ISTANBUL–Turkey’s dependence on imported energy is a major bottleneck for the country’s economy, which is suffering from a chronic current account deficit problem. More than 90% of the oil and gas consumed by Turkey is coming from imports, and last year the sum paid by Turkey for its purchases of mineral fuels was a massive $37.8 billion, a number which could have been much higher if it was not for the low oil prices in global markets.
Turkey’s balance of payments is characteristically defined by a sizeable deficit in goods trade, which is only partially covered by a surplus in the trade of services. According to data released by the Turkish Central Bank, the country’s deficit in the goods trade (including fuels) was $47.9 billion in 2015, while at the same time there was a $24.0 billion surplus in the trade of services, with tourism being the major source of revenue in the services sector.
This year, there will be greater stress on Turkey’s balance of payments. A possible rise in oil prices would inflate the energy bill, and with all the problems surrounding Turkey’s tourism industry, caused by subsequent terrorist attacks in the country’s large cities, some of which appear to have directly targeted tourist groups, and economic sanctions imposed by Russia, services trade can only be hoped to generate a modest surplus. After the crisis with Russia last year in November, a Turkish think-tank had calculated the potential annual loss in tourism revenues around $8 billion; now in the aftermath of the recent explosions in Istanbul and Ankara, this figure is revised to $12 billion. In either case, hard times are in store for Turkey’s balance of payments.
This is why reducing dependence and creating greater efficiency in the energy sector is more crucial than ever for the policy makers in Ankara. Energy transition is vital for sustainable growth in any case, but for Turkey it is also and primarily a matter of keeping the finances afloat. Supply security, diversification of resources, and increased efficiency in the energy sector are key targets in this respect and Turkey knows very well that these targets can be achieved only through international cooperation, and with the finances, technology and know-how that will come with it.
This week’s visit by Turkey’s new Energy Minister, Berat Albayrak, to China shows that Turkey sees a possible partner in this country. The two countries have been expressing their intention to collaborate more in this field since 2009, when the two governments signed a memorandum of understanding for cooperation, which, however, did not produce much concrete outcome in the following years.
Both being net importers of oil and gas, there is no energy trade between these two countries, and in fact, they can even be considered as competitors for the world’s scarce hydrocarbon resources. On the other hand, there are Chinese investments in Turkey’s energy industry, such as China Sunergy’s (CSUN) production of solar panels in Istanbul and Harbin Electric’s coal-based power plant in north-western Turkey; however, these are far from amounting to a large-scale cooperation between the two countries, something Ankara is looking forward to.
Albayrak’s loaded schedule in China reveals that the Turks are willing to explore every possibility of energy-sector cooperation with China. In Beijing, he is set to meet with the head of China’s National Energy Administration, as well as representatives from wind energy companies and finance institutions. Perhaps the most important meetings in Beijing, at least from the Turks’ perspective, will be with China’s coal industry giants.
Coal-based power stations remain an important source for Turkey’s electricity generation, and Ankara’s energy vision implies not a reduction but an increase in the use of coal, in a more efficient and environment-friendly way. The idea here is that using more domestically produced coal will, under the right conditions, reduce Turkey’s dependence on imported hydrocarbons, and according to Turkish government’s calculations, increased and more efficient use of domestic coal (particularly lignite which Turkey has in abundance) will substitute for $7.2 billion worth of imported natural gas. China being the world leader in production, consumption and imports of coal, Turkey sees a point in cooperating with the Chinese in this field.
During the rest of his visit in China, Albayrak will visit the Nuclear Engineering Research and Design Institute in Shanghai and a third generation nuclear power plant built by the State Nuclear Power Technology Corporation (SNPTC) in Weihai. Nuclear energy is, despite protests by the country’s environmental groups, a priority for the Turkish government, and the first nuclear plant in the country will go online in 2022. Two more plants are planned and Turkey is currently considering alternatives for international cooperation to source technology, know-how and funding, China being one of the options.
Turkey seeks Chinese investment in renewables, nuclear energy and coal industry, and during his visit, Albayrak and his delegation will be exploring the opportunities that do or may exist in this respect. There is, however, one caveat. At the political level, Turkish-Chinese relations are currently at a conjuncture that is highly unfavorable for Turkish interests. The anti-Chinese demonstrations in Turkish cities last summer certainly did harm, but it was really the Turkish government’s decision to cancel, in the last minute, the missile defense system tender that was initially awarded to a Chinese company, which disappointed Beijing most.
China appears to be interested in projects in Turkey, which has a key location on the route of the “One Belt, One Road” initiative; however, the missile issue created a serious confidence problem for the Chinese, who are likely to be more hesitant now when making investment decisions. A recent move by Chinese authorities complicating visa procedures for Turkish passport holders indicates ongoing hard feelings, which could well undermine prospects in energy cooperation.
Minister Albayrak’s visit to China is, therefore, not only about energy cooperation, but also about restoring confidence. Despite the currently problematic atmosphere in bilateral relations, more Chinese investment in Turkey’s energy sector can still be possible in the near future; at the end of the day, it is all about business and mutual benefits.
Dr. Altay Atlı is a lecturer in the Asian Studies program of Boğaziçi University in Istanbul, and a senior research fellow at Turkey’s International Strategic Research Organization (USAK).