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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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Turkey's Natural Gas: A Geopolitical Chip


Turkey is a vulnerable actor when it comes to energy supply. Its primary energy source is natural gas, 98 percent of which is exported. The consecutive governments of the AKP, led by President Recep Tayyip Erdo?an, have used energy as a key element in their political narrative, with great success.

The AKP and Erdo?an have built a popular rhetoric around Turkey’s economic development, where the main message is that their conservative-Islamic political party has been able to modernize Turkey according to “Western” parameters, mainly through the construction of titanic infrastructure projects - such as the third bridge in Istanbul, first-class highways in Anatolia, the “Marmaray” tunnel, and the future construction of a third airport in Istanbul.

Pipelines are also part of this populist political rhetoric, where the Trans-Anatolian Pipeline (TANAP) plays a crucial role.

Energy Lords

The most visible actors in Turkey’s energy sector are President Erdo?an and his son-in-law Berat Albayrak, the current Minister of Energy and Natural Resources. Both are highly exposed to press coverage since they sign the contracts for the construction of pipelines or the exploitation of mines. The influence of these two political figures was demonstrated during the 23rd World Energy Congress in Istanbul, that took place in October 2016.

Historically, the state has determined economic policies in Turkey, where the private sector has had limited influence, until recently. The state in Turkey is seen as a quasi-sacred institution, capable of controlling the entire economy. A selective privatisation process only began in Turkey in the 1980s, but this did not have an impact on all economic sectors. This imperfect process of privatisation has only been applied partially, and not always directed by the belief that “the private sector is always more efficient than the public”. Under the reforms of former Minister of Economy, Kemal Dervi?, there was a plan to reduce the market share of state-owned BOTA? to 10 percent by 2010, but BOTA? was too influential and important for the state to transfer it to private hands. BOTA? has not reduced its market share; on the contrary, according to Shadow Governance sources, it has increased its control over Turkey’s energy markets.

A more successful program of privatisation took place in Turkey during the early 2000s. This program targeted the distribution energy market in Turkey and triggered legislative and institutional reform. In the case of electricity distribution, the privatisation of the network has been almost total, including private investment in renewable energy, with participation of foreign investors, which began around 2009.

The exception to energy sector privatisation was natural gas; and more recently, nuclear power. Neither of these sources of energy has been exposed to free-market reforms, and their regulation is still in the hands of the state through two state-owned companies - BOTA? and TETA?. Natural Gas represents almost 50 percent of energy consumption in Turkey, and nuclear energy is expected to reduce dependency on gas and oil, reaching 6-7 percent of energy consumption in Turkey. The first atomic reactor is expected to be operational in 2018.

In this context, natural gas governance is a matter of the Turkish state. Given its exceptional economic importance inside Turkey, and its geopolitical implications, natural gas remains the priority for any Turkish government. In this sense, BOTA? continues to obey governmental policies and remains a regulatory tool for Erdo?an and Albayrak.

In the case of nuclear power, the state’s role is also key to its development. The construction of nuclear power plants has been taken as part of the political discourse led by the AKP. In the case of nuclear energy, the Turkish government signed a deal with the Russian government that the construction and operation of the Akkuyu power plant would be 51 percent owned by Russian companies and the rest Turkish owned. Interestingly, the Turkish companies taking part in this project are Cengiz, Kolin and Kalyon holdings and they are all believed to have close ties to President Erdo?an.

The Politicization of Natural Gas (and Nuclear Energy)

Since the very beginning of the AKP’s political rise, and de facto political monopoly in Turkey, the energy sector – particularly natural gas - has become a state priority, with energy policy under the AKP administration attached to its foreign policy.

The AKP ’s first aspiration in joining the European Union stimulated the idea that Turkey could become an energy hub, and reduce Russia’s influence in Central and Eastern Europe. At the same time, Turkey was highly dependent on Russian gas, a factor that triggered the search for alternative energy sources. Related: Saudi Reshuffle Could Completely Shake Up Oil Markets

Besides its geopolitical implications, natural gas in Turkey represents the primary source for electricity generation. According to data released by the Turkish Ministry of Foreign Affairs, 37.8 percent of Turkish generated energy comes from natural gas. Since natural gas, alongside nuclear power, is one of the few energy sectors in Turkey that has not been privatised, the government is able to exert a high degree of influence over gas price and distribution, which at the same time directly affects domestic energy price and consumption.

The state monopoly over the natural gas sector can help stabilise prices, so citizens are covered against the volatility of the natural gas market. Although this could be a legitimate policy, controlling the natural gas market can also influence the voting of citizens, who do not pay market prices for natural gas. Instead the state fills this gap. An obvious example of the manipulation of the natural gas price was in 2009, before the March local elections. This decision implied losses of 1.3 billion Turkish Lira in 2011 for BOTA?. The AKP government applied a policy of subsidised prices until the year 2011, with excellent electoral results for the AKP.

This case was not an exception, and this practice is still carried out today.

The politicisation of natural gas and energy distribution in Turkey answers to a specific logic. Many AKP municipalities are in debt to BOTA?, and these institutions cannot pay their gas and electricity bills to the state-owned company. According to Shadow Governance sources, instead of paying these bills, municipalities prioritise participation in AKP meetings, where financial aid is given to the audience, or is directly paid for with raw materials, such as coal (i.e. the Radovan System).

Sustainability and Future

The establishment of this vicious circle makes it very hard to eradicate. Moreover, the unpredictability of Turkey’s regional alliances, combined with the “day-to-day” politics of the AKP - where the electoral calendar and daily economic and social urgencies dictate policies - does not lend hope to BOTA? being reformed anytime soon. As long as it can be leveraged as an effective electoral tool for the AKP, it will remain in the government’s hands.

According to Shadow Governance sources with direct access to BOTA?, there are two possible scenarios to consider vis-à-vis the future of BOTA?. In the short to medium-term, BOTA? could be divided into three new companies, which would focus on transportation, trade and storage. A second possible scenario is the privatisation of part of the enterprise, to decrease its public debt.

One party potentially interested in buying a stake in BOTA? is Gazprom, but the probability of this happening depends on the volatile regional political scenario of alliances. Over the past decade, these alliances have changed almost annually; with diplomatic wrangling’s impacted by the Syrian and Iraqi conflicts. A clear example of this volatility are Turkish-Russian relations, which - although today might appear stable – are easily disturbed by external events, such as developments in the Syrian conflict.

More recently, and following the trend of increased Russian influence over BOTA?, in early June Gazprom sold its shares of Bosphorus Gas, a key partner for Gazprom’s interests in the Turkish natural gas market. Bosphorus Gas is one of the major clients of BOTA? for gas distribution, and according to Shadow Governance sources, this could be an initial (preparatory) step for Gazprom to buy part of BOTA?. It is also believed that, as has happened with the Akkuyu nuclear power plant deal, businessmen related to Erdo?an are likely to take part in the sale of BOTA?.



The current political trends in Turkey make the future of BOTA? unpredictable. The current mechanism that sustains BOTA? is not viable for an already highly indebted Turkish economy. There is a need to speed-up the privatization process for gas supplying companies and reduce the economic and political weight of BOTA? within the Turkish energy scenario at the moment Related: Underperforming Energy Sector May Soon See M&A Wave

The recent deal between Russia and Turkey in regards to the construction and operation of the Akkuyu nuclear power plant is likely to be a future model for BOTA?.

In this sense, the Turkish government, now heavily controlled by President Erdo?an after his last referendum victory, is likely to solve the high debt of BOTA? through a controlled privatisation process. As indicated by Shadow Governance sources, Russian participation in this tender is likely to happen, alongside Erdo?an-linked companies. This last factor would allow Erdo?an to maintain control over BOTA? and keep this institution part of his arsenal for exerting informal influence.

BOTA? has been central to the political survival of the AKP, since, without state ownership of BOTA?, the market regulations of the natural gas price would put more economic pressure over the already impoverished popular classes in Turkey, the electoral base of the AKP.

Not only does BOTA? play a crucial national role, but it also plays a regional role. Most energy agreements with neighbouring countries are carried out through BOTA?, and the construction of pipelines connecting these countries are also channelled through it. In these terms, BOTA? can be seen as a political tool that ties in with the government’s foreign policy, determining new areas of expansion. As an example, the recent Turkish-Israeli rapprochement has placed BOTA? as the main contender to construct the possible pipeline between these two countries.

Taking into account these factors, Erdo?an and Turkey are in need of continuing their control over BOTA?; whilst at the same time finding a way to reduce its public debt, avoiding a possible increase of energy prices that would directly affect the AKP’s electoral base.

By Shadow Governance Intel

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