Turkey: The Regulatory Regime For Electricity Distribution License Holders

The Electricity Market Law1 sets forth the general principles that apply to (i) the licensing system regulating market activities; (ii) market players; and (iii) the Energy Market Regulatory Authority ("EMRA"), all of which are further detailed under secondary legislation. The Electricity Market License Regulation2 contains the details of this licensing system, including the requirements for – and restrictions on – license holders. The Electricity Market Law and the License Regulation clearly distinguish the various electricity market activities from one another, and seven categories of licenses are set forth for different market activities: generation, auto-production, auto-production group, transmission, distribution, wholesale and retail.

To perform any of these market activities, a legal entity must obtain the relevant license from EMRA. Distribution license-holder companies carry out distribution activities within the regions authorized under their distribution license. Private-sector distribution license-holder companies can be engaged in two other electricity market activities – (i) retail sale and (ii) generation – provided that they obtain the required retail and generation licenses.3 However, as of 1 January 2013, distribution companies will be entitled to carry out generation and wholesale activities as long as they perform such activities as separate legal entities.4

License Framework

Distribution licenses are granted for a maximum term of 49 years and a minimum term of 10 years5 and may be renewed for a maximum term of 49 years upon expiration.6 Although the License Regulation bans the transfer of licenses to third parties, it entitles lenders that have provided limited or non-recourse financing to a license holder to request that EMRA issue a license to another entity in place of the debtor license holder, provided that the entity nominated by the lenders assumes all the obligations of the license holder.7 Furthermore, the rights granted to the license holder – who operates under a tariff subject to regulation – under its license may not be transferred to third parties without EMRA's permission.8 In practice, EMRA interprets "rights granted to the license holder" as the receivables of the license holders.

The Articles of Association ("AoA") of the distribution license-holder companies must comply with the relevant provisions of the License Regulation. For example, the AoA of such legal entities must indicate the share transfer restrictions regulated under the License Regulation9 and the requirement to obtain EMRA's affirmative opinion before any AoA amendments (except for address changes) are made.10 Furthermore, these legal entities must comply with the minimum share capital requirements set forth under the License Regulation.11

Obligations of Distribution License-Holder Companies

Distribution license-holder companies (i) must obtain retail licenses and thus satisfy the demand of the non-eligible consumers for electricity and/or capacity in their authorized regions,12 and (ii) are responsible for establishing and operating the lighting of avenues and streets and related measurement systems governed by the relevant legislation in their respective regions, excluding highways.13 Furthermore, if an eligible consumer14 purchases electricity and/or capacity from a supplier other than the distribution company holding a retail license in its distribution area and such supplier is shut down temporarily or permanently for legal reasons, the distribution company holding a retail license in the related distribution area must sell electricity and/or capacity to this eligible consumer until this eligible consumer executes a bilateral agreement with another supplier.15 In addition, distribution license-holder companies are obliged to comply with the provisions of the Electricity Market Distribution Regulation16 regulating the principles to be applied for the safe and economical operation and planning of the distribution system.

Tariffs

The Electricity Market Tariffs Regulation17 specifies the principles for preparation of the regulatory tariffs applicable to the electricity market. The Electricity Market Tariffs Regulation sets forth two different amounts that the distribution license-holder companies are to apply: (i) distribution connection tariff18 and (ii) distribution tariff.19 The distribution license-holder companies prepare the distribution connection tariff and distribution tariff, in accordance with the principles of the Communiqué on the Determination of Transmission and Distribution Connection Fees20 and the Communiqué on the Regulation of Distribution System Income,21 respectively. On another note, EMRA has announced the new "Electricity Market Tariffs Regulation Draft" ("Draft Regulation"). The Draft Regulation is expected to become effective in 2011.

Privatization and Recent Developments

The Privatization Administration announced the sale of state-owned electricity distribution company Türkiye Elektrik Dağıtımı A.Ş. ("TEDAŞ") on 2 April 2004. TEDAŞ and its distribution companies carry out distribution activities and retail sale of electricity to customers. Within the scope of the privatization program, Turkey's distribution grid was divided into 21 distribution regions and 20 of these were put up for sale.

As a result of the privatization developments, today, 5 electricity distribution companies are privately operating; 3 of such companies were privatized by the Privatization Administration in 2009 which are (i) Başkent EDAŞ (active in Ankara, Bartın, Çankırı, Karabük, Kastamonu, Kırıkkale and Zonguldak), (ii) Sakarya EDAŞ (active in Bolu, Düzce, Kocaeli and Sakarya) and (iii) Meram EDAŞ (active in Aksaray, Karaman, Kırşehir, Konya, Nevşehir and Niğde). Aydem EDAŞ started its activities in Aydın, Denizli and Muğla in 2008, whose privatization procedure was held by the Ministry of Energy and Natural Resources, and Kayseri ve Civarı T.A.Ş. (active in Kayseri) had already acted as a private market player based on the concession rights granted in its favor.

Furthermore, the Privatization Administration completed the tenders for privatization of Osmangazi EDAŞ (active in Afyonkarahisar, Bilecik, Eskişehir, Kütahya and Uşak), Yeşilırmak EDAŞ (active in Amasya, Çorum, Ordu, Samsun and Sinop) and Çoruh EDAŞ (active in Artvin, Giresun, Gümüşhane, Rize and Trabzon) in November 2009, and the procedures for these three companies will be completed after the necessary approval of authorities such as EMRA, Competition Board and Privatization High Council has been secured. As a recent development, the Privatization Administration collected the final bids for the privatization tenders of Çamlıbel EDAŞ (active in Sivas, Tokat and Yozgat), Fırat EDAŞ (active in Bingöl, Elazığ, Malatya, Tunceli), Uludağ EDAŞ (active in Balıkesir, Bursa, Çanakkale, Yalova) and Vangölü EDAŞ (active in Bitlis, Hakkari, Muş and Van) on 12 February 2010. The next step is the final negotiations with the bidders which will be followed by the stage of obtaining the necessary approval.

Finally, after the Privatization Administration completed its tender for privatization of Aras EDAŞ (active in Ağrı, Ardahan, Bayburt, Erzincan, Erzurum, Iğdır and Kars) in September 2008, the Turkish Council of State (Danıştay) granted a stay order upon appeal by the Turkish Energy, Water, and Gas Workers' Union (Tes-İş) for the cancellation of the related privatization, and the privatization process could therefore not be completed. Despite the latter, many new privatization tenders are to be launched for the year 2010 for the rest of the distribution companies and the Turkish Government seems to be persistent about its target of completion of these privatizations within this year.

Footnotes

1. Law No. 4628, published in the Official Gazette dated 3 March 2001, numbered 24335.

2. Published in the Official Gazette dated 4 August 2002, numbered 24836.

3. Electricity Market License Regulation, Art. 23/1.

4. Electricity Market Law, Art. 3/1/c-3, paragraph 4.

5. Electricity Market License Regulation, Article 24 of the License Regulation

6. Ibid., Art. 14/1

7. Ibid., Art. 5/2.

8. Ibid., Art. 5/4.

9. Ibid., Art. 10/4-e.

10. Ibid., Art. 10/4-d.

11. Ibid., Art. 10/4-b.

12. Ibid., Art. 23/4.

13. Ibid., Art. 23/7.

14. The Electricity Market Law defines "eligible consumer" as a consumer that consumes more energy than the amount determined by the Board of EMRA or that has direct connections to the transmission system, allowing it the freedom to select its supplier (Article 4 of the Electricity Market Eligible Consumer Regulation).

15. Electricity Market License Regulation, Art. 23/5.

16. Published in the Official Gazette dated 19 February 2003, numbered 25025.

17. Published in the Official Gazette dated 11 August 2002 numbered 24843.

18. Electricity Market Tariffs Regulation, Art. 7.

19. Ibid., Art. 9.

20. Published in the Official Gazette, dated 11 August 2002 and numbered 24843.

21. Published in the Official Gazette, dated 11 August 2002 and numbered 24843.

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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