Law No 4646 (“Law”) which regulates the natural gas market in terms of import, transmission, distribution, storage, marketing, trade and the export of natural gas and the rights and obligations of all real and legal persons relating to these activities is the principal legislation in Turkey. In contrary to the renewable market, the private legal entities to be involved in the natural gas market should be established as joint stock or limited liability companies pursuant to the provisions of the Turkish Commercial Code having all the shares as registered.
In this article you will find an outline about the natural gas market activities and more on the conditions to be met to be licensed.
The procurement of the natural gas through import is only allowed under an import licence in Turkey. The legal entities applying for the import license require meeting the following conditions as stipulated in Law.
- Technical and economical capability for import,
- Availability of definite information and guarantee regarding the source, reserves, generation facilities and transmission system of the natural gas to be imported,
- having obtained such commitment and guarantees as required by the Energy Market Regulatory Authority (EMRA) from the legal entities which shall conduct storage activity concerning the ability to store an amount corresponding to 10% of the natural gas to be imported every year, in the national territory for five years,
- capability to contribute to the improvement and security of national transmission system, and accordingly, to provide economic support to the investments of the legal entities to be made in improvement of the system.
The import companies must obtain licenses for each import contract respectively and inform the EMRA of the terms of the contracts, as stated in their import contracts, extension of the terms, envisaged annual and seasonal import amounts and the changes in such amounts and the obligations related to the security of the system which are stated in the contracts or in any extension thereof.
The import companies may market the imported natural gas to the free consumers abroad provided that they have obtained an export license as well as transferring the natural gas to the wholesale companies or export companies within the country through sales contract. However, the transfer made to the export companies may not release the liabilities of the importing company under its license. Besides, the annual natural gas amount procured through import by any import company shall not exceed 20% of the national gas consumption forecast to be determined by the EMRA.
The natural gas exploration and generation activities are carried out in accordance with Petroleum Law. The exploration and operation licenses are granted by the General Directorate of Petroleum Affairs. Generation activities are not regarded as market activities under Law No 4646. Generation companies, provided that they hold a wholesale license, may market the generated gas to wholesale companies, import companies, distribution companies or free consumers and allowed to sell such amount directly to the free consumers, as may not exceed 20% of the national consumption forecast to be determined by the EMRA in relation to the current year, and the remaining natural gas to the market through import companies, distribution companies or wholesale companies. The generation companies may export the generated gas provided that they obtain export license. The generation companies must satisfy the license requirements for wholesale and the export in order to obtain sale and export licenses. The generated natural gas shall be transported under the transportation and delivery contracts to be executed with the transmission companies. In case the generation centre is far from the connection system, the generation companies may transmit the generated gas through direct line and sell to the free consumers without the need for the generated gas to form a connected system. However, such matter depends on the decision of the EMRA to be given by taking into consideration the economical and technical conditions. Furthermore, the generation companies may sell the generated natural gas to the other consumers without conducting a distribution activity within the city, in case the generation capacity of the generated natural gas is lower 1 million cubic meters. Wholesale license is granted to local and foreign petroleum owner generation companies and to the branches of those, to sell and to export the generated natural gas to whole sale companies, export companies, distribution companies and to the eligible consumers without the need to obtain wholesale license.
The legal entities operating natural gas transmission activities require to connect the users upon demand, to the most appropriate network within 12 months provided the system allows, subject to the criteria determined by the EMRA. In the cases where the transmission company rejects the request of the user to enter the system, the user may inform the EMRA about the issue. If it is determined by the EMRA that the transmission company violated the regulation related with the network process, the transmission company shall make the connection of the user to enter the system. The EMRA shall make utmost efforts for transmission activities not to be hindered by examining the requests of the users to enter the system and to ensure that the running of the system is not hindered by taking into consideration the provisions of the Law. The legal entities should also provide each other all necessary technical information determined by the EMRA in order to ensure a coordinated exercise for more effective and secured operation with other transmission companies who engage in transmission activities and be responsible for their parts with respect to necessary arrangements to be made for the flow of natural gas and operation of the system, as well as performance of other necessary services. Further, the transmission companies must take any measure for safe, secured and effective gas transmission in a cost- effective way through the lines under their responsibility. Transmission companies should also enter into a transportation contract with the import company, wholesale company, generation company and export company and further enters into a delivery contract with the generation company, free consumer, storage company and other transmission companies. The national transmission network investment programmes developed by taking into consideration the transit natural gas transmission shall be subject to examination and approval of the EMRA. For the storage activities, the legal entities must obtain license from the EMRA to engage both in ground and underground storage activities require to have technical and economical capability to carry out storing, to undertake to manage all the storage capacities under their possession in such manner as contributing to safe and coordinated operation of the system and to undertake that the services to be extended by the storage facilities under their possession shall be rendered in an unbiased and equal way in so long as the system is available.
In case the companies holding operation licence apply to the EMRA following the General Directorate of Petroleum Affairs‘approval for the utilisation as gas storage of the underground natural gas bed from where natural gas is generated, the relevant part of the operation licence shall be converted to a storage license, if it is found appropriate by the EMRA. However, the generation company should document with its application to the EMRA that it is eligible for the storage license. If the company starts storage activities, it shall carry out the same as a separate activity by keeping the accounts respectively. In the event of the rejection of the requests made to the storage company and that the system user has informed the EMRA of the situation, and in the event that the EMRA discovers, by making necessary examinations and audits, that the storage company has breached the licence terms and the procedures and principles in effect, it may force the storage company to provide the requested service. In the existing and future storage license applications information regarding the province, sub province, village, suburb, block and plot of the subject location of the application shall be announced over the internet page. In the event of another application being made for natural gas storage license for operation at the subject location of the announcement within the period to be designated in the announcement, evaluation of the licence applications shall be carried out on the basis of the criteria to be determined by the EMRA, providing that the applicant legal entities fulfil the requirements for issuance of the storage license. In the event of there being several applications after said evaluation, a competition shall be made between said legal entities based on increment of the license price. However, in the event of minimum one half of the site on which the storage activities being under the ownership of the license applicant or its shareholders and/or the applicant legal entity and/or its shareholders holding the rights of utilization and/or easement and/or any other rights over the subject location for storage activities so as to provide for realization of the storage activities, then said application shall be accepted and other applications shall be rejected.
The wholesale companies must obtain license from the EMRA to engage in wholesale activities to the free consumers. It is not obligatory for the legal entities holding import license to obtain a wholesale license. They may carry out natural gas wholesale activities with the import license. The legal entities that wish to engage in wholesale activity must evidence from where it shall procure the natural gas and by which transportation conditions it shall sell the natural gas, and prove that it has sufficient technical and economical power and necessary storage capacity for the purpose of operating the system safely and further provide other guarantees and undertakings stated in the regulations, in order to obtain licence. The legal entities performing natural gas sale to the distribution companies must draw up supply schedules as necessary and take measures for adequate storage in order to meet maximum seasonal natural gas demand of the customers and to present the lease contracts executed with the storage companies for this purpose, to the EMRA within the period determined by the EMRA. For the purpose of taking necessary measures storage for a five year period from the date of licence, shall be granted. Such period may be extended by a EMRA decision for two years in case the storage facilities in the country do not reach to a sufficient capacity.
Besides, according to climatic indicators each year, the EMRA is authorised to determine the storage quantities to be maintained with a view to balance the intensive seasonal demand of the following year for each city and to take necessary measures. The legal entities engaged in wholesale trading of natural gas to free consumers must provide gas entrance to their customers within the seasonal, daily and hourly flexibility ranges. The wholesalers must reach the required supply and storage capacity and must also take necessary storage measurements within the five year period following the date of licence. For this purpose, they shall submit to the EMRA the lease contracts to be executed with the storage companies. Such term may be extended in case the storage facilities in the country do not reach to a sufficient level.
The legal entities making wholesale of natural gas should also attain the transmission, storage and system balancing capacities in order to meet the expected demand within a period determined by the EMRA. The wholesale company shall enter into sales contract with the import or export companies or free consumer or distribution companies and freely determine the fees. Commercially confidential information may not be disclosed to third parties, except for the EMRA and may not be abused. In order to import natural gas the wholesale companies must obtain an import license. The total gas amount sold by each wholesale company in one year may not exceed 20% of the national consumption forecast determined for the current year by the EMRA. The wholesale companies may sale all over the country without any regional restriction.
Legal entities that wish to export the natural gas imported or generated within the country, to abroad shall also obtain an export license from the EMRA. The companies asking for a licence should prove that it has technical and economical sufficiency, to inform to which county and by which transportation vehicles it shall export the natural gas, to provide guarantee to the effect that the export process will not intervene in operation of the system nor satisfaction of the natural gas demand of the country and towards recovery of any loss or damage which may occur if the system security is violated by the company, and to provide insurance coverage as compulsory for the loss and damage.
The city natural gas distribution service shall be granted to the company which wins the tender announced by the EMRA within a license term to be determined by the EMRA including the possession of the local natural gas distribution network taking into consideration some issues such as the development level of the city the consumption capacity and the number of users. Tender to be announced by the EMRA for a specific city shall be announced in the Official Gazette.
The legal entities holding distribution licences are obliged to observe the provisions of the Law in relation to the distribution licence and the procedures and principles to be determined by the EMRA. The legal entity holding a distribution licence may sell the distribution facility which is under its ownership to another legal entity before the expiry of the licence term. In case the distribution company, whose licence term has been expired, requests from the EMRA to renew its city distribution licence one year before the expiry of the licence term, the EMRA may grant a second distribution licence by taking into consideration the technical and economic power, service quality of the company, its subscribers‘satisfaction and other issues to be determined. In case the licence term of the licence holder is not extended based on the above reasons, the EMRA shall announce a new tender for the relevant city and grant the distribution licence to the legal entity which proposed the most appropriate bid for the operation and possession of the existing network. The price of the network shall be collected by the EMRA and be paid to the previous licence holder. The EMRA shall direct, supervise, monitor, observe the distribution activities of the distribution company having ownership and may purchase such services from the real persons or legal entities holding a certificate that are subject to the Law with the relevant cost to be borne by the latter, when deemed necessary.
The city distribution company obtaining the distribution license from the EMRA must offer a partnership at a rate of 10% to the municipality or the municipal company within the city in which it is authorised without the need to provide any capital. Such capital rate may be increased at a rate of maximum 10% provided that the equivalence has been paid. However such increase may be made only if there is no debt to the Treasury and additional credit is not requested or after the discharging of credit debts to the Treasury, loans under the Treasury guarantee are not provided for this purpose. In the case that the municipality or municipal company do not acquire any share or acquire share insufficient to nominate at least one board member, the EMRA may request from the city distribution company to arrange necessary regulations that shall enable the municipality be represented in the board of directors and board of audit of the companies, in accordance with the Article 275 of the Turkish Commercial Code No.6762.
The natural gas distribution companies shall establish a dispatch control centre for the distribution networks. However such condition shall not be required in the cities where it is determined by the EMRA that the consumption capacity is insufficient. Distribution companies shall be liable to connect the consumers to the system if it is requested by the consumers under their liability. However, the liability to make connections shall be subject to the capacity of the system under the control of the company that enables the connection, and the consumer‘s fulfilment of requirements on its part as per by the distribution regulation and the technical and economical availability of the connection under the terms and conditions to be determined. EMRA shall determine whether or not the connection is technical and economical, in case of a dispute.
Distribution companies may get their technical experts or supervision companies working on behalf of them to control the existing internal installation or the installation built by the consumers including houses, business places or industries for the natural gas utilisation. If the internal installation is not in compliance with the internal installation regulation to be published, the company may reject to supply gas or cut off the gas being supplied. The same procedures shall be applied in the event that the consumer re-applies after the appropriate re-installation. The distribution companies shall not be liable from the damages and losses which may arise from modifications made in the internal installation without permission, inappropriate and bad usage of the internal installation, usage of wrong and broken equipment, constructing installation out of the scope of the project and the disorder of the installation. The distribution companies may have license only for two cities within the country. However, such number may be increased by an EMRA decision by taking into consideration some issues such as the development level of the city, the consumption capacity and the number of users. The coverage of the designated distribution regions of the distribution companies may be rearranged by the EMRA in a way that provincial borders are not exceeded with due consideration of the technical and economical requirements. The EMRA may divide a city in more than one distribution region the borders of which are to be determined according to the density of population and award the contract separately for each region.
The legal entities which shall engage in compressing of natural gas by purchasing from exploitation facilities, national transmission network or city distribution system and filling to special pressurized containers, transporting the pressurized national gas by special vehicles between cities, and selling it by reducing its pressure in the areas where the transmission network is not available, should obtain license from the EMRA for these activities. The legal entities that shall engage in such activities should satisfy conditions stated in the relevant regulations in order to obtain license and guarantee that the facilities and the equipment to be employed in their activities shall be conformity with the Turkish Standards and/or the standards accepted by the European Union.
The import, export, transmission, storage, distribution and wholesale companies and free consumers which shall engage in activities in the natural gas market may enter into construction and service contracts with real persons and legal entities who have obtained a certificate from the EMRA. No real person or legal is allowed to take part in natural gas installation or service activities unless the said certificate is obtained.
The certificates related with the internal instalment and service lines shall be issued by the public or private companies authorised by and on behalf of the EMRA and the city distribution companies. The EMRA shall process the applications and reply accordingly, filed by the real persons or legal entities to obtain licence, with in sixty days. Those who shall engage in services such as feasibility studies, project development, consulting, supervision and audit, construction, service, maintenance and repair are obliged to obtain a certificate from the EMRA for those activities. Those who desire to engage in construction and service activities shall apply to the EMRA. Those who satisfy the capacity requirements shall be granted a certificate. Those who have obtained certificates from the distribution companies to engage in construction and service activities for internal installation and service lines shall be supervised by distribution companies. They may also be supervised by the EMRA upon the application of consumers.