Turkey and Abu Dhabi to develop Turkish coal field

With Turkish power demand having grown by an average of 8 per cent a year over the past decade, the announcement of new power plant projects is a relatively common occurrence. Announcements of 8,000MW of new plant at an estimated cost of up to $12bn, though, are less common.

In fact agreements signed on Thursday between Turkey and Abu Dhabi for the development of several new plants to burn coal from a massive lignite field in south east Turkey are the largest such deals in the country’s history.

An inter-governmental agreement signed by Taner Yildiz, Turkey’s energy minister (pictured), and Mohamed bin Dhaen Al Hamli, his counterpart from the United Arab Emirates, allows for exclusive negotiations between Taqa, Abu Dhabi’s national energy group, and EUAS, Turkey’ state power generator, for development of generating capacity on the Afsin Elbistan lignite field.

A second memorandum of understanding allows the two state companies to establish a joint venture company to realize the project which may include others partners but in which Taqa will hold a majority stake.

In the short term the agreements will see Taqa and EUAS discussing the renovation of an existing 1.4GW plant and the mines on the Afsin field which supply it, as well as conducting detailed feasibility studies for a new 1.44GW plant and mines on an adjacent site.

Final agreements for this stage of the project are expected to be signed this year, with the new plant slated to be commissioned by 2018, Frank Perez, head of global power at Taqa, told beyondbrics on Thursday.

Development of the rest of the planned plant will be subject to further discussion between Taqa and EUAS.

“These are long term projects which could take 15 years, but what we should end up with is a series of power plant projects powered by lignite from the Afsin Elbistan basin accounting for around 10 per cent of power generation in Turkey,” said Perez.

The slow pace of planned development, he said, reflected in part the complexity of the Afsin-Elbistan field, which Turkey estimates to have reserves of 4.4bn tonnes, and a need to ensure that new mines opened can supply newly-constructed plant for their full 30 year lifespan.

Indeed, such is the complexity of the field that two open tenders held by Turkey over the past decade were both cancelled due to lack of interest from local and international developers, with analysts saying the low quality of the lignite in the Afsin-Elbistan field was a serious deterrent.

It’s an issue that Perez says he is confident will not be a problem for Taqa, pointing out that plants burning low grade lignite are able to operate profitably in many countries.

“We own a lignite plant and we operate coal fired plants, and the technology exists to mine it safely and burn it,” he said, suggesting that the challenges of developing the field may have been too much for private companies but not for a consortium of two state companies.

“We have an inter-governmental agreement supporting the project and the two companies involved are both state entities with the capital and experience to get through all the hurdles and challenges of completing such complex projects,” he said.

Commenting on the problems of burning low grade lignite, Perez said the consortium would finance the project from international sources and would ensure the project met all international standards.

For Turkey, the development of the Afsin-Elbistan field has become imperative if the government is to achieve its aim of reducing dependence on imported natural gas, which in 2011 was used to generate 45 per cent of power consumed in Turkey.

With Turkey’s current gas supply portfolio totalling only 51.8bn cubic metres a year and Turkish gas demand expected to top 50bn cu m this year, the country is already looking to expensive spot LNG purchases to fill a supply gap expected when new gas fired power plants under construction are completed.

It’s an issue that has ramifications beyond simple power demand growth.

With only minimal oil and gas reserves of its own, energy is Turkey’s biggest single import item and impactd directly both on the country’s trade imbalance – and on the perennial problem of its current account deficit, which economists are warning could become more acute this year.

With gas prices pegged to international crude oil prices, Turkey is particularly sensitive to oil price fluctuations, with a $10 a barrel hike adding as much as $4bn to the annual deficit.

Add in the prospect of development of Afsin Elbistan creating as many as 15,000 new jobs in Turkey’s impoverished south east, and it’s little wonder that Turkey is so keen on developing its domestic lignite reserves and diversifying away from gas.

Related reading:
Turkey: power privatisation progress, beyondbrics
Turkey cuts policy rate as economy slows, beyondbrics