Castration Effect

Castration Effect in Turkish Energy Markets

“Castrato” is a male soprano, mezzo-soprano, or alto voice produced either by castration of the singer before puberty or one who, because of an endocrinological condition, never reaches sexual maturity. Castration is non-reversible.

In business world, we have a similar feeling in the market, but that is reversable if cared properly. One day in late 2006, an International Company from FarEast has internally decided to come to Turkey, to capital city Ankara in order to meet with reputable local companies private and public for future cooperation and partnering in local Turkish energy market. Through an international business colleague, they asked your writer to help them in local networking.

At first we asked appointment from top management of public companies, Ministry, EUAS, TEDAS, and TEIAS etc.

Our Public companies have the similar attitude these days. They say "Since we should get 3- offers and evaluate for almost 3-months for each bolt we need, we cannot finalize any investment in the modern times in a reasonable short period of time. Therefore we ask private investors to make the investment. We expect the maximum rental fee for our treasury." Good point, good thinking, very logical.

We also asked appointment from private companies for mutual meetings for future cooperation. Most of them accepted and invited us to their head offices. That was almost no cost for them other than some business time to allocate.

On both sides, we had almost similar presentations. At first, our visiting foreign Company introduced their colorful hardcopy documentation, their home country references of various thermal power plants, as well as nuclear. Documentations were beautiful but they had no meaning in content. Anyhow that was something other than nothing. They had pictures of their international experiences, reference plants in the Middle East and elsewhere. However these documentations were explained with relatively poor verbal English.

In response our local companies explained how wonderful work they do in local and/or international environments. Surprisingly Turkish scope covered only civil works and site installation, plus maybe some construction of administration buildings / some catering. That was all. It is a pity. Most of our companies don’t have courage to exceed these simple activities. These activities are simple, hard work with minimum cost, almost with minimum value added value. It is so sad to say that our companies cannot handle basic engineering, they cannot handle overall leadership. So Turkish sides all handle the hard work, whereby our international partners get the biggest portion of the scope and profit.
FarEast Companies have the same software and hardware available as elsewhere, and they purchased the necessary technical license to handle design works of all types’ thermal power plants. They sign license agreements with reputable USA companies to construct CFB boilers to fire all types of poor quality with low LHV local lignite.

In the international markets, US or UK companies, German/ French/ Italian companies are too expensive today. They can not receive any order in our local market due to their high market prices. On the other hand China, Indian, Korean companies are relatively cheaper in turn key EPC contracts.

Other than Indians and Cheneese, Koreans were at the lowest life style in 1950s in the Korean War and at that time we sent our troops to save them. After 50 years, their GNP is almost twice of ours now. Korean Companies had turnkey engineering and complete project leadership capability. They constructed all their thermal power plants by themselves. Similarly they constructed many nuclear power plants in Korea under license.

If we do not show our engineering expertise, our market will soon be dominated by these Eastern companies and as a result our local companies will be doing only the simple hard work with lowest profit margins.

We visualize a sort of “Castration Effect” in our local contracting companies. Are these local companies sort of “Castrato”?? That situation is unfortunately created by our public companies over the years while looking for only international foreign companies.

All we need is courage, at least within our own environment. We should start to construct our own thermal power plants by ourselves. Foreign companies cannot design; construct power plants to fire our special local indigenous lignite. Only Turkish engineers can do it, since we live all our life with this local fuel.

Our local private companies are to decide if they will continue to have simple works all the time, and vanish, or make drastic change and start doing new investments on engineering talent by supplying the engineering staff with appropriate software and hardware, plus necessary technical licensing, to enable their companies work as turnkey EPC contractor as leading company.

That is the most important key decision now.
As the old saying goes, “If you think you can, you can.”

Ankara, 13 June 2019

Capacity Mechanism

Turkey: Capacity mechanism applications, OpEd

With the Electricity Market Capacity Mechanism Regulation, it is aimed to establish a sufficient installed power capacity and to maintain a reliable installed capacity for long-term system security, including the necessary reserve capacity for supply security in the electricity market. In other words, the domestic production of thermal power plants, which will guarantee capacity support, is provided to the maximum domestic production.
We are paying for the high price of not so wise investment decisions.
If the power plant is generating electricity at high prices, we have to shut down. In the energy markets, the capacity mechanism was introduced, followed by exemption from environmental equipment. Natural gas firing combined cycle power plants benefit from the application of the capacity mechanism as well as plants with imported coal. There is nothing in capacity mechanism for solar or wind plants.
In a sense, capacity mechanism incentives are given to thermal power plants. There is exemption made in investment expenditures in the construction of environmental equipment, for bigger electrostatic dust collectors and new flue gas desulphurisations. Even though the operators have any exemption, they stop running existing environmental equipments.
Because these environmental equipment consumes between 6-8% internal demand on the basis of power plants, so you can sell more electricity when you are not running these equipment, and earn more money. The environment is embedded in dust, nearby agricultural lands are spoiled who cares.
Who do we apply the capacity mechanism in existing thermal power plants? Existing lists give a certain idea which companies and plants selected. Energy markets have faced inappropriate rulings however so far we have not received such misapplication before.
All kinds of incentives are misused in our geography.

Capacity Mechanism is also implemented in European countries.

Greek consumers are displeased since they give incentives to old outdated thermal power plants. French electricity generators are pleased since they operate their old plants, German consumers are pleased since they balance their renewable system better.
In our case, it is expected that capacity mechanism of thermal power plants would help in terms of price disadvantageous situation, but should we help them?
In our country, imported fuel is expensive, whereas it is difficult to burn domestic fuel without additional expensive imported fuel if appropriate technology is not chosen earlier.
Imported coal investment is a gamble. Imported coal is feasible if coal price is less than ballpark 60 US$ per ton 6000 kcal/kg LHV. Now spot price is floating between 80-90 US$ per ton.
In free market economy, consumers do not pay the incorrect investments of the investors. Investors pay their incorrect investment decision by going bankrupt.
In our country, natural gas is dependent on foreign sources, and natural gas purchases increase the current account deficit.
If you have made combined cycle investments by firing natural gas, now imported fuel prices are expensive, you are starting to think about switching off the power plants.
In order to realize their wrong investment decisions, investors have occupied - confiscated fertile agricultural lands, destroyed the green forests, closed the beautiful sea shores, now they have to payback the outcome of the wrong investment decisions. You didn't make any noise when you were making money.
Capacity mechanism means taking public institutions hostage.
Other countries have investments on wind -solar- renewable orientation, we are going to another direction,
Let the markets free as they wish provided that they pay the consequences of their incorrect decisions.
Let the operators produce electricity with these fuel prices, if they can produce cheap, otherwise they should power off the plant.
consumers and tax payers are not responsible to stay back of this power plants, to support with incentive
Why there is no enough energy, I need to think about this question.
Because there is no new energy investments, no one wants to invest, there is no domestic or foreign financier with any investment appetite. We have 90 thousand MWe installed power, we have 50-thousand MWe peak demand, whereas our maximum electricity generation capacity is not safe.
So we published the regulation of capacity mechanism, we have published a new regulation which brings the change of the regulation because it was released premature in a hurry.
The solution of this work is in improving the domestic investment environment. Threats don't get anywhere. This great country, with more than 80 million human population, so high intellectual capital will soon find solutions one way or another.
Turkey is passing through hard times of economic difficulties due to incorrect economic and social policies of the ruling party, there is limited or even no local or international finance, no money to sustain new local investments, foreign companies are leaving the local market, local companies have huge debt burden to carry out daily expenses. Companies are sold at very low prices. Investment in energy sector moved to low end. Energy companies are feeling hard times to pay their salaries. Country opened 2x1000Mwe one wind and one solar tender. Tender is finalized however winning parties have no finance to execute the project.
Imported coal thermal power plant investments are not encouraged any more, nor natural gas firing CCPP projects, since both need to pay imported coal. Local coal projects are preferred but again there is no available project finance.
Financing companies have no appetite for new investment ventures.
So all in all, business is not easy these days at our end. We could not escape from frenzy struggle of local elections, which could not be finalized in Istanbul. Istanbul mayor elections will be renewed on 23rd June, and nobody is interested in anything else. When we search "Turkish economy", in google, we come up with not so promising evaluations of experts in Reuters, DW, BBC, CNN, Bloomberg.
Country is in deep recession, which does not deserve with so much human reserves, so much natural resources, located in very strategic geographical point of world, at the cross roads of three continents. We hope intellectuals , academicians, business people will find better solutions how to overcome these difficulties in the long run. We hope to advise better news in the future days to come, but at this point in time, I have no more advise than "wait and see", until that time.

Ankara 30-May 2019

Hostage

Hostage in Doha/ Qatar

Your writer has classmate from college years. We graduated from Mechanical Engineering Department of METU in 1973. My schoolmate worked for many years in the Russian and Middle East construction sites of Turkish Contractor companies Stfa, Enka, Tekfen, Gama. His engineering knowledge, construction site experience was excellent. Between years 2008- 2010, he was the site manager of a power plant construction in Qatar, of a major Turkish construction company in Doha. Within the scope of his job execution, he met with a new subcontractor engineer from Turkey.

My friend gave him a small subcontracting job and he was pleased with his work. Power plant construction was completed in 2010.

In 2010, together he founded a small contracting company with this Turkish entrepreneur. They named the new company by combining the first syllable of both surnames ... Qatar W.L.L. They started the company, along with a residential construction in Qatar Doha, they took the job of air conditioning / ventilation A / C. They started work, borrowed in the Doha domestic market for purchasing necessary material and equipment.

They brought workers from Turkey. In the end, they completed the job, the houses were delivered and they prepared the work completion documents. With this document, they would receive their job completion certificate and withdraw their last money from the bank. Then they would pay their debts to the local Doha market with the money they receive, and then share the remaining money.

But that was not the case.

As soon as the other Turkish partner received the certificate of "completion" from the local administration, he went to the bank, withdrew all the remaining money, put it in the bag in cash, took the next plane without delay, and left the country in a very short time. We understand that their partnership agreements allow the other partner to act in such an unethical way. He did not stop in Turkey, he went to one of the Turkish Republics in Central Asia, with no international criminal exchange, and he lost his track.

My friend is now hostage in Doha for the last six years.

The creditor supplier companies complained to local authorities.

Fortunately he's not in jail, but he can't leave the country. He is now a hostage in the country. He now works in a local engineering company. In order to get out of the country, he has to pay the debts of $ 30-40m. His company is in the liquidation process but he cannot pay its debts. At old age, making money is not so easy. From time to time we are on the Internet for chatting.

What's going on in the job market? Such situations are most likely to occur in our geography without any ethical concerns.

Does a partner do this to another? Our ethics-culture-business approach allow such misapplications.

Without paying the debt to local suppliers, employees should not have the opportunity to leave the country. Partners should be able to control each other very closely. The indigenous sponsor practice in Saudi Arabia was very much against to our minds but we now understand that it was necessary in the Middle east environment, a practice put enforced not in vain. Proper education and job training are essential to have good work ethic.

In Western Europe - in North America, there are few such cases. Felon can't leave the country - Criminal people can't escape. If s/he goes, her/his sanctions will be harsh.

It's happening in our geography. The negative morality of the last years has spread everywhere. The sanction is almost non-existent. When writing a partnership agreement, your writer would say that it is useful to write the contract wording very carefully.

Ankara, 05- June 2019