Consumers blame taxes as gas prices hit OECD's highest

Following Tuesday’s Kr 8 hike, the price of 95-octane unleaded gasoline reached TL 5 per liter. This means Turkey now sells the most expensive gasoline among all OECD members.

Turkish consumers were hit by a new hike in gasoline prices late on Tuesday, only eight days after a similar increase, bringing the price per liter of gasoline to over TL 5 ($2.64), a new record.
Following Tuesday's eight kuruş hike, the price of 95-octane unleaded gasoline reached TL 5 per liter. This means Turkey now sells the most expensive gasoline among other OECD members; the second most expensive gasoline record belongs to Norway with $2.63. Last week the price of gasoline was increased by Kr 11.
The price hikes will likely take a toll on the Turkish economy, and the country's purchasing power per capita performance is still weak. The TL 5 level has long remained a psychological barrier in markets.
The major burden on Turkish gasoline prices comes from indirect taxes, while the rest is processing, transportation and distribution shares. Before the gasoline can reach end users, it has to go through certain procedures. The imported crude oil first reaches TÜPRAŞ and then is transported by fuel distributors to pump stations, which sell the gasoline with taxes added. At each step the price of crude increases; around 2 percent is refining process, 8 percent goes to distributors and gas stations, while 65 percent is private (ÖTV) and value-added (KDV) taxes. The remaining 25 percent is the original price of imported crude. Turkish consumer unions say they will step up calls on the government to revise this pricing mechanism and cut taxes.
Meanwhile, Energy Minister Taner Yıldız stressed that petroleum has an automated pricing mechanism and if financial regulations need to be made, the Ministry of Finance is the address to do so. “Turkey buys the petroleum with dollar and sells it in Turkish lira, meaning that the price is prone to negative effects of foreign currency exchanges as well as rises in crude oil prices.
Also commenting on the issue on Wednesday in İstanbul, Deputy Prime Minister Ali Babacan also blamed "international developments" for high gasoline prices in Turkey. The price of oil remained near $106 a barrel on Wednesday as investors awaited a report on US crude inventories and the Federal Reserve chairman's congressional testimony.

‘Public awareness, discontent on the rise'

Engin Başaran, former head of the Consumers Association (TÜDER), told Today's Zaman that the government has ignored their calls for an extensive change in taxation on gasoline. The hike in gas prices will affect tens of other consumption fields, exacerbating the burden on consumers. The purchasing power of people is not very strong. This also impacts on economic and political stability in Turkey. "People are growing increasingly irritated by the price hikes. The government is losing its accountability and this is not good; it always offers international price increases as an excuse, but we need a radical, sustainable solution."
The Turkish Consumers' Union acting president, Hatice Saadet Kalyoncu, says consumers are also nervous about the timing of the latest price hike, highlighting the increased consumer spending during Ramadan. “Turkish consumers have seen this [TL 5 per liter of gasoline] coming; the only thing was we did not know when," she said, asserting that more and more people are tired of these hikes. The timing of the hike was also meaningful, according to Kalyoncu. She said the government may have thought that Ramadan –-most people are on vacation as the holy month coincides with summer –- might help mitigate possible reactions from consumers. The government may have to face harsh criticisms and reactions unless the prices are not reduced, she opines.
"I think the latest Gezi protests have helped establish a reactional mood among people. We must make sure our reactions are democratic and reasonable," she adds.
One factor that the government may have had in mind is the approaching local elections. In Turkey it has traditionally been the case that governments ramp up public spending while at the same time offering some tax cuts. "All of these are done to help boost the incumbent government's popularity, and we may see similar price cuts in gasoline. … However, public awareness is higher than ever in Turkey and people will question these actions and demand more,” she argues.
Turkey is heavily dependent on foreign oil reserves; the country imports 92 percent of its oil demand from abroad, while this share is 98 percent in natural gas. The share of crude in Turkish electricity energy production is 29 percent, while the country generates 33 percent of its electricity from natural gas-fueled plants. The total installed energy power is 60,000 megawatts and the government has issued certificates to build natural gas-fuelled plants with a new capacity of 50,000 mw --17 percent of this is under construction. The government is not helping minimize Turkey's vulnerability in energy, but makes the country more dependent on foreign resources, Energy analyst Necdet Pamir told Today's Zaman.
Pamir expects the government to introduce comprehensive reforms to its energy production model, boosting the focus on local renewable energy resources.
Turkish Fuel Stations, Oil and Gas Company Employers' Union board member Mehmet Şüküroğlu tells Today's Zaman the distributors and dealers are not happy with the price hikes either, adding their share in the price is too low for them to make high profits. Following a regulation by the EPDK in 2009, Turkish distributors have to keep their shares in prices below a defined price ceiling. Şüküroğlu says that despite the image in public, distributors cannot make arbitrary changes in prices, but a current automated pricing mechanism defines it. “We have earlier offered the government an alternative pricing mechanism that could help reduce the price per liter of gasoline by as much as TL 1. The Finance Ministry has their own budget balances scheme and it falls down on them to make the necessary changes to taxes on gasoline,” he explains. 

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