Turkey drops Akkuyu project, citing IMF economic program

Tuesday, July 18, 2000

Prime Minister Bulent Ecevit announced immediately following a cabinet meeting on July 25 that Turkey will not proceed with a long delayed power reactor project at Akkuyu Bay and may reconsider the nuclear power option only at some unspecified later time after Turkey has mastered serious economic difficulties.

Construction of a nuclear power plant, an official in the Ministry of Finance told Nucleonics Week, ''does not fit'' Turkey's current strategy, imposed by the International Monetary Fund (IMF), to reduce runaway government debt that now equals 60% of gross national product (GNP).

The announcement puts an effective halt to nearly a decade of preparations by three competing vendors: Atomic Energy of Canada Ltd. (AECL), Nuclear Power International (NPI), and Westinghouse Electric Co. According to sources, since the early 1990s all three companies and their partners have together spent close to $ 500-million to sell Turkey its first nuclear power plant.

The decision to indefinitely shelve nuclear power in Turkey was made the day after the latest of seven consecutive deadlines had expired for selecting a vendor to begin detailed contract negotiations with state-owned utility TEAS. Two days earlier, on July 23, Ecevit hinted to Turkish media that Ankara might give up the project during the coming week, and indicated that Turkey's worries about nuclear power had increased in the wake of a decision by other countries to abandon the technology.

Last month, German sources close to the NPI bid predicted that the June 14 German phase-out accord between the federal government of Chancellor Gerhard Schroeder and utilities could cause irreparable damage to the project, since Turkey carefully monitors German developments.

Ecevit told the Milliyet newspaper on Sunday that ''We have growing concerns on nuclear energy. The world is abandoning this technology and turning to alternative energy resources.'' On July 25, Ecevit elaborated that Turkey would concentrate instead on developing natural gas and hydroelectric options through at least 2015. This was the recommendation of a report, compiled by the Turkish Atomic Energy Agency (TAEK), to the cabinet on national energy planning. Citing from the TAEK report, Ecevit said Turkey might need nuclear energy ''in 15 to 20 years'' should natural gas reserves begin to be diminished.

During the entire Akkuyu bidding process since the mid-1990s, however, European and U.S. diplomatic sources in Ankara have expressed considerable skepticism that Turkey would commit to a nuclear energy program soon. They said demonstrated reserves of natural gas in the region, particularly in Turkmenistan and Iran, were in fact growing, and foreign partners were convincing Turkish experts that exploiting them quickly would cost less than borrowing billions of dollars for a PWR project (NW, 28 Aug. '97, 10).

Underscoring these trends, on the same day Ecevit announced that Akkuyu would be dropped, Turkey announced a partnership between a Texas-based exploration firm and a state-owned Turkish company. The partnership is to begin drilling in southern Turkey with the aim of producing a steady stream of gas by 2004 after an investment of about $ 300-million, a fraction of the projected cost of the nuclear plant.

On July 24, the day Turkey was set to finally select a vendor for Akkuyu, TEAS faxed Siemens, as well as other vendors, saying it could not make a decision because not all members of the company's board of directors were present. But the separate announcement by Ecevit the next day took Siemens by surprise. There was no advance notification of the company's decision, a Siemens spokesman said July 25.

Ecevit said after the cabinet meeting on July 25 that Turkey had ''not given up'' on nuclear power and would re-examine its nuclear option at some future time after Turkey had solved its economic problems. The Siemens spokesman would not acknowledge that the Akkuyu project had been terminated, and indicated the company would not make any further statement until Siemens had considered the matter internally.

Serge Charbonneau, Framatome vice president, international development, said late July 25 that Framatome and its partners in the NPI bid had so far received nothing but a letter from TEAS informing them the decision had been delayed for an eighth time. He said the vendors expect to receive a second missive from the utility soon informing them that the project has been postponed indefinitely. Charbonneau added NPI doesn't expect to be asked to extend its bid for the three years that is considered the minimum before Turkey could theoretically think about the nuclear project again, because ''that isn't done.''

Charbonneau said he could not estimate how much the six main companies in the NPI consortium -- not to mention their scores of subcontractors -- had spent on the Akkuyu bidding, but called the sum ''considerable,'' especially since it's the only true turnkey project they have worked on in years. But he acknowledged that the decision to pull the plug wasn't a surprise for the vendors and that in fact, ''as the postponements (in the Akkuyu project) piled up, our expectations diminished.''

Western industry and diplomatic observers in Ankara remarked that Ecevit's announcement effectively ended the Akkuyu project. They noted Ecevit's statement that Turkey would re-examine the nuclear power option when more advanced reactor technologies and fuels are available at lower cost. ''That sounds like an excuse,'' one German executive said.

Ecevit's qualification that Turkey may reconsider nuclear power should also be discounted, sources warned, given that the current, much-extended bidding round was Turkey's third unsuccessful attempt to launch a nuclear power project since the 1970s. During the 1980s, Kraftwerk Union, AECL, and General Electric Co. were in competition. After five years, negotiations were broken off. During the 1990s, both GE and Asea-Brown Boveri (ABB) declined to participate in the bidding because neither had confidence Turkey would realize the project, U.S. diplomatic sources said.

Bidding companies' lack of advance information on Ecevit's statement July 25 confirmed privately voiced suspicions of many -- including officials at Westinghouse and at NPI partners Siemens and Framatome -- that, regardless of statements to the contrary by TEAS, there was never a firm political consensus inside the Turkish cabinet for nuclear power.

Earlier this year, TEAS and Energy Minister Cumhur Ersumher asserted just before a cabinet meeting that TEAS would announce a decision on vendor, already made on economic terms; the cabinet meeting was, however, punctuated by strong objections in principle by cabinet members to Ersumher's resolve to start a nuclear power program.

Because of economic policies which Turkey is pursuing at the behest of the IMF, the Ankara government told competing vendors long before this week that it could not provide sovereign guarantees for project financing for the Akkuyu project until at least 2003, Turkish officials told Nucleonics Week. The officials said the IMF strongly discouraged Turkey from making any financing commitments to the nuclear project until then at least, and encouraged Ankara to first make investments involving domestic industry that do not increase the country's external debt.

According to officials in the Ministry of Energy in Ankara last week, the consortium of Westinghouse and Mitsubishi had informed Ersumer that if Turkey failed to decide on a vendor on or before July 24, the two firms would pull their bid. This ''shook up the cabinet'' on the eve of its July 25 meeting, one Ankara diplomat said. U.S. industry sources said reports of the Westinghouse threat were credible.

AECL President Allen Kilpatrick said a company representative in Ankara told him Tuesday morning of Turkey's decision. ''Our guy in Ankara didn't have a lot more than the press report'' issued following the cabinet meeting, he told Nucleonics Week.

Just before Ecevit's surprise announcement, Canadian industry sources confirmed that AECL was prepared to remain in the bidding had Turkey again postponed a decision. Canadian officials also said AECL was aware the IMF had urged the Turkish government not to underwrite any financing for the imported reactor project, and added that AECL was willing to forgo Turkish sovereign guarantees until the end of the current IMF economic program in 2003.

Officials said the Canadian vendor could ''do without the (Turkish) guarantees for the first few years'' of the project since during that period ''not a lot of money would be involved.'' Turkey would have to provide the guarantees after the initial period, however, Canadian officials said.

The IMF's most recent country report on Turkey, released in February, appears to confirm statements from Turkish officials who said the nuclear project was out of line with Turkey's near-term economic priorities.

The report states that ''over the last few years, the government's large financial requirement would have resulted in an exploding debt-GDP ratio, were it not for the monetization of these deficits through increasingly high inflation rates.'' IMF experts elaborated that the problem is so serious that, in most countries, the same situation would have already led to hyperinflation.

Turkey's situation is marginally less dramatic because of the economy's low demand for money. ''But the fact remains that the weak fiscal position is the underlying cause of inflation in Turkey, and solving the fiscal fundamentals is the first necessary step in achieving disinflation,'' the IMF advised.

IMF experts also concluded that major contributors to inflation and debt growth in Turkey are its extensive state-run companies, including TEAS, which receives government funding of its ''development and support fund'' to overcome deficits.

The IMF also pointed out that Turkey faces an alarming increase in losses by state-owned banks which insure credit. Losses at two such institutions alone increased from about $ 2-billion in 1994 to nearly $ 20-billion last year -- representing over 12% of gross domestic product (GDP) and more than half of the Turkish government's cash debt. Net government debt doubled during the 1990s to reach nearly 60% of GNP last year.

Given these circumstances, one official at a nuclear vendor competing on Akkuyu said, ''there is an economic crunch on in Turkey right now, and the IMF has told them to attend to the domestic side of the economy first before financing any projects which will commit them to pay back foreign loans.'' The IMF-prescribed medicine would delay any financing commitments for the reactor project ''because that involves raising foreign capital and imported foreign investment.''

In a statement rushed out to media July 25, the Nuclear Awareness Project, a Canadian group that has been campaigning for years against the Akkuyu project in general and AECL's participation in particular, proclaimed that ''the decision is a serious blow to the three nuclear vendors bidding to build the nuclear plant, and a major setback for the international nuclear industry.''

''I wouldn't say it's a serious setback,'' Charbonneau retorted. Given the lack of political support, he said, ''it's better to stop'' the Akkuyu bidding.

Cancellation of Akkuyu, he said, ''is a pity, but it's not the end of nuclear energy.''

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