Reviewing Turkish Privatization Of Seyitömer Thermal Power Plant – OpEd
Turkey’s Privatization Administration (OIB) Chairman announced on their web site that the 1120 MWe Hamitabad CCPP, 4×150 MWe Seyitömer TPP, 1034 MWe Soma TPP, and Kangal 3×150 MWe will be privatized shortly.
Çan CFB 2x160MWe TPP may also be considered in the near future.
The overall capacity in privatization is over 16,000 megawatts and public authorities expect to get the equivalent of over 10 billion U.S. dollars of privatization income for the Treasury after electricity generation plant sales. This scheme is basically a “transfer of operational rights” for a predetermined period (49 years), but not a “property sale.”
For our readers, our new responsibility is to figure out a proper methodology for the expected reasonable face value of the plants being privatized, plus terms and conditions of the privatization scheme.
Let us choose a sample thermal power plant and estimate its face price for sale. So the question is what to price the Seyitömer Thermal Power Plant when it is up for privatization.
The existing power plant is based on pulverized coal firing technology, which needs a relatively higher calorific value and less moisture. Here we have a poor quality 2000>kcal/kg LHV, with high moisture. The direct pulverized coal firing technique can be successful only if you lower the moisture content with a higher the calorific value.
Available local coal at nearby coal fields have a challenging content with very poor low calorific value, at about an average of 1996 kcal per kg, and with approximately 34% moisture, 43% ash, 1.34-1.50% sulfur.
The power plant design is based on coal at 1500 kcal/kg lower heating value for units 1-2, and 1400 kcal/kg LHV for units 3-4.
We have a rule-of-thumb expectation that an investment should repay itself within the next three years. That may be extended to four years at most in our investment environment.
If you have a thermal power plant with a 600 MWe electricity output capacity, at a very optimistic annual 7000 hours of average working availability after privatization, at an average of 10-11 U.S. cents per kwh in the prevailing electricity market prices, you come up with a figure to earn approximately 350-400 million U.S. dollars per year after deducting your coal, necessary rehab and O&M (operation and maintenance) costs.
In the years of the repayment period, the accumulation is not to be less than 1.2 billion U.S. dollars. This is the gross price of the plant in privatization.
Seyitömer plant was built by reputable Western power plant designers (German, French, Italian) but they are very old. The first and second units were built by Stein Industrie of France and the steam turbines by Franco Tosi of Italy, both completed in 1973.
The third unit was built by VKW of Germany, the steam turbine by Mitsubishi of Japan, and completed in 1977.
The fourth unit Boiler Island was built by VKW of Germany, the steam turbine by BBC and the plant completed in 1990.
All units have small size electrostatic precipitators (ESP) and dust collectors, and they have no flue gas desulphurization (FGD) systems. Now we have to deduct necessary rehabilitation expenses from the 1.2 billion U.S. dollar gross income. Necessary rehabilitation expenses should cover expenses to pay for four new FGD (flue gas desulphurization) installations. That is approximately 25 million U.S. dollars per FGD unit.
That figure is derived from past tenders of Kemerkoy, Yatagan and Orhaneli thermal power plant FGD installations.
The next is new electrostatic precipitation (E/P or ESP or dust collector) installations for the available four units. We know that plant has already paid 9 million euros for ESPs of similar sizes, the first and second units of Soma-B plant.
You also need to renew boiler pressure tubes, safety valves, soot blowers, and coal mills. Please do note that Units 1-2 are too old, so they need more allowance for rehab costs.
In the end we come up with a rough ballpark figure of 200 million U.S. dollars for rehabilitation. That is to be deducted from the gross price of 1.2 billion U.S. dollars.
One should keep in mind that in the privatization period, new owners normally prefer to keep the existing qualified experienced engineering staff active in operation. The technical staff gets better monthly salaries provided that they continue to generate value added contribution to the organization.
However, the senior labor force is expected to retire. That is the natural outcome of the privatization process in our business work environment.
The most important risk in operation is in the quality of the incoming coal to feed the thermal power plant. From the past operational records, a low and fluctuating quality of incoming coal was the most apparent critical risk as foreseen by the interested foreign parties in the early 2000s.
The new investors would like to purchase the nearby coal reserves in order to keep themselves free from the risk of incoming coal quality fluctuations. A constant coal quality is to be secured with selective mining. Unburnable materials are to be screened and removed.
So we need to estimate the prevailing price of the available coal reserves. That is again three years of payback for the current annual income of the reserves. Currently, local coal is sold by owner Turkish Coal Authority to the plant at about an average of 3.30 U.S. dollars per million BTU heating capacity.
That is a not so reasonable global price for lignite reserves. We expect to have the average price at over 2 U.S. dollars per MMBTU in coal-fired power plants. Anyhow, we may have a reasonable deduction in coal prices from 3.30 to 2 U.S. dollars per MMBTU.
For 600 MWe electricity generation, you have to pay approximately 95-100 million U.S. dollars per year for coal. That amounts to approximately 300 million U.S. dollars in three years.
After the privatization of the existing coal reserves, the investor should enforce selective mining operation for better coal quality. The investor should also evaluate coal drying in natural open air, or in forced drying in the process, reduce moisture from 34% to 23%, so that the LHV of coal can be increased to over 3000 kcal per kgLHV, for easier, better and efficient firing in six each per boiler pulverized coal burners.
That needs more mechanization in open pit mining, and a reduced labor force in underground mining. That is the nasty reality of the privatization. These realities should be foreseen and evaluated in the long term prior to the full enforcement of a privatization decision.
All interested parties should prepare for the outcome. The Treasury is certainly hesitating to spend public funds on power plant rehabilitations. They feel that public spending is not under proper control. Public tenders take long evaluation periods and they are completed in long terms. In the end most of them are not operated effectively, and properly. Treasury is also in hesitation and reluctance in spending due to possible corruption in public spending.
The prevailing political administration may prefer to privatize entire plants rather than spend on rehabilitation. After privatization, the public authority could enforce the buyers to agree on the necessary rehabilitation spending from their private sources. It is proven that private spending in rehabilitation is faster, cheaper and more effective in the end.
There are approximately 1000 employees at the existing plant, which could be reduced to half by employing a voluntary retirement plan. The human cost of the privatization is that the labor force is to be reduced in time. Hiring and firing will be easier. The senior staff will retire. Better educated and qualified new staff will be recruited.
The existing technical staff will be kept unchanged for a while since they are the most important human capital of the establishment, as long as they keep contributing to the operation. They normally get paid more than they did earlier. Their material, income and salary satisfaction is fulfilled by the new private owners. On the other hand, the technical staff will get more freedom in their spending for rehabilitation and programmed maintenance.
More plant availability and higher capacity output are expected in the long run. Electricity generation will be sold in the local national market at prevailing rates and more income generation will be created. That is more taxable income for the public funds.
There is also a new investment potential for constructing a new 2×150 MWe capacity coal fired thermal power plant next to the existing Seyitömer thermal power plant in future. That new investment will also be integrated with the privatization package to encourage and attract more attention to the project. New power plants are to be considered a bonus.
In the end, we may find that a proper private ownership may also bring better operation, better rehabilitation, and a better environment under strict public scrutiny, and generate more income for the workers.
Moreover, they should make more funds available to scientific research in the nearby universities for better coal enrichment, better coal firing, and a better utilization of available nearby coal reserves. New scientific research institutes are to be established. More academic research funds need to be allocated to the local nearby university engineering and technical departments.
Investors can sponsor the upgrading of the living standards of the nearby settlement for better public relations. They can also sponsor cultural and historical sites or activities in nearby ancient sites.
We have lignite coal as our biggest fuel source and we all agree that we should use that coal with:
- maximum efficiency and availability,
- maximum contribution to society,
- minimum harm to mother nature,
- minimum impact on global warming,
- maximized employment for qualified local labor,
- maximized employment for local engineering
- and maximized employment for local contracting.
The Seyitömer coal mine fields are owned by the Turkish Coal Board, whereas the thermal power plant is operated by the Turkish Electricity Generation Public Company. It was recently announced that both premises will be sold together by the Privatization Authority.
Turkey has picked McKinsey & Company as an advisor to help shape up the sale strategy for the privatization of the state-owned thermal power plants of the public electricity producer EUAS. U.S.-based Bain & Company is also working for tendering new power plant construction in Afsin Elbistan.
We hope that this report, although it needs continuous updating, will provide the interested reader a frank view of the Seyitömer Thermal Power Plant. This article is an independent work which was prepared with the available information as received at the Seyitömer Thermal Power Plant, and attempts to illustrate a candid picture of the existing situation. It is free for any public interpretation.
