Wednesday, June 30, 2010

Turkish Thermal Power Plants for Sale

Dear Energy Professional, Dear Colleagues

Energy Markets Regulatory Board (EMRA or EPDK) Chairman announced that 1120 MWe Hamidabad CCPP, 2x160 MWe Can CFB, 4x150 MWe SeyitÖmer TPP, 1034 MWe Soma TPP will be privatized later this year.

Overall capacity in privatization is 16,000 MegaWatts and public authorities expect to get 10 billion US Dollars equivalent of privatization income for the Treasury after electricity generation plant sales.

Our new job is to figure out proper procedures and the face value of the plants in privatization, plus terms and conditions of the scheme. Let us choose a sample Thermal power plant and estimate its face price for sale. So the question is how much to pay in order to buy Soma Thermal Power Plant in Privatization.

In our country, we have a rule-of-thumb expectation that an investment should repay itself within next three years. That may be extended to four years at most.

If you have a thermal power plant with 1034 MWe electricity output capacity, at annual 7000 hours of average working availability after privatization, at average 10 US cents per kwh prevailing electricity market prices, you come up with a figure to earn approximately 350 million US Dollars per year after deducting your coal and operation costs. In years of repayment period, that is accumulated to be not less than 1 billion US Dollars. This is the gross price of the plant in privatization.

Now we have to deduct necessary rehabilitation expenses from 1 billion US Dollar. Rehabilitation expenses should cover expenses to pay 6 (six) new FGD (Flue Gas Desulphurisation) installations. That is approximately 25 million US dollars per FGD unit. That figure is derived from past tenders of Kemerkoy, Yatagan and Orhaneli thermal power plant FGD installations.

The next is new Electrostatic Precipitation (E/P or ESP or dust collector) installations for the remaining 4 units. We know that plant has already paid 9 million Euros for the ESPs of 1st and 2nd units of Soma-B plant. You need to renew also boiler pressure tubes, safety valves, soot blowers, coal mills.

In the end we come up a rough figure of 300 million US Dollars for rehabilitation. That is to be deducted from the gross price of 1 billion US Dollars.

One should keep in mind that in privatization period, new owners normally prefer to keep the existing qualified experienced engineering staff to be active in operation. The technical staff gets better monthly salaries provided that they continue to generate value added contribution to the organization. However senior labor force is requested to get retired. That is the natural outcome of privatization process.

The most important risk in operation is in the quality of the incoming coal to feed the thermal power plant. In the past low and fluctuating quality of incoming coal was the most apparent critical risk as foreseen by the interested foreign parties in early 2000s.

The new investors would like to purchase the nearby coal reserves in order to keep themselves free from risk of incoming coal quality fluctuations. Constant coal quality is to be secured with selective mining. Unburnable materials are to be screened and removed.

So we need to estimate the prevailing price of the available coal reserves. That is again three years payback of the current annual income of the reserves. Local Coal is sold to plant at about average 2.50 US Dollars per million BTU heating capacity. That is a reasonable global price for lignite reserves. For 1034 MWe electricity generation, you have to pay 60 million US Dollars per year for coal. That is accumulated approximately 180 million US dollars in three years.

After privatization of the existing coal reserves, investor should enforce selective mining operation for better coal quality. That needs more mechanization in open pit mining, and reduced labor force in underground mining. That is the nasty reality of the privatization. These realities should be foreseen and evaluated in the long term prior to full enforcement of privatization decision.

All interested parties should get prepared for the outcome. Treasury is certainly in hesitation of spending public funds in power plant rehabilitations. They feel that the public spending is not in proper control. Public tenders take long evaluation periods and they are completed in long terms. In the end most of them are not operated effectively, and properly. Treasury is also in hesitation and reluctance in spending due to possible corruption in public spending.

The prevailing political administration may prefer to privatize the entire plants rather than spending in rehabilitation. After privatization, the public authority could enforce the buyers to agree on the necessary rehabilitation spending from their private sources. It is proven that private spending in rehabilitation is faster, cheaper and more effective in the end.

Human cost impact of the privatization is that labor force is reduced in time. Hiring and firing will be easier. Those senior staff will get retired. Better educated and qualified new staff will be recruited. The existing technical staff will be kept unchanged for a while since they are the most important human capital of the establishment as long as they keep their contribution to the operation. They normally get paid more that they get earlier. Their material satisfaction is fulfilled by the new private owners. On the other hand the technical staff will get more freedom in their spending for rehabilitation and programmed maintenance.

More plant availability and higher capacity output are expected in the long run. Electricity generation will be sold in the local national Market at prevailing rates and more income generation will be created. That is more taxable income for the public funds.

There is also a new investment potential to construct 2x300 MWe capacity new coal fired thermal power plant in Soma in future. That new investment will also be integrated with the privatization package to encourage and attract more attention to the project.

In the end we may find that a proper private ownership may also bring better operation, better rehabilitation, and better environment under strict public scrutiny, and generate more income to the workers.

Moreover they should make more funds available to scientific research in the nearby universities for better coal firing, better utilization of coal reserves. New scientific research institutes are to be established. More academic research funds need to be allocated to the local nearby university engineering and technical departments.

They can sponsor upgrading of the living standards of the nearby settlement. They can sponsor cultural and historical sites/ activities in nearby ancient sites, which are Bergama/ Pergamon and Truva/ Troy.

We have lignite coal as our biggest fuel source and we all agree that we should use that coal

with maximum efficiency and availability,
with maximum contribution to the society,
with minimum harm to the mother nature,
with minimum impact on global warming,
with maximized employment for the qualified local labor,
with maximized employment for the local engineering
with maximized employment for the local contracting.

Please do note that Turkey has picked McKinsey & Company as advisor to help shape up sale strategy for the privatization of the state-owned thermal power plants of the public electricity producer EUAS.

We hope that this report although needs a continuous updating, will provide the interested reader a frank view of the Soma Thermal Power Plant for future operation.

This article is an independent work which is prepared with the available information as received at the Soma Thermal Power Plant, trying to advise a candid picture of the existing situation. It is free from any public interpretation.

Your comments are always welcome. With Deepest Regards,, Ankara based Energy Analyst

Thursday, June 17, 2010

Followup after HEPP privatisations

Dear Colleagues

A foreign colleague of mine who is well aware of Turkish energy markets called me and asked me the logic of unreasonable pricing of the last Hydro Electric Power Plant (HEPP) privatizations. He was very surprised to see the figures, unit prices of the sale. Was it weird, unreasonable, or even absurd??

These HEPP plants were built 30-40 years ago under local power needs with smaller capacities. They have bigger output capacities based on the flow of the water they have. In other words these hydro power plants can generate much more Kwe capacities if renewed. Therefore the money is given to the river not to the plant they purchased. The hydro power plants will be renewed with bigger capacities in near future.

It has also been a reality-check with fellow investors and "competitors" of similar background/targets. Bidding process was simply an excersize of balancing "risks of a new investment" and "risks of an old and poorly maintained facility". However some bidders looked at the issue from a different perspective. Afterall we all spent some time trying to make sense of the offer prices but could not see the logic behind the average price of 6 mio$/MW. Congratulatios are for, the successful bidders, of course, for taking great risks, and the Privatization Administration.

There is one other explanation which is nothing to do with economics, nor with competition. Could we think of a sort of simple money laundering, cleaning the informal/ unregistered income with some legal terms??

He was so surprised for such possibility of a simple reasoning. He will be writing these interpretations without giving my name in his recent FT article,

I told him that I will not be displeased if he would not give my name as his reference in his article. Do you have any other explanation to mine, a different one, or an alternative one ??

Your comments will be highly appreciated

Best regards

Haluk Direskeneli

Environmentalists should play nasty for Oil Spill in Gulf of Mexico

Dear Energy Professional, Dear Colleagues,

An investment is placed in order to have payback in the shortest possible period of time, and to earn the maximum return. It is not because you need more energy, more electricity. This is not public service. These are expensive commodities and they will get more expensive due to ever increasing demand.

That is the case in the world, hence that is the case in our country. An investor comes to a country and makes an investment since that country creates opportunities to payback the initial investment money in the shortest period of time. They do not care the environment, they do not care the people, they do not care employment expectations of the local people. An investor only cares the money they will earn.

On the other hand, they behave as if they care the environment, the people, the nature. Do not get confused, nor get deceived.

They promise everything, the best environmental friendly technology, the best appropriate filters, non-stop operation of those dust filters, fluegas desulphurisation systems, minimum temperature increase in the nearby seawater for plant cooling system, the lowest available dust exit at their stack, the best coal handling system, the best ash handling and ash storage systems.

Do not get wrong. Do not loose your control over their investment on your home land. Do not leave your environment to their control.

We mechanical engineers are educated to make, design, fabricate, construct and operate thermal power plants. We like to have more stringent environmental rules and regulations. These regulations are our joy, our business, our challenge. The more the rules get stringent, the more we work, the more engineering we make, the more money we earn.

The critical issue is that these engineering works should be made locally, by local engineers, by local fabricators, by local qualified workers, based on local fuel coal lignite etc.

A foreign engineering company can NOT make these detailed engineering. They are unreliable. They make the construction, operate for a few years during acceptance test period and then they leave the country. You stay with a scrap design, a scrap plant, and most of the time unable to operate.

Environmentalists should be careful in nature protection. They should even play nasty. That is the language the international investors understand very well. Locals should keep an eye on all activities, on all design stages, on all equipment, on all environmental regulations.

These critical issues can not be left to public administrations. A public administrator only cares to please his/her superior in order to get promotion, he/she does not care the local environment, top administrator only cares to please the existing political power.

Therefore do not hesitate to play nasty in order to protect your employment, your job, your environment, your air, water, soil and sea. You should be merciless to those who do not care your environment. You should destroy/ eradicate/ erase their business interests, their career, their professional expectations.

That is the case where President Barack H. Obama has to take action against BP in Gulf of Mexico. That is the same case in Amasra, Catalagzi, Elbistan, Yatagan in our country. That is the rule of the game. There is no other compromise.

Haluk Direskeneli, Ankara based Energy Analyst

Sunday, June 06, 2010

How to get Environmental Impact Assessment

Dear Energy Professional, Dear Colleagues,

Do you know how to get your Environmental Impact assessment certification for your new thermal power plant investment? Let me explain. An environmental impact assessment (EIA) is an assessment of the possible impact—positive or negative—that a proposed project may have on the nearby environment, together consisting of the natural, social and economic aspects, plus populations, fauna, flora, air, soil, water, humans, landscape, cultural heritage. The purpose of the assessment is to ensure that decision makers consider the ensuing environmental impacts to decide whether to proceed with the project. Our norms are copied from the current EU norms in principle, even a bit more flexible.

Any new thermal power plant project with output capacity more than 100 MW thermal, needs EIA certification for initiation of the investment in our local market. It is certified under the scrutiny and supervision of the EIA general Directorate of Ministry of Environment and Forestry. There is a public regulation for that process. You should first find a competent environmental engineering company, preferably based in Ankara, with good relations in the respective Ministries, and Public workers, close to the current administration, with many similar references in the past. Those companies are all well known by the sector. You can reach them by simple google search.

That engineering company normally has sample master EIA document with 200-300 pages, created with copy/ paste method, from various similar sources. They use "replace" mode in "word" software and create a new version for the new thermal power plant investment.

In this report, you read local populations, fauna, flora, air, soil, water, humans, landscape, cultural heritage, simply speaking insects, birds and flowers of the subject environment. Then the document starts to describe the thermal power plant in loose format, with general explanations of the technical details with no commitment no binding to any technology now to any supplier. Graphs, drawings, charts are all in primitive format, too childish in appearance, within capability of secondary school education.

These explanations are so simple and funny that you laugh a lot while reading. Those are written usually by non- technical translators, from non-related Internet sources. Many technical terms are false. Investor does not have any commitment to any supplier nor to any technology, all loose information. There is plenty of talk about local employment opportunities. In project execution, the investor places the order to the lowest price supplier, mostly to the Far East company with one third of the world prices as if it is a virtue without caring the technical details, then the plant will be constructed by 2000+ Chinese leaving no employment opportunities to the job hungry locals, whereby it is worse to see that the same plant is operated by 500+ foreign workers of the same foreign contractor for the next years.

EIA reports declare that you will create employment to the local people. In the end, the investor creates employment for the foreign workers with the lowest ridicules price declaring Far East company. The cheap price will certainly have lower life time in operation just to pass the guaranteed period of 2-3 years.

All these documents are collected, and shall be submitted to the public authorities. The technical details are not important, so are the company's financial status, or experience, or past references. The important thing is creating the required documents in full compliance to the regulations. If there is a certified commercial company in application, then it is enough to have certification for competence. The authority reads and evaluates the EIA report in a certain period of time. Normally they do not read the same wording on birds, insects, and flowers since they had enough exposure to that rubbish wording so many times in the past. The important thing is to satisfy a higher authority.

Then "Public information Meeting" is scheduled in the nearest settlement town or village close to the thermal power plant site, serving tea, coffee, and cakes and empty wording, with explanations how wonderful and friendly would be the thermal power plant for the locals. The EIA report is released in the Internet with the possible short period of time, without awakening the local NGOs nor the chambers of engineers, nor environmental organisations.

If those environmental organisations, Chambers of Engineers somehow learn and attend the meeting, and if they declare their objections on the EIA, lack of necessary filtration, lack of enough space for ash dam, inability to conform with deep sea water discharge, danger to underground water for the nearby agricultural activities in Antalya, danger to the air traffic in the nearby airport landing corridor in Denizli, these objections will be noted with care and said to be evaluated. As in Gerze, "Public right not to get informed" is noted, or in Terme the statement "the meeting will be on hold", enters into the public record.

Then that EIA report is approved, and certified, so EMRA license is released based on that EIA certification together with many other registration forms already filled in full compliance with the regulation without sound scrutiny of financial status, or capability, or experience or similar references in the past. Public disapproval to the application is so rare.

Investor asks the public administration to expropriate the land they require for the power plant without caring the chosen land covering forest or agricultural activities. That is so easy.

Investors' consultants will then go to the market for shopping for the cheapest price without caring the quality, appropriate technology. They can not monitor or evaluate the technology since all technical drawings are in the original language of the cheap Far East contractor, only a few English wording appears on the title block of the technical drawings. There is limited, or mostly no access to the technical manuals since they are all in the foreign language of the Foreign Far East company with no intention to make English translations.

These cheap FarEast originated plants operate for almost 2-3 years just to past the guaranteed period under the full operation with the foreign crew of 500+ foreign contractor/ operator team. Then the failures start in the dust filters, in the safety valves, in the fuel injection burners, then in the coal mills, in the ash disposal systems. Most of the time the plant has no spares since there is no emergency spare-part policy of the contractor. The investor does not request one because they do not know that they will need spare parts in the long run. These are all new for the investor, and spare part list is an unnecessary cost item in the initial cost of the plant in early comparison.

Plant starts to pollute the nearby environment, local people reacts in desperation, in the mean time, the investor generates electricity and sells in the local market with high market price while polluting the air, sea and the land. Penalties are not deterrent, the plant is never closed due to ever increasing electricity demand f the local market. Plant shut down is temporary. It is normally re-opened in a short period of time after paying the ridiculous penalties.

Coal power plant is operated with a staff of approximately 500 employees, similarly a combined cycle power plant works with 50 qualified staff. Local people can work at the door and just outside of the fence as security personnel.

For how long? Until the time comes for a new political formation which protects the local employment, which restricts the employment of foreign workers, cares the expectations of the local community and responds to the local voters.

There are cheap 135 MWe CFB and 600 MW pulverised Chinese design thermal power plants with lots of construction and operational problems. All technical drawings are in Chinese, so there is no possibility of local workers to operate the plants.

We Mechanical Engineers, are not against the construction of thermal power plants. We are educated to make construction of the thermal power plants in compliance with the technical quality of our local coal. We want to use the maximum local engineering, local design, local resources, local fabrication and local manpower, in compliance with environmental norms and regulational with the least harm to the nearby environment.

We try to design the environmentally friendly equipment to collect maximum amount of dust, ash, NOx, SOx, reduce the noise to lowest level, appropriate and clean deep sea water discharge, collect all ash and bottom ash in ash dams, keep the air clean, stack clean, coal stock area non-polluting.

EIA approvals, environmental controls are too important and should not be left only to the care and regulations of the government agencies. Turkey's energy policy, should not be "more energy and electricity generation no matter what the cost to the nearby environment" as the public institutions have now been implementing.

Our energy policy should be, "to generate energy and electricity in respectful to the environment, with maximised use of local fuel, with best local design engineering, fabricated with maximised local portion, installed by the local contractors, with local labour, built at environmental appropriate areas".

We engineers can not be against to the thermal power plants. On the contrary it is engineers' job to design with the latest engineering and the best capability to meet the firing maximised local coal, to inform and enlighten the society how to reach to that target.

Pulverised coal-fired thermal power plant coal combustion technologies should be abandoned, new clean coal technologies, CFB, IGCC, Oxy-firing, underground gasification systems must be applied. Combined cycle power plants should be designed to have the best sea water plant cooling system, with minimum damage to marine life, with deep sea discharge properly designed, to the sea water temperature. Dust, ash, NOx, SOx emissions should be kept under control. The plant should not be placed in the forest land.

Without Energy and electricity production, a society can not develop, can not raise the level of her prosperity. You can not live confortable life. You can not watch opera, cinema, TV, without electricity. You can not drive on the freeway without traffic lights, you can not live warm, comfortable environment in your home at night. Newspapers can not be printed, Planes can not fly nor land.

More energy production is essential, increase in power production is required. Everybody wants electricity, want more power, but no one wants the thermal power plant in their own backyard, even wind power plants since they make too much noise.

How shall we fix this dilemma?

This dilemma will be fixed. Investors will make investments on appropriate design plants in correct place, environmental friendly, employ more local people, with sufficiently big dust filters in operation, designed to deep sea discharge properly. They will not cheat the local people. Plant will not be in the forest land, nor in agricultural neighbourhood. All depreciation of the nearby land value will be repaid. A new thermal power plant can be constructed next to an old thermal power plant since the local plant around an old plant is used to the presence of a thermal power plant. They worked there for many years. They accept the investment much faster.

Investors are to pay attention to the environmental issues, care to respond to local engineering and local employment expectations, if they wish to have minimum problem with the locals in the long term operation of the plant. We engineers want all parties to earn money. If the local people can not earn money, while only investor earns money, this is not fair. This one-way happiness can not continue forever. We engineers want all parties to earn money, and the thermal power plant investment should bring wealth to the community and o the investor both. Local NGOs and chambers of engineers should have regulatory and supervisory role for the project at all times.

What happens next after all?

If the local people are mostly comprised of highly educated retiree/ pensioner population with sufficient environmental organisations, fully informed of the details of the new investment project, they apply to local courts for cancellation of the investment certificate. Since the EIA report is not so complete, it is weak in content, ill-prepared, with many deficiencies in technology, courts declare cancellation of execution.

However the construction is not ceased. Investor and the constructor continue the site activities. The investor completes the deficiencies and applies to the administration for renewal of the certification and the license. The public office re- issues the certification in time. The investor spends a little more money, without any change in design and details of the equipment at site.

The investor with no care in public relations, continues to make mistakes with applications to courts for compensation of the extra costs. It is funny but a reality. It there any other similar court case in the world that an investor goes to court to sue a local person who goes to the court to ask real value for the land which is expropriated??

That is poor practise public relations, too absurd, and the initiator pays back unnecessary consequences in the long term at all times, since be sure that nobody gets intimidated.

We engineers do not ride on trains if we were scared of the iron, we do not go to mines if we were scared to get dirty, we do not work on off-shore platforms if we were scared from water. (a local saying created in recent years)

May God give wisdom to investors for better risk assessment in their thermal power plant investments. Your comments are always welcome. With best regards

Haluk Direskeneli, Hamburg based Energy Analyst, Germany
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