Turkish risk exposure in Dubai debt crisis

Dear Energy Professional, Dear Colleagues,

On November 27th 2009, we received news from BBC and CNN that Dubai, a small city state, faced a massive debt problem. At present, they are unable to pay this debt for the next six months and news that might have seemed inconsequential suddenly became huge when it was disclosed that the debt, which was initially $40 billion, jumped to $60 billion and is today estimated at $80 billion.

Dubai is a small gulf city state with no petroleum resources. They serve the other neighboring Gulf States with no limitations whatsoever. They have financial institutions, luxury hotels with all the amenities and facilities one could imagine, including alcohol, gambling and prostitution. They have new real estate construction projects in various Palm shapes on Gulf shores. However, despite all of these lavishes, they could not circulate the debt repayment properly. Their debt accumulated, and in the end, S&P declared that Dubai is commercially listed in a state of bankruptcy as of last Friday.

It is our sincere feeling that this was an inevitable consequence of a deregulated financial system on remote Gulf shores. Without a regulated market, it may happen elsewhere in the future. Along with Dubai, debt insurance, or so-called credit-default swaps, also jumped sharply amongst Gulf States such as Bahrain and Qatar. Insurance against debt defaults rose for Turkey, Russia, Greece and Ireland as well.

The Dubai state company has prestigious real estate purchases in Istanbul through IETT privatization and there is a project called Dubai Towers there too.

The financial institutions that finance this huge spending are in difficult positions. These commercial banks are named in British newspapers as HSBC, ING, Barclays, Royal Bank of Scotland, Deutsche, Citi, and countless others.

We are happy to learn that Turkish banks have no such risk exposure at this time. We are told that our financial institutions have no appetite, no capability, no permission, no funds, nor any courage to enter such volatile markets. However, on the other hand, we have at least 100+ Turkish contractors of all sizes working in the area. These are major contractors or subcontractors of big construction projects, man-made islands, airports, hotels, and infrastructure facilities. These are big names in our construction business: MNG, Gama, Baytur, Yüksel, Nurol, Güriş, and STFA are all in Dubai.

We are told that the debt crisis was very well known by our colleagues in the region since these Turkish companies/ contractors were unable to receive their monthly payments for more than one year. We were unable to have such information and it was kept secret in order to not spread panic to their suppliers. Now, this has all been made public and those companies will not receive any money for the next 6 months at minimum.

There will be a great multiplier effect; these companies could not pay their employees and now their employees will not be able to send money to their families. They will not be able to pay their living expenses at home either. It is a snowball getting bigger and bigger everyday.

This is your writer's humble evaluation of the ongoing events in the Gulf. We need to have a clearer explanation of the latest status, clear definitions of Credit Default Swaps (CDS), and debt repayments in order to know whether we are now in the second phase of the global crisis.



I expect those constructors to return home and work on local projects, such as the new thermal power plant investments, thermal power plant rehabilitation tenders. There will be less hot money injection from Gulf States which make our local financial markets too volatile.

During hard times of economic crisis, stay in cash, stay liquid, get restructured, continue in employee training, continue advertisement, and get more prudent in spending. I wonder if this is a commercial/ financial nightmare.

Your comments are always welcome. Thank you and best regards.

--
Haluk Direskeneli, Ankara based Energy Analyst

EnerjiSA to open Bandırma plant in July

by JALE ÖZGENTÜRK, BANDIRMA, Balıkesir – Referans, Monday, November 16, 2009

EnerjiSA, a joint venture of Turkey’s Sabancı Group and Austria’s Verbund, is speeding up the building process on its natural-gas combined-cycle plant in Bandırma.

The foundation for the facility was laid Oct. 22 last year in the industrialized town in the northwestern city of Balıkesir.

Güler Sabancı, the chairwoman of Sabancı Holding, and Ahmet Dördüncü, the chief executive officer of the group, both went to Bandırma to examine the power plant last week and have decided to start generation two days earlier than planned.

In response to Sabancı’s question about the launch date of electricity generation, EnerjiSA Project Manager Veli Balat first said electricity generation would start Aug. 1, 2010. Dördüncü asked for it to be ready July 30, a request Balat promised to fulfill. The change will yield an additional 4 million euros in turnover for EnerjiSA.

If the Bandırma Natural-Gas Combined-Cycle Plant, which will cost 660 million euros, begins to operate on time, it will bring self-confidence to the company by allowing EnerjiSA to “prove its maturity,” Sabancı said.

With the launch of the Bandırma plant in 2010, Dördüncü added, Sabancı Holding will become a major actor in the natural-gas sector.

The only plant of its kind in Turkey, the Bandırma facility will reap 700 million euros in turnover by generating 920 megawatts of electricity annually. The daily turnover of the plant will be nearly 2 million euros.

EnerjiSA has invested a total of 660 million euros in the power-plant project, including 500 million euros for machine and equipment, said Selahattin Hakman, the energy group chairman at Sabancı Holding. This investment budget includes road and infrastructure studies as well as land and credit costs.

Cheaper electricity generation

While other natural-gas combined-cycle plants have efficiency rates of at most 52.5 percent when converting 100 units of natural gas into electricity, this ratio will reach 59 percent or even 61 percent at the Bandırma facility. As a result, EnerjiSA will be able to generate electricity 10 percent more cheaply than other power plants in Turkey.

The electricity generated at the Bandırma plant will supply 2.5 percent of Turkey’s overall electricity needs.

Planning to reach 5,000 megawatts of electricity-generation capacity by 2015, EnerjiSA aims to have a 10 percent share in the market. Currently generating 450 megawatts of electricity, EnerjiSA has seven hydroelectric power-plant projects in the works.

The group, which has a thermal-power investment in Tufanbeyli and a wind-energy investment in Çanakkale, will reach 2,000 megawatts of electricity production by the end of 2012, a figure that will rise to 5,000 megawatts in 2015.

EnerjiSA is a fifty-fifty percent joint venture of Sabancı and Verbund, one of the leading companies in Europe and Austria’s largest generator of electricity. The weight of energy in Sabancı Holding will climb from 15 percent to 20 percent with these investments.

The firm, which won the tender for Başkent Dağıtım, an electricity-distribution firm, has 3 million subscribers. Sabancı Holding aims to add 3 million more subscribers with some new tenders in the upcoming period.

According to Hakman, the firm is interested in the tender for the distributor Uludağ Dağıtım, which distributes electricity to the cities of Bursa, Bilecik and Çanakkale.

Though Sabancı Holding aims to become an energy leader and the group is also interested in nuclear energy, it did not offer a bid on Turkey’s first nuclear power-plant tender. “Some changes may take place in nuclear energy laws. Then we may reevaluate the conditions,” said Hakman.

A hydroelectric power plant used for cooling purposes will also be constructed at the natural-gas power plant in Bandırma. Some 10,000 residences will benefit from this innovative hydroelectric facility.

Noting that Turkey’s decision to participate in the Kyoto Protocol was a correct one, Sabancı added: “However, the position we are in is not proper. We are positioned among the developed countries. Turkey has to go to Copenhagen on Dec. 10 well-prepared to negotiate on the protocol.”

Hurriyet Daily News

Isken Sugözü 1320 MWe Thermal Power Plant

Dear Energy Professional, Dear Colleagues,

On 7th November 2009 Saturday morning, your writer visited Adana Sugözü ISKEN Thermal power plant premises together with Energy Working Group members of Chamber of Turkish Mechanical Engineers. We had the opportunity to listen/ learn/ visualize important technical and commercial presentations of the host company.

The Plant is first-of its kind imported coal fired power plant which is built and operated by private sector in Turkey since 2003. It has operated in compliance with international technical standards and the competitiveness of the plant is secured by efficient design (>40%) and high availability (>8000 hours per year).

Thus, it provides reliable and efficient power to the grid (9 billion kWh electrical energy per year) in addition to supplying reliable, efficient and competitive power to the national grid, with high concern over environmental protection. Here are the milestones of the plant,

- 1320- megawatt (2 X 660) installed capacity with Siemens Steam Turbine Generator,
- 524.3 kg/s HP Superheated steam generation at 185 bar/541 Celsius in each of total two Benson type Once through forced circulation 3-pressure steam generators,
- Hard coal with high quality as a fuel from South Africa and Columbia under long term purchase agreements (6000 or more kcal per kg LHV)
- USD 1,5 billion foreign direct investment with Contribution to the regional economy
- Reliable and environmental friendly energy program as well as Environmental monitoring and management program



We then passed nearby recultivated fields with new trees planted on. It was an extraordinary application of recultivation on already depleted fields.

Thermal Power plant is owned by German Evonik Steag (51%) and Turkish Oyak group (49%). It is a brand new plant, clean, fully equipped with sufficient capacity flue gas desulphurization systems, with high capacity flue gas dust collecting electrostatic precipitators.

Under the Turkish Environmental laws and regulations, Turkish Power Plants on the Mediterranean shores are to be cooled with only 1 to 3 degree Celsius seawater temperature increase. We are advised that imported coal firing SUGOZU 1320 -megawatt Thermal Power plant in Yumurtalik meets that environmental condition. They have deep sea return water injection from 4 different points with a temperature increase in a small range not to exceed 0.5 degree Celsius temperature difference.

We have been advised that there is a new ongoing investment under a different commercial identity for a new 600 –megawatt electricity output capacity imported coal firing thermal power investment next to the existing plant. The new plant is expected to be with higher technology design with latest additions for higher efficiency (>45%) and availability, an almost close replica of Evonik Steag plant design in Duisburg Germany. New plant is estimated to cost over 1 billion US Dollars in direct investment. However later in time, we have been advised that new contract is given to CMEC of China turnkey basis. This is a risk.

New plant soil excavation works were witnessed at site. Site construction is expected to start in year 2011. There is high concern in the local engineering societies for expectation of any employment of local engineering and manpower.

Those companies who are ignorant of local workforce employment expectations, and neglecting local engineering contribution, will surely be deserving the highest local resistance in legal platforms. Hence they will surely be having to much headache during project execution.

We are also told that the company is also planning wind and solar investments in the region for new future. We are pleased to visualize the application and operation of such a big investment on our shores, and wish to have similar state-of-art technologies with high concern over nearby environment, and preferably firing our own local lignite.

Lastly, through various sources, we are also advised that foreign partner is selling some of her energy plants/industrial plants/ companies, so that in future block sale of parent company shares in Isken TPP may come to consideration.

Once again we would like to congratulate the Plant Management and the Creditors who put money which made the project realized, and to the engineers/ employees who make the plant to run smoothly, efficiently at maximum availability, high efficiency, with high concern over nearby environment. Your comments are always welcome.
--
HalukDireskeneli@gmail.com, Ankara based Energy Analyst

Rehabilitation scandal at Power Plant

04/11/2009 - Begüm Gürsoy – Referans Daily Newspaper


Turkey has returned a 280 million-euro loan to the World Bank after failing to organize a tender to rehabilitate a power plant in line with the lender’s standards.

The state-owned Electricity Generation Inc. Co., or EÜAŞ, had taken the loan to finance the rehabilitation of the Afsin-Elbistan power plant in Kahramanmaraş in Southeast Turkey three years ago.

With monthly expenses over the three years surpassing 50,000 euros, an additional cost of 1.2-1.8 million euros has already occurred and no work has been done.

The power plant is one Turkey’s largest and has installed power equal to 1,355 MW. It has been operating, however, at just 300 MW for years and has created significant losses for the public sector. The cancellation of the tender process by the Ministry of Energy and Natural Resources, which aimed to sell the power plant after rehabilitation, has revealed a change in the ministry’s policy.

The Afşin-Elbistan A power plant started operating in 1984. German Babcock produced the boilers and Alstom provided the generators. When privatizations came up, the ministry decided to privatize its power plants following rehabilitation. After obtaining financing from the World Bank for the power plant, the ministry found it could not begin rehabilitating it because Babcock, an original participant in construction of the plant, had gone bankrupt. Therefore, it was required to seek new firms for rehabilitation through a tender. The use of the World Bank loan necessitated the implementation of the procedures of the bank in all processes of the tender. However, problems occurred concerning the compliance of the specifications with the World Bank policies.

Although the tender was announced first in July 2006, no bid was offered till 2008. The ministry offered a new tender in November 2008 after a change in the package, and the preliminary qualifications were obtained in March. The decision to annul the tender came up just as it was expected to take place this month.

Meanwhile, it causes concerns in the sector that the power plant has been inactive for at least five years, despite the forecast of a supply deficit in electricity by 2012. The plant, which the ministry has been trying to rehabilitate since 2004, has caused losses for the ministry due to its low generation capacity and high costs.

The plant also has been criticized for damaging the environment. The rehabilitation through the loan of the World Bank would have enabled the installation of electrostatic filters that would prevent pollution, but with tender canceled, the plant will continue to disperse hazardous smoke.

According to a World Bank report, the plant is unable to use more than 75 percent of its capacity at present. The bank had allocated the loan with a maturity of 15 years, including a non-payment period of five years.