Turkey hikes gas tariff amid rising fears over supply crunch linked to Gazprom arbitration award

LONDON (ICIS)–The Turkish government has raised the regulated tariff for fuel sold by transmission system operator BOTAS to gas-fired power plants by 47% as the country faces an energy supply crunch.

The tariff for November now stands at TL4,000/kscm (€33.30/MWh or $405.00/kscm) but is still some €30.00/MWh lower than equivalent prices at European hubs.

The increase comes just as Turkey is struggling to meet soaring demand, expected to reach a record 60 billion cubic metres in 2021.

Four market sources said Turkey was facing a daily 25 million cubic metre Russian supply shortfall because of ongoing disagreements over the payment of an arbitration award to Gazprom.

One of the source said BOTAS was already in talks with large industrial consumers and power plants to reduce consumption in case of further demand increases. Consumption is expected to spike during the cold months.

A second source said even if BOTAS was to secure more LNG via its northern terminals, it may still need Russian pipeline gas to keep up system pressure in the high-consumption Istanbul area.

BOTAS did not respond to questions from ICIS.

PRIVATE ARRANGEMENTS

Four market sources confirmed that one private importer had resumed Russian gas-offtakes via TurkStream after striking a deal involving Russian producer Gazprom and BOTAS.

Under the latest arrangement the importer has agreed to pay off its share of the arbitration award and resume importing natural gas from Russia at a cost of $270.00/kscm. The gas is then sold at or above $500.00/kscm to BOTAS. The private importer is reportedly off-taking some 3mcm/day.

The price is higher than the latest tariff paid by gas-fired power plants for volumes sold by BOTAS but some $400.00/kscm lower than spot prices for LNG, which the company has been scrambling to secure for winter delivery.

Three other importers, which were nationalised in 2016 and lost an arbitration against Gazprom in 2018, are interested in joining the arrangement but have not been able to secure a bank guarantee so far, four sources told ICIS.

A well-placed source with knowledge of the matter raised questions over the inability of the importers to get the guarantee, noting the importers had back-to-back deals with end consumers and that under the terms of these contracts, arbitration awards should be underwritten by end consumers.

A financial report of 2018 published by a consumer which holds such a supply contract with one of the importers clearly states that the company had set aside $34m towards the payment of its share of the arbitration award against the importer.

The money had not been claimed by 2018.

ICIS approached the importers to ask whether the money had been claimed but received no answer by publication time.

DISAGREEMENTS

A fourth importer is thought to be in a position to pay the arbitration award but has not secured the BOTAS deal.

The source asked: “Why is the government, which is now responsible for the three nationalised importers, unable to claim the money from end consumers to pay the arbitration award?

“Does the government want to bankrupt these companies rather than guarantee the country’s security of supply?”

The three importers, which belong to the same group and altogether import 5.25bcm/year were nationalised in 2016 amid allegations of links to a religious group accused of masterminding a failed coup against the government.

The three companies along with two other private importers were involved in arbitration over a 10.25% discount granted by Gazprom between January 2017 – September 2018.

Gazprom had granted the discount as stipulated by contractual data but then sought to remove it, which led to the arbitration proceedings.

The importers lost and were expected to pay an arbitration award amounting to $400m.

They have not been able to import Russian gas since the award by a Swedish court.