Explaining Turkish Nuclear Decision-Making: The Origins of Sinop

Last week, Turkey and Japan signed an agreement to begin exclusive negotiations for the construction of a nuclear power plant at the Sinop site on Turkey’s Black Sea coast. The agreement follows the 2010 agreement with Russia’s Rosatom for the construction of four VVER-1200 reactors at the Akkuyu site. I thought it would be useful to explain the origins of Turkey’s build-operate-own transfer policy using quotes from news stories at the time of its conception.

  • “To make up the energy deficit the government is committed to initiating a $2,600 million nuclear power program. The commercial nuclear power station at Akkuyu is the first contract to be awarded . . . TEK [the Turkish Electricity Commission] hopes to build five more stations, with one at Sinop, ” according to Metin Demirsar in a 15 April 1982 report for Nucleonics Week.
  • According to an 18 October 1984 report by Ann Taboroff for Nucleonics Week, “Industry sources said there was intense vexation in the firms at encountering new terms after 10 months of negotiations [Author’s note: Taboroff is referring to the abrupt decision to move from a turnkey concept that envisioned Turkey providing 15% of the financing to a build-operate-transfer format, which called for 100% vendor financing.] But an advisor to Prime Minister Ozal called the offer ‘a sweet package’ for foreign investors. He said the energy sector in Turkey is ‘the most trustworthy area’ for investment, much less risky than opening a factory. Turkey’s proposal will reduce the government’s risk while increasing the foreign operator’s profitability, he said, adding that the government is willing to guarantee no nationalization will take place before the 15-year contract has expired.” [This is the first iteration of Turkey’s no-guarantee build-operate-transfer policy, hence the reference to “no nationalization for 15 years.”]
  • From the same report – “Westinghouse, which submitted a proposal this summer in partnership with Mitsubishi Heavy Industries Ltd. of Japan, was also asked to consider the new financing idea although it never received a formal letter of intent. Officials say preference will be given to the Germans and Canadians, with Westinghouse as a ‘fall-back position.’ [Thus, Mitsubishi, which has subsequently bought Westinghouse, has a long history of working with Turkey; however, at the outset of the bidding process for Akkuyu, Turkey preferred Kraftwerk Union or AECL.]
  • The following quote is the most critical for understanding Turkey’s nuclear decision-making. “The beauty of the new scheme is that the government will pay only if the reactor works,” said Yildirim Akturk, a director of the ENKA holding company and former head of the state planning organization. ENKA is working with AECL on the project. Akturk, a close associate of the prime minister [Turgut Ozal], explained the government is hesitant to commit itself to such a huge project without guarantees that it will really work in the end. In addition, the new plan allows Turkey to show the $2-billion cost as a trade transaction rather than as a debt. The new financing plan calls for the companies to provide an estimated $1-billion in interest charges during the eight-year construction period. Previously, the interest was covered by a Turkish government gurantee. . . Officials are envisioning a national network of up to a dozen nuclear stations. ” – Ann Taboroff, “Turkish Government Trying to Negotiate Akkuyu Financing by December,” Nucleonics Week, 18 October 1984. 
  • “In addition, the sources say the question of counter-guarantees is proving to be a serious stumbling block in the negotiations. The vendors want counter-guarantees from the Treasury and the central bank, an idea the Turkish side is resisting, since they want the vendor to bear the bulk of the risk of the project,” according to another report by Ann Taboroff for Nucleonics Week on 21 March 1985.

The relationship between Turkey’s chronic current account deficit and BOT/BOO is crucial for understanding the development of Ankara’s approach to nuclear deal making. The government was – and is – focused on securing FDI. The BOT/BOO format allows for the transaction to recorded as such. If the supplier agrees to Turkey’s demands, the CAD is unaffected and Turkey’s FDI numbers go up. Thus, it is important to put Yildiz’s recent statement that EUAS will take a stake in the project in its proper context. While Ankara has been willing to discuss this type of arrangement in the past, the two sides could never agree to the financial terms, due in large part to foreign requests for financial guarantees.

Turkey, as evidenced by the quotes above, somehow thinks that it should not have to pay for the reactor technology until it is proven to work. Ankara, therefore, was keen for a return policy, even though the item they were buying was a nuclear reactor. Anyways, Ankara’s decision to partner with the Mitsubishi/GDF Suez is a way to finesse the guarantee issue and provide more certainty to the foreign bidders. The two sides, therefore, compromised. Japan bowed to Turkey’s unique financial demands and Ankara reciprocated by breaking precedent with its offer to take a stake in the project.  However, the deal could still face some problems surrounding the guaranteed price per-kWh.  The terms of the deal have not been released, thus only time will tell how it will play out.

As always, if you have comments, questions, or critiques tweet them @aaronstein1. 

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About aaronstein1

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