Turkey: The Turkish Update - 1st Quarter, 2008

This is the First Quarter 2008 Edition of our email news service – The Turkish Update. This edition provides concise summaries of sector-specific legal developments in Turkey through January, February and March 2008 and, for the first time, also includes brief articles on "Hot Topics" in Turkish law for the future.

Part 1 - Legal developments

Banking - Asset and trade finance

Exports no longer have to repatriate their export revenues: The Decree of the Council of Ministers which Amends the Decree of Council of Ministers on Protection of the Value of Turkish Currency No.32 (the Decree) was published in the Official Gazette on 8 February 2008. The Decree removed the requirement for exporters to repatriate their export revenues within 180 days of the physical export date and currently, therefore, the disposition of such revenues is no longer subject to any specific procedure.

The Decree also allows persons domiciled in Turkey to engage in the purchase and sale of securities and other capital market instruments traded on a foreign financial market provided that all these transactions are conducted through intermediaries authorised under the capital markets legislation. A separate Communiqué regarding the Council of Ministers Decree on the Protection of the Value of the Turkish Currency (published in the Official Gazette on 28 February 2008) includes a provision similar to the Decree. This requires all sale and purchase activities relating to securities, capital market instruments, futures, options and derivatives traded on a foreign financial market should be carried out by domestic or foreign-based intermediaries authorised by the Capital Markets Board provided that all the foreign currency transfers are carried out through banks.

Competition

Competition Law fines amended: see Hot Topic "Turkish Competition Authority is given greater powers to fine and enforce penalties".

Amended block exemptions: The Block Exemption Communiqué on Technology Transfer Agreements (Communiqué No:2008/2) came into force on 23 January 2008. It expands on Article 5 of The Act on the Protection of Competition No. 4054, by setting out the conditions under which an anti-competitive technology transfer agreement will be block exempt from Article 4.

The Block Exemption Communiqué in Relation to the Insurance Sector (Communiqué No:2008/3) came into force on 1 February 2008. It expands on Article 5 of The Act on the Protection of Competition No. 4054, by setting out the conditions under which certain categories of insurance agreement will be block exempt from Article 4. Co-insurance and co-reinsurance groups are also within the scope of the Communiqué. The Guidelines on Certain Sub-contracting Agreements between non-competitors published on 10 January 2008 on the Turkish Competition Authority's (TCA's) website. These give a brief explanation of vertical block exemption and individual exemption conditions for sub-contracting agreements.

What is a relevant market?: Guidelines on the Definition of Relevant Market published on 28 January 2008 on the TCA's website. These state the method the Turkish Competition Board (TCB) will use to define "a market" and explain the factors the TCB considered when it determined "a relevant product" and "a geographical market" in its previous decisions.

Corporate, commercial and capital markets

New rules for intermediary activities: Communiqué Serial: V, No:99 Amending the Communiqué Serial: V, No:46 on the Principles Regarding Intermediary Activities and Intermediary Institutions published in the Official Gazette on 4 March 2008. This amends the rules applicable to intermediary activities in capital markets, such as intermediary activities in (1) public offerings (primary trading), (2) the sale and purchase of previously issued instruments (secondary trading) and (3) derivative instruments trading.

Previously, under the law, certain notification obligations of intermediary institutions (e.g. notification of a Board of Directors decision, lawsuits for and against the intermediary institutions) were to be made to the Capital Markets Board. However, now such notifications should be made to the Association of Capital Markets Intermediary Institutions of Turkey, which shall determine the principles and procedures regarding these notifications.

Article 53/A of the Communiqué allows intermediary institutions to accept instructions from clients via Internet, provided the intermediary executes an agreement with the client and opens an account on their behalf.

Corporate governance principles published: The Communiqué Serial: IV, No:41 on Principles to be Followed by the Joint Stock Companies Subject to the Capital Market Law published in the Official Gazette on 19 March 2008. This Communiqué sets out the corporate governance principles that corporations subject to the Capital Market Law must follow.

Energy and infrastructure (including oil, gas and electricity)

Nuclear power plant tender: see Hot Topic "Turkey announces its first nuclear generation plant tender" below.

Amendments to the Electricity Market Licence Regulation: Published in the Official Gazette on 8 January 2008, these state that an auto-producer or an auto-producer group can sell a portion of the electricity it produces in a competitive environment. This portion will be determined by the Energy Market Regulatory Authority (EMRA).

New coal and thermal power plant tenders: A tender for coal production rights and the construction and operation of a thermal power plant in the Afsin-Elbistan C&D coal basins will be conducted on 26 June 2008. This was announced in the Official Gazette on 25 January 2008. More than 30 companies have obtained the tender documents so far. The tender documents can be reviewed at www.euas.gov.tr.

Amendments to the Natural Gas Market Distribution and Customer Services Regulation: Published in the Official Gazette on 25 January 2008, these make changes to the definitions of two types of agreement: carriage services agreement and delivery services agreement. They also introduce an additional requirement for distribution companies to transfer certain data to specified transmission companies.

New tender process for nuclear power: The Regulation on the Principles, Procedures and Incentives that relate to the Tenders and Contracts to be executed under the Law on the Establishment and Operation of Nuclear Power Facilities and the Sale of Energy was issued by the Ministry of Energy and Natural Resources and came into force on 19 March 2008. This governs the tender process for and selection of companies that will build and operate nuclear generation plants. More specifically, it covers the following: the qualifications required of companies wishing to participate in tenders; the length of any tender process; the criteria for selecting a company on the basis of the tenders; the assignment of land on which nuclear generation plants will be established; the licence fees; the infrastructure incentives; the supply of fuel to nuclear generation plants; the generation capacity of any nuclear generation plants; and the amount, term and unit price of energy to be purchased from nuclear generation plants.

Media

New media law: A comprehensive law with the aim of unifying provisions of various laws with the new Turkish Criminal Code came into force on 8 February 2008. This law makes several amendments to the Law on the Establishment and Broadcasts of Radio and Television Companies. Notably, it reduces the number of repeat offences leading to a licence suspension from three to two. Under the new law, if a violation is repeated twice within one year (starting from the date of the first violation) the broadcasting licence of that radio or television broadcasting company may be suspended for up to one year. Other amendments include changing those who will be deemed criminally liable for crimes committed during radio or television broadcasts and for other offences such as unauthorised broadcasts or not keeping taped recordings for at least one year.

Mining and environment

New Regulation on the Assessment and Management of Environmental Noise: Published in the Official Gazette on 7 March 2008 and numbered 26809, this regulation is based on EU Directive 2002/49/ EC and repeals the previous regulation of the same name (Regulation 25862 dated 1 July 2005). The regulation imposes restrictions on the level of noise permitted in working areas (e.g. industrial facilities and construction sites) and details measures that should be taken to control this noise. It also specifies which facilities must obtain noise control permits and, where such facilities were established before the entry into force of this regulation (7 March 2008) and have not obtained establishment and operation permits, it imposes a three-year time limit on obtaining a noise control permit.

Amendments to the Regulation on the Control of Water Pollution: Published in the Official Gazette on 13 February 2008, significant amendments have been made to this regulation including the introduction of new definitions (e.g. "Ship", "Critical Water Area", "City Waste Water" and "Recreation Areas") and creating new classifications such as sea and shore waters.

Pharmaceuticals

Regulation on The Outpatient Private Health Institutions: Published in the Official Gazette on 15 February 2008, this regulation introduces the procedures and principles applicable to the restructuring, authorisation, auditing, activities and termination of such activities at outpatient private health institutions.

Real estate

Repeal of direct foreign investment law: On 11 March 2008, the Turkish Constitutional Court (TCC) repealed Article 3(d) of the Foreign Direct Investments Law No. 4875. Previously, this had allowed Turkish companies with a foreign shareholding to purchase real property in areas where normally only Turkish citizens were entitled to acquire ownership or limited rights in rem. This decision of the TCC will come into force on 16 October 2008.

Currently, land registries are accepting applications for registration of property purchases by Turkish companies with a foreign shareholding. However, unless the Turkish Government takes further legislative action before 16 October 2008, there is a risk that all property acquisitions by Turkish companies with a foreign shareholding after that date will not be registered. We have been verbally informed by the Turkish Governmental authorities that an internal study is currently being carried out and that it is likely a draft law will be enacted prior to the 16 October 2008 deadline. This draft law will enable property acquisitions by Turkish companies with a foreign shareholding, but will also take into account the general concerns of the TCC in terms of sovereignty and the national interests.

Suspension of property acquisitions for non-Turks: On 16 April 2008, another decision of the TCC came into force which resulted in the suspension of all future property acquisitions by non-Turkish individuals. This is likely to be a temporary suspension, which will be rectified by the introduction of a new law. To this end, the Turkish Prime Ministry has recently released a draft law removing this suspension, but subject to new conditions. These new conditions include, for example, a new method of calculating the maximum size of land that a non-Turkish individual can acquire.

Telecoms

Amendment to Regulation on Access and Hosting Service Providers: An amendment to the Regulation on the Principles and Procedures on the Issuance of Certificates of Activity for Access and the Hosting Services Providers was published in the Official Gazette on 1 March 2008. This extends the deadline for applications for certificates of activity from three to nine months. Under the previous regulation, any hosting service provider operating at the date of entry into force of the regulation (24 October 2007) had three months from this date to apply to the Telecommunications Authority for a certificate of activity. With the amendment to this regulation, however, the threemonth time period has been extended to nine months.

Part 2 - "Hot Topics"

Table of privatisation opportunities in Turkey in 2008

Turkey announces its first nuclear generation plant tender: In response to the predicted power supply shortfalls and rising oil prices, Turkey has decided to pursue a nuclear power option. Turkey wants to build three new nuclear generation plants with a total generation capacity of 5,000 MW by 2015, the first of which will be developed at Mersin on Turkey's Mediterranean coast. The Mersin site was chosen as it already has the required licence. Further down the line, a second nuclear generation plant will be located at Sinop on the Black Sea.

On 8 November 2007 the Turkish Parliament enacted the "Law on the Establishment and Operation of Nuclear Power Facilities and the Sale of Energy" (the Nuclear Law), which came into force on 21 November. The Nuclear Law states that the procedure for establishing a nuclear generation plant in Turkey will be determined by the Ministry of Energy and Natural Resources. The first tender for a nuclear plant will be organised by TETAS, the state-owned power wholesale company. The technical specifications and qualifications that companies must meet in order to take part in this tender were published by the Turkish Atomic Energy Institution (TAEK) on 21 December 2007.

The "Regulation on the Principles, Procedures and Incentives that relate to the Tenders and Contracts to be executed under the Law on the Establishment and Operation of Nuclear Power Facilities and the Sale of Energy" (the Nuclear Regulation) was issued by the Ministry of Energy and Natural Resources and came into force on 19 March 2008. The Nuclear Regulation governs the tender process and the selection of companies that will build and operate the nuclear generation plants. The Nuclear Regulation more specifically covers the following:

• qualifications required of companies wishing to participate in tenders;
  
  

• length of any tender process;
  
  

• criteria for selecting a company on the basis of the tenders;
  
  

• assignment of land on which nuclear generation plants will be established;
  
  

• licence fees;
  
  

• infrastructure incentives;
  
  

• supply of fuel to nuclear generation plants;
  
  

• generation capacity of any nuclear generation plants; and
  
  

• amount, term and unit price of energy to be purchased from nuclear generation plants.
  
  

On 24 March 2008, TETAS announced the tender for the first nuclear plant in the Turkish Official Gazette. According to the tender announcement, the plant will be built in Akkuyu, Mersin and will have an estimated power output of 4000 MW, plus or minus 25 per cent. The tender is open to local and foreign companies, partnerships and consortiums. Bids must be submitted by 24 September 2008 and shall remain valid for 360 days. Bidders are required to post a bid bond of 35 million New Turkish Lira. The tender procedure is subject to the Nuclear Law and the Nuclear Regulation. The State Procurement Law will not apply.

The tender documents have been prepared by TETAS, which will conduct the entire process. The Turkish version of the tender documents, including the tender specifications and the proposed power purchase agreement to be signed between TETAS and the selected bidder, are available from TETAS' website (www.tetas.gov.tr ). An English version, for information purposes, should be released by TETAS shortly. Parties who are interested in participating in the tender must purchase the tender documents for 10,000 New Turkish Lira. Over a dozen major Turkish and foreign companies are already rumoured to have an interest in the tender.

The Turkish Energy Market Regulatory Authority (EMRA) will issue a licence to the company that wins the tender and TETAS will sign an "offtake" contract (with a maximum term of 15 years, which seems unrealistically short) to purchase all the electricity generated by the nuclear generation. Potential bidders must be aware that the company awarded the tender will also be responsible for decommissioning the plant and cleaning up the site at the end of its use.

Turkish Competition Authority (TCA) is given greater powers to fine and enforce penalties: Law No. 5728, which came into force on 8 February 2008, has amended various Articles in the Act on the Protection of Competition (the Competition Act) in relation to the fines that may be levied by the TCA. In general, these amendments:

• give greater powers to the TCA for effective enforcement of penalties against breaches of competition rules; and
  
  

• make the Competition Act more in line with the equivalent EU rules.
  
  

As a consequence of these amendments, parties that deal with Turkish Competition rules must be increasingly careful in ensuring their compliance with the rules. Please note, however, that despite these changes the general fine for breaching competition rules remains the same (i.e. is still up to 10 per cent of annual gross revenue of the undertakings concerned).

See below for some further detail of these amendments:

(a) Amendment to administrative fines/relative administrative fines

The headings in Articles 16 and 17 of the Competition Act have been changed to "administrative fines" and "relative administrative fines" so as to clarify that the fines imposed by the TCA are administrative fines.

(i) Administrative fines: The fining procedure in the Competition Act has been improved and the fines given for failure to follow the procedure set out under the Competition Act have been changed from a defined sum to a percentage of the annual gross revenue of the relevant undertaking.

• giving incorrect or misleading information or documents while making a notification for merger/acquisition or individual exemption/negative clearance;
  
  

• carrying out a merger/acquisition without the TCA's permission;
  
  

• not giving prompt or giving misleading information in response to the TCA's request for information; and
  
  

• preventing or impeding an "on-the-spot investigation".
  
  

• 0.5 per cent of the relevant annual gross revenue where "on-the-spot investigations" of the TCA have been made difficult by an undertaking
  
  

• per cent of the relevant annual gross revenue for the other procedural prohibited practices.
  
  

(ii) Relative administrative fines: In addition to administrative fines, a relative administrative fine will also be imposed for certain breaches until they are rectified. These fines have also been increased, from YTL734 – 1,839 to 0.05 per cent of annual gross revenue per day.

• non-compliance with the obligations provided by or commitments given by the TCA;
  
  

• for preventing or impeding an on-the-spot investigation; and
  
  

• for failure to submit any requested information or documents in time.
  
  

(iii) Calculation of "annual gross revenue": For the purposes of calculating an administrative or relative administrative fine, the annual gross revenue of a relevant undertaking shall be the annual gross revenue of the relevant undertaking at the end of its last fiscal year preceding the decision date of the fine.

(b) Other changes

1. Clarified which undertakings will be responsible for not notifying a merger or acquisition. It states that in a merger administrative fines will be imposed on each party to that merger, but in an acquisition they will only be imposed on the acquirer.
   
   
2. Created a new responsibility for professional executives or employees where there has been a breach of the Competition Act. Any such person who has had an impact on the principal party's breach will be subject to administrative fines of up to 5 per cent of the fine imposed on the relevant undertaking.
   
   
3. Introduced a "leniency programme" whereby relevant undertakings or their executives and employees, which actively cooperate with the TCA for the purpose of uncovering a violation of the Competition Act, may be held immune from any fines under the Competition Act.
   
   
4. Abolished Articles 18 and 19 of the Competition Act (which concerned the nature of fines and limitation period). The relevant limitation period has now been extended from three and a half years to eight years.
   
   
5. Clarified that the "Council of State" is the court of first instance if a relevant undertaking wishes to apply to nullify a Turkish Competition Board decision.
   
   

Footnote

^{1. Note: these 2008 timetables should not be seen as definitive. They are based on the most recent statements by either the Turkish Finance Minister or the Privatisation Authority.}

Guner Law Office was established in 1996 and has since grown into one of the major corporate, M&A, banking, litigation, energy and TMT practices in Turkey. Guner Law Office is headed by Ece Guner and works with international law firm Denton Wilde Sapte.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.