Celikler Insaat offered the largest ever price for a Turkish power asset when it won the auction for the 600MW Seyitomer coal-fired power plant and associated mine in 2012. The following year the Turkish developer reached financial close on the $1.87 billion financing to fund the acquisition.

The power sector has been a major focus of the Turkish government’s privatisation efforts. In 2013 it privatised the distribution companies for each region of the country, raising around $12.7 billion, and also unbundled those companies’ distribution and retail assets.

Generators in Turkey do not traditionally sign long-term offtake agreements, but instead sell power on the merchant market – which the government also intends to bolster. This year the government will establish a new energy exchange, EPIAS, which is intended to make the spot market more transparent and liquid by introducing futures trading for the first time.

Only 45% of power assets in Turkey are in private hands, so the next step in liberalisation is the privatisation of the 7GW of coal-fired generating capacity still in state hands. The largest asset to reach market to date is Seyitomer, located in Kutahya in western Turkey. It consists of four 150MW coal-fired power units and an associated mine that has an estimated minimum reserve of 173 million tonnes. The power plant consumes around 6.5 million tonnes of coal per year, and has a remaining life of another 26 years.

The auction for the plant took place in December 2012. The sale included the plant and operating rights for the mine until 2054. Celikler offered the highest price of any of the 16 bidders – $2.248 billion – to win the asset. Low extraction costs and the mine’s vast resource ensured a high price at auction. Celikler saw off competition from Eti Bakır, another local firm, which was the only other bidder left in the auction once the price rose above $2.1 billion.

Celikler is one of Turkey’s largest construction firms, and much of its experience is in transport projects such as rail and road development. It also operates hydroelectric and geothermal power plants, and has another coal-fired plant under construction.

For the upfront payment Celikler used $577 million of equity and funded the rest with debt. Six local banks are providing all of the debt – Garanti Bank, Isbank, Ziraat Bank, Vakifbank, Halkbank and Denizbank. The debt is split equally between them, although Denizbank only committed after financial close.  

The financing is split into three tranches, a $1.671 billion acquisition facility that has a tenor of 12.5 years and amortises fully, an 11-year $150 million capital expenditure facility and a $50 million working capital facility. The sponsor will use the capex facility to fund rehabilitation and environmental investments in the power units.

The government has provided no guarantees for the project as part of the privatisation, though Celiker has provided the borrower with sufficient funds to ensure that the financing’s annual backward and forward looking debt service coverage ratio is on or above 1.05x

All debt is denominated in US dollars but the working capital facility can be drawn in Turkish Lira if the project company chooses to do so. All revenues will be in Turkish Lira but the deal did not need exchange rate hedging as these revenues are essentially dollar-indexed.

Marginal power producers set the spot market price for Turkish electricity. During 80-85% of the year the price-setters are natural gas-fired power plants, and for the other 10-15% of the year plants running on imported coal set prices. Both types of plants have dollar fuel costs, and so market prices are also dollar-indexed.

Turkey’s power market accounts for 43.1% of Turkish project finance deals between 2007 and October 2013. Last year also saw the privatisation of the 457MW Kangal coal-fired plant in the Central Anatolian Province of Sivas, with Konya Seker acquiring the asset for $985 million. The Turkish government intends to privatise 16,000MW of its 25,000MW of generation assets.