restructuring, privatization, liberalization

center for energy petroleum and mineral law and policy
RESTRUCTURING, PRIVATIZATION, LIBERALIZATION
AND REGULATORY REFORM OF
TURKISH ELECTRICITY INDUSTRY
INTELLECTUAL/ACADEMIC REPORT
AUTHOR: CUNEYT BODUR∗
SUPERVISOR: MR. STEPHEN DOW
Telif Hakkı Uyarısı: Bu akademik çalışmanın tüm hakları yazarı Avukat Cüneyt
Bodur'e aittir ve yazarı tarafından Türk Hukuk Sitesi (http://www.
turkhukuksitesi.com) kütüphanesinde yayınlanmış olup, başka bir yerde
yayınlanması kesinlikle yasaktır.
Bilgilendirme Yazısı: Yüksek Lisans tezi olarak hazırlanmış bu çalışmanın
ardından Türkiye Elektrik sektöründen elbette bir takım değişiklikler meydana
gelmiştir. Eser sektördeki liberalleşme ve özelleşme ile ilgili hala geçerli olan
temel bilgiler vermekte ve ülkemizdeki süreçten bahsetmektedir. Bu eserin 13.
sayfasındaki üretim oranları bugün itibariyle farklıdır. Sayfa 23 ve 24 yer alan
dağıtım bölgeleri ve şehirlerin bazılarında da değişiklikler olmuştur. Bu hususların
dışında, eserde sözü edilen sorunlardan büyük çoğunluğu maalesef ki bugün
itibariyle de devam etmektedir. İlgililerine yardımcı olması dileklerimle.
*****
Copy Right Warning: this present paper is submitted to Türk Hukuk Sitesi
(http://www.turkhukuksitesi.com) by its author Cuneyt Bodur, and this present
web-site is the only one granted with the permission to publish the paper. Any
and all kinds of publishing on other web-sites are prohibited.
Notification: Turkish Electricity sector has been evolved since the preparation of
this present master degree report. However, all information regarding
liberalization and privatization of the sector in Turkey is still alive and basic
information on the history and the development of the sector is - of course - still
accurate. But, please be kindly informed that the proportionate of generation on
page 13 is now different, also some of the cities as well as the distribution
areas(page 23 and 24) slightly different now. it is also pity that some of the
problems mentioned in the paper such as competition issue in Turkey is yet to be
completely solved. i wish the paper would be great help to those who are in need
of knowledge on the issue.
INDEX
ABBREVIATIONS
1. INTRODUCTION ..………………………………………………………………….…... 1
2. HISTORICAL DEVELOPMENTS OF TURKISH ELECTRICITY INDUSTRY ..... 2
2.1. Early Ages (1902 – 1980) ……………………………………………………...... 2
2.2. Investment Models/Private Participation Models (1980 – 2000) ……………….. 4
2.2.1. Private Participation Models Used in This Term ……………………..... 5
2.2.1.1. Build-Operate-Transfer (BOT) ………………………………. 5
2.2.1.2. Build-Operate (BO) …………………………..……………..... 5
2.2.1.3. Transfer of Operating Rights (TOR) …………………………. 5
2.2.1.4. Autoproduction (APr) ………………………………………... 6
2.2.2. Why Were Private Participations Models Used in This Term? ……...... 6
2.2.3. Another Important Development in This Term …………………….….. 6
2.2.4. Evaluation of this Term ………………………………………………... 7
2.2.5. The Structure of TEI before the EML (Graphic I) ……………………. 7
2.3. Restructuring Electricity Industry/Reform Period (2000 – Present) …………..… 8
2.3.1. Aim and Scope of the Electricity Market Law ………………………… 8
2.3.2. Reasons of the Reform ………………………………………………… 8
2.3.3. Unbundling the Monopoly …………………………………………….. 9
2.3.4. Unbundling the TEI from 1993 to 2004 (Graphic II) ………………... 10
3. WHAT DOES ELECTRICITY MARKET LAW CALL FOR? …………………….. 10
3.1. Restructuring …………………………………………………………………… 10
3.2. Market Design ………………………………………………………………….. 11
3.2.1. Generation and Wholesale ……………………………………………. 12
3.2.1.1. Proportions of Generation Groups (Graphic III) ………….. 13
3.2.2. Transmission ………………………………………………………….. 14
3.2.2.1. What Caused Putting BaSeRe into Force? …………………. 14
3.2.2.2. What Does BaSeRe Call For? ……………………………… 14
3.2.2.2.1. Balancing [Dengeleme] ………...…………….. 15
3.2.2.2.2. Settlement [Uzlaştırma] ………………………. 15
3.2.2.3. How does the BSS work? …………………………………... 15
3.2.2.4. How Are the PPMs Supposed To Be Dealt within the BSS? ...... 17
3.2.3. Distribution and Retail Sale …………………………………………... 17
3.3. Independent Regulatory Agency …...………………………………………….. 17
3.4. New Structure of TEI after EML and SP (Graphic IV) ………………………... 19
4. PRIVATIZATION ……………………………………………………………………… 20
4.1. Privatization and Main Principles ……………………………………………… 20
4.2. Distribution Regions …………………………………………………………… 22
4.2.1. Defining DisRes ……………………………………………………… 22
4.2.2. DisRes of Turkey (Graphic V) ……………………………………….. 24
4.3. An Important Development Affecting DisRes …………………………………. 25
4.4. Why Did the Distribution Take First Place in Privatization? …………………... 25
4.5. How Will the DisCos be Privatized? …………………………………………… 25
4.5.1. Why Has TOR Been Chosen? ………………………………………... 25
4.5.2. The Steps to be Taken During the Privatization Process …………….. 26
4.6. Technical Lose and Theft Problems ……………………………………………. 28
4.7. Tariff Regulations ……………………………………………………………… 29
5. COMPETITION ………………………………………………………………………... 30
5.1. Which Will Prevail, EML or SP? ………………………………………………. 30
5.2. Law 5893 and Vertical Integration ……………………………………………... 31
6. CONCLUSION ………………………………………………………………………….. 33
7. ANNEX – 1 ……………………………………………………………………………… 35
8. BIBLIOGRAPHY ………………………………………………………………………. 36
ABBREVATIONS
APr
Autoproduction
BaSeRe
Electricity Market Balancing and Settlement Regulation
BO
Build-Operate
BOT
Build-Operate-Transfer
BSP(s)
Balancing System Participant(s)
BSS
Balancing and Settlement System
CoM
Council of Ministers
CoS
Council of State [Supreme Court of Administrative Courts]
DisCo(s)
Distribution Company(ies)
DisRe(s)
Distribution Region(s)
EML
Electricity Market Law
EMRA
Energy Market Regulatory Authority
EU
European Union
EUAS
Electricity Generation Co.
GenCo(s)
Generation Company(ies)
HEPP
Hydroelectric Power Plant
HPC
High Planning Council
IMF
International Monetary Fund
MENR
Ministry of Energy and Natural Resources
MFSC
Market Financial Settlement Center
MP(s)
Market Participant(s)
NLDC
National Load Dispatch Center
OIZ
Organized Industrial Zones
PA
Privatization Administration
PEM
Price Equalization Mechanism
PPA
Power Purchase Agreement
PPMs
"Private Participation Models" implies
BOT, BO, TOR, and APr models together
RetCo(s)
Retail Company(ies)
SHW
State Hydraulic Works
SP
Electricity Sector Reform and Privatization Strategy Paper
TCA
Turkish Competition Authority
TEAS
Turkish Electricity Generation Transmission Co.
TEDAS
Turkish Electricity Distribution Co.
TEI
Turkish Electricity Industry
TEIAS
Turkish Electricity Transmission Co.
TEK
Turkish Electricity Institution
TETAS
Turkish Electricity Trading and Contracting Co.
TOR
Transfer of Operating Rights
WB
World Bank
1. INTRODUCTION
In the 1990s, there was a worldwide push towards reforming the utility industries and
monopolistic business structures, most notably in the electricity industry. The main aim of
the reforms was to improve economic efficiency. The means by which this was to be
achieved was the introduction of competition. 1 To create a competitive electricity market,
where not existed before, requires any country to implement a wide range of structural and
regulatory reforms. 2
Until the end of the twentieth century, few countries questioned the economic efficiency of
state-owned and vertically integrated utilities and their role as monopoly service providers
in the electricity industry. In 1990 the UK opted to move to a new industry structure
involving full competition in generation and retail segments. This was achieved by
unbundling the industry structure and making transmission and distribution common
carriers. 3
On the other hand, Republic of Turkey (Turkey), with a young and growing population,
low per capita electricity consumption, rapid urbanization and generally strong economic
growth, for nearly two decades has been one of the fastest growing power markets in the
world. The government anticipates the need for significant increases in power generating
capacity in coming years, possibly 54,000 MW by 2020, requiring billions of dollars
investment. 4 As insufficiency of public funds and poor performance of public electricity
monopoly taken into consideration as well as the advices given from international
institutions such as World Bank (WB) and International Monetary Fund (IMF), Turkey
passed the long-anticipated Electricity Market Law (EML) 5 , in 2001, which envisages the
establishment of a competitive electricity market and to promote private participation in
the industry.
1
2
3
4
5
Pritchard, R., Eight Guidelines of Electricity Industry Reform, Vol. 12-7 Article. Online Journal CEPMLP
(August 2002) at www.dundee.ac.uk/cepmlp/journal/html/volume12.php (last visited on 10 August 2006).
Id.
Pritchard, R., Andrews-Speed, P., Eight Principles of Electricity Industry Reform, Vol. 7-2 Article. Online
Journal CEPMLP (July 2000) www.dundee.ac.uk/cepmlp/journal/html/volume7.php (last visited on 10
August 2006).
International Energy Agency, Turkey Country Analysis Brief (June 2005), at www.eia.doe.gov/emeu/cabs/
turkey.html (last visited on 7 August 2006).
Turkish Electricity Market Law, Law No. 4628, (entered into force March 2001).
1
This present paper examines regulatory reform, privatization and liberalization of the
Turkish Electricity Industry (TEI). It firstly delivers information about the historical
development of TEI and the investment models used therein, then mentions the reform
process which includes restructuring the industry, new market design and privatization of
distribution segments as well as the general competition issues arising from the
liberalization of the industry. All these issues are examined within the frame of deductive
methodology. The paper concludes that even Turkey has moved forward a lot since the
enactment of EML, Turkey has still a long way to take and lots to learn due to there are
still important issues waiting to be addressed or to be settled between concerned state and
private parties of the process.
2. HISTORICAL DEVELOPMENTS OF TURKISH ELECTRICITY INDUSTRY
2.1. Early Ages (1902 – 1980)
In Ottoman Empire, the first electric generator was a 2 kW dynamo connected to the water
mill installed in Tarsus in 1902. This enterprise belonged to a private sector participant. 6
Electricity energy activities had been operated by foreigners in Ottoman Empire by way of
obtaining respective concessions. 7 Electrification of Istanbul, for the first time, had been
conducted by Macar Ganz Corp. on 1st of October 1910. This company was authorized on
electricity generation and sales. 8 The first bigger power plant was installed in Silahtarağa
region of Istanbul, in 1913. 9
Turkey was founded on 29th of October 1923 as a successor country of Ottoman Empire.
Turkey was trying a liberal economy between 1923 and 1930s and the electricity sector
was heavily dependent on foreign investment, mostly German, Belgium, Italian and
Hungarian Companies. 10 The first Turkish electricity company, Kayseri ve Civarı
6
Hepbaslı, A., Development and Restructuring of Turkey’s Electricity Sector: a Review, Renewable and
Sustainable Energy Reviews 9 (2005), at 311-343. See Also, Kulali, I., Electricity Sector and Privatization
studies in Turkey, at http://ekutup.dpt.gov.tr/kit/kulalii/elektrik.html (last visited on 7 August 2006) in
Turkish.
7
State Auditing Agency, Research Report With Respect to applications of BOT and TOR, at www.tccb.gov.
tr/tr_html/DDK/enerji.htm (last visited on 07 August 2006) in Turkish.
8
BEDAS, History of Electricity in Istanbul, at http://www.bedas.gov.tr/bedas/tarihce.php (last visited on 07
August 2006) in Turkish.
9
See, Supra n6
10
Id.
2
Electricity Corp., was established in 1926. At the end of this era, there were 48 power
plants (74.8 MW). 11
In 1930s, there was a widespread belief all over the world in the benefits of public
ownership of the electricity industry. 12 Following to this trend “Statism” policies
dominated the Turkish economy. Hence, all activities and companies in Electricity
industry, except Kayseri ve Civarı Electricity Corp., were nationalized in 1938 as per the
provisions of Law 3480. 13 This was followed by a legislation that allowed the municipals
to build and operate power plants. In 1935, Etibank, Mineral Research and Exploration
Institution, and Electrical Power Resources Survey Administration were founded, later the
Bank of Provinces [İller Bankası] and State Hydraulic Works (SHW) [Devlet Su İşleri]
were established. The installed capacity had reached 126.2 MW by 1950. 14 There was a
diffused and de-centralized structure in this period of TEI. 15
In 1953, 1st Energy Consultation Congress [1. Enerji İstişare Kongresi] was conducted for
the purpose of preventing diffusing and providing a centralized structure to industry. The
two most important decisions taken in this congress were;
9 To build big and powerful hydraulic and thermal power stations in lieu of small and
local diesel stations.
9 To transfer electrification activities carried out by various institutions to one central
and state owned electricity institution. 16
In 1960, the government started the “development plans era” which was more of a national
policy than a global one. The Ministry of Energy and Natural Resources (MENR) [Enerji
ve Tabii Kaynaklar Bakanlığı] was established in December 1963, and was responsible of
Turkey’s energy policy. 17 This was followed by the creation of Turkish Electricity
Institution (TEK) [Türkiye Elektrik Kurumu] by Law 1312 on 15th July 1970 (barely, 17
11
Id.
Erdogdu, E., Regulatory Reform in Turkish Energy Industry: An analysis, Energy Policy Journal, article in
press, at doi:10.1016/j.enpol.2006.02.011 (last visited on 07 August 2006).
13
See, Supra n8
14
See, Supra n6
15
See, Supra n7
16
Id.
17
See, Supra n6
12
3
years later than the 1st Energy Consultation Congress). 18 TEK had a monopoly in Turkish
electricity sector at almost all stages apart from distribution, which was left to the local
administrations such as municipalities and the Bank of Provinces.
However, distribution was also transferred to TEK as per provisions of Law 2705 in 1982,
thus TEK became a vertically integrated, state-owned monopoly. 19 The only exemption in
these transfer transactions was hydroelectric generators, which had been constructed and
operated by Directorate General of SHW. 20 Installed capacity reached 2,234.9 MW by
1980. 21
2.2. Investment Models/Private Participation Models (1980 – 2000)
In the early of 1980’s, like many European countries, TEI was dominated by a vertically
integrated and state-owned monopoly. Starting from 1980s, Turkey sought to attract
private participation into the industry. 22 The reasons behind this disposition can be
summarized as fallows;
9 In 1980, Turgut Özal who was a liberal economy supporter won the elections,
became the Prime Minister and initiated his liberalization policies.
9 Insufficiency of public funds,
9 Poor performance of public electricity monopoly 23
9 Improve the efficiency of electricity sector.
9 Rapid urbanization, young population, and growing electricity consumption
18
See, Supra n7
See, Supra n12
20
Ozkıvrak, O., Electricity Restructuring in Turkey, Energy Policy Journal 33 (2005), at 1339-1350.
21
See, Supra n6
22
Bodur, C., Regulatory Framework of Build-Operate-Transfer Model in Turkey, presented Research Paper
for International Project Finance course at CEPMLP, April 2006.
23
In 2000, the losses of TEAS reached 656 million USD (See, Supra n20). This amount derived from the
unpaid amount of the electricity that bought by TEDAŞ. TEDAS was not able to pay the price of the
electricity due to it had difficulty in collecting fees from, particularly, public utilities such as
municipalities. Even, as of 2006 this amount is decreasing, there is important problem in terms of revenue
stream between state-owned institutions. Source: www.ntvmsnbc.com/news/382356.asp (last visited at 07
August 2006) in Turkish.
19
4
2.2.1. Private Participation Models Used in This Term
2.2.1.1. Build-Operate-Transfer (BOT)
The first codification with respect to BOT was made in energy sector in 1984. The Law
3096 changed the monopolistic structure of TEK and provided scope to private sector – for
the first time since 1930s – to conduct commercial activities in generation, transmission,
distribution and trade of electrical energy. 24 Four Bylaws were later issued to clarify the
application of this law. Here are the associated Bylaws; 85/9759, 85/9800, 87/11488, and
91/1630.
In 1990s financial strains also increased for public infrastructure investments due to lack of
funds. Therefore, there was a need of a codification which would regulate (unify) BOT
models in every sector in economy, a general BOT law. Consequently, Law 3996 which
regulates BOT model as general was enacted in 13th of June 1994. Afterwards, Bylaw
94/5907 was published on October 1994 to clarify the application of this law. 25
2.2.1.2. Build-Operate (BO)
Law 4283, for private sector participation in construction and operation of new power
plants was also enacted in 1997 and treasury guarantees provided as it had happened in
BOT model. 26 Bylaw 97/9853 was later issued to clarify the application of this law.
2.2.1.3. Transfer of Operating Rights (TOR)
Law 3096 also covered Transfer of Operating Rights (TOR) of existing power plants and
transmission and distribution facilities owned by the state (article 5) to the private
enterprises. 27 Council of Ministers (CoM) [Bakanlar Kurulu] had authority on TOR as per
the provisions of Bylaw 87/11488.
24
See, Supra n22
See, Supra n22
26
See, Supra n12
27
See, Supra n22
25
5
2.2.1.4. Autoproduction (APr)
In 1984, following the enactment of Law 3096, autoproduction in Turkey picked up at a
fast pace. “Autoproducers” are those entities that essentially generate electricity for their
own and their shareholders’ use. The major underlying reason for the fast spread of
autoproduction is no doubt reliability and cost concerns of the industrial sector. Increased
thermal efficiency in cogeneration technologies and the possibility of selling surplus
energy to the national grid continues to make these investments more attractive. Currently,
industrial plants with cogeneration units can achieve savings of up to 50 percent on their
energy bills as compared to the cost of grid power in Turkey. 28
2.2.2. Why Were Private Participation Models Used in This Term?
First of all, Turkey didn’t have any idea of privatization of electricity industry due to
electricity industry reform, or opening the industry into competition, was not as widely
spread all over the world as it is now.
Secondly, the main reason why Turkey opted to try to attract private investment to the
sector which was regarded as a “public service” was insufficiency of public funds. Also,
had Turkey intended to privatize the electricity, it would have faced with enormous legal
problems due to electricity had been deemed as “Public Service” that had to be carried out
by state under the Turkish Constitution. One of the exemptions to this maxim was
concession. Hence, Turkey tried to use the concession methods to realize those capital
intensive investments.
2.2.3. Another Important Development in This Term
In 1993, TEK was split into two separate state institutions: Turkish Electricity Generation
Transmission Co. (TEAS) and Turkish Electricity Distribution Co. (TEDAS) by the
Decree of CoM (Dec. no: 93/4789). The reasoning of this Decree was to provide more
28
Directly taken from the work: Serhat Guney, E., Restructuring, Competition, and Regulation in the Turkish
Electricity Industry (Istanbul: Turkey, Tepav Publication, 2005).
6
efficient and more effective services to industry and to incorporate TEK into privatization
plan. 29
2.2.4. Evaluation of This Term
BOT, BO, and TOR contracts which were concluded between private sector participants
and the administration (TEAŞ and TEDAŞ), stipulated “take or pay” obligations with fixed
quantities (in general, 85% of plants’ output). 30 Under these models, the government
retains most commercial risks. In Turkish case; there was no requirement for a competitive
tender process, particularly as per Law 3096, to conclude these contracts which resulted,
for sure, in high electricity prices. 31
Most of the commentators criticize these Private Participation Models (PPMs) and regard
them as major barriers to development of the competitive electricity sector due to there are
some privileged companies who have hedge and don’t bear the commercial risk, whereas
all participants are to be equal in any market asserting to be a competitive one.
2.2.5. Structure of TEI before the EML (Graphic I)
The below given graphic is taken from the article “The Politics of Regulation in the
Turkish Electricity Market” 32 and modified by the author.
29
Turkish Electricity Distribution Co. (official web site), History of the Institution, at http://www.tedas.gov.
tr/1,Hakkimizda.html (last visited on 07 August 2006) in Turkish.
30
See, Supra n7
31
See, Supra n12
32
Cetin, T., Oguz, F., The Politics of Regulation in the Turkish Electricity Market, Energy Policy Journal,
article in press, at doi:10.1016/j.enpol.2006.05.014 (last visited on 07 August 2006).
7
2.3. Restructuring Electricity Industry/Reform Period (2000 – Present)
2.3.1. Aim and Scope of Electricity Market Law
Turkish Electricity Market Law (EML), Law 4628, was enacted in 2001. The main
objective of Law, as stated in Article 1, is “to ensure the development of a financially
stable and transparent electricity market operating in a competitive environment under
provisions of civil law and the delivery of sufficient, good quality, low cost and
environment-friendly electricity to consumers and to ensure the autonomous regulation
and supervision of this market.” 33
This law covers generation, transmission, distribution, wholesale, retail and related
services of electricity; rights and responsibilities of all real persons and legal entities
involved with those activities and establishment of a independent regulatory authority and
determination of operating principles of this authority; and the methods to be employed for
privatization of electricity generation and distribution assets. 34
2.3.2. Reasons of the Reform
The reasons and/or problems (in addition to the ones mentioned in section 2.2.) that
initiated the reform process in TEI can be summarized as fallows;
9 The MENR has planned for a very large increase in electric generating capacity
over the next 20 years. According to forecasts prepared by the MENR, the country
will need about an electric power capacity of 65 GW by 2010, and about 105 GW
by 2020. Electric energy generation capacity is expected to have to rise from about
117 TW h in 2001 to more than 347 and 624 TW h in 2010 and 2020, respectively.
This implies power demand growth rates of at least 8% per annum 35 for the coming
decade and at least 6% per annum for the following decade. 36
33
Article 1 of EML
Article 1/paragraph II of EML
35
Indeed electricity consumption increased 8.46 % in Turkey this year. Source: www.enerjiforumu.com/
gazete/?ID=2050 (last visited on 25 August 2006) in Turkish.
36
See, Supra n6
34
8
9 Decreasing the technical losses in distribution segment to the level in OECD
countries and prevention of theft (illegal use of electricity) 37 .
9 Realization of reform has been underlined by the international financial institutions
such as IMF and WB that have supported Turkey through the economic crises
under Stand-by arrangements, 38
9 Reform has also paralleled the Turkey’s longer term objectives of accession into
European Union (EU) and has needed to approximate laws to EU acquis,
consequently which requires progressive liberalization of electricity market. 39
9 Transferring to consumers the benefits obtained through competition in generation,
trade of electricity, and regulation of quality of service. 40
2.3.3. Unbundling the Monopoly
To satisfy the provisions of EML, TEAS was unbundled, by Decree of CoM (Dec. no
2001/2026 dated 5th of February 2001), into three state-owned public enterprises, namely
Electricity Generation Co. (EUAS), Turkish Electricity Transmission Co. (TEIAS), and
Turkish Electricity Trading and Contracting Co. (TETAS). 41
37
High Planning Council, Electricity Sector Reform and Privatization Strategy, at www.oib.gov.tr/program/
2004_program/2004_electricity_strategy_paper.htm (last visited on 7 August 2006).
38
See, Supra n20
39
Id.
40
See, Supra n37
41
Turkish Electricity Trading and Contracting Co. (official web site), at www.tetas.gov.tr/tanitimson.htm
(last visited on 7 August 2006) in Turkish.
9
2.3.4. Unbundling the TEI from 1993 to 2004 (Graphic II)
Illustration is made by the author and the graphic artist, Nurettin Gumusbas.
3. WHAT DOES ELECTRICITY MARKET LAW CALL FOR?
EML was designed to establish a competitive electricity market, to promote private
participation and improve efficiency in industry. 42 The key features of EML are as fallows;
3.1. Restructuring
As explained above, TEAS has been further unbundled into EUAS (generation), TETAS
(wholesale) and TEIAS (transmission). Each of them has been formed as a separate stateowned legal entity.
42
See, Supra n20
10
Under the new structure;
9 EUAS takes over existing public power plants that have not been transferred to
private sector. 43 Same article also stipulates EUAS to take over the Hydroelectric
Power Plants (HEPP) which are currently under the possession of SHW. According
to the studies conducted by SHW, EUAS and Advisory of State Treasury, 9 billion
USD has been defined for transferring 31 HEPP to EUAS. 44
9 TETAS is formed to carry out wholesale operations and it seems that it will
dominate wholesale market in the near future 45 , because the privatization in
generation segment will be conducted after successful privatization of distribution
segment. 46 TETAS, also becomes the holder of all previously concluded BO, BOT
and TOR contracts, including long-term PPA with treasury guarantees, and will
assume other stranded costs. 47
9 TEIAS is responsible for transmission which remains under the ownership of state
and also has the capacity of “System Operator” and “Market Operator” as well
under the Electricity Market Balancing and Settlement Regulation.
9 TEDAS has been divided into 21 distribution region as per strategy paper issued by
High Planning Council (HPC) [Yüksek Planlama Kurulu]. Further information
regarding TEDAS is provided below in section 4.2. and ongoing sections.
3.2. Market Design
At the heart of new structure, bilateral contracts 48 market where generation companies
(GenCos) contract with wholesale trade companies, distribution companies (DisCos), retail
companies (RetCos) and eligible consumers. The current market design does not envisage
a pool or power exchange. The equality of demand and supply, given the bilateral
contracts, is to be carried out by the System Operator (TEIAS) through purchases and sales
43
Article 2/a.1 of EML. Also See, Supra n37
Source: http://www.enerjiforumu.com/gazete/?ID=2047 (last visited on 24 August 2006) in Turkish.
45
See, Supra n12
46
See, Supra n37
47
See, Supra n12. Also, see Article 2/d.1 of EML
48
Bilateral contracts are the agreements whose terms and conditions are freely determined by parties and
subject to private law. Source: Energy Market Regulatory Authority, Electricity Market Implementation
Manual (April 2003), at http://www.epdk.org.tr/english/reports/electricity.htm (last visited on 7 August
2006).
44
11
in a balancing market. 49 In order to realize this task, National Load Dispatch Center has
been established within TEIAS.
3.2.1. Generation and Wholesale
The state has a controlling power in the generation by EUAS. The share of state-owned
generators is % 45,40. 50 (The graphic displaying proportions among different generation
groups added below as section 3.2.1.1.) In addition, according to the “existing contracts”51
the state through TETAS(wholesale company) have to purchase almost all electricity
generated by the private companies involved in PPMs. 52 As explained earlier in this paper,
these models were granted Treasury Guarantees, therefore TETAS has to buy and market
the electricity generated by the above-mentioned models until the “existing contracts”
expire.
It seems that the dominant position of state in generation and its monopoly in wholesale
will continue, at least, for the coming five years due to the “existing contracts”. Also,
investors have not invested to industry due to, most probably, uncertainties on industry.
Therefore, it is easy to conclude that the state will continue to be the determinative investor
of the industry in near future. As it is stated by many scholars, existing contracts negatively
affect new entrants because of privileged trading relationships and non-competitive
pricing.
The two main reasons behind high electricity prices generated by PPMs are,
9 They are mostly natural gas fired power plants. Hence, the initial investment cost
respectively low but the cost of electricity generation is high as compared to other
investment models such as HEPP, or lignite fired power plants, etc.
9 There was no requirement for prequalification or even for a competitive open
tender process to conclude the contracts. They were mostly signed through a
negotiation processes which the state was incompetent.
49
See, Supra n12
Energy Market Regulatory Authority (official web site), Annual Report (2005), at www.epdk.gov.tr/yayin_
rapor/yillik/yillik .htm (last visited on 7 August 2006).
51
Existing contracts are the contracts and concession agreements and implementation agreements concluded
between the private companies and the government prior to enactment of EML 2001 in accordance with
the investment models such as BOT, BO and TOR. (Article 1 of EML).
52
See, Supra n20
50
12
The method opted by Turkey to overcome this high electricity price is to blend low cost
generation which includes HEPP generation with the PPMs’ electricity. This operation is
conducted by TETAS. It purchases low cost electricity from state-owned generators and
high cost electricity from private generators and blend them (in terms of their cost) and
sells to market.
In order to form a competitive wholesale market, TETAS is expected to loose its
controlling power over the coming years particularly at the end of the term of these
contracts. On the other hand, EML envisages some restrictions, in order to assure
competition, on future private wholesale companies such as the related companies are to be
legally restricted to a market share of 10% of the total electricity consumed in the market
in preceding year. 53
Also some restrictions have been set out on private generation companies in order to
prevent concentration which may lead to market power in the segment. E.g. total market
share of a particular private generation company and its affiliates can not exceed 20% of
the published figure of for the total installed capacity in Turkey in the preceding year. 54
3.2.1.1. Proportions of Generation Groups (Graphic III)
The data used in this graphic were taken from EMRA’s 2005 Report. 55 Illustration is made
by the author.
50,00%
45,40%
45,00%
40,00%
35,00%
30,00%
25,00%
20,00%
15,00%
10,00%
5,00%
25,80%
10,60%
8,50%
6,50%
2,50%
0,50%
A
.P
r
St
at
e
G
en
er
at
BO or s
&
A Mo
.P
de
r
l
G
G
r
en
BO ou
p
.L
ic T M s
en
ce od
el
H
ol
d
T
M
e
ob OR rs
i le
M
G
o
e n de
er l
at
or
s
0,00%
53
Article 2/d.2 of EML
See, Supra n20
55
See, Supra n50
54
13
3.2.2. Transmission
EML defines transmission as “the transport of electricity through lines higher than 36
kV”. 56 In the new structure, transmission remains under state ownership 57 . TEIAS takes
over transmission assets, plans new transmission investments and build new transmission
facilities. 58 It is known that, transmission system is principally governed by a central
administration due to technical features of transmission rather than economic concerns. 59
Also, in the bilateral contracting model which adopted by Turkey, TEIAS has important
roles in the market both as a “system operator” and a “market operator”. These tasks are to
be carried out as per provisions of both EML and Electricity Market Balancing and
Settlement Regulation 60 (BaSeRe) [Dengeleme ve Uzlaştırma Yönetmeliği]. Even this
regulation was enacted in 2004, it was not in use as de facto until 1st of August 2006. Until
this date, the system worked on fix prices for loading and de-loading of electricity.
3.2.2.1. What Caused Putting BaSeRe into Force?
What caused putting BaSeRe into force is that Turkey has faced electricity interruption on
1st of July 2006 and 13 cities including third biggest city of Turkey, Izmir, buried into
darkness at weekend. 61 This event triggered big debates about PPMs particularly about
autoproducers who did not load electricity on the ground that they lose money due to low
electricity prices and high cost such as natural gas price. Minister of Energy and Natural
Resources, Mr. Hilmi Güler, stated that there is no shortage problem in Turkey (as of
today, Turkey has over 15% additional generation capacity) but a tariff problem. 62 As a
result of this development BaSeRe has been put into force on 1st of August 2006.
3.2.2.2. What Does BaSeRe Call For?
BaSeRe envisages a “Balancing and Settlement System” (BSS). BSS is defined as a
“system that consists of activities related with real-time balancing the demand and supply
56
Article 1/12 of EML
Article 2/b, and Article 3/c.2 of EML
58
Article 2/b of EML
59
See, Supra n20
60
Official Gazette dated 03/11/2004, no 25632
61
Source: www.ntvmsnbc.com/news/381273.asp (last visited on 7 August 2006) in Turkish.
62
Source: http://www.zaman.com.tr/?bl=sondakika&alt=&trh=20060706&hn=301878 (last visited on 7
August 2006) in Turkish.
57
14
through acceptance of bids and offers, financial settlement of payables and receivables
arising from energy supplied to or withdrawn from the system, parties engaged in these
activities and relations among the parties” under the article 1 of BaSeRe. Minister Mr.
Güler stated that balancing and settlement mechanism was the brain of the electricity
system. There are two different tasks carried out by the BSS. Such as;
3.2.2.2.1. Balancing [Dengeleme]
Balancing equalizes the system supply and demand of active electricity energy on real
time. This task is carried out by the unit under the body of TEIAS named as “National
Load Dispatch Center (NLDC) [Milli Yük Tevzii Merkezi].
63
This center is also named
(authorized) as “system operator”. 64 The aim of the Balancing is to ensure supply of
sufficient and good quality energy with low-cost in a continuous manner.
3.2.2.2.2. Settlement [Uzlaştırma]
Settlement calculates amounts payable or receivable by legal entities operating in the
market, based on differences between actual purchases and sales as a result of the real time
physical balancing of energy supply and demand by NLDC, in accordance with the
provisions of the relevant legislation. This task is carried out by the unit under the body of
TEIAS named as “Market Financial Settlement Center (MFSC) [Piyasa Mali Uzlaştırma
Merkezi]. 65 This center is also named (authorized) as “market operator”. The aim of the
Settlement is to establish financially sound, stable and transparent electricity market
operating in a competitive environment under provisions of civil law.
3.2.2.3. How Does the BSS Work?
First of all, we had better if we mention who the market participants (MP) and balancing
system participants (BSP) are. Under article 10 of BaSeRe; MPs shall consist of licensed
legal entities that supply energy to the system or withdrawn energy from the system
63
Article 4 of BaSeRe
Article 14 of BaSeRe
65
Article 4 of BaSeRe
64
15
through participating in the balancing mechanism and/or their short and/or long energy
positions. The market participants shall consist of the following:
a) Generation licensees,
b) Autoproducer licensees,
c) Autoproducer group licensees,
d) Wholesale licensees,
e) Retail licensees.
Under the article 12 of BaSeRe, BSP shall consist of licensees engaged in generation
activity. A MP shall have at least one balancing system entity 66 registered to its name in
order to be a BSP.
Secondly, as we mentioned previously in this paper, EML envisages a bilateral contracting
market design. Hence, MPs conclude agreements that subject to civil law, and MPs are
obliged to notify MFSC about their sell and purchase agreements. This notification is
vitally important not only in terms of Settlement but Balancing as well. Because, no matter
how sensitive an estimate is made in the beginning, the supply-demand balance foreseen in
the bilateral contract may be disrupted due to changing conditions and unforeseen
situations concerning either side. 67 In this case, the system operator (NLDC) shall ensure
the final physical balance by making giving orders to generators to load or de-load, based
on bids and offers submitted by generators. The market operator (MFRC) charges market
participants for the balancing and settlement costs they caused. 68
Until the balancing and settlement mechanism becomes fully operational, those bilateral
contracts to which state-owned entities are a party will be subject to regulation, in order to
enable market participants gain experience in carrying out bilateral contracts and ensure
that they will not be subject to excessive extra costs arising from system imbalance.69
66
Balancing System Entity “Generation facility or part of the generation facility eligible to participate in the
balancing mechanism.” (Article 4 of BaSeRe).
67
See, Supra n50
68
Id.
69
Id.
16
3.2.2.4. How Are the PPMs Supposed To Be Dealt within the BSS?
Under the provisional article 1 of BaSeRe, The generation companies, that are currently
selling electricity to TETAS within the framework of BO, BOT and TOR contracts, shall
be registered with the MFSC by TETAS under TETAS account.
TETAS shall bear all rights and liabilities arising from all transactions as indicated in this
Regulation regarding submission of physical notifications, associated data and bids-offers
for such balancing system entities and their participation in the balancing system. 70
3.2.3. Distribution and Retail Sale
These issues are examined comprehensively below in Section 4 (Privatization).
3.3. Independent Regulatory Agency
To ensure transparency and independent regulation over the sector, administratively
independent and financially autonomous “Electricity Market Regulatory Authority” had
been established as per EML and it was later renamed as “Energy Market Regulatory
Authority” (EMRA) [Enerji Piyasası Düzenleme Kurumu] as per the provisions of Natural
Gas Market Law no. 4646. With the enactment of the Petroleum Market Law no.5015 and
Liquefied Petroleum Gas (LPG) Market Law no. 5307, the Authority has been
commissioned to regulate and supervise the petroleum and LPG markets as well. Members
of the Energy Market Regulatory Board assumed duty on November 19, 2001. 71
In the new structure, the state has an active role in transmission and in balancing and
settlement mechanism. But, in the competitive segments, generation and trading of
electricity, the state role and authority vested in EMRA. With the establishment of EMRA,
the role of the MENR is focused on the establishment and enforcement of general energy
policies, privatization proposals, determining import and export policies and the promotion
of supply security. 72
70
Provisional Article 1 of BaSeRe
EMRA (official web site), at www.epdk.gov.tr/english/default.asp (last visited on 7 August 2006).
72
See, Supra n20
71
17
The main functions of EMRA;
9 Granting Licenses and Determining Provisions Therein. 73 All participants engaging
in electricity activities are required to obtain related licenses. The terms and
conditions such as prices, cancellation, renewals and dispute settlements of these
licenses are defined in detail by EMRA.
9 Approving Secondary Legislation. EMRA approves Grid Regulation, Distribution
regulation, Customer Services Regulation, and BaSeRe. 74
9 Determining eligible customers over time. 75 Eligible consumers are any real person
or legal entity that has the liberty to choose its supplier (may choose from a
distribution, retail sale or wholesale company or directly from generation
company), due to its consumption of more electricity than the amount defined by
EMRA or its direct connection to the transmission system 76 (The limit for eligible
consumers is defined as 6 million kW/h by EMRA on 25th of January 2006.) 77 On
the other hand, non-eligible consumers have to purchase electricity from the
distribution or the retail sale companies operating in that region at the price
determined by EMRA.
9 Preparing Respective Tariffs. 78 Some of the tariffs that are prepared by EMRA are
as follows; the connection and use of system tariff, transmission tariff, wholesale
price tariff, distribution tariff, and retail tariff.
9 Overseeing the performance of market participants. 79 To oversee (audit) the
activities and practices of legal entities operating in the market, as well as their
compliance with the terms and conditions of their respective licenses, in order to
ensure compliance with non-discrimination and transparency standards.
9 Protecting customer rights.
9 Imposing sanctions to parties that not complying with their obligations under
applicable legislation or respective licenses. 80
73
Article 5 of EML
Article 5/II.a of EML
75
Article 5/b of EML
76
Article 1 of EML
77
EMRA Decision dated 25/01/2006 (Decision no 641) in Turkish.
78
Article 13 of EML
79
Article 5/i of EML
80
Article 11 of EML
74
18
As it has mentioned earlier, EMRA has administrative and financial autonomy. It earns its
revenues principally from licensing fees. Under current framework, any lawsuit against
decision delivered by EMRA may be appealed to Council of State (CoS) [Danıştay].
3.4. New Structure of TEI after EML and SP (Graphic IV)
Even the below presented graphic is illustrated in accordance with the applicable
legislation, it is under the copyright of the author and the graphic artist due to its
distinctive design and configuration, also to the best of the author’s knowledge there are
several graphics in literature which try to depict the structure, however they are not
similar at all with the one given below.
19
4. PRIVATIZATION
4.1. Privatization and Main Principles
EML envisages privatization both in generation and in distribution segments, and
liberalization in every segment of the industry except transmission which remains under
state ownership. Under the 14th article of EML, MENR notifies to the Privatization
Administration (PA) [Özelleştirme İdaresi Başkanlığı] the proposals and opinions
regarding the privatization of the assets belonging to the TEDAS, EUAS, and their
subsidiaries, affiliates, partnerships and operational units and facilities. The privatization
process is executed by the PA as per the provisions of Privatization Law 4046 81 .
On 17th of March 2004, High Planning Council (HPC) 82 [Yüksek Planlama Kurulu] issued
the Strategy Paper (SP) 83 regarding electricity industry reform and privatization. SP
outlines the major steps to be taken in order to realize considered privatization. According
to SP, privatization was supposed to start in distribution sector and all Distribution Regions
(DisRes) were expected to be privatized until the end of 2006 84 . As of today, there is no
DisRe privatized but at least one of them is to be opened to bids until the end of this year.
Also some public procurement provisions which released to the newspapers are mentioned
below.
Under SP, the basic principles of Privatization are as follow; 85
9 The privatization activities will be performed by the PA within the framework of the
provisions of Law 4046. This provision is exactly the same with the one in EML.
9 The privatization approach will not be solely aimed at the maximization of
privatization income. Despite the fact of this principle, the privatization of
Distribution will be realized without unbundling from Retail if any changes not
made in days to come.
81
Enacted on 27 November 1994 and published in Official Gazette dated 27/11/1994.
HPC is composed of Prime Minister, Ministers and Advisor of State Planning Organization.
83
HPC, Decree No: 2004/3, “Electricity Sector Reform and Privatization Strategy Paper”, See Supra n37
84
See, Supra n37
85
Taken from SP and comments added by the author.
82
20
9 There will be utmost efforts to ensure that the privatization does not lead to
permanent increases in electricity prices. Hence, EMRA is to regulate the terms
and conditions of transition term tariffs that will be in force after the first five years
of privatization.
9 The participation of financially strong companies able to achieve the objectives
and principles of the program will be encouraged in the privatization process. This
principle is being criticized a lot by most of the commentators, particularly by the
left wing supporters, due to this principle provide vital advantages to giant foreign
companies such as RWE, E-ON etc. As we mentioned before, some provisions of
public procurement which have been defined by PA have been released to public as
of August 2006, such as 86 ;
•
Technical Sufficiency; 1) The Company has to be conducting power sales
equivalent to aggregated amount of sold electricity in a year in that DisRe
for at least 3 years in order to meet this provision. 2) The Company has to
be carrying out distribution services, for at least three years, to the
customers whose population equivalent or larger then the respective DisRe.
•
Capital Sufficiency; 1) Equity [Öz Sermaye] – Book Value [Defter Değeri]
Ratio may be no less than 65% which means the bidder has to prove that its
equity equals or excesses the 65% of Book Value of assets to be privatized.
2) Fixed Assets [Sabit Değerler] – Book Value Ratio may be no less than
50% which means the fixed assets of the bidder has to be equal to 50% of
Book Value of the assets to be privatized.
9 A competitive generation structure will be achieved through appropriately
grouping generation assets, like portfolio companies, (disaggregation) prior to their
privatization. As of today, there are six portfolio generation companies whose
installed capacities are almost equal to each other. This provision is also important
in terms of introducing competition into generation segment of the industry.
9 The privatization approach will take into account existing public liabilities and will
not lead to additional State guarantees. This provision can be regarded as the
reflection of the provision of EML which prohibits granting treasury guarantees in
TEI.
86
Source: http://www.enerjiforumu.com/gazete/?ID=2044 (last visited on 7 August 2006) in Turkish.
21
4.2. Distribution Regions
4.2.1. Defining DisRes
As a consequent of EML and SP, TEDAS 87 have been taken into privatization portfolio of
PA by the decision of Privatization High Council on 2nd of May 2004 88 . As we mentioned
earlier in this paper, 21 DisRes have been defined within Turkey. Under SP the reason and
the aim taken into consideration while defining the regions are; “with due regard to the
operational problems as a result of the geographical structure, the size of the region as
compared to energy purchased and technical/financial characteristics, the “existing
contracts”, and the current legal process in Turkey, the number of distribution regions
have been determined at most 21 throughout the country” 89 All DisRes, except Kayseri ve
Civarı Electricity Corp. which continues to hold concession since the early ages of Turkey,
are to be privatized. Before presenting the DisRes, we, here, want to mention that WB
criticizes the number of DisRes. WB thinks the number of DisRes excessive.
Here is the diagram of DisRes that encloses associated information.
9 DisRes’ numbers and names of provinces taken directly from the Turkish version
of SP at page 8).
9 Aggregated technical lose and theft ratio of the regions and the names of DisCos
also added to the below table by the author.
•
The technical lose and theft date used here taken from the Atıyas work 90
and belongs to 2004. They are provided as aggregated because the precise
ratio of technical lose has not been determined.
•
DisCos’ names were taken from the document bears the opinion delivered
by Turkish Competition Authority (TCA) [Rekabet Kurumu] on 21 July
2005.
87
Number of Employees; 31,950 (as of March 2005), Capital Share Holding: 1,050,000,000 New Turkish
Liras (app. 384,000,000 GBP). Source: Privatization Administration (official web site), at www.oib.gov.tr/
portfoy/tedas_eng.htm (last visited on 22 August 2006).
88
Privatization High Council (Decree No: 2004/22) in Turkish.
89
See, Supra n37
90
Atiyas, I., Liberalization and Regulatory Reform in Electricity Sector, (Istanbul: Turkey, TESEV Publications, 2006) in Turkish.
22
Num. Of
DisRe
Name of
DisCo
Associated Provinces
Agg.'ed
Ratio
1
Dicle Elektrik Dağıtım A.Ş.
Diyarbakır, Mardin, Siirt, Şanlıurfa, Batman, Şırnak
62,6
2
Vangölü Elektrik Dağıtım A.Ş
Bitlis, Hakkâri, Muş, Van
61,2
3
Aras Elektrik A.Ş
Ağrı, Erzincan, Erzurum, Kars, Bayburt, Ardahan, Iğdır
33,5
4
Çoruh Elektrik Dağıtım A.Ş
Artvin, Giresun, Gümüşhane, Rize, Trabzon
13,4
5
Fırat Elektrik Dağıtım A.Ş
Bingöl, Elazığ, Malatya, Tunceli
15,3
6
Çamlıbel Elektrik Dağıtım A.Ş
Sivas, Tokat, Yozgat
11,0
7
Toroslar Elektrik Dağıtım A.Ş
Adana, Mersin, Osmaniye, Hatay, Gaziantep, Kilis
16,5
8
Meram Elektrik Dağıtım A.Ş
Kırşehir, Nevşehir, Niğde, Aksaray, Konya, Karaman
8,7
9
Başkent Elektrik Dağıtım A.Ş
Ankara, Kırıkkale, Zonguldak, Bartın, Karabük, Çankırı,
Kastamonu
9,4
10
Akdeniz Elektrik A.Ş
Antalya, Burdur, Isparta
11
Gediz Elektrik Dağıtım A.Ş
İzmir, Manisa
7,5
12
Uludağ Elektrik Dağıtım A.Ş
Balıkesir, Bursa, Çanakkale, Yalova
7,1
13
Trakya Elektrik Dağıtım A.Ş
Edirne, Kırklareli, Tekirdağ
10,8
14
İstanbul Anadolu Yakası
Elektrik Dağıtım A.Ş
İstanbul – Asia Part
10,5
15
Sakarya Elektrik Dağıtım A.Ş
Sakarya, Bolu, Düzce, Kocaeli
13,9
16
Osmangazi Elektrik Dağıtım
A.Ş
Afyon, Bilecik, Eskişehir, Kütahya, Uşak
17
Boğaziçi Elektrik Dağıtım A.Ş
İstanbul – European Part
18
Kayseri ve Civarı Elektrik
T.A.Ş
Kayseri
19
Menderes Elektrik Dağıtım A.Ş
Aydın, Denizli, Muğla
20
Göksu Elektrik Dağıtım A.Ş
Adıyaman, Kahramanmaraş
12,2
21
Yeşilırmak Elektrik Dağıtım
A.Ş
Amasya, Çorum, Ordu, Samsun, Sinop
12,7
10,2
8,0
19,3
9,4
Please also find the map of Turkey which demonstrates the DisRes illustrated by the
author.
23
4.2.2. DisRes of Turkey (Graphic V)
Illustration made by the author in accordance with the above-presented table.
24
4.3. An Important Development Affecting DisRes
On July 2005, Law 5398 which amended EML was enacted. By this amendment, a new
concept which did not exist in EML prior to this amendment has been created. That is
Organized Industrial Zones (OIZ) [Organize Sanayi Bölgeleri]. According to this; OIZ are
entitled to conduct activities in generation, distribution within the approved borders in
order to meet the demands of their participants upon receiving associated license. 91 In
practice that means that the number of distribution companies may increase to over 100. It
is not clear, for example, whether each zones will sign a vesting contract. Apparently the
main purpose for this change is to ensure cheap electricity to industry. 92
4.4. Why Did the Distribution Take First Place in Privatization?
The privatization in TEI will be commenced in distribution. The reason mentioned in SP is
as follows; “Since the distribution companies, holding retail licenses and operating in
liberal market, have to create confidence on investors engaged or to be engaged in
generation activities, privatization will start in the distribution sub-sector.” 93 This policy
may be justified by the assertion of proving comfort to new players in generation due to
they will be in need of proving constant cash flow for loans required realizing the
investments. While this process continues, the state-owned generators will be
disaggregated by way of forming portfolio companies. Preventing the concentration among
portfolio companies will also be aimed in this duration.
4.5. How Will the DisCos be Privatized?
4.5.1. Why Has TOR Been Chosen?
Even the most preferred method for privatization, generally, is the transfer of ownership,
TOR method was opted in Turkey in order to prevent possible supreme courts
(Constitution Court of Turkey and Council of State) intervention in privatization. One of
the main reasons of this consideration is that Constitution Court of Turkey, in 1994,
91
It has become the Article 2/g of EML
Directly taken from: See, Supra n90
93
See, Supra n37
92
25
delivered the annulment decision with respect to privatization as per provisions of Law
3291 which envisaged privatization through transfer of ownership. The reasoning of the
Court is as follows 94 ;
1. Transfer of ownership to foreigners; transferring the ownership of the public
services having strategic importance without any restrictions conflicts with
provisions of the constitution.
2. Monopoly and abuse of consumers; the measures that have to be taken in order to
prevent monopoly and to protect consumers rights have not been implemented
properly. Hence, it conflicts with the provisions of 167th and 172nd articles of the
constitution.
3. Transfer of ownership of natural resources; the natural resources such as water or
coal or etc. used in the generation can not be privatized within the assets of the
generation facilities under the 168th article of the constitution due to they are
subject to the ultimate ownership of the state.
4.5.2. The Steps To Be Taken During the Privatization Process
Here is the simplified road map that is being used for the privatization process; 95
9 Defining Distribution Regions; as it has been mentioned above, Turkey has been
divided into 21 DisRes in pursuant to HPC decision in SP. The number of DisRes is
criticized by WB and other international Institutions in terms of exorbitance
number of DisRes as the geographical attributes and technical data taken into
consideration. In other words, Turkey may be said to have too small DisRes.
9 Corporatisation of DisCos; As of August 2006, Corporatisation of DisCos which is
a mandatory conduct of unbundling and liberalization has been implemented
properly.
94
Turkish Competition Authority (official web site), 1st Circuit Opinion with respect to Privatization of
TEDAS (2005), at http://www.rekabet.gov.tr/word/gorus/tedasgorus.doc (last visited on 8 August 2006) in
Turkish.
95
Taken from TCA’s Opinion and modified by the author.
26
9 Signing TOR Agreements; 96 TOR agreements were concluded between TEDAS and
recently formed DisCos, in other words, between two state owned institutions. This
is also important, because the company who wins the bid is to be undertaking all
provisions of TOR agreement in which it can not change any provisions. Hence,
this way of signing TOR agreements have been negatively commented by
concerned investors. There are a lot of controversial provisions in TOR agreements
that can deteriorate willingness of the investors such as the provision stipulating
any investment to be realized within this contract term by DisCos will belong to
state. 97 Also, in the event of abstention of required investments supposed to be
done by DisCos, EMRA are authorized revoke the given licenses under EML.
9 Obtaining Distribution License for DisCos; Any legal entity that is conducting
business or intends to do so has to obtain Distribution License from EMRA under
EML.
9 Signing Electricity Energy Sales Agreements; these are the agreements that are
named as “transition contracts”. Such as;
•
Transition Contracts between the DisCos and the GenCos (portfolio
companies and Private GenCos) 98 ; These contracts should be put in place
before distribution companies are privatized to give the generation
companies/ groups a track record prior to their privatization. The contracts
should continue after the privatization to assure a predictable stream of
revenues in the early years. 99
•
Transition contracts between the DisCos and TETAS; The energy purchased
by TETAS through “existing contracts” and EUAS Generation, will be
allocated among the DisCos through purchase agreements to be signed
between TETAS and DisCos. In case TETAS is unable to recover adequate
96
EML Article 14; “An agreement for transfer of operational rights may be signed among TEDAŞ and the
electricity distribution companies established to operate within the determined distribution regions save for
the ownership of TEDAŞ on the facilities and assets required for the distribution activity and are within
TEDAŞ’s field of operation.”
97
This condition is stipulated by the 21st Article of Law 5398. Also, written in TOR agreements.
98
See, Supra n37. See also, Provisional Article 10 of EML
99
See, Supra n37
27
revenues to cover its liabilities arising from long term contracts, these
excess liabilities will be recovered through a surcharge to be added on the
transmission use of system charges. 100
•
Transition contracts between the EUAS hydro generation and TETAS 101
The generation of the hydro power plants that are not included within
disaggregation process and will be under the possession of EUAS shall
continue to selling to TETAS as long as it is deemed necessary to achieve
an average TETAS sales price in order to mitigate high prices of electricity
of PPMs.
9 Finally, the shares of the companies will be sold; at the end of the privatization
term, the shares of the DisCos who signed the transition contracts will be sold to
the investors. Since this conduct is regarded as a change in share holder scheme, it
will be subject to approval of TCA, and any required amendments will be made in
the associated licenses. [Please See the Annex – 1 which demonstrates the schedule
of TENDER PROCESS in detail, attached to this paper.]
4.6. Technical Loss & Theft Problems
One of the most important problems in privatization of distribution is the high level of
differences among DisRes in terms of technical lose and theft. (See the table in section
4.2.1.) The ratio is highest in the east and southeast part of Turkey where annual income
per head is said to be less than 3,000 USD and these regions have a chronic terror problem
since mid 1980s. Another indicator is that the level of technical lose and theft is very high
in Istanbul because of outstanding and increasing suburban habitants which are consequent
of domestic migration. 102
It seems that distribution is going to be privatized before conducting any effort to reduce
loses. In regions where loss ratios are very high, it is doubtful that passing the task of
reducing losses over to the private sector is a wise policy. 103 Atiyas also suggests that
reducing losses before privatization by public authorities would be a better policy.
100
Id.
Id.
102
Job opportunities and new investments are the main reasons for domestic immigration to Istanbul.
103
See, Supra n90
101
28
The cost of technical lose and theft is currently financed through a national retail tariff,
which entails cross subsidies from regions with low ratios to those where the ratios are
high. Such a system of cross subsidies will not voluntarily survive once distribution is
privatized. 104 Also any other system which does not provide any subsidies will be both
unfair and politically unacceptable due to that will surely lead to large inter-regional
differences in retail prices for non-eligible consumers. 105 There is no doubt that Turkey
will face vital social problems in those regions such as increasing terror in those regions.106
Further information with respect to tariffs is provided below.
4.7. Tariff Regulations
Tariff regulations are important in market. The main purposes of regulations are to prevent
monopoly and to secure the consumers welfare. The basic regulations regarding tariffs of
TEI are EML and Electricity Market Tariff Regulation. Also, SP envisages a tariff
regulation which conflicts with the provisions of associated legislation. 107
As it is mentioned above, there are high level differences between DisRes in terms of
technical lose and theft in Turkey. Since the technical lose and theft levels of DisRes are
inextricable components of the price of electricity and the price of electricity has a social
dimension, it is vitally important to Turkish State to prevent any price fluctuations which
can cause social reactions.
Even EML does not envisage any subsidies and just states direct cash payments to
consumers in these regions in order to prevent those kinds of undesired situations, SP takes
another approach and stipulates the establishment of a “Price Equalization Mechanism”
(PEM) [Fiyat Eşitleme Mekanizması]. PEM is also called as National Tariff that will be in
force for five years after the privatization. In order to prevent price differentiation among
DisRes which may arise as a result of liberalization of the industry, subsidization will be
performed, under SP, within this “transition period” by way of conducting cross–subsidies
from regions with low ratios to those where the ratios are high. In other words, this
104
105
106
107
Id.
Id.
Contrary to general belief of foreigners, the most important reason behind Terror in southeast part Turkey
is certainly an economic problem (low annual income rate per person, and low education ratio, etc.)
rather than a political or identity conflicts. (the author’s opinion).
See, Supra n37
29
“transition period” which expires by the end of December 2010, has been defined for the
purpose of balancing the tariffs between the DisRes. 108
This equalization mechanism will be implemented to align the principle of achieving cost
reflective regional tariffs for the DisRes, with the objective of ensuring uniform national
tariffs for non-eligible consumers. At the end of this period, the tariffs are to be defined by
the market itself by taking cost and other imbursements into consideration (cost based
tariff calculation). TCA approves PEM and finds this mechanism useful, however it also
stresses the importance of achieving a competitive market by the end of transition
period. 109
5. COMPETITION
Even competition issues of TEI arising from privatization are deserved to be addressed in a
separate research paper due to they are very controversial, they are addressed here from
general perspective.
5.1. Which Will Prevail, EML or SP?
Even SP which outlines the major steps to be taken as privatizing the industry, is not
legally binding due to it is not a Code, it is easy to state that it is as powerful as applicable
legislation due to any required amendments to applicable legislation is made in pursuant to
SP. One of the examples to this power is the amendment made in EML by Law 5398 in
2006. (See section 5.2.) We are telling about this power because SP has conflicting
provisions with EML. The conflicting provisions between EML and SP are mostly related
to competition issues.
EML envisages privatization of distribution activities separately from retail activities
whereas SP envisages privatization of these two activities together. Hence, while EML
entitles non-eligible consumers to acquire their electricity from either DisCos or RetCos in
their region, SP mandates non-eligible consumers to acquire their electricity solely from
108
109
Id.
See, Supra n94
30
DisCos that will also engage in retail activities under SP. 110 As of today, even TCA
delivered its opinion in favor of the prediction set out in EML, it seems that the
privatization will be realized in accordance with SP.
Many commentators criticize the privatization of distribution activities together with retail
activities due to its position to slowing down of introduction of competition in retail
markets. It is also possible to say that this means vesting monopoly rents to tender winner.
It is generally believed by public that these steps have been undertaken to increase
privatization revenues or to make these assets more attractive for tender participants. The
notion “making assets more attractive” not only conflicts with the statement made in SP 111
but it also conflicts with the Opinion delivered by the TCA. Privatizations should be
conducted for the purpose of introducing competition into the electricity industry.
5.2. Law 5893 and Vertical Integration
On July 2005, Law 5398, which amended some provisions of EML, was enacted. 112 This is
one of the most controversial issues in recent times due to this Law stipulates some
important modifications in EML such as;
Law 5398 allows DisCos to build their own GenCos by fulfilling two requirements. The
First one is “accounting separation” between companies and the second one is “sale price
of electricity” between DisCos and GenCos which DisCos own or affiliated to, can be no
higher than the average sale price of wholesale market. 113 Before the enactment of this
Law, engaging in generation activities of DisCos had been restricted to 20% of the total
electricity supplied in that region in preceding year under EML. 114 There is no restriction
exists on DisCos in terms of their engagement in electricity generation as per Law 5398.
This explicitly means that Law 5398 provides integration opportunity to DisCos and
GenCos. This is a vitally important issue in terms of vertical unbundling which means
separation of activities of transmission and distribution from the activities of generation
and retail. This conduct is one of the most important “sine qua non” activities for any
110
111
112
113
114
See, Supra n37
Id. “the privatization approach will not be solely aimed at the maximization of privatization income.”
See, Supra n5
Article 22 of Law 5398
It was article 3/c-3 of EML before it was revoked.
31
country decided to liberalize its electricity industry and introduce it into competition. This
notion is based on the fact that transmission and distribution are natural monopolies.
Hence, without assuring third party access, the competition will not be introduced into
industry. By doing so means the natural monopoly is just transferred from public to
private. The private actors will surely try to increase their rent by way of restricting other
participants. Therefore, assuring the competition in TEI will not be easy.
Atiyas mentions that, change was introduced during discussions at the parliamentary
committee and was not applied to EMRA for its opinion. No reason for this important
change was released to the public. It was widely interpreted as a move to increase the
privatization revenue of distribution companies and an incitement given to potential buyers
of those assets. Besides this amendment, EU directives require distribution to be at least
legally separated from retail supply and generation in member countries until 2007. The
directives stipulate additional measures to ensure independent decision making, in case
distribution is legally separated but is controlled by groups that also control generation or
retail supply activities. 115 In a recent sector inquiry carried out by the European
Commission, vertical integration and foreclosure is identified as a major impediment to
competition. 116 TCA also stated that distribution should be at least legally unbundled, if the
separation of ownership might not be conducted. 117 This separation will be the ultimate
condition for the approval of privatization.118 Under Turkish Law, privatization
transactions are treated no different than a normal acquisition or merger. As a result, these
privatizations are also subject to ultimate approval authority of TCA. This is very
important because if the bids are conducted without making required modifications
stipulated by TCA would, most probably, be terminated by TCA. TCA also asserted that
the provisions under SP had been set forth in favor of supply security and foreign
investment; however the consumer rights and competition issues not addressed properly.
115
See, Supra n90
Id.
117
See, Supra n94
118
Id.
116
32
6. CONCLUSION
Restructuring or Reform Period of TEI was commenced as a result of insufficient public
funds and poor performance of public electricity monopoly as well as the advices given by
the international institutions such as WB and IMF. After the codification of EML, stateowned monopoly was unbundled into generation, wholesale, transmission, distribution and
retail sale segments in parallel to the provisions of EML by the Decree of CoM in 2001.
However, SP which envisages the major steps to be taken in order to realize the
privatization was issued by HPC in 2004 and it has conflicting provisions with EML.
Even we mentioned above and do not intention to repeat the competition issues here again,
we also want to stress the importance of the amendment made in EML by Law 5398
because if the coming bids are realized as per Law 5398 they would, most probably, be
terminated by either Constitution Court or by CoS if not terminated by TCA based on the
maxims exist in associated legislations.
Besides these developments which are carried out by the government in order to increase
the privatization revenue of distribution companies, there are some other developments
which are also carried by the same government in order to demonstrate to public or to the
newspapers that the state control over the assets having “strategic importance” will not be
lost. As parallel to this notion TOR agreements in which indigestible provisions such as
termination of the contract by TEDAS without paying any imbursement or responsibility
disclaimer of TEDAS exist, concluded between two state-owned institutions (TEDAS and
newly formed DisCos) prior to conducting privatization. Hence, the bid winner will have
to bear TOR’s conditions that he has no authority to change. In short, the government
desires not to lose control over DisCos whilst it still wants to increase privatization
revenue. This confusion in government’s notion also reflects in the applicable legislation
which gives rise to regulatory uncertainty.
We believe that Government should opt to publish a policy text (may be a “white paper”
first) in order to reduce this kind of regulatory uncertainty in industry. This text would not
only refresh academic works also would help government to gain public support which is
an important component of privatization.119 This can be fallowed by a “green paper”
119
See, Supra n3
33
which would provide information about recent developments in the reform process and the
problems faced. 120 Such an approach would also help generate a meeting of minds among
different agencies responsible for energy policy. In addition, publications of regulatory
decisions with their reasoning would contribute significantly to transparency. 121
From the above, it is easy to conclude that even Turkey has moved forward a lot since the
codification of EML in terms of restructuring the industry, there are still important issues
waiting to be addressed or to be settled between concerned state and private parties of the
process. Consequently, Turkey has got on electricity privatization boat which has a long
journey. Hence, Turkey has a long way to take and lots to learn by this full of experience
journey.
120
121
See, Supra n90
Id.
34
7. ANNEX – 1
The below given diagram is directly taken from Osman Demirci’s work. 122
122
Ph.D. Demirci, O., TEDAS Privatization (March 2006), at www.turkey-now.com/db/docs/osman_demir
ci.pdf (last visited on 29 August 2006).
35
8. BIBLIOGRAPHY
8.1. PRIMARY SOURCES
8.1.1. National Legislation (Selected Laws and Regulation)
Law 4628 (entered into force March 2001)
Law 4046 (entered into force November 1994)
Law 3996 (entered into force June 1994)
Law 3096 (entered into force December 1984)
Electricity Market Balancing and Settlement Regulation (entered into force November
2004)
8.2. SECONDARY SOURCES
8.2.1. Books
Atiyas, I., Liberalization and Regulatory Reform in Electricity Sector, (Istanbul: Turkey,
TESEV Publications, 2006) in Turkish.
Serhat Guney, E., Restructuring, Competition, and Regulation in the Turkish Electricity
Industry (Istanbul: Turkey, TEPAV Publication, 2005).
8.2.2. Articles
Cetin, T., Oguz, F., The Politics of Regulation in the Turkish Electricity Market, Energy
Policy Journal, article in press, at doi:10.1016/j.enpol.2006.05.014 (last visited on 07
August 2006).
Erdogdu, E., Regulatory Reform in Turkish Energy Industry: An analysis, Energy Policy
Journal, article in press, at doi:10.1016/j.enpol.2006.02.011 (last visited on 07 August
2006).
Hepbasli, A., Development and Restructuring of Turkey’s Electricity Sector: a Review,
Renewable and Sustainable Energy Reviews 9 (2005), at 311-343.
36
Ozkıvrak, O., Electricity Restructuring in Turkey, Energy Policy Journal 33 (2005), at
1339-1350.
8.2.3. Research Paper
Bodur, C., Regulatory Framework of Build-Operate-Transfer Model in Turkey, (submitted
Research Paper for International Project Finance course at CEPMLP, April 2006).
8.2.4. Internet Sources
BEDAS, History of Electricity in Istanbul, at http://www.bedas.gov.tr/bedas/tarihce.php
(last visited on 07 August 2006) in Turkish.
Energy Market Regulatory Authority (official web site), Annual Report (2005), at
www.epdk.gov.tr/yayin_ rapor/yillik/yillik.htm (last visited on 7 August 2006).
High Planning Council, Electricity Sector Reform and Privatization Strategy, at
www.oib.gov.tr/program/2004_program/2004_electricity_strategy_paper.htm (last visited
on 7 August 2006).
International Energy Agency, Turkey Country Analysis Brief (June 2005), at www.eia.doe.
gov/emeu/cabs/turkey.html (last visited on 7 August 2006).
Kulali, I., Electricity Sector and Privatization studies in Turkey, at http://ekutup.dpt.gov.tr/
kit/kulalii/elektrik.html (last visited on 7 August 2006) in Turkish.
Ph.D. Demirci, O., TEDAS Privatization (March 2006), at www.turkey-now.com/db/docs/
osman_demir ci.pdf (last visited on 29 August 2006).
Pritchard, R., Eight Guidelines of Electricity Industry Reform, Vol. 12-7 Article. Online
Journal CEPMLP (August 2002) at www.dundee.ac.uk/cepmlp/journal/html/volume12.php
(last visited on 10 August 2006).
37
Pritchard, R., Andrews-Speed, P., Eight Principles of Electricity Industry Reform, Vol. 7-2
Article. Online Journal CEPMLP (July 2000) at www.dundee.ac.uk/cepmlp/journal/html/
volume 7. php (last visited on 10 August 2006).
State Auditing Agency, Research Report With Respect to applications of BOT and TOR, at
www.tccb.gov. tr/tr_html/DDK/enerji.htm (last visited on 07 August 2006) in Turkish.
Turkish Competition Authority (official web site), 1st Circuit Opinion with respect to
Privatization of TEDAS (2005), at http://www.rekabet.gov.tr/word/gorus/tedasgorus.doc
(last visited on 8 August 2006) in Turkish.
Turkish Electricity Distribution Co. (official web site), History of the Institution, at
http://www.tedas.gov.tr/1,Hakkimizda.html (last visited on 07 August 2006) in Turkish.
Turkish Electricity Trading and Contracting Co. (official web site), at www.tetas.gov.tr/
tanitimson.htm (last visited on 7 August 2006) in Turkish.
38