Prime minister Recep Tayyip Erdogan’s government cancelled the multi-billion dollar privatisation of Turkey’s 20 power distribution companies on January 10 until after general elections in November, clouding the future of the country’s privatisation programme.

Mr Erdogan said that the new owners of the 20 electricity distribution companies would probably raise electricity tariffs and his government would be blamed for the higher cost of electricity during the election campaign for the 550-seat Grand National Assembly.

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“Although we won’t have any responsibility for price increases after their privatisation, our citizens will blame us for having carried them out. For this reason we won’t execute the sale of the energy companies before the elections,” Mr Erdogan told reporters.

Shaky ground

Polls show that his ruling Islamist Justice and Development Party (AKP) will fail to win a majority in the assembly and could be ousted from power by opposition parties. Turkey’s national assembly also holds presidential elections in May to find a successor to Ahmet Necdet Sezer, who has served as head of state for the past seven years, and Mr Erdogan, 52, as the leader of the AKP, appears to be the strongest candidate.

The coming elections, the European Commission’s decision to suspend negotiations on eight of 35 chapters covering policy areas in accession talks with Turkey, fears that a Kurdish state is in the making in northern Iraq, and the murder of an Armenian-Turkish journalist in Istanbul on January 19 have led to a slowdown in Turkey’s privatisation programme.

There have been no major sales of state assets since July 2006. The Council of State, Turkey’s supreme administrative court, has halted the privatisation of 24 state companies and services on the grounds that their sale is not in the public interest or could compromise national security.

Energy next

Turkey’s privatisation administration (the OIB), which is the main state agency handling the country’s ambitious programme, raised $8.2bn from the sale of state assets in 2006, slightly less than in 2005. Having completed the sale of many of the country’s major state industries, such as oil refineries concern Tupras and steel manufacturer Erdemir, and a majority stake in former fixed phone line monopoly Turk Telecom, and GSM operator Telsim, the government had turned to the privatisation of the nation’s huge state energy sector.

In addition to its power distribution companies, the government wants to sell 26 large hydroelectric dams and coal-fired power plants, and 56 small river dams. It is encouraging private companies to build and operate new hydroelectric dams and natural gas-fired power plants, and to operate state coal mines and geothermal facilities. It has already privatised natural gas distribution rights to more than 154 cities, and wants to transfer the multi-billion dollar natural gas import contracts of the state petroleum pipeline corporation Botas to private operators. It would also like the private sector to build and operate the country’s first three nuclear power plants.

Turkey needs to spend $128bn on energy investments by the end of 2020, including $91.3bn on new power generation facilities, to keep pace with its rapid-growth economy, but the government can only set aside $7bn in financing, according to the energy and natural resources ministry.

“The state does not have the funds to sustain such a massive energy investment programme,” energy and natural resources minister Hilmi Güler told a meeting of the Economic Journalists’ Association in Istanbul in September. “The investments will have to be carried out by the private sector and foreign investors.”

Uncertainties

Turkey’s 20 power distribution companies control 800,000 kilometres of power lines and 2500 transformers and have a total market value of $3.2bn, but investment analysts predict that the country can attract more than $10bn in funds through the tendering process because of the intense competition. However, the postponement of the tenders has disappointed foreign investors.

“Foreign investors may not pull out from future tenders but it will create uncertainty,” says Saban Erdikler, president of the International Investors Association.