Articles

PPP Models in the Turkish Electricity Market

Turkey has tried a number of different models to increase the participation of private enterprise in electricity generation since the foundation of the Republic. 

This article traces the evolution of these models from the first days of the Republic to the present day. Emerging from the ashes of the Ottoman Empire, the Republic of Turkey retained a culture and ideology that lent itself to a high degree of state control, but increased demand for power in Turkey has pushed the state beyond its power to provide the necessary supply of energy, requiring the integration of private suppliers into the picture. Of course the story of Turkey’s energy market privatization involves more factors than simply the pressure of increased demand, not least of which are harmonization efforts with the European Union, and this article touches upon these external factors as well.

How It All Started

The state provided most public services in Turkey following the foundation of the Republic.  Over time, an increased population and rapid economic growth led to an increase in the quality and quantity of public services demanded, and there were insufficient public funds available to meet such demand, particularly in the energy industry.  The Turkish Electricity Administration (Türkiye Elektrik Kurumu) (“Electricity Administration”) had been established in 1970, and by 1982 it enjoyed a monopoly on electricity generation, sale and distribution, when the state transferred to it all electricity facilities operated by municipalities and other public authorities.  The only method for the private sector to participate was through a throwback to the Ottoman Era known as the concession agreement model.  Unfortunately, parties to concession agreements are not equal. The state has superior powers such as terminating the agreement or amending its terms and conditions unilaterally. As a result, the concession model was unable to convince private sector investors, particularly foreign ones, to make electricity-related investments in partnership with the state.  However, as a result of serious increases in electricity demand during the 1980s, the energy industry was among the first sectors to abandon state dominance and the centuries-old Ottoman concessions system, in favor of PPP models.