Amid a struggling US economy rife with political dissonance, a European sovereign debt crisis and Asian markets often closed to foreigners, a stable country of 70 million in the process of a full-scale deregulation of its energy markets–without restrictions on foreign investors–sounds almost like a fantasy.
But Turkey is that country, sitting at the crossroads between some of the most energy-rich countries in the world and some of the most energy-hungry. As international investor dollars get allocated in the region, uncertainty about the eventual outcome of the Arab spring has left Turkey as a standout target for foreign money.
“Turkey in and of itself is a very large market,” notes Chadbourne & Parke LLP Counsel and former New York Governor George Pataki, but on top of that “there is a Turkish component to a lot of the region,” added Ayse Yuksel, managing partner of the same firm’s new Istanbul office. Besides energy and project finance, Chadbourne’s Istanbul office concentrates on mergers and acquisitions, private equity, capital markets, corporate finance and tax, a spokesman for the firm said.
Pataki and Yuksel sat down with Breaking Energy this week at Chadbourne’s New York headquarters to discuss the opportunities in a market long sidelined by significant government ownership of the power sector and a dependence on foreign supplies of natural gas. At Chadbourne, Pataki focuses on energy, corporate and environmental issues.
Breaking Energy covered US government interest in the Turkish energy sector earlier this in the story “From Washington To Istanbul.” Read it here.
More than three years ago, Pataki and a group of American visitors sat down to dinner with Turkish Prime Minister Recep Tayyip Erdogan and asked him what his single biggest problem was. Erdogan, Prime Minister since 2003 and a major architect of the country’s progressive move towards European standards in business, told the group his biggest problem was energy, Pataki told Breaking Energy.
The country was so reliant on foreign supplies of natural gas, much of it from Russia, that a cold snap elsewhere could result in supply cuts that, in addition to the security and service concerns, were making it very difficult to plan and grow the economy. The country’s huge untapped resources of renewable energy, as well as its access to domestic coal and nuclear generation, alongside new transmission investment in privatized firms, were identified as the answer to the country’s energy dependency.
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The legal framework for investors in the energy sector in Turkey is “very favorable,” Yuksel said, and a new Commercial Code will have even more protections for minority investors, a number of which could be foreign.
While foreign direct investment into Turkey has slowed since 2006, a number of deals could finalize if the European sovereign debt crisis finally shows signs of ending. Otherwise completed government sales of power delivery assets to companies have been slowed, mired in a lack of financing as Turkish banks grow more conservative in reaction to the debt crisis, Yuksel said. Once financing pressures ease, those deals could finalize the privatization process.
In the meantime, deals to invest in assets have moved ahead even as project financing markets development in the country has slowed. A lot of the firm’s business has been in joint ventures, “putting money together with know-how, putting foreigners together with local owners,” Yuksel said.
Renewable energy is a major component of the country’s move away from its dependence on foreign natural gas, Pataki pointed out. The country has a target of 30% power from renewables by 2023, a target that Yuksel admits sounds ambitious but is also possible given how untapped renewable energy resources are in the country.
GE recently partnered with Turkish MetCap Energy Investments to build a utility-scale power plant that would combine integrated solar combined cycle (ISCC) technology with wind turbines to provide highly efficient hybrid power to Turkish customers. It is set to be fully operation by November 2015. Read the full story here.
Events in Turkey are bearing out Erdogan’s forecasts for energy independence more than three years ago. “They’re working to put in place the incentives and the regulatory climate and the market conditions where foreign investment can be very successful in the energy sector in Turkey,” Pataki said.
Governor Pataki spoke at length with Breaking Energy earlier this year about the domestic US energy business, and his hopes for the upcoming 2012 election. Read that story here.
Photo Caption: The Bosphorus Bridge in Istanbul.
