Japan and Turkey Make it Official: The Start of Nuclear Negotiations

Prime Minister Erdogan is expected to announce tomorrow the selection of a Japanese/French nuclear consortium for the construction of a second nuclear power plant at the Sinop site on Turkey’s Black Sea coast. While the AKP appears to have been deliberately ambiguous in how it framed the roll-out, the announcement tomorrow will only grant Japan the exclusive right to begin negotiations for the actual power plant. The AKP, therefore, has finished one chapter, but the story’s ending has yet to be written. Please find my quick thoughts below:

  1. Turkey finally made a concession! I never thought it would happen, but Taner Yildiz’s brief statement (which I am sure will not be covered widely) indicating that a Turkish state institution (EUAS) will take a stake in the project is a subtle change in Turkish nuclear policy. Ankara insists that the foreign supplier pay for the cost of construction, operate the reactor, and then recoup expenses from guaranteed electricity sales set at an artificially low rate over 15 years. The financing model is known as build-operate-own (BOO). Ankara, between 1983 and now, had steadfastly refused to provide financial guarantees for the cost of construction. Most major suppliers have accepted BOO, but have balked at Turkey’s refusal to provide guarantees. However, there is historical precedent for a foreign bidder offering to forgo a financial guarantee, if the Turkish government were to agree to partner with the contracting firm. Canada’s AECL, for example, made clear during its negotiations with Turkey during the 1980s that it would accept Turkish participation in the project as an indirect guarantee. The Turkish government refused and has maintained in subsequent negotiations that it will not take a stake in the project. Therefore, Yildiz’s statement represents a subtle shift in policy and signals a willingness to provide an indirect guarantee. If Ankara was really serious about partnering with a major-Western/Asian (non-Chinese) firm, it had to meet them half way and at least work to address their persistent worries about the lack of a guarantees. It appears as if Turkey has finally done just that.
  2. This is not the Russian Akkuyu model.  Russia’s Rosatom will build the reactor without any guarantees or government participation in the project.
  3. Despite the rush to conclude that this is a done deal, there continues to be a number of issues that could prevent progress. Russia and Turkey signed a similar arrangement in 2009, but were not able to conclude a deal for the building of reactors at Akkuyu until the two sides agreed to the guaranteed price per-kWh in 2010. Russia had initially asked for $22.5 cents, but Turkey balked at the price, arguing that it was too high. Ankara came back and demanded that Russia sell the electricity for $12.35 cents. Russia eventually signed off on the Turkish request, but in doing so, Rosatom agreed to extend the pay back period. In turn, this has increased their risk because – wait for it – they don’t have a guarantee.
  4. China was a patsy and used to encourage the major suppliers to offer better terms. Even though Beijing had agreed to the Russian financing model, Turkey was never likely to choose China because it cannot export its latest Western-owned reactor designs.
  5. Justin Bieber screwed this up! At this point, most Turks probably know more about Bieber’s skipping of customs at Ataturk airport than tomorrow’s announcement. The AKP, by all accounts, wanted to make a splash with this announcement. However, the news has been transfixed by Bieber’s concert in Istanbul. The buzz is likely to continue tomorrow and the post-concert media frenzy risks diverting some of the media’s attention away from the announcement.

About aaronstein1

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