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Shadow Governance Intel

Shadow Governance Intel

Shadow Governance Intel (www.shadowgovintel.com), the analytical arm of West Sands Advisory Limited, conducts in-depth research on power players and power plays that challenge the transparency…

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The Energy War That Erdogan Is Winning

Erdogan

The Turkish Republic of Northern Cyprus’ (TRNC) energy sector is one of the least developed sectors in the country.

Given the political and economic restrictions TRNC has suffered since 1974 (after the official partition of the island of Cyprus into two entities, with the Greek south internationally recognized, and the de facto north recognised only by Turkey), its economic policies and relations have been reduced to its trade with Turkey. This has severely limited foreign investment in—and the development of—the TRNC, and has helped produce an environment conducive to the emergence of politically exposed, oligarch-controlled markets.

In the TRNC, the state has historically played a significant role in the domestic economy, to the point that the nation is often characterized by the interference of political actors in the distribution of state assets. This presents a complex politico-economic scenario, particularly in the energy sector, where political discourse and economic interests are often (inevitably) intertwined.

In this sense, TRNC energy policies can’t be understood without considering the role played by Turkey’s political elite, including that of the Justice and Development Party (AKP) under the leadership of Recep Tayyip Erdogan. Even Turkey’s former Prime Minister, Ahmet Davutoglu, legitimized Turkey’s influence over the TRNC, highlighting that it was a necessary component of Ankara’s maritime and security interests.

In fact, the evolving relationship between Ankara and Lefkosa (i.e. Nicosia) has indeed influenced the economic development of Northern Cyprus, coloring the power relations between politicians and businessmen.

A Political Class Defined

The current President of the TRNC, Mustafa Akinci, is one of the most popular political figures in the territory. He’s known for supporting a peace deal in Cyprus, while also being a proponent of defending Northern Cyprus from Ankara’s expanding influence. Akinci, for example, seeks to erase the concept of “Yavru Vatan” (baby motherland) from the political vernacular of Northern Cyprus, largely in an effort to diminish the international image of the TRNC being a “modern colony” of Turkey.

Energy in the TRNC is directly impacted by this political struggle. Akinci, governing through a political coalition, hasn’t received the backing he needs from his government to successfully challenge Ankara’s influence.

Among Akinci’s biggest challenges is to somehow soften the rhetoric of other political actors with interests in the energy sector. This is, for example, the case Sunat Atun and Serdar Denktas, the current Ministers of Economy and Energy, and of Finances. Related: Iran, Iraq, And Turkey Unite To Block Kurdish Oil Exports

Both Atun and Denktas appear to back Ankara’s energy projects in Northern Cyprus; notably, they’re also attached to pro-Ankara political parties. Atun is the General Secretary of the Ulusal Birlik Parti (UBP), and Denktas is the President of the Demokrati Partisi (DP); both parties form the territory’s coalition government.

The failure in the most recent peace talks in Geneva (2016-2017) likely diminished Akinci’s political leverage within both the government of the TRNC and among the broader society.

According to Shadow Governance sources, the political actors who support Turkey’s continued role in the TRNC likely benefit from the current status quo. Thus, players like Atun and Denktas seek to maintain dependence on Ankara.

Interestingly, Denktas has been referred to as the “money man” in the TRNC—a label most likely emanating from his family’s coinciding political and industrial interests. It’s therefore fitting to note that Denktas is the Minister of Finance. This ministry finances state-owned energy companies, many of which are loss-making, such as the Cyprus Turkish Electricity Corporation, the Renewable Energy Committee and the (now privatized) oil company K-Petrol.

TRNC Energy – Isolating Turkey’s Influence

As a Cyprus peace process remains elusive, many observers believe that Ankara will probably continue to expand its influence over the territory’s politics and economy. Developments in the energy sector already indicate that this is the case.

Given the TRNC’s political and economic limitations (i.e. the territory is only recognized by Turkey), the only private companies that have been able to secure interests in the energy sector are from Turkey. For the most part, entities that hold interests in TRNC energy include AKSA Enerji (owned by Kazanci Holding), Kalyon Group and Altinbas Holding—companies with strong connections to Turkey’s ruling elite.

As in other cases analyzed by Shadow Governance Intel, the presence of Turkish companies in countries with highly politicized bilateral relations with Ankara reflects the same characteristics, i.e. they’re used for resource distribution and patronage.

The TRNC doesn’t appear to be an exception to this trend, with the above-mentioned Turkish companies operating under the alleged influence and approval of the highest echelons of government in Ankara. It’s also likely that a de facto patronage relationship with Erdogan gave these businessmen access to lucrative contracts in the TRNC. Related: Oil Prices May Hit $60 By End Of 2017

The timing and Turkish actors involved in the TRNC’s energy sector match the energy policy of the Justice and Development Party (AKP), which is characterized by securing state contracts (in Turkey and in other countries) to businessmen with close ties to the government, or who are part of the inner circle of Turkish President Erdogan.

In 2003, AKSA Enerji established the Kalecik energy power plant. The contract to continue operating the plant was renewed in 2008, allowing the company to remain in the TRNC until 2023 (plus three optional years).

The Kalyon Group built an 80-kilometer underwater pipeline between Anamur, Mersin (Turkey), and Gecitkoy (TRNC). This pipeline was initially planned to supply water to TRNC households and agricultural fields for free; however, Ankara demanded that the actual distribution of water had to be privatized. This triggered a political crisis in the Northern Cypriot government, as it wanted the water distributed through the municipalities.

Kazanci Holding’s President, Ali Metin Kazanci, is believed to be very close to Erdogan. He’s associated with the now infamous “pool media” investment that was used to secure the majority of media outlets in Turkey so that they could be used to support the government’s official discourse. Interestingly, Kazanci Holding entered the TRNC in 2003, right after the initial electoral victory of the AKP.

Kalyon Group also has historical ties to the AKP and Erdogan. Its President, Orhan Kalyoncu, has known Erdogan since the 1990s, when the current president was mayor of Istanbul. It’s believed that Kalyoncu also took part in the pool media. Kalyoncu enjoys a good relationship with the current Turkish Minister of Energy and Natural Resources and Erdogan’s son-in-law, Berat Albayrak, who plays an important role in Turkey-TRNC energy relations. Alabyrak’s brother, Serhat, is the CEO of Turkuvaz Media Group, indirectly owned by the Kalyon Group through the Zirve Group.

The third energy company operating in the TRNC with alleged ties to the Turkish political elite is Altinbas Holding, which owns Alpet Kibris. This company is estimated to sell 40 percent of the oil consumed in the TRNC, while the rest is sold by K-Petrol, which is 90 percent owned by Mustafa Haci Ali, a local businessman. According to Shadow Governance sources, Mustafa Haci Ali is one of the most influential businessmen in the TRNC, believed to be close to circles in the UBP.

Shadow Governance sources state that Sofu Altinbas, Chairman of Altinbas Holding, likely has a good relationship with President Erdogan. This businessman was apparently critical of the AKP and its policies, and a strong supporter of Kemalist and secular political circles. Over the last few years, however, Sofu has changed his political positioning, and now openly supports President Erdogan.

TRNC Energy – An Extension of Turkey’s Patronage System

Although the energy sector in the TRNC requires significant modernization, the current political elite—led by Ankara-friendly UBP and DP—appear most interested in preserving the status quo rather than initiating reform and attracting investment to leverage any possible benefit that could be realized from its energy sector.

As the energy sector becomes increasingly exposed to Erdogan’s business elite, there’s greater potential for the TRNC to be used to serve the wider political agenda of Ankara.

For example, as the race to secure gas has begun in the East Mediterranean, and Greek Cyprus remains unwilling to share its gas resources, the TRNC is being forced to rely on Turkey. As such, pro-Ankara components in the TRNC can, with relative ease, identify the AKP/ Erdogan as looking out for their “sons” in Cyprus, while also serving to highlight the image of Turkey as an international energy hub.

One of the main consequences here is the exploration by Turkish vessel Barbaros Hayrettin Pasa. The vessel explores oil and gas in the Karpaz peninsula shores with the approval (and under the supervision) of Albayrak and Atun, but not with the approval of the international community.

The vessel’s activities have triggered some political unrest in Greece and Europe, who believe the vessel violates their maritime boundaries. Although speculative, Ankara could be manipulating Turkish businessmen associated to Erdogan to promote Turkish state policies. In other words, they’re being pushed to engage in these exploration and exploitation activities, even though the international community doesn’t recognize them.

Allowing Turkish companies—ostensibly those with strong ties to Erdogan—to spearhead any investment in the TRNC related to the energy sector could, in some scenarios, be easily leveraged as an informal political tool in the hands of pro-Ankara political elite.

For example, as President Akinci loses political credibility on the back of the failure of the Cyprus peace talks, the figures to gain in his demise are Atun and Denktas. Should either of these players take over the presidential office in the TRNC, there’s little doubt that they’ll further expose the TRNC energy market (and associated policies) to Turkish influence.

By Shadow Governance Intel

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