, Turkey maysoon experience blackouts similar tothose that led to economic losses inseveral Western countries in the pastfew years.Political strategies aside, mostinvestors agree that the Turkishenergy sector will offer top growthopportunities within the nextdecade, especially in the electricityand gas segments. The annual electricity-demandgrowth rate is projectedto be 8.5% for the decade2005-2015, while natural gas consumptionis expected to increase to60 billion cubic meters (bcm) duringthe same period. One of the world’sfastest-growing energy markets,Turkey will need approximately $130billion in investment through 2020, afigure well above the EU average.Energaz, an affiliate of GlobalInvestment Holdings, was one of thefirst Turkish companies to takeadvantage of the privatization of thegas network. “We decided to sell offthe controlling stake of our brokerageand investment banking in favorof the energy sector, which is ournext area of growth,” says groupchairman Mehmet Kutman. His experienceas an investment banker giveshim the confidence to get involved,on a project basis, in growth industriessuch as gas and electricity distribution.The company also plans toenter the electricity and gas generationmarkets in 2007.Energaz built and operates the systemconnecting the national gas gridto end users in nine regions ofTurkey, mainly in central Anatolia,which accounts for 6% to 7% of thecountry’s demand. But with Botas,the Turkish national pipeline company,holding additional tenders in2007, the company is looking to penetratenew regions and increase itsshare to 10% of the market. Fortythreearea tenders have been completedto date, but the present transmissionnetwork is still far from coveringthe country as a whole.“Turkey has entered an era of economicgrowth in which peoplealready perceive certain structuralchanges as real accomplishments.But in reality, this is just the beginning,”says Kutman, musing onTurkey’s untapped potential. Energazis also considering entering the electricityand water distribution businessesin the cities where italready operates. “At the endof the road we want to createa single utility bill forend consumers,” he says.The company prides itselfon entering into partnershipswith experts in their respectivefields. In the energysector its technical partneris STFA, a diversified constructionand engineeringcompany with extensiveexperience both in Turkeyand abroad. Energaz willprovide the financingand oversee investorrelations, while STFA,the operator, willimplement and managethe projectsand liaise with consumers,localauthorities andthe businesscommunity.3However, Energaz is not alone inthe rush into the energy market.Turkish companies such as KocHolding and Enka Insaat, and internationalgiants like Germany’s E.ONand Italy’s ENEL, have clearly statedtheir intentions of becoming majorplayers within the next five years.Another Turkish group increasinglyactive in the energy sector is ErenHolding, a conglomerate with interestsin paper, tourism, textile retail,cement, packaging and energy. ErenHolding boasted a turnover of $583million last year. When discussingthe energy sector, the company’sCEO, Ahmet Eren, emphasizes theadvantages of using coal in energyproduction. “We are going to be theonly Turkish private company tohave a coal-fueled power plant, asnatural gas is becoming increasinglyexpensive in the international market,”he says. “Even countries likeGermany are reopening coal minesthat have been closed for years.”Although Eren Holding is bestknown in Turkey as the producer anddistributor of well-known internationalbrands such as Lacoste,Burberry, Calvin Klein and Swatch,the group has recently completed acoal-burning thermal power stationin Zonguldak, on the Black Sea,which will become operational in thefirst half of 2007. According toZonguldak’s governor, the facilitywill provide employment forapproximately 1,500 people.Eren Holding also has aspirationsin electricity distributionand is among the 37 firms prequalifiedin the tender for threegrids to be located in Ankaraand Sakarya. “We now have severalapplications from internationalcompanies that wish toenter the Turkish energy marketin joint ventures withEren Holding,” says Eren,acknowledging that astrategic partnership willprovide his company withextra insight into theinternational capitalmarket and help securethe funds needed tokick off new projects.The ball is now firmlyon the government’sside of the court. ❖