Sunday, September 21, 2008

Turkish Nuclear Challenge

Photo: Three-Mile Island, PA, USA

Dear Energy Professional, Dear Colleagues,

General Electric, the world's biggest maker of power generation equipment, still plans to submit a bid to build Turkey's first nuclear power plant even though it will probably miss a Sept. 24,2008 government deadline. (Ref.Hurriyet daily)

GE's nuclear venture with Hitachi Ltd., Japan's third- largest builder of atomic plants, is working on a bid with partners Turkey's Haci Omer Sabanci Holding AS and Spain's Iberdrola SA. Turkey is among governments worldwide leaning toward nuclear power to reduce carbon dioxide emissions, blamed for global warming, as fossil fuel prices surge. (Ref. Hurriyet daily, Bloomberg)

However it is too difficult to receive a sound, reliable, economical proposal on the closing date, 24th September 2008, since tendering procedure is too fast, tender documents are not sufficient in nature. These are not standard, commercially acceptable, market approved tender documents, or better so-to-speak invitation. There are many missing issues, last minute changes/ last minute updates in the invitation such as insurance, counter guarantees, financing credibility, waste management etc.

On the other hand, Ministry rejected requests from four potential bidders to extend the deadline to allow companies to prepare for the auction.

It is disclosed that Toshiba Corp.'s Westinghouse Electric Co., won't bid in the Turkish tender and won't propose its AP1000 nuclear unit. (Ref.Bloomberg)

The government tender is to build a 4,000-megawatt nuclear plant in the town of Akkuyu on the Mediterranean coast to help meet power demand that's rising by eight percent a year.

Turkey will also build a second plant near Sinop on the Black Sea coast. Sinop is a better choice due to lower cooling water inlet temperature, compared to high average sea temperature in Akkuyu, since cold cooling water inlet temperature gives more output for identical plants.

Here are the interested parties who purchased the formal invitation documents,

French-Belgian Suez Tractebel,

Canadian AECL,

Russian AtomStroyExport-ERG consortium,

South Korean KEPCO-Turkish ENKA consortium,

French Vinci-Chinese Nuclear Power Co-Turkish Park Holding consortium,

Turkey’s Sabanci Holding-U.S. General Electric-Spanish Iberdrola consortium,

Turkish Alsim-Alarko,

Turkish Hattat Holding and Belgian Unit Investment-Turkey's Dogan Holding-Anadolu Endustri Holding,

Itochu Corporation (Japan),

RWE (Germany),

Turkish AkEnerji, are expected to bid in the tender.

Under the light of above declarations, it is your writer's sincere feeling that the ongoing Nuclear tender procedure is not appropriate nor correct.

The lack of qualified local personnel is one angle ignored, but another one is the mismanaged power plants already operational. We can't even operate existing thermal power plants properly.

Moreover Turkish contracting firms are not capable of anything but laying the groundwork of the plant site, and handle simple mechanical site installations.

Turkey is simply not ready for such a huge project with lack of qualified personnel.

These missing issues on insurance, necessary credit financing will give unnecessary and unfair commercial advantage to Russian and Chinese parties over reputable western counterparts with proven international references.

Russian and Chinese parties do not care these commercial details.

Russian, and Chinese references are not proven technologies in the commercial international markets. Russian and Chinese companies might come to dominate the nuclear energy sector, a sector that was supposed to reduce Turkey's dependency on overseas resources.

They have other strategic expectations, such as staying at the stronghold strategic seaports of Turkey, Akkuyu on the Mediterranean coast, close to strategic MiddleEast conflict zones, Sinop on the North at BlackSea coast,

The tendering period is too short for a comprehensive evaluations and careful risk analysis for a nuclear power station in that size and output. Hence invitation documents are also not so commercially sound. We need to be too careful,

Your comments are always welcome

Haluk Direskeneli is an Ankara based Energy Analyst

Thursday, September 11, 2008

Tender for Afsin Elbistan C&D Thermal Power Plants cancelled

Dear Energy Professional, Dear Colleagues,

This is the second time that we witness the cancellation of the tender for Afsin Elbistan C-D thermal power plants. You will recall that we have received no proposal in the first tender which had 30+ participants.

It is your writer’s sincere feeling that cancellation decision is incorrect. Public administrators are miscalculating

General Manager of the Company confirmed that the Afsin-Elbistan power plant tender was cancelled because none of the bids were satisfactory for themselves.

GM said Company was not satisfied with the offers which they received and will hold another tender as soon as possible. Their administrative board had agreed to re-evaluate the tender specifications and will possibly make alterations. GM noted that “There are some technical and administrative problems in the bid specifications. We are trying to make improvements to the specifications and then we will reopen the bid within a month,”

The new tender is expected to be released by February 2009 at the latest. GM said the Company would undertake the establishment of the power plants itself if the second tender does not produce a satisfactory bid.

Recently investors from Japan, India, England, Russia, the US, Italy, the Netherlands and Belgium, along with local private enterprises Sabancı, Çalık, Ciner and Limak, obtained the bid specifications for the project which includes construction of the thermal power plants, selling the electricity from these thermal power plants and mine mouth coal in the Afsin-Elbistan region.

After failing to attract the funds necessary to finance the Afşin-Elbistan project, in June 2008, six of the interested companies that had planned to bid requested a four-month postponement in the tender; however, the Ministry refused to postpone the tender, noting that the request was received too late and that the tender needed to go forward as scheduled on June 26, 2008. Thus, Park Teknik of Ciner Holding and Akfen Energy were the only companies that ended up participating in the tender.

The Local Electricity Trading and Contracting Company will be providing guarantee to purchase electricity from the company that wins the bid for a period of 15 years. However, the companies’ offers on price per kWh were found higher than expected. As a result neither of the bids was accepted and the initial tender was canceled.

Building the Afsin Elbistan C and D units estimated to require almost US $5 billion of investment budget.

The Company decided to cancel the tender after it considered the price the bidders wanted for electricity produced from the plant was too high. Park Teknik and Akfen Insaat-Akfen Enerji said they would sell power from the plant at between US$0.15 and US$0.18 per kilowatt hour for a period of 15 years,

No foreign investors bid in the tender, held during increasingly turbulent global conditions.

Each of the new units will have capacity of 1,200 megawatts (MW), ramping up production capability at the power station in central Turkey, which currently has a total capacity of 2,800 MW.

The Company should eliminate the caste system in current tendering. At present, wealthy government-friendly individuals and companies occupy a higher caste, foreign businesses and smaller companies are deliberately treated as lower castes. If this is to become an international tender, then they must implement equal rights for all types of corporation and investors.

The prices declared in the proposal documents are the prices effective only after the plants were constructed and started to generate electricity and feed to the national grid. That is 4 years ahead of present time.

It is for sure that energy prices will get higher and higher in 4 years time, unless you turn more to your local indigenous energy resources, lignite, wind and hydro.

The simple calculations as made by inexperienced / unqualified/ consultants/ experts/ journalists in the daily newspapers are incorrect, also misleading,

More important than that the existing inexperienced public employees believe in those incorrect calculations, instead of making the calculations by themselves,
One should know that the prevailing proposal prices are the market prices. These prices are saturated/ calculated and finalized with careful risk analysis in fierce, open and fair competition between 30+ participants

It is for sure that there will be no better / no cheaper prices than the prices received at this last round,

It is our sincere feeling that the bidders were also quite reluctant to carry out the contract since the prices were too low, not too high, and again it is our sincere feeling that they might look for the administration to cancel the tender, and happy to receive cancellation.

There is no more interested party to participate to the new third tender unless commercial conditions are changed/ updated, scopes reduced

One should also keep in mind that with the prevailing local electricity prices, each plant could generate more that 1 billion US Dollar net worth of electricity at full load when they were in full operation. Therefore we can have more than 2 billion US Dollar net worth of energy generation per year from these C & D units together. With simple arithmetic the payback period is less than 2.5 years and ball park IRR is expected to be more than 40%. However, we have already lost 3 years in tender procedures.

This is wasted time and money of the public resources. There is no easy solution, inexperienced public employees will get some training but their training cost is too high and we all pay them to let them get that training. Your comments are always welcome.

Haluk Direskeneli is an Ankara-based Energy Analyst

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