VALYRIAN CAPITAL – INTRO TO TURKISH ENERGY MARKETS
VALYRIAN CAPITAL 1 SEPTEMBER 2015 Turkey Aspires to Achieve Ambitious Goals by 2023 In 2013, the Turkish government allocated 30% of the total infrastructure investment budget to the transportation industry. Infrastructure investments are expected to reach TL36.6bn by 2023
Planned Major Projects
1 Körfez Bay 4 Euroasia 5 Euroasia st Bridge 1 Tunnel Tunnel Phase US$1.6bn US$1.6bn US$9.2bn
2015 2016 2017 2023
rd 2 3 Bridge 3 PPP 1 Körfez Bay in Istambul Hospitals* Bridge 2nd US$2.5bn US$7.7bn Phase US$10.1bn
Infrastructure (TL bn) Energy and utilities infrastructure (TL bn)
₺40 CAGR: 12% ₺60 CAGR: 12% ₺35 Roads and bridges ₺50 Water infrastructure ₺30 Airports Oil and gas pipelines Railways ₺40 ₺25 Power plants and transmission grid Ports, harbors, waterways ₺20 ₺30
₺15 ₺20 ₺10 ₺10 ₺5
₺0 ₺0
Source: SOCAR
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 1 Targets for Turkish Energy Sector for 2023 Turkey has one of the fastest growing energy markets in the world in parallel to its economic growth registered over the last ten years – the total amount of investment required to meet 2023 energy demand is expected to exceed $130bn
Turkey’s Vision for the 2023 Energy Sector:
▪ Lifting up installed power to 120,000 MW ▪ Increasing share of renewables to 20% ▪ Maximizing the use of hydropower ▪ Increasing power plants with 3,000 MW of solar energy and 600 MW of geothermal ▪ Extending the length of transmission lines to 60,717 km ▪ Reaching power distribution unit capacity of 158,460 MVA ▪ Extending the use of smart grids ▪ Raising the natural gas storage capacity to 5 billion m3 ▪ Establishing an energy stock exchange ▪ Commissioning nuclear power plants (Two operational nuclear power plants with third under construction) ▪ Building coal fired power plants with a capacity of 18,500 MW
Source: SOCAR
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 2 Turkey: Crossroads of Production and Consumption
Gas Production
▪ Although Turkey is limited in primary energy resources and is dependent on imported energy, it acts as a bridge between the worlds crucial supply and demand regions
▪ Having a position central to the regions of Europe, the Balkans, the Aegean, the Black Sea, the Caucasus-Caspian Basin and Central Asia, Turkey is a natural transit country for maritime and pipeline transportation of oil and gas
Petroleum Production
▪ Turkey’s position is critical for the export and import of petroleum as it straddles the demand-rich west to supply-rich east
Source: BP Statistical Review 2013
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 3 Turkey Macro Outlook
Macro Economic Framework Outlook
Government Projections – Medium Term Plan ▪ Turkey’s economy reached a 4.2% growth in 2013 due to the strong support from the public Turkish 2013R 2014R 2015 2016 2017 sector Economy ▪ Growth was 2.9% in 2014 due in large part to Growth 4.2% 2.9% 4.0% 5.0% 5.0% net exports
Inflation 7.4% 8.2% 6.3% 5.0% 5.0%
Budget 1.2% 1.3% 1.1% 0.7% 0.3% Deficit/GDP ▪ According the governments “Medium Term Debt Plan”: 36.2% 33.1% 31.8% 30.0 28.5% Stock/GDP Growth ▪ Growth is estimated at 4% for 2015 Projections ▪ Inflation is expected to decline to 6.3% CA 7.9% 5.7% 5.4% 5.4% 5.2% ▪ YoY decline in debt stock GDP to 31.8% Deficit/GDP is expected in 2015 GDP & CPI Rate of Change (YoY %)
20 ▪ Turkey’s sovereign credit rating has been upgraded to “investment grade” by Fitch in in 10 November 2012 and by Moody’s and JCR in May 2013 Investment ▪ The current sovereign ratings are: Grade 0 ▪ Fitch: BBB- (stable)
▪ Moody’s: Baa3 (stable)
2Q14 4Q14 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 3Q14 ▪ JCR: BBB- (stable) -10 ▪ Standard & Poor’s: BB+ (negative)
CPI GDP -20
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 4 An Introduction to Turkish Energy Markets
Pg. 5 Turkish Energy Regulatory Structure
A quick look at the regulatory environment and relevant public institutions
Regulatory structure of the Turkish energy market ▪ Regulating and monitoring the energy markets ▪ Issuing licenses EPDK – ▪ Drafting, amending, enforcing and auditing performance ▪ Council of Ministers and/or High Planning Regulatory standards; distribution and customer services codes Council makes decisions in line with the spirit Body ▪ Setting out the pricing principles indicated in the law of the law (i.e. Strategy Papers, secondary ▪ Ensuing the development and implementation of an regulations infrastructure ▪ EMRA Board of Directors define operational EÜAŞ – ▪ Operating the generation facilities which have not been details as often as needed regarding the State transferred to private sector changing market conditions Generation ▪ EÜAŞ has several affiliates which operate specific thermal power plants in the privatization portfolio ▪ The main laws are as follows: Company
▪ Operator of state-owned DisCos, owner of DisCo assets 1 Electricity Market Law (EML) No: 6446 TEDAŞ ▪ Expropriation activities for distribution
2 Natural Gas Market Law No: 4646 TKİ – State ▪ Producing and usage of raw materials of energy such as Coal lignite, asphaltite, oil shale, peat, etc. 3 Petroleum Market Law No: 5015 Enterprise
Ministry of 4 LPG Market law: 5307 Energy & ▪ General energy policy making Resources 5 Renewable Energy Law )REL) No: 5346 BOTAŞ ▪ General energy policy making 6 Nuclear Power Plant Law No: 5654
▪ Carrying out sale and purchase agreements within the scope 7 Geothermal Law No:5686 TETAŞ – of its contracts State Owned ▪ Engaging organized wholesale markets for sale and purchase Wholesale agreements and conducting bilateral agreements Company ▪ Selling electricity to incumbent supply companies for regulate tariff consumers
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 6 Entryway into the Turkish Energy Sector
The last few years were marked by the entry of major international players in the Turkish energy Sector
Direct Foreign Investment Continues… New JVs in Generation & Distribution Companies
▪ The energy sector in Turkey has become one of the most ▪ E.ON – Enerjisa (2013) important sectors in regards to foreign direct investment ▪ Goldman Sachs – Aska Enerji (2012) Noteworthy investments in the sector include: ▪ Inter RAO – AEI (2012) Austrian OMV Company which acquired shares from ▪ EÜAŞ – TAQA (2013) 1 Petrol Ofisi and became one of the leading players in ▪ Akkuyu NGS and its Russian partner are now important downstream investors in the field with over $700mm in investments (2012) 2 US-based AES partners with Koç Entek (2010) ▪ A French – Japanese consortium is planning to build a second nuclear plant in Sinop (2013) 3 EDF entered a joint venture with Polat, a leading wind energy company (2008)
4 German RWE invested in a greenfield CCGT (2009)
5 Swedish Statkraft invested in hydropower (2009)
Azeri SOCAR invested in a new refinery with Turcas 6 (2011)
Chinese energy giant Harbin entered into a joint venture 7 with the Hattat Group of Turkey to operate a coal mine and a coal-fired power plant (2013)
GDF Suez invested in natural gas distribution and is 8 operating a CCGT
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 7 The Turkish Crude Oil & Natural Gas Markets
Pg. 8 Crude Oil: Turkey Turkey is an increasingly important transit hub for oil and natural gas supplies as they move from central Asia, Russia, and the Middle East to Europe and other Atlantic markets
Turkish Straights Consumption & Imports Exploration and production Ports
▪ Includes the Bosporus ▪ In 2014 total liquid fuels ▪ Most of Turkey’s 296 million ▪ Ceyhan as become an waterway and the Dardanelles consumption average 712,000 barrels of oil reserves are important outlet for both waterway b/d located in the Batman and Caspian oil exports as well as ▪ Considered to be one of the ▪ <90% of total liquid fuels came Adiyaman Provinces in the oil shipments from northern busiest maritime chokepoints from imports southeast (where most of Iraq in the world ▪ Crude oil imports mainly come Turkey’s oil production occurs ▪ In 2014, Ceyhan handled more ▪ Significant volumes of Russian from Iraq and Iran, with each ▪ In 2014, Turkey produced an than 650,000 b/d of Caspian and Caspian oil move by supplying slightly more than a estimated 61,000 b/d of crude oil exports and more tanker via the Turkish Straits quarter of the country's crude petroleum and other liquids then 130,000 b/d of Iraqi crude to Western markets oil accounting for 9% of Turkey’s oil exports ▪ In 2013, an estimated 3 million oil consumption b/d flowed through the ▪ Aegean and Black Sea may be Turkish straights. hold oil production potential ▪ Approximately 70% of the for the future volume is crude oil
Turkey’s Major Crude and Condensate Pipelines
Capacity Total Supply Facility Status Destination Details (million b/d) length (mi) regions Azerbaijan & Baku-Tbilisi-Ceyhan Opening 1.2 1,100 Ceyhan oil port Started operations in 2006 Kazakhstan
Started operations in 1976; Northern low annual throughput as the Kirkuk-Cceyhan Operating 1.5 620 Ceyhan oil port Iraq pipeline is frequently sabotaged Ceyhan oil port Kurdish Regional Government (KRG Northern Operating 0.6 250 via Kirkuk- Completed in 2013 Pipeline Iraq Ceyhan pipeline
Russia/Centr Project was cancelled in 2013 Samsun-Ceyhan Canceled Up to 1.5 340 Ceyhan oil port al Asia as it was uneconomical
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 9 Natural Gas: Turkey Turkey has a strategic role in natural gas transit because of its position between the world’s second-largest natural gas market, continental Europe, and the natural gas reserves of Caspian Basin and the Middle East
BOTAŞ Consumption, imports & exports Storage
▪ BOTAŞ accounts for 80%of natural gas ▪ Has increased rapidly over the past decade ▪ Companies importing natural gas into imports and reached a new high of 1.7 trillion cubic Turkey are required to hold rights to ▪ At the end of 2013 owned more than 7,600 feet in 2014 storage capacity equal to 10% of their miles of natural gas pipelines in Turkey ▪ In 2012 natural gas accounted for more annual imports ▪ Builds and operates natural gas pipelines than 40% of consumption in power ▪ Turkey currently has one operating ▪ The Turkish government is attempting to generation underground storage facility with total reduce the dominance of BOTAŞ in the ▪ Turkey has little natural gas storage storage capacity of about 5% of the market segments in which it operates to capacity and primarily relies on increased country’s imports of natural gas increase competition imports to meet the increase in demand ▪ BOTAŞ is required to reduce its share of imports to no more than 20% of annual consumptions by selling of its import contracts
Turkey’s Natural Gas Storage Facilities Turkey Natural Gas Consumption and Production
Working gas Facility Status Operator Details 2000 capacity (Bcf) 1800 Facility consists of two 1600 Consumption depleted gas field; Kuzey Marmara Operating TPAO 90 1400 plans to expand capacity to 150 1200 1000 Marmara Eregesli Operating BOTAŞ 6 LNG terminal storage 800 net imports LNG 600 Aliaga LNG Operating EgeGaz 6 LNG terminal storage 400 Tuz GOlu planned BOTAŞ Salt dome storage 200 Production 0 Bendis Tarsus province planned 180 Energy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 10 Turkey’s Oil Market is Growing Rapidly
Massive, Fast Growing Oil Market in Turkey Increasing Reliance on Vehicles may Drive Growth Oil Demand
2.0 40 +27% 37 35 29 1.5 30 25 1.0 20 ▪ 15 Population of over 77 mm 0.5 ▪ Car penetration per 1,000 people 10 increasing from 102 in 2010 to 123 in 5 2014 vs. Euro Avg. of 500 0.0 0 0 20,000 40,000 60,000 80,000 2010 2021 Median household income (USD) Electricity Consumption and Real GDP are Closely Linked
▪ Turkey represents significant potential. Young population and ▪ Electricity consumption is mainly effected by GDP, population strong economic growth are key factors to Turkey’s success growth, urbanization, climate change and efficiency applications GDP 2011 2012 2013 Finland Sweden Electricity Electricity (per Consumption 15.000 UK Luxembourg Turkey 8.8% 2.2% 4.0% France Austria EU-15 Germany EU 1.6% -0.7% -0.4% Slovenia
capita) Italy 5.000 Bulgaria ▪ Increasing electricity demand and growth rates tends to be parallel Czech Rep. to each other in emerging markets, like Turkey Romania Poland Ukraine Emerging Markets 2007 2008 2009 2010 2011 2012 Turkey Latvia 0.000 EUR Electric Power Growth (%) 6% 6% 3% 0% 6% 4% 15,000 40,000 GDP growth (%) 7% 6% 4% -1% 5% 3% Real GDP (real GDP/capita) Source: JBC Energy; 1) Total product demand excl. Biofuels; 2) Assuming avg. household size of 3 people; 3) Germany, Japan, UK, Spain, Italy, France and US; IMF, OECD, WB
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 11 Turkish Demand Still Buoyant Oil has long been one of the key sources of energy in Turkey, accounting for some 28% of the country Total Primary Energy Supply (TEPS) - however, 60% of the total oil demand is imported as crude oil and refined in Turkey
▪ Turkey’s demand for oil increased slightly from 29mm tons in 2003 to 35mm tons in 2013. Representing a 10 year CAGR of 2%
▪ The transport sector accounted for almost half of total oil consumption in 2013. Valyrian expects the current demand composition to be maintained going forward with an increasing contribution from the transport sector.
▪ Airline sector is projected to grow at a rate double that of GDP, with automotive sales on course to grow at a rate at least 1-2 percentage points in excess of GDP growth over the next decade Oil Products Consumption in Turkey
45,000 40,000 35,000 30,000 25,000 20,000
Tons (mm) Tons 15,000 10,000 5,000 - 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Other Asphalt Lube Oil Fuel Oil Diesel Jet Fuel Gasoline Naphtha LPG
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 12 Intense Competition in Retail Petroleum Distribution
▪ Serves as the regulatory authority and is Total Vehicles vs. Population actively involved in creating precautions to 18 76 EMRA – ensure a competitive and fair oil sector ▪ Mitigate oil theft and increase oil quality Regulatory ▪ Competition Authority has also taken action 16 74 Authority in order to increase competition in the 14 72 distribution and retail sector of the oil and gas industry 12 70
▪ Distribution activity is licensed by EMRA 10 68
▪ 58 total licenses by the end od 2012 (mm) Population Total VehiclesTotal(mm) ▪ Distribution market is highly fragmented and 8 66 Distribution dominated by 5 top players – BP, Shell, Opet, 6 64 Activity Total and OMW-POAS 2000 2002 2004 2006 2008 2010 2012 ▪ By the end of 2012 the top 10 companies made up 83% of total distribution volume Population Total Vehicle Source: EGM, TUIK, PETDER Report 2011, EPDK, EIU ▪ 3 main products are LPG, diesel and gasoline; diesel being the most consumed product due Total Vehicles vs. Total Fuel Consumption to the increase of diesel vehicles are regulation in 2011 19 19 ▪ Diesel fuel is standardized according to EU Oil Products criteria 17 17 ▪ Diesel fuel is also subsidized and is preferred 15 15 by the consumers due to its price advantage over gasoline 13 13 ▪ As the # of diesel fuel vehicles increase, the demand for diesel fuel increases as well 11 11
Total Vehicles (mm) Vehicles Total 9 9 Approx. 86% of oil is used in transportation. The total # of vehicles has steadily increased since 2000 along with population 7 7 growth. Expansion in domestic production and the discount of 2000 2002 2004 2006 2008 2010 2012 the special consumption tax also affected the growth in number of vehicles. Parallel to the vehicle increase, fuel consumption has Total Vehicle Consumption Total Vehicle also significantly increased in recent years Source: EGM, TUIK, PETDER Report 2011, EPDK, EIU
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 13 Turkish Petroleum Market Dynamics
Diesel (m3) Gasoline and Auto LPG (m3)
19.5 18.4 19.1 17.5 18.2 16.6 16.3 7.2 7.3 15.3 15.9 7 6.8 7.01 6 5.9 6.1 6.1
2007 2008 2009 2010 2011 2012 2013 11m.1311m.14 2007 2008 2009 2010 2011 2012 2013 11m.1311m.14
Black Products (‘000 ton) Lubricants (‘000 ton)
2758 2600
1917
321 323 327 301 296 303 317 262 1076 1040 859 766 483 474
2007 2008 2009 2010 2011 2012 2013 11m.1311m.14 2007 2008 2009 2010 2011 2012 2013 2014
Source: EMRA, Petder for Lubes
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 14 Turkish Energy Storage & Transportation Infrastructure
Pg. 15 BOTAŞ: Oil Infrastructure Map
BOTAŞ, a state owned entity owns and operates several pipelines in Turkey including the 18-inch Batman to Dortyol crude oil pipeline; the 24-inch Ceyhan to Kirikkale pipeline and the Turkey portion of the twin 40-inch & 46-inch Kirkluk to Ceyhan oil pipeline
Pipeline Infrastructure Map: Crude Oil
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 16 Natural Gas: Turkey At the end of 2013, BOTAŞ had more than 7,6000 miles of natural gas pipelines in Turkey, including interconnections to four international import pipelines and one international export pipeline
Natural Gas Pipeline Infrastructure Map
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 17 Utilities: Natural Gas Distribution
Overview Market Structure ▪ Turkish natural gas market has been going through a liberalization Supply Wholesale Network Retail
program since the early 2000s. Privatization tenders for 65 regions Transmission company Transmission (BOTAS)
have been completed (majority private minority and
Eligible Distribution Distribution companies ▪ IGDAS, gas utility for Istanbul, is the only remaining major public Importers customers
distributor and is being prepared for privatization in 2015 (BOTAS & government) Private) ▪ Almost all of natural gas consumed in Turkey, approx. $50 billion Wholesalers mcm, is imported and Russia is the major source of imports. BOTAS, (BOTAS, & state-owned backbone operator, is the main natural gas importer in private Turkey companies) Local Non-eligible ▪ By the end of 2013, the share of private companies among natural gas production customers imports increased to 20% as a result of transfer of BOTAS contracts to private companies
▪ Tenders for transferring BOTAS contracts to private companies are Exporters still in progress to create a fully liberalized market Distribution Regions Industry Dynamics
Consumption Supply Industrial Spot LNG Other State offices 2% Other Algeria 2% 1% 5% 0.5%% 9% Supply/ Offices Azerbaljan Demand 11% 9% Russia 58% Residential Iran 81% 19%
Natural gas market is being regulated by EMRA, the Regulation independent energy authority EMRA has awarded 30 years of distribution licenses Torunlar Energaz EWE & Calik Distribution companies are provided with a minimum GDF-Suez Aksa Other Tariffs return on investment through regulated asset base tariff Zorlu Kolin Other cities to be privatized structure
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 18 Utilities: Electricity Distribution
Market Structure Key Statistics
Capacity (2013) Generation Transmission Wholesale Distribution Installed Capacity Generation (TWh) (GW) 4% 3% Coal Power is supplied TEIAS operates all The trade and 81 cities in Turkey by both EUAS, the transmission wholesale activities grouped into 21 19% Hydraulic stated owned activities in Turkey are operated by distribution regions 64 45 53 194 230 240 producer and TETAŞ distributors each served by a 38% NG private producers Due to national company 35% Wind which supply security concerns 2009 2011 2013 2009 2011 2013 electricity under transmission All companies have Other BOT schemes or in network remained been privatized Electricity price (TL/MWh) open market outside the scope of the privatization 15.4 15.4 16.3 Generation (2013) efforts Due to Day Ahead Threshold for 3% 2% privatization planning system eligible customer 13.9 14.9 16.8 Coal efforts share of and Balancing was decreased by EUAS in total Power Market tools EMRA to 5,000 kWh 25% Hydraulic installed capacity for operating the in 2013 NG decreased to 37% market are 42% in 2013 established by 29% Wind TETAŞ
Other
Jun-12 Jun-13 Jun-14
Oct-12 Oct-13
Feb-12 Feb-13 Feb-14
Dec-12 Dec-13
Apr-12 Apr-13 Apr-14
Aug-13 Aug-14 % of private ownership % of state ownership Aug-12 Avg. marginal day ahead p. Avg. day ahead p. Distribution Regions Key Players
Total # of Subs Total Electricity Company Region # (mm) Distributed (TWh)
CLK 6-10-12-17 8.9 45.6
Enerjisa 7-9-16 10.9 36.1
Akenerji – CEZ 15 1.4 8.0
Çalik 3-21 2.3 7.7
Alarko – Cengiz 8 1.8 6.0
Aksa 4-5 1.6 5.6
*EMRA seized Osamangazi Region in 2013. Region is currently under re-privatization stage ** Kayseri Region had been privatized in 1990 and exempted from the process Source: EMRA, PA, Company Websites VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 19 Transportation: Ports
The coefficient between container volume growth and GDP has been 3.1x in Turkey between 2004 and 2013
Key Dynamics Key Players
Owner Port Capacity Turkish real GDP growth vs. Turkish foreign trade (US$ Container volume mm) Akfen-PSA Mersin 1.8mm TEU CAGR: 14% 152 152 135 Arkas Holding Marport 1.9mm TEU 114 102 241 237 252 Fiba Holding Kumport 1.7mm TEU 141 186 Yildirim Holding Yilport-Gemport 1.1 mm TEU
2009 2010 2011 2012 2013
2005 2006 2007 2008 2009 2010 2011 2012 2013 2004 Limak Investments Iskenderun 0.4 mm TEU Turkey Real GDP Growth % ▪ Asyaport, partly owned by MSC, expected to become operational Turkey Container Volume Growth Import Exports in 2015 with total capacity of 2.5mm TEU ▪ SKY won the tender for Derince Port for US$ 543 mm in 2014 ▪ Izmir port privatization tender awarded to Hutchison Global Consortium for US$1.2 bn in 2007 – tender was later cancelled Major Ports of Turkey
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 20 Storage Capacity
Storage Capacity for Providing Service to Third Parties (m3) Storage Subtitle License Activities under Distributions Licenses
2010 2011 2012 2010 2011 2012 Applications 0 0 0
Licenses issued 0 0 0
Capacity 4,539,009 4,697,242 4,861,794 Licenses Expired / 0 2 0 Terminated Licenses by the end of 6 4 4 the year Storage Capacities of Storage License Holders and Distribution License Holders with Storage Subtitle
Source: EMRA Sector Report 2012
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 21 Storage Capacity of Distributors 2010-2012
Storage Capacity of the Distributor License Holders with Storage Storage Capacity of the Distributor License Holders with Storage Subtitle by end of 2010 (m3) Subtitle by the end of 2011 (m3)
Capacity Capacity Name City Status Name City Status (m3) (m3)
Kaleli Best Oil Petrolculuk Kaleli Best Oil Petrolculuk Kirikkale Customs 7,530 Kirikkale Customs 4,730 Tic Ltc Tic Ltc Kirikkale 7,766 Turkuaz Petrol Urn. A.S. Customs Kaleli Best Oil Petrolculuk Corum Customs 354 Tic Ltc Bonded BP Petrolleri A.S. Bursa 26,381 Turkuaz Petrol Urn. A.S. Kirikkale Customs 10,160 Warehouse Bonded Goldster Turism Otelcilik ve BP Petrolleri A.S. Bursa 26,630 Gaziantep Customs 4,483 Warehouse Petrol San Tic A.S. Goldster Turism Otelcilik ve Bolunmen Petrolculuk A.S. Ankara Customs 715 Gazianstep Customs 4,528 Petrol San Tic A.S. Orsan Ambalaj Gida Petrol Kilis Customs 9,760 TOTAL 56,635 TOTAL 46,402 Storage Capacity of the Distributor License Holders with Storage Subtitle by the end of 2012 (m3)
Name City Status Capacity (m3)
Kaleli Best Oil Petrolculuk Tic Ltc Kirikkale Customs 4,730 Kaleli Best Oil Petrolculuk Tic Ltc Corum Customs 354 Turkuaz Petrol Urn. A.S. Kirikkale Customs 10,160
BP Petrolleri A.S. Bursa Bonded Warehouse 11,955
BP Petrolleri A.S. Bursa Customs 14,675
Gaziantep Goldster Turism Otelcilik ve Petrol San Tic A.S. Customs 4,528
TOTAL 46,402 Source: EMRA Sector Report 2012
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 22 Storage Capacity of Refiners 2010 - 2012
Storage Capacity of Refinery License Holders by the end of 2010 (m3)
Refinery Product Intermediate Product Crude Oil Total
Batman Refinery 72,000 46,000 32,000 150,000
Kirikkale Refinery 521,000 194,000 413,000 1,128,000
Izmir Refinery 886.702 319,908 704,099 1,910,709
Izmit Refinery 890,893 315,472 937,593 2,143,958
TOTAL 2,370,595 875,380 2,086,692 5,332,667
Storage Capacity of Refinery License Holders by the end of 2011 (m3)
Refinery Product Intermediate Product Crude Oil Total
Batman Refinery 124,000 56,000 32,000 212,000
Kirikkale Refinery 521,000 164,000 413,000 1,128,000
Izmir Refinery 720,000 484,522 708,847 1,913,522
Izmit Refinery 705,105 529,111 1,000,218 2,234,434
TOTAL 2,070,258 1,263,633 2,154,065 5,487,9556
Source: EMRA Sector Report 2012
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 23 Storage Capacity of Refiners Cont’d
Storage Capacity of Refinery License Holders by the end of 2012 (m3)
Refinery Product Intermediate Product Crude Oil Total
Batman Refinery 119,154 58,371 27,414 204,939
Kirikkale Refinery 533,712 218,825 416,959 1,169,496
Izmir Refinery 672,707 533,305 708,847 1,914,859
Izmit Refinery 705,105 529,111 969,466 2,203,682
TOTAL 2,030,678 1,339,612 2,122,686 5,492,976 Warehouse Capacity of Refineries not active yet (m3)
Refinery Product Intermediate Product Crude Oil Total
Dogu Akdeniz Petrokimuya 485,000 370,000 840,000 1,695,000
Star Refinery 430,700 342,100 579,000 1,351,800
TOTAL 915,700 712,100 1,419,000 3,046,800
Source: EMRA Sector Report 2012
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 24 Key Players in the Turkish Oil & Energy Markets
Pg. 25 Koç Holding
Pg. 26 Koç Holding
Company Overview
▪ Founded in 1926, Koç Holdings is Turkeys leading investment holding company
▪ Koç Group is Turkey’s largest industrial and services group in terms of revenues, exports, employees, taxes paid and market capitalization
▪ Grew at an annual average growth rate of 13% in consolidated profit in US$ terns between 2004-2014 Ranks among the world’s top 350 companies ▪ Is considered a pioneer in various sectors such as energy, automotive, consumer durables and finance, which offer strong long-term growth potential ▪ One of the few companies in Turkey with investment grade credit ; Moody’s Baa3 and Standard and Poor’s BBB-
Koç Continuously Out-Performs Growth Rates in Turkey Koç Maintains a Dominant Presence in the Turkish Market
Largest Industrial Group in 18 17 Largest Exporters in Turkey Turkey 16 15 14 ▪ 5 of the top 10 industrial ▪ 4 of the top 10 exporters 12 11 enterprises in Turkey are in the Turkish Exporters’ Koç Group companies* Assembly ranking are 10 9 Koç Group companies** 8 7 6 6 #1 Tüpraş 6 5 5 5 4 4 #2 Ford Otosan #1 Tüpraş 4 3 3 #4 Arçelik #2 Ford Otosan 2 #9 Tofaş #6 Arçelik #10 Aygaz #7 Tofaş 0 1980-85 1985-90 1990-95 1995-00 2000-05 2005-10 2010-14
GDP Growth % (CAGR) Koc Growth % (Revenues Constant Prices - CAGR)
Source: *In Istanbul Chamber of Commerce ranking (2014 report), **In the Turkish Exporters’ Assembly ranking (2014 report)
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 27 Koç Holdings Subsidiaries: Aygaz & OPET
Aygaz: Turkey’s Undisputable Market Leader in LPG for 50 years
▪ Generic brand in Turkey for LPG with 29% market Strong distribution network High logistics competency share in total LPG market ▪ 2,219 cylinders LPG ▪ Largest fleet operator 43% market share in cylinder LPG dealers Reduce costs 24% market share in autogas ▪ 1,619 auto-gas stations Provides flexibility in sourcing ▪ Fully integrated LPG Services and inventory management ▪ Over 1 MT filling capacity ▪ Serves 100,000 homes with cylinder LPG everyday ▪ Direct import to 5 different ▪ More than 1 million vehicles use Aygaz autogas daily locations ▪ Synergies with Koç Group energy companies Turkey makes up 11.3% of the world Leading LPG distributor of autogas market, ranked 1st in the world Strong brand recognition Turkey (2nd largest LPG market in the number of vehicles which uses in Europe) autogas
OPET: Turkey’s Fastest Growing Fuel Distribution Company
▪ Fastest growing player of its sector while maintaining Station Numbers White Products Market Share** % profitability +30 bps ▪ Unrivaled leader in customer satisfaction in its sector 410 418 425 +80 bps +40 bps for 8 consecutive years 394 394 ▪ Retail and wholesale activities in fuel distribution 22.6 22.9 830 885 915 938 957 17.2 18.0 17.2 17.6 ▪ Production and marketing of lubricants ▪ Aviation fuel distribution: JV with Turkish Airlines 2010 2011 2012 2013 9M14 Petrol Ofisi OPET Hell ▪ International trade of petroleum products Sunpet Opet 2012 2013
2nd in white products Highest customer & Turkey’s highest storage capacity with 19%* station satisfaction in the fuel distributor sector
*White products market share is based on EMRA (Energy Market Regulatory Board) data ** White products market share is based on PETDER (Turkish Oil Industry Association) data
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 28 Koç Holdings Subsidiary: Tüpraş
Tüpraş: Turkey’s Sole Refining Company
▪ 4 refineries with 28.1 MT total annual crude oil Shift to Higher Margin Products processing capacity 2012 9M14 ▪ Turkey’s largest industrial enterprise White Product Yield: 70.3% White Product Yield: 72.8%
▪ One of the most complex refineries in the 8% 6% Mediterranean. Nelson Complexity:7.25 29% 27% 22% ▪ Among the most profitable refineries in Europe 22% and the U.S.: Operation flexibility Optimum production and sales policy 41% 46% Energy efficiency programs ▪ 70% of Turkey’s total storage capacity Heavy distillate Middle distillate Light distillate Other Well-positioned refineries Diversified supply base (FY13)
▪ Iraq 6.1 MT
▪ Iran 5.1 MT
▪ S. Arabia 2.9 MT
▪ Turkey 2.4 MT
▪ Kazakhstan 1.5 MT
▪ Russia 1.5 MT
Provides 60% of domestic 7th largest refinery in Europe Integrated refining company with fuel demand and 28th largest in the world downstream operations
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 29 TÜPRAŞ Refining Assets
Izmit Izmir
▪ 11.0 MT Capacity ▪ 11.0 MT Capacity ▪ NC: 7.78 ▪ NC: 7.66 ▪ Storage Capacity: 2.2 ▪ Storage Capacity: Mn M3 1.9 Mn M3
Kirikkale Batman
▪ 5.0MT Capacity ▪ 1.1 MT Capacity ▪ NC:6.32 ▪ NC: 1.83 ▪ Storage Capacity: 1.2 ▪ Storage Capacity: Mn M3 0.2 Mn M3
Residuum Upgrade Project (RUP) of TÜPRAŞ
▪ Upon completion by 2015, RUP will: CUR Complexity Raise TÜPRAŞ’s annual EBITDA by US$ 500mm Implies +63% increase over the last 3- year avg EBITDA White Product ▪ Make Izmit refinery the most complex refinery in Yield Mediterranean and one of the most complex refineries globally The Nelson Complexity of TÜPRAŞ’s refineries will Increase in Profitability rise to an avg. of 9.5 from 7.25 to 14.25 from 7.78 for the Izmit refinery 100 Realization of RUP as of Sept ‘14 98.2% ▪ Improve white product yield to 80-85% (2013: 72%) 80 Izmit refinery’s capacity to produce light and medium 60 products compliant with Euro 5 standards, will 40 increase by 3.5MT 20 ▪ Increase the capacity utilization ratio (CUR) 0 RUP will increase the flexibility in capacity utilization
CUR is expected to surge above 90% levels (2013: 79%)
26/07/11 25/01/10 26/07/10 25/01/11 25/01/12 25/07/12 24/01/13 25/07/13 24/01/14 25/07/14
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 30 TÜPRAŞ Residuum Upgrade Financing (‘RUP’)
Structure / Conditions Bank Consortium
Banco Bilbao Vizcaya Argentaria, S.A. CESCE Spanish ECA
▪ $1.08 Billion The Bank of Tokyo-Mitsubishi Ufj, Ltd. ▪ Tenor 4+8; LIBOR + 3.05%
Space Italian ECA BNP Paribas
▪ $597 Million ▪ Tenor 4+8; LIBOR + 3.10% Crédit Agricole Corporate and Investment Bank
Commercial 10 International Banks Deutsche Bank AG- London Branch
▪ $359 Million ▪ Tenor 4+3; LIBOR +2.85% HSBC Bank Plc
Banco Santander, S.A. Total
▪ $$2,035.1 Million Sumitomo Mitsui Banking Corporation Europe Limited
Societe Generale
WestLB AG – London Branch
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 31 Turkey Demand Assumptions
Turkey Oil Products 2009 2010 2011 2012 2013 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E Demand ('000 Tons) LPG 3,620 3,659 3,746 3,706 3,777 3,844 3,911 3,978 4,045 4,045 4,045 4,045 Naphta 1,688 1,650 1,700 1,750 1,760 1,778 1,800 1,800 1,800 1,800 1,800 1,800 Gasoline 2,187 2,075 1,979 1,848 1,854 1,880 1,899 1,908 1,918 1,927 1,937 1,947 Jet Fuel 2,665 2,920 3,288 3,757 3,981 4,316 4,445 4,570 4,700 4,843 4,971 5,113 Diesel 13,942 14,090 14,934 15,786 16,922 17,262 17,626 18,148 18,687 19,241 19,812 20,400 Black Products 4,734 4,503 4,495 4,565 4,846 3,767 3,943 4,171 4,220 4,255 4,280 4,240 Fuel Oil 2,736 1,726 1,499 1,630 1,564 1,474 1,330 1,221 1,190 1,165 1,150 1,070 Asphalt 1,998 2,777 2,996 2,935 3,282 2,292 2,613 2,950 303 3,090 3,130 3,170 Other 1,528 2,218 2,467 1,915 1,819 1,829 1,846 1,816 1,821 1,831 1,834 1,836 Lube Oil 314 451 531 409 312 322 322 309 314 324 327 329 Other 1,214 1,766 1,936 1,506 1,506 1,506 1,506 1,506 1,506 1,506 1,506 1,506 Total 30,364 31,116 32,608 33,327 34,959 34,675 35,469 36,392 37,190 37,933 38,679 39,380
Turkey Demand 2009 2010 2011 2012 2013 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E Growth LPG 1% 2% -1% 2% 2% 2% 2% 2% 0% 0% 0% Naphta -2% 3% 3% 1% 1% 1% 0% 0% 0% 0% 0% Gasoline -5% -5% -7% 0% 1% 1% 0% 0% 0% 0% 0% Jet Fuel 10% 13% 14% 6% 8% 3% 3% 3% 3% 3% 3% Diesel 1% 6% 6% 7% 2% 2% 3% 3% 3% 3% 3% Black Products 5% 0% 2% 6% -22% 5% 6% 1% 1% 1% -1% Fuel Oil -37% -13% 9% -4% -6% -10% -8% -3% -2% -1% -7% Asphalt 39% 8% -2% 12% -30% 14% 13% 3% 2% 1% 1% Other 45% 11% -22% -5% 1% 1% -2% 0% 1% 0% 0% Lube Oil 44% 18% -23% -24% 3% 5% -9% 2% 3% 1% 1% Other 46% 10% -22% 0% 0% 0% 0% 0% 0% 0% 0% Total 2.5% 4.8% 2.2% 4.9% -0.8% 2.3% 2.6% 2.2% 2.0% 2.0% 1.8%
Yield 2009 2010 2011 2012 2013 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E 2020 E LPG 3.3% 3.7% 3.6% 3.8% 3.5% 3.2% 3.2% 3.2% 3.2% 3.3% 3.3% Naphta 3.8% 2.6% 1.4% 0.7% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% Gasoline 18.3% 20.7% 21.1% 21.8% 21.9% 20.3% 20.1% 20.4% 20.6% 20.9% 21.2% Jet Fuel 12.6% 13.8% 15.2% 16.9% 17.8% 18.5% 18.9% 18.9% 19.1% 19.2% 19.3% Gas Oils 23.8% 25.6% 25.7% 26.9% 26.7% 30.8% 31.2% 31.7% 32.3% 32.4% 32.6% Black Products 25.0% 29.7% 29.0% 26.9% 27.2% 24.7% 24.2% 23.2% 22.2% 21.4% 20.7% Others 13.1% 4.0% 4.0% 3.1% 2.4% 2.1% 2.1% 2.2% 2.3% 2.4% 2.5%
Source: Tüpraş
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 32 SOCAR Turkey Energy
Pg. 33 SOCAR Turkey Energy Inc.
Company Overview
▪ Founded in 2008 and is based in Istanbul, Turkey
▪ SOCAR along with its subsidiaries, engages in petrochemicals, renewable energy and container port operation businesses
▪ Operates oil and gas pipelines in Azerbaijan
▪ Engages in building refineries to produce naphtha
▪ Manufactures petrochemical products for use in construction, agriculture, automotive, electrical, packaging, and textile industries
▪ SOCAR also provides container terminal operations and handling services; and engages in building wind power plants
▪ Markets and sells natural gas as well as provides a network of services for operators by establishing fiber optic infrastructures
▪ Offers fuel, aviation and maritime products to end users SOCAR Business Lines
STAR Refinery A.Ş. will invest Within the scope of SOCAR PETLİM Limancılık Ticaret PETKIM, located in one of in a crude oil processing Turkey’s PETKIM “Value- A.Ş. was established in 22 Turkey’s most important capacity of 10 million tons Site” 2023 projection, SOCAR November 2010 as 100% SOCAR Gaz Ticareti A.Ş. was industrialization locations in which will lead the way of Power Energy Investments participation PETKİM for established on October 11th, Turkey, has the infrastructure SOCAR Turkey’s future plans A.S. was established on developing the PETKİM Port, 2012 to market and sell the and land to achieve its growth in PETKIM Peninsula and September 2nd, 2011 in order operating it more Azerbaijan natural gas – which and investment goals. With its provide raw material security. to meet the demands in the economically and, is one of the most important wide range of over 60 Environmental friendly STAR near future. The power plant consequently, making the natural gas resources of the petrochemical products, Refinery will produce:1,6 will provide the energy that PETKİM Port “The Third world – in Turkey. PETKIM is the sole raw million tons of naphtha which SOCARs projected Biggest Integrated Port of material manufacturer in will save petro-chemistry investments require without Turkey and the Biggest Port of Turkey. industry from foreign imposing a burden on the Aegean Sea”. dependency. national energy network
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 34 SOCAR Turkey (STEAŞ)
SOCAR is the State Oil Company of Azerbaijan
SOCAR Turkey Energy Co. (100%) SOCAR
100% 100% 100% 67.5% 51%
SOCAR Turkey Refinery Holding SOCAR Izmir SOCAR Turkey SOCAR Gaz Electricity Other subsidiaries (RHAŞ) Petrochemical Petrochemical Co. Trading Co. Investments Co.
▪ Petrokim Invest B.V. ▪ 51% 100% SOCAR Turkey 60% 10.3% Media Co. ▪ SOCAR Turkey Fiber Optic Co. SOCAR Turkey PETKIM ▪ SOCAR Power Enerji Investment (38.7% free float SOCAR Power Yatirimlari (MED – Azerbaijan rate) State 40%)
100% 100%
PETLIM STAR Refinery Co. Container Port
Source: Petkim, SOCAR
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 35 SOCAR Subsidiaries: Petkim Petkim is Turkey’s sole petrochemicals producer, with an annual core production capacity of 1.9mn tons, commanding a 25% market share
TheCorporate Company Summary in brief Petrochemical Industry in Turkey ▪ The company owns 14 main production plants, 8 auxiliary units ▪ Petrochemical market size is approx. $8.4 Billion and a harbor in Aliaga, Izmir ▪ One of the fastest growing markets ▪ Occupies a plot of 1,900 hectares (4,700 acres) which is also ▪ Second biggest attractive market after China for Petrochemicals home to a port, reservoir and dam and a 220MW power plant export ▪ Petrochemical products are used as inputs in the construction, ▪ In 2013, Turkey became the second largest producer in Europe electricity, electronics, packaging, textiles, medical, dyeing, in terms of Plastics Processing Capacity following Germany detergent and cosmetic sectors ▪ Turkey became the seventh largest plastic producer in the world ▪ Ethylene facility is the main plant in Petkim’s petrochemical with 8.1 million tons in 2013 complex in Turkey ▪ Expected growth rate is 5.5% in Turkey between 2012-2020, Complex Includes plants producing chlorine, alkali, vinyl, which is above the expected global growth rate chloride monomer, polyvinyl chloride and low density polytheylene Ethylene plant current has 520,000 tons of capacity ▪ In 2008, the public 51% stake in Petkim was sold to the SOCAR Turkey Polyolefin Consumption Demand 7,000 Turcas JV for $2.04bn (1,000 Ton) Turcas exited the JV in 2011 6,000 40 Growth Potential of Turkey Market +5.5% 5,000 30 4,000 20 3,000 6,328 10 4,674 2,000 3,792 3,245 3,494 0 2,812 2,951 3,049
1,000
2000 2002 2004 2006 2008 2010 2012 2014 -10 1998 0
-20 GNP Growth % Domestic Thermoplastics Growth %
2014 2010 2011 2012 2013 2015 2020 2025
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 36 SOCAR Subsidiaries: STAR Refinery When the SOCAR-Turcas JV acquired Petkim from the Privatization Administration, the two entities firmly agreed to build a greenfield refinery in the Aliaga peninsula to assure Petkim’s naphtha security supply. Turcas recently exited the refinery investment, preferring instead to focus on their energy projects
The Project in Brief Project Timescale for Refinery ▪ The “STAR” Refinery will cover an area of 13,750 acres and will have an annual crude processing capacity of 10mn tons of crude oil. ▪ Start The project is estimated to cost around $6 Billion and enter Utilities operation by the end of 2017 Start Piping Commissioning Project Prefabrication Process Units Completed Capacity 10 million tons / year of crude oil Start Commissioning (GCD) Pouring Flexibility to process variety of crude oil Raw Material Concrete such as Ural, “Azeri Light” and Kirkuk
Petrochemical Material:
Jun
Jan
March April Naptha: 1,300,000 million tons / year Sep Mixed Xylene: 455,000 tons / year 2015 2016 2017 2018 Fuel:
Ultra Low Sulfur Deisel Fuel: 4,950,000
Nov May Products and tons/ year Nov Jet Fuel: 1,695,000 tons / year Capabilities LPG: 261,000 tons / year Site Prep First Unit Other: Completion MC Start Performance Reformat: 525,000 tons / year Tests Petroleum coke: 698,000 tons / year Sulfur: 157,000 tons / year
Main Fuel of the Natural Gas Refinery Environmental Current EU norms Standards
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 37 Major Players in the Turkish Waste Management Market
Pg. 38 Turkish Demand Still Buoyant İSTAÇ’s mission is to produce solutions for a more livable environment in agreement with international standards and construct an environmental conscious
Introduction Waste Management Strategy
▪ Founded in 1994 as an economic enterprise of Istanbul Metropolitan Municipality for appropriate disposal of solid Disposal waste ▪ Recognized as the top solid waste management organization in Turkey Recovery Reduction ▪ 17 operational facilities including composting and recycling Domestic Waste facilities, various types of waste plants and Medical Waste ▪ Organization has 2,000 employees Construction & Demolition Waste ▪ Within the scope of waste management, the enterprise focuses Marina Waste Industrial Waste on the follow: Operating land fill areas Collection / incineration of medical waste Recycling Reuse Recovery of compost waste Generating electricity from land fill gas (LFG) Leachate treatment Construction and demolition waste management Management of packaging waste Collection and disposal of bilge and waste from ships Reference Project Generating new fuel from non-recyclable waste (RDF) Management of industrial waste ▪ Leachate Treatment Project Modeling air pollution Two treatment fully functioning treatment plants have been ▪ Over the last 5 years the organization has expanded its fields developed in Istanbul in order to treat leachate produced of application to water, air and soil pollution management from the solid waste landfill sites ▪ Provide consultancy and training services throughout Turkey Goal of the project is to contribute to bring the training for waste management projects system and knowledge about medical waste management in ▪ Waste management framework enacted by the organization is Istanbul to surrounding European countries expected to be in effect through 2027
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 39 Major Players in the Turkish Fuel Terminal Market
Pg. 40 Delta Rubis and Petro Kimya Delta Rubis Ceyhan Terminal Port: Ceyhan Capacity: 650,000 # of Tanks: 30 Product: Jet Fuel A1
▪ The largest independent integrated oil storage terminal in the Mediterranean ▪ In 2012, Delta Petrol partnered with Rubis Terminal, a leading bulk liquid storage player to form Delta Rubis ▪ The company aims to increase existing capacity to 1 million cbm in the next 3-4 years ▪ Started new investment phase of 11 multipurpose small size tank farm and the 2.3 KM long jetty that will service up to 6 vessels with a maximum vessel size of 200,000 dwt. ▪ The first phase of this investment project is currently underway Petro Kimya Holding A.S.
Port: Izmir Capacity: 403,724 # of Tanks: 127 Product: Jet Fuel A1
▪ PETKİM is one of the country's largest petrochemical producers ▪ Petrochemical industry represents 25% of the total chemical production in Turkey ▪ The company has 14 manufacturing plants supplying a significant portion of petrochemicals used in Turkey ▪ Exports products to the United States, and countries in Europe, the Middle East, Africa, and Asia
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 41 Balpet Petrol and ATAS Refinery Balpet Petrol Terminal Port: Mersin Capacity: 154,600 # of Tanks: 25 Product: Jet Fuel A1
▪ Focus on storage and distribution services of the petroleum products ▪ Began distribution of Mineral-oil in 2006 ▪ Has several other supply points in addition to Mersin (Kırıkkale, İzmir Aliağa, Batman, İzmit, Samsun and Marmara Ereğlisi) ▪ The company delivers fuel at a reduced Special Consumption Tax to vessels transporting cargo and passengers ▪ Had 427 licensed dealers at the end of 2011 and approx. 500 by the end of 2012
ATAS Refinery Terminal
Port: Mersin Capacity: 570,000 # of Tanks: 66 Product: Jet Fuel A1 / Diesel Oil 0.1%
▪ ATAS terminal began operations in Mersin in 1962 ▪ Turcas owns 5% of ATAS refinery and Turcas’ partners in ATAS are BP (68%) and Shell (27%) ▪ In addition to a storage capacity of 570,000 m3 , ATAS has its own pier where high-capacity ships can dock ▪ 32% of ATAS’s total storage capacity (jointly owned by BP and Shell) has been allocated to STAS
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 42 Petrol Ofisi Terminals Petrol Ofisi Terminals (Derince, Istanbul, Aliaga)
Port: Derince Capacity: 184,000 # of Tanks: 20 Product: Jet Fuel A1
Port: Istanbul Capacity: 973,760 # of Tanks: 150 Product: Jet Fuel A1
Port: Aliaga / Izmir Capacity: 165,325 # of Tanks: 1 Product: Jet Fuel A1
▪ In 2013 Petrol Ofisi generated $25 billion in sales ▪ OMV Petrol Ofisi is Turkey’s second largest private sector company ▪ Leader of the fuel distribution and lubricant sector in Turkey ▪ Maintains approx. 25% market share in the lubricant sector ▪ Has about 2,200 gas stations, one lubricant plant, 11 fuel , 3 LPG terminals and 19 airport supply units ▪ Partnered with Chevron to offer their full range of marine lubricants and services to customers in Turkey
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 43 Opet Terminals Opet Mersin Terminal / Marmara Terminal
Port: Marmaraeregli Capacity: 783,814 # of Tanks: 1 Product: Jet Fuel A1
Port: Mersin Capacity: 248,000 # of Tanks: 34 Product: Jet Fuel A1
▪ Currently the 2nd largest fuel-oil distribution company in Turkey ▪ Owns and operates more than 1,300 stations under the brand of OPET and SUNPET ▪ Koc Holding Energy Group has a 50% stake in OPET ▪ Total capacity including all facilities is approximately 1,115,193 m3 ▪ Mersin is OPET’s second largest facility and is capable of loading/discharging cargo via sea and rail systems ▪ Market share per product: White Products: 17.91% (2nd in the sector) Black Products: 13.51% (2nd in the sector) ▪ Number of stations: OPET: 966 SUNPET: 427 TOTAL: 1393
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 44 Solventas and Petline Solventas Teknik Depolama A.S. Port: Gebze Capacity: 280,000 # of Tanks: 196 Product: Jet Fuel A1
▪ Solventas is a type A Customs Bonded Warehouse for storage of bulk liquid, drummed and packed chemicals and petroleum products ▪ Offers a wide range of fully automated tanks with capacities ranging from 108 m3 to 8.800 m3 (differentiated as mild steel, stainless steel, coated, heated, insulated and nitrogen blanketed) ▪ Products stored: Chemicals, Acids, Base oils, Vegetable oils, Food Products, Petroleum Products and Bunkering fuels ▪ Terminals provide expedient exit for transit trade with Russia, Central Asia, the Middle East and the Balkans Petline Trakya Terminal Port: Marmaraereglisi Capacity: 198,300 # of Tanks: 8 Product: Jet Fuel A1
▪ Engaged in the distribution of petroleum products in Turkey ▪ Offers liquid fuel products, markets and lubricants as well as car care products ▪ Involved in retail, industrial and sea sale activities ▪ Petline’s customer base rangers from retail to construction and mining companies, wholesale companies, agricultural organizations and international shipping and transport companies
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 45 Toros Tarim and Poliport Toros Ceyhan Terminal Port: Ceyahn Capacity: 247,427 # of Tanks: 44 Product: Jet Fuel A1
▪ Toros Tarim is owned and managed by Tekfen Agricultural Industrial Group ▪ Focus on dry bulk storage and production of agricultural products for farmers (i.e. Fertilizer, plastic bags, seeding and technological farming centers) ▪ Toros Ceyhan terminal (liquid) stores black and white products from vegetable oil, petroleum products, liquid chemicals ▪ Ceyahn terminal for dry bulk stores grain and fertilizer, clinker for cement, coal to petro coke and various mining products
Poliport Kimya Sanayi ve Ticaret A.S Port: Gebze Capacity: 168,00 # of Tanks: 127 Product: Jet Fuel A1 / Diesel Oil 0.1%
▪ Owned by Polisan Holding, Poliport was established in 1975 ▪ One of the largest private ports in Turkey ▪ Investment of $50 million ▪ Provide storage for dry bulk and liquid bulk via several terminals and its bonded warehouse facility ▪ Handles 4,500,000 tons of dry bulk goods annually which included (coal, aluminum, steel plate, steel roll and grain) ▪ Liquid cargo terminals store chemicals and other petroleum products
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 46 Istanbul Grand Airport Opportunity
Pg. 47 Istanbul Grand Airport (IGA) The rapid increase in both domestic and international passenger air traffic has lead the Turkish government to construct a 3rd airport in Istanbul
Introduction Why the need for a 3rd Airport in Istanbul?
▪ Construction on Istanbul Grand Airport began in 2014 and will be ▪ Domestic and international passenger demand in Turkey and situated in the European especially Istanbul have been constantly growing during the last ▪ First stage of IGA is expected to be completed by 2017 decade (approx. 10% growth till 2020) Fully operational by 2020 ▪ Istanbul is facing numerous capacity constraints in two of the ▪ When complete the airport with have: country’s largest Airports (Ataturk and Sabiha Gokcen) 6 runways ▪ Cargo facilities and capacity levels are currently insufficient and do 165 aircraft passenger boarding bridges not comply with Turkey’s 2023 Vision program 4 terminals w/ rail system ▪ Ataturk Airport has almost reached its full runway capacity, and the 3 maitenance buildings possibility to improve and expand it are severely limited 8 air traffic control towers ▪ Sabiha Gokcen does not face immediate problems, but there is a need 16 taxiways for modernization and construction of new facilities and runways in Airport apron of 6.5 million sq. meters (capacity of 500 planes) the near future Car garage (capacity approx. 70,000 vehicles) ▪ IGA is expected to meet Istanbul’s growing domestic/international air Hotel and convention center traffic demand and strengthen the city as a regional hub ▪ By 2018 IGA is expected to be among the five busiest airports in the world and largest/most modern in Europe
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 48 Turkish Tax & Incentive Considerations
Pg. 49 Business Taxation in Turkey
Breakdown of Direct and Indirect Taxation Foreign Investor FAQ
Direct Tax ▪ Which jurisdiction is the most popular for investing into Turkey? Netherlands, Luxembourg, new Swiss treaty since 2013 Corporate Tax Income Tax ▪ How long does it take to establish a company/partnership in practice? Generally within 2 weeks for companies / 1 week for partnerships ▪ What is the minimum capital requirement? Indirect Tax No capital requirements for branches, TL5k for LTDs and TL50k for JSCs. Special ▪ What are the basic filing requirements? VAT SCT Customs Tax Communication Month WHAT, VAT and stamp tax, social security Tax contribution, quarterly advance corporate & annual tax return Banking Is there any tax loss carry forward / carry back rule? Stamp Tax Insurance Tax loss carry forward for 5 years, no carry back Transaction Tax ▪ What is the minimum wage? What are the labor tax costs? Minimum gross wage is TL 940 (USD 520), income tax between 15-35%, social security and unemployment contribution 36.5% with a certain cap (15% employee / 21.5% employer portion) Direct Taxation in Turkey: Cash Repatriation Alternatives
Tax treaty taxation Non-tax treaty taxation ▪ Dividend withholding tax (WHT) – 5% or 10% Foreign Parent ▪ 15% - Dividend withholding tax (WHT) Interest WHT – 10% (0% if lender is bank or company ▪ 10% - Interest WHT (0% if lender is bank or financial institution) financial institution) ▪ Royalty WHT – generally 10% ▪ 20% - Royalty WHT ▪ Ind. Pro. services WHT – 0% or 20% ▪ 20% - Independent professional services WHT ▪ 18% Reverse charge VAT on service, royalty Turkish ▪ 18% - Reverse charge VAT on service, royalty charges company charges ▪ No registration requirement for service/royalty ▪ Corporate tax 20% agreements ▪ Capital reduction: Tax neutral (lengthy process) ▪ No pre-clearance required for applying ▪ Share buy-back now works but with limitations reduced treaty rates ▪ Hybrid financing is doable Source: PwC - Invest in Turkey VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 50 Turkey’s New Investment Incentives Program The New Investment Incentives Program in Turkey has been in effect since January 1, 2012 and offers four different types of programs each with its own investment approach and risk tolerance level
Incentive Regions Support Measure General Regional Large Scale Strategic Investment Investment Investment Investment
Vat Exception ✓ ✓ ✓ ✓
Customs Duty Exemption ✓ ✓ ✓ ✓
Tax Deduction X ✓ ✓ ✓
Land Allocation X ✓ ✓ ✓
Interest Support X ✓ X ✓
Vat Refund X X X ✓
Employer’s Social Security Premium X ✓ ✓ ✓ Support
Investment Incentive Program Options Region 1 2 3 4 5 6
General Regional Incentive Applications ▪ Investment Available for all investment types ▪ Investment minimum is pre determined Incentive Tax Reduction Investment Program 15% 20% 25% 30% 40% 50% ▪ Investment minimums vary among investment type Contribution Rate ▪ Incentives are allocated depending on the region Regional ▪ Incentive for Large Scale Investments Investment Generally, minimum amount is TL 1 million for Regions 1 and 2 and TL 500,000 for regions 3, 4, 5 6 Incentive Program ▪ Tax Reduction Investment Investment minimums vary among investment type 25% 30% 35% 40% 50% 60% ▪ Contribution Rate Large Scale Incentives are allocated depending on the region Investment ▪ Generally, minimum amount is TL 1 million for Regions 1 Incentive and 2 and TL 500,000 for regions 3, 4, 5 6 Support for Employer’s Program ▪ 2 3 5 6 7 10 Program that is offered for the production of intermediate National Insurance and final goods that have highly dependent on imports Year Year Year Year Year Year Strategic ▪ Minimum investment for this group is TL 50vmillion and Contribution (Both) Investment above Incentive Program
VALYRIAN CAPITAL PROPRIETARY & CONFIDENTIAL Pg. 51 Disclaimer
This material is provided for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy securities in any jurisdiction in which such an offer or solicitation is unlawful or to any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement. You may not rely upon these materials in evaluating the merits of investing in any security. The offering of the Valyrian Real Estate Partners I (the “Fund”) may be made only through the Confidential Private Placement Memorandum of the Fund, (as amended, modified, or supplemented from time to time, the “PPM”),which fully describes the relevant Fund, including its investment strategies, terms and risk factors. 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Valyrian believes that the information in this document was correct at the time of compilation, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Valyrian, its officers, employees or agents. Sources for statistics and other factual data included herein are maintained by Valyrian. Such data has not been verified by Valyrian and we can give no assurance that it is accurate or complete. Statements contained herein that are nonfactual constitute opinions of Valyrian, which are subject to change. We believe the third party information provided herein is reliable, but do not warrant its accuracy. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of yields or returns, and proposed or expected portfolio composition. Moreover, where certain historical performance information of other investment vehicles or composite accounts managed by Valyrian, Inc. and/or its subsidiaries (together, “Valyrian”) has been included in this material such performance information is presented by way of example only. No representation is made that the performance presented will be achieved by any Valyrian Funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or the historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein by way of example. No part of this material may be reproduced, stored in retrieval systems or transmitted in any form or by any means, electronic, mechanical, recording or otherwise, without the prior written consent of the Valyrian Capital. Any reproduction of this information, in whole or in part, is prohibited. Notwithstanding the foregoing, any recipient (and each employee, representative or other agent of such recipient) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of (i) the Fund and (ii) any transactions described herein, and all materials of any kind (including opinions or other tax analyses) that are provided to the recipient relating to such tax treatment and tax structure. By accepting delivery of these materials, each recipient hereof agrees to the foregoing.
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