Can Turkey Attract a New Wave of Investments?
As growth opportunities diminish in Europe's mature power markets, investors are turning their attention to markets with higher growth potential at the edge of the European Union. Turkey in particular offers promising opportunities and strong energy and geopolitical ties with Europe. The country has begun an ambitious liberalization program, but the challenges of making the transition to a competitive market are delaying the next wave of power investments.
* Reserve margins are eroding fast, and Turkey needs at least 6,000-7,000 megawatts of new capacity by 2010. The evolving market structure will not deliver investments in time, and the government will likely need to implement stopgap measures to avoid a serious capacity shortfall.
* Prospects for private investment outside of distribution and generation privatization will be limited owing to market uncertainties and largely unpredictable commercial structures.
* The companies best positioned to profit from the distribution privatization are the major European utilities allied with a Turkish partner. These companies, currently cash rich and on a growth campaign, are likely to take a long-term strategic view in evaluating market entry.
* Distribution privatization alone is not the ultimate objective. The privatization of portfolio generating companies will also be a critical step to generate value and mitigate commercial and supply risk through vertical integration.
* The key risks will involve uncertainties in the evolving market structure, currency, regulatory and political setbacks, alignment of objectives with local partners, and long-term economic and political stability.
* Despite delays and setbacks, Turkey appears committed to reforms, closer ties to the European Union, and a successful privatization process.
