Electricity power plant industrialists in Turkey are requesting a fuel oil tax cut in order for their investments in power stations to be salvaged. Nearly five-hundred power stations that had cost 25 billion euros to construct have been shut down due to the increase in fuel prices so far, marking an investment gone bad for the companies that had stepped forth to build the power plants originally.
“These facilities going out of business represents a great loss in national assets,” said Ahmet Oksuz, Kipaş Holding board member.
One of the last companies to close up shop was Kahramanmaras İplik (Kipaş). Prime Minister Recep Tayyip Erdoğan, Energy Minister Hilmi Guler, Industry Minister Ali Coskun and State Minister Kürsad Tuzmen had attended to the opening ceremony of the firm back in 2002.
The electricity power plants were highly promoted in the recent years with Turkey's constantly increasing demand for energy. However, they have become inoperable due to an increase in fuel prices of 156 percent over five years and 82 percent Private Consumption Tax (OTV).
Background on power plants
The law allowing fuel oil-run power plants to be built in Turkey took affect in 1984. Until that date only the government had been providing electricity. However, in December 1984, the Parliament approved a ‘law number 3096' allowing individuals and establishments to found power plants. That law allowed the private sector to build electricity power plants toward for-profit production. The new law also allowed the private sector to sell the electricity it produces to government-owned electricity production and distribution companies, such as TEAS and TEDAS respectively, as well as to private companies.
After the law took effect, nearly a 100 percent tax discount was provided for the companies who were building the power plants during the time of construction. The government also offered a complete customs exemption to those companies as part of plans to encourage them. That is how the number of electricity power plants reached 1,000 in number.
However, fuel oil prices in Turkey increased by 156.37 percent between 2002 and 2007, concurrent with global petroleum prices. In Turkey, the OTV was one of the main causes of this increase. The high tax made it impossible for the companies to cover their production costs. Therefore, plants began to shut down.
Matching the prices
"There are many facilities that provide an important function and that are facing the same problem,” said Oksuz. “A good deal of money was invested in the erection of these facilities. They should not end in a matter of only a few years,” he said. “The price of petroleum and its products have increased all over the world. But the prices in [Turkey] are nearly double those in [the global market], due to the high taxes implemented [in Turkey] on fuel oil,” added Oksuz.
"Fuel oil prices do not match the globe. We could at least try and match it to natural gas prices by implementing a discount on the OTV. The situation really is not fair for those plants that operate on fuel oil. You cannot work at a loss all the time. Investments worth billions of dollars should not be wasted in such way,” he said.
“A shortage due to insufficient production is inevitable and would be a hit to the national economy. A solution to keep these plants running has to be found,” said Oksuz.
Tupras’ fuel oil import increases
Just as the number of operating power plants has dropped, state-run oil refinery Tupras’ fuel oil exports have increased rapidly. The company, which exported 419,000 tons of fuel oil in 2003, exported 1 million tons in 2004 and 1.4 million tons in 2005. Tupras’ fuel oil exports increased to 2.1 million tons in 2006.
"Fuel oil that cannot be consumed in the domestic market is exported with global prices. The government does not even cut value added tax (VAT) from those exports. By providing a small tax discount, the government would allow for that fuel oil to be sold to the power plants,” said Oksuz.
(Turkish Daily News, 05/06/2007)