THE RIGHT CONDITIONS

Turkey 2011 | ENERGY & MINING | INTERVIEW

TBY talks to Djan Suphi, CEO of BP Turkey, on the country's significance in the BP portfolio, the domestic market, and Turkey as a transit hub.

Djan Suphi
BIOGRAPHY
Djan Suphi joined the energy sector in 1990 working for Mobil Oil as Planning Associate in Istanbul, as a Financial Advisor in London, and finally as Finance Manager for Mobil’s pan-European commercial fuel business. In 1996 Djan joined BP and worked in Russia, Azerbaijan, and Turkey, before joining the company’s Exploration and Production Department as a Senior Executive. In May 2006 he was appointed General Manager of the BTC Pipeline in Turkey, and in 2008 took over as CEO of BP Turkey.

How significant is Turkey within BP's global portfolio?

Very significant, actually. Turkey is very important for BP. We have been operating here for nearly 100 years. Our downstream businesses here date from the 1940s. For our fuels business, Turkey is one of five strategic markets worldwide. For lubricants, Turkey is one of the top 10 markets. On the upstream side, Turkey has two of our globally strategic investments. The Baku-Tbilisi-Ceyhan (BTC) pipeline exports 1 million bbl/d of Azeri crude to world markets, and we sell 6.6 billion cubic meters of Azerbaijan's Shah Deniz gas to Turkey annually. BP is the largest shareholder and operator of the BTC pipeline. As you can see from all these investments and businesses, Turkey is indeed quite significant to BP.

What steps should be taken, from both the public and private sectors, to reduce Turkey's dependence on foreign imports to meet its energy needs?

This has been a goal of Turkey's governments for many years. Reducing the dependence on foreign imports is attainable primarily in two ways: focus on energy efficiency, and increase indigenous production. The first is the role of not just the government, but the private sector and society as a whole. The Ministry of Energy and Natural Resources has several initiatives aimed at this objective. The second has to do with increasing the amount of exploration for oil and gas in Turkey. This also has to do with national strategy and policies. The government needs to ensure that the right conditions are set for investment by private sector exploration and production companies.

On the downstream side, what are your plans regarding branch expansion and what does this signal about your expectations for the Turkish fuel oil market?

We expect the Turkish fuels market to grow in line with economic growth. As BP, we are continuing to invest. We will be opening 20-30 new retail stations in 2011, and will be increasing the number of cities where we are present. Currently we are in fourth position in overall national market share, but we are not in all cities in Turkey. We are number two or number three in the markets where we choose to participate.

Unfortunately, Turkey's fuels market growth is currently not in line with GDP growth. One major cause of this is the illegal usage of certain base oils as motor fuels. We see this as one of the major problems of the fuel industry in Turkey. Not only is this issue holding back the industry, but it is causing a major loss of tax revenue for the government. As a responsible and compliant company, and a major worldwide industry leader, we hope that this issue is resolved quickly.

Following changes to legislation in 2009 limiting the contract terms of gas retail franchises to five years, how have compliance efforts affected BP and the sector?

I think it is fair to say that the sector had a very tough time in 2010 due to the implementation of this legislation. It is one thing to limit dealer contracts to five years, but an altogether different thing to make this legislation retroactive to past years. The majority of dealer contracts had to be re-negotiated, causing around TL1 billion in expenditures to the fuel distribution companies.

While we understand the reasoning behind the five-year limit, we feel that applying the law retroactively was not in line with free market regulations. As BP, we were one of the companies that did relatively well, with a minimal loss of stations. What we have lost in a certain number of stations we have made up in overall volume. However, we ended up investing around $150 million in 2010, which is several times our normal investment plan in a normal year and was an investment that has not benefitted the consumer.

Regarding BP's lubricant oil sales, how can we assess the investments made, and what can we expect from BP in this area for the coming years?

BP and Castrol Lubricants are continuously developing their products toward innovation and more performance. We play an important role with automobile producers, where we help them develop their engines and lubricants. Engine manufacturers need to get more horsepower from smaller engines in order to meet EU norms. BP engineers are working together with leading engine manufacturers such as Ford, BMW, Volkswagen, Honda, and Audi.

In Turkey, BP's lubricants blending plant in Gemlik is able to produce these high-tech, innovative lubricants for the Turkish market and beyond. In 2011, we will continue to invest in our brand, business partners, marketing and sponsorship activities, with the aim of providing increased advantages to our customers.

How has the development of the construction and manufacturing sectors in Turkey benefitted your sales in lubricant oils and other oil products?

Under the BP Lubricants roof, we have two main industry-leading brands: BP and Castrol. We develop our products under both brands with the partnership and cooperation of leading vehicle manufacturers. Our Castrol and BP brands in Turkey are the market leaders in both automotive and heavy-duty lubricants. We also provide robust solutions for other areas as well, such as marine and specialized industrial needs. Our heavy-duty vehicle lubricants make up a large part of our Turkey business by volume, and we work closely with large heavy-duty manufacturers such as Scania, DAF, Mercedes-Benz, Isuzu, and Temsa.

In which segments do you anticipate the most growth in 2011-2012?

If Turkey's economy continues to grow, we would expect that the fuels and lubricants segments will also grow in parallel. However, the growth in fuels currently is not in line with GDP growth. A major cause of this is the illegal usage of certain base oils as motor fuels. In other words, motorists are using base oil illegally to fuel their cars and trucks, because base oil is cheaper. This is not only an issue that is having a large impact on the industry, but it is also causing a major loss of tax revenue for the government—not to mention the environmental impact of burning a base lubricant instead of a motor fuel. As a responsible and compliant company, and a major worldwide industry leader, our wish is that this issue is resolved urgently.

How does Turkey figure on BP's radar for future large-scale investments, and what form are investments likely to take?

Our largest investment in Turkey is the BTC pipeline, which exports 1 million bbl/d of Azeri crude to world markets. We also transport 6.6 billion cubic meters of Azerbaijan's Shah Deniz gas to Turkey annually. Our next large project on the horizon is the sale and transit of Shah Deniz Phase 2 gas, in the 2017 timeframe. An additional 6 billion cubic meters of gas will be sold to Turkey through this project, and up to 10 billion cubic meters annually will transit through Turkey to be sold to European customers. The Shah Deniz field in Azerbaijan is one of the largest gas fields in the world, and is in fact the largest in BP's global portfolio.

How has the BTC impacted Turkey's energy and economic landscape?

We believe that the BTC has had a very positive impact on Turkey for three main reasons. First, it is the first multi-country, multi-company energy project and is an important first step toward attaining Turkey's role as an “energy corridor". Second, it is a very good model of international cooperation within the region. Third, a total of $23 million has been invested in community programs along the Turkish section of the pipeline. Through these programs, the BTC has supported everything from local infrastructure, local employment, agriculture, capacity building, education, and many other areas. These are truly world-class corporate responsibility programs that are used as case studies in many parts of the world.

In your view, what is Turkey's role in ensuring global energy security?

Turkey's aspirations are to become an “energy corridor" or “energy hub". Located between the producer countries in the East and the consuming countries in the West, Turkey has a strategic geographical position. I believe that Turkey is very important for both European and global energy security.

Currently, close to 4% of the world's daily oil supply transits Turkey. This includes the Turkish Straits, and pipelines such as the BTC. This is a large number when you consider the close difference between supply and demand. On gas, there is the “Southern Corridor", which is an important new route of gas for Europe. For example, Shah Deniz Phase 2 gas from Azerbaijan will likely transit Turkey on its way to European markets. We expect this to happen in the 2017 timeframe. There are many other gas sources in the region that could eventually be transported through Turkey as well, such as from Iraq.