30
CLEAN ENERGY FOR DEVELOPMENT TURKEY LP GAS INDUSTRY REPORT January 2007

TURKEY LP GAS INDUSTRY REPORT January 2007 · *The ‘Liquid Petroleum (LP) Gas Rural Energy Challenge’) was launched in 2002 by the United Nations Development Programme (UNDP)

  • Upload
    others

  • View
    1

  • Download
    0

Embed Size (px)

Citation preview

CLEAN ENERGY FOR DEVELOPMENT

TURKEY

LP GAS INDUSTRY REPORT

January 2007

Date: January 2007 *The ‘Liquid Petroleum (LP) Gas Rural Energy Challenge’) was launched in 2002 by the United Nations Development

Programme (UNDP) and the World LP Gas Association (WLPGA). Initially initiatied in six countries, the LP Gas Rural Energy

Challenge will begin activity in a seventh country, Turkey, through a series of workshops held in January 2007. During these

meetings potential project proposals will be developed and potential barriers and strategies for overcoming those barriers

examined. To appeal to as broad an audience as possible, it was proposed to name the Turkish element of this project ‘Clean

Energy for Development’ ~ under the LP Gas Rural Energy Challenge.

Prepared by Kaan ESİN

2

CONTENT

1. CLEAN ENERGY FOR DEVELOPMENT ........................................................... 4

2. TURKEY BACKGROUND .................................................................................. 5

2.1. Country Overview .......................................................................................... 5

2.2. Energy Overview............................................................................................ 5

3. The LP GAS MARKET IN TURKEY ................................................................... 9

3.1. Market Size / Demand.................................................................................... 9

3.2. LP Gas Supply ............................................................................................. 12

3.3. Distributor / Market Share ........................................................................... 14

4. SUPPLY AND DISTRIBUTION / CYLINDERS ................................................. 16

4.1. Domestic Supply and Distribution System................................................ 16

4.2. Cylinders ...................................................................................................... 16

5. STRUCTURES /POLICY/ SAFETY/STANDARTS............................................ 18

5.1. Industry Structure........................................................................................ 18

5.2. Regulatory Structure ................................................................................... 19

5.3. Government Policy ...................................................................................... 19

5.4. Safety ............................................................................................................ 20

5.5. Standards ..................................................................................................... 21

6. LP GAS PRICING/ OTHER FUELS/ EQUIPMENT........................................... 23

6.1. LP Gas Pricing ............................................................................................. 23

6.2. Other Fuels................................................................................................... 23

6.3. LP Gas Appliances and Equipment............................................................ 25

7. CRITICAL ISSUES / BARRIERS / STRATEGIES ............................................ 26

7.1. LP Gas Pricing ............................................................................................. 26

7.2. Competitive Fuels ........................................................................................ 26

7.3. Government Energy Policy ......................................................................... 27

7.4. LP Gas Cylinders ......................................................................................... 27

7.5. LP Gas Appliances ...................................................................................... 27

7.6. Accessibility to LP Gas in Rural Areas ...................................................... 28

7.7. Safety ............................................................................................................ 28

7.8. Enforcement of Safety Standards .............................................................. 28

TABLES ................................................................................................................... 30

3

1. CLEAN ENERGY FOR DEVELOPMENT

WLPGA and UNDP are working together to promote the increased use of LP Gas to provide better living conditions for people in rural areas. The “LP Gas Rural Energy Challenge” was previously implemented in six pilot countries (Ghana, Honduras, China, South Africa, Vietnam and Morocco) and it is now being initiated in Turkey as the seventh country. Since 1960 LP Gas has been a preferred energy source for a majority of the Turkish population, and those switching to LP Gas continues to increase. Currently in Turkey LP Gas is utilized in 13.5 million households and approximately 1.5 million vehicles. However, the rapid growth of the past has slowed considerably during the last few years. Given the increasing demand for modern energy in Turkey and indeed, worldwide, such diminished growth is indicative of a potential loss of market share. It has therefore become imperative for the Turkish LP Gas industry to rapidly identify and resolve existing problems. The framework of the “LP Gas Rural Energy Challenge”, launched as a partnership between WLPGA and UNDP, is aimed at increasing the use of LP Gas in rural areas by identifying and eliminating potential barriers faced to introducing LP Gas to a broad range of people. The data contained in the report is up-to-date and was obtained from the following sources: Turkey LP GAS Association, Petder (Shell, BP and Total), Aygaz, İpragaz, EPDK (Energy Market Regulatory Authority), Ministry of Energy, TSE (Turkish Institute of Standards), EIE (General Directorae of Electrical Power Resources Survey and Development Administration), TUIK (Turkish Statistical Institute).

4

2. TURKEY BACKGROUND

2.1. Country Overview

Turkey acts as a bridge between the Asian and European continents. Bringing together different cultures and civilizations, the Republic of Turkey is an important country in its region with an economic and strategic value due to its geo-strategical and geopolitical situation. Turkey’s neighbors are Georgia, Armenia, Azerbaijan/Nahcevan, Iran in the east, Iraq and Syria in the south and Greece and Bulgaria in the west. The surface area of Turkey is 780.000 sq-kms, and its population based on 2005 census statistics is 73.5 million. 49.8% of the total population are men and 50.2% are women. Being one of the youngest populations of Europe, 53.4% of the total population is below 30 years of age. Turkey’s economy is rapidly growing year by year and inflation rate based on Central Bank of Turkey’s forecasts is to be 9.63% by the end of 2006. Latest statistics and forecasts indicate a per capita national income of $5.202 for the year 2006.

2.2. Energy Overview

In the year 1935 the Minerals Research and Exploration Institute (MTA) was established to conduct research of mineral resources, the Electrical Power Resources Survey and Development Administration (EİEİ) was established for the research of electrical power resources, and Etibank was established for the financing of these manufacturing enterprises. Oil, natural gas and coal, which are non-renewable energy sources, are the primary energy resources in Turkey. Hydraulic energy, wind and solar energy etc. are renewable energy sources. Listed according to the size of their shares in power production natural gas, lignite, fuel, hydraulic and hard coal are the sources of energy production in Turkey. Energy production is mainly performed by state enterprises and when supply falls short it must be imported. Existing Energy Reserves Table 2.2.1 - Production and Consumption levels as indicated in table 2.2.2

Energy Sources Total Reserve Coal (Mio tonnes) 1.126 Lignite (Mio tonnes) 8.075 Hydraulic (GWh) 125.000 Crude Oil (Mio tonnes) 41.8 Natural gas (billion m3) 8.7

Table 2.2.1 Energy Reserves in Turkey 20021

1 Source: www.enerji.gov.tr

5

Energy Sources Production Consumption

Fuel Oil (MWh) 4.306.279

Gas Oil (MWh) 12.268

Coal (MWh) 2.377.462

Coal(import) (MWh) 8.997.271

Lignite (MWh) 26.053.771

Natural Gas (MWh) 63.836.111

Geo Thermal (MWh) 85.125

LP GAS (MWh) 376.776

Naphta (MWh) 1.728.919

Biogas (MWh) 31.342

Others (MWh) 64.306

Hydraulic (MWh) 37.161.493

Wind (MWh) 101.509

Sum Total (MWh) 145.132.632 143.836.186 Table 2.2.2 Energy Production and Consumption in Turkey 20062

Figures dated November 2006, energy resource inputs and energy production amounts are as stated in the table 2.2.2. Consumption is 143,836,186 MWh, while production is 145,132,632 MWh. 42.79% of the total electrical energy consumption is in industry, whereas 25.34% of it is in households, 14.26% in firms, 4.34% in government agencies, 2.07% in street-lightning, 1.69% in construction sites, 1.66% in agricultural watering and 7.85% of it is direct sales and other. As seen in the above table, natural gas is the primary energy resource. After the oil crisis in the 1970s Turkey started expanding its energy sector through expanding use of natural gas. This development increased the importance of the natural gas rapidly. Considerations related to reducing or eliminating pollution caused by energy production gained importance recently due to environmental concerns and as a result natural gas which has lower emissions than other fossil fuels became popular. Turkey signed a delivery agreement with the USSR on September 18 1984, based on the natural gas utilisation survey conducted in Turkey. Using the main transmission connection, which was initiated on 26 October 1986, LP Gas started to be used in Ankara in 1988. Turkey’s annual natural gas requirement is 26.5 bn m3. An important part of this comes from imports. 12 wells were drilled by TPAO in Lüleburgaz in September 2006. Natural gas was found in nine of them. After this discovery domestic production target was increased to 416 mio. m3.

2 Source: www.enerji.gov.tr

6

Hydrogen Energy

Hydrogen is on Turkey’s agenda as an environmentally friendly and renewable energy source. Besides its direct usability advantage in internal combustion engines, hydrogen is a fuel suitable for flameless burning on catalytic surfaces. In addition to usability with mobile applications such as portable computers and cell phones, fuel batteries are also suitable power suppliers for electricity plants. They are widely used in the transportation sector due to their high efficiency and low emissions.

Nuclear Energy

Nuclear energy, which is generated in 31 countries at 439 nuclear reactors, supplies 16% of the world electricity demand. There are also 284 research reactors in 56 countries. Out of the four units located in Turkey two are in active operation, one is inactive and one is at the licensing stage. Renewable energy sources Wind Energy

Surveys on wind energy are currently being conducted at suitable locations by the Turkish State Meteorological Service. The wind energy observation stations evaluate the data collected with the periodical help of data collection systems to identify the optimal locations. The recordings between1970 - 1980 were evaluated and natural wind energy distribution was determined. Until the present date in 2006 101,509 MWh electricity was produced either through build-operate-transfer method or by independent production companies. Solar Energy

Turkey is also rich in solar energy potential. The average yearly sunshine period is 2640 hours (7.2 hours per day) and the average yearly radiant intensity is 1311 kWh/m2 (total 3,6kWh/m2 per day). Southeast Anatolia is the highest solar energy receiving region followed by the Mediterranean region. However, subsequent studies showed that these values are less than the actual potential of Turkey. Since 1992, EİE (Electricity Work Survey Department) and DMİ (State Meteorological Services) have been performing solar energy measurements in order to get more accurate solar energy values. The ongoing measurement studies are expected to result in 20-25% higher values.

Water heating systems are the most widely used applications of solar energy in Turkey. The solar collector quantity installed in Turkey is around 7,5 mio. m2 as of 2001,approximately 290 thousand TEP heat energy is obtained from these systems. An important portion is used in the Mediterranean and Agean regions. It is estimated that there are more than 100 producers in the sector employing 2000 people. Yearly production capacity is 750 thousand m2 and a part of this production is exported. With these figures Turkey is one of the leading producers and users of solar collectors in the world.

In addition to EİE, Tübitak Marmara Research Institute and the various universities (Agean University Solar Energy Research Institute, Muğla University, METU, Kocaeli University, Fırat University) are also conducting studies on the research and development of solar energy. General Directorate of State Meteorological Services is conducting the measurements of solar energy data. EİE has established its own solar energy observation stations since 1991.

The Turkish Standards Institute has prepared the following standards on the solar energy:

7

- TS 3680 – Solar Energy Collectors-Flat. - TS 3817 – Solar Energy – Rules on Manufacture, Installation and Operation of

Water Heating Systems. While EİE is building up these standards, it also executes heat performance tests.

Biogas Energy

Animal and plant waste are often directly burned or used as manure. Biogas technology allows producing energy from these waste organic substances as well as using them as manure. The current biogas potential, according to the research and development studies carried out in Turkey, is detailed in table 2.2.3. 31,342 MWh electrical energy is supplied from biogas up to now (Kemerburgaz waste fields, İzmit).

Animal Kind

Animal Count

Manure Amount(Tonnes/Year)

Biogas Amount (M 3/Year)

Hard Coal Equivalent

(Tonnes/Year) Cattle 11.054.000 40.347.100 994.860.000 710.613Sheep-Goat 38.030.000 26.621.000 1.901.500.000 1.358.215Hen-Turkey 243.510.453 5.357.207 487.020.906 347.871Total 292.594.453 72.325.307 1.672.030.906 2.416.699 Table 2.2.1 Biogas amount that can be produced with the animal waste potential in Turkey and the hard coal equivalent3

Hydroelectric Power It is a globally accepted fact that electricity consumption is an indicator of the level of development in a country. While in the year 2005 per capita annual electricity consumption in Turkey was 2.150 kWh (kilowatt-hours), the world’s average was 2.500 kWh, in developed countries this figure was 8,900 kWh, in China 827 kWh, and in the USA it was around 12,322. While Turkey produced a mere 800 GWh (gig watt-hours) annually in the 1950s, today this figure has reached to 161,000 GWh annually with an increase of 200%. Although it should normally be possible to generate an annual average of 237,000 GWh energy with the 36.679 MW installed power generating capacity, only 161,000 GWh energy could be produced due to breakdowns, maintenance-repairs, operation programme policies, economic stagnation, insufficient demand in consumption, drought and inefficiency. Under such circumstances the capacity utilisation rate fell to 68%. Along with the popularisation of natural gas in Turkey, especially in the recent years, “Natural Gas Conversion Power Plants” were setup to meet the increasing residential consumption as well as the energy requirements of industry. For this reason the share of hydro-electrical energy has decreased and the share of the thermo-electrical energy has increased in recent years. Since Turkey is on the path to European Union membership, it has adopted the policy to support the green energy (hydro-electrical, wind, solar, biomass) in line with EU Community’s energy policy. With such understanding, the energy policies have been reconsidered and studies initiated towards increasing the share of the hydro-electrical energy. DSİ (State Water Works) has undertaken planning and execution of the projects while EİE (Electrical Resources Survey Administration) carried out the survey and planning studies in the hydro-electrical energy production activities.

3 Source: EIE

8

Currently 138 hydro-electrical power plants are in operation in Turkey. These power plants have an installed power capacity of 12,878 MW and an average annual production capacity of 46,277 GW which correspond to 36% of the total potential. 38 hydro-electrical power plants with an installed power capacity of 3,962 MW and an annual production capacity of 9.779 GWh corresponding to 8% of the total potential are currently under construction. In order to utilise the remaining potential of 73,877 GWh/year, 540 hydro-electrical power plants will be built in Turkey in the future and the number of hydro-electrical power plants will reach 716 with a total installed capacity of 36,697 MW.

Disregarding the periods of economic stagnation, electricity consumption in Turkey grows by 8-10% each year. To be able to cover such a demand, a budget of USD 3-4 billion needs to be allocated each year for new energy projects. Energy being a vital issue in Turkey as it is everywhere, there is a strong focus on hydro-electrical energy and all other alternatives to find a self sufficient, steady, reliable and economical electrical energy mix for the country.

3. The LP GAS MARKET IN TURKEY

3.1. Market Size / Demand

Turkey started consuming LP Gas in 1960, the first filling station was established 1961. While Turkey was the second largest market in Europe after Italy in 2000, it became the fastest growing market in terms of growth rate. LP Gas consumption was approximately 4,5 mio. tonnes in 2000 and its domestic consumption share within the primary energy consumption reached 6%. However, due to the economic crisis of 2001 and the high taxation policies applied to LP Gas in the aftermath, this rate receded to approximately 3,7 mio. tonnes in 2005. Due to policies in effect today, there has been a reduction of 3.9% in the cylindered and 19.7% in bulk LP Gas markets, whereas growth of 8.3% in the Autogas market has been observed because of rising gasoline prices. However on a cumulative basis, the market has contracted at a rate of 1.8% when compared to 2004. Another reason for the reduction in the cylindered and bulk LP Gas markets is the high rate of tax applied to these sectors. This makes natural gas more advantageous and results in a shift of preference towards this source. In places where natural gas is not made available yet consumers prefer other fuel types as they are less expensive and sometimes even free of charge. High prices have led to the utilisation of solid fuels or illegal usage of electricity instead of LP Gas. In addition, commercial LP Gas users in the rural areas, poultry farms and greenhouses have turned to solid fuels or illegal usage of electricity. It is known that the annual illegal usage of electricity in Turkey is around USD 1.5 billion at present. In the last 3 years the electricity prices were fixed by the government. However, due to the increase in LP Gas price in the world, the situation turned 30% in favor of electricity among these two energy types with almost similar prices. This resulted in a rapid growth in the air-conditioning and electrical heating market. LP Gas is the type of fuel used in cooking, heating and boiling water by low income people living in rural areas and suburbs, where natural gas is not available yet. Households consume LP Gas in cylinders of 2 kg – 12 kg and small enterprises use it in cylinders of 24kg – 45 kg. In terms of consumption, 1.557 mio. tonnes of cylindered LP Gas is consumed according to 2005 figures. Its share within the total consumption is around 42%. Bulk LP Gas, with an approximate consumption amount of 383 thousand tonnes, is mainly used by small industries, tradesmen and households and has a share of 10% in the total consumption. Autogas consumption is 1.751 mio tonnes and has a share of 48% in the total consumption.

9

(tonnes) LP Gas Consumption in 2005 Bulk

383.148 10% Autogas

1.751.838 48%

Bottled 1.557.212

42%

Table 3.1.1 LP Gas Consumption 20054 Yearly LP Gas Demand (1999 – 2005) The market from 1999 to 2005 in relation to product types is in table 3.1.2

Product 1999 2000 2001 2002 2003 2004 2005

CYLINDERED 2.114.255 2.133.831 1.810.341 1.724.805 1.801.825 1.665.167 1.557.212BULK 893.004 1.067.348 794.052 713.354 646.552 454.066 383.148AUTOGAS 355.373 1.280.331 1.230.330 1.136.025 1.147.374 1.640.766 1.751.838TOTAL 3.362.632 4.481.510 3.834.723 3.574.183 3.595.751 3.759.999 3.692.198*tonnes Table 3.1.2 Yearly LP Gas Demand Since the government applied higher SCT rates for Autogas than for cylindered and bulk LP Gas, there have been product changes. These changes are expected to be reflected in the sales figures for 2004 and 2005 as shown in the above chart. A revision was made for the last two years accordingly. It is assumed that the actual consumption figures of cylindered and bulk LP Gas in the last two years are as shown. Prior to April 2006, the SCT for Autogas was USD 186, more than cylindered and bulk LP Gas. After this date it was reduced to USD 88 and further reduced to USD 46 with the most recent applications. Table 3.1.3 below looks at the regional distribution of the sales.

4 Source : Turkey LP GAS Association

10

LP Gas Consumptions Urban and Rural Areas

Rural Area22%

Urban 78%

Table 3.1.3 LP Gas Consumptions - Urban and Rural Areas

While 78% of the total cylindered LP Gas consumption is done in urban and central townships, rural areas account for only 22% of the total consumption. Table 3.1.4 provides a comparison of the rural and urban areas and central townships based on their populations. It shows that the ratio of consumption in the LP Gas market is not consistent with the ratio of the population. While the ratio of the population in the rural areas constitutes 35% of the total population, total sales in these areas is only 22%. Low purchasing power constitutes a barrier for the utilisation of LP Gas in these areas.

Distribution Of the Population in Turkey

Rural Area

Urban 65%

35%

Table 3.1. 4 Distribution Of the Population in Turkey

11

LP Gas Consumption in West & Central Europe

urkey market and consumption figures in comparison to other countries in the region and

able 3.1.5 LP Gas Consumption in West & Central Europe 1995 - 20055

he Turkey LP Gas market was the sixth largest market of the West & Central Europe region

3.2. LP Gas Supply

20% of the total LP Gas consumed in Turkey is locally produced and 80% of it is imported.

urkish Supply - Production - Imports

addition to Tüpraş, there are seven other LP Gas distribution companies under license in Turkey engaged in importing.: Aygaz, Ipragaz, Totalgaz, Bpgaz, Habaş, Demirören (Milangaz) and Güneygaz.

Tannual consumption are given in table 3.1.5.

T Tin 1995 and the fourth largest in 1999. In 2000 Turkey was the second largest and the fastest developing market. In the year 2005, it was ranked as the third largest LP Gas market after the UK and Russia.

Mersin Ataş and Tüpraş were the two main production refineries; however, Mersin Atas has terminated production n July 2004. Since then, Tüpraş Refinery has taken on all production. T In

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Austria 154 166 172 166 163 150 123 168 176 176 172 Azerbaijan 1 4 40 46 79 80 94 103 143 167 168 Belarus 343 6 31 315 293 268 282 254 225 223 226 230 Belgi&Lux 587 599 687 682 645 594 612 523 432 343 330 Bulgaria 71 68 85 74 103 217 287 328 354 331 339 Crotia 206 179 213 196 184 179 171 172 173 185 205 Czech Re 182 191 237 210 245 264 274 261 246 285 262 Denmark 85 90 80 85 80 75 71 68 67 69 68 Finland 203 317 321 427 458 431 377 421 457 467 455France 3646 3704 3558 3634 3773 3757 3702 3541 3349 3505 3566Germany 3447 3368 3199 3043 2682 2761 2860 2992 2615 2651 2758 Greece 376 416 433 451 409 398 381 378 385 373 357 Hungary 315 346 334 328 305 265 258 266 282 280 307 İreland 124 141 136 138 142 146 139 135 131 130 133 İtaly 3552 3509 3563 3763 3952 3872 3806 3713 3706 3560 3620Kazakhstan 270 195 193 85 334 558 537 557 501 427 450 Lithuania 90 73 94 108 139 189 192 202 229 255 263 Netherlands 0 3 3 213 188 180 2102 1481 1586 1686 1713 1870 1345 1623Norway 1004 1103 1105 1118 1118 1112 1142 1141 1167 1180 1157 Poland 557 695 845 880 1009 1175 1390 1550 1927 2032 2430 Portugal 1033 1134 1155 1079 1060 1031 997 948 937 944 884 Romania 274 279 275 280 282 287 292 329 407 381 390 Russia 4204 3814 3686 3535 3582 4780 5389 6080 6000 6230 6600Serbia Mon 25 59 60 62 43 36 43 69 76 157 160 Slovenia 58 59 63 75 82 85 82 84 88 88 90 Spain 2294 1 6 0 0 6 2431 7 2418 2321 2259 240 231 253 257 249 242Sweden 890 860 890 847 724 810 907 887 850 900 918 Switzerland 157 169 169 220 203 203 192 215 194 211 202 Turkey 2356 2422 2883 3224 3363 4483 3835 3547 3503 3759 3691Ukraine 585 498 357 361 279 186 289 443 507 481 488 U.K 3413 3253 3292 3220 3140 3377 3872 4154 4169 4062 3833Other 272 340 377 462 491 514 651 619 643 611 599 TOTAL(tonnes) 32896 32652 32936 33724 33388 36379 37356 37848 38223 38112 39007

5 Source ; WLPGASA ‘s statistical review 2005, Thousand Tonnes

12

There are six ports and 11 marine terminals in total for imports. These ports are Aliağa, Yarımca (İzmit), Samsun, Dörtyol ( İskenderun ), Ambarlı and Marmara Ereğlisi. Tüpraş has

ipeline connections to all distribution companies and performs direct product deliveries via

in table 3.2.1.

pthese connections. 2005 LP Gas production by Tüpraş Refineries, and total imports / exports of other companies in that year are shown

Production and Imports in 2005 (thousand tonnes)

Aygaz 1.100

Ipragaz 390

Milangaz 893

Tüpraş Import 700Tüpraş

Production 800

Güneygaz 5

Habaş 62

Bpgaz 265

Totalgaz 190

Table 3.2.1 Production and Imports in 2005

In the ye d to the market. Of that amount 800

ousand tonnes were produced by Tüpraş and a total of 3,600 thousand tonnes were ported. 800 thousand tonnes of this amount were exported to Iraq and 3,600 thousand

lack Sea, Arabian Gulf, Libya, Northwest Europe and others) as shown on ble 3.2.2.

ar 2005, 4.4 mio. tonnes of LP Gas were suppliethimtonnes were consumed in the domestic market. By the end of 2006 it is estimated that the total imports by the seven distribution companies holding import licenses will reach 2,520 thousand tonnes. In the year 2005, a total of 3,575 thousand tonnes were imported from the countries and regions (Algeria, Bta

13

(thousand tonnes) LP Gas Imports by Region Libya 290

Algeria North West Europe

590

Others 265

Arabian Gulf Black Sea 370 450

1.610

Table 3.2.2 LP Gas Imports by Region

3.3. Distributor / Market Share

There are 53 distribution companies in the market with an annual size of approximately 4 mio tonnes. To comply with legal obligations, they have applied and obtained distribution licenses from the Energy Market Regulatory Authority by June 13 2006. A full list of licensed distribution companies follows on table 3.3.1.

Akçagaz Bizimgaz Güvenalgaz Karadeniz Tüpgaz Nargaz Akgaz, BP Gaz Habaş Kongaz Netgaz Altıngaz Erciyesgaz Hasgaz Likitgaz Niğgaz Anadolugaz Ergaz Hilal Tüp Margaz Oralgaz Antgaz Erol Gaz Hitit Gaz Mavigöl Gaz Pegagaz Argaz Gap Gaz Hizmetgaz Meram Gaz Petrol Ofisi A.Ş Asgaz Gesan Hürgaz Milangaz Selçuk Gaz Aygaz Güneşgaz İpragaz Mogaz Selgaz Aytemiz Gaz Güneygaz Kalegaz Shell Gaz Trabzongaz Sorgun As-Gaz Şarkgaz Şiringaz Totalgaz Yamangaz Yeni Yücel Gaz Yurtgaz Yücel Gaz

Table 3.3. 1 Licensed Distribution Companies The Above mentioned distribution companies have a total of approximately 45,000 cylindered LP Gas sales points. 15,000 of these are distributors and 30,000 are dealers. Additionally, 5,657 Autogas stations licensed by the Energy Market Regulatory Authority are in service. It is estimated that a total number of 115,000 people are employed in the sector; taking their families into account, 450,000 people earn their living from this sector at present. The total business volume is approximately €5,2 billion. Tax revenue of the government from the sector amounts to €2,2 billion. The market share of the largest eight LP Gas distribution companies based on their sales volumes in the year 2005 are shown in table 3.3.2.

14

LP Gas Market Share2005

Mogaz Aygaz 5,50%

OthersIpragaz36,70% 13,60%

Aytemiz Bizimgaz 1% 2,10% Shellgas Totalgaz Bpgas 5,10% 5,50% 5,70%

25%

Table 3.3 1 LP Gas Market Share 20056

Market share based on sales by the end of August 2006 are shown in table 3.3.3. Accordingly, at the end of the first eight months, 65.5% of the total sales in Turkey are made by the six large groups (eight different companies) and the remaining 34.5% by the distribution companies. Demirören Group (Milangaz, Likidgaz, Mutfakgaz, Güneşgaz), one of the large distribution companies in this sector, has not shared their information therefore their sales figures are not specified in this report. Sales figures and market shares of Demirören Group are included in other company figures in charts and tables within this report.

LP Gas Market Share August 2006

AygazOthers 24,50% 34,50%

Mogaz 5,40% Aytemiz

1%Ipragaz 12,90%Shellgas

Bizimgaz 8,80% Totalgaz Bpgas 2,10% 5,50% 5,30% Table 3.3 2 LP Gas Market Share August 20067

6 Source : Turkey LP Gas Association 7 Source : Turkey LP Gas Association

15

4. SUPPLY AND DISTRIBUTION / CYLINDERS

4.1. Domestic Supply and Distribution System

Domestic Supply

The distribution companies in Turkey supply LP Gas to Tüpraş. Tüpraş annually produces 800,000 tonnes and imports 900,000 tonnes. LP Gas can be supplied from Tüpraş’s İzmit Yarımca , İzmir Aliağa, Kırıkkale, and Batman refineries. Additionally Tüpraş supplies LP Gas directly to the storage facilities of the distribution companies through pipelines. The total LP Gas storage capacity in Turkey is 285,000 tonnes and 138 filling facilities provide services. These filling facilities have a filling capacity of 16,200 tonnes per day and 4,2 mio. tonnes per year. A total of 1,600 LP Gas tanker trucks are in service. Distribution System LP Gas in storage facilities is filled into clean and painted cylinders, under modern and safe conditions, with the help of filling units. Deliveries from the filling facilities to wholesalers or dealers are made by CIF trucks of the distribution companies or dealers’ trucks. If the wholesaler is a depot, deliveries to the dealers and to the end-users are made by service vehicles. The cylinders, received directly by the dealer from the filling facility, are first delivered to the dealer’s store and then to the end-user. In case of industrial use, delivery is made to the related factory or production facility by the LP Gas tanker trucks available at the storage facility of the distribution company. In case of Autogas, delivery is made to the storage tanks of the stations by CIF tanker trucks of distribution companies or tanker trucks of the Autogas dealer. Autogas end-users get the product through LP Gas dispensers.

4.2. Cylinders

Cylindered LP Gas is used by 13.5 mio. households in Turkey. There are 14 cylinder manufacturers licensed by the Energy Market Regulatory Authority, and four types of cylinders are manufactured in compliance with the standards imposed. These are; 2 kg Camping type, 12 kg Household type, 24 kg Commercial type and 45 kg Industrial type cylinders. 12 kg. Household type cylinders are manufactured in two different types with 300mm and 360mm diameters. No additional imports are made for cylinders. A full list of current cylinder manufacturers can be found in Table 4.2.1.

16

Cylinder Manufacturers Locations

Gasaş Gaz Aletleri San. A.Ş Adıyaman

Erciyesgaz San. Ve Tic. A.Ş. Kayseri

Artüp Tüp ve Ev Aletleri Tic. Ve San.A.Ş. Mardin

Akgaz Tic. Ve San.A.Ş. Merzifon /Amasya

Demirören Tüp. San.A.Ş. Kartal / İstanbul

Ergaz San. Ve Tic. A.Ş. Kadıköy/ İstanbul

Aktüp Tüp ve Basınçlı Kap . İm.Tic.A.Ş Kahramanmaraş

Karadeniz Tüpgaz İstanbul

Şarkgaz ve Madeni Yağlar A.Ş. Elazığ

Habaş Endüstri Tesisler A.Ş. Kartal / İstanbul

Mesa Madeni Eşya San.Tic. A.Ş. Mersin

BP Gaz A.Ş. Dörtyol / Hatay

Aygaz A.Ş İstanbul

Evas Ev Aletleri Ltd.Şti Kartal / İstanbul

Table 4.2. 1 Current Cylinder Manufacturers The cylinders are supplied against an initial deposit fee and they are not sold to consumers. The deposit fees paid cover around 20-25% of the cost of the cylinders. They are subsidised by the distribution companies in order to promote sales. Table 4.2.2 covers the current cylinders and deposit fees.

Deposit Fee Type of Cylinders

Minimum Maximum 2 kg. Camping 3.00 YTL ( $2.06) 6.50 YTL ( $ 4.47) 12 kg. Household(Long Type cylinder) 4.00 YTL ( $ 2.75) 12.50 YTL ( $ 8.60) 12 kg. Household(Fat Type cylinder) 4.00 YTL ( $ 2.75) 12.0 YTL ( $ 8.25) 24 kg. Small Industry Type cylinder 20.00 YTL ( $ 13.7) 30.00 YTL ( $ 20.6) 45 kg. Industry Type cylinder 25.00 YTL ( $ 17.2) 40.00 YTL ( $ 27.5) Table 4.2. 2 Current Cylinders and Deposit Fees8

The high entry cost of cylinders subsidized by distribution companies is one of the obstacles for the sector’s development. In addition, it is known that the cylinders are destroyed by rival companies and taken out of the country. 8 Current Rate: USD 1 = 1.453 YTL.

17

5. STRUCTURES /POLICY/ SAFETY/STANDARTS

5.1. Industry Structure

A majority of the 55 distribution companies licensed by EPDK (Energy Market Regulatory Authority) to operate in the Turkish LP Gas sector are united under 3 different associations:, Turkey Liquid Petroleum Gas Association, Petroleum Industry Association (Petder) and Anatolian LP Gas Industrialists and Businessmen Association. These existing associations constitute a group having the power to speak on behalf of the sector. Distribution companies which are the members of these associations are as follows: 1 –Turkey LP Gas Association:

1- Aygaz 2- İpragaz 3- Mogaz 4- Bizimgaz A.Ş 5- Karadeniz Tüpgaz A.Ş 6- Margaz A.Ş 7- Güneygaz A.Ş

2 – Petroleum Industry Association (Petder): 1- Shell gas 2- Bp gas 3- Totalgaz

3 – Anatolian LP Gas Industrialists and Businessmen Association

Erciyesgaz Trabzongaz Hürgaz

Ergaz Karadeniz Tüpgaz Altıngaz

Kongaz Nargaz Metgaz

Gesan Sorgun As Tüpgaz Nigaz

Akgaz Oralgaz Selgaz

Anadolugaz Şarkgaz Erolgaz

Hizmetgaz Yücelgaz Güvenalgaz

Yurtgaz Yeni Yücelgaz Şiringaz

Gapgaz Margaz Yamangaz

Akçagaz Hilalgaz Meramgaz

Table 5.1. 1 Anatolian LP Gas Association Table 5.1.1 lists the Anatolian LP Gas Association and its 30 member companies. Member companies Margaz and Karadeniz Tüpgaz joined both Turkey LP Gas Association and Anatolian LP Gas Association in order to provide coordination and facilitate exchange of information between the associations. These associations have been approved in accordance with the Associations Law and became legally established official institutions. Their activities are conducted within the framework of this law.

18

5.2. Regulatory Structure

Electricity Market Regulatory Authority was established by law no. 4628 which was later named as the Energy Market Regulatory Authority by Natural Gas Market Law no. 4646 . The Authority was assigned the duty to regulate and inspect the petroleum market by Petroleum Market Law no. 5015 and the liquified petroleum gas market by Liquified Petroleum Gas (LP Gas) Market Law no. 5307 . Energy Market Regulatory Authority became operative on 19.11.2001 . The purpose of these laws is to create a financially strong, stable and transparent energy market that will function under the provisions of private law in a competitive environment in order to supply electricity, natural gas, petroleum and LP Gas to the consumers in sufficient quantity, in high quality, constantly at low cost and in harmony with the environment and to achieve an independent regulation and inspection in this market.

Technical standards are prepared by TSE (Turkish Institute of Standards) and inspected by EPDK. Regulation no. 26164 on the procedures and principles to be followed in supervision and pre-research investigations took effect on May 10 2006. The purpose of this regulation is to outline the procedures and principles in connection with the supervision, inspection of market activities related with the supply of liquefied petroleum gases obtained from domestic and foreign sources to the consumers in a safe and economic style and in a competitive environment, and the implementation of relevant sanctions. The functions undertaken include inspection of the conformity of the activities and accounts of operators in the LP Gas market with relevant regulations and investigation of the compliance of the LP Gas, LP Gas cylinders and all LP Gas related goods delivered to the market. All procedures related with matters like the following, which may result in legal penalties, liabilities of the inspected companies and persons:

• Powers of the personnel of the establishment undertaking the inspection, • Obligations of the personnel of the establishment undertaking the inspection, • Principles to abide by during the inspection, • Written correspondence procedures, presentation of reports, sanctions, • Complaints and analysis and testing of products.

5.3. Government Policy

In line with its energy policy, the government is supporting natural gas use. Since the agreement signed in Ankara in 1984 and initial supply made to Ankara in 1986, natural gas consumption has shown a steady increase. While the government applies very low SCT rate to natural gas in an attempt to encourage its use, the SCT applied to LP Gas is 26 times higher. The rate of LP Gas consumption in the rural and low purchasing power areas is around 70%, and because of the pricing policy and high taxes a decrease in this rate is foreseen. Consumers are therefore inclined to obtain LP Gas in risky ways or using alternative fuels. According to the World Health Organization’s report, at present 11% of the population in Turkey (seven million people) is using solid fuels and many illnesses stem from the negative effects of indoor air pollution. In the past and under these circumstances, low-income consumers living in rural areas used 12 kg cylinders. They were forced to turn to 2 kg cylinders due to increasing prices and often have to fill 6-8 liters of Autogas into the 12 kg cylinders they own. These fillings are both illegal and risky. Currently applied high SCT rates increase smuggling which results in re-

19

importing exported products illegally. High taxes also resulted in an increase of illegal electricity consumption. In some provinces, illegal electricity consumption has exceeded 50%.

5.4. Safety

LP Gas which is flammable and combustible, passes through various sensitive procedures from its supply to its readiness for sale and then to its shipment. Standards set forth by TSE (Turkish Institute of Standards), the regulatory organ for standards in the sector, are implemented by the distribution companies and related units throughout these procedures. Compliance with standards of all equipment used and all standards related with the safety of the employees are specified in table 5.4.1. No Title of Regulation

1 Regulation on Noise

2 Regulation related with Equipment and Protective Systems used in Potentially Explosive Environments

3 Regulation on Safety and Health Warnings

4 Regulation on Health and Safety Measures in Working with Chemical Materials

5 Regulation on the Protection of the Employees from Dangers of Explosive Environments

6 Regulation on the Duties, Powers and Responsibilities of the Engineers or Technical Personnel Assigned for Work Safety and Working Procedures and Principles

7 Regulation on Personal Protective Accessories

8 Regulation related with Health and Safety Measures in the Buildings and Annexes of the Workplace

9 Regulation related with Health and Safety Conditions in the Usage of Working Equipment

10 Regulation on the Usage of Personal Protective Accessories at Workplaces

11 Regulation on Manual Transportation Jobs

12 Communique on the Categorization Guide of the Personal Protective Accessories

13 Regulation on Occupational Safety and Health Boards

14 Regulation on the Procedures and Principles for the Education of the Employees on Occupational Health and Safety

15 Communique on the risk groups list related with Occupational Safety and Health

16 Regulation on Suspension of Work at Workplaces or Closing Down of Workplaces

17 Regulation on Work that should be limited with a Maximum 7.5 or less Working Hours per Day due to Health Rules

18 Regulation on Occupational Safety and Health in Temporary or Limited Term Works

19 Regulation on Heavy and Dangerous Works

20 Regulation on First Aid

21 TS 18001 Occupational Safety and Health Management Systems - Conditions

Table 5.4. 1 Safety standards and regulations in LP Gas Plants

20

Compliance with the above stated regulations and standards at work is supervised by the official authorities. Such implementations are also inspected within the framework of the internal procedures of the companies.

5.5. Standards

In the design, construction and installation, testing and inspection, taking into operation and operation of all facilities where market activities are undertaken, compliance with TS, EN standards is imperative. In the absence of such standards, compliance with international standards accepted by TSE is imperative. Some of the basic standards applicable to LP Gas filling facilities are indicated in table 5.5.1. Standards define the basic safety requirements during the filling process.

No Standard No Title of Standard

1 TS 55 EN 1442 Cylinders – for Liquified Petroleum Gases (LP GAS) - Refillable – Made of Steel, Welded – Design and Manufacture

2 TS EN 589 Automotive Fuels – LP GAS - Characteristics and Testing Methods

3 TS 1445 Liquified Petroleum Gases (LP GAS) – Transportation Rules

4 TS 1446 Liquified Petroleum Gases (LP GAS) – Storage Rules

5 TS 1449 ** Liquified Petroleum Gases (LP GAS) – Loading and Unloading Rules

6 TS 1846 Hoses (for Liquified Petroleum Gases and Citygas)

7 TS 1862 * Liquified Petroleum Gases (LP GAS) – Cylinder fittings - Valves, Pressure Regulators and Safety Valves

8 TS 2178 ISO 9162 Petroleum products - Fuels (F grade) - Liquified Petroleum Gases - Characteristics

9 TS 2179 Liquified Petroleum Gases (LP GAS) – Instructions for Use

10 TS 5306 Inspection, Testing, Maintenance and Repair of LP GAS Cylinders in use

Table 5.5. 1 Standards In addition to the above standards, it is imperative for the whole sector to comply with the basic regulations issued by the Ministries. For example, Regulations on Portable Pressurized Equipment and Pressurized Equipment are regulations which took effect during the EU harmonization process.

21

No Title of Regulation

1 Notification (TRKGM-2000/5) on the Procedures and Principles to be followed by Liquified Petroleum Gas (LP GAS) Distribution Companies, Authorized Dealers and Consumers

2 Notification (TRKGM-2001/4) regarding amendment of the Communique on the Procedures and Principles to be followed by Liquified Petroleum Gas (LP GAS) Distribution Companies, Authorized Dealers and Consumers

3 Regulation on Portable Pressurized Equipment

4 Regulation on Pressurized Equipment

5 Regulation on Surface Transportation

6 Regulation on the Measures to be taken at Workplaces and Occupations involving use of Combustible, Explosive, Dangerous and Harmful Materials

7 Regulation on the Transport of Dangerous Materials on the Highways

8 Regulation on the Workplace Establishment and Operation Licenses

Table 5.5. 2 Regulations Examples of further regulations published are stated in table 5.5.3. No Title of Regulation

1 Environmental Law

2 Regulation on the Inspection of Solid Wastes

3 Regulation on the Inspection of Excavation Soil, Construction and Demolition Wastes

4 Regulation on the Inspection of Waste Oils

5 Regulation on the Inspection of Medical Wastes

6 Regulation on the Inspection of Hazardous Wastes

7 Regulation on the Inspection of Packing and Packing Wastes

8 Regulation on the Inspection of Waste Vegetable Oils

9 Regulation on the Protection of the Air Quality

10 Regulation on the Inspection of Industrial Air Pollution

11 Regulation on the Inspection of Heating Related Air Pollution

12 Regulation on Environment Influence Evaluation

13 Regulation on Analysis and Management of Environmental Noise

14 Regulation on the Inspection of Water Pollution

15 Regulation on Hazardous Chemicals

16 Regulation on Waste Removal from Vessels and Inspection of Wastes

17 Notification on the Procedures and Principles for the Preparation of Safety Information Forms

18 Regulation on the Chemical Materials Subject to Inspection

Table 5.5. 3 Regulations

22

6. LP GAS PRICING/ OTHER FUELS/ EQUIPMENT

6.1. LP Gas Pricing

LP Gas pricing was announced by the government effective until January 2005. The price has now been indexed in line with world-market conditions in compliance with the new law. Prices in the trade of LP Gas are formed according to the accessible world free market conditions. Refineries and distributors notify the prices regarding their market activities within the framework of their licenses to the authority as the ceiling prices, taking into consideration the price formations in the accessible world free markets. However, in the event that agreements or actions aimed at hampering, disrupting or restricting activities or competition in the LP Gas market, or creating such effects generate consequences that damage the market order, necessary actions will be initiated and the authority will determine the base and/or ceiling prices for implementation at regional or national levels and to take necessary measures. Procedures and principles and the amount of the support for consumers at certain regions and for certain purposes without intervening in the prices is determined by the Council of Ministers upon the proposal of the Ministry.

6.2. Other Fuels

Fuel types used in Turkey besides LP Gas and a comparison of their statuses in the market in terms of efficiency and taxation: Taxes imposed on LP Gas and other energy types constitute an important part of the tax revenues of countries. This is often used as an important economic tool in shaping up the energy policies of the countries. It is easy to view the conclusion very clearly if one compares the tax burden on the energy products in Turkey based on their unit calorific values and compares them with other countries. Burning efficiency and minimum calorific values of energy products are the most essential criteria for the consumers and a comparison of the SCT amount for each energy product calculated on the basis of net 1000 kcal (burning efficiency and minimum calorific values taken into consideration) is provided in table 6.2.1.

23

YTL € YTL €Natural gas kcal/m3 Ykr/m3 €cents/m3 Ykr/1000kcal €cents/1000kcalNG Industry 1 OSB 92% 8.250 2.10 1.11 0.28 0.15NG Industry 2 Industry 92% 8.250 2.10 1.11 0.28 0.15NG Industry 3 IGDAŞ (Free Consumer) 92% 8.250 2.10 1.11 0.28 0.15CNG CNG 92% 8.250 54.63 28.75 7. 20 3.79NG Housing IGDAŞ 92% 8.250 2.10 1.11 0.28 0.15LPG kcal/kg ykr/kg €cents/kg Ykr/1000kcal €cents/1000kcalBulk mix LPG Big Industry 92% 11.000 74.43 39.17 7.35 3.87Small Industry Propane Propane 92% 11.070 74.43 39.17 7.31 3.85Housing Propane Propane 92% 11.070 74.43 39.17 7.31 3.85Bottled LPG Housing 92% 11.000 74.43 39.17 7.35 3.87Lignite kcal/kg Ykr/kg €cents/kg Ykr/1000kcal €cents/1000kcalKütahya Lignite (Istanbul) 65% 4.587 0.00 0.00 0.00 0.00Imported Lignite (Istanbul) 70% 7.000 0.00 0.00 0.00 0.00Fuel kcal/kg Ykr/kg €cents/kg Ykr/1000kcal €cents/1000kcalNaphta (Istanbul Europe) 90% 10.550 0.00 0.00 0.00 0.00FO No 6 (Istanbul Europe) 80% 9.200 20.40 10.74 2.77 1.46Fueloil (Istanbul Europe) 82% 9.700 47.60 25.05 5.98 3.15Gasoil 7000 (Istanbul Europe) 85% 10.200 98.76 51.98 11.39 6.00Gasoil 50 (Istanbul Europe) 86% 10.400 109.70 57.74 12.27 6.46Petrol 95 (Istanbul Europe) 87% 10.500 175.81 92.53 19.25 10.13Autogas LPG (Istanbul Europe) 92% 11.000 86.20 45.37 8.52 4.48Electric kcal/kWh Ykr/kWh €cents/mWh Ykr/1000kcal €cents/1000kcalElectric Industry (Single Term) 99% 860 0.12 0.06 0.14 0.07Electric Housing 99% 860 0.64 0.34 0.75 0.40Electric Business 99% 860 0.12 0.06 0.14 0.07

Unit SCT SCT for 1000kcalFuel Efficiency Minimum Thermal Value

Table 6.2. 1 SCT amount per 1000 kcal calculated on the basis of efficiency, calorific value, SCT and burning efficiency of energy products (3 August 2006)9 The above table indicates an SCT amount of € cent 6 for diesel oil, € cents 10.13 for gasoline, € cents 3.87 for LP Gas, € cents 0.15 for natural gas, € cents 0.40 for electricity for residences on the basis of net 1000 kcal. SCT amount applied to LP GAS is 26 times higher than the amount applied to natural gas.

LPG Bottled Gas oil Gasoline12kg. House Industry House Industry House Industry Vehicles Unleaded

Turkey 3,80 3,77 3,80 5,33 0,17 0,17 0,09 0,47 7,12 12,01 3,74 1,73 0,00 0,00Germany 0,60 0,60 0,60 5,68 0,97 0,97 3,60 3,60 9,00 9,72 0,83 0,00 0,00 0,00Austria 0,43 0,42 0,42 2,53 0,75 0,75 2,58 2,82 4,12 6,15 0,87 0,82 0,00 0,00Belgium 0,22 0,22 0,40 0,00 0,16 0,16 0,41 0,41 4,86 8,73 0,16 0,16Brasil 0,65 0,64 0,65 1,26 0,40 1,24 0,78 0,00 0,00 0,52 0,00 0,24Chec Rep. 0,00 0,00 0,00 4,25 0,00 0,00 0,00 0,00 4,66 5,99 0,00 0,00 0,00 0,00China 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,14 0,31 0,00 0,00 0,00 0,00France 0,00 0,00 0,00 2,07 1,63 1,63 0,00 0,00 5,85 8,95 0,77 0,25 0,00 0,00Holland 1,95 1,93 1,95 0,97 2,36 1,00 7,51 1,36India 0,00 0,65 0,83 0,00 0,00 0,13 0,13 1,53 0,59 2,54 0,98 0,00 0,00England 0,00 0,00 0,14 1,16 0,00 0,28 0,00 0,74 10,59 10,78 0,00 0,00 0,00Ireland 0,19 1,19 0,19 1,12 0,00 0,00 0,57 0,57 5,02 6,53 0,20 0,21 0,00 0,00Spain 0,00 0,00 0,00 0,07 0,00 0,00 0,00 0,00 0,41 0,59 1,02 1,96 0,00 0,00Pakistan 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00Poland 0,00 0,00 0,00 2,12 0,00 0,00 0,81 0,81 4,14 5,49 0,84 0,21 0,00 0,00

FirewoodCountry F04 F.oil 6 CharcoalLPG Bulk LPG Autogas Natural gas Electricity

Table 6.2.2 Comparison of the SCT applied per 1000kcal between Turkey and Other Countries The above table compares the total amount of other taxes excluding VAT per 1000 kcal in Turkey and other countries for each energy product. As emphasized in the first part of this report, this table confirms on a comparative basis the reality of the highness of the taxes in Turkey for liquid fuels and LP Gas when compared with other products. For example, with a tax burden of € cents 12.01 per kcal energy on gasoline, Turkey is the country with the highest tax amount in the world. Similarly, with a tax burden of € cents 3.8 / 1000 kcal on Cylindered / Bulk LP Gas, Turkey is again the country with the highest tax amount in the world. On the other hand, with a tax burden of € cents 0.17 / 1000 kcal on natural gas for industrial purposes Turkey is the country with lowest tax in the world. As indicated in the table, natural gas, electricity and coal are subject to much lower tax rates than world averages. When distribution of tax revenues are taken into consideration, while 9 The table was prepared by the technical committee formed on 18 January 2006 as per the instructions of the Minister of Energy and Natural Resources consist of data dated February 2006.

24

liquid fuels and LP Gas provide 25% of Turkey’s energy demand, taxes collected from these constitute 94% of the taxes collected from all of the energy products. A substantial part of the taxes levied on energy products is collected from LP Gas and liquid fuels. On the other hand, high taxes applied make illegal liquid fuels and LP Gas attractive which results in a revenue loss of USD 2-3 billion for the government each year.

6.3. LP Gas Appliances and Equipment

Various LP Gas appliances have been introduced to the market for the purpose of expanding the consumption of LP Gas.

Heaters 168YTL($115.6) - 242 YTL($166.5) Patio Heaters 240YTL( $165) - 520YTL ( $ 357.8) Barbecues 103YTL ($ 70.8) - 569YTL ( $ 391.6) Camping Appliances 15YTL ( $ 10.3) - 27YTL( $ 18.5) LP GAS Cylinder Appliances 5.8 YTL( $ 3.99) - 23YTL ( $ 15.8) Regulators 10YTL( $ 6.8) - 18YTL ( $ 12.3) Regulator and Hose Sets 4YTL ( $ 2.75 ) - 45YTL ( $ 3.09) Greenhouse Heater 300YTL ( $ 206 ) Spare Parts 0.9YTL($ 0.6) - 6 YTL ( $ 4.1)

Table 6.3. 1 LP Gas Appliances and Prices10

The above mentioned heaters generally use 12 kg household type cylinders. Patio heaters using 12 kg. cylinders are indispensable heating appliances of outdoor cafes, restaurants and some villas. Camping appliances and barbecues can also be used with 12 kg cylinders. However, for the costs of the above appliances place them well beyond the reach of the poor and working poor in a country where government employees on average have a net monthly salary of 750 YTL.

10 Current Rate: USD 1 = 1.453YTL.

25

7. CRITICAL ISSUES / BARRIERS / STRATEGIES

An analysis of the current situation regarding the Turkey LP Gas market was provided in preparation of this report for presentation at the country workshop for the “Clean Energy for Development” project conducted with the cooperation of WLPGA and UNDP and a summary report was produced. The report analyses the critical issues in front of the sector, barriers in the market and the strategies that need to be developed to overcome these. It also shows that the existing market players have a consensus of opinion, and presents the following solution suggestions.

7.1. LP Gas Pricing

Barriers

• Since the SCT rate applied in pricing is very high, poor and the rural populations are priced out of the market.

• VAT for the SCT is also calculated and added up to the sales price, thus the imposed tax is double-taxed.

• The SCT applied to LP Gas is 26 times higher than the rate applied to natural gas. • SCT applied to Autogas is USD 46 more than the amount applied to cylindered and

bulk gas. Increases in this difference may encourage illegal practices in the sector. Strategies

• The difference between SCT rates applied to LP Gas and to natural gas should be reduced and a fair approach to all sections of the society should be adopted.

• The differences in SCT rates between the LP Gas products should be at lower levels and the current state should be retained.

• Additional subsidy possibilities should be explored, taking into consideration the people living in rural areas.

7.2. Competitive Fuels

Barriers

• In the rural areas the consumers have turned to alternative fuels due to high prices and transportation difficulties during winter months.

• Wood and dung are obtained free of charge. • Electricity illegally obtained from the high voltage transmission lines passing from

rural areas is used.

Strategies

• In order make LP Gas easily purchasable, the government should first implement certain tax modifications.

• The advantages of safe and healthy LP Gas, which is free of solid waste, should be introduced to consumers in various regions.

• Improvement of transportation conditions is necessary.

26

7.3. Government Energy Policy

Barriers

• The government has overly focused its energy policy on natural gas. • Government’s imposition of high SCT rates in order to compensate tax deficits due to

difficulties in collecting taxes affects LP Gas’ price negatively. • A large amount of negative health impacts in rural areas are caused by exposure to

indoor air pollution which is a result of traditional fuel use. Strategies

• Natural gas should not be the sole focus of the energy policy. LP Gas which is a supporting product should be promoted, so that it may take its place as an option for providing a modern, thermal energy source.

• In rural areas where natural gas could not be supplied, the forests are being destroyed. This emphasizes the importance of a product such as LP Gas.

• The government should step up the education in rural areas on the dangers of indoor air pollution.

7.4. LP Gas Cylinders

Barriers

• The cylinders are either destroyed or taken out of the country by some companies. • It is known that some distributors fill cylinders that belong to other companies. • Cylinder manufacturing costs are very high. This situation creates an obstacle against

development and expansion of the sector. Strategies

• Cylinders destroyed or taken out of the country should be followed and inspected closely by relevant authorities.

• Structure of the cylinder costs and input prices should be supervised.

7.5. LP Gas Appliances

Barriers

• Although numerous appliances exist in Turkey which can be used with cylindered LP Gas, many of them do not comply with standards.

• Some consumers with lower education and income levels are inclined to purchase cheaper products.

• On the other hand, quality products compliant with standards are highly priced. Strategies

• It is imperative that inspections be carried out regularly. • Public awareness in this respect should be maintained.

27

• LP Gas dealers should either be warned against sales of non-standard products or more intensively inspected independent organizations.

• Quality products compliant with standards should be subsidised and payment facilities should be provided to make them attractive for the consumers.

• Micro financing can be provided to consumers in cooperation with finance institutions.

7.6. Accessibility to LP Gas in Rural Areas

Barriers

• LP Gas usage in the rural areas has become more difficult with the increased SCT rates. Purchasing power in these areas is very low.

• Product supply is very difficult due to harsh climatic conditions. • There are rural areas even without road connection for transportation. • LP Gas is combustible and flammable in nature and consumers in rural areas do not

have sufficient knowledge on the product. • Unsafe illegal electricity, wood and dung can be obtained at no cost.

Strategies

• SCT should be rearranged to facilitate affordability of LP Gas prices. • Dealer networks of the distribution companies should be widened in these areas. • Consumers should be educated for healthier and safer LP Gas usage. • Distribution companies should prepare LP Gas shipment programmes for rural areas.

7.7. Safety

Barriers

• In the previous years, minor incidents of fire and explosion at Autogas stations occurred because of illegal fillings. However, it was reported that the tanker trucks engaged in fillings did not belong to the distribution companies and necessary safety measures were not taken.

• High SCT rates applied to LP Gas causes such illegal activities. • Damaged and old cylinders might still be in circulation and this may create usage

risks due to the low level of education in the rural areas.

Strategies

• Identification of illegal LP Gas tanker trucks and their inspection by relevant authorities, complete implementation of current transportation standards should be ensured.

• Populations should be provided necessary product and safety information.

7.8. Enforcement of Safety Standards

Barriers

• Inability to inspect safety standards in rural areas may create risks. • Low socio-cultural levels of rural area residents may hinder safe usage.

28

Strategies

• Safety standards need to be reviewed in consideration with the conditions in rural areas.

• Official security forces in these areas should provide support to inspections. • Residents in these areas should be supported to ensure safe usage. This could be

done with the help of education programmes provided by distribution companies or relevant government organizations.

29

TABLES

Table 2.2.1 Energy Reserves in Turkey 2002 ........................................................ 5 Table 2.2.2 Energy Production and Consumption in Turkey 2006 ...................... 6 Table 3.1.1 LP Gas Consumption 2005............................................................... 10 Table 3.1.2 Yearly LP Gas Demand ....................................................................... 10 Table 3.1.3 LP Gas Consumptions - Urban and Rural Areas.............................. 11 Table 3.1. 4 Distribution Of the Population in Turkey ......................................... 11 Table 3.1.5 LP Gas Consumption in West & Central Europe 1995 - 2005........ 12 Table 3.2.1 Production and Imports in 2005......................................................... 13 Table 3.2.2 LP Gas Imports by Region................................................................. 14 Table 3.3. 1 Licensed Distribution Companies .................................................... 14 Table 4.2. 1 Current Cylinder Manufacturers ....................................................... 17 Table 4.2. 2 Current Cylinders and Deposit Fees ................................................ 17 Table 5.1. 1 Anatolian LP Gas Association ......................................................... 18 Table 5.4. 1 Safety standards and regulations in LP Gas Plants........................ 20 Table 5.5. 1 Standards............................................................................................ 21 Table 5.5. 2 Regulations......................................................................................... 22 Table 5.5. 3 Regulations......................................................................................... 22 Table 6.2. 1 SCT amount per 1000 kcal calculated on the basis of efficiency, calorific value, SCT and burning efficiency of energy products (3 August 2006)................................................................................................................................. 24 Table 6.2.2 Comparison of the SCT applied per 1000kcal between Turkey and Other Countries ...................................................................................................... 24 Table 6.3. 1 LP Gas Appliances and Prices........................................................ 25

30