Erdoğan’s mega-projects promise mega-burdens for coming generations
The build-operate-transfer (BOT) and build-lease-transfer (BLT) models seem to best suit Turkey’s needs in financing ambitious projects that cost a fortune at a time when problems in the global economy are making liquidity scarcity a prominent issue, but today’s dream may turn into a nightmare in the next decade with accumulating costs, experts warn.
The Justice and Development Party (AK Party) government has been hailed for its mega-projects, mostly in the fields of construction and energy, which are meant to boost welfare and create huge numbers of jobs. Nuclear energy power plants in Mersin and Sinop, 15 city hospitals in 14 provinces, a new airport in İstanbul with a capacity to serve 150 million passengers annually, a third bridge over the Bosporus, the “crazy project” of Kanal İstanbul to connect the Black Sea and the Marmara Sea and alleviate the dense and dangerous traffic on the Bosporus are only a few of these mega-projects. Their combined price tag is a hefty $150 billion. No money will be paid in advance for most of these projects, but the long-term costs will likely surge well beyond their total estimates for construction and operation, laying huge amounts of debt at the feet of the coming generations, experts say.
The nuclear reactor in Mersin’s Akkuyu district will be the first of its kind in Turkey to satisfy the country’s ever-growing hunger for energy. The estimated cost of the power plant is $20 billion, all to be met by the Russian-owned NGS Elektrik Üretim A.Ş. But the purchase guarantee by the government mars this extremely strategic investment. Turkey has pledged to purchase the electricity to be generated by this power plant for 15 years at a price of 12.35 US cents per kilowatt-hour (kWh), which equals $4.57 billion per year considering the plant’s planned capacity of 4.8 billion megawatts. This adds up to $68.54 billion to be paid by Turkey to the NGS, which means the amount to be paid out of the state coffers is more or less $48.5 billion.
The deal drew criticisms from many in the energy business, who largely drew attention to the price tag for the purchase guarantee, 12.35 cents per kWh. Yet nobody was sure whether the market price of electricity will be higher or lower by the end of the purchase guarantee term.