TURKEY - Salih Pasaoglu.

The Chairman of the Board and CEO of Botas, Pasaoglu is relatively newcomer to the top management of this giant company. Like his predecessors, Mehmet Takiyyudin Bilgic who had succeeded Gokhan Bildaci since late 2002, Pasaoglu has to manage a company committed to much more gas than the current market can take. As a result, his management has found alternative buyers of LNG. But occasional shortfalls in gas supplies from Iran has caused problem to the company (see gmt19TurkpipelinesMay8-06).

Pasaoglu gave MEED a lengthy interview published on Sept. 30, 2005, in which he said high oil prices had a "negative effect on the Turkish economy and on Botas' budget". He added: "Fortunately, we have not had to cut any project, and we are not planning to cut any. We recently visited Moscow to discuss contract prices of gas."

Pasaoglu told MEED: "Turkey is seeking to introduce a cap on the high [gas] prices so that we can remove the volatility. The discussions [with Gazprom in Moscow] are continuing. The [planned] supply of gas from the Caspian [from late 2006] and Egypt [from 2007] will help to regulate the price. We have not yet talked about the price of Egyptian gas, but we are hoping that, like the Caspian gas, it will be cheaper than [gas from] Russia. This will reduce the average price of gas imports".

On the reforms and opportunities for private investors in the gas sector, Pasaoglu told MEED (see OMT): "Turkey's gas distribution network is being privatised and tenders are currently being offered to private companies to form distribution companies. Botas is also planning to transfer its gas import contracts to the private sector. As well as this, the Turkish regulatory authority allows private companies to develop new gas import contracts to supply companies"

As to build-operate-transfer (BOT) contracts or public-private partnerships (PPPs), Pasaoglu said: "There are opportunities for private investors in transit projects. For example, as part of an initiative to reduce the volume of [oil] shipping traffic through the Bosphorus and the Dardanelles, which are becoming increasingly congested and dangerous, we are planning to build a [crude oil] pipeline bypass from Samsun on the Black Sea to Ceyhan on the Mediterranean. If this goes ahead, we hope that private companies wil play a role in the delivery of the project, with Botas co-ordinating. We anticipate the involvement of Turkish companies and supplier companies, possibly on a PPP basis". In effect, a partnership of ENI of Italy and the local Calik has taken up this Samsun-Ceyhan 1.1m b/d pipeline project and are looking for other partners (see omt19TurkTradeMay8-06).

Pasaoglu added: "Another opportunity for private investors is in the construction and operation of underground gas storage facilities. Botas has a project to convert salt domes under Salt Lake in central Turkey into a 1,000 million-cubic-metre underground natural gas storage facility. The project is being part-financed by the World Bank and we will be issuing tenders for five contracts on the project at the beginning of 2006. These will be for an engineering consultant, an environmental consultant, water supply, construction of surface facilities and construction of underground facilities. Botas will operate the facility. However, this project will not be enough. Turkey needs more storage capacity. The area around Salt Lake is suitable for other storage projects and these will be open to the private sector to build and operate".

The Botas CEO said: "Turkey's energy demand is increasing at about 7 per cent a year, so we are constantly seeking new supplies. The government's policy is to give priority to domestic souces such as hydro, coal and renewable sources of energy. For the period 2010-15, we are planning to produce 6,000 MW from gas, 6,800 MW from hydraulic power, 4,500 MW from coal and 4,500 MW from nuclear power. But our domestic sources are limited so we are trying to diversify and improve our sources.

"Currently most of our energy comes from Russia [as pipeline gas]. We also import energy from Iran [in pipeline gas] and Nigeria [in LNG form, with Turkey also importing LNG from Algeria]. But our Baku-Tiblisi-Ceyhan (BTC) crude oil pipeline project and the Azerbaijan natural gas pipeline, both of which are under construction, will bring fuel from the Caspian. And the Arab gas pipeline will bring gas from Egypt [through Syria, with that pipeline to be on stream in 2007]. The BTC pipeline came on stream in late 2005 and the gas line from Azerbaijan will be on stream in late 2006.

Pasaoglu said: "So far, we have no projects with the Gulf producers but we are open to ideas. Our very first international pipeline project brought [crude] oil from Iraq [in 1976]. That pipeline is still in

use, although it is operating at about 30 per cent of its capacity. Once things improve, we hope that we can also get gas from Iraq [under a project for 10 BCM/year]. We have a project there but it is on hold.

"We are exploring for oil and gas in the Black Sea. We have found some gas in the western part of the Black Sea and are hoping to increase the amount. But more important is in the eastern part of the Black Sea, where Turkish Petroleum Corporation (TPAO) is carrying out some deep water drilling with the UK's BP".

Like his predecessors, Pasaoglu 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. Botas is losing its monopoly, no longer to be allowed to conclude gas import contracts until its share of the Turkish market has fallen to 20%. This 20% share of the Turkish market is targeted to take place in 2009.

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 4,500 kilometres in 2004 to 8,000 km by end-2006 - and to much more in the subsequent years as several gaslines will be built (see gmt19TurkpipelinesMay8-06). The total length of its crude oil pipelines is increasing from 2,300 km in to about 4.500 km by end-2007.

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 from Azerbaijan, the Marmara-Ereglisi LNG receiving and regasification terminal facilities arriving from Algeria and Nigeria, and a 1,000 MCM underground gas storage facility at Salt Lake on which work began in early 2006. There will be several underground facilities in the future.

In 1996, Botas got the state to authorise it to set up a unit in Jersey to operate in areas which 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 Botas was to transfer up to $10m from Turkey to the Jersey company.

The IMF in 2002 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 said: "The initial step should be to allow parties other than Botas 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. But Russia and Iran has turned down Botas requests change existing SPAs in favour of contracts with private Turkish companies for smaller amounts of gas. Both Gazprom and NIGEC have refused to approve its transfer of import right to private groups. The main reason was that the Botas ToP commitments under the existing SPAs are guaranteed by the Turkish state through its Central Bank. No such sovereign guarantees can be given to private companies in Turkey.