Turkey unveils 9 percent hike on natural gas, electricity prices

ANKARA

The Turkish government has announced a massive hike of 9 percent on natural gas and electricity bills, citing pressure from the increase in dollar currency exchange-rate levels and the low levels of rainfall across the country.

Electricity and natural gas prices in the country will be increased by 9 percent as of October, Energy Minister Taner Yıldız said on Sept. 30, ending months of speculation over the possibility of hikes.

“Turkey hasn’t made any increases in energy prices for 24 months, but the lack of rainfall and instability in the water system this year have reached a point where these [prices] can no longer be balanced,” Yıldız told reporters after meeting with Energy Charter Secretary General Urban Rusnak.

Energy costs have soared as the lira-dollar exchange rate touched 2.28-2.29 levels, the minister said, underlining the damage to the energy sector arising from increases in the value of the U.S. currency.

Yıldız added that the Turkish government has been trying to compensate for the rising value of energy imports with its local resources, but these efforts have been thwarted by water scarcity.

Effect on inflation

The 9-percent hike will be effective for the months of October, November and December.

The hikes are expected to add 0.6-0.7 percentage points to inflation, analysts said.

Inflation reached 9.54 percent in August, double the Central Bank’s 5 percent year-end target.

The Bank, whose own forecast for 2014 inflation is 7.6 percent, said this month that the year-end inflation forecasts in its monthly survey had risen to 8.89 percent from 8.70 percent previously.

Last week, the Central Bank left its key interest rates unchanged despite slowing economic growth, as it battles stubbornly high inflation and pressure on the lira in the face of an expected tightening in U.S. monetary policy.

The Bank has been under tight pressure from higher-than-expected inflation levels, which have pushed up to above the seasonal average due to drought that curbed crop supply.

Turkey has suffered from the driest season of 14 years over the past few months, facing a steep drop in crop supplies as well as electricity generation at dams, as the energy minister also highlighted.

“We had not foreseen a change in the natural gas and electricity prices when making our 8.4 percent forecast for year-end inflation. After today’s announcement, we are revising our forecast to 9.1 percent,” said Ali Çakıroglu, strategist at HSBC in Istanbul.

Much of Turkey’s electricity is generated using natural gas, meaning the price rise is likely to have a significant impact on household energy bills.

The last hike to electricity and natural gas prices was made exactly two years ago.