In the 2000s, Turkey embarked on a liberalisation process in the energy sector and identified natural gas imports as one of the key areas within this process. However, as of 2017, the targeted level of liberalisation projected for natural gas imports to Turkey has not been realised, mainly due to political, technical, commercial and legal reasons. This article focuses on one of these obstacles, namely the shortcomings of Turkish legislation that have prevented the liberalisation process to be implemented to its intended extent.


In 2016, Turkey's natural gas consumption amounted to 46.39 billion cubic meters (bcm). In the same year, the domestic natural gas production volume was only 0.37 bcm, while the export volume was 0.67 bcm.1 Turkey imported 46.35 bcm natural gas both through pipelines and in the form of liquified natural gas (LNG). 81.02% of this was imported by Boru Hatları ile Petrol Taşıma A.Ş. (BOTAŞ), the state-owned natural gas importer.2 BOTAŞ having such a large share in Turkey's natural gas import volume is expressly contrary to what the Natural Gas Market Law (the NGML)3 had envisaged, when it was introduced in 2001.

Among the NGML's primary goals was liberalisingTurkey's natural gas market.While there have been significant achievements in the past sixteen years, natural gas imported by BOTAŞ still accounts for more than 80% of Turkey's natural gas consumption, a critical issue in the way of truly liberalising the market. The level of BOTAŞ imported natural gas has remained relatively high despite the NGML, which provides that (1) BOTAŞ cannot enter into new natural gas purchase agreements until its natural gas import volume falls to 20% of the annual national consumption, with the exception of LNG import and (2) BOTAŞ must transfer its existing natural gas purchase agreements to other import companies until the share of gas imported by BOTAŞ falls to 20% of the annual national consumption until 2009.4 Eight years after the targeted date, BOTAŞ is far from reducing its import volume to 20% of the national consumption. This result is, among others, attributable to the shortcomings of the legislative framework in Turkey. The next section provides an overview of the applicable legal regime and addresses its shortcomings.


Until the NGML's enactment in 2001, the import of natural gas to Turkey was governed by the Decree Law on the Use of Natural Gas (Decree Law) dated 2 January 1990 and numbered 397.5 Under the Decree Law, BOTAŞ was granted exclusive authority to import natural gas (including LNG) to Turkey. Accordingly, prior to the NGML, BOTAŞ was Turkey's only natural gas importer.

With the NGML's enactment, the natural gas market was opened to other players. This was part of a larger liberalisation trend in Turkish energy regulation, which also enabled private investors to be licensed to operate in electricity generation, trade and distribution activities, an area that was previously dominated by state-owned enterprises. The Energy Market Regulatory Authority (EMRA) became the official body responsible for regulating and supervising natural gas market activities.6 As such, EMRA has introduced several regulations, communiqués and decrees regarding natural gas market activities.7

Among these is the Natural Gas Market License Regulation (the License Regulation),8 which sets forth the principles and procedures applicable to the licensing of natural gas market activities, including licensing of import of natural gas to Turkey. However, the legal regime applicable to the import of natural gas to Turkey is not limited to the NGML and the License Regulation. EMRA also has decrees that have significant impact on the import of natural gas to Turkey, which is why a prospective import project requires a thorough review of the applicable EMRA decrees. Moreover, the applicable legal regime depends on whether natural gas is imported through pipelines or in the form of LNG.

Legal Regime Applicable to Import of Natural Gas through Pipelines

Provisional Article 2 of the NGML sets forth limitations and restrictions with respect to import of natural gas through pipelines. These restrictions and limitations are grouped based on the importer. They are applicable to, i.e., BOTAŞ or other natural gas importers.

Import by BOTAŞ

Prior to the NGML's enactment, BOTAŞ was Turkey's only natural gas importer. To liberalise the import of natural gas and to bring BOTAŞ's share to 20% of the total natural gas consumption volume, a 'provisional' article, Provisional Article 2, was included in the NGML, prohibiting BOTAŞ from entering into new natural gas purchase agreements until the share of gas it imports falls to 20% of the annual national consumption amount. Between the NGML's enactment in 2001 and the amendment to Provisional Article 2 in 2008, this restriction was applicable to import of natural gas both through pipelines and in the form of LNG. In July 2008, Provisional Article 2 was amended, removing this restriction on LNG import but keeping it for import through pipelines.9 Provisional Article 2 further states that, in order to reduce its share in imports to 20%, BOTAŞ must transfer its existing natural gas purchase agreements to other import companies through tenders until 2009. Despite this provision, in 2016 BOTAŞ's imports accounted for more than 80% of Turkey's national consumption amount and it still has the following six long-term gas purchase agreements in place with respect to import of natural gas through pipelines:

The reason why BOTAŞ has not yet transferred these purchase agreements varies from agreement to agreement. Commercially, BOTAŞ can transfer a purchase agreement only if the terms and conditions of that purchase agreement are feasible for other natural gas import companies. For instance, transfer of a particular purchase agreement may not be attractive for private companies, if the price of natural gas is higher when compared to the prices of natural gas that BOTAŞ imports through pipelines from other countries, and the supplier's track record is unreliable due to, for example, delivery shortfalls during the peak seasonal demand, which is the case in the purchase agreement with Iran10. In addition, the NGML does not provide any instructions, roadmap or guidance on dealing with issues such as the supplier's reliability and 'take or pay' obligations.

On the other hand, BOTAŞ has not always appeared determined to transfer its purchase agreements. On the contrary, BOTAŞ entered into a new gas purchase agreement in 2011, to import natural gas from the Shah Deniz Stage II field inAzerbaijan.11 This agreement was signed under the auspices of an international agreement, thereby benefiting from a lex specialis immune from Provisional Article 2.

Import by Companies other than BOTAŞ

While the NGML prevents BOTAŞ from signing new natural gas purchase agreements, the legislature had to take into account BOTAŞ's existing obligations under its purchase agreements. This is partly the reason why Provisional Article 2 prohibits import companies from entering into new agreements to import gas from countries with which BOTAŞ already has purchase agreements until the expiration of BOTAŞ's agreements. Accordingly, EMRA does not permit any company to import gas from countries where BOTAŞ has ongoing contractual relationships for the import of natural gas.12 There are two exceptions to this restriction: (1) if the natural gas imported from these countries is directly exported to other countries or (2) if EMRA determines a deficiency in domestic natural gas supply, EMRA may grant an import license to natural gas import companies other than BOTAŞ to import natural gas from these countries.13 It is worth noting that, as of 2017, these exceptions have not yet been applied by EMRA.

On the other hand, under Provisional Article 2 of the NGML, EMRA permits natural gas import companies to import natural gas from countries from which BOTAŞ is not already importing natural gas. At first sight, this seems to pave the way for private sector companies to freely import natural gas from several countries. Considering the low number of countries from which BOTAŞ is already importing gas, the NGML was expected to boost gas imports by private sector companies. However, these expectations failed, as EMRA issued a highly-criticised decree in April 2006: Decree No. 725 (Decree No. 725),14 which sets forth the principles and procedures for the review of import license applications for imports from countries where BOTAŞ does not have any ongoing contractual relationships. Decree No. 725 involves both BOTAŞ and the Ministry of Energy and Natural Resources (Ministry) in the review process of license applications. Considering BOTAŞ's profoundly dominant role in the natural gas market, Decree No. 725 arguably reverses the freedom the NGML brings for private sector companies wishing to import natural gas from countries from which BOTAŞ is not already importing natural gas.

Under Decree No. 725, if these companies apply to EMRA for an import license, EMRA notifies BOTAŞ of the annual and seasonal import volumes and the import term provided in the application.15 The rationale behind this notification is to ensure that the potential imports by newcomers do not hinder the performance of BOTAŞ's obligations under its existing gas purchase agreements. After receiving the file from EMRA, BOTAŞ submits its reasoned opinion on whether the proposed import would prevent BOTAŞ from fulfilling its existing obligations.16 BOTAŞ's opinion also covers the question whether this volume of natural gas would cause serious economic and financial difficulties for the system.17 The outcome of EMRA's review is closely tied to BOTAŞ's opinion on the proposed import with respect to its existing obligations and export connections and on the proposed volume's effect on the system.18 EMRA must ultimately reject the license application if BOTAŞ opposes the proposed import.

However, if BOTAŞ submits an affirmative opinion, EMRA will follow by requesting the Ministry's opinion. Entrusted with the task of planning for the country's energy demand, the Ministry evaluates the license application's possible impacts. If the Ministry's opinion is negative, EMRA dismisses the license application. On the other hand, if the Ministry's opinion is affirmative, EMRA makes an announcement in the Official Gazette and on EMRA's official website, inviting companies wishing to import the same volume of natural gas from the same country, to apply to EMRA.19 With the purpose of ensuring a competitive and transparent process in the granting of licenses, EMRA indicates the gas volume to be imported, the application period and venue and any other details pertaining to the prospective license in this announcement.

If no application is made within the application period, EMRA conveys to BOTAŞ the import volume and entry point in the national transmission system operated by BOTAŞ as stated in the application. BOTAŞ then evaluates this information and informs EMRA of its opinion, this time in its capacity as the country's transmission system operator.20 In addition to BOTAŞ's second opinion, EMRA must also obtain a second opinion from the Ministry, this time in relation to the country from which the natural gas is proposed to be imported. If both of these opinions are affirmative, then the applicant is granted the import license to import natural gas from the relevant country.

However, if other companies wishing to import the gas volume stated in the announcement apply to EMRA for an import license, Decree No. 725 requires a competitive process among these applicants following the second affirmative opinions obtained from BOTAŞ and the Ministry.21 A commission established under Decree No. 725 reviews the application files together with the opinions. Upon its evaluation, the commission prepares a report and submits it to EMRA's Board, which dismisses license applications by any applicant it considers to be unqualified to import the contemplated volume of gas. With such companies removed from the applicant pool, the remaining companies are invited to a meeting,22 where they submit their sealed bids. The license applicant with the highest bid is granted the import license to import natural gas from the relevant country. Accordingly, this procedure under Decree No. 725 allows any company in the tender to obtain the import license regardless of whether it was the original applicant that initiated the process.

In summary, while EMRA is an independent regulatory authority with the objective, among others, to reduce BOTAŞ's role in the natural gas market, ironically BOTAŞ plays a key role in EMRA's licensing process. Effectively, on the one hand Provisional Article 2 unties a knot in Turkey's natural gas import legislation, opening the gates to import by private companies; but on the other hand, Decree No. 725 re-ties that knot back so strongly that private companies wishing to become BOTAŞ's competitors need BOTAŞ's positive opinion to be able to enter the market in the first place.


1 Energy Market Regulatory Authority, 'Natural Gas Market 2016 Sector Report' (Ankara: EMRA, 2016) (EMRA Report).

2EMRA Report, p. 9.

3Natural Gas Market Law No. 4646, dated 18 April 2001, published in the Official Gazette dated 2 May 2001 and numbered 24390.

4 NGML, Provisional Article 2.

5 Decree Law on the Use of Natural Gas No. 397, dated 2 January 1990, published in the Official Gazette dated 9 February 1990 and numbered 20428.

6 Law on the Organisation and Duties of the Energy Market Regulatory Authority No. 4628, dated 20 February 2001, published in the Official Gazette dated 3 March 2001 and numbered 24335 (second edition).

7 Under the NGML, natural gas market activities are import, transmission, distribution, storage, wholesale and export of natural gas and distribution and transmission of compressed natural gas.

8 Natural Gas Market License Regulation, published in the Official Gazette dated 7 September 2002 and numbered 24869.

9 Article 20, Law Regarding Amendments to the Energy Market Law and Other Laws No. 5784, dated 9 July 2008, published in the Official Gazette dated 26 July 2008 and numbered 26948.

10 O.G. Austvik & G. Rzayeva, 'Turkey in the Geopolitics of Natural Gas', Harvard Kennedy School Mossavar-Rahmani Center for Business and GovernmentAssociateWorking Paper Series (September 2016), 10, https:// www.hks.harvard.edu/sites/default/files/centers/mrcbg/files/66_final.pdf.

11 Agreement between the Government of the Republic of Turkey and the Government of the Republic of Azerbaijan Concerning the Sale of Natural Gas to the Republic of Turkey dated 25 October 2011, published in the Official Gazette dated 10 October 2012 and numbered 28437.

12 NGML, Provisional Article 2.

13 Ibid.

14 EMRA Decree No. 725, dated 13 April 2006, published in the Official Gazette dated 29 April 2006 and numbered 26153.

15 Decree No. 725, Article 3.

16 Ibid.

17 Under Article 3 of the NGML and Article 4 of the License Regulation, the 'system' is defined as the facilities and equipment established to carry out production, transmission, storage and distribution of natural gas.

18 Decree No. 725, Article 3.

19 Decree No. 725, Article 4.

20 Under Article 5 of Decree No. 725, BOTAŞ will consider the entry point of natural gas in the national transmission system; sufficiency of natural gas for the pipeline system's hydraulics; BOTAŞ's 'Principles Regarding Transmission Network Operation Regulations', setting out the rights and obligations of the relevant parties related to transmission of natural gas through the transmission network; and other criteria that BOTAŞ would consider appropriate in relation to entry of natural gas in the national transmission system.

21 Decree No. 725, Article 6.

22 Under Article 6 of Decree No. 725, the invitation will include (1) the venue, date, and hour of the meeting; (2) the amount of the bid security; (3) issues related to the submission, preparation, delivery and opening of the sealed bids; and (4) other relevant issues at EMRA's discretion.

© Kolcuoğlu Demirkan Koçaklı Attorneys at Law 2017

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