TURKEY PREPARES TO PAY THE PRICE FOR DROUGHT, POOR PLANNING AND ECONOMIC POPULISM

Turkey is likely to face power cuts again this summer as a combination of drought, poor planning and economic populism result in electricity production failing to keep pace with demand.

According to official projections by the Turkish Energy Ministry, Turkey will produce 191 billion kilowatt hours (kWh) of electricity in 2007, compared with an expected demand of 189.5 billion kWh. About half of the total, 92.8 kWh, will come from power plants fuelled with natural gas and just under one fifth, 35.8 kWh, from hydroelectric plants. Almost all of the remainder will be generated by plants burning coal and petroleum products, although around 1 percent will come from renewable resources such as wind (Turkish Energy Ministry website, www.enerji.gov.tr).

However, even government officials admit privately that electricity demand is expected to outstrip production in the months ahead, particularly in areas that are dependent on hydroelectric production. Even though the Turkish Energy Ministry had predicted a surplus of 1.7 kWh of electricity in 2007, a summer drought resulted in electricity cuts across many areas of western Anatolia. Low rainfall during the first four months of 2008 suggests that this year power shortages are likely to be considerably more widespread. Before the drought of 2007, the dams used for hydroelectric power plants in Turkey contained at the end of April each year an average of 31.7 billion cubic meters of water. At the end of April in 2007, the level had fallen to 26.3 billion cubic meters. At the end of April 2008, it stood at 21.7 billion cubic meters (Vatan, May 26).

On May 25 Turkish Energy Minister Mehmet Hilmi Guler appeared to indicate impending electricity price hikes when he issued statement describing electricity and natural gas prices in Turkey as cheap when compared with those in other countries (Vatan, May 26). The government had originally been expected to introduce an “automatic pricing mechanism” for electricity prices this month. On May 23 Economics Minister Mehmet Simsek predicted that the new mechanism would result in the price of electricity for domestic use rising by 19 percent and that for industrial use by 14 percent (Referans, May 24).

Even though such price hikes would probably have fuelled a further rise in inflation and imposed a greater strain on an already slowing economy, they had also been expected to help curb electricity use during the summer months. But Prime Minister Recep Tayyip Erdogan has now postponed the introduction of the automatic pricing mechanism until June, apparently for fear of the political repercussions of a hike in electricity prices at a time when the ruling Justice and Development Party (AKP) is desperate to bolster its popular support in the run-up to the announcement by the Turkish Constitutional Court of its decision on the case filed for the party’s closure (see EDM, March 17). Erdogan appears optimistic that the court could announce its decision as early as July. Most observers, however, do not expect a ruling until late fall at the earliest.

Privately, Energy Ministry officials have warned that electricity price hikes are inevitable and that the longer they are postponed, the higher they will have to be. The current expectation is that if the introduction of the automatic pricing mechanism is delayed until July, electricity prices will have to be increased by 20 to 30 percent. But the NTV television news channel quoted unnamed officials as warning that even such an abrupt hike in the price of energy would be unlikely to suppress demand sufficiently to avoid power cuts, noting that demand had already risen by 9.7 percent in the first five months of this year.

“Demand is far in excess of our expectations,” NTV quoted one official as saying. “When you consider that there will be an increase in the use of air-conditioning and that the tourist season is just starting, then power cuts will be unavoidable in July and August.” (NTV, May 28)

There are also concerns that Turkey is failing to maintain sufficient stocks of oil. Since 2005, refineries and distribution companies in Turkey have been legally required to maintain a 90-day supply. In response to a question in parliament by Oktay Vural of the opposition Nationalist Action Party (MHP), however, Energy Minister Guler admitted that an investigation by the Energy Markets Regulatory Board (EPDK) had determined that in the face of rising oil prices, an increasing number of distributors were failing to maintain the levels of supply prescribed by law.

Guler’s admission triggered a furious reaction from Vural, who noted that Turkish consumers currently pay a levy on purchases of petroleum products precisely in order to finance the stocks of oil. Turkey already has some of the highest gasoline and fuel oil prices in Europe.

“When there aren’t any stocks then an increase in the price of oil is reflected directly onto the consumer,” complained Vural. “This has a negative impact not just on the consumer but also on the country’s economy. It is not just a price risk but a political one. If you don’t have sufficient stocks then if the flow of oil is interrupted for political reasons, your economy will come to a halt.”

He asked Guler why, if the Energy Ministry was aware that refineries and distributors were not maintaining their legally required stocks, it was not initiating action against them and what the government was doing with the money it was collecting from consumers to pay for stocks that did not exist. “You are completely failing to fulfill your legally required responsibilities,” Vural told Guler (Radikal, May 24).