These days, Turkey is rocked by unemployment and soaring inflation. The price of all goods has risen, but natural gas in particular has been causing nervous breakdowns. The price of gas increased despite the government’s announcement on August 21, 2020 that it had found a reserve of 320 billion cubic meters (bcm) of natural gas.
This announcement had led some to expect that the price of gas would stop increasing if not be lowered. But that did not happen. So why does the Turkish government constantly increase the price of gas? Let us answer this question by examining the case of Gazprom and Russia’s experience in the 1990s.
Gazprom’s average price
According to Gazprom Export, Turkey is Gazprom's third largest consumer. And according to the Energy Market Regulatory Authority (EPDK) Report, in 2019, Turkey imported 45.2 bcm of gas, 33.6 percent of which was imported from Russia. In other words, Gazprom is a significant supplier of gas for Turkey. Let us examine average gas prices on Gazprom’s website.
Gazprom’s average gas price (1,000 cubic meters/dollar) on the European market, including Turkey, is as follows, according to each year: 2017: $202, 2018: $246, 2019: $210. Gazprom’s prices have thus fluctuated over the years. What is especially noteworthy is that in 2019, the price of 1,000 cubic meters of gas dropped from $246 to $210. One must not forget that Gazprom makes gas deals according to each country. Those are the average prices.
Let us examine natural gas prices in Turkey during that same timeframe. Local elections were held in 2019, so the unit prices of gas and electricity were not increased until the rerun of the elections, especially in Istanbul. Shortly after the election, however, gas prices were raised continuously within one month. The price of gas increased by 32.1 percent within that year. But during that period, the global price of gas dropped. Gazprom even cut its average prices. So why did Turkey’s gas price increase?
Natural gas prices contribute to the budget
Ozan Bingöl, an expert on taxation, has studied the relationship between tax policies and gas price policies. He discusses this topic on his website vergiyedair.com. Bingöl examined a process, which starts with natural gas leaving Russia and reaching Turkish households, identifying those who financially gain from it. He also delves into the profit margin of BOTAŞ, Turkey’s oil and natural gas pipelines and trading company, margin, the system usage fees that BOTAŞ receives from distribution companies as well as the profit margin of distribution companies.
Natural gas appears to be significant in three regards. First is the income generated to BOTAŞ, second is the profit of the companies and third is its contribution to the central budget through two tax items. In 2020 and 2021, gas price hikes continued despite the pandemic. In 2019, Turkish consumers paid 132 liras for the same amount of gas we had previously gotten for 100 liras. In 2020, according to the Turkish Statistical Institute (TÜİK), the price of natural gas in 1 cubic meter increased by 34.7 percent.
Turkey started the new year of 2021 with a gas price increase that continues to this day. The price of gas went up by 1 percent in the first day of the new year. The price of gas also increased by 1 percent In February and in March. Interestingly, the price hike is kept at a steady rate of 1 percent, making it seem like it is low. Rather than adjusting the price of natural price at once, they spread the increase over time.
Up until now, it was said that the gas price hike had to do with Gazprom and its secret price policy. But Gazprom has now released its data – at least for the European market. So how much did Turkey pay Gazprom for 1,000 cubic meters in 2019? If this price is below average, why should there be a raise? If it is above average, why does Gazprom not lower prices for Turkey when it is offering discounts to Europe? What kind of negotiation is being conducted with the company?
The journey of Russian natural gas to Turkey
In September 2019, economist Mustafa Sönmez told DW “One can reduce or quit drinking or smoking, but this situation does not apply to natural gas. Natural gas is a substance that households and industrial plants cannot give up. Therefore, when winter comes, those fat bills will prompt many reactions across society.”
In the face of price increases on alcohol and tobacco, some consumers did not actually want to see the big picture. Some even regarded this policy as a contribution to public health and as a helping hand in quitting bad habits. But whilst considering the wider tax policy, it seems like the price hikes on alcohol and tobacco served as tests for society. This same method is now applied on natural gas and electricity.
Even back in the 1990s in Russia, when the prices of some items rose by as much as 1,200% as a result of a price liberalization policy, two items were spared: energy and bread, which included natural gas and oil. American economist and Soviet Union expert Marshall Goldman once said that had those items not been exempted, communism could have made a comeback, as people would have revolted against price hikes on bread and gas.
Masses did take to the streets in Russia in the 1990s. What is more, millions of people died from malnutrition but those protests weren’t large enough to shake the course of the neoliberal programme that had been devised for Russia. In the Turkish case, the opposite applies. For instance, in Ankara, the price of bread rose from 1.5 lira to 1.75 lira a week ago. A similar situation applies to natural gas and electricity.
Thus, Turkey is now implementing policies that even Russia refrained from back in the 1990s. With one difference however, Ankara is spreading the price hikes over time. The utility bills have almost been tripled but gradually. Moreover, through a new policy, the increases are now implemented by 1 percent on a monthly basis. In short, natural gas has become an item used to finance the budget deficit in Turkey. Moreover, a special consumption tax is levied on this item, which is a basic need and has nothing to do with private consumption.