Despite a fast growing electricity industry, state-owned monopolies
dominate the sector and productivity suffers. While steady and rapid growth in
consumer demand has helped the industry, the inefficiencies of state-run
facilities have hurt productivity and contributed to high electricity prices.
New regulations must balance critical, but frequently competing goals.
State Monopolies in Control
Two state-owned monopolies, TEAS and TEDAS, have almost complete control over Turkey's electricity. TEAS controls more than 80 percent of production capacity and nearly the entire transmission network. TEDAS controls more than 90 percent of electricity distribution.
The sector's total productivity is 75 percent of U.S. levels. Excess labor accounts for a significant shortfall in productivity and is a factor in user prices that are 45 percent above U.S. levels. But the story of high user prices is much more complex, including the effect of fuel prices, thefts and losses, and concessions.
Further complicating the equation are critical questions of security of supply, value of privatization proceeds, and the need to attract tens of billions of dollars of private investment to the industry.
Privatizing the Industry
No one questions that a sweeping program of liberalization and privatization is needed. In the long run it will address not just the productivity shortfalls but the other imperatives as well.
But, how much, how soon, and in what sequence? How can Turkey ensure that it finds the optimal blend and avoids the risk of satisfying none of its goals while trying to achieve them all?
Careful Management
Turkey is already moving in the direction of liberalization. However, the process itself is very complicated and cuts across the interests of many stakeholders. Many countries have got it wrong. Even in the most successful deregulation examples, such as the U.K., the full transition to competitive markets took more than a decade.
Pursuing a broad set of
goals immediately could result in Turkey's achieving none. The lessons of
privatization in other countries show that the key to success will be to
deregulate in increments. The starting point is a more extensive debate around a
much more thorough set of options and analyses. The government needs to manage
expectations accordingly. Launch this chapter (PDF - 439 KB)
