PULSE of TURKEY No:78 ............................ DECEMBER 12^th,  1998

Energy and promoting mutual economic relations were the first two items in the 5-point United States-Turkey action plan drawn up at the Clinton-Yılmaz summit in Washington in December 1997. Now that a year has gone by where do we stand in this regard?

Global crisis has not adversely affected trade with the EU and the USA

David Aaron, US Under-Secretary of Commerce, said on November 18^th, 1998 in Washington that Turkey, just as much as the United States, should resist protectionist pressures as its trade deficit continues to mount, especially because of the current global financial crisis. He said, “The US trade deficit could be $250 billion or more in 1999 as economic growth rates remain low in Asia and Russia. Turkey will be under similar pressure, with deficits potentially building up even beyond last year’s $22 billion…A time of global turmoil provides all the more reason for countries such as the US and Turkey, who can trade for mutual advantage and not economic rescue, to turn toward each other. We must build on recent accomplishments ”

Back in Ankara, faced with criticisms from his political opponents (Tansu Çiller and Deniz Baykal) that the current economic problems of Turkey are not due to the global crisis, but to the Government’s wrong economic policies, PM Mesut Yılmaz said that whoever made these claims knew nothing about economics. He said on December 9^th, “The figures for September have been revealed. There is a 24% drop in our trade with Russia, excluding frontier trade. In return, our exports to the European Union have gone up by 11% and to the United States by 15%. If our economic policy had been wrong it would not have been possible for us to attain such positive results from our trade with Europe and the United States. The drop in our trade with Russia is directly concerned with the grave economic crisis under which that country is going through.” The Prime Minister said that he would reside over the Council of Ministers on Friday (11^th) to discuss the measures needed for the prevention of spreading the economic crisis in 1999 and announce them on Monday.

At the Council of Ministers meeting on Friday, attention was devoted to promoting economic relations with Russia, along with other steps to improve the overall economy, as the global crisis has begun to take its toll from the Turkish economy which managed to avoid the crisis in the outgoing year. PM Mesut Yılmaz said on December 11^th after the Cabinet meeting that Russia had a very important place in the Turkish economy and its acute crisis was now beginning to tell on the Turkish economy. He said Russia was Turkey’s second biggest trading partner. It was the top in Turkish contractors’ business abroad and there was plenty of frontier trade between the two countries. They were going to take a number of measures to ease the Russian crisis from harming the Turkish economy. High on the agenda was trade with that country in TL or Rubles, he said.

Finance Minister Zekeriya Temizel said that not a single minute should be wasted for the solution of economic problems. He strongly objected to industrialists laying off workers in preparation for the widening crisis next year. He said such events could have a domino effect. They could trigger off a chain reaction and get out of hand. “No one has any right to throw others into a risk for the sake of a potential risk which may never be forthcoming. Everyone should act responsibly,” he demanded. The Minister also dismissed claims of devaluation in Turkey.

TUSIAD (The Turkish Industrialists’ and Businessmen’s Association) will hold a meeting on December 18^th with exporters’ unions, the Union of Chambers, big chambers of commerce and industry, and the Union of Banks to discuss measures to ease the ill effects of the global crisis on the Turkish economy. Especially the textiles sector, with its $5 billion investments in recent years, is in trouble in repaying its debts now that the world market is shrinking under the influence of the global crisis.

Measures to encourage exports and foreign investment arrivals

Industrialists have been urging the Government to increase Eximbank’s loans from $200 million to $500 million to finance exports reaching $28 billion. Special treatment and facilities are requested by the textiles, automotive and construction sectors.

TUSIAD has opened an office in Washington as part of these efforts to promote exports. Addressing the inaugural ceremony Ambassador Aaron praised the Turkish Government’s efforts “to insulate itself from the effects of the world crisis while maintaining the basis for remaining active in international trade. We support Prime Minister Yılmaz in his continued efforts to implement his economic reform package and are pleased with the signing of the recent staff monitoring agreement with the IMF.”

He added, however, that he would be remiss if he did not raise a few of the commercial issues that threatened the full realization of that expansion. He said, “First of all, US companies tell us that investors need clarification of legal uncertainties, especially in the energy area, before projects can move forward. Concern about the existence of guaranteed access to international arbitration is definitely slowing the flow of investment into Turkey. The issue may be even more serious if the international financial situation further reduces the capital available for investment and investors have to make choices.”

President Demirel’s address to the First Energy Assembly of Turkey in Istanbul on December 7^th provided the answer to these American suggestions. At the Energy Assembly the President emphasized Turkey’s need for energy investments. He said, “In electricity generation, Turkey’s installed capacity is 22,000 MW. Our target is to increase it to 65,000 MW by 2010 and 110,000 MW by 2020. This target means adding 3500 MW to the existing capacity each year. In 2020 our total electricity demand will be 547 billion kWh. Hydraulic resources will provide only 105 billion kWh. It is a must for us to diversify our energy resources. For this reason, Turkey has put into force an energy investment program requiring $30-40 billion in the next 10 years. This program foresees the construction of new dams, hydro-plants, natural gas installations and reactors.” He also said that 9% or 10,000 MW of this installed capacity would be nuclear energy. Considering that France is meeting 78% of its energy needs from nuclear energy and the United States 35%, meaningless arguments about this energy should be dropped and the Akkuyu reactor project accelerated, advised the President.

He also said that to finance this enormous energy investment program they would implement build-operate-transfer and build-operate models. They were also trying to attract foreign capital by making amendments to the laws to answer the American suggestions. He said that the question of “international arbitration” was the most important issue facing the country in the energy investment field. “Our Constitution defines energy generation and distribution as a matter of national privilege. But in today’s world, energy is no more different from any other commodity. That is why energy generation can no longer be evaluated within the parameters of an archaic understanding. I would like to draw your attention to the need for finding a speedy solution to this problem and for making the necessary constitutional amendments to that end.”

Turkey’s efforts to surpass developed Europe in energy

The President said that the most important resolution of the 17^th World Energy Council in Houston earlier in the year was to increase world energy consumption by 50% in the next 20 years. This was possible by using new depletable natural resources such as the oil and natural gas of Eurasia. “Turkey is in the heart of this geography. Turkey, which has one of the most dynamic energy markets of the world, will play a key role in the consumption and transportation of this energy to world markets. With this quality, Turkey is a candidate to be the world’s energy terminal in the next century,” he said.

PM Yılmaz was even more outspoken about Turkey’s energy plans for the next two decades and revealed the highlights of the plans to surpass (in energy) such industrialized countries like Spain, Italy and the UK by the centenary of the Turkish Republic in 2023. He said the 110,000 MW installed capacity Turkey would have by then would overtake Spain by 15,000 MW in 2010. In 2020, Italy’s 85,000 MW installed capacity and the UK’s 100,000 MW capacity would remain behind Turkey’s electricity generation, he said. The 8% increase a year in Turkey’s electricity generation would increase the installed capacity by three-fold by the year 2010. In their 17 months in power they had already completed all the formalities and made all the arrangements for adding 20,000 MW installed capacity to the existing 22,000 MW, he said.

The backbone of Turkey’s energy program for the first quarter of the 21^st century is clearly natural gas importation from Russia and Turkmenistan. Iran will also be an important supplier of natural gas. “In Atatürk’s time, in the first 15 years of the Republic we were proud of weaving the country with railway tracks. Now we will weave the country with oil and natural gas pipelines,” says PM Yılmaz. Cooperation with the Central Asian countries, as well as with the United States for the necessary financing is the core of these plans. An adverse development to these plans last week was the announcement by the American oil multinational, UNOCAL, on December 4^th that it had decided to pull out of the Turkmenistan-Ceyhan natural gas pipeline project. Ankara’s reaction was that it was not important. There were many other multinationals keenly interested in these projects. UNOCAL is the 15^th biggest oil multinational of the United States and it was planning to invest in the Turkmenistan-Ceyhan natural gas pipeline in a consortium with Koç Holding and the sixth biggest American oil multinational CONOCO. The other two have not yet announced their intentions in view of UNOCAL’s withdrawal from the project.

As against the slight disappointment about UNOCAL, much more promising and encouraging signs came from the United States about Turkey’s energy plans. Arrangements were made in Washington last week for the Kazakh oil to join the Baku-Ceyhan pipeline project. Jan Kalicki of the US Department of Commerce said on November 18^th, “I am confident that critics of both the MEP (main export pipeline) and trans-Caspian pipelines are unduly pessimistic and will again be proved wrong.”

Meanwhile, Turkey, Azerbaijan and Georgia were making calculations and arrangements for the Baku-Ceyhan pipeline. While some multinationals were claiming that the pipeline would cost $3.5 billion, Turkey’s feasibility reports were putting that cost at $2,3 billion, but the latter did not include the financing cost. Contacts were underway to find out this financing cost so that the new Turkish Government could give the project a boost before and after the general elections in April. uras@ada.net.tr, December 12^th, 1998

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