TURKEY - Regional Motivations In Policy.

Five issues influence Ankara's positions in energy policy: (1) strong energy demand, now that Turkey's has resumed its growth; (2) its need, with US support, to control politics in Central Asia and the Caucasus; (3) navigation along the Turkish straits, with the Bosporus now dangerously congested; (4) oil and gas pipelines proposed to bypass the Black Sea (see Part 3 in OMT 18); and (5) geo-strategic rivalries with Greece, Iran, Iraq, Russia, Serbia and other non-Turkic states.

Ankara has been promoting a commercial aspect of pan-Turkism along the old Silk Road, with oil and gas pipelines to pass through Turkey from Central Asia to Europe. This is a geo-political motivation for every Turkish leader since the collapse of the Soviet Union in late 1991.

The foreign ministry has institutes in Ankara training diplomats from Central Asian and Caucasian republics - with enthusiasts also coming from Tatarstan, an oil-producing Turkic member of the Russian federation, and from other Turkic regions of Russia. This is rivalled by Iran's foreign ministry which has done the same to attract "diplomatic converts".

Dr. Yurdakul Yigitguden, a young and bold technocrat, is the undersecretary of the energy and natural resources ministry. For years he has been the top civil servant at the ministry. He controls the heads of the state-controlled firms in the energy sector, such as the pipeline company and gas utility Botas, the national oil company TPAO, and the power utility Teas. Teas is to be broken into three companies for generation, transmission and sales, as part of the system's privatisation.

The oil products retailer Turk Petrol Ofisi (POAS) has been privatised. The refining firm Tupras has also been privatised. Botas will eventually be privatised as well.

Dedicated and efficient, Yigitguden has been a university professor as well. He still gives lectures and, at the ministry he works hard. He is a keen advocate of privatisation in the energy sector. He has been behind efforts to establish at this ministry a department to speed up pipeline projects to bring oil and gas to Turkey, such as the BTC.

Mehmet Takiyyudin Bilgic: The Chairman of the Board and CEO of Botas, Bilgic in this position has succeeded Gokhan Bildaci since late 2002. The latter had succeeded Gokhan Yardim since on Aug. 1, 2001. Bilgic is confident that the 1m b/d crude oil pipeline from Baku to Ceyhan (BTC) will be completed on schedule and says the first tanker will be loaded by May 10, 2005.

On natural gas from Azerbaijan, Bilgic says the pipeline for this will be completed by end-2006 at the latest. He expects gas imports from both Iraq and Syria in the future. On the renegotiation of existing ToP gas supply contracts with Botas, Bilgic was on March 1, 2004 quoted by Petroleum Argus as saying in an interview: "These contracts are living documents and they need to meet the requirements of the day. If not they become unsustainable. We have been able to agree on ways of sustaining these contracts with our parties. We have not encountered any take-or-pay obligation so far. The Turkish demand growth scenario is not tested yet and with the establishment of the natural gas infrastructure pool we will see how demand develops. If market realities do not meet current commitments then we will negotiate to bring these contracts in line with future realities. I think contract terms are such that they can be revised".

Like his predecessors, Bilgic faces the planned privatisation of Botas and its break-up into separate firms to handle gas production, transmission, distribution, wholesales, importation, exports, trade and storage - with Botas, losing its monopoly, no longer to be allowed to conclude gas import contracts until its share of the Turkish market has fallen to 20%.

Botas has generated huge business for local and foreign contractors in Turkey, in view of its extensive pipeline projects. These projects and keen interest in them by the local business groups have made the company very powerful, as most of these groups have ex-generals among their consultants or executives. The total length of its high pressure natural gas pipelines in Turkey is increasing from 4,700 to 8,000 kilometres by end-2006 or early 2007. The total length of its oil pipelines is increasing from 2,400 to about 3.500 kilometres by end-2006.

Botas has had its status changed in 1995 from being a TPAO subsidiary. Now it is under the energy ministry. Until it is privatised and broken into several entities, it has the following assets and responsibilities: ownership and the running of the oil and gas pipelines and their terminals in Turkey, ownership and operations of the Turkish portions of the Iraq-Ceyhan crude oil pipeline, the pipeline which brings gas from Russia through Bulgaria, the Turkish section of the Blue Stream pipeline that pumps Russian gas through the Black Sea, the pipeline from the Turkish-Iranian borders which brings Iranian gas, the oil and gas pipelines now being built from Azerbaijan which will reach Turkey from Georgia, the LNG receiving and regasification terminal facilities for liquefied gas arriving from Algeria and Nigeria, and the underground gas storage facilities - both existing and the ones under development.

So far Botas has the country's monopoly for the import, transport and domestic marketing of natural gas; but this will end when the company and its offshots have been privatised.

In 1996, Botas got the state to authorise it to set up a unit in Jersey to operate in areas that would overlap with TPAO's activities. This unit was authorised to explore for, produce, refine, store and market crude oil, natural gas, LNG and their derivatives. Its capital was set at $500,000 and Botac was to transfer up to $10m from Turkey to the Jersey company.

The IMF has proposed that, in return for its help in bailing Turkey's economy out of its worst crisis since 1945, the government scrap Botas' monopoly on gas imports and domestic distribution. It has said: "The initial step should be to allow parties other than Botac to import gas and supply particular industries or regions using Botas' transmission pipelines if necessary with regulated transmission tariffs". This view is supported by lenders and other international agencies like the World Bank, as well as Turkey's business community.