However, the sector maintains its hopes that this will change for the better, Richard Harding, the fuels country manager of BP Turkey told Sunday’s Zaman.
Sunday’s Zaman sat down with the BP exec to discuss his company’s aspirations and expectations on their 100th anniversary in Turkish markets. “At the end of the day we are committed to our next 100 years in Turkey, whose economy is robust,” he summed up, after drawing a bigger picture of the challenges that lie ahead for the company.
The contractor of the critically important Baku-Tbilisi-Ceyhan (BTC) pipeline, BP is heavily invested in Turkey, not to mention operations in the surrounding oil producers of Azerbaijan and Iraq. Turkey is one of the five most strategic markets for BP, which currently has 600 fuel retail sites supported by a widespread network across the country.
Harding said they have faith that the company will gain a greater foothold in Turkish markets with high value-added service, but at the same time he has some reservations. “We see a huge amount of opportunity in Turkey; the market fundamentals -- including gross domestic product [GDP] growth and an inclination towards car ownership -- are very strong for the petroleum business to flourish. But still, there are some things that do make working in this country challenging,” he opined.
According to Harding, the challenges include government intervention, changing rules and instability. “I do not think government intervention is the right way to bring value to customers. The last time Turkey’s Energy Market Regulatory Board [EPDK] intervened and introduced price ceilings for the petroleum market was in 2009. The watchdog then appeared once more on stage in December, this time to ban the distribution of promotional giveaways that are a part of companies’ loyalty programs.”
The Turkish fuel markets, in particular, have floated on “quite unstable and unpredictable” waters in the past few years, according to Harding. “As investors we would like to see and understand the market outlook in the long run. I cannot say we are totally able to do that at the moment,” he asserted. However, Harding added that BP -- also a member of the Turkish Petroleum Industry Association (PETDER) -- has a constructive dialogue with the regulator and government and this gives them hope that a customer-driven market atmosphere can be promoted in Turkey.
One of the major drawbacks mentioned by Harding are the current restrictions on fuel companies’ loyalty programs. In December 2010 the EPDK banned the distribution of promotional giveaways. This has been one of the sources of major discussion in the market; while consumer unions supported the EPDK’s decision, fuel firms felt very differently. Prior to the EPDK decision, fuel distributors in Turkey distributed giveaways such as pots, cups, cutlery, toys, detergent and concert tickets in a bid to attract customers. The watchdog said the practice should be banned, arguing that distributors recouped the costs of such items by increasing gas prices.
A separate promotion that enables customers to earn extra points which can be redeemed for free fuel made with purchases with their credit cards is still in place. But Harding said customers demand more. “Feedback from our customers show that they value being a part of our loyalty program. They would like us to return to offering more diverse products.”
“Banning promotion means inhibiting competition, innovation, business efficiency and investment for the Turkish economy and we expect this constraint to be removed from the market,” he argued.
The BP official said one critical factor that has negatively affected the profitability of players in the industry is the instability of rules. “The profitability of the sector dropped enormously; the market is making below cost of capital returns. We set a target to reach 10 percent post-tax returns but we are nowhere near that yet.” Harding said they needed to reach a point where they could earn reasonable and sustainable returns and this would only be possible if the authorities “allowed the market to operate freely.”
“Promotions are much more diverse in other markets such as the UK compared to Turkey. If you look at the UK, the supporting promotions are very developed. I think the market should find its equilibrium through consumer choice. … This would be in the best interest of any constituent in this market.” The sale of illegal engine oil -- or base oil 10 -- in the market is another problem Harding cited. “These products are sold at relatively lower prices and they have increased their penetration. We are speaking with the government to mitigate this problem,” he noted.
Turkey becomes a major energy transfer corridor
BP is committed to supporting Turkey’s aspiration of becoming a major energy transfer center in its region, Harding said, adding that the country’s importance as an energy bridge has increased over the past decade. “Turkey is fast transforming into an enormously important bridge for those who have energy reserves and the consumers on the other side. We are evaluating various options for working with a number of parties to help Turkey improve its position,” he noted.
BP is a major partner in Azerbaijan’s Shah Deniz II oil field and is part of the Shah Deniz Export Negotiating Team (ENT), which is led by Azerbaijani SOCAR and includes Statoil and Total. The ENT is currently assessing options for delivering fuel from Turkey to Europe and the Trans Anatolia Pipeline (TANAP) -- the longest route in Turkey -- is one of the candidates. Recalling that the decision will be made in 2013, Harding declined to comment on who would most likely win the approval of investors. Harding says Turkey and BP are also exploring opportunities to carry oil from Iraq to Europe.
Cleanliness and speed come first
The two things that Turkish customers care the most for are the cleanliness of facilities and speed of service, Harding said, evaluating consumer sentiments in the country.
“I find the Turkish consumer to be really passionate and emotional; you can build relationships fast as they are more open. They want products of good quality and to be served quickly,” he noted.
He said BP was looking to grow its site numbers up to 40 in 30 provinces. “We are looking to increase our market share which could add 500 new jobs through the new sites. We are also looking to further increase our fleet coverage in Turkey.”
Ninety-nine percent of BP Turkey’s employees are Turkish and the firm places heavy importance on social responsibility programs. The company is currently sponsoring the Turkish National Paralympic Team until the end of 2016. Harding said that with this sponsorship, BP was aiming to raise the profile of the 8 million disabled people in Turkey. “And through this we also promote road safety programs.” The company has provided road safety training to almost 1.5 million children over the past 15 years in Turkey. “We wanted to promote road safety by putting disabled sportspeople on the stage because they are inspirational to us all.”