NATURAL GAS MARKET LAW IN TURKEY

“A general overview on Natural Gas Market Law in Turkey”

Att. Arzu ONGUR ERGAN[1]

                        I.              Introduction

Nowadays, energy is considered as one of the most important measures of enhancement of welfare and sustainable development. Historical experiences indicate that, attaining sustainable energy and growth in economy are tightly linked to each other.[2] Turkey’s role in the transit of gas is increasingly important due to the fact that it is surrounded by major gas-exporting countries in the Middle East and Central Asia. Following the start of the Blue Stream, Baku-Tblisi-Erzurum and on-going Nabucco pipeline projects, Turkey has become an integral part of the international natural gas market. Turkey, as an energy corridor, has been following the recent developments in the sector, and making required laws and regulations in order to sustain the development of energy market, and make Turkish market attractive for both national and foreign investors.

In this respect, many local and international investors request to obtain more information as regards Turkish Natural Gas Market Law. The main aim of this article is to ensure a brief overview on Gas Market Law in Turkey and accordingly to inform the readers concerning essentials of the legal structures such as the sources of natural gas market law, the type of natural gas market licenses, administrative procedures, administrative fines and sanctions and competition.

                     II.              Development of Natural Gas Market Law in Turkey

The legal framework of the Natural Gas Market is regulated by the Natural Gas Market Law numbered 4646 and dated 2001 [Hereinafter referred to as Natural Gas Market Law].[3] Before the enactment of the Law, the Natural Gas Market was regulated by a statutory decree numbered 397 and dated 02.09.1990.[4]

BOTAS was originally established in 1974 for construction and operation of the Kirkuk-Ceyhan Oil Pipeline. Since 1987, BOTAS has been also involved in the natural gas transportation and trade activities.[5] From 1990 until 2001, BOTAS had monopole rights on natural gas import, distribution, sales and pricing.[6] BOTAS’s monopoly rights on natural gas import, distribution, sales and pricing that were granted by the Decree of Natural Gas Utilization were abolished by the Natural Gas Market Law.

The Natural Gas Market Law, which was enacted during the liberalization process of natural gas market, covers import, transmission distribution, storage, marketing, trade and export of natural gas and the rights and obligations of all real and legal persons related to these activities. The general objective of this law is to supply natural gas with good quality, stable and competitive price.[7] In order to achieve these aims the market is required to be competitive, liberalized, environmentally sound, financially sound, transparent and sustainable. The supervision and control mechanism of the market should be independent. As it is known, these features are significant indications not only for the natural gas market, but also for any types of markets. Therefore, these elements are crucial to obtain a well-functioning natural gas market and EU legislation aims to obtain a natural gas market with these features as well. Although there are delays in reducing BOTAS’s dominant position and market share, it is clearly stated by IEA that Turkish legislation is in compliance with EU laws.[8]

By the Natural Gas Market Law, some important amendments are made in the natural gas market, such as:

·        Free entrance to the market by private entities is provided[9]

·        Natural Gas Monopoly of the BOTAS is abolished

·        Protection of the natural gas end-users by competitive market prices is provided[10]

·        Market efficiency for any kind of market activities is provided

·        Market shares limits are regulated

·        Free consumer structure is created[11]

·        Liberalization of distribution grids is commenced

                      III.               Constitutional Background Regarding the Regulation of Energy Markets

The Turkish Constitution puts forward general provisions concerning creation of well-functioning and competitive market structures which are applicable in the energy market as well. Accordingly, Article 167, 168 and Article 47/4 consist constitutional background of the energy market. According to the Article 167 of Turkish Constitution, the State has taken some measures concerning capital markets, credits, goods and services to obtain well-functioning and systematic markets.[12]

According to the Article 168 of Turkish Constitution, the natural sources are under the control of the state. The right of exploration and processing of natural resources are owned by the state; however, the state can transfer these rights to real and   legal persons for a defined time period. The state can regulate the conditions of these transfers by Law, and in the event of transfer of these rights, the state has the right to put these markets under surveillance and supervision.[13] According to the Article 47 of Turkish Constitution, the state defines the public services which shall be undertaken by private entities. In this case, the state can regulate the type of the services which has to be fulfilled under private contracts by real and legal persons.[14]

                  IV.              Energy Market Regulatory Authority

The Energy Market Regulatory Authority [hereinafter referred to as EMRA] is an independent regulatory authority with administrative and financial autonomy. It doesn’t have direct control of any public authorities as it has to be fully independent in terms of political effects.

EMRA was established on 19^th November 2001 by the Law numbered 4646 in Turkey. It regulates all energy markets which are electricity, natural gas, oil and LPG markets. The fundamental objective of EMRA is set forth in its founding documents as to ensure the development of financially sound and transparent energy markets operating in a competitive environment and the delivery of sufficient, good quality, low cost and environment-friendly energy to consumers and to ensure the autonomous regulation and supervision of these markets.

                     V.              Natural Gas Market Licenses and Certificates in Turkey

License is a permission certificate given to legal entities by the Energy Market Regulatory Board to engage in market activities respectively for each market activity in accordance with the Law.[15] Accordingly, there are 7 types of natural gas market licenses in Turkey which are import license, transmission license, storage license, wholesale license, distributor license, CNG license and exportation license.

Certificate is permit given by Board to real persons or legal entities who will engage in natural gas demonstrating that such person or legal entity is competent to design, construct, revise, maintain, repair, control, consult or conduct similar services for the facilities which shall take part in the system.[16]

The regulations regarding licenses are governed by Article 4 of the Natural Gas Market Law. In principle, any market player should grant the relevant type of license before commencing activities. The difference between the license and certificate is that license is required for the activities and certificate is required for the facilities. It is required to grant separate licenses for each activity and separate certificates for each facility.[17] And the market players have to separate their financial accounts for each activity.[18] Separate financial account obligation is in compliance with the Directive 2003/55/EC[19]

The rules related to the licenses in natural gas market are provided in Natural Gas Market License Regulation.[20] The natural gas market licenses are grantable for 10 to 30 years.[21] The licenses are not transferable.[22] Energy Market Regulatory Board has all the authorities concerning procedures and bases of licenses. Accordingly, it has authority to award, amend and cancel licenses.

Market players, who request a license, should apply to the Energy Market Regulatory Board with a written statement. During the application, the applicants should submit information and documents stipulated in the legislation. According to the Regulation, all shares of incorporations or limited liability corporations which are subject to the provisions of Turkish Commercial Code should be registered.[23]

EMRA examines license application regarding the principals and measures stated in Natural Gas Market License Regulation, in a multidimensional manner. It shall assess the technology of the applicant for entrance to the market, quality, and security as well as sustainability of the service and the company structure of the applicant. All applications to the administration should be completed within 60 days in any case that is not limited with energy market.[24] Accordingly, license applications should be concluded within 60 days at the latest.[25] Financial capacity of the applicant, background and previous experience of the applicant, applicant’s effect on competition, development of the market and market prices are essential points regarded by the authority during the evaluation of the license application.[26] If the administrative authority does not conclude the application regardless, weather in a positive manner or not, the applicant shall have the right to apply to the relevant court.[27]If there is any absence of required documentation, the applicant shall have an additional period for completion of the documents within 10 days at the latest. If the applicant fails to complete the missing documents, the application shall be null and void.[28]

The applicant shall pay 1% of the total amount of license fee according to the type of license required.[29]

The licenses and certificates are automatically terminated in cases of time completion and licensee’s bankruptcy. If the licensee wishes to revoke from the license, decision of the Energy Market Regulatory Board is required.[30]

                  VI.              Administrative Fines and Sanctions

Concerning the administrative fines and sanctions in natural gas market the conditions are regulated under the Law. These are; incorrect information premises, breach of the legislation, failure in performing license and certificate conditions, misleading document and information, prohibited affiliate relations, performing activities outside of the license conditions, failure about informing the Board about changed conditions.[31]

If a market player infringes the market regulation, the market player shall be sanctioned to pay administrative fine that ranges between 370.000TL – 740.000TL. Besides mentioned fines, the Energy Board has the authority to impose administrative sanctions to said market players. The Energy Board can start investigation upon a compilation or automatically. The penalties and administrative sanctions are stipulated in Article 9 of the Law. EMRA is empowered to de-regulate and increase the amount of the fines annually if necessary. In case of repetition of the infringement for two subsequent years, the Board may double the fines. Furthermore, Article 274 of Turkish Criminal Code is applicable for market players.

The relevant market player can file a lawsuit against the decision of the Energy Board. The Law stipulates that the Council of State shall act as a Court of First Instance for these types of energy cases. Normally, the Council of State is a High Court in accordance with Turkish Administrative Law; however, taking into account the specific feature and technical dimension of energy cases, the Council of State is defined as a Court of First Instance. Relevant market players may bring a lawsuit against the decision taken by the Board. The Council of State has to resolve these kinds of cases as a matter of urgency.

When it comes to competition in the natural gas market, the general conditions concerning competition is stipulated in Law no. 5054 and dated 1994 in Turkey.[32] This Law applies within the natural gas market. The Competition Regulatory Board has an authority to intervene the market structure in the natural gas market as well. Three important situations are controlled by Competition Regulatory Board; first, agreements which considerably prevent, restrict and distort competition, second abuse of dominant position, and lastly, mergers and accusations.

               VII.              Conclusion

Turkish Natural Gas Market has improved in the liberal manner since the enactment of Natural Gas Market Law in 2001 and the abolishment of BOTAS’s monopole; and the legal structure is harmonized with EU legislations as of 2011. Turkish government reduced BOTAS’s dominant position and established an independent authority named Energy Market Regulatory Authority in order to protect and develop the transparent, non-discriminatory, sustainable, and secure, cost efficient, competitive and equitable character of the natural gas market. In natural gas sector, the foreign companies who display activities in Turkey are subject to the same legal status as the Turkish companies. Hence, there is no difference for foreign companies in the process of license application. The authorized administration regarding the licenses is EMRA. The actors of the natural gas market and their activities are examined by EMRA in order to ensure that they act in compliance with relevant regulations. In case of infringement of these regulations Energy Market Regulatory Board is authorized to impose administrative fines and sanctions. Protection of competition is also of the essence in natural gas market, and the related authorized administration is Turkish Competition Authority. 

Consequently, Turkey has been following the recent developments in the natural gas market law, and making required laws and regulations in order to sustain the development of energy market, and make Turkish market attractive for nationals and foreign investors.

Bibliography:

1. ASLAN, Yılmaz, “Enerji Hukuku, Cilt III: AB Doğalgaz Piyasasında Rekabet ve Regülasyon, Türk, Doğalgaz Piyasasında Rekabet ve Regülasyon,Türk LPG Piyasasında Rekabet ve Regülasyon”, Ankara, 2009  GÖZÜBÜYÜK, Şeref,-DINÇER, Güven, “İdari Yargılama Usulü Hukuku”, Ankara,1996
2. KILIC A.Mahmut, “Turkey’s natural gas necessity, consumption and future perspectives” Energy Policy 34, Elsevier, 2006
3. The Constitution of Republic of Turkey
4. Natural Market Law [No:4646 and dated 2001]
5. Natural Gas Market License Regulation [17 June 2004 dated and No:25495 Official Journal]

6.      Decree of Natural Gas Utilization (Abolished), [Published in the Official Journal dated 02.09.1990 and numbered 20428]

7. Code of Administrative Procedure [No: 2577 and dated 1982]
8. Turkish Criminal Code [No: 5237 and dated 2005]
9. Turkish Commercial Code [No: 6762 and dated 1956]
10. The Act on the Protection of Competition [No: 5054 and dated 1994]
11. Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 Concerning Common Rules for the Internal Market in Natural Gas and Repealing Directive 98/30/EC
12.  http://www.botas.gov.tr/index.asp
13. Turkish Energy Market: An Investor’s Guide 2011 http://www.epdk.org.tr/documents/10157/1bda767e-9e95-4030-8e49-baabbb4af698
14. Energy Policies of IEA Countries- Turkey Review 2009 http://www.iea.org/publications/free_new_Desc.asp?PUBS_ID=2276