Turkish energy companies braced for new gas price hike

Turkish energy companies are expecting an average 8% gas price increase as early as January to on top of a 9% rise that came into force at the beginning of October, according to an ICIS survey conducted this week.

In parallel, energy watchdog EPDK could increase the regulated electricity tariff by an estimated 6% of which 2 percentage points would represent fixed components and 4 percentage points would relate to the actual energy price.

Expectations for a gas price increase varied. At the lower end, three companies said they did not see the price rise by more than 5%-6% within the upcoming months, while at the higher end, one respondent said the government would introduce a 20% mark-up.

Four companies quoted ranges between 10%-15%. One said he expected an increase, but most likely after parliamentary elections next June. Meanwhile another participant said he was not expecting any hikes within the next two years.

Regarding the actual timing of any increase, a number of possible 2015 months were put forward: Three companies said it may likely happen in January, another three opted for July, two said April, while another two argued it may happen either at the beginning of August or from October.

One source, who suggested a 6% increase could happen as early as January, noted that another hike could be announced later in the summer once Turkey has wrapped up a long electoral cycle that started back in March of this year when local elections were held.

Pressing for another increase

If the government ushers in another 8% increase as expected in this survey, the regulated gas tariff to eligible consumers would increase to TL844.56/thousand cubic metres (kscm) ($368.5/kscm, €27.532/MWh, $34.778/MWh, $10.192/MMBTu), putting the value €3.23/MWh above the Dutch TTF gas hub price for January as assessed by ICIS on Monday.

Nevertheless, companies in the gas market have argued that a gas price increase is sorely needed to capture the record devaluation of the Turkish lira over that last 18 months and to allow both public importer BOTAS as well as Turkish independents to make a profit after footing high import costs.

A source explained that only a minimum 30% gas price increase would realistically allow companies to survive in a difficult business climate, but noted the government was reluctant to bring in large increases as Turkey was faced with multiple political and economic challenges.

“The question is does the government feel strong enough to increase the price just as we face a war in Syria and a mini economic crisis at home as inflation is increasing and the lira is depreciating?” he asked.

But on the other hand, most companies agree the prospect of another round of elections in June 2015 provides little incentive to the government to introduce unpopular measures.

One source said it was highly unlikely the government would announce an increase prior to the polls unless there were “abnormal economic conditions” such as the further depreciation of the currency or a surge in oil prices.

But even so, companies say Turkey’s main gas supplier, Gazprom, would push Turkey to increase the price in order to avoid itself having to grant a fresh discount to tide independents over as it did earlier this year.

In February Gazprom agreed to revise the price for private importers down by 10% subject to a similar increase next year. But market sources now say that Gazprom may waive that condition and even accept a review of BOTAS’ own import price.

BOTAS has been paying higher prices for its Russian gas imports than the private importers. Unconfirmed reports from sources close to BOTAS suggest its price may be revised from an estimated $420.00/kscm to $380.00/kscm. Even so, the price would be some $12.50/kscm higher than the regulated price which could increase to TL844.50/kscm ($368.50/kscm) if another 8% increase is announced from January.

Nevertheless, another source said the government would rather increase prices for state electricity generators which are included in a separate category than put up the regulated price for eligible consumers to cushion households from shocks.

The need to increase

Because Turkey does not have a liberalised gas market yet, operating a cross-subsidy system instead, it regularly needs to revise its regulated prices to respond to currency and oil price fluctuations. This is because its import prices are denominated in US dollars while its domestic tariffs are set in Turkish lira.

Despite the fact the local currency dropped more than 30% against the US dollar over the last 18 months, the government only enacted a gas price increase of 9% at the beginning of this month, leaving room for speculation on fresh increases.

The last gas price increases were made between October 2011 and October 2012 and totalled just over 45%. Aura Sabadus

Disclaimer

While changes in the price of natural gas and electricity are the remit of the Turkish government, ICIS has intermittently run surveys since the beginning of 2012. The survey aims to reflect market participants’ expectations for tariff increases, and follows their request for greater transparency in the Turkish electricity and gas markets.

The survey targets a minimum of 10 companies and typically runs on a monthly basis for as long as there is an expectation of an increase in the natural gas tariff. It asks standardised questions and collects data on an anonymous basis.

The average of the tariff increase expected reflects the arithmetic average of all the percentage figures submitted to ICIS each month.

The timing of the anticipated tariff increase reflects the mean of all the percentage figures submitted to ICIS each month.

Anyone interested in taking part in the survey can contact aura.sabadus@icis.com