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7/30/2019 PWC Energy Deals M

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2012 Annual Review

16 January 2013

www.pwc.com.tr/energy

Energy DealsMerger andacquision activityin Turkeys energy

market


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Welcome 3

Deal totals 4

Utilities 6

Oil and gas 8

Looking ahead 9

Contact us 10

Methodology and terminology

Energy Deals 2012 includes analyses o cross-border and domestic deal activity inthe oil, gas and electricity markets in Turkey. The analyses are based on publiclyavailable inormation and encompass announced deals as o 31 December2012, including those pending nancial and legal closure. Deal values are theconsideration value announced or reported while the gures relate to actual stakepurchases and are not multiplied to 100%. All presented totals o deals includeestimates or deals with no reported value. This document is also available atwww.pwc.com.tr/energy.

2 Energy Deals - 2012 Annual Review

Contents


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Welcometo the ith edition o Energy Deals, our annual analysis o mergers andacquisitions in the Turkish energy market

Energy Deals - 2012 Annual Review 3

In our Energy Deals 2011 report, westated an expectation or a livelier deal

environment and greater deal totals in2012. Growing domestic demand andinvestment need as well as numerousenergy assets in the privatisationportolio led us to this conclusion.However, the perormance o 2012exceeded our expectations with 45 dealsproducing a total deal value o USD 9.5billion.

E.ONs investment in Enerjisa togetherwith the privatisation tenders or

Seyitmer power plant and Boazii,Gediz and Akdeniz power distributioncompanies constituted a large portiono this value. Unlike the previous ailedprivatisation round, we expect thesedeals to reach successul closure in 2013.Regulatory and legislative adjustmentsand lower deal values resulting rom amore sound evaluation o the nancialsand growth potential o the targetcompanies give us reason or beingoptimistic. The high interest or thelignite-red Seyitmer power plant aswell as TAQA's upcoming investmentin the Ain Elbistan lignite elds andpower generation units are positive stepstowards better utilisation o local coalresources.

The oil and gas deals landscape wasrelatively calm: The largest oil and gasdeal o 2012 was the privatisation othe remaining 10.32% stake in Petkim,

Turkeys only petrochemicals company.Gazprom strengthened its involvement

in the gas import and wholesale marketsby acquiring a 60% stake in Avrasyagaz.Although Doan Enerjis acquisition ouel distributor Full did not go through,investor interest in the downstream oilsector could produce a number o smalldeals in 2013.

Privatisation deals will continue todominate the deals landscape in 2013.The privatisation process or IstanbulAnadolu Yakas and Toroslar is likely

to be relatively easy, but the high lossand thet ratios o Dicle and Van Glmay complicate the privatisations othese companies despite the revisionsin their targets. The successul sale oBakent Gaz may be expected in 2013thanks to the legislative amendmentsthat eliminated the collection risks o thecompany, and the privatisation processor IGDA could begin subsequently.While the inclusion o lignite elds inthe privatisation portolio helps thegeneration privatisations, questionsregarding uel supply remain or gas-red power plants. Once completed, theAin Elbistan deal could be the mostimportant deal o 2013.

Faruk SabuncuEnergy Utilitiesand Mining Leader

Engin Aliolu

Partner,Deals Services


4/124 Energy Deals - 2012 Annual Review

Deal totals: Back to life

The deals landscape in 2012 was muchlivelier than in 2011. The total dealvalue in 2012 was a healthy USD9.5billion compared to a mere USD1.2

billion in 2011, whereas the number odeals increased rom 29 to 45. The dealsalso became hetier in size, reachingan average value o USD219 million asopposed to USD43 million in 2011.

As shown in Figure 2, deal totals in 2012came second to only the gures in 2010,which in act is not a healthy benchmarkgiven that some o the privatisationdeals in 2010 could not be nalisedsubsequently. We have not restated ourgures or 2010, as our methodology

rests on announced deals regardlesso whether they are nancially and/orlegally closed as o our report date.

37 deals in the utilities sector had anestimated total value o USD9.1 billionand an average value o USD246million. The privatisation tenders orBogazici, Gediz and Akdeniz distributioncompanies together with Seyitmerpower plant have pushed the deal totalsup. Unlike the previous round o powerdistribution tenders, a combination onewly-adopted regulatory incentives andlower deal values increase the chanceso successul closure or the latest round.E.ONs acquisition o a 50% stake in

EnerjiSA and numerous private dealsindicate the healthy growth prospects othe utilities sector.

Eight oil & gas deals took place in 2012with a total deal value o USD400 millionand an average deal value o USD50million. SOCAR, which already owned51% o petrochemicals giant Petkim,bought 10.32% o the company at aprivatisation tender or USD168 million.Gazprom strengthened its involvementin the gas import and wholesale marketsby acquiring a 60% stake in Avrasyagaz.Doan Enerjis acquisition attempt o ueldistributor Full did not go through.

1,00024

Number Value (USD m)

Value (USD m)

Value (USD m)Average Value

YoY changeFY12FY11

Average Value % value% numberNumber

48 8 400 50 60% 69%

42 37 9,100 246 54% 810%

1,23729Total 43 45 9,500 211 55% 668%

2375Oil and gas

Utilities

Deal totals in 2012 came second to only the

figures in 2010, and the deals in 2012 are likelyto reach successful legal and financial closure

Figure 1: Total Energy Deals in 2011 and 2012


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The share o public deals byvalue increased rom 5% in2011 to 67% in 2012 with theprivatisation deals or powerdistribution and generationcompanies as well as Petkim.

Energy Deals - 2012 Annual Review 5

Figure 2: Total deals between 2007 and 2012 by value (USD mn) and number of deals

33%value generation orprivate deals

67%or public deals

Local players interest in the large privatisationtenders shited the local-oreign deals split inavour o local players. The most notable oreigndeals were E.ONs acquisition o a 50% stake inEnerjisa, SOCARs acquisition o a 10.32% stakein Petkim, Gazprom subsidiary Prima Energysacquisition o a 60% stake in Avrasya Gaz andInter RAOs acquisition o Trakya Elektrik.

75%local involvement

25%oreign

Utilities Oil & Gas

Total 9,500 (45 deals)




96% 4%

81% 19%

90% 10%

97% 3%



Utilities: New rules to the game

The privatisation agenda has beendominating the utilities deals landscapeor the past ew years. The tenders orpower distribution companies in 2010

attracted very high bids, but none exceptone could be nalised in the subsequentyears. 2012 saw the tenders repeated orBoazii, Akdeniz and Gediz regions,and the oers or Istanbul AnadoluYakas, Toroslar, Dicle and Van Gl willbe received in February 2013.

Ahead o the privatisation process,the Energy Market Regulatory Agency(EMRA) adopted a number o importantregulatory incentives to encourage thepotential bidders:

The gross prot margin ceiling of

retail companies was increased rom2.33% to 3.49%.

The distribution companies

with a retail licence and retailcompanies were allowed tocharge a price indexed to the DayAhead Market Price to returningeligible consumers. Previously,eligible consumers returned to the

distribution companies and boughtpower at the national tari rateduring the summer months, when

the wholesale company preerred tosell at the spot market at peak prices.This let distribution companies ata loss, as the distribution company

had to buy power at the spot marketprices and sell at the lower tariprice.

A provision was added to the

Electricity Market Taris Regulationto enable bidders to request arevision in the tari parameterso the target distribution companybeore submitting their nal bids.

The loss and theft ratio targets of

Dicle, Vangl, Aras, Toroslar andBoazii Distribution Companieswere increased or the periodbetween 2013 and 2015.

Despite the avourable regulatoryadjustments, the tenders or Boazii,Gediz and Akdeniz drew much lowerbids than the ailed earlier rounds, atUSD1.96 billion, USD1.23 billion andUSD546 million, respectively. Cengiz-Kolin-Limak consortium gave the highestoers or Boazii and Akdeniz, whereas

the highest oer or Gediz came romElsan-Tma-Karaay consortium.

Lower deal values were expected,because the high deal values observedin the earlier tenders were partly due toa misevaluation o the target companies

nancials and growth potential as wellas the nancing environment. As thelicences o these companies will expire in2036, the latest tenders provide biddersless time to operate the business thanthe previous round. Finally, the USDappreciation has infuenced the bidderscalculations.

The bidding deadline or Bakent Gaz,Turkeys second largest inner-city gasdistribution network, was postponedrom 17 December 2012 to 18 January2013. Favorable taris, a high eligibleconsumer limit and the eliminationo collection risks with the recentlegislative changes make Bakent Gaza more attractive asset, increasing itschances o a successul transer aterthree ailed attempts.

The last energy privatisation tendero 2012 saw 600 MW, lignite-redSeyitmer power plant receive aUSD2.25 billion bid rom elikler

naat. The inclusion o lignite eldsin the privatisation portolio to besold alongside the lignite-red power

Regulatory incentives and lower deal valuesincrease the chances of success in the latest

privatisation round for power distribution

companies


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plants certainly helps the privatisationprospects o these assets. The nextlignite-red power plant up orprivatization is 457 MW Kangal, thepre-eligibility deadline or which is 17January 2013.

Despite the positive signals, privatisationprospects o generation assets are stillclouded by uncertainties. Questionsregarding uel supply remain orgas-red power plants, which maycomplicate the privatisation tenderor 1120 MW Hamitabat. Currentlygas-red EA plants buy gas romBOTA at unsubsidised prices, and anylosses are cross-subsidised by incomerom other EA plants. Secondly, itis unclear what kind o structure will

replace the transition power purchase

agreements o EA with TETA anddistribution companies, which expiredat the end o 2012. Thirdly, utureowners o the power plants will haveto make modernisation and expansioninvestments and ull environmentalrequirements until 31 December 2018 as

per the drat Electricity Market Law.

The Turkish government showed thatit is prepared to sidestep the tenderprocess in avour o intergovernmentalagreements or very large projects likeAin Elbistan. An intergovernmentalagreement was signed with the AbuDhabi government in the rst days o2013 to announce Abu Dhabi nationalpower company TAQA's plans to investin the Ain Elbistan power generation

units, develop the lignite elds and

construct new generation capacity.TAQA's investment and the Seyitmerdeal are promising steps towards betterutilisation o local coal resources inTurkey.

While numerous private deals livened up

the deals landscape or utilities in 2012,perhaps the most important among themwas E.ONs acquisition o Verbunds50% stake in EnerjiSA. Following thedeal, EnerjiSA aims to increase its powergeneration capacity rom 1.7 GW to 5.2GW in 2015 with the help o a yearlyEUR200 million investment rom E.ON.The company is then expected to nanceits urther growth to 8 GW in 2020,raising its share in the Turkish powermarket rom the current 4% to 10%.

Figure 3: Utilities deal in 2012



Oil and gas: Calm, but signs of activity

The largest oil and gas deal o 2012was the privatisation o the remaining10.32% stake in Petkim, Turkeys onlypetrochemicals company. SOCAR, which

already owned 51% o the company,made the acquisition at USD168.5million. The remaining 38.68% is tradedin the Istanbul Stock Exchange. SOCAR& Turcas Enerji had bought 51% o thecompany or USD2.04 billion in 2007,and SOCAR bought the 25% Turcasshare in the SOCAR & Turcas Enerjiin 2011.

Upstream in the oil market, NorwegianTiway Oil, which is already active inthe E&P segment in Turkey, boughtthe oil exploration business o PetrolOsi. Further downstream, DoanEnerji cancelled its plans to acquireuel distributor and retailer Full. Fullobtained a special position in the Turkish

market as the company employed theCOCO model successully to achievesubstantially lower prices than largerdistribution companies. Although this

deal did not go through, the investorinterest or not only Full, but alsosmaller uel distributors and uel storagecompanies is likely to produce a numbero small deals in 2013.

2012 also saw the acquisition o a60% and 26% stake in Avrasya Gazby Russian Prima Energy Trading, aGazprombank subsidiary. The dealrepresents Gazproms strategy o verticalintegration in its export markets. AvrasyaGaz became one o the rst our privategas importers, when it started to import500 mcm o gas rom Gazprom in 2009.Gazprom also holds a 71% stake inBosphorus Gaz, which, along with AkelGroup, Kibar Enerji and Bat Hatt A..

concluded new supply agreements in2012 to import 2.25 bcm, 1.75 bcm,1 bcm and 1 bcm respectively romGazprom.

Figure 3: Oil and gas deals in 2012

Although theDoan-Fulldeal did not go

through, investorinterest in the

downstreamoil sector could

produce a numberof small dealsin 2013



Looking ahead

2013 will be driven by privatisationdeals: Not only do the deals announcedin 2012 have a high chance o successulclosure, but new generation, power and

gas distribution tenders are also likely totake place in 2013.

Regulatory and legislative adjustmentsalong with a more sound evaluation othe nancials and growth potential othe target companies have increasedthe chances that the latest privatisationround or power distribution companieswill succeed. The tenders or Boazii,Gediz and Akdeniz are likely toreach successul closure in 2013. Theprivatisation process or IstanbulAnadolu Yakas and Toroslar is also likelyto be relatively easy, but the high lossand thet ratios o Dicle and Van Glmay complicate the privatisation o thesecompanies despite the recent revisions intheir loss and thet targets.

Thanks to the legislative amendmentsthat eliminated the collection risks o thecompany, the successul sale o BakentGaz may be expected in 2013.

The privatisation process or IGDA,Turkeys largest inner-city gasdistribution network, could beginollowing the handover o Bakent Gaz.

The inclusion o lignite elds in theprivatisation portolio to be soldalongside the lignite-red power plantswas an important step or generationprivatisations, but questions regardinguel supply remain or gas-red powerplants. Abu Dhabi national energycompany TAQAs investment in theAin Elbistan power generation unitsand lignite elds is likely to be the mostimportant deal o 2013.

While oreign players have shown littleinterest or the privatisation tenders inthe power sector, they are keen to makepartnerships with local private players.E.ONs acquisition o a 50% stake inEnerjiSA was the latest example othis trend. The involvement o oreignplayers in the Turkish market couldincrease signicantly with urtherliberalisation o the power and naturalgas markets. The speedy adoption o the

drat Electricity Market and Natural GasMarket Laws is likely to eliminate someo the important uncertainties in thesemarkets and clariy the institutional

structure o the Energy Exchange.

We expect a number o small deals inthe downstream oil market in 2013,but players may also need some timeto adjust to the upcoming regulatorychanges awaiting the oil and LPGsectors. According to media reports,the Ministry o Energy and NaturalResources is working on a law proposalto transer EMRAs authority to regulatethe oil and LPG markets to the OilWorks Directorate under the Ministry.I the proposal is adopted, licensing odealerships will be carried out by localadministrations, whereas Ministryo Customs and Commerce will beresponsible or the regulations relatedto smuggling and the National Marker.Secondly, a drat Petroleum Law, whichwill supersede the current PetroleumLaw No. 6326 and bring new regulationsor the E&P segments, has recently beensubmitted to the Parliament.

Privatisations will shape the deals

landscape in 2013



Contact usOur core energy, utilities and mining team

Faruk Sabuncu

Energy Utilities and Mining Leader

Tel: +90 (212) 326 6082E-mail: [email protected]

Engin Aliolu

Gas Leader, Deals ServicesTel: +90 (212) 376 5304E-mail: [email protected]

Fatma Akimek

Mining Leader, Tax ServicesTel: +90 (212) 326 6468E-mail: [email protected]

Murat olakolu

Power Leader, Tax Services

Tel: +90 (212) 326 6086E-mail: [email protected]

Ediz Gnsel

Oil Leader, Assurance ServicesTel: +90 (212) 326 6090E-mail: [email protected]

Irmak Bademli

Energy Sector RegulatoryAdvisory ServicesTel: +90 (212) 326 6656E-mail: [email protected]



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