As State Economy Minister Ali Babacan told a local Turkish newspaper earlier this year, “Domestic or foreign capital, it’s all the same. In order to let Turkey grow and provide more employment opportunities, it does not have the luxury to segregate its capital.”
The privatisation policy has been ongoing but, in 2007, the Government has taken things in the mineral and petroleum sectors a step further with amendments to Turkish mining and energy laws.
The changes are aimed at attracting more private and particularly foreign investment into Turkey in both exploration and at an operating capacity, according to Ayse Ozkan, head of Ozkan Law Office in Istanbul.
The administration that was previously divided over several departments has been rolled into a central body called the Mining Affairs General Directorate of the Ministry of Energy and Natural Resources, or simply General Directorate.
This has the goal of “reduce the bureaucratic difficulties in the permission and licensing process” as well as simplifying the application process and shortening the time taken for approvals, according to Ozkan.
“In addition, some of the mining activities are excluded from the environmental impact assessment (EIA) and for those activities that require EIA, the time period for the process is shortened up to three months,” she said.
The licensing fees have also been reduced and expropriation of privately owned lands for mining is now possible if deemed in the public’s best interest, and limitations in relation to “certain types of land” have been removed.
The standard exploration licence is valid for three years but a submission can be made to extend that for a further two years for certain minerals, while the operating licence for developers and miners is valid for 10 years and can be extended upon application.
There is a new reduced royalty system for both minerals and petroleum products, with the mineral royalty for most commodities at about 4%, while the petroleum rates vary between 1.7% and 5% and are based on production.
The tangible effects can be seen in the joint venture between Eureka Energy and Incremental Petroleum over the Selmo oil field in Turkey.
Under the new royalty rate the Government will receive 1.7% in royalties from the first 1000 barrels produced per well, which will increase to 5% for the next 4000bbl. This equates to a net royalty of 3.2% compared to 12.5% under the old system.
Turkey has been pro-active in energy opportunities in the region, with a diversified petrochemical industry and an involvement as a joint venture partner in the massive Nabucco pipeline project, which plans to pipe Caspian and possibly Middle Eastern gas through Turkey to Europe to ease shortening supply issues. However, the project is far from a sure thing and question marks remain over its ability to secure a gas supply.
There is also an inherent risk of instability in the region between the south Caspian and eastern Turkey – in the past two years there have been several attacks by Kurdish separatists on gas and oil lines in Turkey and in northern Iran, according to the Economist Intelligence Unit.
Changes to the investment environment, in particular the resources sector, have not been without opposition. Privatisation has concerned the Government’s political opponents, while introduced flexibility in environmental laws has had the predictable effect on green groups.
Babacan described opposition to foreign investment as “paranoia” and urged Turkish citizens to forget about “old Turkey” and embrace the future and globalisation.
He said claims from the opposition in the country that increased foreign investment and lower government royalties would see Turkey lose its grip on the petroleum sector was “brainwashing”, and reminded Turkish citizens that Turkey was dependent on other countries for its electricity supply.
Babacan said the Government had targeted an international trade volume of $US1 trillion.
The Institute of International Finance (IIF) – a group of 360 private sector banks and financial services firms from 60 countries – believes Turkey is moving in the right direction to achieve this goal, predicting $22.5 billion would be directly invested into Turkey in 2007 because of the country’s continued privatisation policy.
Though the IIF expressed concerns with elections to be held later this year, it was overwhelmingly bullish about the prospects of investing in Turkey.
