Çalık Enerji is one of the global energy sector’s largest engineering, procurement and construction companies, having built dozens of power plants worldwide. Naci Can, the firm’s deputy CEO of international funding and investments, and board member of Çalık Enerji Swiss, speaks about the firm’s use of export financing and key trends shaping the market. Felix Thompson reports.
GTR: Can you briefly tell GTR’s readers about your company’s history and operations?
Can: Çalık Enerji is part of Çalık Holding, which was founded about 40 years ago in Türkiye. It is owned by Ahmet Çalık with annual revenues of about US$4bn at the holding level, 50% of which comes from Çalık Enerji. The group also has a non-power construction arm (GAP İnşaat) and a mining arm (Lidya Mines), which focuses on gold and copper mining. We have a banking and finance division, owning the largest private investment bank in Türkiye, the largest commercial bank in Albania and the fastest-growing bank in Kosovo, and we have a textiles business, which is the origin of the group.
Çalık Enerji consolidates the energy operations of the group and was established back in 1998. Today, it has about US$2bn of revenues annually and counts Mitsubishi Corporation of Japan as a minority shareholder.
The business is split into three segments: the EPC business that mainly focuses on gas to power, but also other energy infrastructure projects, like transmission lines and compressor stations as well as water treatment facilities – an area we want to grow. We have a utility business where we distribute electricity to more than 7 million customers, and then we invest in renewable energy [projects].
GTR: What types of goods is Çalık Enerji looking to import and export for its various projects around the world?
Can: All sorts of energy infrastructure and critical equipment: large gas turbines, steam turbines, generators, heat recovery steam generators, transformers, as well as cooling systems, control systems, auxiliary equipment such as fuel supply systems, water treatment plants, electrical systems, cables and steel structures. These components are essential for power plants, which can range from 150MW to 1.5GW in our case, essentially functioning like mini cities.
A lot of energy infrastructure equipment is required, and we continue to buy a lot from US companies like GE Vernova, Japan’s Mitsubishi Heavy Industries as well as European companies like Siemens Energy and Ansaldo Energia. Those are our anchor suppliers on the gas power side. Around them, you have all these components that feed into these power plants, such as electrical switchgears, condensers and water treatment systems where the supply chain is more dispersed.
We also act as arm’s length EPC for our own renewable energy investment projects, so play the role as investor on the equity side and the EPC providers. We work with all the major original equipment manufacturers for renewable energy projects.
GTR: Across your three divisions, how many projects does Çalık Enerji have around the world?
Can: At this point in time, we have three projects in Turkmenistan, as well as two in Iraq. In Libya, Romania and Senegal we are executing projects, and are hopefully soon to start in Angola, Hungary and Kosovo. We are also anticipating positive business developments in Poland.
GTR: Which main export credit agencies (ECAs) does Çalık Enerji tend to use, and are they a vital source of funding?
Can: ECAs are critical for us in different ways. For all our EPC projects, we need to provide advanced payment bonds and performance bonds – guarantees under our EPC contract – to our clients. Such support is vital, and we try to use them as much as possible on the bonding side.
In addition, when the customer is requesting a buyer’s credit financing for markets with high levels of political risk, we have the capability to trigger several ECAs, including Switzerland’s Serv, Italy’s Sace, Poland’s Kuke and Nexi from Japan. We are currently working to build a direct relationship with Euler Hermes and Japan Bank for International Cooperation (JBIC) and are looking to utilise Türk Eximbank more often, though given the rating limitation, we aim to involve them primarily on reinsurance for buyer’s credit transactions.
On the buyer’s credit side, ECA financing is vital, even in developed countries like Hungary and possibly Poland. It provides a different source of funding that large utilities could tap into.
We are not in the driver’s seat when it comes to development finance institutions (DFIs) but work closely with Africa Finance Corporation and on the bonding side, the African Export-Import Bank. In Central Asia, JBIC or the Asian Development Bank (ADB) may offer support. But frankly, EPC companies are not always driving these discussions and DFIs usually become involved on the back of bilateral agreements between governments.
GTR: That’s quite a broad list of ECAs from various different countries. How do you meet the minimum content requirements for these various agencies?
Can: We have the know-how and ability to shift our sourcing to trigger the minimum content requirements. We also establish presences as exporters in those countries and these are not just on-paper companies, but truly employ people on the ground and have dedicated sourcing personnel.
Çalık Enerji will set up the EPC entities in these markets, procure from local suppliers, and engineer and structure a project out of the country. This will then all be bundled and wrapped into one export contract.
For example, Serv is able to support this EPC approach under its ‘pathfinding initiative’ and we are hearing that other ECAs also want to replicate the Swiss agency’s success in attracting companies like us, because they see we can trigger substantial goods procurement from their home countries. It’s a very smart and successful business model, and you do not have many EPC companies left in Europe that go into the markets in which we operate. We are filling a good gap and offering European manufacturers access to riskier jurisdictions that they would not typically be able to trade with.
GTR: Are you seeing the structures of ECA-backed financing changing, and if so, why are ECAs becoming so innovative?
Can: The short answer is yes, but never enough.
It depends on how their mandates are structured. Some ECAs have their content definition and certain rules enshrined in law, so I appreciate not all have sufficient flexibility to change things or their terms quickly.
That said, we are seeing significant competition amongst ECAs on renewable projects. As such, we have more leverage over an ECA to push the limits on these deals. Euler Hermes is reducing its content eligibility threshold for renewable energy projects; even those ECAs that already have flexible content definitions can lower the bar further in this sector. Renewable projects are a group of their own.
Certain ECAs are offering untied products that trigger exports down the road, maybe not immediately, but I think it’s definitely a good way to tie companies into a certain geography through future commitments of goods procurement. It is a smart strategy, which Sace has been very successful with, and we anticipate other ECAs will follow.
Another innovation is this notion of wrapping everything under an export contract, which some ECAs are tweaking. As long as you procure a certain amount from the ECA’s home country, there is little need to wrap the remaining third-country content under that home country’s export contract.
In other words, some ECAs look at projects on an Excel basis, rather than on a contract basis, which is a very flexible approach. Normally, let’s say if an ECA has a 20% content threshold, the regular rule is you need an export contract value of US$100mn from that country of which US$20mn needs to be the home content, while the remaining US$80mn still needs to flow through that country via an export contract. Some ECAs are reportedly saying, ‘as long as you procure US$20mn from me, you can evidence the third-country content on Excel’ – they will then wrap the entire package. They make assessments on a project-level cost basis, rather than on an export contract basis, which is quite unique.
GTR: To what extent has Çalık Enerji sought to use untied ECA facilities?
Can: In 2024, we signed a deal with Nexi that was its second-ever untied facility for a private sector company. It aims to promote renewable energy deployment and development of new energy forms like new energy hydrogen ammonia, as well as digital transformation projects with sufficient Japanese interest.
Away from untied, we have closed other quite innovative deals. In 2023, we signed one of the few examples of Sace’s multi-tied credit scheme for an EPC company, which was the first time we combined a multi-tied buyer’s credit to a classical buyer’s credit under a single facility, and it was under OECD Arrangement rules.
It was an upfront, committed facility that bundled dozens of small EPC contracts into a single facility. Oftentimes these SME exporters are very much ignored by many ECAs, which often do not have products geared towards these companies. Banks like large contracts and nobody wants to go through the hassle for a €1mn contract. But if you bundle them sufficiently, there’s sufficient mass for the big banks to be interested and their operations can handle it.
We soon expect to close the first renewable energy project with a major ECA that has never signed a renewable energy project before. It is a structure we will replicate. We like to innovate, but it takes two to tango.
GTR: As part of the OECD Arrangement modernisation in 2023, various flexibilities were added, including 22-year tenors for renewable projects. To what extent are you seeing the market utilising those flexibilities?
Can: In practice, have I seen the use of 22-year tenors in a broad range of geographies? No, banks and ECAs are still being quite cautious in terms of pushing the upper limits, at least in the geographies in which we currently operate. But the rule change gives us hope that an increasing number of projects will eventually utilise these terms. Such flexibility will be required.
On the renewable energy side, the offtakes – the power purchase agreements, the feed-in tariffs – are becoming lower and lower, so the longer tenors will be needed to make the returns work. We are currently executing a renewable energy project with a repayment tenor of 14 years, but for some future projects, we are trying to push the limits to the upper end of that ceiling.
GTR: Another strand of talks within the OECD Arrangement last year was the potential banning of fossil fuels. In that context, are you seeing certain ECAs withdrawing or cutting their exposures to certain projects?
Can: Çalık Enerji clearly has a vested interest and wants ECAs to continue their support. Taking a step back, phasing out cleaner and more efficient value-producing gas too early would hurt. It would cause price volatility, harm communities where they do not have access to any alternative option, and actually delay the achievement of a net-zero future.
Certain countries and hence ECAs took the approach to make it so difficult for gas projects that it is effectively a ban. In my view, an ECA is not a DFI. An ECA’s core mission is to support their exporters, so in countries where there is a significant mass of exporters that are involved in gas infrastructure, those ECAs will continue to provide support – albeit you need to make your case more strongly and need to have a good story about it. A blanket ban across all projects across a certain sector would be wrong.
The tide is also turning with the US exiting the Paris Climate Agreement and the US banks leaving the Equator Principles, so I would expect the Export-Import Bank of the United States to be more assertive in this sector. I don’t think it will materially change some of the ECAs’ existing stances, but a status quo will likely remain. Those countries with sizeable gas infrastructure exporters will continue to extend export finance. Otherwise their exporters will lose out.
