Turkey: Amendments To The Restated Capital Flows Directive

Introduction

The Capital Flows Directive of the Central Bank was restated in 2 May 2018 (the "Restated Directive") following substantial changes to its underlying legislation, namely Decree No 32 on the Protection of the Value of the Turkish Currency.

The changes to Decree No. 32 brought about substantial limits on the ability of Turkish corporations to utilise foreign currency loans, subject to certain quantitative and transaction specific exceptions. These exceptions were later supplemented by additional exceptions introduced by the Restated Directive. One such additional exception introduced in the Restated Directive relates to loans utilised in the context of renewable energy generation projects.

Originally, the Restated Directive limited the benefit of this exception to licensed generation projects. However, following the latest amendments made to the Restated Directive in 29 June 2018, certain unlicensed energy generation projects will also be able to utilise foreign currency loans without being subject to general quantitative limitations around having sufficient foreign currency income.

The amended scope of the exception

Pursuant to the Article 21/16 of the Restated Directive, unlicensed renewable energy producers that benefit the Renewable Energy Resources Support Mechanism (YEKDEM) and operate within the scope of the Regulation on Unlicensed Electricity Generation will be entitled to utilise foreign currency loans if they have received a call letter for a connection agreement prior to 21 June 2018.

Unlicensed producers will be required to present an executed connection agreement to the intermediary bank at the time of utilisation of any foreign currency loans.

The Restated Directive caps the maximum amount of foreign currency borrowings that can be incurred by licensed producers at 80% of the sum of the aggregate annual production amounts for each eligible year that benefits from the YEKDEM purchase guarantee, multiplied by the YEKDEM tariff. The aggregate annual production amount will be determined on the basis of the Energy Market Regulatory Authority's related decision for licensed projects.

Conclusion

Following the June amendments, the Restated Directive includes an allowance for certain eligible unlicensed energy developers to seek foreign currency financing without needing to demonstrate foreign currency income or qualify for any of the other borrowing exceptions required by Restated Directive. This will surely be a helpful allowance for unlicensed energy projects where a substantial piece of capex is foreign currency-linked.

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