In the Electricity Sector

Amendments to Electricity Market Balancing and Settlement Regulation

The Regulation Amending the Electricity Market Balancing and Settlement Regulation ("Amending Regulation") was published in the Official Gazette on 28 March 2014, but will enter into force on 1 July 2015. According to the information obtained from Energy Market Regulatory Authority ("EMRA") officials, the entry into force of the Amending Regulation has been postponed to 1 July 2015 so as to enable the development of the technical capacities and infrastructure that are required for implementation of the Amending Regulation. Indeed, the Amending Regulation introduces extensive and material changes which would require certain infrastructural progress, some of which are summarized below:

  • Enerji Piyasaları İşletme Anonim Şirketi ("EPİAŞ") is designated as the market operator for day-ahead and intra-day markets; and the operation of the intra-day market is regulated in detail under the Amending Regulation. Until EPİAŞ obtains a market operator license, the Turkish Electricity Transmission Company ("TEİAŞ") will remain as the market operator.
  • A central settlement bank to be established in accordance with the Capital Markets Law will function as a clearing house with respect of the financial operations amongst market participants.
  • The rejection reasons available to the existing supplier of a customer in case of supplier change of that customer (i.e., having an ongoing agreement with a consumer and/or a consumer's failure to fulfil its obligations) no longer exist. Further, the approval mechanism for changing a supplier which requires the consent of the existing supplier has been removed.
  • Distribution companies are no longer entitled to object to the transfer of an eligible consumer to the portfolio of another supplier on the grounds that the meters of the relevant consumer are not adequate for such transfer. As per the electricity market legislation, the distribution companies are required to provide the consumers with adequate meters.
  • In the event of a determination that a market participant has unjustly blocked the transfer of an eligible consumer to the portfolio of a new supplier, the necessary corrections will be made on the system and the relevant market participant will become subject to sanctions as per Article 16 of the Electricity Market Law. Also, if it is determined that a supplier places an eligible consumer transfer request to EPİAŞ without concluding an energy sale agreement or executing the IA.02 form with the consumer: (i) the consumer will be removed from the portfolio of that supplier by the first day of the month following the transfer request; (ii) the supplier will be banned from requesting the registration of a new eligible consumer to its portfolio via bilateral agreements for three months pursuant to an EMRA Board decision; and (iii) the supplier will be sanctioned as per Article 16 of the Electricity Market Law.
  • In the event that an eligible consumer requests to be registered by more than one supplier, EPİAŞ will carry out the necessary examinations and the eligible consumer will be transferred to the supplier who can present a valid bilateral agreement or IA.02 form. If more than one supplier can present the required documents, all registration requests regarding that consumer will be rejected by EPİAŞ.
  • EPİAŞ will establish and make accessible to supplier an eligible consumer database to be used during the supplier switch process. The distribution companies and TEİAŞ are required to provide and keep up-to-date the following information with regard to the eligible consumers to whom they provide service: (i) name, trade name of the eligible consumers; (ii) the registration code of their utilization point; (iii) the city and district where the utilization point is located; and (iv) the full address of the utilization point. If a supplier switch process is hindered due to noncompliance with this requirement, TEİAŞ, or the relevant distribution company, will be subject to sanctions under Article 16 of the Electricity Market Law.
  • The Amending Regulation authorizes EMRA to request that the Competition Authority initiate a competition scrutiny regarding any anti-competitive act or transaction of the market participants in relation to their activities regarding the organized wholesale electricity markets regulated under this Regulation either (i) directly or (ii) following submission of a report by TEİAŞ or EPİAŞ to EMRA. This authority is not limited to the abuse of dominant position or concerted action cases which was the scope of TEİAŞ's authority prior to the Amending Regulation.
  • The Amending Regulation establishes a new sanction mechanism for competition breaches in the electricity market: if the Competition Authority detects a competition breach of a market participant and/or balancing unit, EMRA may impose maximum price limits to the breaching market participant and/ or balancing unit in the day-ahead and balancing markets up to one year.
  • Zero balance correction amounts will continue to be collected from market participants by using zero balance correction ratios until 1 January 2016.

Regulation on Organizational Structure and Operating Principles of Turkish Energy Markets Operator

The Regulation on Organizational Structure and Operating Principles of Enerji Piyasaları İşletme Anonim Şirketi ("EPİAŞ") which will act as the market operator in the Turkish energy markets after being licensed by EMRA ("EPİAŞ Regulation") was published in the Official Gazette on 1 April 2015 and entered into force on the same day. As per the EPİAŞ Regulation, aside from the regular decision-making and execution bodies of a joint stock company, EPİAŞ will operate through various service units and committees such as the Surveillance and Compliance Committee, Risk Committee or the Market Monitoring Committee. Going forward, the Market Monitoring Committee will play a major role in the formation of a fair reference price in the Turkish electricity market and development of a competitive market. The duties and liabilities of these bodies within EPİAŞ are regulated in detail under EPİAŞ Regulation. EPİAŞ was incorporated and registered with the trade registry in March. TEİAŞ and Borsa İstanbul each hold 30% of its share capital whereas the remaining 40% is owned by private companies.

Regulation Amending the Electricity Market Consumer Services Regulation

The Regulation Amending the Electricity Market Consumer Services Regulation ("Regulation") was published in the Official Gazette on 18 March 2015.

The Regulation amended Article 20 of the Electricity Market Consumer Services Regulation and repealed sub-clause 3 of Article 20. With these changes, it is no longer possible to be an eligible consumer with a consumption undertaking.

Regulation Amending the Electricity Market Licensing Regulation

The Regulation introducing amendments to the Electricity Market Licensing Regulation ("Licensing Regulation") with respect to the pre-construction requirements was published and became effective with its publication in the Official Gazette on 4 February 2015.

The novelties stipulated under the Regulation can be classified under two categories:

  • A possible remedy for license cancellations due to noncompliance with pre-construction requirements: Under the current legislation, a generation license holder that is still in the pre-construction period is required to certify to EMRA that it has completed the requirements envisaged under Temporary Article 15 of the Licensing Regulation within the pre-construction period provided in its generation license. In the event of the failure to complete these formalities within this period, EMRA grants an additional six months,1 and this period is added to the remaining pre-construction period, if any. If, however, the generation license holder, again, fails to complete these pre-construction requirements within the extension period for any reason, other than force majeure events, EMRA will cancel the respective generation license. EMRA, in fact, has started to enforce this mechanism since August 2014 and canceled the generation licenses of those license holders who have failed to complete their pre‑construction requirements.

    The Regulation sets forth a significant amendment to provide a remedy for the electricity market actors whose generation licenses have been cancelled due to their failure to complete the required pre-construction formalities in on time. According to this amendment, EMRA will ex officio re-evaluate the status of the license holders that have been subject to sanctions as a result of such failure. While this amendment seems to aim at restitution of the status of such license holders, its implementation may be prone to certain practical controversies, such as the vested rights of third parties etc.
  • Revision with respect to scope of pre-construction requirements: With the amendment made under the Regulation, the following documents will no longer be required for the purpose of pre-qualification requirements: (i) preliminary project approval; (ii) an application letter to TEİAŞ or other relevant distribution companies with respect to connection and system usage agreements; and (iii) the affirmative opinion of the Chief of Staff with respect to forbidden military zones.

As a result, the current pre-construction requirements are as follows: (i) obtaining the necessary property or land usage rights; (ii) obtaining zoning approvals; (iii) applying for the technical interaction permit (for wind projects); and (iv) obtaining an Environmental Impact Assessment Decision. That said, the Regulation further stipulates that these documents may not be needed if the generation license holder obtains any of the following documents: (i) a construction license, (ii) a certificate in lieu of construction license; or (iii) a document certifying that a construction license will not be needed.

Changes in the Regulation on Water Usage Agreements

The Regulation on the Procedures and Principles regarding the Conduct of Water Usage Agreements for Producers in the Electricity Market ("Regulation") was amended by the General Directorate of State Hydraulic Works ("DSI"). The amended Regulation was published on the Official Gazette on 21 February 2015.

One of the important provisions of the amended Regulation for protection of the environment is that the flowing water to be left by a hydroelectric power plant into the downstream in order to maintain natural life must correspond to at least 10% of the average flow over the last 10 years.

Furthermore, under the Regulation, there have been certain amendments to the standard form water usage agreement, which is executed between DSI and electricity generation license holders to use water for hydroelectric power plants. As per the amended Regulation, an Environmental Impact Assessment decision is now sought as a prerequisite for executing a water usage agreement. From now on, under those agreements, generation companies are required to submit two semi-annual progress reports to DSI at the development phase and monthly progress reports during the construction phase.

Regulation on the Connection of the Wind Farms to Wind Power Monitoring and Estimation Center

A new Regulation on the Connection of Wind Farms to the Wind Power Monitoring and Estimation Center ("Regulation") was published in the Official Gazette on 25 February 2015. According to the Regulation, wind farms with an installed capacity of 10 MW are required to connect to the Wind Power Monitoring and Estimation Center (Rüzgar Gücü İzleme ve Tahmin Merkezi) as a pre-requisite for provisional acceptance. Such application must be made at least 30 days before the provisional acceptance application date. The Center will be mainly responsible for making wind power capacity estimations by using the data collected from the connected wind farms.

In the Other Sectors

Amendments to the Mining Law

The awaited amendment to the Mining Law No. 3213 ("Mining Law") was published in the Official Gazette on 18 February 2015.

An initial draft had been submitted and then withdrawn from the Parliament's agenda in 2014 for further consideration, especially due to the urgent need for detailed work place health and safety regulations in the mining sector and the significant increases in the State royalty amounts which had been criticized strongly by stakeholders in the sector. A new draft had then been prepared and submitted to Parliament on 30 December 2014. Upon adoption by the Parliament and ratification by the President respectively, the amendment to the Mining Law ("Amendment Law") entered into force on 18 February 2015.

As already mentioned in the Winter 2014 issue of our newsletter, some of the major changes introduced by the Amendment Law are as follows:

Supervision of Operation Activities: The Amendment Law introduces supervision by specialized entities for the compliance of mining operations with the applicable legislation and the operation plan submitted by the relevant license holders to the General Directorate of Mining Affairs ("General Directorate"). According to the Amendment Law, specialized legal entities will be authorized by the General Directorate to conduct such supervisions and prepare technical documents for submission to the General Directorate such as operation plans and projects.

The Amendment Law also abolished activity and sales information reports; and instead, a single report referred to as the "operation activities report" has been introduced as a combination of those two.

Royalty Agreements: Another very significant change brought about by the Amendment Law is the prohibition of the operation of underground coal mines by royalty agreements. According to the Amendment Law, license holders of underground coal mines, except for public authorities, can no longer engage third parties to operate their license areas through royalty agreements which is known as subcontracting in the market. Royalty agreements for other mines, on the other hand, are subject to the approval of the Ministry of Energy and Natural Resources.

The Amendment Law also provides for a temporary provision for existing royalty agreements, whereby requiring that the General Directorate is notified of existing royalty agreements within three months upon entry into force of the Amendment Law; otherwise, operations under the relevant royalty agreements will be suspended. According to the same provision, term extension requests by license holders of underground coal mines whose royalty agreements have not been terminated will not be accepted.

Financial Obligations and Royalty Payments: The Amendment Law introduces a new license fee that is to be calculated based on the relevant license groups and their sizes instead of the previously used fixed annual fees. The new fees will be applicable to existing licenses starting from 1 January 2016. The amount of State Royalties for Group IV mines such as gold, silver and platinum are set forth in an annex to the Mining Law, and provide for increasing State Royalty percentages (from 2% to 16%) depending on the London Stock Exchange's price per ounce during the relevant production period.

Forfeiture of Deposited License Securities: This sanction has been abolished by the Amendment Law. Instead, administrative fines varying from TL 10,000 to TL 50,000 are envisaged for license holders breaching their obligations under the Mining Law. Deposited securities of existing license holders will be returned upon their payment of the new license fees starting from 1 January 2016.

Cancellation Sanction for Non-Production: The Amendment Law removes the cancellation sanction for operation license holders who fail to make any production for three years within a period of five years for the first time and subjects such failure to an administrative fine of TL 50,000. The cancellation sanction will apply only in the case of license holders that fail for the second time to make any production for three years within a period of five years upon application of the administrative fine.

Completion of Necessary Permits within Three Years: The disputed cancellation sanction envisaged for operation license holders who cannot complete, within three years, the environmental permits and surface rights necessary for the issuance of an operation permit, such as environmental impact assessment affirmative approval, work place opening and operation permit and surface rights, is abolished. Instead of cancellation, an administrative fine of TL 50,000 is envisaged for each year of delay in obtaining the relevant permits. Licenses for which no operation permit has been issued due to the failure in obtaining the relevant environmental permits and surface rights will not be extended beyond their initial terms.

Pursuant to Temporary Article 22 of the Amendment Law, an administrative fine of TL 30,000 will be imposed on holders of operation licenses who have applied for but not yet obtained the environmental permits and surface rights necessary for their operations pursuant to Article 7 of the Mining Law as of the date of the Amendment Law.

Feasibility Period for Group IV Mines: The Amendment Law provides for an additional "feasibility period" subsequent to the detailed exploration period for mines belonging to Group IV (b), (c) and (ç) (including gold, silver and platinum). Exploration license holders for Group IV (b), (c) and (ç) mines who apply with justified reasons for the necessity of a further feasibility study will be entitled to an additional "feasibility period" of two years if their application is found appropriate by the General Directorate.

Transfer of Licenses: The Amendment Law subjects the transfer of licenses, which had previously been within the authority of the General Directorate, to the approval of the Minister of Energy and Natural Resources. The license transfer fee has been increased as well.

Amendments to the Petroleum Market Licensing Regulation

Two amending regulations have entered into force regarding the Petroleum Market Licensing Regulation.

  • Pursuant to the amending regulation published in the Official Gazette on 1 February 2015, unless the distribution license holders sell 60,000 tons of white product (benzene, diesel fuel), administrative sanctions shall apply to those distributors. This amendment abolishes the previous sanction that may lead to the cancellation of the relevant distribution licenses by an EMRA Board decision.
  • The second amending regulation was published in the Official Gazette on 19 February 2015, and includes a provision for license fees to be paid in advance. The amending regulation also envisages that time-extensions for transportation, franchise and free user licenses will be granted by the Head of the Department of Petroleum Market, while those for the other licenses will be granted by an EMRA Board decision.

Regulation on Subscription Agreements Executed with Consumers

The Regulation on Subscription Agreements ("Regulation"), which had been prepared by the Ministry of Customs and Trade was published in the Official Gazette on 24 January 2015 and entered into force on 24 April 2016.

The material provisions brought about by the Regulation are as follows:

  • Form of the subscription agreements: Subscription agreements can be concluded in writing or through distant methods; however a paper copy or a permanent electronic copy of the agreement must be delivered to the consumer.
  • Mandatory content of subscription agreements: The Regulation lists the mandatory content of subscription agreements. The absence of any of the mandatory provisions will not result in the invalidation of the subscription agreement; however, administrative fines as per the Law on the Protection of the Consumer, will be imposed and as per the Regulation, if the breach is not cured immediately, the consumer will be entitled to terminate the subscription agreement without compensation or any penalty.
  • Subscriptions with an undertaking: If there will be an undertaking, a written letter of such undertaking including the conditions and validity period of the undertaking must be submitted to the consumer as an integral part of the subscription agreement. Mandatory information to be included in the undertaking is also stated in the Regulation.
  • Discretionary termination right of the consumers: The Regulation sets forth the rights of the consumers regarding the termination of subscription agreements, as well as the procedure and consequences of such termination. Consumers are entitled to terminate indefinite term subscription agreements and definite term subscription agreements with a term of 1 year or more, at any time, without being required to provide a reason or subject to any penalty.

Please refer to Articles Section of this Newsletter for further information on the Regulation.

Regulation on the Agreements Executed Out of Workplace

The Regulation on Agreements Executed Out of Workplace ("Regulation") was published in the Official Gazette on 14 January 2015 and entered into force on 14 April 2015. The Regulation mainly stipulates the procedures and principles of all sales conducted and the agreements executed out of workplace.

This Regulation repealed the Regulation on Procedures and Principles Regarding Door Step Sales, which was published in the Official Gazette on 13 June 2003.

Although the scope of the draft version of this Regulation also covered agreements with regards to the subscription of electricity, gas and water services, the published version of the Regulation has an explicit provision which stipulates that the Regulation is not applicable to subscription agreements regarding electricity, gas and water services.

Amendment to the Health PPP Law

The Law Amending Certain Laws and Statutory Degrees, No. 6639 was published in the Official Gazette on 15 April 2015 ("Law No. 6639"). Law No. 6639 amends the dispute resolution provision of the Law Concerning the Construction of Facilities, Renovation of Existing Facilities and Purchasing Service by the Ministry of Health by Public Private Partnership Model, No. 6428, published in the Official Gazette on 9 March 2013 ("Health PPP Law") and removes the statement providing that hearings must take place in Turkey from Article 4(11). By such amendment, an express provision permitting to determine the seat of arbitration outside Turkey has been added in the Health PPP Law.

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