Last week was quite entertaining. First, price of electricity were reduced. The next day, the reduction was withdrawn. And then, electricity price was raised. As the newspapers suggest, the Minister of Energy said: "I guess the process was disregarded." What do you think happened? Did you think what a sauciness it was? I personally did so at first. But then, I wondered the details and made a little research. Now, I do not think so. Let me tell you what I now think. Those of you who wonder are welcome to join me down the article.

First of all let me tell you what is in my mind: the withdrawal of price reduction in electricity is a good thing. This is great news especially for the rules-based fiscal policy process Turkey is to initiate this year, if God permits, without knowing how to. Yes, this time good came out of bad. First a mistake was made; and then it was corrected immediately. But the outcome was good. That a government heading towards elections first cut and then raised prices made me, for instance, think that someone is in control. Yes; the institutional infrastructure for the fiscal rule is not yet mature. Yet, it is not certain how the system will work. However, it appears that there exists a coordinator willing to control the process. Ones with commitment are a blessing in all this comedy. At that point, what we have to do is to underline the good intentions. So, let me do that today. Let me say the exact opposite of what I would say if the price reduction was put into effect. If electricity prices were actually cut, this would be extremely tragicomic. If so, the sincerity of the government with respect to rules-based fiscal policy would most definitely be questioned given that the same government submitted to the Grand National Assembly of Turkey (TGNA) a bill of law on the collection of the receivables of electricity state economic enterprises (SEE) by arbitration. If so, the situation would look like an alcoholic under treatment lining alcohol bottles to the cupboard. For me, at least. I would most probably write on my disappointment here. Are you also afraid that people will tell you "if you knew it, why did not you tell me?" personally I am. So, today, let me do the exact opposite and say out loud that withdrawing from the mistake is a virtue.

One of the main issues of Turkey from the past, the past of the current government, is the fiscal risks accumulating across energy SEEs. Inability to execute the price adjustments in response to the changes in world oil prices, which are technically required to be executed in time, due to political reasons disturbed significantly the fiscal structure of energy SEEs. This is the reality of the past. So, this is among the issues the government tries to solve before initiating the rules-based fiscal policy. The reason for the SEE raises yesterday is the SEE price adjustments failed to be done the day before yesterday. Recently, Bill of Law on the Regulation of Certain Debts and Receivables of Some Public Institutions and Authorities" was submitted to the TGNA. The bill currently negotiated by the relevant commission, plans to liquidate through swapping and offsetting and exempted of any interest or late fee the debts and receivables between energy SEEs namely Pipelines and Oil Transportation Company  (BOTAŞ),  Electricity Production Company (EÜAŞ), Turkish Electricity Transmission Company (TEİAŞ), Turkish Electricity Trade Company  (TETAŞ) and Turkish Electricity Distribution Company (TEDAŞ)  and to account the resultant balance in TEDAŞ's balance sheet. An assessment on this can be found in the last issue of TEPAV's traditional Fiscal Monitoring Report. Thank God we have the Fiscal Monitoring Report.

Then, the first point to state should be this: institutions like BOTAŞ have deferred liabilities, some of which will never be paid. However, the respective institutions have already made the respective delivery subject to the liability. They have endured the cost; and they now cannot get the receivable. They would go bankrupt if they were private companies; but they enjoy the right to raise prices now due to the nature of the product they produce and make all of us pay for the mistakes done yesterday. Such is being an SEE. There certainly exists a situation that can easily be criticized. It is most likely that the price reduction that should be done technically cannot be done in order to meet the finance requirement arising from uncollected receivables. And due to this reason, automatic pricing mechanism cannot be run, either. Thus, the system is distorted. However, this relies on the principle that the mistakes of yesterday are paid for today. Yesterday, electricity was sold at low prices and funds municipalities required for, let's say, street lighting were not allocated from the budget. As a result, the consequences are suffered by consumers and industrialists. These are all bad. Nonetheless, it will not be good to control the trouble caused by energy SEEs such as BOTAŞ, either. In fact, it will lead to worse consequences in the future. This is the first point to state.

The withdrawal of the price reduction followed by a raise in the prices surely points at a coordination problem. But it also shows us that each decision made is now under central control. Yes, the picture does not seem classy. But although this implies that a mistake is made, it is after all corrected. Correcting a mistake is never bad. It indicates that economic coordination is advancing. This is not bad, either. Let this be the second point to underline.

And the third one: The withdrawal of the price reduction implies that while correcting the past of the problems in energy SEEs by arbitration, the government attaches special importance to eliminate the trouble entirely. The alcoholic is no longer sleeping with alcohol bottles; he seems to be committed to overcome the habit. This, in this context, is a step to secure the credibility of the fiscal rule. And this is good. This could be an example of good coming out of bad.

Now you can say "Come on! You are overestimating all this." And you are right.  However, in a milieu where everything seems to be out of control, we are obliged to highlight good steps. The withdrawal of the price reduction in electricity, despite giving way to concerns about the technical pricing practice and the technical capability of the genius bureaucracy, is a favorable development.

This commentary was published in Referans daily on 03.07.2010