Sovereign Wealth Funds (SWF), which are referred to some cases as National Funds, are the savings of countries outside their official reserves. Historically, central banks in many countries that hold foreign exchange reserves in their hands for urgent needs have started to set up various funds to use their savings profitably, and therefore SWFs have emerged. Especially since the 1950s, the swift increase in oil revenues and SWFs, which manifested themselves in the practices of the Gulf countries, have also been adopted by Asian countries that have achieved a budget surplus over time.

Today, the 15 largest national SWFs in the world have nearly $11 trillion in assets. Looking at the world average, revenues from oil and gas sales constitute 56.60% of these funds, while income from other sources is 43.40% of the funds. In the beginning of the 1990s, SWFs collectively were worth for $500 billion, and by 2015, they were worth $12 trillion. It is expected that the total size of SWFs, which are continuing to be invested in all over the world, will reach close to $15 trillion within a few years.

National Asset Funds are funds under the ownership and management of the state that aim to increase their income by investing in various financial assets, and the revenue of these funds is usually composed of budget surplus. Countries that transfer the budget surplus to these funds generate income by purchasing local and/or global financial assets through these funds, with the goal of passing on this wealth to future generations. However, having a budget surplus does not constitute a necessity for the countries in the process of establishing the asset fund. Asset funds have been successfully established in countries with many high performing, income generating institutions and facilities such as Turkey.

SWFs are an important source of financing for the public, as well as a shield against speculative waves in economies in the long-term. SWFs, which also consider community welfare, can attract state savings to more sheltered ports and allow a safer investment path. About 80 countries have SWFs today, meant to ensure the sustainability of important public investments such as education, health, and infrastructure.

In Turkey, a bill called the Asset Fund law was enacted on 20 August 2016. With the Law No. 6741, the Turkish Wealth Fund (TWF) is meant to contribute to overcoming the structural problems of the economy and help Turkey have more influence in the international arena. By law, the fund will be managed by a corporation, TWF Joint Stock Company. The initial capital of this company was 50 million TL, provided by the Privatization Fund. As of February 2017, the current amount of funds in TWF has exceeded 31.3 billion TL, together with 14 companies transferred to its control, 46 fixed land assets exceeding 2.2 million square meters, as well as 3 billion TL obtained from the Defence Industry for three months.

In the short term, this fund size is estimated to be 200 billion dollars. The Prime Minister will appoint the Board of Directors, Chairman and members of the TWF. Other companies and sub-funds to be established by TWF will be subject to independent auditing. Consequently, the Court of Auditors will not monitor them. This is mainly based on the principle that this company will provide financing for major infrastructure projects. TWF’s activities are carried out within the framework of the principle of accountability, which requires a structure in which responsibilities are clearly defined and areas of authority and governance are drawn with certain lines.

Accordingly, TWF under the Prime Ministry is subject to independent external auditing. This structure is therefore strengthened by internal systems and control mechanisms in the form of policies, procedures and guidelines in the areas of risk management and investment approvals, corporate values and ethical standards. It also provides information required by the law and relevant authorities and ideas raised in various platforms to internal and external stakeholders. The organization structure of TWF is an institutional identity strictly connected to performance criteria, including all the above-mentioned processes.

As a vision, TWF is committed to creating sustainable growth of the country’s economy by adopting a pioneering, efficient, innovative, transparent corporate culture based on corporate governance principles. By contributing to the sustainable growth of the country’s economy and making strategically important investments, it aims to play an important role in socio-cultural development, economic capital and human capital development as well as to transfer economic wealth to future generations.

Together with TWF, incentives, customs exemptions, corporate tax reductions, and insurance premium exemptions will be offered to attract potential investors to the country and provide convenience for current investors. The companies that will obtain credits under the asset fund will be included in the scope of strategic investments and the debt will not be increased because the funds will be provided with appropriate terms. Furthermore, the funds will not be obtained from the Treasury. Since these transactions will be carried out from another fund, the functioning of the SWF will have worked with this mechanism.

TWF is expected be able to make capital market transactions such as foreign, public, private sector and public debt instruments, issuer shares, time deposits, participation accounts, all allocated Treasury real estate and deposit certificates, gold and other precious metals and capital market instruments based on mines. In addition, funds participations, repo and reverse repo, lease certificates, real estate certificates, warrants and certificates, money market transactions of the settlement and custody bank, cash guarantees and premiums of derivative instruments, specially designed foreign investment instruments, loan participation certificates, national investments and investments made by foreign companies and other states in the international arena and issuance of other investment instruments make up the other transactions of TWF. Without prejudice to the Turkish Commercial Code, the articles of association, liquidation, transfer, merger, dissolution, organs, committees, their formation, duties and responsibilities, accounts and distribution of profits shall be directly registered and announced.

TWF is a fund that holds and manages selected commercial assets of the state and its main duty is to undertake strategic investments on behalf of the nation. TWF primarily plays a key role in maintaining various strategic industries and national initiatives and in helping to improve Turkey’s long-term economic interests. TWF is an organization capable of providing direct or indirect investment both in domestic and overseas sectors in a broad perspective from the growth targets of financial markets to the infrastructural projects of Turkey. TWF supports the economy by providing opportunities for innovations such as Islamic finance and considering developments like the growth in the scale of financial markets, the level of transactions and financial deepening.

In addition to these, TWF is of great importance in terms of creating additional jobs in all sectors, developing the defence industry, supporting projects in areas of strategic importance for Turkey, especially energy, information and software technologies, and ensuring gains that will create a competitive advantage. Financing will be provided for large-scale projects such as Canal Istanbul, the third airport in Istanbul, the three-storey high Istanbul tunnel, high-speed train projects, a nuclear power plant, and new employment areas will be created.

Turkey, which wants to decrease its external dependency on energy, attaches a great deal of importance to TWF. The fund will also support strategic investment projects such as oil, natural gas, and renewable energy and nuclear power plants. It will open a front for domestic companies to operate, especially in industries such as defence, aviation, software and medicine. TWF is expected to reach a size of $200 billion in the near future. TWF is expected to contribute an annual average of 1.5 percent to the nation’s economy over the next 10 years.

As Turkey’s economy grows and its external energy demand increases, the country does not want to be dependent on a couple of suppliers, and seeks to form policies on alternative resources and suppliers. In this sense, despite the region’s complications, the Eastern Mediterranean, with its newly discovered energy resources, is seen as the primary option for Turkey. As seen in the Trans-Anatolian Natural Gas Pipeline Project (TANAP), which will transport Azeri natural gas to Europe through Turkey, the country is continuing to implement projects ensuring its energy supply security. The strategic location of Turkey can be seen as a chance to transmit the Eastern Mediterranean energy resources to the European market.

As stated above, Turkey is partly dependent on external energy suppliers. Although the country produces a significant amount of coal, it only accounts for 26% of its total primary energy consumption (TPEC). Moreover, since the low levels of domestic natural gas and oil production do not meet internal demand, which represents 29.8% and 29.5% of TPEC respectively, Turkey needs to meet its demand from different countries and to contribute to its energy security, as well.

The country imports almost 99% of the natural gas it consumes from Russia (55.3%), Iran (16.2%), Azerbaijan (12.7%), Algeria (8.1%) and Nigeria (2.6%). According to the Key World Energy Statistics 2016 by the International Energy Association, Turkey ranks 5th among the world’s top 10 net natural gas (including pipeline gas and LNG) importers. In that context, the amount of proven natural gas reserves in the Eastern Mediterranean region is significant. The Tamar and Leviathan Basins of Israel have 900 billion cubic meters (bcm), the Aphrodite Basin of Cyprus has 140 bcm, and the Zorh Basin of Egypt has 850 bcm. All of these basins together can meet the demand of the countries of the region.

Energy operations in the Eastern Mediterranean began with Israel’s discovery of the Tamar Field in 2009, and continued with the discoveries in the territorial waters of Greek Cyprus and Egypt. The Eastern Mediterranean region, where significant natural gas reserves have been found in recent years, desires to start production and export the gas to countries with higher gas demands, mainly in Europe and Turkey. Nevertheless, these discoveries have resulted in new disagreements in the region where there is already an ongoing dispute over the Cyprus issue, and discussions on maritime borders have become a major problem again.

Since Greek Cyprus declared the region within its own sovereignty, the explorations have raised tensions with the Turkish Republic of Northern Cyprus (TRNC), and problems in the political field have spread into the energy field. Although the two sides have held meetings several times to resolve their issues, this long-lasting problem could not be solved yet. In this context, on January 9, 2017, the parties (TRNC, Greek Cyprus, Turkey, Greece, and England) met in Geneva, but once more could not reach an agreement on the island’s future, along with the future of the waters and natural gas surrounding it.

The current economic situation and lack of infrastructure in the whole of the island of Cyprus has pushed the leaders to form an alliance with Israel and Greece. The present energy situation of the whole island shows that the gross inland energy consumption only includes oil (94.9%) and renewables (6.8%), and the island lacks any infrastructure enabling gas trade, production and consumption. It also is not integrated and not interconnected with any neighboring power systems. Thus, these countries, due to their multi-faceted interests, are now debating over the construction of an LNG regasification terminal and the Eastern Mediterranean Natural Gas Pipeline, which will carry gas from the Aphrodite Field in Greek Cypriot waters to Greece. Although the Aphrodite Basin in the island’s territorial waters is the smallest among other basins in the Eastern Mediterranean, nearly 7.4% of the current proved reserves, it is estimated that it would contribute to both the island and the region by bolstering energy security.

A future project called “Eurasia Interconnector” is also a part of the debate, which would link the Greek Cypriot, Israeli and the Greek transmission networks. However, since the economic situation that each of the three partners faces could complicate the implementation of the project, it seems that they need support from the other actors in the region. And Turkey, as one of the countries having a right over the exclusive economic zone of the region, along with the EU, are the possible investors of these projects.

Analysts have found that transmission of the Eastern Mediterranean natural gas to Europe directly through pipelines under the Mediterranean is not the best course of action. In order to distribute the gas to the European market, Turkey is seen as the best option, with its present infrastructure, and TANAP and Turkish Stream projects. A possible pipeline from the island to Europe through Turkey’s infrastructure would be the least costly way of transmitting the natural gas. In October 2016, seeming to agree with this, Israel consulted Turkey for the first time on the issue of the Eastern Mediterranean natural gas deposits, and stated that Turkey is the best route for transmission.

Israel’s Energy Minister, Yuval Steinitz held meetings with his Turkish counterpart Berat Albayrak in Istanbul, expressing the hope for cooperation on extracting from the natural gas, consuming and trading, which Israel sees as essential for its own energy future. Steinitz said that they agreed to start examining the feasibility of building an undersea gas pipeline to pump Israeli gas to Turkish consumers and on to Europe. “Israel will also be glad to see Turkish companies involved in the Israeli energy sector including in the exploration of gas fields”, and although they are also building regional energy cooperation links with Jordan, Egypt and Greece, the Turkish option is vital, Steinitz said.

Even though the other states in the Eastern Mediterranean region have come out against Turkey, the country’s geo-strategic position makes it the most advantageous route for the trade of the Eastern Mediterranean natural gas. After all, it is now more apparent that the other states having reserves in the region also aim to transmit their gas to external markets as soon as possible.