Summer 2004:

Recent developments in energy sector of Turkey
Electricity Market
The Government of Turkey has adopted the Strategy Paper Concerning Electricity Market Reform and Privatization Program in March 2004. The Strategy Paper covers procedures for privatization of distribution and generation assets, measures on transitional issues and security of supply mechanism.
According to the Strategy Paper, current distribution activities will be re-organized on the basis of 21 distribution regions, where distribution companies will be reimbursed according to their revenue requirements, but a uniform national electricity pricing scheme will be valid for 5 years, by means of a price equalization mechanism. Hence, prior to distribution privatization which will commence early 2005, distribution and retail tariffs, as stated by the relevant secondary legislation will be employed. The Strategy Paper offers a new and sound opportunity in moving forward with tackling the pending or unsolved issues in the electricity market reform process, i.e. the dominant position of state-owned wholesale company. The Paper envisages introduction of transitional contracts, through which generation either from existing contracts via TETAS or state-owned companies will be allocated to distribution companies' demand for captive consumers. TETAS will assume only existing contracts and some big hydro-power plants of state-owned generation company. The state-owned thermal and other hydro-power plants will be reformed on portfolio basis, and then be privatized. The total number of licenses granted to new and existing facilities, as of July 1st 2004 in generation distribution, transmission and trade is 418 which corresponds to a total of 33.000 MWs of licensed installed capacity.
Natural Gas Market
Until July 2004, 5 transmission, 3 LNG transmission network code and the regulation regarding storage facilities are being processed. A total of 20 in city distribution license tenders have been completed as of July 1st 2004. The regulations such as the natural gas transmission network code and the regulation regarding storage facilities are being prepared by the related parties in accordance with the law. They are expected to be issued by the end of 2004. The entry-exit transmission tariff system will be adopted after the approval of the network code by the Board of EMRA. The work on the transfer of natural gas sale and purchase agreements of BOTAS to private sector in the manner as foreseen by the law continues for the time being.
Petroleum Market
EMRA has been authorized as regulatory authority for petroleum market addition to electricity and natural gas market together with the Petroleum Market Law which was enacted on 04.12.2003 (law 5015) and published in the Official Gazette on 20.12. 2003. The Law concentrates on defining the new market structure and the status of the different parties taking part in the market. Under the law, briefly, national petroleum stock system will be established and; legal separation of some market activities, fuel supply chain, limitations on market shares and classification of users by volume limits will be realized.
A new department called the "Petroleum Market Department" was established within EMRA to carry out the duties regarding petroleum market. Petroleum Market License Regulation was published by EMRA and has been effective since June 17th, 2004, and other regulations will be finalized soon. EMRA started accepting license applications. Existing market players are obliged to obtain a proper license and adopt themselves to the provisions of Petroleum Market Law.
Other Activities
EMRA's Twinning Project titled "Institutional Strengthening of EMRA" has just been launched on 1 July 2004. The project is being undertaken by the twinning of EMRA with the Italian Energy Regulator AEEG.
Loyola De Palacio, Vice-President of the European Commission and the commissioner for energy and transport has visited EMRA and had a meeting with President Yusuf Gunay on 15 July 2004. During the meeting De Palacio launched the project, and stated the key role of EMRA for the reform process in Turkey.

Spring 2004: Recent Developments Concerning the Electricity Market

In 2003, the gross electricity generation in Turkey reached 140 billion kWh, amounting to an 8.3% increase over the previous year.

The private sector provided around 53% of the gross national generation and the majority of the electricity generated by the private sector in Turkey is under long-term contracts with purchasing guarantees secured under the Build Operate, (BO) Build Operate Transfer (BOT) and Transfer of Operating Rights (TOOR) models. In 2003, the generation by BO plants amounted to 22.3% of gross national generation; the BOT plants generated about 10% of the total and plants under the TOOR scheme generated about 3.1%. The other method of private sector involvement is autoproduction, whereby industrial companies set up power plants for their own use or the use of their partners. In 2003, the electricity generated by autoproducers and autoproducer groups amounted to 16.3% of the gross national generation.

Of the gross electricity generation in 2003, 74.8% was generated by thermal power plants and 25.2% was generated by hydro power plants. Natural gas contributed to 47% of the gross electricity generation, followed by reservoir type hydro power plants with a 22.8% share of the total and 18% to lignite-fired power plants.

The Energy Market Regulatory Board, the decision making body of the Energy Market Regulatory Board, announced that the eligibility threshold was lowered from 9 GWh to 7.8 GWh of annual electricity consumption. This new eligibility threshold corresponds to about 29% market opening.

In December 2003, following six months of virtual operation, the transitional financial settlement mechanism started to be operated on a cash settlement basis. The transitional mechanism entails the settlement of imbalances arising from bilateral contracts through the use of generation capacity allocated to the state-owned wholesale company Turkish Electricity Trading and Contracting Company (TETAS), based on the imbalance prices that are proposed by TETAS and subject to the approval of EMRA. Provisions regarding balancing are expected to be incorporated into the current settlement mechanism by the end of the second quarter of 2004. The sophisticated balancing and settlement mechanism envisaged at the outset of the reform process would be operational after the preparation of the comprehensive balancing and settlement code by Turkish Electricity Transmission Company (TEIAS), provided that the necessary metering-communication-control infrastructure is in place.
As of March 10, 2004 six private sector companies have been granted wholesale licenses by EMRA and numerous private sector companies have applied for licenses for being engaged in the generation of electricity in a competitive market environment, including autoproducers and autoproducer groups – of these facilities a total of 2045 MW of installed capacity have been licensed and another 935 MW of installed capacity have qualified for being licensed. Of those applications for commissioning new generation capacity, a total of 4786 MW was for wind-based facilities. So far EMRA has licensed 26 of these new facilities with a capacity of 921 MW, upon careful review and evaluation of their applications.

Recent Developments Concerning the Turkish Natural Gas Market

EMRA, has prepared and publicized the natural gas market secondary regulations with the input of the public and private sector representatives in a time frame one year from its establishment in November 2001 till November 2002.

EMRA is the sole regulating authority in the natural gas market since the opening up of the market in 2 Nov. 2002. EMRA, in order to establish the market, has started licensing the existing legal persons in the sector and also the prospective players who are willing to undertake a natural gas market activity as foreseen in the law.

Until March 2004, 1 transmission, 2 LNG transmission, 4 wholesale, 9 import, 3 storage, 10 CNG and 15 city distribution, totally 44 licenses have been granted. Currently a total of 12 new license applications are being processed.

The regulation regarding the functioning of the natural gas transmission network (Network Code) and the regulation pertaining to the principals and procedures regarding the storage facilities are being prepared by the related parties in accordance with the law. They are being expected to enter into force in 2004 after being approved by the Board of EMRA.
The work on the transfer of the natural gas sale and purchase agreements of BOTAS to the private sector in the manner as foreseen by the law continues for the time being.

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