Cablegate: Turkey: Privatization Suceeds Despite Poltical Turmoil

VZCZCXRO9200
RR RUEHDA
DE RUEHAK #1280 1981247
ZNR UUUUU ZZH
R 161247Z JUL 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 6865
INFO RUEHIT/AMCONSUL ISTANBUL 4479
RUEHDA/AMCONSUL ADANA 3080

UNCLAS ANKARA 001280

SENSITIVE
SIPDIS

E.O. 12958:N/A
TAGS: ECON ENRG TU
SUBJECT: TURKEY: PRIVATIZATION SUCEEDS DESPITE POLTICAL TURMOIL

REF: ANKARA 862

1. (SBU) Summary. Despite the global economic downturn and Turkish
domestic political turmoil, the GOT successfully privatized two
electricity distribution companies earlier this month. This sale
demonstrated Turkey's continuing ability to attract foreign
investment, to command a good price and secure financing. American
company AES did not bid this time but is considering entering the
next round to be held September 15. End summary.

2. (U) On July 2, the GOT announced the winners of the first
electricity distribution privatization sale. Five bidders competed
to purchase the operating rights for the Baskent Electricity
Distribution Inc. (BEDAS) which covers the capital city and
surrounding towns (reftel). The winning bid was Enerjisa, a
consortium of Turkey's Sabanci Holding Austria's Verbund which paid
USD 1.22 billion. The second tender was for Sakarya Electricity
Distribution Inc (SEDAS). Again five bidders competed and Akcez
Joint Partnership Group, a consortium of Turkey's Ak Enerji and the
Czech Republic's CEZ, won the tender with a USD 600 million bid.

3. (SBU) Winning bids were in line with market and GOT expectations.
Energy Ministry Advisor Zahit Karakaya said the GOT is satisfied
with the prices and that higher loss rates justify a lower price for
SEDAS. Unit Energy Managing Director Enver Guney told us BEDAS and
SEDAS sales prices were in line with his company's internal
calculations. Guney said his company, which partnered with Dogan
Group and Dogus Group for the tender, decided not to bid
aggressively now in favor of upcoming opportunities in Istanbul.
Sabanci Energy Group Head Selahattin Hakman said publically the
BEDAS acquisition is part of a larger Sabanci strategy to increase
market share to 10% of Turkey's energy sector by 2015, which will
require a USD 6.5 billion investment. Electricity distribution
privatization is critical to overcome the projected electricity
supply shortages. Enerjisa announced in July it signed a EURO 1
billion loan for its energy sector investments which shows financers
are positive about long-term growth prospects for Turkey's energy
sector.

4. (SBU) Turkey-based AES-ICTAS CEO Mark Green confirmed that AES,
an American firm, did not participate in this first round of
privatization. Green said AES took a "wait and see" approach to
this round, evaluating the debt-to-equity ratio of the winning bids
and bidders' ability to raise financing in today's tight credit
market. Green thought the prices for BEDAS and SEDAS were on target
and estimated the companies' worth at USD 1.5 billion and USD
600-700 million, respectively. AES is considering entering the next
round of privatization but incomplete market de-regulation poses a
risk for bidders. Electricity shortages in near term (2-3 years)
may significantly drive up the cost of the wholesale electricity
power and the GOT has not instituted a mechanism to pass this cost
along to the customer, which leaves prospective bidders, like AES,
wondering whether they will be left with costs they can't recoup.

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