It has been almost a decade since Turkey’s ruling centre-right Justice and Development (AK) party took power. The country’s Prime Minister, Recep Tayyip Erdogan, encouraged by Ankara’s impressive levels of growth, has vowed to make Turkey’s economy one of the biggest by 2023. By then the 100th anniversary of the foundation of the Turkish republic – Erdogan wants GDP per capita to more than double to $25,000.
For Ankara’s Central Bank, however, Erdogan has been silent on one of the biggest vulnerabilities of the Turkish economy: its ballooning energy import bill. Accounting for roughly two-thirds of Turkey’s account deficit, the country’s energy import bill of some $50 billion a year is the biggest blot on its economic landscape. According to Fatih Birol, the chief economist at the International Energy Agency, Turkey’s import bill for this year will be $68 billion.
Such is the backdrop to the Turkish energy ministry’s attempts over the past year to renegotiate the price it pays for gas from its key suppliers. Having broken off one contract last year with Russia, Turkey’s biggest gas supplier, Ankara announced it was taking Iran to arbitration over the prices it charges.
According to figures from Turkey’s energy ministry, Ankara pays $330 per cubic metres for Azerbaijani gas, while it pays Russia $400/cm. Iran sells its gas to Turkey for $505/cm, which increases Turkey’s gas bill by an extra $800 million annually.
However, with figures from Turkey’s Energy Market Regulatory Agency suggesting Turkey imported 51% of its gas from Iran last year, Turkey’s energy minister, Taner Yildiz, may have a harder time negotiating with Iran than he did with Russia last year where, at least then, Turkey had a strategic advantage – its ability to influence the Gazprom-led South Stream pipeline.
It is not only gas sales that are dominating the agenda. Feeding into Ankara’s worries is that every $10 increase in the price of oil per barrel adds $4.5 billion to the country’s annual deficit.
For a country where gas consumption has surged to 192 million cubic metres per day (MMcm/d) from around 171 MMcm/d a year ago, the January cold spell earlier this year provoked an Anatolian awakening for the country’s energy ministry.
Yildiz then pledged to reduce the proportion of electricity generated by gas from 50% to 30% by 2023. Turkey’s Chamber of Mining Engineers has suggested the use of local sources, such as lignite.
Coal has also been seen as another option – a memorandum of understanding signed with South Korea for a $2 billion coal-fired power plant earlier this year may be a step in the right direction.
However, for the country’s bankers and brokers, Turkey has yet to wake from its energy import nightmare.