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The Turkish Electricity Market, a unique investment opportunity

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Turkish energy companies

I have been involved as an expert in the Turkish electricity market for a year now. During that year I have talked to the senior managers of most of the leading energy companies in Turkey and also did have the opportunity to take a closer look inside at some of them, while doing a project. Projects regarding risk management, project management and cross border trading etc.

What immediately becomes apparent is the unique structure of these companies in comparison to the other European markets. Many of these companies have become big in other industrial sectors like construction, chemical and textile. These companies are mostly family owned conglomerates with billions of dollars in annual turnover. They see energy as the next big thing in which they want to become involved, big time. Either as a real players with physical assets or purely as an investment.

When I compare the privately owned Turkish energy companies to their peers in the Eastern European markets one striking difference comes immediately to my mind: in Turkey there is money to invest, where in Eastern Europe there is only limited funding for investment available. Another interesting observation is that most Turkish companies are only at the start of the learning curve. They are hungry for knowledge and the lessons they could learn from the leading European energy companies in building their strategy to successfully operate in a deregulated market environment.

Market still in its infancy

Although since the implementation of the Electricity Market Law in 2001 considerable progress has been made, the competitive power market in Turkey is still in its infancy. The majority of electricity market regulation is still in draft form, major power contracts remain subject to government control and Turkey still lacks an organized platform for trading of power to name a few.

Trading markets or the lack of it

There currently is no electricity derivatives trading going on in Turkey. What could help to spur the development of an OTC trading market is the publication of an electricity index by an independent body.

Day Ahead pricing

However, there is a kind of spot market in Turkey today. Although this is not a spot market mechanism like the ones we see in Scandinavia, Germany and other European countries. But since December 2009 there is a Day Ahead pricing mechanism operational. This balancing and settlement system operated by PMUM is based on a day-ahead pricing system, whereby suppliers estimate how much electricity they will produce in each hour of the next day. Consumers then try to estimate how much they will consume in each corresponding hour. PMUM will make an estimate whether supply will meet demand over the course of the next day, and determines a system marginal price. This market is widely used by the market players.
To be able to make better bids there is a need for an hourly price forecasting tool by the producers.

Interesting investment opportunities

These are only a few examples of the current status of the Turkish electricity market. Although it is still far from perfect, I sincerely believe that the market offers very interesting investment opportunities to foreign energy companies and financial institutions with a long term view to enter the Turkish market right now.

Be aware of the Turkish business culture

That is to say that you should be aware that to be able to enter the market as a foreign company you need to overcome many bureaucratic hurdles as well get to accustom yourself to the Turkish way of doing business. That is certainly different then Western companies are used to. The decision making is very hierarchical. There is actually only one decision maker; the CEO and no one else. To be able to get in at the right level a good network is the most valuable asset your company can have. So partnering up with a Turkish company is certainly critical. It is not about what you know, but about who you know.

Take action and contact Kasper Walet.

If you like to discuss about the Turkish electricity market and how we could support you, please contact:
Kasper Walet, Managing Director
Email: walet@maycroft.com
Tel: +3120 5315644


Comments

Great (10/12/2010, 9:46 AM)
Your summerized Turkish Electricity Market greatly.

Best Regards,
Salih Kurucan

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