EU-Turkey Strategic Energy Partnership Energy Partnership: Interview with Mehmet Öğütçü

20:17 20 July in Interview and news

natural_gas_europe_20_Temmuz2015Natural Gas Europe | July 20th, 2015

Natural Gas Europe had the pleasure to interview Mehmet Öğütçü, chairman, Global Resources Partners. After his diplomatic assignments in Ankara, Beijing, Brussels and Paris, Öğütçü served for 12 years as a senior staffer at the International Energy Agency and OECD in Paris. Until recently, he also held top positions at BG Group.

We spoke about Turkish geopolitical ambitions, about energy ties between Ankara and Brussels, while touching upon Turkish ties with Germany, the United Kingdom, and Italy.

Speaking about the European Commission, Öğütçü said that: “the lack of clear mandate and resources create frustration, disappointment and loss of credibility. Therefore, in certain areas where the EU is engaging with the rest of the world, these mechanisms, consultations should be speeded up so that you respond to the reality on the ground before it changes.”

During a recent conference, you spoke about the link between Turkey becoming a soft power and its aspirations to become a regional energy hub. How are the two concepts related? Do you think that, without being a soft power, Turkey cannot be a regional energy hub?

Turkey has many muscles to flex in its economic and foreign policy. Yet it is important to inspire confidence in your partners and neighbours that you will not take them hostage by abusing your special geographic or economic position. This is all the more important with regard to energy flows if a country is located as a transit point in between the resource countries and the centres of consumption. Until 2010, Turkey was seen as a regional power to reckon with in the Eurasian landmass, MENA region and East Mediterranean. By virtue of its $900 bn GDP size, huge military, cultural and economic hinterland, it is a regional power beyond doubt. Turkey successfully developed free trade zones, visa-free regimes, joint cabinet meetings, and infrastructure connections with countries in the Middle East, East Mediterranean, Caspian, and Central Asia. Ankara used all soft power at its disposal. All these countries felt very comfortable working with Turkey. But then, when the Arab Spring started turning into the Arab Winter, Turkey was seen as using more belligerent language, showing signs of “hard power” and interfering in domestic affairs vis-a-vis Syria, Iraq, Egypt, Tunisia. The entire atmosphere changed. Israel is now saying that if Turkey continues the current strategy it will not feel comfortable for water and natural gas pipelines to go through Turkey. The Iranians would say the same tomorrow when they will be able to produce and export South Pars gas. Likewise, the Russians would not like to see Turkey using political and security mantras to disrupt any flow of its gas via the Turkish Stream (if it takes off) and oil through the strategic Bosphorus chokepoint. Therefore, for a country to become a real regional hub, be in energy or transportation, there is more to it than pipelines or roads crisscrossing its territory. There has to be trust in the relationship being long-standing and free of capricious behaviour. There is indeed a correlation between being a regional hub, deploying soft power approach and inspiring trust.

Are you saying that Ankara could set a new example of how to deal with neighbours?

Yes definitely in a conflict-ridden region, Ankara could provide a best practice of how interconnected regional infrastructure could function without any hindrance. It is the basis for a win-win partnership. It is also the magical (but so far unexecuted formula) “zero problems with neighbours”. You will always have problems but you can develop a diplomatic culture to coexist with your neighbours and underline common interests rather than problems. Energy is such an area where we all share common interests.

Does that mean that Ankara should refrain from its NAVTEX policies in waters that, according to the international community, are Cypriot?

Energy and geopolitics cannot be treated in isolation from one another. It is a reality. We have seen it throughout history. The link is there. However, there are sufficiently powerful arguments that energy could be deployed to serve as a bond for peace and collaboration rather than confrontation as is the case right now in the South China Sea, the Caspian Sea and the Eastern Mediterranean.  Cyprus is a good case in point to explore how energy could help us resolve the decades old problem to the mutual benefit of two communities on the island and the countries in the region.There are positive signals coming from Cyprus that Turkish Cypriots under a newly elected president and Greek Cypriots suffering from a deep economic crisis could forge an alliance in exploiting the gas riches of the island and also resolving the chronic problem that left both sides of the island relatively poor and unstable. Ankara will not shy away from protecting what it considers to be its and Turkish Cypriots; interests in Cyprus in particular and the broader East Mediterranean. It is counterproductive for Israel, South Cyprus, Greece and Egypt to create an anti-Turkish Med Club. Turkey is too important and big to be excluded from any east Med project or alliance..

Going back to the ties between the European Union and Turkey, how can energy cooperation fit into the big picture? Can the energy field change the dynamics of the negotiations between Turkey and the European Union about Ankara’s EU membership?

We have to be realistic. There is no real prospect of a Turkish accession in the foreseeable future for a number of reasons unless a breakthrough could emerge in these uncertain times of our age. Both Turkey and the EU need to take certain small steps to build, rebuild, trust for additional areas of partnership and cooperation without paying too much attention to whether EU accession will take place or not. In this context, energy presents an excellent story. Both sides are heavily engaged in importing energy. Both are against energy being used as a political tool because of the ongoing geopolitical tensions. They want diversity of routes and fuels for achieving maximum energy security. Turkey needs a minimum of $120 billion for its energy projects and associated infrastructure over the next decade. They both need to deal with Russia, Iran, Iraq, the Caspian region and the East Med. Hence, there is ample room for convergence and shared priorities. Ankara and Brussels could start talking and taking actions on how energy could “energise” their currently stalled relationship. The underlying principle should be: building trust and achieving mutually beneficial win-win partnerships. Not one-way street collaboration that Brussels usually tries to impose.

You were speaking about European steps. What would you ask Brussels?

I wish things will be that easy – asking Brussels. In real life, we have to ask 28 member countries and an amazingly complex web of EU institutions. It is a slow and cumbersome process. One thing the EU machinery needs to realize is that Turkey is not a Malta, Cyprus or Bulgaria. It is the 6th largest European economy. It has a great past imperial spine. Ankara is not a junior partner that you can push around to impose Brussels’s blueprints, Also, let’s not forget that the world dynamics have changed and the power is shifting to the Asia-Pacific region where Turkey too seeks new partnerships. Russia is cultivating a new form of partnership with Turkey. The EU accession is not the only game in town. Turkey keeps growing. Despite recent problems, it is still among the OECD’s fastest growing members. Energy demand grows 6% per annum, second only to China. At the same time, it is heavily dependent on imported energy: 98 percent in natural gas and 93 percent in oil. It has diversified successfully sources of energy and will likely enjoy the buyers’ market status. In this relationship, if you treat Turkey as a junior partner, which should adopt the entire acquis communautaire or whatever the EU calls for in a take or leave manner, that is already the wrong start unless you offer greater benefits. More carrots than sticks. We saw this in the past. The EU tried to impose blueprints, and the attempt backfired. If you want a real partnership, you need to take into account Turkey’s strategic interests. We need to make sure that benefits and obligations are balanced .

The European Union is an union of countries with different agendas and different opinions. Do you see any specific player, any specific country treating Turkey as a junior partner? Any political party, any country, any organisation pushing for treating you as a marginal partner?

The EU consists of 28 different countries and several EU institutions, each with different levels of development and strategic priorities. In Europe, there are some strong advocates of Turkey, and I am speaking not only with regard to the accession, but also more broadly of stronger partnerships. Italy, the United Kingdom are in the lead if we talk about the so-called “friends of Turkey” club. Spain,Portugal, Poland are in favour too. Germany, France, Austria would be much concerned about the freedom of movement of people. When it comes to striking balanced deals with Turkey, the UK normally takes the lead. I thought France would have every interest in keeping and advocating Turkey as a strong partner – given that the two countries are part of the “Club Med” in Europe. Therefore, it is important to have champions within the EU for Turkey to take the lead and have enough leverage within the EU. Yet Turkey is too big for the EU – bigger than all recent accession countries combined in terms of population, economic size, and military power – not easy to digest.

Basically, my question was the opposite. I was asking what are the countries less prone to give voice to Turkey. Taking Italy, Spain, France, Portugal, and the United Kingdom out, we would remain with Germany, Northern Europe – the Netherlands – and Eastern Europe. Correct?

Well, if Turkey joins the EU one day (we know this will not happen in the foreseeable future), this will upset the established balances within Europe. The EU’s locomotive powers are not ready for such a big power to join the already crowded chessboard in Brussels. Plus, there is significant homework for Turkey to complete before being qualified as a full member. Smaller member countries will not be much affected by the complexities of Turkey acceding to the EU – it is more the founding fathers that will do their best to keep Turkey at bay as long as it takes. For example, the Southeast European countries clearly want Turkey to play an expanded and active role within the EU including for energy security concerns because they heavily depend on Russia. Although energy is part of the broader Turco-EU relationship, I believe that in the current juncture we should treat this matter independently of the accession controversy. This can be done if both sides respect each other’s interests and strategic benefits. Turkey has not joined the European Energy Community as it brings unilateral obligations without offering much in return. The Energy Chapter in the accession negotiations has been blocked by South Cyprus – this is very much in the interest of Turkey I must add. There is talk of Turkey being invited to the still evolving Energy Union as a full member but no concrete actions has been taken to date on this matter. Overall, there is a confidence crisis between the EU and Turkey. This needs to be overcome. Political, commercial issues have to be solved, including an invite to the Trans-Atlantic Trade and Investment Partnership, from which Turkey has been excluded. Parties also have to find common ground on the Cyprus issue.

That was actually my following question. Do you see any positive developments in Cyprus?

I think that, with the election of the new Turkish Cypriot President, there is a renewed hope for a final settlement. But the history of the Cyprus negotiations is full of hopes, short of real solution. Let’s have guarded optimism, which can turn into a real settlement only if both sides’ interests and concerns can be mutually satisfied without intimidation, threat and forced blueprints. Energy sources on the island promises to be a genuine carrot. I think that the leadership in power right now on the Turkish side is very serious about the reunification of the island; so is Nicos Anastasiades.

Going back to the broader ties between Brussels and Ankara, do you think that the Turkish Stream as such might have had repercussions? Do you think that, as a result of Ankara’s endorsement of the project, Brussels might be more suspicious and skeptical about Turkish moves?

I must tell you that Turkey has every right to develop its energy and strategic relationship with Russia as much as the EU and its member countries do. The Turco-Russian relationship is multifaceted, ranging from energy to defence, tourism to construction and anti-terrorism to regional disputes. It is not only about energy. Turkey heavily depends on Russia for natural gas, oil, coal and recently nuclear power generation. The Turkish Stream is a strategic move on the part of Russia, which considers Turkey as a difficult but reliable partner. Its first leg to bring around 15 bcm of gas by December 2016 is realistic given that this is the volume Turkey already receives via Ukraine – it is just a matter of diverting the route and using the initial infrastructure built for the South Stream declared dead. The 50 bcm of gas that will amass on the Turkish-Greek border for shipment to European customers might be problematic as it involves the EU-Russia negotiations, independently of Turkey. I believe that the EU has to include Turkey to the greatest extent possible in its dialogue with Russia, so that Russia would not be able to use the EU against Turkey and Turkey against the EU. The same goes for the EU’s energy partnerships with the Caspian nations, Iran, China, the GCC and the East Med as these will help build trust with Ankara and healthy forms of energy partnerships.

During a recent conference, you also said you feel like converting to the Euro-skepticism, because of the slow approaches, excessive centralization and painful decision-making processes, often disengaged from the real life situations. Do you see any way to speed things up? Do you think there could or should be changes within the European Union? Do you think the European Commission should have more power? How to overcome this kind of political weaknesses?

This is a million euro question. I do not think that there is an easy answer to how you can improve efficiency, decision-making process and achieve dynamism in such a huge organization representing 28 countries’ divergent interests, bureaucratic inertia, global and local constraints. So many attempts have been made in the past to remedy this situation but with limited success. In today’s world there we have three major centres of gravity, the US, China and the EU, it is a must that we should reinforce the EU so that it does not lose power and relevance in the world competition. I believe that the EU institutions should be empowered to focus only on common areas where joint action is more effective and pragmatic while leaving the rest to member countries and their regions/cities. This is what subsidiarity was all about but did evolve into something else.I have developed a healthy distaste of the Brussels-led machinery that slows down things, waste resources, leads to stifling of national and local dynamics. It takes long, long time to get any decision out. And when the decision is out, it is not responding to the reality in the ground. Probably having spent the last 10 years of my professional life as a businessman in the UK might also shaped my thinking in this Euroskeptical direction. Bringing Turkey back to the rank and file of the EU might create a convenient occasion to reform the EU. Neither Turkey nor the EU will be happy for the accession unless a drastic reforming of the EU takes place without further delay. Speaking of energy, the new Commission is resolved to pursue a proactive and comprehensive domestic and external energy strategy. The Energy Union is one of such initiatives and hopefully will not lose steam. The lack of clear mandate and resources create frustration, disappointment and loss of credibility. Therefore, in certain areas where the EU is engaging with the rest of the world, these mechanisms, consultations should be speeded up so that you respond to the reality on the ground before it changes.

I think that you heard the debate of lobbyists in Brussels. For example, many reports said several times that Commissioner Günther Oettinger is particularly prone to meet the expectations of corporate lobbies. Don’t you think that if things were faster, this political process induced by lobbies would be even more critical? Speed in this field could create more room for not-democratic powers to take the lead in the political process, am I right? Or the same might even apply to countries. You previously said that Germany slowed down Turkey’s approach to the European Union. With a faster decision-making process, Berlin could even get more power, no? Faster decisions would decrease transparency, and the ability to understand who is really taking decisions in Europe, no?

There is always this risk. But in today’s world, the speed is the name of the game. It used to take decades before any energy-related decision will take root or yield results. Now in a matter of a few years, we witness significant changes to take place. Technology, globalization and communications made it so easy to speed up processes, decisions and results. If we fail to catch up with such trends, there is little doubt that we will be left behind. The EU already suffers from such a slowness in its actions and misses many opportunities. Transparency is of course central, but you cannot expect full transparency for every step. You can’t negotiate certain mega deals under full public scrutiny – you need to provide executives with clear time-bound mandates and monitor progress. In diplomacy, the concept of back-door diplomacy is also important. If every step will be negotiated and subject to public scrutiny, God helps those who try to develop and execute initiatives. There are commercially sensitive issues that you cannot put aside. I fully agree that, if you take decisions quickly without proper consultation, there is a risk of compromising transparency and special interests served at the expense of the common good.

Do you see any progress in this sense with the new Commission?

The new Commission seems to be energetic, and they have good intentions and visions, but if they cannot deliver what they promised, they risk equally being quickly discredited. Therefore, it is all related to how you reform and deliver effectively. For example, taking the Energy Union, we are speaking about an open-ended process as well. What’s that? What is the main purpose? Is it just an umbrella under which you simply put past initiatives or proposals? Is it something new or is it just a marketing exercise? The EU has to tackle these issues with some urgency and credibility. Plus, not from a selfish standpoint but also putting yourselves in the shoes of others so that there is a win-win proposition and there is trust in each other.

That said, when do you think the EU will open the Energy Chapter? 

As you are aware, the Energy Chapter remains blocked by South Cyprus. In my view, this is a good example of how the smallest member can shoot the EU in the foot, because it is more in the interest of the EU than Turkey to open this Chapter. If I were in the shoes of Turkey, I would be pleased that the energy chapter bringing legal obligations remains blocked because there are other chapters more important for Turkey. Now thanks to Nicosia, Turkey does get into the straight jacket of the EU acquis communautaire in energy matters.

So you are basically saying that, assuming that the EU’s strategy with Turkey is a carrot-and-stickapproach, the Energy Chapter would not be a carrot on the table?

It is not going to be a carrot. On the contrary, it is going to bring many sticks to Turkey on energy and climate change matters.

What are the carrots that you are referring to? What is Turkey asking from Brussels?

If the EU wants to find a serious energy partner in Turkey, it should involve Turkey in all the domestic energy agenda and external energy relations around Turkey. The EU should also step in with funding for energy infrastructure, using the EIB and common funds.

So you are basically asking the European Union to raise the geopolitical and diplomatic profile of Turkey? 

If Brussels decide to rely more on Turkey in this troubled region, it will be for its own good, because Turkey is a powerful regional player in energy, security and development. Do not expect Turkey to become a simple bridge for bringing energy sources from its surrounding region in return for transit fees through the EU regulated pipelines. Turkey is a massive energy market for many producers – the second largest for Gazprom for example after the EU and the biggest for Azerbaijan, Iran and Iraq. There has to be a value adding for Turkey in order to obtain its endorsement for surplus energy to flow to the EU. The Turkish public is against their country to be used simply as a transit passage. There is plenty of opportunities to engage Turkey in the larger scale so that it will create more trust between Ankara and Brussels.

That is the first carrot. Others?

Of course, Turkey cannot handle by its own the need for hundred of billion of dollars of investments in energy. 12 billion dollars each year for its own energy sector but also more for cross-border projects in the region. Turkey’s cumulative net energy import bill will be between $1-1.4 trillion by 2030. Rising demand for energy is costing Turkey billions of dollars per year, with major consequences for the country’s economy. Over 60 percent of Turkey’s 2013 total foreign deficit was due to net energy imports. Turkey will also need to invest around $260 billion in its energy sector by 2030. The electricity sector will account for 65 percent of this total, followed by oil with 25 percent. Turkey would undoubtedly welcome investments from the European Investment Bank or if Infrastructure Funds were made available for the big projects: energy efficiency, interconnections, gas storage, and renewables.

Something else? Something to add?

There is the suspicion that Turkey might be drifting away from the EU in the past decade or so. We do not think that the EU is drifting away to the Asia-Pacific or the US! One can hardly argue that Turkey has not made enormous efforts to get closer to the EU; yet without much reciprocity on the part of the EU. It is fundamentally the EU which has pushed Turkey away. Now at a time when there is a power shift toward East, with China about to become the largest economy in the world, already being the largest energy consumer, Turkey is positioning itself accordingly for a rightful place in the competitive world. The Chinese One-belt-one-road strategy will open new corridors via Eurasia to Turkey. Then, let’s see what our interests will be – whether to wait for the EU to make up its mind or choose other attractive options. If there is a referendum tomorrow in Turkey about the EU membership, you may be surprised to find that the majority of Turkish people would say no, having seen what happened in Eastern Europe and Greece. Therefore, I think the EU has to treat Turkey better in many ways.

In Europe, we don’t hear a lot about the development of the Turkish domestic market. Putting these eastward/westward strategies aside for one moment, how to foster an internal energy market. I am not only speaking about supply and demand. I am speaking about energy companies in Turkey, I am speaking about the overall infrastructure. How to support the development of energy companies willing to invest in Turkey?

We speak about a huge market, a country that pays 50 billion dollars for energy imports. There is indeed a need for energy champions. If you consider all the Turkish energy companies, they don’t even make up a company of the size of Petronas. The capital level is not enough. There is a huge room for European companies to link up with Turkish companies and create energy champions, rather than Turkish doing it with Russian, Chinese, Indian, or Middle East investors.

Do you have any companies in mind?

Not necessarily. But I can name dozen of European companies in power generation, oil and gas, especially renewables, nuclear too. And those companies are not in the Turkish market yet, or not in a significant way.

Where are those companies from?

More British companies, especially in the green energy sectors, Germans are very active too. Italian and French companies would like to be in the market. Now we are also increasingly having Eastern Europeans coming into Turkey.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci