The new regulator faces big challenges in liberalisation,
Says Leyla Boulton
Yusuf Gunay, head of Turkey’s new energy regulatory body, would find it difficult to disagree that his exceptionally large office is proportionate to the challenges he faces in liberalising his country’s state-controlled energy market.
“This is the toughest job around but we will succeed in the end,” said the 40-year old former civil servant in an interview last week.
In a country suffering from some of the highest electricity prices in the western world, the Energy Market Regulatory Authority’s (EMRA) mandate is to “make the necessary arrangements to ensure reliable, quality, low cost electricity services” in a ‘financially sound and transparent market”.
The World Bank puts at $10bn the cost to business and consumers of inadequate energy regulation over the past decade. It says the changes would help eliminate corruption, reduce the cost to the taxpayer of subsidising the electricity industry and phase out the need for expensive government guarantees to private investors.
It hopes a quasi-independent regulator will kick old government habits of inflating energy forecasts, resulting in Turkey’s oversupply of natural gas, and awarding contracts at terms unfavourable to the taxpayer but benefiting individual officials in the form of kickbacks.
Speaking ahead of the legal deadline of March 3 for the introduction of a free market for large users, Mr Gunay must deal with two big headaches.
The first is untagling a legacy of existing contracts commiting the state to buying virtually all Turkey’s electricity ouput at guaranteed prices and amounts.
“Given that 94 per cent of electricity consumed is produced under state guarantees, there is no margin left for a free market,” he said.
“Given that our first duty is to create a free market, we have to increase the proportion of electricity that can be sold at a free market price”.
To this end, Mr Gunay has asked private-sector suppliers whether they would agree to reduce the proportion of electricity they sold under fixed terms in return for extending, in some cases, the period of their contracts. He has asked for companies responses by February 15.
Of the three types of contracts under discussion, the Council of State, the highest court for such issues, recently cancelled deals temporarily transferring the operating rights at state owned generation or distribution systems to private sector companies.
Once this ruling is published, Mr Gunay says the government will be able to move on with outright privatisation of distribution networks and generation plants.
However, Mr Gunay denies suggestions that Ankara is planning unilaterally to alter the two other types of contracts involved. He says that a second category of build-operate-transfer (BOT) deals –many of which, say critics, carry particularly high electricity prices after they were bid in a less than transparent manner- are already on the wane.
This is because there is “no longer any logic” for plants built by private companies to revert back to a state that is planning to “withdraw from the business of producing electricity”.
Mr Gunay expects a market system to be in place within a year, with a gradual fall in the proportion of energy sold at fixed prices in state-guaranteed quantities.
The second challenge he faces is a view among some business executives that the reform blueprint is over ambitious given the level of losses from the network –average 24 per cent with wide regional variations- and slow procedures for settling commercial disputes.
One energy executive suggested that focusing first on privatising distribution would allow new market players to build a track record of collecting revenues from customers and reassure sellers that there were reliable counterparties with which to trade.
While urging Ankara to clarify its privatisation plans, Ajay Chhibber, the World Bank’s director for Turkey, has, however, argued that a fall in demand in Europe’s fastest-growing energy market provides a “golden opportunity” for sweeping reform “given that Turkey will have enough capacity to meet energy needs until 2006”.
(From Financial Times, 06/02/03)