> Energy, climate & environment - on 08/09/2009

Turkey courts Russia on Energy

By Gülden AYMAN, Doctor in International Relations, Associate Professor at Marmara University (Istanbul, Turkey). Among other books, she published "A Strategic Analysis of Turkey's Relations with her Neighbors with a special Emphasis given to EU Neighborhood Policy" (Istanboul, Tusiad, 2007) and "The Main Parameters to Cope with Iraqi Imbroglio-Turkish Perspective" (Istanboul, Bigart, 2008).

-----------------------------------------------------------------------------------------------------------

During Russian Prime Minister Putin's recent visit to Turkey, 20 protocols amounting to 40 billion dollars were signed between the Turkish and Russian governments. The protocols cover cooperation on various issues such as peaceful use of nuclear power, early warning on nuclear accidents, customs, transactions and cultural exchange programs. Cooperation in the field of energy, however, was the primary issue on the agenda.

> COOPERATION BETWEEN TURKEY-RUSSIAN FEDERATION IN THE ENERGY FIELD

Turkey and Russian Federation signed protocols under three headings to improve cooperation in the energy field: gas, oil and nuclear energy. The protocol on gas envisages extension of the agreement regarding the import of natural gas, which was originally scheduled to expire in 2011. Under the same protocol, Turkey allows to Russia to carry out feasibility studies to route South Stream gas pipeline through Turkey's exclusive economic zone. Turkey's Atomic Energy Agency and Russia's RUSATOM also signed two separate agreements for use of nuclear energy for peaceful purposes, and for early notification of nuclear accidents. Another protocol was signed between Scientific and Technological Research Council of Turkey (TUBITAK) and ROSCOSMOS. In addition to the 12 protocols signed between the governments, companies like TUPRAS, TETAS, TPAO, AKSA ENERJI, Postolgun Foreign Trade and Calik Holding signed 8 agreements with their Russian counterparts. (1)

> NATURAL GAS AGREEMENT RENEWED

Currently, natural gas is carried from Russia to Turkey via two routes: The eastern branch of the Trans-Balkan Pipeline, which reaches Turkey via Ukraine, Romania and Bulgaria; and Blue Stream, which runs from Isobilnoye, Russia to the Black Sea port of Dzughba, then beneath the sea, to Samsun on the Turkish Black Sea coast.

Turkish Prime Minister Recep Tayyip Erdogan announced that the natural gas agreement of 1986, under which Turkey annually purchases 6 billion cubic meters (bcm) of natural gas (2) from Russia through the Western route would be renewed for 20 years. Turkey had earlier complained about the high prices and the leave-or-pay conditions in its gas deals with Russia. According to Putin, the agreement was renewed on favorable terms to Turkey, but the details on the new terms are unclear.

> NABUCCO VERSUS SOUTH STREAM

Officials from Turkey, Bulgaria, Romania, Hungary and Austria signed an accord in Ankara in July 2009 for the OMV AG-led Nabucco project, which has been under planning since at least 2004. After the signing of the long-delayed accord to build the Nabucco pipeline, Russia intensified its efforts to advocate the South Stream gas pipeline. Gazprom Chief Executive Officer Alexei Miller declared in May 2009 that South Stream pipeline would open on Dec. 31, 2015 at a total cost of 8.6 billion Euros ($11.6 billion) for both underwater and overland segments.

Russian plans to promote South Stream require Ankara's support for the pipeline to run through Turkish territorial waters in the Black Sea, in order to bypass Ukrainian waters. Over the past three years, Russia has been involved in disputes with Ukraine over pricing of the natural gas supplies, which lead to disruptions in the flow of its gas to some European countries. In terms of gas cooperation, Turkey agreed to allow Russia to conduct explorations and feasibility studies in the Turkish exclusive economic zone in the Black Sea, as part of Russian plans to construct South Stream. According to Russian Energy Minister Sergey Ivanovich Shmatko "mutual confidence was a priority for such a comprehensive cooperation between Russia and Turkey and the two countries can implement the bravest projects together."(3)

However, the decision on the part of Turkey to support South Stream pipeline raised many questions as to how it will affect the Nabucco project. Planned to carry 63 billion cubic meters of gas annually and expected to be completed by 2015 (4), the South Stream pipeline is viewed as a major rival to the European Union-backed Nabucco Project, which will ultimately be able to provide between five to ten percent of the total gas consumption of the EU by pumping 31 billion cubic meters of gas per year by 2020. Moreover, the Nabucco project, aimed at reducing Europe's energy reliance on Russia, has long been considered as a "strategic priority" by the EU and the United States. As Zeyno Baran stresses, South Stream is ultimately a reactive project since it aims at pre-empting the launch of Nabucco, thus preventing new gas supplies independent of Russian control from entering European markets. Once the Blue Stream and than the Nord Stream were accomplished, Russia became more encouraged to seek bilateral deals with other EU member states. South Stream will not enhance European security but it weakens European Union's solidarity.(5)

Turkish government has stated on a number of occasions that Turkey does not consider South Stream as an alternative to Nabucco. According to Erdogan, the two projects presented diversity instead of rivalry, since Europe's energy demands would outgrow the supplies carried by those projects in the near future. Despite questions surrounding its feasibility and high costs, as well as its negative implications for Nabucco, Erdogan maintained that both projects would contribute to diversification efforts.(6)

While Ankara's support for South Stream posed a controversial development, Italian contribution to it provides a strengthening factor of Turkey's official position and marks the disunity among European governments on energy politics. In this respect, it is interesting to recall that Italy's Eni and Russian state-owned firm Gazprom signed agreements on the South Stream gas pipeline project on 15 May, just days ahead an EU-Russia summit where Europe was expected to speak with a single voice on foreign energy relations. Commenting on the EU-Russia summit in Khabarovsk on 21-22 May, Putin said he would like to have as good relations with the EU as with his Italian guest. In a similar approach Berlusconi views Russia is a "friendly" country that kept its promises as a gas supplier. The Italian leader suggests the EU to cultivate the same kind of good relations that Rome enjoys with Moscow. (7)

Although Erdogan praised agreements on the South Stream gas pipeline project as another major success, the signing of cooperation agreement was welcomed in a much reserved way in Russia than it was in Turkey. According to Russian newspapers, it is just because of the fact that Turkey signed the agreement for "Nabucco". The agreement for South Stream often viewed as the initial stage to begin cooperation. Russians are wondering that in the future Turkey has to choose active participation only in one of the projects.(8) Putin who stresses the fact that Russia's main priority is South Stream, "Nabucco and South Stream are rival projects and competition between them is even more important than between Samsun-Ceyhan and Burgas-Alexandroupolis oil pipelines".(9)

Ankara that does not pay attention to Russian officials' statements, asserts that Turkey would join South Stream on the condition that it does not damage the Nabucco project. Moscow previously raised the possibility that it could use Blue Stream II in order to transport gas to Europe, but this option was rejected, since it contradicted Nabucco project.

While discussing whether the Nabucco and South Stream projects are in rivalry or not, one of the most important criteria is how to provide enough resources. Since relatively little investment is made in the field of resources exploration and extraction Russia seems unlikely to be able to satisfy energy demands.(10) According to Vladimir Milov, Professor of Moscow Energy Politics Institute, Russia has already been experiencing gas deficit since 2004-2006. However, this could not be seen clearly, because of Gazprom's ability to manipulate with supply flows and hide this under such excuses as maintenance works or scandals. However, in 2010, gas deficit will reach 126 billion cubic meters and it will not be possible to hide this easily. It might be ridiculous that the country, possessing 47 trillion cubic meters of gas, is experiencing gas shortages. But old-fashioned approach to the market and corporate governance, lack of investments and faster-than-expected growth in demand led to a disastrous situation.(11)

In June 2009 Russia has signed the agreement for early gas purchases from Azerbaijan starting from 2010. This has diminished the European hopes of securing gas from Azerbaijan via Nabucco. Nevertheless there are some economists arguing that "it does make sense for Azerbaijan to sell spare gas to Russia until Nabucco is built." like Mikhail Korchemkin, the Managing Director of East European Gas Analysis.(12) Many experts are asserting that there is not enough gas for implementing both of these projects.(13) In addition to the Azerbaijan deal with Russia, Turkmenistan`s signing a thirty-year agreement for supplying gas to China also narrowed the capacity of Nabucco project. Therefore it seems that while the South Stream has ensured supply of gas, huge amounts of gas already excluded from the Nabucco.(14)

The deal for South Stream was not only disappointing for some European leaders it was also not satisfying all the aspirations of Turkey. Turkish government has aimed at transforming Turkey into a energy hub for Europe. Within this context Turkish government also wished to receive "re-export rights" if South Stream is implemented however there is no guarantee that Russia will grant these rights which indicates that, Moscow will continue to view Turkish territory as a mere conduit for its gas. Therefore Turkish willingness requires further explanation.

> SAMSUN-CEYHAN PIPELINE

According to one argument, despite its shortcomings Turkey has approved Russia's plan of bypassing Ukraine in order to carry natural gas to Europe under the Black Sea, because in return, Russia accepted to join the Samsun-Ceyhan pipeline (SCP). This argument is supported by the declarations made by Russian high ranked officials who assert that "Turkey made concessions in South Stream and we made concessions in SCP."(15)

SCP project which is also known as Trans-Anatolian Pipeline is planned to carry crude oil between Black Sea oil terminal in Samsun and Mediterranean oil terminal in Ceyhan in Turkey. The aim of this project is to provide an alternative route for Russian and Kazakhstan's oil and to ease the traffic burden of the Bosporus and the Dardanelles.

Previously, the Samsun-Ceyhan pipeline was suspended due to Russian resistance. Russia has long opposed oil supply to pipeline projects from Samsun to Ceyhan that aims to shortcut oil transportations using the Istanbul and Dardanelle channels to reach the Mediterranean and has instead promoted another bypass option through Burgas-Alexandroupolis between Bulgaria and Greece.

Curently, SCP is transformed to a multi layered project that involves set of pipelines that would bring water, electricity, fiber-optic cables and most importantly natural gas and oil from Russia and Azerbaijan to Turkey, underwater to Israel, and then underground until it reaches supertankers waiting in the Gulf of Aqaba that will take it to India and perhaps beyond. According to Turkish estimates 10 percent of the world's oil will transit Ceyhan.

Turkey and Israel have long been considering the building of a pipeline to carry oil and natural gas from Caspian countries and Russia, and water and electricity from Turkey, to Israel. However though Turkish, Israeli and Indian energy ministries held several meetings last year talks were suspended due to Israeli aggression in Gaza, which strained ties between Ankara and Tel Aviv.

Besides Turkish-Israeli partnership SCP also offers a unique opportunity to India to access Central Asian oil. The persistent instability and the virtual collapse in oil supplies to India led New Delhi to seek alternative sources and alternative routes for its oil. India would also benefit from SCP in terms of political relationships. First of all, developing its ties with a Muslim country like Turkey India will better handle any criticism posed with regard to its deep relations with Israel.(16)

Despite its attraction, SCP project is not problem free. The main obstacle in realizing it is somehow similar with the situation faced in Nabucco. As Nikolay Tokarev, the President of Transneft states "agreement on Samsun-Ceyhan oil pipeline does not cancel other projects, which are initiated by Russian Federation". This indicates that Russia is not thinking about rejecting plans on building Burgas-Alexandroupolis pipeline (17), which is described as cheaper alternative to Samsun-Ceyhan project. The implication of this policy is that full capacity of Samsun-Ceyhan oil pipeline could hardly be reached, because, in this case, Burgas-Alexandroupolis pipeline's exploitation would decrease (the construction of this pipeline is mainly financed by Russia).(18)

What we see is that similar to Turkish government's argument that "alternative projects do not hinder each other"(19), Putin also did not rule out interest in Burgas-Alexandroupolis, and instead stressed that the two pipelines might be complementary in meeting the growing demand for export routes. This statement brings questions about how committed Russia will be to the Samsun-Ceyhan Project, when we consider the fact that Russian companies own the majority of shares in the other Burgas-Alexandroupolis option.

> PERSONAL CHEMISTRY OR SOMETHING ELSE?

Not only Turkish media but also Russian sources speak about the "personal chemistry" between two premiers which helped in solving critical issues.(20) Moreover, what we see that this personal chemistry is not limited to Erdogan-Putin interaction it is something which is also attributed to Putin-Berlusconi and Erdogan-Berlusconi relationship. To preserve common stakes sometimes requires additional efforts. Though it was not confirmed by the Turkish authorities Berlusconi claimed that the historical agreements that signed during Russian Federation's Prime Minister Vladmir Putin's one day visit to Turkey were a product of Italian mediation.(21)

On the domestic realm the most important dimension of the Turkish Russian energy cooperation is the involvement of a `politically connected firm`. (22) The Calık Holding's CEO Berat Albayrak was Prime Minister Recep Tayyip Erdogan`s son-in-law. The close link with the government seems to be the one of the reasons why the Samsun-Ceyhan project was so prioritized.

In a similar fashion, Gerhard Schröder, the previous Chancellor of Germany, has been one of the most important advocates of Nord Stream, gas pipeline project, initiated by Russia. Extremely good personal relations between Schröder and Putin contributed to this as well. Nord Stream is supposed to supply Russian gas directly to Germany, while leaving Baltic States and Poland aside. Just after Schröder left his post, it was revealed that German government became a guarantor for Gazprom, while taking loans from German banks. Besides, several weeks after leaving his post, Schröder became a head of shareholders committee of Nord Stream AG (company, created to implement the project).(23)

Apart from creating disunity between allies` policies on critical issues one obvious consequence of such links is the difficulty to integrate energy issues into a country overall foreign, economic, and security policies. In Turkish case the construction of the Blue Stream pipeline which raised allegations of corruption and resulted in lawsuits against high government officials caused an asymmetrical dependence on Russian gas. The constructed gas-fired private power plants that took gas supply and electricity purchase guarantees are selling electricity to state-run distribution companies at tremendously high prices.(24)

> COOPERATION IN THE NUCLEAR FIELD

While Turkey is going to take important steps towards nuclear energy, the construction of the nuclear power plant tender was also awarded to a Russian-Turkish consortium. Russian-Turkish joint venture Atomstroyexport-Inter RAO-Park Teknik Girişim Group's original price 21.16 kWh/cent was considered to be high. The price decreased to 15.3-13.4 cent range and a compromise made after a revision for the electricity that was going to be produced in the power plant and for which the state guarantees to buy.

The fact that Russia's Atomstroiexport and its partners Inter RAO and Turkey's Park Teknik were the sole bidders for the plant again made the affair more noteworthy. Moreover, like the Calik Holding which owns Sabah-ATV media group, the domestic partner of the Russian company is also the owner Haberturk television channel which has broadcasted Putin's visit all day long. According to critics raised the Justice and Development Party gives privileges to two prominent media groups in order to secure their political support. As it is argued by the Turkish journalist Sahin Alpay, "The most important threat to freedom of press in Turkey is the use of media by their patrons for other interests. The biggest sin of the Justice and Development party government is its attempts to employ a stick and carrot strategy to assure the political backing of media rather than taking initiatives to strengthen its freedom." (25)

> CONCLUSION

The rapid growth in trade and economic relations between Turkey and Russia in the last two decades does not only demonstrate something unique to these neighboring countries but it also reflects the structural changes witnessed after the end of the Cold War. Structurally speaking during the Cold War era the Western alliance rested upon the presence of a common enemy and the dependence of the allies upon the Unites States for protection. In contrast with the bipolar world where the ideological divisions are strong and the divergences in allies' policies towards the adversaries were tone down, one of the prominent characters of today's arrangements in the economic sphere which has important strategic implications is 'flexibility' and 'uncertainty'. In this vein, flexibility entails allies' will and ability to take an independent course of action to fulfill their interests at the expense of common strategies while uncertainty denotes the difficulty in anticipating the development of this complex web of relationships. Furthermore, Turkish-Russian interaction in the energy field shows us once more that in order to analyze properly the factors that determine decision making process with regard to energy policies and their broader implications, an in depth understanding of internal dynamics is also necessary.

________________________________________

(1) "Erdogan: We signed protocols to develop Turkey-Russia relations", Anatolian Agency, online at www.aa.com.tr/en/erdogan-we-signed-protocols-to-develop-turkey-russia-cooperation.html

(2) According to Gazprom data, Turkey is Russia's third-largest gas customer after Germany and Italy, buying 24.5 billion cubic meters last year, and 9.6 billion cubic meters in the first half of this year.

(3) "First Seismic Researches, then Feasibility Studies of South Stream", Anatolian News Agency, 6 August 2009.

(4) "South Stream will be Operational in 2015-Russian Energy Minister", The Sofia Echo, 23 April 2009, online at //sofiaecho.com/2009/04/23/709369_south-stream-will-be-operational-in-2015-russian-energy-minister

(5) Zeyno Baran, Security Aspects of the South Stream Project, Hudson Institute, October 2008.

(6) EurActiv, 14 May 2009.

(7) "Russia and Turkey weave a network from pipes", Interfaks, 7 August, 2009, online at www.interfax.ru/print.asp?sec=1447&id=94098.

(8) "Putin: Competition between SouthStream and Nabucco is much more important than between Samsun-Ceyhan and Burgas-Alexandroupolis oil pipelines", Finance.UR, 6 August 2009, online at //news.finance.ua/ru/~/1/0/all/2009/08/06/167819.

(9) "Gas Pipeline Fight Escalates Sharply", Russian-European Chamber of Commerce, online at www.ruscham.com/en/news/business_news/1/1167.html

(10) Gintautas Degutis, "Gas crisis unveiled Russia's problem", Study Centre for European Politics, 13 January, 2009, online at //vilniaus.diena.lt/dienrastis/ekonomika/duju-krize-apnuogino-rusijos-bedas-194542.

(11) "Russia is going to sign an agreement for building a pipeline, competing with EU Project", ATN News Agency, 15 May 2009, online at //ekonomika.atn.lt/straipsnis/23458/rusija-pasirasys-susitarimus-del-dujotiekio-konkuruojancio-su-es-projektu-papildyta.

(12) Torrey Clark and Stephen Bierman, "Gazprom ready to buy all gas from Azeri Nabucco base", Bloomberg.com, 15 May 2009, online at www.bloomberg.com/pps/news?pid=20601072&sid=aFDux_hYlA3Y

(13) "No charters, only pipes! One, two, three…", RIA News Agency, 11 August, 2009, online at www.rian.ru/analytics/20090811/180527460.html.

(14) Lietuvos Žinios, "Turkey gave a permission for Russia to build gas pipeline in its territory", 7 August 2009, online at www.alfa.lt/straipsnis/10285087/?Turkija.sutiko.isileisti.Rusijos.dujotieki.i.savo.teritorija=2009-08-07_07-26.

(15) Anatolian Agency, 5 August 2009.

(16) Greece, Bulgaria and Russia agreed in early 2007 to spend over $1 billion to build a 230-kilometer oil pipeline from Bulgaria's Black Sea port of Burgas to Alexandroupolis on Greece's Mediterranean coast. From the beginning the Russian-backed pipeline worried some analysts that it will enable Russia to tighten its grip on the European energy market.

(17) "Turkey offers alternative to Iran pipeline", Indian Times, 10 February 2008, online at timesofindia.indiatimes.com/India/Turkey_offers_alternative_to_Iran_pipeline/.../2770237.cms -

(18)"Main Event of the Week in Economy, RIA News Agency, 7 August 2009, online at www.rian.ru/economy/20090807/180120434.html.

(19) "Nabucco Turkey's No. 1 priority, says FM Davutoğlu", Turkishny.com, 4 July 2009, www.turkishny.com/en/english-news/10977-nabucco-turkey.html.

(20) Kristina Puleikytė, "The "gazpromization" of European energy security", 6 March, 2008, online at www.balsas.lt/naujiena/186222/europos-energetinio-saugumo-gazpromizacija/rubrika:naujienos-pasaulis-esireuropa.

(21) "South Stream, Turchia: esagerato dire che è successo Berlusconi", Reuters, 7 Augusto 2009.

(22) Pami Aalto, The EU-Russian Energy Dialogue: Europe's future energy security, Farnham, Ashgate Publishing, 2007, 106-107, 110.

(23) According to Mara Faccio, "a company is identified as being connected with a politician if at least one of its large shareholders (anyone controlling at least 10 percent of voting shares) or one of its top officers (CEO, president, vice-president, chairman, or secretary) is a member of parlia-ment, a minister, or is closely related to a top politician or party". See, Mara Faccio, "Politically Connected Firms", The American Economic Review, Vol. 96, No. 1, March 2006, 369-386.

(24) Volkan Ozdemir, “The Blue Stream Natural Gas Pipeline: Implications on Energy Security and Foreign Policy”, Journal of Central Asian & Caucasian Studies, Vol 2, No 3, Autumn 2007.

(25) Sahin Alpay, "Turk-Rus Ekseni mi?" (Turkish-Russian Axis?), Zaman, 18 August 2009.

-----------------------------------------------------------------------------------------------------------

Download below the article in PDF (6 pages).

pdf Document