Background and history

" The coal fired power station project involved a large number of foreign firms invited to submit proposals under a competitive bidding procedure; some reached the stage of advanced negotiations with the Turkish authorities. The lengthy and intermittent discussions which have taken place during the last several years have led to some changes in the policy originally established by the government and to the elaboration of complex arrangements.

The history of these projects started in 1984, with the pre-feasibility study carried out by Bechtel at the request of the Turkish Government for a 600 to 1000 MW coal fired electric plant that was to be financed and built on the BOT model. In September 1985, on the basis of the positive results of this study, Bechtel submitted an offer for a 960 MW plant to be built at Takirdag, on the Sea of Marmara, at a cost of about US $1 billion; to carry out this project Bechtel formed a consortium including Combustion Engineering, a US manu-facturer of steam generators, and the German company Kraftwerk Union (KWU).

During the negotiations with Bechtel, which started at the end of 1985, the basic conditions which were then used by the Turkish Government to establish the terms of reference for similar projects were negotiated. In the meantime, other consortia made proposals for coal fired plants at other sites. At the end of February 1987, the Ministry of Energy and Natural Resources sent a letter to the five consortia that had made proposals defining the most important criteria for the evaluation and selection of the best offer as well as the security package granted by the government. Proposals were submitted by the follow-ing consortia, each consortium biddfollow-ing for a project at a different site:

(i) Bechtel (USA) and KWU (then West Germany) for a plant in Tekirdag;

(ii) Seapac (Australia), Chiyoda (Japan) and Westinghouse (USA) for a plant in Yummurtalik, near Gazi;

(iii) Asea Brown Boveri (Sweden/Switzerland) for a plant on the Sea of Marmara;

(iv) Electric Power Development Corporation and Mitsubishi Corporation group (Japan) for a plant at Aliaga; and

(v) Alsthom (France) and Ansaldo (Italy) for a plant near Izmir.

The bidders were ranked in September 1987, and the Turkish authorities declared that three plants would be built in the following eighteen months.

The first ranked bidder was the Seapac-Chiyoda-Westinghouse consortium which benefitted from the support of the Queensland (Australia) Government with respect to equity funds and coal supply. Contractual documents were initialled by the parties in December 1987. The Government of Queensland

however, soon withdrew its support, and Chiyoda and Westinghouse took over the leadership of the consortium. The Turkish Government spent the first half of 1988 negotiating with all of the sponsor groups in turn, but returned in August 1988 to exclusive negotiations with the consortium now led by Chiyoda and Westinghouse. By June 1989, members of the Chiyoda consortium claimed they had reached final agreement with the Government on all points.

A month later however, the Gazi project had reportedly been put on hold by the Turkish Government. In late October, the Government announced that it had signed an agreement in principle with one of the other competing sponsor groups, the Japanese consortium led by EPDC for a $950 million coal fired power plant at Aliaga. This project now appears to be held up on environmen-tal grounds.

Legislation is being submitted to the Turkish Parliament for the creation of an Energy Fund. This Fund would serve, amongst other purposes, as a vehicle for financing the various guarantees offered by the Government for BOT projects in the energy sector."2

In October 1989, the Turkish Government made a Cabinet Decision on desig-nation of the planned site as a Free Trade Zone and approval was given for construc-tion and operaconstruc-tion of a "1000 MW plant (2 X 500 MW) by a JVC to be established by an EPDC/Mitsubishi led consortium at the site. The decision was decreed in an official gazette. However, just after the announcement of the decree, a parliament member selected from the Aliaga constituency appealed to the Supreme Court of Administrative Litigation against the Cabinet to revoke the cabinet decision on the ground that the decision has not involved taking the necessary licensing procedures for environmental protection. Upon receiving this appeal, on 17 November 1989, the Court decided to suspend the execution of the cabinet decision for three months pend-ing investigations. In March 1990, the Court finally ruled that licenspend-ing procedures related to the site's environment have to be followed independent of the en bloc decision designating the FTZ and giving permission to the electric utility.

As a result of this court judgement, the Turkish Government has had to take the following steps:

— Withdrawal of the Cabinet Decision of October 1989,

— Decision in the Cabinet to designate the FTZ in the Aliaga area but without specifying a plant,

— Establishing a pilot company which will apply for licensing procedures related to site environment, after getting approval on environmental issues,

— Letting the applicant (JVC) apply for permission on an independent electricity utility business in the Aliaga area.

2 Quoted from LECAT, J.-J., An Overview of BOT Projects Proposed in Turkey, WPS-498, The World Bank, Washington, DC (1990) Annex 3, 23-25.

On 7 May 1990 the official gazette announced that the Cabinet Decision of October 1989 was revoked and that the Cabinet decided to designate the Aliaga area to be a FTZ.

The EPDC/Mitsubishi Corporation group has established a pilot company that precedes the JVC, with minimum equity capital under the Turkish Foreign Invest-ment and EncourageInvest-ment Law. As of the end of March 1992, the group was still waiting for a decision by the Turkish authorities over whether or not the siting of the project is environmentally acceptable.

Annex V