How should Investment Incentives be given, if at all?

Dear Readers,

A local saying in our geography reads, “All investment incentives are abused with intensive care”. Let me try to explain this expression.

We encourage exports, then exporters create fake documents to take advantage of the incentives and get tax refunds. We make procedures easier in order to encourage the construction of thermal power plants, then vulgar investors initiate seizure of forested land and the local agricultural population rises up. We ease Environmental Impact Assessment (EIA) procedures to incentivize combined cycle power plant investments, then vulgar investors use the local people’s drinking water in their cooling systems and the water becomes heavily polluted, unsuitable for further agricultural use.

The new Environmental Impact Assessment Regulation entered into force with its publication on 25 November 2014 in the Official Gazette numbered 29186. Thermal power plants generating up to 300 MWt (about 100 MWe) are now exempt from the application of EIAs as the 300 MWt capacity is quite high. Agricultural lands, forests, wetlands, olive groves, are protected and named as "Sensitive Areas" in the Regulation. The Ministry will give the final decision of the EIA Regulation. So the final decision will be in the hands of political will.

Thermal power plants must comply with environmental standards and an exemption therefrom should never be brought into question. While investment incentives are penned by well-intentioned western minds, in practice, oriental swindlers seek loop-holes, an in effect, menace responsible implementation of the works. Investment incentives are not received by those who really deserve them, but by those who are close to the so-called political will.

EIA exemption in its current form is an unfortunate practice. It means investors will be exempt from complying with local and international environmental norms. This definitely needs to be revoked.

While we all know that investment is not an easy process, investors nonetheless need to prepare EIAs and convince the local people of the utility of their projects. If there is no local acceptance, then such investment is not appropriate for the local people and therefore the investment should cease. It is not correct to fell 6,000 olive trees overnight, to clear the land to make it ready for the construction of a thermal power plant. This is unacceptable. The investor who cuts down 6,000 mature olive trees in one night is not acting in a fair manner.

The olive tree is mentioned in all three holy books. Anyone who advocates the importance of constructing thermal power plants, anyone who promotes the importance of pursuing local indigenous basic design, anyone who puts money into the investment, and anyone who has built the power plant is in a difficult situation in the case of a public vote. There is no party to defend this horrible atrocity against the environment.

This irresponsible act has harmed our hard-earned reputation as well as our business profile. There is no justification for this act. Using basic logic, there is no reasonable economic comparison between these 500-year old olive trees and the power plant with a maximum 20 to 30-year lifespan.

If a wrongful practice takes place, it should be immediately reported and corrective measures should be enforced immediately. If the wind farms on open farmlands make life unbearable with their noise, and if locals in residential areas are complaining of the noise levels, investors are to be told to install quieter wind turbines without demolishing the forests in the process.

If there is a risk of agricultural land seizure with solar projects that would subsequently leave local farmers without land, this project should be avoided.

If the guaranteed purchase price per kW-hr is less than expected, investors should be warned, so that the over-stimulated demand can be redirected. Market conditions should govern free competition. The consumer should not be forced to buy overly expensive electricity.

If you want to build a thermal power plant with a 1,000 MW output capacity that fires imported coal, you will need at least 2,000-3,000 acres of vacant land.

If you submit a false application for 300-400 acres in the EIA process, you should be warned that your actions are wrongful, as you actually need at least 2,000 acres and know that the requested 400 acres of land will not be sufficient. Neither additional public nor private land will be expropriated, this includes forests and agricultural land, and you cannot ask to clear land with olive trees.

Combined cycle power plant investments should not be able to use underground water for their water cooling systems if that water is already allocated for nearby farmlands. Otherwise, investments risk massive increases due to local environmental concerns; Initial Public Offering (IPO) stakeholders will end up with the loss of billions of dollars, based on shortsighted attempts to save a miniscule amount of capital by jeopardizing environmental norms and regulations.

If the ash dam or ash storage facility for a coal firing power plant is not properly constructed, if you pollute the nearby sea via deep water discharge, you should be warned, and the work should be corrected.

“I have the money, why can’t I construct the power plant where I want?”, say some new investors who are unaware of sensitive environmental issues. Energy is not a priority, but the environment is. Having money does not authorize you to build where you want; there are rules, regulations, laws, and local and international environmental standards to which everyone must comply.

The deadline for the installation of new environmental equipment in public thermal power plants was legally extended and will now be enforced in 2018. Privatized power plants benefit from this same extension.

Compliance with environmental norms must be enforced by all means. We give investors extended exemption from environmental investment. This is neither fair nor correct.

Investors ask for the extension of exemptions for at least 3-5 years to allow for rehabilitation expenses. They further initiate reduction of personnel expenses. Consequently, our people become unemployed and we are faced with unnecessary social discord, public tension, and turmoil.

With this pace enforced, we shall face more and more deforestation, a reduction of viable farmland, and the demolition of lands housing olive trees. We now promote renewable energy, with more wind turbines and more solar panels to be installed on vacant land. We also guarantee higher electricity purchasing rates in order to let these projects receive better financing. These incentives will primarily serve to boost the importation of equipment. Our market will be saturated with cheap, poor quality, redundant energy equipment imports with no maintenance contracts.

Nonetheless, there are incentives to promote the domestic manufacture of such equipment. Yet we fear that such measures will be plagued with bureaucratic procedures, which will make regulations not applicable or worsen facilitation. Who can build a reputable turbine/generator plant in five years,  construct the factory, take a considerable market share, gain the trust of new businesses, receive orders to survive, finalize manufacturing, arrange the site, construct the plants, put them online, and then further promote domestic production? This is a dream which cannot be fulfilled. However, we may be able to establish assembly plants for foreign firms, and initiate partial production.

It is not easy to foresee the construction of locally designed power plants that fire local coal within the next few years. The measures which have been implemented do not clearly encourage domestic manufacturing. While there is a summary of a draft roadmap on remedying this situation that has already been released to the public, the full details of such a plan have not yet been disclosed.

On the other hand, our local civil contractor companies are providing heavy labor abroad for the construction of power plants in rich neighboring investor countries that have limited labor forces. These companies have a record level of orders. However, they earn money by providing basic human workmanship; they do not supply basic design and their involvement in engineering is limited. Other major foreign contractor companies supply the basic design, deliver the necessary engineering expertise, and receive the largest share of the profit.

If an investment does not create local employment, it has no importance. Investment incentives should promote local engineering, local fabrication, and local employment for site installation, operation, and maintenance.

Public authorities fear that if there is no proper investment incentive, then there will be no investment. This assumption is not correct. If the proper market forces are emancipated by the rule of law, free market conditions, and fair competition then there will always be investment that contributes to the prosperity of all. On the other hand, if there are investment incentives then there is also the possibility of corruption that favors the privileged..

Transparency International’s latest 2014 annual “‪Corruption Perceptions Index” saw ‪Turkey drop 14 places to 64th out of 175 countries. If we are already ranked so poorly in the corruption perceptions index, it is better to avoid further worsening the situation by introducing un-manageable investment incentives. Investment incentives are an unnecessary cost and an unnecessary burden on our economy.

It is much better not to have incentives, and to let market forces dominate the local environment under the close scrutiny and surveillance of public authorities as well as non-governmental institutions.

In our geography, we believe that the more investment incentive measures we enforce, the more corruption we create. Therefore, it is better to stop investment incentives completely. We would strongly recommend and prefer that no incentive for energy investments should be provided other than current standard general tax cuts and flat electricity feed-in tariffs.

Prinkipo, 15 March, 2015

Haluk Direskeneli is a graduate of METU’s Mechanical Engineering Department (1973). He has worked in public and private enterprises, US-Turkish JV companies (B&W, CSWI, AEP, Entergy), and in fabrication, basic/detail design, marketing, sales, and in project management of thermal power plants. He is currently working as a freelance consultant/energy analyst of thermal power plants, and utilizing his basic/detail design software expertise for private engineering companies, investors, universities, and research institutions. He is a member of METU Alumni and the Chamber of Turkish Mechanical Engineers Energy Working Group.

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