Global Busıncss Rt'ports TURKEY POWER 2015 I PRE-RELEASE PwC Deal Review: Deals for real Murat Çolakoğlu, partner, PwC Turkey, energy utilities & mining industry territory leader With 40 deals, 2014 was on par with 2013 in terms of deal numbers. On the other hand, it was a much slower year than 2013 in terms of deal value; the total deal value in 2014 was $5.6 billion compared to $7.l biliion in 2013. The deals became smaller in size, averaging $140 million as opposed to $176 miliion in 2013. 34 deals took place in the utilities segment. The privatization of thermal coal power plants and the associated mines made up most of the total utilities deal value. Similarly to 2013, smaller private deals targeting renewable energy companies in particular, signaled the continuation of healthy activity in this segment. A few novelties were the private deals involving thermal power generation assets and also a share sale in a natura! gas distribution portfolio. On the other hand, as opposed to expectations, no improvement hasbeen posted todate in the expected AfsinElbistan B deal. Although the deal number doubled and the total deals value increased in the oil and gas sector in 2014, these are stili a fraction of total figures. in three of these deals the acquirer was the same and was supposedly aiming to create a fuel distribution portfolio. in another deal gradual share acquisitions finaliy resulted in fuli ownership of Turkey's second refinery by SOCAR. UTILITIES LED Utilities retained their lead in the energy deals landscape in 2014 with 34 deals amounting to $5.5 biliion. Privatization tenders were completed for six thermal power plant assets, together with the operational rights for the feeding mines. Notably, ali failed to attract foreign interest, mainly due to the fact that ali the thermal assets have already completed half their asset life and run at very low efficiency rates. in addition, the calorific value of the mines is quite low. Acquisitions of thermal assets by loca! companies displayed similar motives. With vertical integration in mind, IC ICTAS Holding, which holds electricity distribution and supply licenses in the Thrace region, offered $2.7 biliion, the highest overall deal value of the year, for the bundled package of the Yenikoy (2 x 210 mW) and Kemerkoy (3 x 210 mW) lignite power plants. Likewise, Elsan Elektrik placed the highest bid, $1.1 billion, for the Yatagan lignite power plant (3 x 210 mW), to support its parent company Bereket Energy's electricity distribution and supply business in the same region. A differentvertical integration story was aborted due to lack of financing in the case of the Catalagzi coal power plant (2 x 150 mW). Local mining company Demir Madencilik, which also supplies hard coal to the plant, placed the highest bid, $351 million, for a potential vertical integration. However, due to failure to finance by the deadline, the Privatization Administration passed the tender award to the second highest bidder, Elsan Elektrik, which offered $350 miliion. The last tender of the year was for another bundled package, the Orhaneli (210 mW) and Tuncbilek (1 x 65 mW + 2 x 150 mW) lignite power plants, which ended with (elikler Holding placing the highest bid, $521 million. The same company also won the Seyitomer lignite power plant (4 x 150 mW) tender in 2012. Despite the reported foreign interest in "Utilities retained their lead in the energy deals landscape in 2014 with 34 deals amounting to $5.5 billion" - Murat Çolakoğlu, Partner, PwC Turkey, Energy Utilities & Mining IndustryTerritory Leader Afsin-Elbistan B assets, there was no deal progress in 2014. Continuing with the state hydro power plants, the operational rights of 10 of them were transferred to the private sector, again ali to loca! bidders. They received surprisingly high bids, $2.5 million per mW on average, despite their smali sizes. This once again underlined the fact that acquisition of these operating assets is stili more favorable than licensing of greenfield investments. The rest of the deals in power generation involved renewable energy assets. The acquisition of a 45% share in Polat Enerji by the Canadian Public Sector Pension Fund (PSPCanada's largest) was significant. Accordingly, we assume that the 10-year feed-in tariff system must have proven reliable to such a large pension fund seekinga steady income. On the other hand, the regulatory enforcement in the wind market threatening the inactive players with license canceliation did not ignite many transactions or much consolidation in order to create resources to go ahead with projects. The launch of the long-awaited licensing tenders in the solar power segment failed to end in a deal rush. We believe that this was due to the unreasonably high differential between the per-mW bids, which went beyond what could be compensated for by the feed-in-tariff and added to uncertainty about profitability. Having said that, the unlicensed solar power market (<l mW) is seemingly more vibrant and might have hosted some deals among the small players, which are not made publicly available. • Global Business Reports 1 f 1 , ıf
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