We have grown consistently through investments in the energy sector since we entered the sector in the 1920s by taking the right steps at the right time. We have expanded our portfolio by acquiring opet, Turkey’s fastest growing fuel distribution company, in 2002 and tüpraş, Turkey’s sole refinery company, in 2006. With aygaz, our lpg company, and entek, our power generation company, we have become an energy giant.

We plan to maintain investments to create maximum value for Turkey and our shareholders for the foreseeable future. We will also focus maximizing operational performance. Tüpraş aims to be in the top quartile among refineries worldwide, in terms of technical availability, energy intensity, and operating costs efficiency indices.

Global energy consumption is expected to rise by over 40% by 2035.

Developments in the petroleum sector in 2013

The price of oil was US$ 113/barrel at the beginning of 2013 and fluctuated throughout the year in response to economic and geopolitical developments. The year closed with oil prices at US$ 110/barrel. Globally, the economic growth rate of 2.9% had a positive impact on the world’s oil demand, with consumption rising by 1.2% to 91 million barrels/day.

Mediterranean refining margins weakened in 2013 on the following factors: Demand in Europe for oil products declined; US refineries using the advantage of lower oil price and energy costs operated at greater capacity utilization; heavy oil became relatively more expensive due to the closing of the price differential between heavy and light crude oil; and global refineries shut down for maintenance less than they had done in 2012. This excess of production, combined with weak demand from Europe due to recession, put downward pressure on Mediterranean refinery margins.

Competition in the domestic oil distribution sector intensified in 2013 and the number of gas station contract renewals rose. The diversity and quality of products and services grew. Regulations were changed, requiring preparations for their implementation to be made. Measures taken before 2013 against illegal fuels (particularly the use of No. 10 oil as fuel), resulting unfair competition, began to pay off. However, there were still distributers competing unfairly by, for example, mixing VAT-exempt jet fuel with diesel and not paying VAT on imported products. New regulations addressed these issues for the most part but some regulations created additional burdens for honest companies.

Another important development was the TL 659-million fine the Energy Market Regulatory Authority (EMRA) imposed on the entire sector for deficiencies in the automation systems required at stations.

In terms of volume, there was a growth of 6.4% in white products (gasoline and diesel) and a decline of 11% in black products (fuel oil and heating oil) in 2013 compared to those of 2012.

LPG sector developments in 2013

Internationally, the LPG sector grew in 2013, with consumption rising by 1.8% to 264 million tons. Natural gas production increased 1.9% in the year and LPG production rose by 3.1% to 274 million tons.

Domestic use of LPG, which makes up 45% of global consumption, increased by 1% but the largest increase in consumption was in industrial use, which rose 22%. Meanwhile, autogas use remained at last year’s 24 million-ton level.

In the near future, propane supply is expected to grow, leading a decline in LPG supply prices.

LPG consumption in Turkey in 2013 was 3.7 million tons, a level that ranks it 15th worldwide and 2nd in Europe, behind Russia. 73% of consumption was in the form of autogas, while 23% was cylinder gas, which is used in nearly 8 million Turkish homes and businesses.

Autogas consumption in Turkey, Europe’s 2nd largest autogas market, grew by 1.2% in 2013 to 2.7 million tons. Turkey makes up 11.3% of the world autogas market. It ranks 1st in the world in the number of vehicles which uses autogas and 2nd in level of consumption.

With the general increase in natural gas subscribers in Turkey, the use of cylinder gas continues to decline. According to EMRA 2013 data, the cylinder gas market contracted by 5.4%; $1owever, Turkey is still Europe’s 5th largest market. The bulk gas market continued to shrink in 2013.

Electricity sector developments in 2013

Paralleling economic growth, Turkey’s consumption of electricity increased 1.4% to 245 TWh. Investments in the sector continued unabated and the amount of installed power rose by approximately 7,000 MW to 64,000 MW.

The eligible customer limit, which gives electricity consumers the right to choose providers, was set at 5,000 kWh/year in 2013. Distribution privatizations were completed with all distribution regions transferred to the private sector. Production plants by the Electricity Generation Company (EÜAŞ) continued to be privatized. Seyitömer, Kangal and Hamitabad thermal power plants were transferred to the private sector. The Energy Market Regulatory Authority (EMRA) continued to restructure regulations. The Electricity Market Law No. 6446, issued in March, was the most important development in 2013. The new law calls for the establishment of a company, the Enerji Piyasaları İşletme A.Ş. (EPIAŞ, Energy Markets Administration A.Ş.), to operate the Energy Exchange with the intent of creating a more liberal and transparent electricity market.

Koç Holding Energy Group

In the highly competitive petroleum sector, Tüpraş strives to produce value for its shareholders and Turkey. One way of doing this is by raising product efficiency in the light of demand. Tüpraş aims to be in top quartile among global refineries, in terms of technical availability, energy intensity, and operating costs efficiency indices.

In 2013, Tüpraş spent US$ 2.29 billion of the US$ 2.7 billion allocated for the Residuum Upgrade Project and brought it to 91.3% of completion. Once it is finished, Turkey’s net annual energy imports will decline by US$ 1 billion. As a result of the policy of optimum production and the use of upgrading units, white product yield increased by 2% at Tüpraş in 2013.

Through its excellence in service approach, Opet aims to be the consumer’s first preference. Despite limited growth in the white product market in 2013, Opet raised its sales volume by 10%.

According to EMRA data, Aygaz maintained a clear lead in the LPG sector with a 28.7% market share. The Aygaz Group has a total market share of 42.6% in the cylinder gas market. It increased its market share of autogas to 24.3%, an increase of 1.2pps in the year. Moreover, it has maintained its market leadership with the highest market share in the last 7 years.

AES Entek’s sales revenues rose 11% as a result of its acquisition of the 62 MW Damlapinar, Kepezkaya and Kumköy hydroelectric power plants.