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ENERGY SECTOR in TURKEY
Summary Report of Turkish Energy Sector



Energy figures are the most significant indicators of a country's level of development, since all industrial and agricultural activities depend on energy. For most world regions, energy consumption shows the pattern of economic activity. Energy resources are categorized as primary and secondary resources depending on whether the source has been transformed or processed. The primary sources are oil, natural gas, coal, lignite, water, wind, nuclear power and fossil. Secondary resources are electricity, coke, coal gas and oil products. Lignite accounts for 40 percent of Turkey's total primary energy resources, while oil and natural gas accounts for 14 percent and 1 percent respectively. The primary energy consumption is dominated by oil with a share of 46 percent and natural gas with a share of 10 percent. Hydro accounted for the highest share of gross electricity production (37.14 percent). Turkey's electricity generation grew faster than in most OECD countries, however all primary resources are not used as efficiently as it could to generate electricity. Nowadays, the global energy industry faces an accelerated growth. But in the short term, energy companies must deal with higher levels of uncertainty led by lower demands due to the economic crisis in Asia and rather hot winters in the rest of the world.

Turkey's primary energy sources include hard core, lignite, oil, natural gas, hydro, geothermal, wood, animal and plant wastes, solar and secondary energy sources are coke and briquettes. Turkey's total energy production covers 48 percent of the total energy demand.

The Turkish Ministry of Energy and Natural Sources sees total primary energy production will reach 31 091 Btep in 2000 and 79 399 Btep in 2020. The Ministry also envisages that the production in 2000 can even reach 33 434 Btep by using high productivity technologies, emphasizing on renewable energy sources and benefiting from alternative energy technologies within the frame of economic limits. On the other hand, the Ministry sees the demand rising by an average of 6.2 percent till 2010. According to the planning of the Ministry, the covering percentage of the consumption by the domestic energy production will decrease from 34.2 percent to 25.3 percent between 2000-2020. The plan foresees an energy import of 59 940 Btep for 2000 and of 234 953 Btep for 2020. It is said that the share of industry in energy consumption will increase about 50 percent in the first period of the 21st century. But with the global heating and rising environmental sensibility, the world will prefer non-fossil energy sources such as geothermal, solar and wind and nuclear energy that will have a very important place.

The Turkish Government has budgeted TL 2,135 trillion for public sector investments in 1998. Investments in energy sector constitute 18.89 percent (TL 403.4 trillion) of this total.
Turkey's geostrategic importance is also effecting its energy policy. Its role in Caspian oil and gas pipeline and its growing internal market constitute an important source for the development of the energy sector. But foreign investment was rare in the recent years due to political instability.

The major energy policy is based on the improvement of energy supply security through diversification of imports, the promotion of energy efficiency in the energy sector including more efficient power production through structural changes in the electricity sector with decentralization and privatization, and transition towards a more market oriented energy sector.

At the origin of Turkey's energy problem lays the insufficiency of financing. For the incoming period, the investment envisaged for the development of coal, electricity, crude oil, natural gas, hydro, nuclear energy and renewable energy sources will be about $30 billion. For this to be realized, the role of the private sector is crucial.

PRIMARY ENERGY RESOURCES PRODUCTION AND CONSUMPTION IN TURKEY (Btep)

Resources 1997 1998 1999 2000
COAL
Production 1347 1678 2729 3100
Cons/demand 8495 8173 9771 11174
LIGNITE
Production 11759 12514 12685 13007
Cons/Demand 12280 12514 12685 13007
OIL
Production 3630 3230 3056 2851
Cons/Demand 30515 33493 35364 38244
NATURAL GAS
Production 230 684 662 557
Cons/Demand 9165 11954 15660 17030
HYDRO
Production 3424 3520 3543 3763
Cons/Demand 3424 3520 3543 3763


PRIVATIZATION OF THE ENERGY SECTOR

In 1998, Turkey's privatization in energy sector has reached $20 billion. But the process of privatization is still not complete in 1999 due to technical, legal and administrative obstacles. An investment worth of $30-40 billion is foreseen for the coming 10 years. To achieve this target an assertive investment program is followed, including "Built-Operate" and "Built-Operate-Transfer" (BOT) methods.

Acting as a consultant company for the Ministry of Energy, Coopers and Lybrand is developing a reconstruction project for the sector. The project foresees for the year 1999 a reformation of the public portion of the sector. A new firm called Electrical Distribution and Centralized Services of Turkey will be responsible of the centralized electrical sales, distribution and planning and also will take care of TEAS and TEDAS. So the firm will buy energy from the producer and sell it to regional distributor charging wholesale prices. It will also provide credit to private sector and operate the subsidy mechanism. The aim of this project is to develop free competition by determining quality standards and prices.

Unable to decide as to the way in which to constitute a market for the energy sector, Turkey cannot make its own energy plans, because privatization in the energy sector is not regulated by a set of rules. While Energy Ministry is for new investments on BOT model, TEAS and DSI (State Waterworks) claim that the existing investments would be completed in due time and there is no need for new investment. State Planning Organization (DPT) trimmed off several BOT projects in its energy plans till 2020. DPT's reason to prune the investments is shrinkage in foreign credit chances and increase in project costs. On the other hand, Energy Ministry is for giving priority to investments on BOT model, maintaining that TEAS and DSI projects may not be completed on time. DPT did not approved the construction of two power stations by Total and Xenel that was ratified by the Council of State. AndIrIn Hydroelectric powerhouse and 3 wind power stations were also included in DTP's pruning operation. According to the plans, Turkey has to reach an auxiliary energy capacity of 69.1 percent by 2005. If the Ministry implements all the projects, Turkey will have 53,842 thousand megawatt worth of established energy.

Till today, 8 hydroelectric, 1 wind and 3 natural gas power houses with a total established capacity of 1,369 MW were realized under BOT model. 2 hydroelectric, 1 thermic and 3 wind powerhouses with a total capacity of 295 MW under BOT model are foreseen for 1999.

According to the calculations of the Energy Ministry, based on the existing power houses and unfinished projects, energy gap in 2005 will be about 46,725 GWh. And the share of this gap on the demand will be about 23 percent. Taking this scenario into consideration, the Energy Ministry is for the inclusion of short-term BOT projects within the frame of its plan.

OIL

The country's energy consumption and imports are projected to increase substantially, while domestic oil production is expected to decline. Turkey's net oil imports increased more than 30 percent since 1990 to reach 545 kb/d in 1995. Before Gulf War Iraq was Turkey's largest supplier, but after the Gulf War Turkey's crude oil purchases were made from Saudi Arabia and Iran. When distance and cost are taken into consideration, Turkey would appear to be a natural market for future Central Asian and Transcaucasian crude oil exports.

With the increase of production in OPEC countries from the beginning of December 1997, crude oil prices began to fall in world markets. This fall has reached important levels with the Asian crisis and increasing oil stocks due to the general stagnation of the world economy. In Turkey , at the end of 1997, in order to prevent the inflationist effect of price increase, the government has decided to frozen oil prices for the first half of 1998. Despite TÜPRAS sales were determined by state's fixed prices, it benefited largely from the price decrease of crude oil all over the world. Since the raw material price was low, the benefit margin was high. But, on the other hand, due to the limited price increase in oil products, the profit of oil and LPG distribution companies decreased considerably. As a conclusion, while TÜPRAS made benefit for the fist time since 1992, due to the fall of crude oil prices all over the world, the net benefit was negatively affected, because of the losses of LPG and distribution companies such as POAS, Turcas and Aygaz. And Petkim, holding 50 percent of the petrochemical products market share, was one of the most negatively affected companies due to the shrinkage in petrochemical demand, to the fall of crude oil prices and also to the Asian crisis.

MARKET SHARE OF DISTRIBUTION COMPANIES BY THE END OF 1997

COMPANY %
POAS 52
BP-MOBIL 18
SHELL 10
TURCAS 7
OTHERS 13


NATURAL GAS

Turkey's gas market, which is now 11 years old, is an important target for all producers. Natural gas represents a significant share in Turkey's energy balance and the most increasing demand is observed in natural gas sector used for electricity generation, industry, domestic and fertilizers. Turkish demand for natural gas is expected to reach 21 billion cubic meters Turkey provides the best routes for Central Asian and Transcaucasian gas deliveries to Europe that bypass Russia. The state company BOTAS has a legal monopoly for importing and transmitting natural gas. It owns the high pressure gas pipelines, LNG import terminals and regasification plants.

After 1995, natural gas consumption continued to increase by an average of 10.5 percent per year. BOTAS, the national pipeline company, is making arrangements to supply 27 Bcm per year by 2000 and 60 Bcm per year by 2010. Experts say the future of the natural gas will be determined by the development of transmission network, the demand and the potential of the distribution system. Turkey has been importing natural gas from Russia since 1987 for electricity production and residential heating. The forecast is that demand for natural gas will increase to 25-30 bcm by the year 2000 and 35-40 bcm by the year 2010. Currently 60 percent of the natural gas is used in power generation, 30 percent by domestic industry and 10 percent in residential heating.

Turkey's natural gas resources are small, therefore since 1992 efforts were made to explore and produce natural gas abroad and TPOA started activities in Egypt, Kazakhstan, Turkmenistan, Azerbaijan.

COAL

The most important factors in determining the choice between coal and natural gas are environmental impact and total generation cost. Although Turkey's oil and natural gas reserves currently appear to be limited, its coal reserves are quite abundant. Rich lignite deposits are spread all over the country. Total lignite reserves are estimated at 8374 Mt, of which 7339 Mt (88%) are economically feasible. The biggest lignite deposits are in Elbistan, They represent 40 percent of the total. But, 57 percent of the lignite reserves are of low calorific values (gray lignite) , below 1500 kcal/kg, and better quality lignite of over 3000 kcal/kg only accounts for 7 percent according to the data given by Black Sea Regional Energy Center.


ELECTRICITY

For developing countries, electricity demand grows faster than GDP even with market incentives to save energy.

Turkey's total electricity generation increased to 103.040 million kWh in 1997 from 95.370 million kWh in 1996. And in 1998, total generation was nearly 114.1 million kWh. The energy consumption per capita is 1784 kWh, which is below the world average..

Turkey's established electric power reaches 22 thousand megawatt. The aim is to arrive at 65 thousand MW in 2010 and at 110 MW at 2020; this means an additional capacity of 3500 MW every year. The foreseen total electricity demand for 2020 is about 547 billion kWh. Only 105 billion kWh of this demand will be covered by hydroelectric sources.
Turkey's hydroelectric economic capacity will be fully utilized and thermal energy resources exhausted by the year 2010. The total potential of conventional domestic energy resources for Turkey's energy production is about 246 billion kWh, 105 billion kWh for lignite, 16 billion kWh for coal and 125 billion kWh for hydro. Even if the totality of this potential is used, it would not be possible to cover the electrical energy demand in 2010.

According to the State Planning Organization, electricity losses caused by insufficient maintenance of transmission and distribution systems increased by 117.2 percent to 20,600 million kWh between 1989-1997, representing 22.1 percent of the total consumption in 1997.
Electricity sector accounts for more than 50 percent of gas use in Turkey.


ELECTRICITY CONSUMPTION (DISTRIBUTION %)

YEARS Total.
GWH
% Household Trade Gov.
Offices
Streets Industry Other Losses
1990 56.812 100.0 15.9 4.5 2.6 2.2 51.4 5.8 17.6
1991 60.499 100.0 17.9 5.0 3.1 2.3 47.1 6.0 18.5
1992 67.217 100.0 17.1 4.9 3.0 2.8 46.9 5.7 18.5
1993 73.351 100.0 17.1 4.9 3.1 3.1 46.7 5.8 18.5
1994 77.783 100.0 17.3 4.8 4.3 3.2 43.9 5.5 21.1
1995 85.645 100.0 16.9 4.9 3.5 3.6 44.4 5.3 21.3
1996 94.789 100.0 17.3 6.1 3.2 3.1 42.9 5.7 21.8
1997 105.517 100.0 17.2 5.7 3.4 2.8 41.8 5.7 23.3
1998 114.100 100.0 18.2 5.8 3.6 2.6 41.9 6.2 21.3
1999 121.400 100.0 18.3 5.8 3.6 2.5 42.0 6.3 20.6
Source: 1999 Program


20 percent of the electricity used in illumination

The share of illumination within the electricity consumption is increasing every year. In 1990 this share was about 12 percent for a consumption of 56.8 billion kWh. From then on, both total electricity consumption and the share of illumination within this consumption increased. While consumption reached 114.1 billion kWh in 1998, the share of illumination increased to 15 percent. Those calculations were made by taking into consideration the fact that 16 percent of household energy consumption consists of illumination.

Taken into account the fact that 5 percent of the total industrial electricity consumption is used for illumination, we see that the share of illumination reaches 20 percent in Turkey's total electricity consumption. For 1999, total consumption is planned as 121.4 billion kWh and electricity to be used for illumination as 15.5 billion kWh. Thereby, the share of illumination within the total gross electricity consumption, excluding industry, will reach 16 percent. The share of domestic consumption loss being about 17.6 percent in 1990 and reaching 23 percent in some years, is planned to be fixed at 20.6 percent for 1999.

According to data compiled from related institutions by the State Statistics Institute, the electrical energy consumption within the period of January-September 1998 was about 66.720 billion kWh amounting 864 trillion TL. Of this consumption, 25.467 billion kWh amounting 395 trillion TL. was used in illumination. Compared to the same period the previous year, the illumination consumption quantity is increased about 10.0 percent and the consumption value about 87.3 percent. 41.253 billion kWh amounting to TL 469 trillion used in industry and other sectors is increased about 7.8 percent as quantity and 72.1 percent as value when compared to the same period of the previous year.

ELECTRICITY CONSUMPTION (JANUARY-SEPTEMBER)

  1997 1998
  KWh TL billion kWh TL billion
Total 61.422 483.539 66.720 864.179
Govern. Dept. 3.473 33.788 3.656 63.414
Trading Establi. 5.023 59.705 5.722 117.0250
Household 12.748 117.599 13.911 214.874
Street illumination 1.901 -- 2.178 --
Total illumination 23.145 211.092 25.467 395.313
Industry & Auto-producer 29.874 209.912 31.645 356.588
Agricultural watering 800 4.951 1.054 10.648
Construction site 763 8.195 1.038 19.392
Other & TEAS Sales 6.840 49.386 7.525 82.239
Total Industry & Other 38.277 272.444 41.253 468.866
Source: State Institute of Statistics


RENEWABLES

Marmara, the Aegean and Southeast Anatolian regions of Turkey are rich in wind energy, Southeast and Mediterranean regions in solar energy and Aegean and Marmara regions in geothermal energy.