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According to a recent report from the *Financial Times*, the privatization of Turkey’s electricity sector has faced significant delays, but recent developments suggest a renewed push. A key obstacle in this process was Bogazici EDAS, a regional distribution company that had long controlled Istanbul's power grid. However, with the global financial crisis prompting a reassessment of economic strategies, Turkey is now accelerating its privatization efforts.
Bogazici EDAS, established 30 years ago, has been responsible for managing the state-owned electricity distribution network in Istanbul, serving half of the city and over 4.2 million residents in the European part of the city. The company had aimed to dominate the entire retail electricity market by 2015, but on the 14th of this month, it was acquired by a consortium of three major Turkish construction firms for $1.96 billion (approximately 12.2 billion yuan). This deal marks a major shift in Turkey's energy landscape.
The investment group includes two of the top 21 distribution companies in the country. With the acquisition of Bogazici EDAS, the consortium will now serve 8.2 million customers, covering around 24.5% of Turkey’s population. Despite this progress, challenges remain. Turkey’s per capita electricity consumption stands at just 3,000 kWh—less than 25% of that of its EU neighbors. However, with rapid urbanization and a growing population, demand is rising fast. The Ministry of Energy and Natural Resources (MENR) projects that installed capacity must double to 40,000 MW by 2020 to meet future needs.
Privatization in the Turkish energy sector has been a long-standing goal. Since the 1980s, the government has pushed for private participation in power generation, transmission, and distribution. In 1984, the *Private Ownership of Energy Bill* was passed, allowing private firms to operate energy assets. A major turning point came in 2001 with the *Electricity Markets Act 4628*, which restructured state-owned entities and laid the groundwork for asset separation, making them more attractive for privatization.
Despite these efforts, the path to full liberalization has been rocky. Over the past two months, Bogazici EDAS became the second regional distributor to be sold. There are currently six other major distributors in the country, and previous attempts to sell them have faced setbacks. For instance, during the 2010 tender, Bogazici EDAS attracted bids totaling $2.99 billion, but the winning bidder failed to complete the purchase, leading to a withdrawal by the next candidate. This raised concerns about the viability of the broader privatization plan.
Analysts believe the failure stemmed from overestimating the value of these companies and underestimating the impact of the Eurozone crisis on international capital flows. These factors have significantly slowed down the privatization process.
However, the sale of Bogazici EDAS has reignited momentum. Another major player, Gediz EDAS, located in Izmir, is also expected to finalize its sale this month. The remaining five companies are set to go on sale by year-end, with the rest divided into nine batches to be auctioned in early 2013.
The global financial crisis and domestic uncertainties have repeatedly disrupted Turkey’s privatization ambitions. After peaking at $8.1 billion in 2006, the volume dropped sharply to $1.4 billion in 2011. This year, however, there has been a slight recovery, with estimates reaching $3 billion.
Finance Minister Kemal Kılıçdaroğlu recently predicted that both Bogazici EDAS and Gediz Elektrik would be privatized by the end of the year. Even if these deals are finalized, the revenue will likely be recorded in next year’s budget. With additional sales planned for 2013, including more power distributors and state-owned plants, the privatization output could reach record levels.
Note: This article uses a real-time exchange rate of 1 US dollar = 6.2363 Chinese yuan.