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)[1] 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.[2]
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”),[3] 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”),[4] the most
recent version of the electricity market code (“Electricity Market Code”),[5]
and the code on generating electricity through the use of renewable energy
sources (“RES Code”).[6]
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.[7] 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.[8] 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.[9] 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.[10] 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,[11] and removing it
from the definition of minerals under the Mining Code.[12]
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,[13] 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,[14] which contains nuclear power
plant exemptions to an onerous law meant to protect olive tree
production.[15] 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.”[16]
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,[17] 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.[18] 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.
Renewable Energy
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.[19]
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,[20] except for
circumstances regulated under the Regulation on Unlicensed Electricity Generation
in Electricity Market (“Unlicensed Energy Regulation”).[21] 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[22] 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.[23]
The EMRA Board set forth further exceptions to the
aforementioned share transfer restriction in the Unlicensed Energy
Regulation.[24] 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,[25]
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.
Merger Process
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.
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