Turkey is taking the necessary legislative steps to enhance its investment environment, ensure the security of its energy supply, promptly integrate domestic and renewable resources into its energy system, and eliminate bureaucratic challenges for energy market investors.
TURKEY has experienced increased consumption, economic expansion, positive demographic trends, and a rapid pace of urbanization and industrialization in recent years. The combination of these factors has resulted in a swift increase in energy demand (estimated to rise around 6 percent annually until 2023) and has contributed to making Turkey one of the fastest growing energy markets in the world.
The Strategic Plan
In order to maintain a balanced increase in energy consumption, Turkey’s Ministry of Energy and Natural Resources released its Strategic Plan covering the years 2015 to 2019. This Strategic Plan sets forth the following eight goals:
- to ensure energy supply security;
- to increase energy efficiency and energy savings;
- to maintain good governance and stakeholder interaction by public authorities and departments at every level;
- to benefit efficiently from Turkey’s regional and international position;
- to develop technology and innovation transfer, and to foster research and development projects in energy sector;
- to encourage investment in the energy and natural resources sectors;
- to ensure raw material supply security; and
- to use raw materials efficiently and effectively.
Turkey took a big step towards achieving the goals of the Strategic Plan on June 17, 2016 when it passed a comprehensive set of amendments (“Electricity Amendments”), to several of the core electricity-related laws, including the code that set forth the organization and duties of the Energy Market Regulatory Authority (“EMRA Code”), the most recent version of the electricity market code (“Electricity Market Code”), and the code on generating electricity through the use of renewable energy sources (“RES Code”).
General Pre-License and License Implementation
In order to accelerate licensing through delegation of responsibilities, the Electricity Amendments empowered the Energy Market Regulatory Authority Board (“EMRA Board”) to delegate its pre-licensing, and licensing-related powers for all matters (including certificate issuance, amendment, and temporary suspension or cancellation of pre-licenses, licenses or certificates) to its own President and Vice President and/or “relevant service units” including departments. The result is that critical decisions like the issuance and cancellation of licenses for the electricity, natural gas, petroleum, and LPG markets will now be made at the departmental level without the need for an EMRA Board decision.
Licenses for Nuclear Energy Generation Plant Operation
The Electricity Amendments impose extra requirements for licensed operators of nuclear power plants to submit additional documents to the various relevant EMRA departments including the construction license for their plants and documentary evidence of land rights (ownership or usage) for the property over which the plants are constructed, as well as all other authorizations, approvals, licenses, certificates, and other similar documents that were required by law (e.g. environmental and real estate laws) for the construction of their nuclear power plants. However, nuclear pre-license holders are entitled to initiate construction of buildings that are not directly related to generation facilities during the pre-license phase.
If nuclear generation license holders fail to submit all required documents to EMRA within a time frame to be determined by the EMRA Board, the EMRA Board will cancel their generation licenses. The only exception is when circumstances arise through no fault of the nuclear generation license holders that could constitute force majeure or offer a just cause.
Energy Loss-Theft Fee
The Electricity Amendments set forth costs and service fees, which may be reflected on consumer electricity bills, such as the technical loss cost, the non-technical loss cost (i.e. the cost of electricity taken in an illegal manner or without a valid consumer subscription), the meter reading cost, and the reactive energy cost. However, this list of chargeable costs and fees is not exhaustive, allowing distribution companies to expand the line items that would ultimately be charged to the consumers. Among them, the energy loss-theft fees constitute an especially important cost item to distribution companies.
With the new framework introduced by the Electricity Amendments allowing distribution companies to reflect energy loss-theft fees onto the tariffs applicable to the their regular consumers, it is now expected that courts hearing legal disputes that are initiated by consumers against distribution companies for a refund of energy loss-theft fees will likely rule in favor of the distribution companies, whereas previous decisions were most often rendered in favor of the consumers due to the lack of legal grounds for companies to charge such fees.
In addition to imposing payment obligations for energy loss-theft fees on consumers, the Electricity Amendments also limit the discretionary authority of courts and consumer dispute boards for reviewing such fees. Previously, courts and consumer dispute boards had the authority to resolve the underlying legality of consumer fee charges. As a result, such fees imposed on consumers were mostly cancelled, and distribution companies were required to reinstate the paid amounts to consumers. The energy loss-theft fees provision now limits their authority solely to verifying that fees are in conformity with EMRA regulations, in order to clarify the fees, and effectively legitimize the passing-on of such costs to consumers.
However, the legitimacy of the energy loss-theft fees provision of the Electricity Amendments has been widely debated among non-governmental organizations, chambers of commerce, etc., and challenged in cases before the Constitutional Court, although these cases were dismissed on procedural grounds without examining their underlying merits. Thus, the debate over this issue remains unresolved and is expected to continue into the foreseeable future.
Introduction of Methane Gas to the Energy Market
The Electricity Amendments further enabled mining license holders to obtain an operating license for methane gas as a means to introduce methane gas into the economy by licensing it under the natural gas market legislation within the scope of the Turkish Petroleum Code, and removing it from the definition of minerals under the Mining Code.
Exemptions under the Electricity Amendments
Regarding Public Tenders
Prior to the Electricity Amendments, the state-owned electricity wholesale company, Türkiye Elektrik Ticaret ve Taahhüt Anonim Şirketi (commonly “TETAŞ”) was generally unable to make purchases for service or repair from private parties because any purchases to be made by TETAŞ would fall within the scope of the Public Procurement Code, thus limiting its operations to procurement from other public entities or existing concession and implementation agreements. However, the Electricity Amendments exempted state-owned energy companies, including TETAŞ, from the Public Procurement Code for power purchase tenders made for supply procurement purposes such as their purchase of energy, fuel, goods, services, and major repair work. Through such an exemption, one may expect TETAŞ to expand its operations.
Regarding Real Estate and Construction
The Electricity Amendments introduced a provision impacting the law covering military and security zones, which contains nuclear power plant exemptions to an onerous law meant to protect olive tree production. The provision specifically exempts “all planned facilities and activities in connection with nuclear power plant projects from the ‘restrictive’ provisions of the Code on the Improvement of Olive Cultivation and the Vaccination of Wild Olive Trees.”
As was widely covered in the media, this part of the amendment was motivated by the restrictions imposed on the Akkuyu nuclear power plant, due to the olive groves surrounding the proposed area of project development. In addition to the above, nuclear power plant projects are also exempted from provisions of the Coastal Code, which generally restricts construction activities on Turkey’s shorelines.
Regarding the Environment
Electricity generation plants owned by the state-owned electricity generation corporation Elektrik Üretim Anonim Şirketi (commonly “EÜAŞ”), its affiliates, and the companies which were privatized or will be privatized, will enjoy the benefit of an extension to carry out the necessary steps and to obtain all permits for their compliance with environmental legislation until December 31, 2019 under the Electricity Amendments. This precludes the imposition of administrative fines and termination of activities for plants that are operated by the state and are within the scope of privatization plans, as well as those plants which were transferred due to earlier privatization.
The Electricity Amendments introduced the concept of “renewable energy resource zones” and added a provision requiring the use of domestic equipment and/or equipment that is nationally produced in generation plants that are to be established in renewable energy resource zones. However, the Electricity Amendments state that a future regulation will be issued in order to determine the scope of this rule regarding which equipment shall be considered domestic or nationally produced. Furthermore, the Electricity Amendments restrict zoning plans for property in designated renewable energy resource zones, to the extent that these plans adversely affect the use and efficiency of renewable energy resources. Such privately owned properties located within designated renewable energy resource zones can be expropriated on an expedited basis.
The Electricity Amendments expanded the definition of biomass to include urban wastes such as trash and mud within the scope of the RES Code. We expect an increase in the number of facilities that generate energy from waste, an industry in which municipalities have been investing for a while now.
The Electricity Amendments provide a method for the privatization of the assets of EÜAŞ with negotiation but without valuation, for the establishment of electricity generating plants based on renewable energy resources or domestic coal.
Unlicensed Electricity Generation
Share Transfer Restriction
The Electricity Amendments provide a new provision to the Electricity Market Code regarding share transfer restrictions for unlicensed facility applicants based on wind and/or solar power (installed capacity of up to 1 MW). According to the Electricity Amendments, such legal entities are prohibited from transferring their shares until they obtain "provisional approval" from the relevant network operators, except for circumstances regulated under the Regulation on Unlicensed Electricity Generation in Electricity Market (“Unlicensed Energy Regulation”). Failure to comply with this requirement may result in the cancellation of the calling letter granted to the applicant for execution of a connection agreement. In addition, shareholders of electricity distribution and supply companies, legal entities controlled by such companies and employees working directly or indirectly for such legal entities are prohibited from applying for electricity generation based on wind and/or solar powers within the same distribution region where the relevant distribution and supply companies operate.
Further to the foregoing, the EMRA Board has amended the Unlicensed Energy Regulation to reflect the aforementioned share transfer restriction, with the only exception being share transfers occurring due to inheritance. However, the Unlicensed Energy Regulation contained a grandfather clause for this restriction, which will not apply to applications that were announced on the website of the relevant network operator, and qualified for a calling letter for execution of a connection agreement prior to March 23, 2016.
The EMRA Board set forth further exceptions to the aforementioned share transfer restriction in the Unlicensed Energy Regulation. As of October 22, 2016, share transfers made prior to completion of the provisional approval process of a facility, as further detailed under the Regulation on the Approval of Electricity Power Plants, are only permitted if they occur as:
- A change in the shareholding structure arising from the shareholders holding the publicly offered shares of a publicly held legal entity or of legal entities;
- A direct or indirect change in the shareholding structure arising from share transfers between existing shareholders triggered due to the exercise of a right of first refusal;
- An indirect change in the shareholding structure of the relevant legal entity arising from changes in the shareholding structure of its foreign shareholders; or
- A direct or indirect change in the shareholding structure arising from a public offering of the legal entity’s shares or such entity’s direct or indirect shareholder’s shares.
The EMRA Board’s second amendment to the Unlicensed Energy Regulation introduced a novelty regarding the merger process of entities that own an unlicensed power plant. Prior to this amendment, such an entity would be eligible for a merger transaction provided that it acquires another wholly-owned affiliate, or is acquired by its wholly-owned affiliate which owns an unlicensed electricity generation facility. After the second amendment to the Regulation, a legal entity owning an unlicensed power plant is eligible for a merger transaction (i) under its legal entity or (ii) under another legal entity’s structure, provided that the provisional approval is obtained for the said plant from the relevant network operator. Accordingly, due to the new amendment, parties to such a merger no longer have to be the sole shareholder or wholly-owned affiliate, of each other. Additionally, the surviving legal entity as a result of the merger does not have to be the original owner of the unlicensed electricity power plant owner.
What the Future Holds for the Electricity Sector
Given the short lapse of time since the Electricity Amendments entered into force, their practical implementation and their full impact on the electricity market remain to be seen. In spite of some controversial provisions, which are still highly debated in the public arena (including, courts, consumer protection associations, and chambers of commerce), we expect these amendments to contribute greatly to an overall improvement of the electricity sector, by eliminating many obstacles that have been standing in the way of quickly and efficiently generating electricity and using natural resources.