Turkey paying over the odds for nuclear power

In recent months, Turkey has cosied up to Vladimir Putin’s Russia as a way to take shelter from its cooling relationship with the West, but is Turkey about to swallow a big economic swindle? A recent series of developments are enough to confound us and raise our suspicions.

The issue at hand is about the costs of Russia’s planned nuclear power plants in Middle Eastern countries. Turkey’s agreement with Russia for the Akkuyu nuclear power plant looks similar to the agreement Russia signed with Egypt a few days ago.

Following Turkey and Iran, Egypt became the third Muslim country in the Middle East to try to make use of nuclear power. For this reason, we now have a chance to compare the costs of the Akkuyu nuclear power station with that of the new plant in Egypt.

Let us take a look at the financial side of the agreements on the power plants to be built in Akkuyu and Dabaa in Egypt.

First, Akkuyu:

According to the agreement between Turkey and Russia, the Akkuyu nuclear power plant will be built at a cost of $20 billion. Turkey will not pay anything for its construction. Instead, for 15 years, Turkey will purchase half of the energy produced by the 4,800 MW-capacity power plant. This means that from the 35 billion kWh the plant will produce each year, Turkey has agreed to buy 17.5 billion kWh.

It has already been determined that Turkey has agreed to pay a guaranteed 12.35 cents per kWh. If we add this up, 17.5 billion kWh will cost Turkey $2.16 billion each year. With this guaranteed price, Turkey will have paid $32.4 billion for 262.5 billion kWh of electricity at the end of 15 years.

Now, the Egypt agreement:

The media in Egypt and abroad are abuzz with the details of the signing ceremony with Egyptian President Minister Abdel Fattah al-Sisi and Putin. According to this agreement, the Dabaa plant will have a 4,800 MW capacity, just like the plant in Akkuyu. It will cost $29.5 billion to build. Egypt will pay 15% of this amount ($4.5 billion), and Russia is giving them a 35-year loan for the remaining 85% ($25 billion).

For this loan from Russia, Egypt will pay 3% annual interest. Speaking at the signing ceremony, Sisi said the loan will be repaid over 35 years with the income earned from selling electricity from the power plant to the public.

This means that Sisi has, in a sense, given Russia an indirect promise to purchase electricity. However, the price for this guaranteed purchase is not yet clear, and nor has it been fully explained why the agreement with Egypt is so different from the agreement with Turkey.

Nevertheless, publicly available information is enough to figure out what Egypt will pay for nuclear power.

Let us add it up: First, we have to work out what Egypt will pay for the power plant. The interest on Russia’s 35-year loan of $25 billion is 3 percent. This means that Egypt will pay $750 million in annual interest.

After 35 years, this interest payment comes to $26.2 billion. If we add this to the $26 million loan principal, the total repayment is $52.2 billion. On top of this, there’s also the $4.5 billion that Egypt is contributing to the cost of the plant, which brings the total to $56.7 billion.

Compared to the Akkuyu plant, these costs are quite high. However, in the agreement with Egypt, it is Egypt that will buy all of the power. With the plant’s production capacity of 35 billion kWh per year, Egypt will have bought 1.22 trillion kWh after 35 years. This means if we divide the $56.7 billion total cost of the plant by 1.22 trillion kWh of power, Egypt will pay 4.6 cents per kWh.

Of course, the initial $4.5 billion that Egypt will pay may be considered part of the cost of interest, so we can add an additional annual amount of 3 percent to that. If we then set the total cost at $65.5 billion, Egypt will be paying 5.3 cents per kWh. This figure is quite cheap compared to the 12.35 cents Turkey will pay under its agreement with Russia.

Here is another thing worth considering: there are quite a few differences between the Turkish and Egyptian agreements. For example, according to the Akkuyu agreement, Turkish construction firms have been promised between $6 billion to $8 billion for the work. Russia announced that almost 400 Turkish firms have put in bids. This will undoubtedly be a tremendously lucrative opportunity for struggling construction companies.

However, while Egypt’s 5.3-cent electricity is close to the global average, Turkish citizens and industries are in the unpleasant position of comparing this to their 12.35-cent electricity.