Turkey: Security Packages In HEPPs

Ensuring the energy security is one of the most important challenges of our century. Increasing diversity of energy and use of local energy resources are considered as solutions for the energy security. Use of renewable energy resources is a rising policy in energy production. Nowadays among other renewable energy resources, hydro energy and hydroelectric power plants ("HEPP") are becoming more popular in Turkey, by help of large water resources of the country and its geographic availability.

HEPPs require high investments. The financial needs of HEPPs, in Turkey, are fulfilled by loans provided by bank consortiums, composed of Turkish and/or foreign investment banks. Such finance methods, recourse or non-recourse, contain in their security packages various types of registered and non-registered security interests. The security packages may vary, depending on the phases of the project and the scope of the assets owned and/or used by the project owner, and generally include mortgage over the lands, buildings or easement rights owned by the project owner, commercial enterprise pledge (the "CEP"), assignment of receivables regarding major project documents of the project owner and insurance policies, share pledge, corporate guarantee/surety of shareholders and/or sponsor companies.

In the light of the above explanations, we will summarize herein below the three most common securitization alternatives used in project finance of the HEPPs: (i) CEP, (ii) mortgage, and (iii) assignment of receivables, with their specifities regarding the HEPPs.

Commercial Enterprise Pledge

Commonly preferred in the Turkish financial market, a CEP constitutes an essential exception to the rule of the transfer of physical possession of the pledged movables to the pledgee set forth under the Turkish Civil Code numbered 4721 ("Turkish Civil Code").1

The CEP is regulated under Commercial Enterprise Pledge Law numbered 14472 (the "CEP Law"). In this type of pledge, the possession of the movable pieces of property on which the pledge is established will not be transferred to the pledgee and the pledgor which is the project owner will continue to use the plant subject to the CEP in its energy production operations.

According to Article 3 of the CEP Law, a CEP may cover the following assets:

  • trade name and business title of the pledgor (project owner);
  • machinery, tools, equipment and motor transportation vehicles allocated to the activities of the commercial enterprise (HEPP) at the time of the registration of the CEP;
  • intellectual property rights such as trademarks, models and licenses etc. of the pledgor (project owner).

Only intellectual property rights of the project owner may be left out of the scope of the CEP.

Within the context of HEPP financing, a CEP is established over all of the project owner's rights, title and interest in its assets valued above a certain monetary threshold listed in the annexes of the CEP agreement. Each item on the list should be clearly defined so that those pledged properties are noticeably identified. During the operation of the HEPP and the repayment term of the loans, in order for a newly imported/purchased asset to be included within the scope of the CEP, the lenders and the project owner usually agree, in the CEP agreement, to amend and update the list of pledged assets on a yearly basis.3

CEP agreement must be (i) executed before a notary public located around the commercial enterprise and (ii) registered with the trade registry where the commercial enterprise is established within 10 (ten) days following its execution before the notary public. Following the registration of the CEP, the trade registry will then notify such to other relevant registries with respect to the assets included in the CEP such as vehicles and trademarks.4

A CEP does not include the immovable property on which the HEPP is established. The immovable property on which the HEPP is established, in order to be included in the security package, should be subjected to a mortgage agreement to be executed between the project owner and the lenders.


The lands on which HEPPs are constructed are generally divided into three main categories:

  • the lands owned by private parties, including the project owner itself;
  • the lands owned by the Treasury; and
  • the lands under the control of the Treasury (i.e., forestry area, water hold areas etc.).

Accordingly, the lands owned by private parties can either be directly purchased by the project owner or expropriated5 in accordance with the electricity market legislation with the involvement of the Energy Market Regulatory Authority (the "EMRA"). The project owner can also execute an easement right6 and/or lease agreement with the Treasury, represented by the Ministry of Finance or with respect to the lands which are under the control of the Treasury, a usage right can be granted to the project owner by the Treasury.

Pursuant to Article 881 of the Turkish Civil Code, a mortgage can be established over the immovable property in order to secure existing or future credits of a debtor, in our case of the project owner. A mortgage can only be established on the immovable properties registered with the land registry. However due to the location and structural characteristics of the HEPPs, generally only a limited part of the land where the HEPP is constructed is owned by the project owner and the main part of the land is used under other methods of allocation, such as easement right, lease agreement and usage right summarized herein above.

A mortgage can also be established on the easement rights registered with the land registry. According to Article 826 of the Turkish Civil Code, an easement right will be registered with the land registry as an immovable, only if it is a continuous and independent right. The independent right character of an easement right depends on its assignability. An easement right which can be freely assigned to third parties by the right holder and which can be transferred to heirs of the right holder without being subjected to any conditions/consent of a third party/ regulatory authority will be deemed as independent. In addition, an easement right will be deemed as a "continuous" right, if it is established for a term of at least 30 (thirty) years.7

Most of the sites of HEPPs are generally located within forestry area, ownership to which is reserved to the Treasury and the project owner will only hold a contractual right of usage of such lands, similar to a license/lease, which cannot be assigned or transferred to third parties and in which a security interest may not be granted.

Assignment of Receivables

Assignment of receivables is commonly used as a security interest in HEPP projects. Agreements regarding assignment of receivables mostly cover receivables arising from major project documents, including construction contracts, insurance policies, supply contracts, hedging agreements, rights arising from energy generation license issued in accordance with Electricity Market License Regulation,8 all future receivables of the project owner arising from energy sale operations, including current and future receivables arising before the Market Financial Settlement Center or from carbon emission trade.

The agreement regarding assignment of receivables must clearly specify the receivables to be assigned by the project owner to the lenders.


The security packages in a project finance transaction should be structured, depending on the characteristics of the project, electricity sale method selected by the project owner, legal status of the lands on which the HEPP will be constructed, in consultation with legal and project consultants appointed by the lenders, to create a comprehensive collateral which provides risk mitigation in favor of the lenders. In addition to the alternatives summarized hereinabove, other securitization methods, such as share pledge, corporate guarantee/ surety of shareholders and/or sponsor companies, bank account pledge on the bank accounts of the project owner are also used in the financing of HEPPs.


1 Published in the Official Gazette dated 8 November 2001 and numbered 24607.

2 Published in the Official Gazette dated 28 July 1971 and numbered 13909.

3 A global security update that foresees an annual update of all registered and non-registered securities in the security package can also be included in the loan documentation.

4 Such registries include the relevant title deed registry, the Turkish Patent Institute (Türk Patent Enstitüsü), and the relevant Traffic Registration Directorates (Trafik Tescil Şube Müdürlükleri) located in the relevant province/district and the relevant transportation vehicle registries (nakil vasıtaları sicilleri).

5 As per Article 19 of the Electricity Market Law, upon the licensed company's request, the EMRA may expropriate privately owned lands to be allocated to the usage of companies holding preliminary or full generation licenses.

6 Easement rights regulated under Article 826 of the Civil Code is a servitude right authorizing its beneficiary: (i) to establish a construction over and/or below a land owned by another real person/legal entity, or (ii) to reserve an already existing construction on such land.

7 Mortgage on an easement right should be established in accordance with the Circular issued by the Ministry of Public Works and Settlements numbered 1705-2010/12, dated 15 June 2010.

8 Published in the Official Gazette dated 2 November 2013 and numbered 28809.

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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