Over the past decade, Turkey's energy consumption has substantially increased. At the beginning of 2013, Turkey was ranked second in the list of countries with the world's highest energy consumption increases. According to the International Energy Agency, energy consumption in Turkey is expected to double over the next decade, while electricity demand growth is expected to increase at an even faster pace.1 The Energy Minister declared that approximately US$128 billion of investment (more than double the total amount invested in the past decade) will be needed to meet energy demands by 2023.
Turkey's strategy and targets for 2023 are:2
- increasing installed power to 120,000MW;
- increasing the share of renewable energy sources from 25 to 30 per cent;
- maximising the use of hydropower;
- increasing wind-power installed capacity to 20,000MW;
- installing power plants with 600MW of geothermal and 3,000MW of solar energy;
- extending the length of electricity transmission lines to 60,717km;
- reaching a power distribution unit capacity of 158,460MVA;
- extending the use of smart grids;
- raising the natural gas storage capacity to 5 billion m3;
- establishing an energy exchange; commissioning at least two nuclear power plants;
- building a coal-fired power plant with a capacity of 18,500MW; and
- eliminating its costs for importing petroleum and gas, currently as high as US$56 billion.
Among these targets, establishment of an energy exchange will only support market liberalisation but also ensure transparency and help maintain a healthy balance between supply and demand. Turkey enacted the new Electricity Market Law3 (EML) in 2013.4 The EML stipulates the creation of an electricity exchange market, which will be administered through a newly incorporated company, EPİAŞ. EMRA5 completed the preparation of EPİAŞ's draft articles of association. According to the draft, EPİAŞ's shareholding structure will be as follows: 30 per cent will be owned by TEİAŞ;6 30 per cent will be owned by the Istanbul Stock Exchange (ISE); and 30 per cent will be owned by private energy companies. The ISE will own the remaining 10 per cent, on the condition that it will transfer this 10 per cent to a strategic purchaser.
The Turkish electricity market is one of the fastest-growing in the world, with an approximately 9 per cent annual increase on average. Natural gas consumption in Turkey is increasing as well. According to the MENR,7 natural gas demand is expected to increase with a growth rate of 2.9 per cent until 2020. Due to insufficient petroleum and natural gas sources, Turkey is dependent on imports. It imports petroleum mainly from Iran, Russia, Iraq, Saudi Arabia and Kazakhstan and natural gas from Russia, Turkmenistan, Azerbaijan and Iran, in addition to LNG imports from Nigeria and Algeria.
With the enactment of the Natural Gas Market Law8 (NGML) in 2001, BOTAŞ9 lost its monopoly rights on natural gas imports, distribution and sales. However, BOTAŞ remains a key player in the market, as it owns and operates the gas transmission network and still imports approximately 80 per cent of the natural gas consumed in Turkey. After BOTAŞ's natural gas agreement with Russia expired in 2011, four privately owned companies – Enerco, BosphorusGaz, Avrasya Gaz and Shell Gaz – signed agreements with Gazprom and obtained import licences.
Turkey enacted the new Turkish Petroleum Law10 (TPL) in 2013. Then, the Turkish Petroleum Law Implementation Regulation11 entered into force in early 2014. An amendment law proposing substantive amendments to the Natural Gas Market Law (the Draft Amendment Law) was also prepared in 2013. However, at the time of writing, these amendments have not been enacted.
In line with Turkey's substantial potential and its renewable energy targets, in 2013 Turkey also introduced the Regulation Regarding Generating Electricity without a Licence;12 the Regulation on Documentation and Support of Renewable Energy;13 the Regulation on Technical Evaluation of Solar Energy Based Licence Applications;14 the Contest Regulation on Pre-Licence Applications Regarding Generation Facility Based on Solar and Wind Energy;15 and the Regulation on Renewable Energy Resources For Electricity Generation.16
i The regulators
The MENR is ultimately responsible for preparing and implementing energy policies, plans and programmes in coordination with its affiliated institutions. The national regulatory authority, EMRA, is responsible for the regulation and supervision of the operation of the electricity, downstream petroleum and downstream natural gas markets.17 It exercises its powers through the EMRA Board.18 With its capacity to regulate and supervise the energy markets, EMRA has the following duties:19
- issuing licences;
- drafting, amending, enforcing and auditing performance standards, as well as distribution and customer services;
- setting out the pricing principles indicated in the law; and
- ensuring the development and implementation of an infrastructure.
The primary legislation for the electricity market is the EML and the Electricity Market Licence Regulation.20 While the Petroleum Market Law,21 the Liquefied Petroleum Gas Market Law22 and the Petroleum Market Licence Regulation23 govern downstream petroleum activities, the NGML and the Natural Gas Market Licence Regulation24 govern downstream natural gas activities. As for the upstream market, the TPL governs upstream oil and gas activities,25 and the Law on Transit Passage through Petroleum Pipelines26 (the Transit Law) governs the transit passage of oil and gas.
ii Regulated activities
In order to conduct any one of the following market activities, companies must obtain a licence from EMRA:
- import; and
The recently enacted EML abolished the 'auto-production licence' system. Existing auto-producer licences are going to be ex officio converted to generation licences. However, individuals or legal entities (1) generating electricity for their own needs, and (2) having facilities or equipment that are not operating in parallel to the transmission and distribution network, are not required to obtain a licence, as long as they remain disconnected from the transmission and distribution networks and do not engage in wholesale or retail activities.
The EML introduces a new type of licence, called the 'supply licence', which combines wholesale and retail sale licences. The EML also introduces the 'preliminary licence' mechanism for generation licence applications. A preliminary licence is issued for a specified term, to those having submitted an application to EMRA to conduct electricity generation activities.
Under the Regulation on Generating Electricity without a Licence,27 generation facilities with an installed capacity of up to 1MW based on renewable energy resources are exempt from the requirement to obtain a licence.
Downstream petroleum and natural gas
The following downstream petroleum market activities require a licence:
- lube oil production;
- eligible consumer;
- bunker delivery;
- transportation; and
Under the NGML, the following activities require a licence:
- distribution; and
- sale, distribution and transmission of CNG.
iii Market restrictions
In the downstream petroleum market, a distributor's market share cannot exceed 45 per cent of the total domestic market and a distributor's sales through dealers under their ownership cannot exceed 15 per cent of the distributor's total domestic market share.
Another restriction regarding distributors and dealers derives from the Competition Board's interventions. Non-compete undertakings for indefinite terms or terms exceeding five years can no longer be granted a block exemption from the prohibition of agreements, concerted practices or decisions that restrict competition in a specific market. According to the Competition Board's latest decisions, all personal or real rights such as loan contracts, equipment contracts and long-term lease contracts and long-term usufructs, which relate to dealership agreements, must be limited to five years.
Under the NGML, import companies cannot conclude new natural gas purchase agreements (except for LNG) with countries that currently have existing natural gas sale and purchase agreements with BOTAŞ. The barrier to market entry is actually even higher, because under EMRA Board Decree No. 725 (Decree No. 725), EMRA must obtain BOTAŞ's opinion on whether such import activity will affect the performance of BOTAŞ's obligations arising out of its existing contracts (in BOTAŞ's 'gas importer' capacity). In addition, Decree No. 725 requires consultation with BOTAŞ (in its transmission system operator (TSO) capacity) on the technical suitability of such import.
The NGML imposes storage-related obligations on applicants for import and wholesale licences. Import licence applicants must obtain commitments and guarantees from storage licence holders, regarding their capacity to store 10 per cent of the yearly imported natural gas in Turkey within five years. A similar obligation is imposed on wholesale licence applicants. Accordingly, wholesale licence holders must take the required storage-related measures within five years of the licence's issuance.
Under the NGML, the MENR's opinion is not required for natural gas market licences. However, if the Draft Amendment Law is passed as is, then the NGML will have a provision whereby EMRA will have to obtain the MENR's opinion for granting import and export licences.
Under the NGML, no company can sell natural gas corresponding to more than 20 per cent of the estimated national consumption determined by EMRA. Moreover, import companies cannot import natural gas corresponding to more than 20 per cent of estimated national consumption. The Draft Amendment Law will not change these market share restrictions.
iv Transfers of control and assignments
Licence holders must obtain EMRA's approval for any of the following transactions:
- transfer of 10 per cent or more (5 per cent or more in publicly held companies) shares in licence holding companies;
- any transaction, resulting in the change of control of a licence holding company; and
- any transaction resulting in the change of ownership or usage right on licensed facilities.
This article was first published in The Energy Regulation and Markets Review Edition 3 by Law Business Research Ltd.
1. US Energy Information Administration, Countries, Turkey, Full Report: www.eia.gov/countries/analysisbriefs/Turkey/turkey.pdf.
2. Invest in Turkey, Energy: www.invest.gov.tr/en-US/sectors/Pages/Energy.aspx.
3. Entered into force on 30 March 2013.
4. In addition to the EML, many long-awaited regulations entered into force in the last quarter of 2013 and in early 2014, such as the Electricity Market Licence Regulation, the Electricity Market Distribution Regulation and the Electricity Market Connection and Use of the System Regulation.
5. The Energy Market Regulatory Authority.
6. TEİAŞ is the state transmission entity.
7. The Ministry of Energy and Natural Resources.
8. Entered into force on 2 May 2001.
9. The Petroleum Pipeline Corporation. BOTAŞ is a state-owned company.
10. Entered into force on 11 June 2013.
11. Entered into force on 22 January 2014.
12. Entered into force on 2 October 2013.
13. Entered into force on 1 October 2013.
14. Entered into force on 1 June 2013.
15. Entered into force on 6 December 2013.
16. Entered into force on 27 November 2013.
17. The General Directorate of Petroleum Affairs is the regulatory authority responsible for upstream market.
18. The Energy Market Regulatory Board.
19. Invest in Turkey, The Energy Sector: A Quick Tour for the Investor: www.invest.gov.tr/en-US/infocenter/publications/Documents/ENERGY.INDUSTRY.PDF.
20. Entered into force on 2 November 2013.
21. Entered into force on 20 December 2003.
22. Entered into force on 13 March 2005.
23. Entered into force on 17 June 2004.
24. Entered into force on 7 September 2002.
25. Under the TPL, the definition of 'petroleum' includes both crude oil and natural gas.
26. Entered into force on 29 June 2000.
27. Entered into force on 2 October 2013.
© Kolcuoğlu Demirkan Attorneys at Law, 2014
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