Poor energy policy, pricing model cost BOTAŞ dearly

Poor energy policy, pricing model cost BOTAŞ dearly
The lack of a coherent government energy strategy combined with an inefficient pricing mechanism are responsible for over TL 1.32 billion in loss by the state-owned Turkish Pipeline Corporation (BOTAŞ), observers argue Today`s Zaman reported

BOTAŞ on Wednesday announced it suffered a TL 1.324 billion ($730 million) loss in 2011. Natural gas market experts attributed the loss to relatively higher amounts paid for natural gas imports as well as the lack of a cost-based pricing mechanism. The corporation has been experiencing a steady decline in revenue over the past few years and this is the first loss they have recorded in a long period. Offsetting the loss, BOTAŞ was able to increase its natural gas sales by 7.2 billion cubic meters over 2010 to 39.7 billion cubic meters in total. This means the corporation maintained a policy of providing local consumers gas at lower prices than it pays for imports. A poor energy policy has led Turkey to fail to address its energy demand through diversifying its energy sources portfolio as well as fully realizing existing renewable energy sources.

Energy and Natural Resources Minister Taner Yıldız earlier said that the government is planning to reduce the use of natural gas in electricity production from the current rate of approximately 53 percent to 30 percent by 2023. Very few energy market experts, however, believe this can be achieved. World Energy Council Turkish National Committee board member Necdet Pamir told Today's Zaman that the current pricing mechanism and a lack of autonomous management make things even harder for BOTAŞ. Pamir criticizes the energy ministry for "being too involved in BOTAŞ." "The corporation sells natural gas to the domestic market at lower prices than it pays for imports. This is not a sustainable model," Pamir argues.

Problems seen in European economies have urged the continent's natural gas buyers to sit down with such large providers as Russia to discuss cuts in prices. European customers have been able to enjoy serious discounts in the price of natural gas they buy from Russia. In December Russia also lowered the price of the natural gas it sells to Turkey after the country approved the passage of a key natural gas pipeline that will carry Russian gas to European markets via Turkey's territorial waters in the Black Sea. This, however, was not enough to prevent BOTAŞ from posting losses. According to a decision enforced by the Supreme Planning Board (YPK), BOTAŞ should index its prices each month based on a formula that takes into account the foreign exchange rate, interest rates, inflation and global oil prices. The corporation, however, acted against this decision, charging relatively more to public natural gas-run electricity power grids. BOTAŞ provides private natural gas distributors and industrial zones cheap gas.

The price per cubic meter of natural gas BOTAŞ sold to public grids was TL 1,018 in June while distributors paid TL 698 for the same amount. Recalling that Turkey depends on natural gas for 33 percent of the energy it consumes, Pamir says the government should revise its energy policy. "Turkey currently has 53,000 megawatts of installed power grids and the Energy Market Regulatory Agency [EPDK] has issued new natural gas power licenses with a total size of 49,000 MWs. Industrialists find natural gas relatively more profitable and so do not take any pains to invest in renewable energy. Minimizing dependency on gas is not possible under such circumstances," he argues.

Pamir says the construction projects for power grids that will run on natural gas and imported coal with a total size of 18,000 megawatts have either started or will begin shortly.

Studies find Turkey's annual total energy demand by 2020 will be around 450 billion kWh. Pamir says such a need could easily be met through alternative and renewable energy resources that Turkey has yet to fully realize. "Findings indicate Turkey holds 380 billion MWs of solar, 120 billion of wind, 100 billion of lignite, 100 billion of hydro and 16 billion of geo-thermal energy potential. Add 54 billion MWs in energy productivity potential and 35 billion MWs in biomass to these and we have a huge advantage," he noted, adding, however, that an efficient energy strategy is needed to utilize these resources.

In addition to developing the renewable energy front, Turkey has been trying to resolve its dependency on foreign oil, which accounts for a major portion of its imports. As regards oil drill studies off Turkey's Black Sea coast, Pamir says there is hope of finding massive resources here and authorities need patience. "The Turkish Petroleum Corporation [TPAO] requires foreign investors make around $1 billion in investments in Black Sea drilling and this is a good thing and should continue," he says.

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