Wednesday, March 31, 2010

Turkey signs nuclear deal with South Korea

Turkey signs nuclear deal with South Korea
By Saban Kardas

During a Turkish-Korean joint business forum held in Turkey on March 10, a protocol was signed to cooperate on Turkey's second planned nuclear power plant. Turkish Prime Minister Recep Tayyip Erdogan, attending the signing ceremony, welcomed the development as a positive step toward bolstering Turkish trade and economic ties with Eastern Asia.

The Turkish government earlier canceled the tender for its first nuclear power plant, which had been awarded to a Russian-Turkish consortium. Despite the cancelation of the tender in late 2009, the government insisted that it would proceed with its plans to build several nuclear plants in the near future.

Notwithstanding the objections to the nuclear project from various
domestic sources, the government developed a new strategy to overcome the legal obstacles and accelerate its plans. Instead of competitive tenders, it opted for an inter-governmental agreement with Moscow, which would enable the Russian-Turkish consortium to build the nuclear plant at Mersin, on the Mediterranean coast. Turkey and Russia are continuing their negotiations on the details of the agreement, and Ankara is speeding up the process in order to finalize the deal in time for Russian President Dmitry Medvedev's planned visit to Turkey in May.

According to Turkish government's projections, Ankara plans by 2020 to build several nuclear plants to produce 10% of its total electricity needs. International leaders in the nuclear power generation industry, including US and French companies, have considered competing over tenders for the subsequent nuclear plants. However, Ankara has opted for an inter-governmental model for the second power plant.

Turkey concluded a protocol agreement with South Korea under which the Korean Electric Power Corp (KEPCO) might be awarded the contract to build a second plant in Turkey's Black Sea coastal city of Sinop.

KEPCO has been pursuing such a deal for some time, as part of its strategy of becoming a global leader in the nuclear industry. A KEPCO-led consortium recently won a contract to build four plants in the United Arab Emirates, thanks to KEPCO's cheaper and faster delivery terms compared with its rivals.

During the signing ceremony for the agreement with South Korea, Turkish Energy Minister Taner Yildiz stressed that both parties would form working groups to determine the details of such cooperation, particularly on the target price. He expects to reach a final decision on this within the next three to four months. If Ankara accepts the conditions, it will conclude an inter-governmental agreement, similar to the one with Moscow.

Turkish and Korean officials indicated that KEPCO might consider entering into partnership with Turkish firms to complete this project. KEPCO has already entered a joint venture with a Turkish company, NUROL AS, to invest in the Georgian energy market.

It was later argued that one of Turkey's leading construction firms, ENKA, will form a 50-50 joint venture to build the nuclear plant in Sinop. Yildiz noted that the government would not become involved in the choice of Turkish partner, and would respect the choice of the South Korean firm, provided that the partner had the necessary expertise.

Concerning the interest expressed by other international players in nuclear power plants, Yildiz said Turkey would be open to offers from other countries and companies and will evaluate them on the basis of competitiveness in terms of financing and construction terms. He noted that so far, there was no other offer.

Ankara's choice of partner has not been independent of political considerations, as Turkey sought to use these lucrative contracts as a means to achieve other political objectives. Thus far, participation by French companies has been hindered due to Ankara's policy of excluding them from major tenders. In the wake of recent signs of rapprochement between Ankara and Paris, French participation in Turkey's nuclear projects might become realistic.

In recent years, US firms were unable to compete for lucrative Turkish defense industry tenders, due to strict demands by the Turkish government concerning technology transfers. It was largely for these reasons, for instance, that Turkey awarded a contract for the construction of its main battle tanks to South Korea.

Similar concerns have arisen over the future of Turkish-American cooperation in nuclear energy. Erdogan cancelled his participation in a nuclear energy summit hosted by US President Barack Obama in Washington in April, to protest against a US House of Representatives committee finding in favor of Armenian genocide claims. If the parties fail to manage the looming uncertainty over Turkish-American relations posed by the genocide issue, Ankara might move to take some retaliatory action in the future, which could threaten the energy partnership. Indeed, Trade Minister Zafer Caglayan recently signaled that Ankara may freeze economic cooperation with Washington over the Armenian genocide claims.

An overarching theme in Ankara's energy policy has been diversification of both energy resources and supplier countries. The government's constant reiteration of its commitment to nuclear energy is a natural extension of this underlying motivation.
Seen from this perspective, the South Korean choice might be an attempt to counter the criticism that Ankara has deepened its energy dependence on Russia in recent years. While Turkey was already dependent on Russian gas and oil for much of its domestic consumption, by awarding the first nuclear power plant to Moscow, the government exacerbated this vulnerability.

The construction of the second plant by South Korea could be a step in the right direction toward diversifying the country's energy suppliers. It also complements its goal of breaking a traditional dependence on the West through cooperation with other emerging economies.

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