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Turkey: Ankara Cuts Gas Prices After Russian Concessions

Turkey has lowered its natural-gas prices following an agreement with Russia, but the effect on other suppliers like Iran and Azerbaijan remains in doubt. Ankara stopped Iran's exports in June while Azerbaijan's development costs have climbed, leaving the region with an even tougher race for energy markets than before.

Boston, 2 October 2002 (RFE/RL) -- Turkey has cut gas prices for consumers in a pre-election move after winning concessions from Russia, but officials have yet to say whether Iran has agreed to grant a similar break.

On Monday, Turkish Energy Minister Zeki Cakan announced that gas tariffs would drop 5 percent for industrial customers and 6 percent for city networks, Reuters reported. In a statement, Cakan cited Russia's agreement to lower its rates for gas exports to Turkey by 9 percent. Russia is believed to be supplying about 80 percent of the country's gas.

The decrease for customers came three weeks after Cakan announced the Russian rate cut, saying, "In this way, we obtained a $280.4 million saving in natural-gas expenditures up to 2005." Reuters said lower tariffs could help ease Turkey's inflation and speed recovery from its worst economic decline since World War II.

But the timing may also raise questions about the motives. The announcement came just over a month before Turkey's general elections scheduled for 3 November.

The country has been struggling since February 2001, when a dispute among political leaders touched off a currency devaluation and a sudden economic slide. That in turn has undermined Turkey's demand for imported gas. Cakan also said last month that Turkey's state pipeline company Botas had negotiated with Russia's Gazprom to reduce deliveries by half through its new Blue Stream pipeline across the Black Sea next year.

Ankara may get some further relief from its habit of signing too many gas contracts with the announcement that the $3.4 million Blue Stream project will start pumping gas even later than planned. The Anatolia news agency said the start date is now set for December instead of this month.

The project, jointly developed with ENI of Italy, has also missed previous target dates of March and December 2001. In 1997, developers predicted, "The first gas should flow by the year 2000," putting it about three years behind.

But the effect of the price cut on other countries has yet to be determined. On 9 September, Cakan announced that the flow of gas from Iran had been halted since 24 June. Turkey blamed the quality of the gas for the stoppage. Iran blamed Turkey's economy and threatened to seek penalties under a take-or-pay provision of its 25-year contract. Recent reports held out hope that Turkey would restart imports from Iran on Tuesday.

Following talks last week, Botas general manager Gokhan Bildaci said flatly that imports would resume on or by 1 October, according to reports by Reuters and the official Iranian news agency IRNA. But other reports were qualified. AFX news quoted Bildaci as saying that talks with Iran had been positive, adding, "The pipeline will be reopened on October 1 if an outcome is reached." "Turkish Daily News" also said that pumping "might" begin again.

On Tuesday, Dow Jones Newswires was unable to get a clear answer. The agency quoted an unidentified official from the National Iranian Gas Company as saying, "Negotiations are still continuing, and no conclusive results on when Turkey would resume imports of gas has been as yet...reached."

It may be days or weeks before it is known whether the flow has fully resumed and whether Turkey has been bargaining for a better price, as well as better quality.

But Russia's price cut may also put pressure on Azerbaijan, which hopes to develop its giant Shah Deniz gas field in the Caspian Sea and pump the fuel through a new pipeline to Turkey. Baku is hoping for an investment decision by Western oil companies later this month, but development costs have already risen from $2.7 million to $3.2 million. Backers had planned to compete with Russia and Iran on price, a challenge that seems to be growing more difficult.

Turkey has been working on a joint plan to build a $300 million pipeline to Greece to pass on its extra gas to Europe. But the line would reportedly carry only 500 million cubic meters of gas annually starting in 2005, an amount that may be one-twentieth of Turkey's excess supply.

The competition among the countries may be hard to manage without repercussions. In recent weeks, Iran has been careful to treat the gas dispute as an isolated matter, while keeping up contacts on issues such as agriculture and transportation. The approach may pay off if Turkey turns the gas back on and keeps it on, but so far this year, it has met a only fraction of its purchase pledges.

On the other side, there have been warnings of broader tensions. Last month, Tehran Radio said the decision to stop the gas flow was "not a friendly act."

After years of rushing toward markets and resources, little progress has been made on solving the problems of the region's gas competition. Now, prices seem to be falling while costs are still rising, and more diplomacy may be needed before more development can proceed.