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Books on Turkey
REPUBLICAN REFERENCE
Area (sq.km)
780,580
Population
68,893,918
Capital
Ankara
Currency
Lira
President
Ahmet Necdet Sezer
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Update No: 110 - (27/07/06)
Turkish-Kazak trade and investment ties mount; but with
plenty of scope for more
Turkey has always developed strong relations with the Central Asian Republics
since their independence in 1991, including Kazakstan. Turkish companies have
been investing in Central Asia for years, even in Soviet times, due to strong
geographic, cultural and even language affinities with investments focused on
sectors such as food, beverages, oil and energy, banking, retailing and tourism
in Kazakstan. This relationship is one that many others from the Muslim world
can look to leverage.
In 2000, the trade volume reported between Kazakstan and Turkey was US$465
million which was the highest amongst Turkey's trade with the Central Asian
countries. This is set to mount mightily with the opening of the BTC oil
pipeline (see next section).
Alarko Holding, a Turkish conglomerate is one of the biggest foreign
infrastructure contractors in the Kazakstan Republic. They also Chair the
Turkish - Kazak Business Council run under the auspices of DEIK (Foreign
Economic Relations Board) a non-profit private sector organization. The Council
serves to remove trade bottlenecks amongst the two countries as well as
disseminate information on business opportunities in Kazak market.
In early March, Dubai Bank signed an agreement with Daruma Corporate Finance of
Turkey to develop and market Shari'ah compliant corporate finance and merchant
banking services which would also be marketed to Turkey's Central Asian
neighbours including Kazakstan. This partnership is reflection of Turkey's
strength as a partner in helping launch many businesses into the Central Asian
markets. Even Shari'ah element is probably more significant to the lenders than
any Kazak borrowers - this being a secular nation.
Even with such strong relations, the feeling amongst the Turkish business
community seems to be that much more is desired. Yakup Kocaman, a Turkish
business journalist comments that, "Even though the Central Asian countries
have got very good relations with Turkey, many there say that Turkey has not
realized the full potential of its Central Asian opportunities." Perhaps,
partnering with other Muslim world investors to enter the Kazakstan market is
just the impetus that is needed to boost its trade and investment relations
there.
'The biggest event in Turkish history?'
The opening of the Baku, Tbilisi, Ceyhan (BTC) oil pipeline from Central
Asia in mid-July is certainly a major event.
But it is somewhat of a hyperbole to describe it (clearly PR overexcitment),as
the biggest event in Turkish history - bigger than the Battle of Manzikert in
1071, when they defeated the Byzantines and ensconced themselves in the
Byzantine Empire? Bigger than the downfall of Constantinople in 1453, when the
Ottomans replaced the empire for good with their own, based in the renamed city
as Istanbul? Bigger than the downfall of their own Ottoman Empire in 1918?
Bigger than the assumption to power of Ataturk in 1923 with the proclamation of
the secular Turkish Republic? Obviously not.
It is more reasonable to describe the occasion as the biggest official event in
Turkey's, as opposed to Turkish, history. The occasion marked the long-awaited
completion of a project that is as much about geopolitics as energy.
But amid the celebrations, questions persist about pipeline security. The
world's second longest oil pipeline, inaugurated on 13 July, is running through
dangerous and conflict-ridden territory in Central Asia and the Caucasus.
Security remains a key concern.
The stakes are sizeable. Stretching 1,760 kilometres, with eight pumping
stations and 101 block valves, BTC is the second longest pipeline in the world.
The US$4 billion project, completed a year later than originally expected, is
projected to have a daily capacity of 1 million barrels.
The BTC runs through difficult and dangerous territory. Not only does the route
pass through forbidding mountains and remote locales, including over 14 seismic
faults, but it runs dangerously close to the region's frozen conflicts and
hotspots: Nagorno-Karabakh, South Ossetia, the North Caucasus, Abkhazia,
Armenian enclaves in southern Georgia and the restive Kurdish regions of
southeastern Turkey.
The wider region of the Caucasus has experienced an episode of sabotage as
recently as January, when suspicious explosions in North Ossetia cut off gas and
electricity supplies to Georgia. The pipeline also faces threats on the local
level. Despite reimbursement and reinstatement of the land from the British
Petroleum-led BTC consortium, locals staged frequent blockages during
construction, and illegal tapping attempts were found even before oil began to
flow in May 2005.
Faced with a host of potential threats, the BTC consortium has implemented
stringent security measures. While there is substantial, tell-tale
infrastructure above ground, such as block valves, devices which change the
oil's flow direction, the pipeline itself is buried at least a meter underground
along virtually the entire route. Once the land above is reinstated, the
pipeline right-of-way should look the way it did before construction, making it
difficult for potential saboteurs to find its exact location. Large,
above-ground structures, such as pump stations, have elaborate security
measures, from concrete blast walls to closed-circuit cameras and armed guards.
These measures may look impressive on paper, but their effectiveness is
questionable. A three-week research trip to Georgia and Azerbaijan by one
observer found that the rush to finish laying the pipeline had often resulted in
security systems that were either not well thought out or badly implemented.
In one instance, a pump station had been surrounded by security cameras, but the
flood lights supposed to complement them had been installed behind the cameras,
negating their purpose. Blast walls, although able to prevent truck bombs, are
useless against much more likely mortar or grenade attacks. Two layers of
reinforced gates are useful to protect the entrance to the facility, but only if
they are kept closed. In many cases, local staff flouts security procedures for
the sake of expediency. British Petroleum (BP) security personnel have had to
begin the re-installation of security measures after the pipeline's completion.
The pipeline route is also extensively monitored and patrolled. Sensors along
the entire length allow for any disruptions to be immediately spotted on a
constantly monitored digital map of the pipeline. In addition, a joint agreement
between the BTC consortium and the Azerbaijani, Georgian and Turkish governments
facilitates patrolling arrangements. Georgia has gone a step further, signing a
bilateral agreement with BP to allow for complementary security arrangements. BP
field security teams regularly check above-ground facilities and the company
employs local Georgians to patrol the entire right-of-way on horseback.
The conglomerate additionally is operating an extensive community relations
program, aiming to maintain a strong rapport with residents living along the
route. These residents could form a first line of defence for the pipeline by
potentially alerting officials to any suspicious activity. In addition, the
agreement provides for patrols by units of Georgia's new 700-member Strategic
Pipeline Protection Department (SPPD), outfitted, trained and funded by BP.
To date, BP has been less involved in security measures for the two other BTC
host countries. Azerbaijan has not signed a similar bilateral security agreement
with BP, but talks are continuing. Turkey has not indicated that it is
interested in such an agreement, preferring to let its armed forces handle
pipeline security.
Long hailed for its geopolitical significance, the BTC pipeline is likely to
take on additional prominence in 2007 when Kazakstan begins transporting 3
million tons of oil a year via the conduit.
Georgian President Mikheil Saakashvili at the launch discussed with Turkish
Prime Minister Recep Tayyip Erdogan the prospect of buying an additional 2
billion cubic meters of gas from the Baku-Tbilisi-Erzurum pipeline "at
reduced prices," the Azerbaijani news agency Trend reported.
In addition to Saakashvili, Nazarbayev and Azerbaijani President Ilham Aliyev,
the Ceyhan ceremony on 13 July attracted four foreign ministers, 16 energy
ministers and two deputy prime ministers. Deputy Energy Secretary Jeffrey Clay
Sell headed the US delegation.
Turkish expert expects long-term boost from BTC pipeline
The BTC oil pipeline will give a strong impetus to the Turkish economy, an
expert in international power engineering, Necdet Pamir, believes. According to
him, the project is expected to be operative for forty years. But the main
impetus will be given to Turkey's development only after the first 16-year-long
stage is over.
The second 24-year-long stage will be the most profitable one. Kazakstan's
joining the project, which will make it possible to increase Turkey's share of
the project's oil, will play a considerable role in it. Also, oil transit by
tankers, dangerous for Istanbul's ecology, will be reduced by 25%, the Turkish
expert said.
A violent detour in Turkey
Turkey's foreign minister, Abdullah Gul, said in late May that recent
violence in Turkey did not presage a return to the "old days" of coups
and military rule. One can but hope that he is right.
In recent years, there has been much debate in Turkey over the conflicts between
its secular constitution and many Turks' conservative Muslim impulses. Lately
those confrontations have taken some troubling turns.
In June, a gunman shot five judges in a courthouse, killing one and wounding the
others. Initial reports indicated that the assailant , himself a lawyer, was
enraged about a decision by the judges that strictly upheld Turkey's ban on
wearing head scarves in public buildings. The news further polarized the debate
over the role of religion in public life, and the judge's funeral turned into a
mass demonstration in support of staunch secularism.
The outcry was seen as a setback for Turkey's governing Justice and Development
Party (AKP), in power since 2002, which supports a greater public role for
religious expression. Since the funeral of the judge, however, the motive behind
the attack has become increasingly unclear, and sorting out the facts, which
should not exclude mental derangement, will take time.
But the overriding question is: Are the bad old days coming back?
Turkey's prime minister, Recep Tayyip Erdogan, a pragmatist is also, a
conservative Muslim, but he has overseen the pro-Western reforms that qualified
Turkey to open membership talks with the European Union. During the reform
process, he stressed that more democracy was the best way to resolve Turkey's
polarizing issues. He was right, and now is the time for him to reassert that
view forcefully.
The United States can help promote Turkish democracy by using its longstanding
ties with Turkey's generals to communicate zero tolerance for military meddling.
Turkey borders Iran, Iraq and Syria and is an ally of Israel, a member of the
North Atlantic Treaty Organization and a candidate for the European Union. The
world can ill afford for it to become less democratic.
Turkey moves to slice taxes for foreigners
Turkey has introduced sweeping tax cuts as it tried to restore investor
confidence in its economy and financial markets, battered by an exodus of
foreign money amid fears of rising interest rates worldwide.
The changes, which include the abolition of a 15 per cent withholding tax for
non-residents investing in shares and bonds, sparked a brief recovery in Turkish
markets, though they later succumbed to another wave of selling in global
emerging markets.
Finance Minister Kemal Unakitan said that the withholding tax for Turkish
residents investing in shares and private sector bonds would fall to 10 per cent
from 15 per cent.
"We expect the changes to be approved by Parliament before the summer
recess," Unakitan said. Parliament is to begin its summer vacation in early
July.
Unakitan said that the 15 percent withholding tax would remain for deposits and
repurchase agreements for Turkish and foreign residents alike.
Critics of the tax have said the withholding tax discourages investment in
Turkish assets, which have been hammered in the recent investor flight from
emerging markets amid fears of a credit squeeze in the world's biggest
economies.
Officials said that the tax cuts would not be backdated to Jan 1st when the
withholding tax was introduced, but would become effective only after
parliamentary approval.
Political concerns sparked by Ankara's war of words with the European Union over
the thorny Cyprus issue have contributed to the sell-off in Turkey, which has
lopped nearly 20 per cent off the value of the lira since the end of April.
Investors fear that Turkey's centre-right government will take an increasingly
nationalistic tone and also move away from a tough economic program that has
been backed by the International Monetary Fund, as national elections loom in
2007.
"After comments by the Finance Ministry in recent weeks that there were no
plans to abandon the tax, the news indicates the government is keen to improve
the attractiveness of Turkish assets for foreign investors in what has become an
unsupportive global climate in recent weeks," the analysis agency 4Cast
said.
Yields on the benchmark April 9, 2008, bond fell to 18.98 per cent on Unakitan's
announcement, after touching 20.79 per cent recently, but edged back to 19.52
per cent.
The lira rose more than 2 per cent on the tax news, with the dollar at 1.63
liras, before being hit by renewed selling of emerging markets worldwide that
lifted the dollar to 1.69 liras, its lowest level in more than three years.
The main Istanbul share index closed 1.36 per cent higher at 34,228 points.
Some analysts were doubtful that the tax moves would have any lasting market
impact in the current environment.
"We commend the government for its bold move, but unless the broader market
tone improves and they can address concerns on the political front, we doubt
that this move will really turn the market," said Tim Ash of Bear Stearns
International.
Turkey is a candidate for the EU and wants to draw more foreign investment to
help close its gaping current account deficit and raise living standards. The
country recently approved a cut in corporate tax to 20 per cent from 30 per
cent. Ankara hopes that the cuts will help it to compete more effectively
against other emerging markets, especially in Central and Eastern Europe.
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BANKING
TOFAS receives 75m Euro loan from EIB
The European Investment Bank (EIB) is supporting Turk Otomobil Fabrikasi AS (TOFAS)
with a loan of 75 million Euro to jointly develop and produce with PSA Peugeot
Citroen and Fiat Auto small commercial vehicles for the European market, news
agency reporter.gr said.
The project will assist two major EU automotive companies to consolidate their
presence in a strategic pre-accession market and help Turkey to build up a
modern and competitive industry.
The loan, part-financing for total investments estimated at 400 million Euro
will result in an important expansion of the company's production capabilities
and create some 5,000 new jobs, it was reported. The vehicles will be produced
at Tofas' manufacturing plant in Bursa with an additional annual capacity of
135,000 cars.
TOFAS is Turkey's car-making pioneer and is listed on the Istanbul Stock
exchange. The company was established in 1968 as a Turkish-Italian cooperation
venture to manufacture passenger cars and light commercial vehicles under
licences from FIAT Auto SPA co-owned by KOC Holding AS, a major Turkish
conglomerate and FIAT. TOFAS currently has an annual production capacity of
162,000 vehicles.
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ENERGY
Turkey opens pipeline to skirt Russia
Turkey recently inaugurated a US$4bn pipeline carrying oil from the Caspian Sea
to the Mediterranean, part of an energy corridor vital to Western and Turkish
strategic interests, the International Herald Tribune reported.
The Baku-Tbilisi-Ceyhan project, strongly backed by the United States, is
designed to bypass Russia and to reduce Western dependence on oil from the
Middle East.
Heads of state from Turkey, Azerbaijan and Georgia were joined by ministers from
around the world for a ceremony at the port of Ceyhan to mark the opening of the
1,770 kilometre, or 1,106 mile, pipeline.
"The BTC project is crucial to creating a reliable energy corridor between
producer and consumer countries," the Turkish prime minister, Tayyip Erogan,
said.
BP, the main partner in the consortium running the pipeline, said that it
expected its capacity to reach one million barrels a day by 2008, mainly by
carrying shipments from Azerbaijan. In June Kazakstan officially joined the
venture.
"This is a historic moment," said John Browne, the chief executive of
BP. "It changes the energy map of the world."
Ceyhan, on the Mediterranean coast, is already the terminal for a pipeline from
Iraq's Kirkuk fields and with a planned line from the Black Sea city of Samsun,
it is expected to account for 8 per cent of global capacity in crude oil
trading. It also bypasses the shipping bottlenecks in the Bosphorus Straits,
where crude-oil shipments in the winter can be held up for weeks by poor weather
and congestion.
The pipeline loaded its first cargo in June, after delays of more than a year.
It loaded 213,000 barrels a day in July.
The Baku-Ceyhan project is one of a series of oil and gas pipeline ventures that
are set to increase Turkey's strategic importance to Europe as an energy
corridor over the next decade, as well as meeting domestic energy demand.
Europe has been especially keen to develop alternative supply sources since a
dispute between Moscow and Kiev disrupted flows of Russian natural gas through
Ukraine in January.
Turkey has attracted growing interest from foreign investors looking to benefit
from its rapidly growing market, bolstered by the start of its membership talks
with the European Union.
Turkey, NATO member, also plays an important role in security terms because of
its borders with neighbours including Iraq, Iran and Syria. Its growing role as
a conduit of energy adds another dimension to its strategic importance.
Nabucco pipeline gas to come
Energy ministers from Turkey, Austria, Hungary, Romania and Bulgaria have agreed
with the European Commission to accelerate building the Nabucco gas pipeline
from Iran to Europe via Turkey, New Europe reported recently.
The agreement was signed at the end of a ministerial conference on Nabucco that
took place in Vienna and will involve five companies: Botas of Turkey, Bulgargaz
of Bulgaria, Transgaz of Romania, Mol of Hungary and the OMV Gas of Austria.
They are forming a joint venture called Nabucco Gas Pipeline International.
The European Union aims for 10-15 per cent of its gas to come from this region
by 2025, partly in order to reduce dependence on Russia, which threatened
Ukrainian supplies earlier this year. "The Nabucco Gas Pipeline is one of
the most important European Energy Projects, which allows the EU to diversify
its transport routes and gas supplier countries," President of the EU
Energy Council, Dr Martin Bartenstein, said.
The Nabucco pipeline, which runs from Iranian fields in the Caspian basin
through Turkey to Bulgaria, Romania, Hungary and Austria, was identified as one
of the priority projects of common interest under the guidelines for
Trans-European energy networks. It could deliver annually between up to 31
billion cubic metres of natural gas to the EU markets.
Energy Commissioner Andris Piebalgs said: "Gas is essential to the European
economy. The European Commission is actively guiding investments into
transmission and is hoping to assist in overcoming the technical and commercial
issues involved in bringing gas through many jurisdictions to the EU."
Gaz de France eyes IGDAS tender
The privatisation of the Istanbul Gas Delivery Corporation (IGDAS) and the
international natural gas pipeline project of Turkey and Austria are garnering
attention from French companies, which are also interested in Turkey's nuclear
program, news agency reporter.gr said recently.
Turkish Minister of Energy and Natural Sources, Hilmi Guler, said that at a
meeting with French Minister of Foreign Trade, Christine Lagarde, main energy
projects were discussed and French Gaz de France showed its interest in Turkey's
gas market.
Abundant gas resources in the Caspian and Middle East regions are slated to be
dispatched to Europe via the Nabucco project.
Mentioning a previous project, the Baku-Tbilisi-Ceyhan pipeline, which would
bring Caspian and Kazak oil to the world market, Guler said: "Turkey is no
longer a transit country for energy since these projects turn Turkey into a
terminal." Turkish Botas, Bulgarian Bulgargaz, Romanian Transgaz, Hungarian
MOL and Austrian OMV gas companies in June 2005 signed a Joint Enterprise
Contract at Nabucco's general company meeting in Vienna.
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FOREIGN COOPERATION
Putin discusses energy with Sezer in Moscow
Russian President, Vladimir Putin, met with Turkish President, Ahmet Necdet
Sezer, in Moscow to discuss burgeoning energy cooperation between the countries,
Deutsche Presse-Agentur (dpa) reported.
Projects for the transportation of Russian gas and oil via Turkey to world
markets were a key agenda item with Sezer, who arrived in Moscow on a three-day
visit.
Russia delivered 18 billion cubic metres of natural gas to Turkey in 2005,
including five billion via the Blue Stream gas pipeline running under the Black
Sea, according to the Kremlin. The Gazprom gas monopolist is considering using
the Blue Stream route in a future export pipeline to Southern Europe to
supplement the North European Gas Pipeline (NEGP) that is now under
construction.
The presidents were also expected to discuss Russian participation in Turkey's
nuclear energy programme, as well as intensification of bilateral trade, which
last year reached US$15 billion. Turkey is Russia's sixth-largest foreign trade
partner.
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FOREIGN ECONOMIC COOPERATION
Economic cooperation boost with Macedonia
Turkish Prime Minister, Recep Tayyip Erdogan, met recently with his Macedonian
counterpart, Vlado Buckovski, in Skopje on a two-day visit to discuss economic
cooperation, among other issues, New Europe reported.
The two premiers' talks focused on enhancing cooperation in economic,
commercial, military and cultural areas, it was reported.
Erdogan was cited as saying that economic and commercial relations have improved
between the two countries and that Turkey aims to further increase trade and
cultural development with Macedonia. He also showed his support for Macedonia's
NATO membership bid. The two confirmed their countries' relations are good, but
that economic cooperation can be boosted. Buckovski welcomed the Turkish
premier's statements and the two signed a cooperation agreement between
institutions for standardisation.
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FOREIGN TRADE
Joint trade with Italy to reach US$15bn in 2006
The trade volume between Turkey and Italy should rise from US$13.1 billion,
recorded last year, to US$15 billion this year, Italian news agency ANSA
reported.
The prediction came from Turkish State Minister, Kursad Tuzmen, during his
meeting with Italian Minister for European Union Affairs, Emma Bonino, in
Ankara. Tuzmen noted that Italy is ranked the third country in Turkey's import
and export figures, adding that the economies of the two countries complement
each other, it was reported. "We can share world trade like we share a
common sea," Tuzmen was quoted as saying. "The trade volume between
the two countries was US$4.9 billion in 1999. This figure increased 170 per cent
between 1999 and 2005." According to Tuzmen, Italy can "use Turkey as
a stepping stone to open to Middle East and Asia," while Turkey can
"benefit from Italy to open to European countries."
In return, minister Bonino said that Turkish cities - especially Istanbul and
Ankara - as well as Aegean region were well recognised in Italy. Italy was
attempting to encourage its businessmen to invest in the south-eastern city of
Gaziantep and the central Anatolian city of Kayseri.
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MINERALS & METALS
Steel companies may violate EU free trade agreement
Veysel Yayan, general secretary of the Turkish steel producers' association (TSPA),
has slammed claims that the country's steel industry had broken the terms of the
1996 Free Trade Agreement with the European Union, news agency reporter.gr said.
A number of southern European steelmaking associations said they have taken
preliminary steps towards filing anti-dumping complaints against imports of
rebar from Turkey as a result of the alleged breach.
"There is no longer any state aid to the Turkish steel sector aimed at
increasing the country's hot rolled capacity," Yayan claimed. "We
accepted this condition in order to gain membership of the European community,
even though many countries that are already members still have subsidies for
their own industries."
Some EU mills have claimed that export subsidies had allowed Turkish rebar
rollers to operate at a cost advantage and had caused injury to domestic
markets. But last year's exports of Turkish steel to the European Union fell by
20 percent overall, while reverse traffic of steel products was almost twice
that level in terms of value, according to TPSA figures.
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