Turkish Prime Minister Recep Tayyip Erdogan's plan to divert tankers from the Bosphorus to a new canal may unclog one of the worst chokepoints for energy carriers such as A.P. Moller-Maersk of Denmark and Greece's Tsakos Energy Navigation Ltd.
It may also change the shape of oil shipping from Russia, Ukraine, Georgia and Kazakhstan to the Mediterranean, diverting business onto the world's largest tankers from the smaller ships that now transit the strait.
At the same time, the plan would generate a building bonanza for Turkish real estate investors and developers, including Inanlar Insaat, Kiler Gayrimenkul Ortakligi and Agaoglu Group. They are jostling for a piece of what Erdogan calls one of the biggest development projects in the world: the construction of a new population centre on the canal's banks.
"We're talking about building not just a canal, but a city right next to Istanbul of three million people," Serdar Inan, chairman of Inanlar Insaat, said in an interview at the company's Istanbul offices. Erdogan has praised Inan's offer to spend $30 billion (Dh110 billion) on the project; Inan predicted total revenue from building it and nearby facilities will exceed $300 billion in 15 years.
Most of the money would be made from building, selling and managing apartment buildings, hotels and other facilities on the banks of the canal, Inan said. Erdogan said the project also will include a new airport, Turkey's largest, and two new cities, one on each side of the Bosphorus, to allow people to move out of crowded, earthquake-prone parts of Istanbul.
Kiler Holding, which opened Istanbul's tallest building this year and then sold shares in its real estate unit on April 20, applied for rights to the "Istanbul Canal" name within five hours after Erdogan announced the plan. Billionaire developer Ali Agaoglu, who's erecting towers on London's Canary Wharf, also supports it.
"It's not a crazy project," Agaoglu said after Erdogan's April 27 announcement. "Turkey is strong enough to do this."
Privatisation
To be sure, big-money plans have a history of falling through in Turkey. Last year, the state got $15.9 billion in bids from businessmen for the privatisation of power grids, with winners refusing comment on how they'd get the financing.
Two of them have fallen through in the past month: Aksu Enerji & Ticaret failed to raise $56.1 million by its deadline and MMEKA, controlled by Mehmet Kazanci and former Turkcell Iletisim Hizmetleri chairman Mehmet Emin Karamehmet, failed to come up with $1.2 billion.
It's not the first time a Turkey canal project has been discussed: Ottoman Sultan Sulaiman the Magnificent explored joining the Black Sea to the Gulf of Izmit in the 1500s, only to abandon it as too expensive while the empire was dragged into war. Former Prime Minister Bulent Ecevit announced a similar plan for a "second Bosphorus" in 1994 that went nowhere.
The success of Erdogan's pledge to "end tanker traffic" through the Bosphorus hinges on overcoming the channel's biggest advantage: It's almost free. The Montreux Treaty of 1936 limits Turkey to charging carriers only for costs incurred when they transit the Turkish Straits.
Reality
To make the Istanbul Canal commercially viable — it will cost at least $12 billion, Erdogan says — builders will design it for the world's biggest tankers, which the Bosphorus can't handle. Known as very large crude carriers, or VLCCs, they sit as much as 23 metres deep when full of cargo.
"We definitely hope this project becomes a reality," said Amit Agaelli, a manager in the ship-chartering unit of Palmali Holding Co, owned by Turkish-Azeri billionaire Mubariz Mansimov and one of the primary owner-operators of tankers through the Bosphorus. "Especially for VLCC owners, it lowers transportation costs a lot, 20 to 25 per cent, maybe more."
About 8 per cent of the price per barrel of oil is due to transportation costs, according to the Robert S. Strauss Center for International Law and Security at the University of Texas in Austin.
VLCCs are most commonly used for oil deliveries between continents, where they offer the greatest savings compared with smaller vessels, according to Nikos Varvaropoulos, an official at Optima Shipbrokers Ltd in Athens.
Bosphorus delays rise in winter, when shorter days and poor weather conditions constrain how many vessels can transit the link between the Black Sea and the Mediterranean. An average of 848,000 barrels of crude a day were shipped from Russia's Black Sea port of Novorossiysk in 2010, according to loading data gathered by Bloomberg.
"If it happens, we will have to adjust like every-one else," said George Saroglou, chief operating officer of Tsakos Energy Shipping in Athens. "It's more economical to move two million barrels on a VLCC than splitting it into smaller cargoes."
Tsakos has 51 tankers, of which three are VLCCs; 11 of the others regularly transit the Bosphorus. Palmali sends about 200 vessels through the straits each year and 85 per cent of them are tankers, Agaelli said.
Building a canal that handles VLCCs could encourage oil exporters from Russia that currently ship from northern ports to "move some volumes to the southern route" through Turkish waterways, said Henrik Ramskov, chief operating officer of Maersk Tankers, which owns or operates more than 250 tankers.
The world's largest VLCC operator is Mitsui O.S.K Lines Ltd, according to Clarkson Research, a unit of Clarkson, the world's biggest shipbroker. Second is Frontline, led by Norway-born billionaire John Fredriksen.
Sovcomflot, Russia's largest shipping company, signed an agreement with China National Petroleum Corp in November to purchase its first pair of VLCCs for delivery in 2013.
Diverting traffic
Diverting shipping traffic to a new canal outside Istanbul's centre would lessen the danger of an accident or spill for the millions who live on the Bosphorus's shores.
According to the Turkish Coast Guard, 51,422 ships passed through the Bosphorus in 2009, 9,299 of them tankers. A total of 145 million tonnes of "dangerous cargo" slipped through the waterway that divides a city of more than 13 million people.
Delays in crossing the Bosphorus, which the US Department of Energy calls one of the world's busiest and most difficult "energy chokepoints," cost transporters $1.4 billion a year, Erdogan said.
"With the Istanbul Canal we'll reduce tanker and cargo traffic through the Bosphorus to zero," Erdogan said. He said planning for the canal would take two years and it would be opened by the 100th anniversary of the Turkish Republic in 2023.
Handling the biggest tankers would require a reconfiguration of Black Sea ports, said Luis Mateus, an analyst at Riverlake Shipping in Geneva.
The Sheskharis Oil Harbor at the port of Novorossiysk, the main Russian export facility for Urals crude in the Black Sea, has a draft of 19 metres, meaning that VLCCs wouldn't be able to load in full there yet, according to data provider IHS in Englewood, Colorado.
The Suez, which would link Russian supplies to Asia, also can't handle VLCCs when they are fully loaded, said Clarkson Research Managing Director Martin Stopford.
"The Turkish government cannot force shippers to use a new canal, and it's not rational to use it when you have the right to use an international strait for free," said Savas Inandioglu, an Istanbul-based maritime lawyer at the Topdemir Inandioglu Komuc law office.
Turkey would consider raising Bosphorus fees, Transportation Minister Habib Soluk said May 5, adding that they had been "discounted" since 1980. Foreign Ministry spokesman Selcuk Unal said all aspects of the plan would be discussed with Montreux Convention signatories during the planning process.
"From a legal perspective, this plan can only be achieved through commercial terms," said Fehmi Ulgener, an attorney whose clients include the Turkish Chamber of Shipping. "You have to make passage through the canal more attractive than through the Bosphorus. You can't close the Bosphorus because of obligations under international law."
- $15.9b: bids received for privatisation of power grids
- 200: vessels of Palmali passing through straits each year
- $12b: cost to make Istanbul Canal commercially viable
- $30b: Investment planned by Inanlar Insaat on the project
