CEOInterviews.AIEren Holding Yönetim Kurulu Başkanı Ahmet Eren / CNBC-E / 24 Eylül 2014

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Host0:00

Get rid of compulsory guesthood. Prince Cafe is moving fast. Our question: can we produce the luxury we consume? For clothing, maybe yes, but what price? For cars, different values appear. We'll cover energy, tourism, luxury retail. Our guest is Ahmet Eren, Chairman of Eren Holding. Welcome, Ahmet Bey, how are you?

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Ahmet Eren1:08

Thank you, I'm well. Seeing you makes me better.

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Host1:12

I'll speak directly with you. When the topic started, this came to mind. We spoke with Hikmet Tanrıverdi about the economy minister's statement on extra taxes on imports after shoes. Deputy PM Babacan says we shouldn't return to the 1970s with customs walls. So the real question: can we produce the luxury we consume? In cars, why do we prefer Italian? You bring luxury brands here and produce for them. What do you say?

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Ahmet Eren2:18

We produce a large part of luxury goods in Turkey. But we have grown by borrowing and consuming. Babacan advocates growth through production. Products like Burberry and Lacoste are made here. We have a brand Süstep selling imported shoes. The new shoe taxes may help, just as the 2011 textile measures prevented that sector's collapse. I hope international brands will produce shoes in Turkey instead of importing.

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Host4:00

We hope so. Treasury auction results: 5-year bond net sales 1 billion lira at 9.33% interest, 7-year floating note sales 6.816 million lira at 10.12 price. There's a PPK meeting this week. You said shoe taxes might encourage innovation and investment, but second quarter showed hesitant consumers and investors. Is this the time to invest?

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Ahmet Eren4:36

These measures will push producers to invest. We need to shift credit from consumption to production. Turkey has borrowed to finance consumption, becoming import-dependent. Now we are changing course, giving hope to escape import addiction. The real problem is the trade deficit, not just energy. I don't believe Turkey needs a trade deficit.

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Host6:05

You excel in luxury retail and energy. A viewer says 'I live better but with more debt,' matching your point. You said extra taxes could affect other sectors. How will you feel it?

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Ahmet Eren7:22

Shoe prices in our stores will rise. But from Turkey's long-term interests, these taxes are beneficial. First the nation.

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Host7:47

You say retail prices will increase inflation but be good long term. Now on energy: your group produces about 5% of Turkey's electricity, now 4% due to drought and geopolitical risks. With new investments, by 2016 it will reach 7%. Coal's share in electricity is 27%. Coal is secure. We recommend domestic coal first, then imported if needed. Coal is being scapegoated, but globally coal electricity is 40%, in US 38%, in Germany 53%. Germany uses almost twice the coal. After the Soma disaster, mining safety is questioned.

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Ahmet Eren10:09

Turkish coal mines are not as safe as German ones. But Germany imported coal; 45 years ago they produced 44% from coal, now 53% because gas is expensive. In the US, coal dropped from 44% to 38% after cheap shale gas. Environmentalists should look at realistic figures. By 2035, balance may come.

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Host11:19

The US reduced coal after cheap gas; Germany started importing coal. Your imported coal rate is 18.5%, higher last year at 22%. Domestic coal is expensive and low-calorific. You're willing to operate coal from other regions under German safety standards.

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Ahmet Eren12:11

We use 18.5% imported coal. Domestic coal is low-calorific and costly. We are willing to produce from domestic coal if found, under German safety standards.

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Host13:04

A law to adjust mine costs was withdrawn after opposition. Minister Yıldız blamed the opposition. 22 mines closed, 4200 workers unemployed. What's happening?

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Ahmet Eren13:24

High-calorific coal reserves are scarce in Turkey. Zonguldak has deep coal, extraction is nearly impossible mechanically. With new safety regulations, private mines cannot operate. We need to focus on mechanized coal fields like Konya and Afşin-Elbistan, where even low-calorific coal can be extracted mechanically. This can generate electricity cheaper than natural gas and reduce the trade deficit.

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Host16:29

So there are mechanized fields that can be safe and profitable?

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Ahmet Eren16:55

Yes, in Konya and Afşin-Elbistan. Even low-calorific coal can be used mechanically. It can produce cheaper electricity than gas, helping the current account.

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Host17:34

Winter will be cold; natural gas bills may rise with coal. Let's take a short break.

We're back with Ahmet Eren. We covered luxury retail, energy, coal. You mentioned America and Germany. You said we buy gas expensively and use more coal. But also work safety. How can we produce cheaper energy safely? I cannot oppose safety measures, but regarding coal consumption: a German consumes 2.5 times more coal than a Turk, an American 3 times more; a German emits 2.5 times more CO2, an American 5 times more. I resent Germany and America acting green while consuming more. I say this with respect to environmentalists.

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Ahmet Eren23:07

I cannot oppose safety measures. But regarding coal consumption: a German uses 2.5 times more coal than a Turk, a American 3 times; a German emits 2.5 times more CO2, an American 5 times. I resent Germany and America acting green while consuming more. I say this with respect. Our new coal plants use latest technology: European particulate norms are 30 mg/m³; our private sector plants have reduced it to 10 mg. Environmentalists should not worry.

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Host24:04

But inspection mechanisms are questioned after recent incidents. Moving on, you are also in cement. A viewer asked about housing costs due to dollar rise. Cement and iron are imported. What do you say?

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Ahmet Eren25:20

I object to that view. Cement's share in construction cost is only 5%. Cement prices in Turkey are lower than comparable countries. Regarding construction slowdown, our cement stocks are rising. First half sales were higher, but second half will be different, matching the economic growth slowdown. We expect growth around 3-4% this year. A lower growth may be healthier for transition from consumption-based to production- and export-based model.

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Host27:04

You are also in tourism. Is business good? Any new investments?

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Ahmet Eren27:57

We have a large hotel under construction in Basın Express area with a partner, opening next year. Istanbul hotels have high occupancy rates. It will be run by a famous brand. No worries about tourism.

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Host28:21

Last question: exchange rate expectations. You are both producer and importer. Büyükekşi said 1.28 euro/dollar is painful. Now dollar is testing 2.24, euro 2.28. What do you think about Draghi's policy?

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Ahmet Eren29:12

Draghi will likely continue loose money policy because Europe almost faces deflation. Euro abundance will continue. I have long believed that rates are too low in Turkey. I think rates should be higher for healthy growth. Low rates and high interest policy has turned Turkey into a hot-money-financed consumption economy. We need to escape that. If it goes to 2.25 or even 2.30, I wouldn't be uncomfortable.

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Host30:36

Thank you, Ahmet Eren, for joining us. We'll now go to market updates and the survey results.