BOTAŞ suffers serious losses

The government has been subsidizing a significant amount of utility bills in an effort to soften the burden of soaring consumer prices on households, but new price hikes seem inevitable due to higher energy prices. Pressure is piling up on Turkey’s state energy importer, Petroleum Pipeline Corporation (BOTAŞ), to further hike prices amid soaring global energy costs, even as manufacturers complain that recent price rises threaten their operations.

As Daily Sabah writes, the pipeline operator and trading company, BOTAŞ needed a TL 100 billion ($6.8 billion) payment from the Treasury last year to cover its shortfall and losses have accelerated since Russia’s special operation in Ukraine drove energy prices higher, officials say. That poses several challenges to authorities in Turkey, which imports nearly all its energy needs.

BOTAŞ has bought billions of dollars from the central bank to cover its purchases. At the same time any price increase imposed by BOTAŞ on Turkish industry could impact the government’s drive for export-driven economic growth, while also keeping upward pressure on inflation. Led by transportation, including petrol, and food prices, Turkey’s annual inflation rose to 61.14% in March, a new 20-year high. Four industrialists that represent some of the most gas- and electricity-intensive sectors, such as steel, ceramics and cement, told Reuters that soaring costs would push up prices of their goods.

Significant support

So far BOTAŞ has kept its gas prices to consumers and industry well below the $830 per thousand cubic meters that it is paying in April. It said its latest price increases on April 1 still left households with an effective 70% subsidy. “BOTAŞ has given significant support to households, power plants and industrial companies. Compared to continental Europe, before the price hike, industry and power plants paid one eighth of the price and households paid one twentieth of the price,” a senior government official said. “Now BOTAS is still making serious losses, but this is government policy and the subsidies continue.”

Since the end of 2020, BOTAŞ has hiked the price of natural gas for the industry by 568% in Turkish lira terms, according to Reuters calculations. That reflects a 49% fall in lira against the dollar in that period on top of rising world energy prices. “Despite the hikes, BOTAŞ lost billions of dollars in the first quarter. If the current figures continue for the rest of the year, the loss is expected to grow exponentially,” one source close to the matter said. “The government’s preference is not to make price rises that will push inflation higher as much as possible, but there is a serious cost linked to commodity prices,” the source said. The cost of Turkey’s energy imports doubled in January and February compared to last year, to reach $16.6 billion, drive the country’s trade deficit up 135%.

In February alone, BOTAŞ and other state entities bought a record $5.37 billion in foreign currency from the Central Bank of the Republic of Turkey. Industrialists have asked the government for support, including a reduction in Turkey’s 18% value-added tax (VAT), to help them deal with gas price hikes, the senior government official said. They have also warned that further hikes to energy prices would be reflected in goods prices, driving inflation even higher and limiting the competitiveness of Turkish businesses.

“Energy costs already create a serious burden on the exporter, and now they have reached a level that puts the costs above some of our competitors in the European Union,” said Erdem Çenesiz, chairman of the Cement, Glass, Ceramics and Soil Products Exporters’ Association. “This outlook puts us at risk of losing our competitiveness against EU companies and our hard-won export markets around the world.”