Turkey’s Nuclear Tender: Status Update

Turkish Energy Minister Taner Yildiz announced at a recent panel discussion that Turkey expects to select a supplier for its second nuclear power plant by the “end of January, unless extra time is needed to consider more offers.” According to Hurriyet Daily News, Yildiz is reported to have said, ““We see particularly that China, Japan and South Korea have approached our demands differently. I can say that the competition between them has accelerated.”

Yildiz’s statement is consistent with a 25 December report that Asian nuclear firms were closer to winning the tender than their North American/Western European counterparts. The statement was taken to mean that Canada’s Candu energy had dropped out of the bidding and was no longer considered to be a serious candidate to win the tender.  The announcement was not all that surprising, considering that Canadian and Turkish officials have never been able to agree to financing terms (Canada has been involved in every Turkish tender since 1983).

In the past, Turkish officials are believed to have favored the Canadian Candu heavy water reactor because there is a vocal minority within the Turkish nuclear bureaucracy that favors using Turkish uranium for its future power plants. The Candu reactor uses natural uranium, which would allow for the Turkish nuclear complex to bypass uranium enrichment. Former Prime Minister Necmettin Erbakan is reported to have supported the Canadian tender in the 1990s for just this reason. Erbakan reportedly wanted to avoid relying on outside powers for Turkish energy and saw the Candu as a “low-tech” and efficient means for Turkey to generate electricity from Turkish uranium.

Moreover, Canadian nuclear firms have not fared very well in the international market, which has led both the Canadian government and Candu energy to offer generous financing terms. The two sides have never been able to agree because of Turkey’s insistence on a build-operate-own or build-operate-transfer financing model and its refusal to grant financial guarantees for construction costs (Ankara demands that the supplier provide 100% vendor financing and reimbursement through guaranteed electricity sales at artificially low rates paid over 30 years).  Canada’s export development bank, which would be necessary to help finance the deal, has never been willing to sign off on such a large loan without any concrete financial guarantees from the Turkish government.

Turkey’s unique financial demands have also prevented progress with both South Korean and Japanese nuclear firms. [From a previous piece I wrote in November 2012] – Ankara and South Korea’s Kepco began nuclear negotiations in 2010. The two sides had wanted to sign a reactor construction agreement at the August 2010 G-20 summit, but Kepco and Turkey could not agree on the financing. Kepco reportedly wanted the Turkish government to be the largest stakeholder in the contracting Turkish company (thus guaranteeing the financing); however, Ankara refused, arguing that it wanted Kepco’s partner to be a private company. Thus, the BOO financing model prevented the signing of a construction contract and appears to have been the major reason for the break down in talks in late 2010. Turkey pursued similar discussions with Japan’s Tepco pre-Fukuishima. Tepco cancelled its negotiations with Turkey shortly after the meltdown at the Daichi plant, leading Mitsubishi to step in and begin negotiations. [Snip] Turkey’s terms do not appear to have changed, thus making it likely that Japan’s Mitsubishi will not be selected as the winner. The two sides have a history of negotiations, considering that the Japanese company bought Westinghouse, which was involved in Turkish tenders in the 1980s. Moreover, the two companies paired up and competed for Turkey’s nuclear tender in the late 1990s. Both were unsuccessful because they were not willing to go along with BOO and demanded financial guarantees.

China, on the other hand, is eager to carve out an export market for its nuclear industry and has agreed to Turkey’s BOO/no financial gaurantee format. Thus, it would appear that China has the inside track to win the tender. However, China is unable to export its latest reactor designs because they are still owned by Areva and Westinghouse. Turkey, therefore, would have to import older reactor designs.

This option may be politically untenable, however. Turkey has a small – but vocal – anti-nuclear movement that could use this fact to embarrass the government. Turkey, therefore, is faced with a choice. Its insistence on BOO is likely to prevent an agreement with nuclear firms in the ROK or Japan. China appears to be Turkey’s only option. Ankara’s 25 year nuclear tender history suggests that the government will not compromise on its insistence on BOO. Foreign nuclear firms (excluding those from Russia and China) have also not budged from their refusal to enter into such an agreement. I do not think that Ankara really wants to purchase a Chinese reactor, which leads me to believe that the government will delay the tender selection, claiming that it needs more time to review its options. I suspect that Turkey is using the Chinese bid to wrangle concessions from Japan and the ROK, though I believe that the financing terms will once again prevent either side from agreeing.

Stay tuned . . .

About aaronstein1

I am an Istanbul based PhD Candidate a King's College London.
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