Posts Tagged ‘turkey’

Ukranian power plays could benefit Turkcell

ukrtelecomUkraine‘s telecommunications sector is, potentially at least, in line for a major shake up, with plans to privatise a controlling stake in state-owned landline operator Ukrtelecom. Proposals to sell off Ukrtelecom have been around since the 1990s, with different formulas and percentages being floated at various times, along with varying assessments of the company’s net worth.

In the latest version of the plan to privatise Ukrtelecom, an open joint-stock company that holds a 70% market share of local landline operations, the government has proposed selling off it’s block stake of 67.79% of Ukrtelecom’s shares. Currently, the state has a 92.79% stake in the company, with the company’s employees holding a further 7.14%.

The government’s plan, announced in February by the State Property Fund (SPF), initially foresaw the privatisation process beginning in March, though this did not take place, casting some doubt on the timeframe for the sale.

Although it did not meet its own deadline to start the process, the government has recently put Ukrtelecom back on the agenda. During a visit to South Korea in mid-July, Prime Minister Yulia Tymoshenko called South Korean firms to place a bid for Ukrtelecom,as she pushes to attract Asian investment into the Ukrainian economy. This is part of a wider drive by Timoshenko to privatise a number of state owned assets, including 5 regional energy companies.

However, the government may have missed the boat if it is hoping for a substantial cash windfall from the sale of Ukrtelecom, with the company’s overall value having slipped badly in the past year. The stake in the company that is to be sold off was estimated to be worth around $3bn in 2008; current pricing puts it at around $940m, mainly due to the sharp fall in the local currency.

Its attractiveness as an asset has not been helped by Ukrtelecom recording a $194m loss last year, compounded by a further $32m worth of red ink in the ledger for the first quarter of 2009, a turn around from a net profit of $33m at current rates in 2007.

More likely to give potential suitors pause than the telco’s financial statements is the political cloud that hangs over the proposed privatisation, with President Viktor Yushchenko staunchly opposed to the sale. In February, after the plan to privatise Ukrtelecom was unveiled, a senior official of the president’s office said Yushchenko would do everything possible to block the sale.

Yushchenko and Tymoshenko, formerly close allies, are at loggerheads over numerous issues, including management of the faltering economy, combating corruption & ties with Russia. Having repeatedly blamed the Tymoshenko-led government of failing to protect the economy and the Ukrainian people from the fall out of the global financial crisis, it is no surprise that the president has opposed the sale of Ukrtelecom.

According to the SPF, there are at least 10 companies interested in bidding for the Ukrtelecom stake, though this assessment was made in March, and could be optimistic given the present variable political and economic climate. “Climate change” notwithstanding, one interested party is Turkey’s largest mobile phone operator, Turkcell (NYSE:TKC) which already has a presence in the Ukrainian telecoms sector, owning a controlling interest in Astelit, the country’s third-largest mobile services provider, which services 20% of the mobile market.

In mid-February, as discussions over the privatisation of Ukrtelecom again gained momentum, Turkcell’s chief executive officer, Sureyya Ciliv, said his firm was considering making a bid for the landline operator.

“It is an interesting situation but we need to understand the terms of the deal, and our teams are studying that. Based on the study, we will make a decision if we are a serious interested party who is willing to bid.”

What could be of more interest for Turkcell & the Ukrainian goovernment, is TeliaSonera looking at gaining a greater stake in Turkcell. The Swedish multi-national is eager to penetrate new markets in Eurasia & already has a growing fibre network building out in Ukraine. My view is that this has a greater chance of success than courting Asian investors to come into the Ukranian market, time will tell.

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EU pins hopes on Nabucco pipeline to disengage from Russian energy hegemony

nabuccoTurkey and four EU member states have signed a historic deal in Ankara allowing work to start on the Nabucco natural gas pipeline, which is aimed at allowing the European Union to tap directly into non-European gas reserves.

The Nabucco Intergovernmental Agreement that was signed by representatives of transit countries Turkey, Bulgaria, Romania, Hungary, and Austria, represents a huge symbolic step toward diversifying EU energy supplies. The project should carry gas reserves to Europe from the Caspian Sea region, Iraq, and the Middle East — and not from Russia, currently the EU’s biggest and most capricious supplier. At the ceremony, European Commission President Jose Manuel Barroso called Nabucco “a truly European project” that “will provide energy security to Turkey, to Southeast Europe, and to Central Europe.”

“I sincerely believe we are starting to confound the skeptics, the unbelievers,” Barroso said. “Some time ago people said that this project would not go ahead, that the negotiations seemed irrevocably blocked. Now we have an agreement and I believe this pipeline is now inevitable rather than just probable.”

EU officials insist Nabucco’s intention is not to pick a fight with Moscow, but they make no secret of the fact that Russia’s reputation as a supplier has taken a beating following repeated gas spats with Ukraine — and that finding reliable alternatives is now an EU priority.

The 3,300-kilometer Nabucco pipeline — which should run from eastern Turkey to the Austrian capital, Vienna — is expected to come online in 2014. When fully operational, it could carry 31 billion cubic meters (bcm) of gas annually and supply between 5-10 percent of the EU’s projected gas consumption in 2020.  Russia, the bloc’s largest external supplier, provided around one-quarter of the EU’s gas at the last reliable count.

“The consequences of the Nabucco project will reach far beyond simply laying down a pipeline and filling gas into it,” Hungarian Prime Minister Gordon Bajnai said in Ankara, hinting at the broad impolications for the 27-member EU. “This will have very significant, positive consequences in the economic, social, and political sense for all of our citizens.”

Nabucco has always been seen to have a political dimension, and Russia’s reliability as a provider has suffered in recent years, with many new EU member states distrustful of Moscow’s motives. But the European Commission’s energy spokesman, Ferran Tarradellas, told RFE/RL last week that moves to diversify EU energy supplies did not mean the bloc was turning its back on Russia.

“Nabucco is going to make a contribution — it’s going to [deliver] gas from different sources, through different transport routes, and therefore it’s going to bring more security of supply, more freedom of choice to European markets,” Tarradellas said. “But this doesn’t mean that we’re not going to go on working with Russia. On the contrary, Russia is very likely to remain our main supplier of gas and Nabucco has never been a project against Russia.”  Tarradellas said the EU has been “very transparent with our Russian friends.”

Senior Russian officials have stated publicly that the EU’s efforts to lessen its energy dependence on Moscow are driven by “Russophobia.” Privately, EU officials argue that regardless of Russian objections, the bloc must look out for its own energy security. They point out that most eastern member states are wholly dependent on Russian gas.

“You know our history with Russia and Ukraine,” one senior European Commission official commented recently, alluding to the recurrent price disputes between the two countries which saw half of the EU’s member states suffer debilitating gas shortages as Russia turned off the taps in January. Briefing journalists in Brussels, the official intimated more than once that enhancing EU member states’ security of supply and lessening their reliance on Gazprom amount to the same thing. The benefits of Nabucco in this regard, he said, will be felt from “Greece to Hungary” and in the Western Balkans, and will extend as far as Poland, Germany, and France — all of which will have access to the gas transported to Europe via the pipeline.

Nabucco has long been hampered by a lack of commitment from both suppliers and investors. Searching for the initial 8 bcm of gas needed annually to start up Nabucco, EU officials are looking to Azerbaijan’s Shah Deniz II gas field, projected to go online in September, to provide the necessary start-up volumes. Azerbaijan’s recent 500 million cubic meter deal to sell gas to Gazprom does not appear to worry Brussels, where officials say the deal is just a small portion of Azerbaijan’s overall gas output. EU sources also say Azerbaijan’s government thinks that country could produce “far more” gas than the 8 bcm needed to make Nabucco viable. There is talk of a possible 30 bcm being available from Azerbaijan alone by 2015. Given the mounting geopolitical risks in the South Caucasus, however, EU decision-makers are exploring alternatives as well.

Should anything go wrong with the South Caucasus transit corridor, Iraq is said to be in a position to step in and supply the minimum 8 bcm needed annually. Iraqi Prime Minister Nuri al-Maliki was attending the Ankara signing ceremonies. The bloc is setting its sights much higher, hoping to reach beyond Azerbaijan to the massive reserves held by the Central Asian states.

Tarradellas also said Turkmenistan is the next natural target for Nabucco after Azerbaijan.”Turkmenistan has large reserves that have been proven, so probably it’s going to be the next country that is going to be an important player on the Southern Corridor project. We have also contacts with Kazakhstan and with Uzbekistan as possible future suppliers.”

Turkmenistan has at least one gas field with a proven capacity of 4 trillion-14 trillion cubic meters — enough to keep Nabucco operational at its currently projected levels for at least 120 years. The EU is working with Azerbaijan and the Central Asian countries to set up a Caspian Development Corporation (CDC), a commercial enterprise tasked with establishing transit routes — possibly a pipeline — across the Caspian Sea.

But Brussels is now playing down earlier promises extracted from Ashgabat to guarantee the EU 10 BCM a year. This was a “political commitment,” the official said on July 10. He said the Central Asian countries would always keep their options open until the last possible moment to maximize their bargaining power and commercial advantage with regards to all prospective buyers.

The Brussels-based official also described Nabucco’s main impact on Turkey in terms of reducing that country’s dependence on the current dominant supplier, Gazprom. Nabucco’s gas flow, the official said, will be reversible, enabling Turkey to switch at will from Russian supplies to gas coming from the North Sea, Algeria or Libya.

Should Nabucco fail to tap into the Central Asian gas reserves, prospects for its large-scale expansion will remain bleak. The EU source said there are “no great hopes” for the Pan-Arab Pipeline which connects to Turkey via Syria, as most of the Middle Eastern gas is expected to move south.
Iran, with its large reserves, is not a “desirable” partner for Nabucco in the current political climate, in the words of the EU official. He also underlined the fact that Iran presently imports gas.

Given that the South Caucasus Pipeline from Azerbaijan to Georgia can currently handle only 10 bcm a year, there exists an obvious transit bottleneck. Officials in Brussels say the capacity of the pipeline could be doubled but decline to comment further. “The EU has no preference” as to the location or contractors of any other prospective pipelines, said one senior source.

The bloc’s casual stance could undermine prospects for the White Stream pipeline project, to run under the Black Sea from Georgia to Romania, recently elevated to the status of a priority EU project. Officials say Nabucco with its current prospects will offer a “very good” rate of return at a low risk. The EU itself has agreed to bankroll 250 million euros of the estimated total cost of 7.9 billion euros.

This article first appeared in Radio Free Europe

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Turkish Delight

turkcell93cb582593bb5953by Turkcell  (NYSE – TKC)  recently managed to outbid global giant Vodafone  (NYSE – VOD) for the fastest 3G licence in an auction that looks as though it will realise a total of $1Bn for the Turkish government. Although a far cry from the 3G auctions that occurred in Western countries in the mid 90’s, this will be a welcome fillip for the Turkish economy.

The government had made regulatory changes to induce Turkcell’s competitors to bid, including the introduction this month of portability reform – allowing customers to switch mobile operators while keeping the same phone number. Turkcell agreed to pay €358m for the first 3G licence, which is for spectrum at the 40 megahertz band. Vodafone offered the minimum price of €250m for 35MHz. Avea, owned by Turk Telekom, offered €214m, also the minimum price, for €30MHz.

During the 3rd Quarter of 2008, Turkcell reported a year on year growth of 19.3%, comfortably breaking many analysts estimates. With the acquisition of the 3G licence bringing increased coverage levels, it is expected that Turcell will acheive some strong customer acquisitions in its homeland, where it has a track record of eliciting above average ARPU from its users base. Currently sitting at $13.91, the ADR has attracted a number of buy ratings, with a  6 month target of $16.22.

Meanwhile, Turkcell is looking abroad for even further expansion, its relative financial muscle in the region could see it picking up Macedonian operator Cosmofon within the next three months, although there is competition from Telekom Austria & also Slovenjie Telecom, both of whom are also looking to secure further business in the Balkans & Black Sea Basin. It already has holdings in Azercel (Azerbaijan), Geocell (Georgia). K’cell (Khazakhstan) & Moldcell (Moldovia) through its international joint venture Fintur.  In Ukraine, Turkcell operates the third largest mobile operator Life :), through its Astelit operation. Life:) has been making some serious inroads into the Ukrainian market, more than doubling its subscribers in 2007.

 Standard & Poors upgraded Turkcell’s foreign currency rating from BB to BB+ in early November, which can only bring encouragement for investors.

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