Turkish electricity, natural gas tariff hikes trigger mixed reactions

The Turkish government announced on Tuesday a 9% price increase in natural gas and electricity from 1 October, but the hike was seen as a “rushed measure” allowing the incumbent BOTAS to recoup some of its heavy losses rather than a commercial measure that would allow the private sector to make profit.

Expectations had been mounting over recent days regarding the long-overdue mark-up, which some had suggested might have been as high as 30% to offset a similar depreciation in the Turkish lira against the dollar over the last 18 months.

The increase will now take the regulated Turkish wholesale gas price to eligible consumers to just over Turkish lira (TL) 781.00 per thousand standard cubic metre (kscm) (€25.30/MWh, $32.09/MWh) from 1 October.

This automatically triggered an increase in the non-regulated day-ahead price ,which was quoted by private shippers as high as TL825.00/kscm, TL80.00/kscm up on the previous day.

To compare, the October price at the Dutch TTF hub was assessed by ICIS at €22.15/MWh on Monday.

Even so, private shippers said the increase was ‘insufficient’ and argued that it could be followed by another mark-up in January.

In contrast, power companies said the increase in regulated electricity tariffs was significant and warned that the rise could trigger a domino effect on the free market pushing December prices up by some TL15.00/MWh to an average TL200.00/MWh.

Exchange rate

Gas companies interviewed on Tuesday said the main reason for the gas price increase was the record depreciation of the Turkish lira against the US dollar in recent months.

“It’s [the gas price increase] a rushed measured that covers for the foreign exchange rate loss,” a source said. “A political decision with psychological effect. They [the government] knew they had to put the price up to help BOTAS recoup its multi-billion dollar losses caused by the lira depreciation, but didn’t want to put it up to double-digit figures because of the psychological effect on the electorate,” he explained, noting that Turkey was braced for parliamentary elections next June.

Meanwhile, another source said the increase may help BOTAS to recover some of the cash, but noted that it was hardly sufficient to help it make a profit.

“If you calculate the Russian import price for BOTAS [thought to be between $400-420.00/kscm] and add the $15.00/kscm transport fee, the costs would far exceed the profit made from the wholesale price for eligible consumers,” he said. “To cut the losses, they would have to double the price paid by state companies to $1000.00/kscm,” he explained.

BOTAS operates a two-tier pricing system which means that independent eligible companies pay a cheaper price for gas [ie the recently increased TL781.53/kscm] while state companies such as the electricity incumbent EUAS or the power plants built under private-public partnerships pay higher prices. These are confidential but are thought to be nearly double the price paid by independent consumers.

Sources said the depreciation of the lira may have left BOTAS digging deep into its pockets to pay hefty bills on its imported gas. While the reported debt incurred as a result of the subsidies system may not have been of immediate concern to the government, the prospect of supply shortages this winter and the need to buy typically expensive LNG volumes would leave it strapped for immediate cash.

Meanwhile, shippers said the increase was meaningless for private companies, barely allowing them to make a profit after all costs are added.

“The increase is too small for the private sector. If Russia [Gazprom] does not give us another relief, no one will be able to buy or sell,” the second source said.

BOTAS and private Turkish shippers are expecting to renegotiate the price of imported gas for 2015 shortly.

The second source said Russia and Turkey may have discussed a significant price relief for BOTAS over the winter period to factor in the risk of flow interruptions in case tensions escalate further between Russia and transit country Ukraine. Relevant parties could not comment on the issue when interviewed by ICIS.

The electricity tariff increase

Regulated industrial, commercial and household electricity tariffs had also increased by an average 9% compared to the last updated tariffs in June 2014.

According to the latest data published by the regulator EDPK, the new tariffs paid by different types of customers from 1 October will be:

– Industrial tariff: kurus (Kr) 24.85/Kwh

– Commercial tariff: Kr31.31/Kwh

– Household tariff: Kr 31.04/Kwh

Meanwhile EPDK has also announced a 5% increase in the price of energy bought by distribution companies from the state wholesaler TETAS. The new price will be TL180.30/MWh

Under Turkey’s cross-subsidies system TETAS buys energy from state companies and sells it on to distribution companies.

The regulated tariff increases prompted most private companies active in the market to withdraw their prices from over-the-counter screens as they need to reconsider their positions.

A source predicted that electricity prices would increase to as much as TL200.00/MWh for December. ICIS assessed the price at TL183.75/MWh on Monday. Aura Sabadus