Turkey: Licensing Under The New Electricity Market Law

The new Electricity Market Law1 No. 6446 entered into force on March 30, 2013 ("New EML"), with the objectives of developing a transparent and competitive electricity market, achieving stability of supply, and ensuring good quality, low cost and environmentally friendly electricity.

Similar to the former law, the New EML sets forth the basic licensing rules to enter the electricity market.

In this article, we will review the licensing provisions under the New EML.

Electricity Market Activities and Market Entrance

According to the New EML, "electricity market activities" include the generation, transmission, distribution, wholesale, retail sale, market operation, export and import of electricity. In order to enter and operate in the electricity market, legal entities should obtain the relevant license for each market activity.

Based on the field of activity, the following licenses can be obtained:

  1. A generation license for generation activities including auto-production, export and import activities;
  2. A distribution license for distribution activities;
  3. A supply license for wholesale and retail sale activities including export and import.

Moreover, under the New EML, the transmission of electricity in Turkey is solely vested in TEIAS and the market operation activity is solely vested in the Energy Market Operation Joint Stock Company ("EPIAS"), a new company which will assume the role held by the Market Financial Reconciliation Center ("MFRC") under the former law.

Pursuant to Article 5 of the New EML, in the event that one legal entity is conducting market activities at different facilities, it should obtain separate licenses for each facility, even if a legal entity only engages in one type of activity at those facilities.2 Moreover, the licensees engaged in market activities subject to regulated tariffs and carrying out such activities at more than one facility or region are obliged to keep separate accounts and records for each facility or each region subject to a license.

Licensees cannot engage in any activities which are not within the scope of their licenses; however, they may engage in activities that are complementary to and/or required within the scope of their market activity and related to the by-products produced as a result of their market activity, on the condition that such other activities are explicitly indicated in their licenses.

Pursuant to Article 5 paragraph 2(c) of the New EML, licenses are issued for a period of up to forty-nine (49) years at once. The minimum term for generation, transmission and distribution licenses is ten (10) years.

To obtain a license, legal entities should apply to the Energy Market Regulatory Authority of Turkey ("EMRA") by submitting the required documents and by paying the necessary fees. The details of license application requirements, the licensing fees and the conditions regarding the modification, renewal, expiry and cancellation of licenses will be regulated under secondary legislation (in the form of regulations), and shall all be enacted within six months from the date on which the New EML enters into force.

Rules on Corporate Structure

Under the New EML, there are some basic rules regarding the corporate structure of the legal entities that may apply to obtain licenses; such as the types of legal entities, the types of share structures, etc. These rules are summarized below.

Type of Legal Entities

According to Article 4, paragraph 3 under the New EML, all legal entities subject to private law and carrying out activities in the electricity market, are required to be established either as joint stock or limited liability companies in accordance with the provisions of the Turkish Commercial Code.

Shares and Share Transfer

The shares of companies carrying out activities in the electricity market, excluding publicly held companies, should be registered shares. Where a joint stock company has previously issued bearer shares, it is required to convert its shares to registered shares following its application to obtain the relevant licenses in order to carry out activities in the electricity market.

According to the New EML, changes in a company's shareholding structure that amount to ten percent or more of the shares of a company conducting activities in the electricity market (five percent or more for publicly held companies) are subject to the approval of the Energy Market Regulatory Board ("Board"). Even if there is no transfer of shares at the licensee level, any transaction that leads to a change of control, or which results in a change in ownership or usufruct rights of the relevant facilities, are subject to the approval of the Board.

Further, we believe there will be additional rules under the secondary legislation on corporate structure, governance and management of the companies entering the electricity market.

Preliminary License for Generation Activities

Under the New EML, a new concept of a preliminary license is established for generation companies. Pursuant to Article 6, a preliminary license will be issued for the generation license applicant. The maximum term of the preliminary license is twenty-four months3, and during this term, all necessary permits, approvals to build and rights for the ownership or use of the land where the generation facility is to be located must be obtained.

The New EML stipulates that legal entities that fail to obtain the above-mentioned documents, or certify the acquisition of the property or usufruct rights, or fulfill the other legal requirements within the given term shall not be granted a generation license.

During the term of this preliminary license, there shall not be any direct or indirect changes in the shareholding structure (with the exception of inheritance). In case of a share transfer or non-fulfillment of other legal requirements, the preliminary license will be cancelled. In addition, the preliminary license will automatically become null and void upon the expiry of the term or in the event of the filing for or actual bankruptcy of the legal entity holding the preliminary license.

According to Temporary Article 10 of the New EML, generation license applications not finalized by the Board as of the effective date of the law shall be evaluated and finalized as preliminary license applications.

Conclusion

As explained above, the New EML sets forth the basic licensing rules for electricity market activities. More detailed rules with respect to the licensing will be established by secondary legislation.

Under the New EML, the most important new development regarding licensing is the granting of a preliminary license for generation license applications. This development received positive critique from the market. On the other hand, the requirement of EMRA approval in cases of share transfers or changes of control in licensee companies shows that the strict monitoring of licensee companies by EMRA will also continue under the New EML.

Footnotes

1 Official Gazette 30 March 2013, no. 28603.

2 Under Article 5 paragraph 2(f) of the New EML, an exception is set forth for generation facilities based on same type of renewable energy resources. According to this exception, renewable energy generation facilities which are located at the surface of more than one premises, can be considered under one generation license provided that they are connected to the system from the same point.

3 EMRA is entitled to increase the preliminary license term by half, for a maximum of thirty-six months, based on the energy source type and the facility's installed capacity.

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.

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