Electricity Prices in Turkey

Electricity prices in Turkey are now below the cost of production, and Morgan Stanley's Serhan Cevik is not a happy man:

After lowering electricity prices by 6.4% in 2003, the Turkish government has kept the tariff structure unchanged in the last four years, providing an outright subsidy to the rest of the economy as the price of oil soared from an average of US$25.3 in 2002 to US$68.6 this year. It may have scored well with the voters, but the cost of keeping electricity prices artificially low has become an enormous burden on public finances and even on the current account. Although there are no official data on the cost of electricity production, we can estimate the changes from the breakdown of generation methods. Fossil fuels account for 75% of total electricity production in Turkey, which makes it susceptible to the price of oil. In the past four years, the average price Turkey paid for imported crude oil increased by 180% in lira terms and the price of natural gas increased by 65% in the domestic market. On the other hand, industrial and household electricity prices remained unchanged over this period. As a result, electricity prices in Turkey are now almost half of the European average. In our view, Turkey can no longer maintain such an irrational pricing scheme without creating even more distortions throughout the economy.
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