Taxes, Regs Hinder Turkey’s Base Oil Market


ISTANBUL – Turkey stands at the crossroads of Europe and Asia. But a question remains whether the country can exploit its geographic advantage and become an important hub for the base oils and lubricants industry.

Turkey is already becoming a hub for lubricant manufacturing, imports and exports, and Turkish exports are increasing every year, Esra Pelitozu, director of Selco Finance and Industrial Group, told the ICIS Turkish Base Oils and Lubricants Conference in Istanbul last month. Further, Turkeys domestic market is expected to grow with economic growth and the development of the automotive industry.

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But regarding the countrys future as a major hub for the industry, she said, It seems this will be very difficult because of the unpredictable and difficult regulatory framework, stringent regulations on storage and taxation.

Its been said that if you dont like the base oil taxes and regulations in Turkey, wait a few minutes because theyll change. This was the sentiment of several speakers at the conference.

Regulations concerning the importation of base oils into Turkey have been changed three or four times in the past two years, and sales were interrupted for several weeks as a result, said Selim Sanver, managing partner of Serem Petrol. The changes were announced without prior warning to the industry, he said, so companies had to scramble to comply before they could import or ship product.

Why are there so many changes in taxation and base oil regulations in Turkey? asked Pelitozu. One reason is that taxes on petroleum imports account for 23 percent of Turkeys indirect tax revenues. By 2013, taxes amounted to more than 60 billion Turkish liras (U.S. $28.8 billion), a 39 percent increase from 2011. She presented data showing a direct correlation between changes in taxes and regulation to fluctuations in base oil imports.

The most recent change in legislation is aimed at preventing the illegal addition of lubricant base oils to diesel fuel, a situation caused by the significant difference in taxes levied on fuel and base oil. Sanver said, As long as a huge tax advantage exists between base oils and fuel, fuel adulteration will always be of interest to people willing to take the risk.

Another problem is the burdensome paperwork required by Turkish Customs. Omur Kemel, purchasing manager for Belgin Lubricants, explained that the paperwork load is very heavy and exacting because rejection criteria are very strict and penalties are quite high.

Pelitozu added that the paperwork burden is especially heavy for smaller companies because of the time required to fill out and submit the forms. In addition, she said that companies are required to prepay taxes prior to importing base oil. These taxes are refunded if the lubricant is exported, but not always in a timely fashion.

Pelitozu explained that lubricant blenders must be licensed by Turkeys Energy Markets Regulatory Authority to be able to operate a manufacturing facility and handle base oils. The authority also issues specific quantity permissions for the import of each grade of base oil.

Kemel noted that the new regulations have had some positive impacts. Turkish buyers started to receive better and more complete quotations from suppliers and traders. Foreign suppliers and traders now understand who the real blenders and manufacturers are. And this gives us the chance to set up long term relationships.

Serem Petrols Sanver added that one problem with the new regulations is that they apply equally to API Group I base oil and the Group III base oil his company imports. Group III cannot be used in fuel because it lowers the flash point and also costs significantly more. However, the regulations as written denote only the first eight numbers of the customs tariff number, which places Group I and III base oils into the same category.

We have tried to explain this situation to Turkish authorities many times in face to face meetings, Sanver said. And although they admit that we are right, they have yet to take action.

He added, We feel adjusting ourselves to additional regulations is never enough because there will be additional changes in the future. We do not know what future changes will be because they are made without consultation. So there is no way to prepare in advance. As a result, Serem decided to move its base oil hub to Bulgaria to avoid these issues in the future.

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