KARADENIZ HOLDINGS INTRODUCES MOBILE SHIP-BASED

C O N F I D E N T I A L SECTION 01 OF 02 ISTANBUL 000049

E.O. 12958: DECL: 02/01/2020
TAGS: ENRG SENV ECON PREL PGOV KGHG TU
SUBJECT: KARADENIZ HOLDINGS INTRODUCES MOBILE SHIP-BASED
POWER PLANTS

REF: A. 08 ANKARA 1120

B. 08 ANKARA 227

C. 08 ANKARA 172

Classified By: CONSUL GENERAL SHARON A. WIENER FOR REASONS 1.4(B) AND (

D)


1. (C) Summary. Istanbul-based Karadeniz Holdings, through
its subsidiary Karkey, has signed agreements with the
Governments of Iraq and Pakistan to provide electricity
generation from mobile ship-based power plants. Karkey is
constructing six of the so-called "powerships" in an Istanbul
shipyard and plans to send the ships to Iraq, Pakistan, and
possibly Lebanon over the next year. Karadeniz Holdings'
target customers for the powerships are developing countries
facing electricity shortages which could fuel social unrest.
The powerships can become operational quickly and are
intended to be rapidly-mobilized short- to medium- term
solutions. While the end-user electricity costs will be
higher than costs from an existing combined-cycle power
plant, they could be 25 to 30 percent cheaper than some
countries' current electrical generation alternatives. End
Summary.

Karkey Sending World's First Self-Propelled Powership to Basra
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2. (C) Karkey, a subsidiary of Karadeniz Holding (the only
Turkish company currently exporting electricity to Iraq),is
developing the world's first self-propelled ship-based power
plant and plans to begin producing electricity for southern
Iraq by the end of March. Six so-called "powerships" are
currently under construction in Istanbul's
Sedef shipyard and Karadeniz Holdings President Orhan Remzi
Karadeniz told us that he hopes the powerships will play a
leading role in helping Karadeniz Holdings to hit its
increased targets for electricity production this year. The
vessels have the ability to move in the sea while generating
electricity, and run on dual-fuel systems that are able to
convert fuel oil into natural gas in just one day. (Note:
these vessels differ from existing "powerbarges" produced in
countries such as Singapore because they have self-propelled
engines. End Note.)


3. (C) Late last year, Karkey signed a five-year contract
with the Government of Iraq to operate in Basra, a contract
that Karadeniz Holdings representatives say piggybacks on the
company's major success exporting electricity to Iraq. (Note:
Since 2003, Karadeniz Holdings -- through subsidiary Kartet
-- has exported electricity produced in southeastern Turkey
from Iraqi heavy fuel oil (HFO) to the Dahuk and Zakho areas
of northern Iraq. End Note.) Karkey will send two powerships
to the Umm Qasr port in the Persian Gulf to produce 250 MW of
electricity using HFO from Basra that currently is neither
used nor sold. The first powership, named the "Dogan Bey" is
188 meters long and is scheduled for completion in the next
month; Kartet Director Nuray Atacik told us that the Dogan
Bey will arrive in Iraq by the end of March and connect to
the existing electricity grid, and the second powership will
arrive one month later. The total installed capacity of the
two ships will be 340 MW and Karadeniz Holdings anticipates
90 percent availability because the engines are either new or
recently overhauled.

Target Market: Developing Countries with Coastlines . . . and
Social Unrest
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4. (C) Orhan Karadeniz told us that aside from the Basra
project, Karkey has an agreement with the Government of
Pakistan to send two powerships to Karachi by June, and they
are currently in discussions with the Lebanese Government to
send the remaining two powerships to Lebanon (Note: Karadeniz
said that during Lebanese Prime Minister Hariri's visit to
Turkey this month, Karadeniz representatives met with him and
showed him the powerships under construction in the shipyard.
Karadeniz is expecting an answer from Lebanon soon. End
Note.). Karadeniz has considered marketing the project to the
Turkish Government; Atacik told us that a year and a half ago
this would have been an ideal short-term solution for Turkey
in the face of blackouts and potential electricity shortages.
Decreased consumption from the economic downturn and full
dams due to increased rainfall, however, have temporarily
eliminated the need for this type of solution.


5. (C) Karadeniz told us that their target market is
developing coastal countries desperate for electricity; with
quickly mobilized "plug and play" solutions these governments
can answer electricity demands from populations that are
often clustered near the coasts. Karadeniz said that his
company designed the powership with developing countries in
mind; the powership is intended as a short- to mid-term
solution that would help a country's leadership mitigate
potential social or political unrest stemming from irregular
electricity provision. Karadeniz said they pitch the idea to
governments as a three- to five- year plan. He emphasized
that although circumstances in various countries make
operating conditions slightly different, the idea is to make
the powership executable under a wide range of conditions.
For example, in West Africa it would be "ridiculous" to offer
to supply the fuel for the power plants because countries
like Nigeria have excess fuel; in Pakistan fuel is easily
supplied out of Saudi Arabia.



6. (C) The powerships can be mobilized rather quickly --
Atacik told us that the ship leaves the shipyard ready to
supply electricity with a built-in substation and
transformers, so it can be operating within one month
factoring in one week to set up position and connect to grid,
seven to 10 days to commission the equipment, and a 10- to
14- day voyage.

End-User Cost "Better than the Alternatives"
--------------


7. (C) Although the end-user electricity cost from powerships
will be higher than the cost of electricity produced in an
efficient, existing combined-cycle power plant, it is
reasonable compared with its real alternatives under some
circumstances. Karadeniz insists that powership-produced
electricity is "not desperately expensive," although he did
not cite an exact figure, only suggesting that the price
would be under $0.25/kWh. The key factor in determining
end-user cost is the primary resource, he said, and the only
other short- to mid-term alternative in many countries are
high-speed diesel engines, which are twice as expensive.
Karadeniz said that the powership would be 25 to 30 percent
cheaper than the cost of electrical generation in his target
countries; for example, Pakistan currently is running a power
plant at 20 percent efficiency, which the powership will run
at 42 percent efficiency. Developing countries facing
shortages have few good options: privately-operated
generators can cost $0.25 to $0.30/kWh; old, inefficient
power plants and light diesel oil usage both cost around cost
$0.25/kWh. Karadeniz admitted that environmentally the
powership is "not the cleanest alternative" but suggested
that if the alternative is running a plant at 20 percent
efficiency, it is the comparative lesser of the evils.


8. (C) Comment. Karadeniz was clearly proud of his company's
new innovation and Karkey's success so far in marketing the
powership in Iraq and Pakistan suggests that they have found
a niche to fill. Karadeniz's expansion in Iraq comes on the
heels of Kartet's successful electricity exports to Iraq
since 2003 (with one 45-day interruption due to nonpayment),
which probably increased the company's confidence and cachet
sufficiently to expand operations to other parts of Iraq. The
mobile sea-based power plant tracks with Karadeniz's stated
desire for now to not actually build anything within Iraq
(too complicated) but rather to continue the company's
profitable relationship with the Iraqi Ministry of
Electricity (the Iraqi Minister of Electricity, Karim Wahid
al- Aboudi, was the Commissioner of Electricity under the
Coalition Provisional Authority and Karadeniz's relationship
with him extends back to that time). It is too early to
assess the project's viability but as the powerships begin to
come online in Iraq in March and in Pakistan later this year,
we will follow up with Karadeniz about their assessments and
future plans. End Comment.
WIENER