Of TUPRAS and Tankers

Turkey

Economic News

22 Jul 2010
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These have been busy times recently in Turkey's energy industry, with news of a major privatisation coming alongside reports of new oil exploration in the Black Sea. Meanwhile, the ongoing dispute over use of the Bosphorus by oil tankers flared into life again, with accusations and denials flying over alleged unnecessary closure of the straits by the Turkish authorities.



First, news from the privatisation front. On January 13, the Privatisation Administration (OIB) announced that a consortium of Russia's Efremov Kautschuk GmbH and Turkey's Zorlu Group had submitted the highest bid for the Turkish Petroleum Refineries Corporation (TUPRAS), with an offer of $1.302bn.



The government had been hoping for a high bid on TUPRAS, particularly after disappointing results in 2003 from its other privatisation efforts - notably tobacco and alcohol firm TEKEL and petrochemical company Petkim. They had also been hoping for more than $1.302bn, with a market evaluation of $2.353bn widely quoted. With 65.76% of the company being sold off, this evaluation translates to a value of $1.54bn for the shares on offer. The firm's profit during 2003 totalled TL434.7trn, and its capital assets are valued at TL1.55 quadrillion, with TUPRAS regularly coming top in the Istanbul Chamber of Industry (ISO) list of the 500 largest industrial companies in Turkey.



There had also been some concerns over Efremov Kautschuk's bid. The Russian Tataristan company turned out to be strongly linked to Tatneft, which had its own image problems in Turkey, alongside concerns that had long been voiced by the Turkish military in particular about "strategic assets" such as TUPRAS being sold to foreign interests. Zorlu's role in the bid therefore becomes crucial in allaying these fears.



Nevertheless, there is strong pressure on Turkey to get at least some kind of result in its privatisation programme. This had been scheduled in 2003 to deliver $4bn in revenues, yet had not managed more than a few million by year's end. However, the final decision may be down to the Competition Board, which requested further information on the sell off from the OIB on January 20.



The Board said it might not reach a decision for some time either, stating that it may exceed the legal limit of two weeks before delivering its verdict. Then, a final decision will be made by the Supreme Board of Privatisation (OYK). Reuters quoted a Competition Board official January 20 as saying that the Board would not allow the TUPRAS tender winner to establish an oil distribution company.



Meanwhile, less controversial news came from the Black Sea, where British Petroleum (BP) and Turkey's state run oil company, TPAO, announced they would begin exploratory drilling by the end of the year.



This followed BP-TPAO seismic surveys off the coast near Rize, which produced hopeful signs. BP has already committed $25m to the project, and is expected to invest another $25m-30m later this year.



Turkey produces around 39,000 barrels per day (bpd) of its own oil, mainly from wells in the south-east. This is only around 15% of its daily consumption though, so any new discoveries are very welcome.



However, too much oil is not welcome - or at least, too much oil flowing through the heart of Istanbul. This was the message reinforced by Turkish maritime authorities mid-January, when officials told reporters that some 47,283 ships had passed along the narrow Turkish straits of the Bosphorus and Dardanelles last year. Of these, 6,022 were tankers carrying a total of 122m tonnes of oil or petroleum products.



Turkey has long complained about this, saying that the traffic endangers lives in Istanbul, through which the Bosphorus passes. Collisions in the straits have occurred in the past with dire consequences, and the fear is that a major collision of petroleum carrying tankers would cause horrific casualties to the city's residents.



However, others suspect the true motives of Turkish opposition. The straits are international waters, and thus Turkey receives no tolls from ships' passage. At the same time, Turkey has long been an advocate of overland routes for the oil which currently sails through the straits, most of which comes from Central Asia and the Caspian.



This appeared to have paid off with the Baku-Ceyhan pipeline, which crosses Turkish soil and thus pays Turkey transit fees. Yet, as the associate manager of Turkey's Pilot's Association told reporters January 12, with this pipeline due to deliver some 50m tonnes a year, the Bosphorus is a route "worth some two-and-a-half Baku-Ceyhan pipelines".



Turkey had also been stung into defending its case on this by allegations in the Financial Times that it has been unnecessarily closing the straits. Turkey can do this if weather conditions are bad, or if an extra large tanker is transiting - the whole straits being closed to other traffic when such a vessel passes.



Turkey denied any wrongdoing, saying that more tankers were transiting the straits than ever. Yet the impact on European refineries of the closures was also reportedly great, leaving the widespread impression that Turkey was flexing some muscles over the issue. Meanwhile, Turkish officials also suggested that a pipeline from Samsun on the Black Sea to Ceyhan on the Mediterranean would also help solve the problem.



Whatever the case, Turkey's role as a major energy transit country in the years ahead seems largely assured.

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