Effectiveness of Regulation: An Investigation of the Turkish Natural Gas Distribution Sector
The Turkish Natural Gas Market Law, being enacted under the influence of the structural reforms going on in Europe, was aimed at a liberal market model. In this context, it was planned to create competitive markets or produce the results of a competitive environment by regulations in the natural monopoly activities.
The main objective of the law put forward is that of ensuring the supply of natural gas at high quality and low prices to consumers in an environmentally sound manner under competitive conditions, which requires effective regulation especially considering natural monopoly activities. The results obtained from the regulation of these activities that require high investment costs on the part of the companies, are one of the important tools for testing the success of the regulatory authority developed under this law.
In this study the effectiveness of regulation was investigated via examination of the various implementations and the efficiency, productivity and service quality analysis of the distribution companies. While touching upon the main elements of the intended market model, the results were taken into account mainly with regard to the effectiveness of regulation rather than in drawing conclusions with respect to economic paradigms, like market failure.
The important regulations with regard to the natural gas distribution sector were analyzed within the scope of the difference between the various planned and recognized situations. Thus it was understood that some of the regulations did not produce effective results. Particularly the comparison between private and public companies concerning their performance and R&D expenditures revealed the alienation experienced from the expected benefits of liberalization.
The distribution tariffs are determined by the Energy Market Regulatory Authority, using a popular type of incentive regulation, price cap method. Even though the incentive methods are known to steer companies towards productivity via decreasing costs, at the same time they also make them reluctant to increase service quality. An empirical study was carried out relative to the productivity and service quality of the Turkish distribution companies. Their productivity scores were determined by both a parametrical model, the Stochastic Frontier Analysis, and a non-parametrical method, the Data Envelopment Analysis. Then they were ranked according to their service quality scores, demonstrating the relationship between productivity and service quality. The results revealed that the service quality was sacrificed on the altar of productivity.
In conclusion, by the implemented regulations the main aim to generalize natural gas throughout the country was achieved. Meanwhile a structure was created where the consumers have to put up with either a high cost or low quality of service. The regulations to encourage sector development and cost reduction through R&Ds have not been properly implemented. The obtained results are considered as partially regulatory failure.
Dissertation ID: 434299
Restricted until 22.06.2019.