Turkey stands at the crossroads of Europe and Asia. But a question remains whether it can exploit this geographic advantage to become an important hub for base oils and lubricants.
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 & Industrial Group, told the ICIS Turkish Base Oils and Lubricants Conference in Istanbul in May. Turkeys domestic market is expected to expand, but regarding its future as a major hub, she said, It seems this will be very difficult because of the unpredictable and difficult regulatory framework, stringent regulations on storage and taxation.
Several speakers noted that base oil taxes and regulations change often and without warning. Regulations concerning the importation of base oils into Turkey have 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, and companies had to scramble to comply before they could import or ship product.
Pelitozu explained that taxes on petroleum imports account for 23 percent of Turkeys indirect tax revenues. By 2013, taxes amounted to more than 60 billion Turkish lira (21 billion), a 39 percent increase from 2011. She presented data showing a direct correlation between tax and regulation changes and fluctuations in base oil imports.
The most recent legislation is aimed at preventing the illegal addition of lubricant base oils to diesel fuel, a situation caused by the significant difference in taxes on fuel and base oil. Sanver said, As long as a huge tax advantage exists between base oils and fuel, fuel adulteration will 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 strict and penalties are quite high.
Kemel admitted that the new regulations have had some positive impacts. 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.
Sanver added that one problem with the new regulations is that they apply equally to API Group I base oils and the Group III base stocks his company imports. Group III cannot be used in fuel because it lowers the flash point and also costs significantly more.
He added, We feel adjusting ourselves to additional regulations is never enough because there will be more changes in the future. [Changes] 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.