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Energy Privatization

The privatization of Turkey’s publicly held companies, including the energy sector, began in 1984 with the creation of the Privatization Administration. The privatization project aims to improve the efficiency and […]

The privatization of Turkey’s publicly held companies, including the energy sector, began in 1984 with the creation of the Privatization Administration. The privatization project aims to improve the efficiency and competitiveness of Turkish industry and ensure better service provision for Turkish citizens. From the beginning, energy was a key sector targeted for privatization. As Turkish urbanization and industrialization began to accelerate in the 1980s, it became clear that Turkey’s state energy provider could not keep up with demand. Turkish energy consumption has grown rapidly over the past two decades, from 28,000 GWh in 1984 to 172,000 GWh in 2010.

Following the creation of the Privatization Administration, Turkey began to experiment with energy privatization. One challenge that the sector faced was the Turkish constitution at the time, which explicitly stated that, as a public service, energy provision was the sole responsibility of the state, and legally could not be supplied by private enterprises. The government addressed this challenge through what it called build-operate-transfer (BOT) and transfer of operating rights (TOR) contracts. With these, the public energy provider, the Turkish Electric Authority (TEK), would enter into long-term contracts with private energy generators to purchase their energy services to then re-sell to the public. When the contracts expired, the energy generation assets would revert to state ownership.

This system continued until 1994, when TEK was disbanded and replaced with two new energy generation and distribution companies: the Turkish Electricity Generation and Transmission Company (TEAÅž) and the Turkish Electricity Distribution Company (TEDAÅž). From that point, the government moved from BOT and TOR contracts to build-operate-own (BOO) contracts, which allowed private energy generation companies to retain ownership of generation assets after the end of their contracts. To encourage increased private energy generation, a number of tax incentives were put in place for oil, gas, and coal plants. However, the factor that helped to speed the process along was the amendment of the constitution in 1999 making electricity investments subject to private law. This reassured investors by allowing them access to the courts and international arbitration for their contracts.

In 2001, the liberalization process continued with the passage of the Electricity Market Law. This created an official legal distinction between transmission and distribution on the one hand, which remained the responsibility of the state, and generation and supply on the other hand, which were fully opened to the private sector. The law also created the Energy Market Regulatory Authority (EMRA), which is the independent regulatory body that oversees the private energy market. In 2004, the government issued a paper outlining plans to achieve full privatization of the energy market by 2014.

From 2006, Turkey entered the final stages of the energy market liberalization process, as it began to privatize distribution and transmission and allow for fully cost-based tariffs, rather than the previous single national rate system. Turkey began the tender process for the main energy distribution companies, BAÅžKENT, AYEDAÅž, and SEDAÅž, and despite a few delays, the final state-owned power distribution network was privatized in 2010, raising more than $5 billion.

From this point, Turkey plans to continue liberalizing the sector by privatizing the majority of publicly owned power generation facilities. In 2012, analysts estimate that the government will sell $20 billion worth of energy generation assets.

In addition, the government is now looking to the private sector to build more energy generation capacity. Turkey’s energy consumption continues to grow at between 6% and 8% annually. By 2020, the country is expected to need 500,000 GWh of electricity. This will require an additional 3,000 MW to 4,000 MW of capacity to be built every year, and an investment of about $130 billion in the sector.

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