Turkey is looking to lignite coal privatization as a means of maintaining current rates of growth while meeting a primary goal in commemoration of its first centenary.

Two years ago, the government announced an ambitious development strategy known as Vision 2023 (Hedef 2023 in Turkish), with the primary goal of making Turkey one of the world’s ten biggest economies by 2023, coinciding with the Turkish Republic’s 100th anniversary. Part of this strategy includes plans for enhancing domestic energy capacity to reduce dependence on imported energy sources such as oil, natural gas, and anthracite coal (“hard coal”) due to the considerable and adverse impact foreign energy dependency has had on Turkey’s current account deficit, a notorious economic indicator in Turkish business circles. With that in mind, the government has identified lignite coal (“brown coal”) privatization as the next tool towards achieving energy independence.

Although estimates can vary based on the source and the calculation methodology, Turkey is estimated to have total coal reserves of approximatively 8.7 billion tons.[1] However, hard coal, which has a higher calorific value, accounts for only about 0.3 billion tons, whereas brown coal, which has a lower calorific value, makes up the approximately 8.4 billion ton remainder. Since brown coal is the most abundant indigenous fossil energy resource, lignite coal reserves are crucial for an independent energy policy in Turkey, and the government is making serious efforts to expand the use of lignite coal-fired power plants across the country.

Turkey’s Ministry of Energy and Natural Resources announced the initiation of a privatization process for local lignite coal resources about a year ago. The Privatization Administration kicked-off preparations for this privatization with the transfer of operational rights for certain lignite coal areas, with the ultimate intent of privatizing all lignite coal assets owned by the national electricity generation company, Elektrik Üretim Anonim Şirketi (“EUAŞ”) and its subsidiaries. The purpose of the privatization is to establish lignite coal-fired power plants in those areas in an attempt to boost domestic energy generation to meet the rising demand. The privatization of the Çayırhan Coal Reserves[2], which was completed in 2017, will pioneer the tender initiative, and five lignite coal areas are expected to follow: (i) Trakya (Çerkezköy ve Çatalca), (ii) Eskişehir Alpu[3], (iii) Kırklareli Vize, (iv) Afyon Dinar, and (v) Konya Karapınar. In addition, four more lignite coal areas including Afşin Elbistan C-D-E sectors will most likely be included in the privatization program, albeit they have not yet been officially announced.

Mining Region[4]

Reserve (Million Ton)

Potential Capacity (MW)

Coal (Kcal/Kg)

Mining Method

Thermal Power Plant Area (Hectare)





Underground Mining






Underground Mining






Open/Close Pit Mining






Underground Mining






Open Pit Mining






Open Pit Mining






Open Pit Mining


Overview of Turkish Privatization Rules

The Law on Privatization Applications[5] (the “Privatization Law”) sets out the main framework under which privatizations are conducted. However, we should note that the terms of the Privatization Law only serve to install the main framework, and the tender specifications governing the terms of each tender can be highly individualized. The purpose of the Privatization Law is (i) to regulate the methods and principles applicable to the privatization of state owned entities and their assets,[6] (ii) to set forth the provisions regarding the formation/organization of the Privatization Administration and the Privatization High Council, and (iii) to set out the rights of the employees of those state-owned entities that are included within the Government’s privatization program. This entity has an exclusive budget and reports directly to the Prime Minister.

The Privatization Law also sets forth the following methods for privatization processes: (i) sale (transfer of ownership rights), (ii) lease, (iii) transfer of operation rights, (iv) grant of property rights other than ownership, and (v) revenue sharing. Apart from those, the Privatization High Council is entitled to put into use other arrangements in light of the needs and specifics of the transaction concerned.

The Privatization High Council is a standing council with a unanimous decision quorum, which is formed of five cabinet-level ministers and is chaired by the Prime Minister. The Privatization High Council is entitled to initiate the privatization process by its decision to include the relevant entity/assets into the privatization portfolio and/or the privatization program. The Privatization High Council may either directly include an entity/asset into the privatization program, or the relevant entity/asset can be put into a transition phase where it is prepared for the privatization process from financial, legal, and operational perspectives.

The Privatization Administration is a public institution authorized to oversee the privatization process. In the event that the Privatization Administration launches a tender for privatization of an entity/asset, bidders must purchase the tender specifications and the information memorandum issued by the Privatization Administration. Otherwise, they cannot become entitled to submit bids in the tender processes, which will be conducted by the Privatization Administration through (i) sealed bid auction, (ii) negotiation process, or (iii) open bid auction.

Moreover, if the entity to be privatized has an annual turnover exceeding 30 million Turkish Lira as per the Communiqué 2013/2[7], there is a requirement for the Privatization Administration to make a pre-notification to the Turkish Competition Authority (“TCA”). This is to evaluate (i) the potential impact of the privatization in the relevant market; (ii) the post-privatization conditions of judicial or de facto privileges, if any, of the undertaking to be privatized; and (iii) to obtain the Competition Board’s opinion regarding the method to be followed in the proposed privatization. The TCA will issue its opinion within 40 business days following its receipt of the Privatization Administration’s pre-notification, and the tender may only be carried out after the issuance of this opinion. The TCA’s opinion must be incorporated into the tender specifications, as appropriate. The Competition Board may also require certain bidders to give undertakings in the event that they become the winning bidder in the tender process.

Process regarding the Privatization of the Lignite Coal Areas

The contemplated privatization process will be subject to provisions set forth under the Privatization Law and the Electricity Market Law.[8] The Privatization Law sets forth that natural resources may only be privatized by way of the transfer of operation rights for a limited period. Accordingly, the winning bidder will acquire the operation rights over the lignite coal areas free of charge, provided that such bidder undertakes the construction of electricity generation plants in those areas. The winning bidders will also execute electricity sales agreements for the sale of electricity to be generated through the electricity generation plants that the builders are to construct. Although the tender package has yet to be announced, we expect that the State will underwrite the purchase of a certain amount of electricity for 15 years and provide purchase price advantages for the electricity generated. The expected operation period for the generation plants is 35 years.

The electricity unit sales price for the electricity sales agreements will be determined through an underbidding auction, whereby bidders will aim to propose the lowest price in comparison with the benchmark electricity price. The one proposing the lowest price will come out as the winning bidder.

For the tender process, the tender commission will first prepare the tender announcement and specifications. The announcement will include the title of the privatized entity or the specifics of the lignite coal areas, the method of privatization (i.e. transfer of operation rights for natural resources), the procedures for the tender, the amount of bid bond, and the deadline for submitting the bids. Then, the potential bidders will have to obtain tender specifications which contain various aspects of the tender process itself, such as the subject and method of the tender, the term and maturity of the payment and the amount of the bid bond. Also, a bidder who has duly obtained the tender specifications may visit the data room or make a site visit between the dates set by the tender commission in order to conduct due diligence exercises over the entity/assets to be privatized. The official tender announcement will set forth the deadline by which the bids should be submitted as well as the content of the bid package.

The tender commission will obtain the bids from the respective participants and then determine and announce the winning bidder. Thereafter, the Privatization Administration will prepare a draft decision regarding the final result of the tender. The winning bidder may also be required to obtain clearance from the TCA if the tender process had required making a pre-notification to the TCA before the tender process. Once all of the above requirements have met, the Privatization High Council will approve the draft tender results and the approval will become effective upon the announcement of the resolution in the Official Gazette. The privatization process is generally completed by execution of the tender agreement(s) and the actual transfer of assets/shares. However, for the privatization of the lignite coal areas, the process will be finalized upon execution of the transfer of operation agreements and electricity sale agreements with the winning bidders.

Making the Most of Coal Resources

To satisfy rising demand on its way to becoming one of the ten biggest economies in the world, Turkey can most certainly rely on its abundant lignite coal resources to provide the cheap and durable energy resources it needs. To that end, the privatization initiative regarding the various lignite coal areas will allow Turkey to exploit such resources in a more efficient and less onerous way while providing sound investment opportunities for the private sector. That is why the contemplated privatization initiative is welcomed by both the public and private sectors. Eager potential bidders have already set their eyes on the imminent official announcement of the privatization tenders for the abovementioned lignite coal areas which are expected to take place within 2018.