Nov. 30 (Bloomberg) -- Turkish Energy Minister Hilmi Guler said the constitution needs to be changed before the state power grid and utilities can be sold, signaling the government may miss its plan to offer the businesses to investors as early as 2005.

``There are clauses in the constitution which are vague about public interest in the supply of energy,'' Guler said in an interview in Istanbul. ``Those can easily be interpreted by courts to block our sales. We'll have to get rid of them.''

Turkey wants to start selling a power grid that analysts estimate to be worth as much as $8 billion by March 2005, under pressure from the international lenders and the European Union to open its energy markets to competition. Earlier attempts to sell some of those networks in the 1990s were blocked by the courts, ruling them unconstitutional. Last year the government annulled 30 licenses to build power plants or distribute electricity.

Some of those licensees have sued. International Power Plc, a London-based power generator that's expanding around the world, in August sued for $430 million after it was barred from operating three power plants despite winning licenses to do so.

Guler's comment marks the first time a government official conceded the need to the change the constitution, something analysts have speculated for years.

``It's good that they're talking about the legal changes needed, but it's a bit late,'' said Ebru Eroglu, an analyst at Yapi Kredi Yatirim in Istanbul. ``If they want to start selling assets in March, there isn't much time left to change the constitution before. They need to act fast.''

No Timetable

Guler, 55, wouldn't give a timeframe for when the government may attempt changing the constitution. His ministry has transferred the 21 regional power distributors to be sold to the Privatization Administration, who needs to organize the government's efforts on the constitution, Guler said.

Turkey's state-run Turkiye Elektrik Dagitim AS is the monopoly in power distribution nationwide. Government-owned utilities produce 70 percent of the nation's electricity. Those will be put up for sale in 2006.

Another part of Turkey's efforts to open its energy markets to competition is the planned sale of contracts to buy natural gas from Russia, Iran and Azerbaijan. About 60 percent of the contracts were put on sale last month. Guler said it will be difficult to find buyers for the contracts because they cannot reveal their contents due to restrictions by the sellers, which include Russia's OAO Gazprom.

``We were forced by law to put them on sale,'' Guler said, referring to a 2001 mandate that requires the state-run pipeline company to cut its share of gas imports to 20 percent by 2009, from 100 percent now.

Turkey has almost no oil or gas reserves of its own and imports close to 100 percent of what its cars, factories and power plants consume. To compensate, the country is trying to play a bigger role in the transportation of energy to western markets from eastern neighbors including Iraq, holder of the world's third- largest oil reserves.

Skirting the Straits

A 1,100-mile, $3.6 billion pipeline taking Caspian oil to Turkey's Mediterranean coast is due to be completed in March. Turkey is also lobbying for new oil pipelines that would bypass the Turkish straits, which it argues have reached their capacity as transit routes for oil tankers.

One proposed route Turkey advocates would be 200 kilometers (124 miles), from the Turkish Black Sea coast to the Aegean, and cost about $600 million. Another would be 890 kilometers and reach the same Mediterranean port as the Caspian pipeline. That one would cost more than $1 billion. Russian officials have voiced support for one through Bulgaria and Greece -- 270 kilometers long, costing $700 million.

Russian oil companies will probably determine the outcome of the pipeline debate, Guler said. If they opt for the Bulgarian- Greek route, Turkey won't oppose it, he said.

``Turkish routes are cheaper, easier to build,'' Guler said. But if the third option is chosen, ``we'll still support it because it will help ease traffic through the straits.''

While the shorter Turkish route is cheaper, the longer one has the advantage of directly reaching the Mediterranean and Ceyhan, a port which already has the infrastructure to store oil and load it onto tankers, Guler said.

`Little Power'

Some of the oil transiting the Turkish straits is coming from Kazakhstan's oil fields in the Caspian, operated by western oil companies such as ChevronTexaco Corp. and Exxon Mobil Corp. Turkey will have to offer incentives, such as cheaper transit fees or free land, if it wants to host the next bypass pipeline, said Alper Paksoy, an analyst at Global Securities in Istanbul.

``Turkey has very little power in dictating where the bypass route will be,'' Paksoy said. ``Oil companies in Kazakhstan and Russia need to be lured through financial incentives.''

To contact the reporter on this story: Yalman Onaran in Istanbul at yonaran@bloomberg.net.

Last Updated: November 30, 2004 05:44 EST