Turkey has a unique position in the current market for Caspian energy resources, because of its geographical position as the closest European country to the region and the country's fast-growing energy demand. Turkey imports almost 32 million tons of crude oil annually (as of 1999). That figure is more than 10% of the total potential market in the European countries for Caspian oil reserves. On the matter of natural gas, Turkey will be a key contributor to growth in European gas consumption in the next decade.
Independent research, conducted by Dresdner Kleinwort Benson of Germany, indicated that, Turkey will be in the top six gas consuming nations in Europe by the year 2010, behind the traditional big existing markets of Germany, UK, Italy, the Netherlands, and France. The researcher estimates Turkey's gas demand will increase to 43 bcm by the year 2010, and 78 bcm (13.5%) by 2020, outpacing the robust growth expected from the total European gas market.
Natural gas has been introduced to Turkish market in 1987. Botas (Turkish Petroleum Pipeline Company) was authorized to import and distribute the imported natural gas and was empowered to build the necessary related infrastructure facilities by the Turkish Government. The Council of Ministers signed Decree No-397, which has the force of law. This decree is still in force and regulates the following:
- Botas has sole authority to import natural gas and LNG.
- Botas is authorized to distribute and sell imported natural gas within the country.
- Private companies and Botas can be authorized for city distribution with approval of the Council of Ministers.
- Botas is authorized to sell gas to industrial companies, which have annual gas consumption in excess of 1 million cu meters per year within city limits.
- The industrial consumers with less than 1 million cu meters of gas consumption per year, are served by the authorized city distribution company of the region.
Botas has monopolistic rights in importation and trade of natural gas, but city distribution is kept much more liberal. Botas has no monopoly for the gas pipeline and related facilities such as LNG terminals and underground storage facilities under the present legislation.
Private companies can also build, own and operate such facilities and General Directorate of Petroleum Affairs is the sole authority to grant the Petroleum Rights Certificate. Despite of this opportunity, no such private venture has been created in the last 13 years, because of gas trade and related investments directly manipulated and realized by Botas.
A team of experts is working for the last two years to restructure the gas sector in Turkey, under the direction of one of the Deputy Undersecretary of Ministry of Energy and Natural Resources. They plan to amend the Petroleum Law, provide the existing Petroleum Affairs Directorate with administrative and financial autonomy, and appoint it as the petroleum market regulation authority (MENR related agency). The main objectives of the amendment are to achieve:
- Harmonization with macro economic policies
- Stability and security for the investors
- Structuring of petroleum market
- Preparation for liberalization
- Harmonization with EU regulations
- Regulatory requirements for distribution after privatization
- Develop expectations of market participants.
The administration, namely the Petroleum Market Regulation Authority, will be authorized to regulate, monitor and control the market activities. In parallel to the amendments of the Petroleum Law, Botas is preparing for integration with the model that is to be setup with the Amendment. Activities of Botas are categorized in three sections: pipeline transportation for oil, oil products, and natural gas, natural gas trading, natural gas distribution in cities.
In parallel, Botas will be divided into several companies. The first will be a 100% state owned company (Botas Pipeline Company), which will be responsible for building and operating main gas and crude oil pipelines.
The second identity - Botas Gas Co. - will be state-economic-enterprise (KIT) to handle gas imports and trade.
The third and fourth necessary enterprises will be joint stock companies for Bursa and Eskisehir to manipulate city gas distribution activities. The establishment of these two joint stock companies will be the first stage for privatizing of the distribution network which will be built by Botas in those cities. With the model under consideration, in addition to the Petroleum Market Regulation Authority, some new important concepts are going to be introduced.
Those companies, which will be dedicated to gas trade, are going to be a wholesaler and authorized by Council of Ministers. A company wishing to be a wholesaler will be required to evidence gas sale and purchase contract by issuing a letter of intent from gas supplier. At the beginning stage, newly formed Botas gas trade company will be a wholesaler to regulate the wholesale market and shall transfer present gas contracts to private companies in the transition period.
Wholesalers will import natural gas and LNG purchased by local natural gas companies, obtain transportation, gasification, and storage services, and sell natural gas to customers.
Operator companies will own and operate connection lines and other facilities. Construction and operation permits for underground storage, LNG facilities, local pipelines will be issued by Council of Ministers. Wholesalers will be authorized to have some limited amount of shares in the operator companies. Operators will not be permitted to be active in the gas trade, but they will supply service to the wholesalers.
Botas Pipeline Company (100% state owned) will be the national transporter. This entity will not be involved in the trade activities for the products it transports, but it will provide services to wholesalers for a transport fee. Wholesalers will benefit equally from its services. The tariff for gas transportation will be transparent and will take the transport distance and conditions into account. Invest- ments of the national transporter will be subjected to present procedures applicable for investment of state enterprises. Whenever necessary, contributions will be made to the national budget from its investments, as per Decree Nr. 233, will be made.
Companies willing to be authorized for the distribution of natural gas in a city shall file its application with Petroleum Market Regulation authority. The administration will announce a "call-for-bids." After evaluating the bids, the results will be submitted to MENR for review and approval by the Council of Ministers. After approval, a concession contract for a maximum of 30 years will be signed with the city distributor.
I would like to comment on several points in the draft restructuring plan. Subsidies from the national budget for the national transporters' investments, and the wholesalers, in the early stage of privatization, are recommended in the draft plan. The subsidy should be the last item to be considered in the gas sector. The subsidy is not a solution to any problem, considering the deficit in the national budget and insufficient amounts which could be allocated for state investments.
The national grid will remain 100% state-owned. I have doubts how this company will be able to generate enough cash for its debts and for new investments. If it fails to meet the designated targets, the wholesalers will not be able to meet their commitments. As a result the whole sector will suffer.
Almost all of the gas contracts of Botas are for the long term and based on agreements between government of Turkey, and the governments of supplier countries. Because of that, transfer of contracts to private companies may not be possible. Even if it were possible, some authority might be required to guarantee the new party's contract performance.
Splitting Botas into several companies, means radical change in the balance sheet of the company who would take over the financing repayments of the present Botas. This measure may violate the existing financing contracts and should be carefully studied.
The industrial customers are very important elements for the city distribution project to be successful. If all of them are set to be free to buy gas from wholesalers, this application will make the city distribution less attractive for investors, especially in cities with smaller populations.
M. Fatih Ocal is the Ankara Area Coordinator of Suzer Holding and a board member of Suzer Energy. He holds a MSc from METU. He served in BOTAS as Deputy General Manager between 1984- 1994, then worked in MENR as a consultant to the Minister prior to joining Suzer Group in 1997.
Editor's Note: This article is a summary of a presentation, "The Present Status Of Gas Sector and Plans for Liberalization," by M. Fatih Ocal, Ankara Area Coordinator for Suzer Holding (Istanbul) at the 3rd CERA Annual Conference "A Tale of Three Seas," held on May 9-11, 2000 in Istanbul.