TURKEY’S ENERGY POLICIES AND THE EURASIAN REGION A THESIS SUBMITTED TO THE GRADUATE SCHOOL OF SOCIAL SCIENCES OF MIDDLE EAST TECHNICAL UNIVERSITY BY YUSUF İNAN ÇELEB İ IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN THE DEPARTMENT OF INTERNATIONAL RELATIONS APRIL 2006 Approval of the Graduate School of Social Sciences. Prof. Dr. Sencer AYATA Director I certify that this thesis satisfies all the requirements as a thesis for the degree of Master of Science. Prof. Dr. Meliha B. ALTUNI ŞIK Head of Department This is to certify that we have read this thesis and that in our opinion it is fully adequate, in scope and quality, as a thesis for the degree of Master of Science. Assoc. Prof. Dr. M. Fatih TAYFUR Supervisor Examining Committee Members Assoc. Prof. Dr. M. Fatih TAYFUR (METU, IR) Assoc. Prof. Dr. Cem SOMEL (METU, ECON) Asst. Prof. Dr. Sevilay KAHRAMAN (METU, IR) I hereby declare that all information in this document has been obtained and presented in accordance with academic rules and ethical conduct. I also declare that, as required by these rules and conduct, I have fully cited and referenced all material and results that are not original to this work. Name, Last name : Signature : iii ABSTRACT TURKEY’S ENERGY POLICIES AND THE EURASIAN REGION Çelebi, Yusuf İnan M.Sc., Department of International Relations Supervisor: Assoc. Prof. Dr. M. Fatih Tayfur April, 2006, 128 pages This thesis analyses Turkey’s energy policies and Turkey’s foreign relations through the energy issues in the Eurasian region. In the first phase, the energy policies implemented by the state and free market orientation in Turkish energy sector will be discussed. The impacts of neo-liberal economic policies, regional organizations (the European Union and OECD), and global finance institutions (International Monetary Fund – the IMF and the World Bank – WB) on Turkish energy sub-sectors, particularly since the beginning of the 1980s, will be examined. In the second phase, Turkey’s own autonomy and effectiveness within major energy pipeline projects in the Eurasian energy axis will be questioned in the post-Cold War period. Turkey’s relations in the energy issues with the European Union, Middle East, Caucasus and Turkic States, Russia and the United States (US) will be discussed. Basic vulnerabilities in Turkish energy sector and possible acquisitions of Turkey through its international energy deals will be emphasized. Key Words: Energy Policy, The Eurasian Region, Energy Security, Energy Pipelines, Baku-Tbilisi-Ceyhan Main Export Crude Oil Pipeline Project (BTC). iv ÖZ TÜRK İYE’N İN ENERJ İ POL İTİKALARI VE AVRASYA BÖLGES İ Çelebi, Yusuf İnan Yüksek Lisans, Uluslararası İli şkiler Bölümü Tez Yöneticisi: Doçent Dr. M. Fatih Tayfur Nisan, 2006, 128 sayfa Bu çalı şma Türkiye’nin enerji politikalarını ve Türkiye’nin Avrasya bölgesinde enerji ba ğlamında dı ş ili şkilerini incelemi ştir. Çalı şmanın ilk bölümünde devlet tarafından yürütülen enerji politikaları ve Türk enerji sektöründeki serbest piyasa olu şumu tartı şılmı ştır. Özellikle 1980’lerin ba şından itibaren, neo-liberal ekonomi politikalarının, bölgesel örgütlerin (Avrupa Birli ği, OECD) ve küresel finans kurulu şlarının (Uluslararası Para Fonu -IMF ve Dünya Bankası - WB) Türk enerji alt sektörleri üzerindeki etkileri incelenmi ştir. Çalı şmanın ikinci bölümünde, So ğuk Sava ş sonrası dönemde, Türkiye’nin Avrasya enerji eksenindeki önemli enerji boru hattı projelerindeki özerklik ve etkinli ği sorgulanmı ştır. Türkiye’nin, Avrupa Birli ği (AB), Ortado ğu, Kafkasya ve Türk Cumhuriyetleri, Rusya ve Amerika Birle şik Devletleri (ABD) ile enerji ba ğlamında ili şkileri tartı şılmı ştır. Türk enerji sektöründeki temel kırılganlıklar ve Türkiye’nin uluslararası enerji anla şmalarındaki muhtemel kazanımları ele alınmı ştır. Anahtar Kelimeler: Enerji Politikası, Avrasya Bölgesi, Enerji Güvenli ği, Enerji Boru Hatları, Bakü-Tiflis-Ceyhan Ana İhraç Ham Petrol Boru Hattı Projesi (BTC). v To My Parents vi ACKNOWLEDGEMENTS I would like to express my deepest gratitude to my supervisor Assoc. Prof. Dr. M. Fatih TAYFUR for his patience, advice, criticism and encouragements throughout the research. I would also like to thank Prof. Dr. Mustafa TÜRKE Ş for his unique suggestions and contributions. I am indebted to the other Examining Committee Members; Assoc. Prof. Dr. Cem SOMEL and Asst. Prof. Dr. Sevilay KAHRAMAN. Their great tolerance, valuable comments and contributions to the thesis are highly appreciated. vii TABLE OF CONTENTS PLAGIARISM…………………………………………………………………………....iii ABSTRACT……………………………………………………………………………...iv ÖZ.......................................................................................................................................v DEDICATION…………………………………………………………………………. vi ACKNOWLEDGEMENTS……………………………………………………………..vii TABLE OF CONTENTS……………………………………………………………….viii LIST OF ABBREVIATIONS.............................................................................................x CHAPTER 1. INTRODUCTION………………………………………………………………..1 2. THE EVOLUTION OF TURKISH ENERGY POLICIES………………… … ..7 2.1. State –Led Energy Policies and Free Market Orientation in Turkish Energy Sector …………………………………………………...7 2.2. Turkey’s Energy Policies since the 1980s……………………………….. 17 2.2.1. The Electricity Sector…………………………………………….. 20 2.2.2. The Natural Gas Sector…………………………………………. .. 26 2.2.3. The Oil Sector…………………………………………………….. 29 2.2.4. The Coal Sector…………………………………………………… 33 2.2.5. The Renewable and Alternative Energy Resources………………. 36 3. TURKEY IN THE EURASIAN ENERGY AXIS……………………………...44 3.1. The Concept of “Energy Security” and Turkey………………………… .. 45 3.2. Turkey’s Foreign Relations in the Energy Issues………………………. .. 50 3.2.1. The European Union…………………………………………….. .. 52 3.2.2. The Middle East…………………………………………………... 58 3.2.3. The Caucasus and Turkic States…………………………………...65 viii 3.2.4. Russia………………………………………………………………74 3.2.5. The United States…………………………………………………..79 4. CASE STUDY: BAKU-TBILISI-CEYHAN MAIN EXPORT CRUDE OIL PIPELINE PROJECT (BTC), TURKEY IN THE “CONTRACT OF THE CENTURY”……………………………………………………………………. 82 4.1. The Turkish-Georgian Relationship………………………………….... …. 83 4.2. The Turkish-Azerbaijani Relationship……………………………………. 86 4.3. The BTC Comes Alive…………………………………………………….89 4.4. Economic and Strategic Implications of the BTC for Turkey …................ 95 5. CONCLUSION……………………………………………………………......100 REFERENCES………………………………………………………………………. .. 108 APPENDICES A. TABLES……………………………………………………………………….119 B. FIGURES……………………………………………………………………...125 ix LIST OF ABBREVIATIONS AIOC Azerbaijan International Operating Company ANAP Motherland Party bcm/y Billion Cubic Meter(s) per Year BOTA Ş Turkish State Pipeline Corporation BSEC Black Sea Economic Cooperation BTC Baku-Tbilisi-Ceyhan Main Export Crude Oil Pipeline Project DİTA Ş Sea Management and Tankers Corporation DSP Democratic Left Party DYP True Path Party EC European Community ECT Energy Charter Treaty EEC European Economic Community EMRA Energy Market Regulation Authority EU The European Union EUROMED Euro-Mediterranean Partnership EÜA Ş Turkish Electricity Generation Corporation FDI Foreign Direct Investment GNP Gross National Product HEPPs Hydroelectricity Power Plants IMF The International Monetary Fund INOGATE Interstate Oil and Gas Transport Programme MENR Turkish Ministry of Energy and Natural Resources MEPPs Main Export Pipeline Participants MFA Turkish Ministry of Foreign Affairs MHP Nationalist Action Party MNCs Multinational Corporations MTA The General Directorate of Mineral Research and Exploration of Turkey mtoe Million Ton(s) of Oil Equivalent NATO North Atlantic Treaty Organization NPPs Nuclear Power Plants NSC National Security Council of Turkey OECD Organization of Economic Cooperation and Development x OPEC Organization of Petroleum Exporting Countries PETK İM Petro-chemicals Industry Corporation PİGM General Directorate of Petroleum Affairs of Turkey POA Ş Petrol Ofisi A. Ş. RP Welfare Party SEEs State Economic Enterprises SPO State Planning Organization TACIS Technical Assistance to the Commonwealth of Independent States TAEK Turkish Atomic Energy Authority TCGP Trans-Caspian Natural Gas Pipeline Project TEA Ş Turkish Electricity Generation and Transmission Corporation TEDA Ş Turkish Electricity Distribution Corporation TE İAŞ Turkish Electricity Transmission Corporation TEK Turkish Electricity Authority TETA Ş Turkish Electricity Trading and Contracting Corporation TGS Turkish General Staff TKI Turkish Coal Enterprises TPAO Turkish Petroleum Corporation TRACECA Transport Corridor Europe Caucasus Asia TTK Turkish Hard-Coal Enterprises TÜB İTAK Scientific and Technical Research Council of Turkey TÜPRA Ş Turkish Petroleum Refineries Corporation UK The United Kingdom UN The United Nations US The United States WB The World Bank xi CHAPTER 1 INTRODUCTION “Energy” has always had a determining role in the countries’ economic and social life. It is important since it has been one of the major inputs for the industry, and somewhat turned out to be a prerequisite for sustainable development. It is also prominent for social development that it fairly facilitates life through heating, lighting, transportation while it contributes to education and scientific studies. The ability of attaining the energy resources, sustaining the energy flow and managing them, thus seem vital given that the long-term goals are mostly accomplished via the possession and smart management of the energy reserves. Thus, states have undertaken the leading