Turkey: Recent Regulatory Changes In The Electricity Distribution Sector

The Electricity Market Law1 was recently amended by Law No. 5784 (the "Amending Law")2. The Amending Law ushers in major changes with significant implications for different electricity market activities, including electricity distribution.

The first key amendment introduced by the Amending Law in this respect is the change in the definition of "distribution facility". The new, broader classification has the objective of bringing greater precision to the term's definition.

Another important amendment concerns electricity used for outdoor lighting, and provides that, apart from the lighting of the highways, a distribution company3 will also be in charge of the outdoor lighting of avenues and streets, the specifics of which will be further defined through ancillary legislation. For the period between 1 January 2009 and 31 December 2015, a special fund controlled by the Undersecretariat of the Treasury is allocated to the consumption expenses related to such lighting.

The Amending Law further enables the distribution companies to provide side services4 and requires distribution companies, as of 1 January 2013, to carry out generation and retail sales activities under separate legal entities.

Parallel to the enactment of the Amending Law, the Energy Market Regulatory Authority ("EMRA"), for the sake of coherence, implemented new amendments to certain ancillary regulations.

A significant example is the revision set forth in the Communiqué regarding the Connection to Electricity Market Transmission and Distribution Systems and System Use.5 In this respect, as of 12 November 2008, distribution companies will have ownership of the energy distribution lines6 between the termination point of a production facility and the switch yard of such facility, except for eligible consumers connected to the distribution system, who will remain the owners of the facilities, equipment and connection lines up to the connection points.

Another change, to the Electricity Market Distribution Regulation,7 sets forth that, as of 12 December 2008, a distribution company may execute bilateral control agreements, whose terms will be governed by private law and the principle of freedom of contract. This kind of agreement may be concluded with a legal-entity owner and/or operator of a private direct electricity line which holds an electricity generation license or whose electricity generation application is pending. Prior to the enactment of such amendment, only the Turkish Electricity Transmission Company (TEİAŞ) had this right. The amendment aims to contribute to the consistency and integrity of the management of the electricity distribution system.

With the new amendments introduced to the ancillary legislation, EMRA has clarified the pricing and income evaluation methods applicable to the electricity distribution market, creating a more attractive climate for investors by introducing transparency. In this respect, the execution of a temporary price equalization mechanism (fiyat eşitleme mekanizması) during the first implementation period, aiming to protect consumers from price differences, has been prolonged from 31 December 2010 to 31 December 2011.

Finally, in light of the recent press releases, we understand that the Turkish Privatization Administration intends to announce tenders with respect to the Eastern and Western Anatolian electricity distribution regions. The details of such tenders are expected to be announced in mid-March.

Footnotes

1. Electricity Market Law No. 4628 published in the Official Gazette dated 3 March 2001 under No. 24335, 1st bis.

2. Published in the Official Gazette dated 26 July 2008 under No. 26948.

3. Pursuant to the Electricity Market Law, an electricity company is defined as "a legal entity engaged in the distribution of electricity in a certain geographical region".

4. Pursuant to the Regulation on Side Services, published in the Official Gazette dated 27 December 2008 under No. 27093, side services include services, (i) used by the system operator in order to implement system integrity and security with respect to the offer quality and operating conditions set forth under the Regulation on Offer Authenticity and Quality of Electricity Transmission System, and (ii) referred to under the Electricity Market Network Regulation.

5. Published in the Official Gazette dated 27 March 2003 under No. 25061, as amended on 12 November 2008.

6. The ownership does not include low voltage lines.

7. Published in the Official Gazette dated 19 February 2003 under No. 25025.

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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