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Energy Market Regulatory Authority (EMRA)

EMRA was established as independent regulatory authority for electricity by the Electricity Market Law 2001 with an amendment in the Natural Gas Law Nr. 4646. (2001), and is related to MENR. EMRA is an administratively and financially autonomous public administration which is independent in its decision making process

EMRA was assigned the duties of directing, monitoring, regulating and supervising the petroleum market in 2003 with the Petroleum Market Law No. 5015 and the liquefied petroleum gases market in 2005 with the Liquefied Petroleum Gases Market Law No. 5307.

State Owned Electricity Entities; TEK, EUAS, TEIAS, TETAS and TEDAS
The Turkish Electricity Authority (TEK), as a state monopoly, was established with the responsibilities of all generation, transmission and distribution activities in 1970 through Law No. 1312. In 1984, by the adoption of Law No. 3096 and following legislations; TEK’s monopoly of electricity activities was weakened and private companies were given opportunities to operate in the market. TEK was first unbundled in 1993 into two state-owned enterprises, one for the generation and transmission (TEAS) and one for distribution (TEDAS)

Further structural separation of TEAS into three separate companies covering generation, trading and transmission activities was implemented on October 1, 2001. With this separation TEAS was unbundled into three companies:
- one for generation (EUAS),
- one for transmission (TEIAS)
- and one for trade (TETAS).
In 2004, TEDAS was included in the privatization portfolio with a Privatization High Council Decision.
The companies, Turkish Electricity Transmission Corp. (“TEIAS”), Electricity Generation Corp. (“EUAS”) and Turkish Electricity Trading and Contracting Corp. (“TETAS”) are now legally in operation.

• EUAS is the state owned electricity producing company. With its affiliated production companies it holds 60 % of the installed capacity of Turkey which are planned to be privatized.
• TEIAS has a legal monopoly regarding transmission activities. No other legal entity is allowed to construct and operate transmission networks. TEIAS must ensure that connection to the transmission system and system use demands of real persons or legal entities be met in a non-discriminatory manner.
• TETAS: According to the EML, wholesale activities may be conducted by TETAS and private sector wholesale companies. In practice, TETAS which is also state owned enterprise operates as a national monopoly. The total market share of any private sector wholesale company together with its affiliates cannot exceed 10 per cent of the total electricity consumed in the market during the preceding year. The import and export of electricity may be conducted by TETAS.
• TEDAS and its 21 regional distribution companies are Turkish State-owned joint-stock companies engaged in the distribution and retail sale of electricity and provision of retail services to final customers. With approximately 29,4 million customers, 107 billion kWh of electricity sales and 75% market share in electricity distribution across Turkey in 2006. TEDAS and its distribution companies with their 18.8 billion TL gross revenue and 29 800 employee forms one of the largest organizations in the country.

Electricity market

The need to increase energy supply and electricity production to meet an ever increasing demand led the government to promote private participation in the sector. In 1984 major changes were introduced by the Law No. 3096 for enabling public-private schemes such as Build Operate (BO), Build Operate Transfer (BOT), Transfer of Operating Rights (TOOR) as well as auto producers to enter the electricity market. Before that, as a state monopoly, the Turkish Electricity Authority (TEK) was responsible for all generation, transmission and distribution activities by the adoption of this Law, TEK’s monopoly of electricity activities was weakened. TEK was first unbundled in 1993 into two state-owned enterprises: one for generation and transmission (TEAS) and the other for distribution (TEDAS). Later, in 2001, TEAS was unbundled into three companies; one for generation (EUAS), one for transmission (TEIAS) and one for trade (TETAS).

In 1994 Law No. 3996 and Implementing Decree No: 5907 were enacted to enhance the attractiveness of BOT projects. The laws authorized the Undersecretary of the Treasury to grant guarantees and provided tax exemptions. In 1997 an additional law was enacted for private sector participation in the construction and operation of new thermal power plants through a licensing system rather than concession contracts. The build-operate-own (BOO) law (Law No. 4283) again provided guarantees by the Treasury, making it basically not much different than the BOT model in its essence. Under the BOO model, investors retain ownership of the facility at the end of the contract period. A typical BOT, BO, or TOOR generation contract, signed between the private sector and related government departments such as Ministry, TEAS, TEDAS, includes exclusive “take-or-pay” obligations with fixed quantities and prices (or price formulas) over 15–30 years. This commitment did not help to Turkish electricity sector, in addition to it created juridical problems and many legal case opened by third parties. It did not also provide a framework for competition in the market,

(De-)Regulation

In March 3, 2001, the main legislative document that created the current market structure, the Electricity Market Law No. 4628 (EML), was issued as part of efforts to harmonise with the EU aquis and to liberalise the market. Following the enactment of EML in 2001, our country has taken significant steps for the introduction of a competitive and functioning market in the electricity sector, the public entities operating in the sector have been restructured, and market rules have been formulated and introduced in a manner to ensure liberalization. The Electricity Market Regulatory Authority (EMRA) was established with this Law
The Natural Gas Market Law No. 4646 (April 18, 2001) was enacted to regulate the gas market. With this Law also the Electricity Market Regulatory Authority was restructured as Energy Market Regulatory Authority (EMRA) to regulate all energy market.

Following the enactment of the EML, important secondary legislation has also been introduced, including the Electricity Market Licensing Regulation; the Electricity Market Tariffs Regulation; the Electricity Market Distribution Regulation; the Electricity Market Import and the Export Regulation; and the Electricity Market Grid Regulation. There fore the new Electricity Market Law sets out a contemporary market model based on bilateral contracts supplemented by the Balancing and Settlement Mechanism. Law aims at market competition in line with the EU experience.
Hence during the 8th Plan period (2002-2006), electricity and natural gas sectors were opened to competition with the Market Laws. The main elements of the liberalization efforts were; gradual elimination of the state’s role as an investor in electricity and natural gas sectors excluding transmission, and the privatization of facilities under its ownership, strengthening the regulatory role of the state by ensuring that the private sector makes the necessary investments within a competitive environment and ensuring supply security.

Later on, in order to eliminate the inadequacies in the implementation of the Law No. 4628, to coordinate and accelerate the work carried out towards transforming to a liberalized market, the Electricity Power Sector Reform and Privatization Strategy Document was prepared and put into implementation by the High Planning Council as of the year 2004. In line with the proposed “transition process” in this document, the required activities, the measures, in particular, to be taken for the privatization of electricity distribution and generation are set. The Strategy Paper envisages that privatization will start in the distribution sector, where 21 distribution regions have been defined. Privatization of generation assets is to be the next step

In 2004, TEDAS (State owned electricity distribution company) was included in the privatisation portfolio with a Privatisation High Council Decision. However, the privatisation was postponed or cancelled several time. Finally first privatization bidding for distribution was made in June 2008.

Nevertheless, Turkey still faces many challenges in many areas of its energy policy. Despite significant legislative efforts to liberalise the energy markets, Turkey’s state-owned companies still have a substantial dominance especially in electricity and natural gas sectors. It’s been more than 5 years since the theoretical and partly practical establishment of a new market regime, but many aspects still have to be proved in the field .

In fact, year 2002 and onwards provided a good opportunity for Turkey to embark upon a speedy transition to establish its market regime. This was stemming from the fact that Turkey had huge excess in the balance due to previous years` misleading demand analysis and expensive long-term BOT and BO contracts commissioned in early 2000s. The economic crisis also had effects on the energy demand and thus may have contributed to this.

Tariff-setting

The Electricity Market Tariff Regulation of 11 August 2002 provides principles regarding regulated tariffs in the market, including a transmission tariff and a transmission connection tariff.
Tariffs for non-eligible (captive) customers, and for wholesale by TETAS are regulated. The Energy Market Regulatory Authority (EMRA) sets principles and procedures for the tariff setting process, and accordingly reviews and approves the tariff methodologies and tariffs submitted by relevant authorities. Under the Electricity Market Tariffs Regulation and the related communiqués, tariffs must be cost-effective. The Law stipulates that any expense, which is not directly related to the legal entity’s market activities, could not be incorporated in the price structure, and the Law prohibits cross subsidization, implicitly. Hence, tariffs should reflect actual costs.

However the consumer price of electricity is subject to additional four different levies: (i) 1% for the Energy Fund Share; (ii) 2% for Turkish Radio and Television Corporation surcharge; (iii) the aggregated amount of the two preceding levies is then subject to the Municipality Consumption Tax (5% for households and 1% for industrial users); and (iv) 18% VAT .

Direct refunds may be granted to consumers in need without compromising the overall cost-based principle of the tariff structure. Once determined by companies, regulated tariffs are subject to review and approval by the EMRA. All tariffs are published in the Official Gazette and on the EMRA's website to ensure transparency.

The first tariff implementation period (or transition period), set between 2006 and 2010, will serve as a transitory period to a fully cost based tariff structure after 2010.

Transition Persion National Tariffs (Krs/KWh)
Mono term tariffs valid throughout the day. Excluding VAT and Municipality tax. Excludes any adjustments to be made throughout years (e.g. inflation).

In accordance to the changes made with the Law dated October 10, 2006 (clause 9), cross subsidies have became legal. With this modification, the authorization of EMRA on the tariffs for scrutiny and auditing were cancelled. Changes on tariffs will be made by the decision of the Council of Minister.

The Law allows distribution companies to use cross subsidies until the end of 2010. A price equalization mechanism applies with a nation wide uniform tariff. On the other hand, cost reflective tariffs are employed for transmission.

EMRA issued all necessary legislation, and approved the distribution and retail tariffs (to be valid till 2011), although the provisional article enables the government for extending the provisional regime beyond 2011. EMRA recently approved the end user tariffs and revenue requirements of each distribution company for the transition period. Revenue requirements cover the foreseen expenses for providing distribution and retail services and leave room for financial gains for the target level of technical and non-technical losses.
The end-user tariffs for the period after 2010 will be determined by the distribution companies in accordance with the Electricity Market Tariffs Communiqué and the related regulations and will be subject to EMRA’s approval. The first period is aimed at having a smooth and gradual transition from existing tariff structure to a lean and simple tariff structure.
According to the bill submitted to General Assembly of the Parliament, it is planned that the transition period will be extended. As of July 1, 2008, with the newly enforced automatic pricing regime, it is expected that electricity tariffs will be reflected in real costs. Although cross subsidy will be prevailed, increases in cost of input (natural gas, coal prices ...etc) will be reflected to the electricity prices. A step by step approach will be applied for cost reflective tariff systems, depending on the market progress.
The tariff structure is determined in compliance with the Electricity Market Law, the Electricity Market Tariffs Communiqué and other related regulations. The four basic tariff components are (1) retail sales, (2) distribution, (3) retail services and (4) transmission; which are regulated in an unbundled fashion. Retail sales tariff has a “price cap” which is set as the average price of the energy purchased by the distribution company. Distribution and retail services have “revenue caps” which cover operating expenses and investment requirements related to distribution and retail services. Transmission tariff is a complete pass-through of transmission costs as charged by TEIAS.
The end-user tariffs comprise the following items in the basket:
Customers:

Residential

• Commercial
• Industrial
• Agricultural irrigation
• Street lightening

Retail Tariffs

• Reference Price (Energy price )
• Operating margin
• Lost/theft component

Distribution System Usage Tariff

• Taxes and other deductions
• Transmission tariff
• Retail services tariff
• Distribution OPEX (operation expenses) component
• Investments, amortization and CAPEX (capital expenses)) component
• Transfer of Operation Rigths (TOOR) value component

Gas market

The new natural gas market law (Law No. 4646) was adopted on May 2, 2001. The objective of the Law on the Natural Gas Market No. 4646 is to establish a liberal, financially sound, stable, transparent and competitive national gas market with independent regulation. The law strives to assure natural gas supply of good quality, in an economic, reliable and environmentally friendly way. It covers all gas market activities (except exploration and production): import, transmission, distribution, storage, marketing, wholesale and export activities. Implementing legislation on gas market licensing was issued in September 2002. The current legal framework for the gas sector (except exploration and production) is defined by the following laws and regulations:

Law on Natural Gas Market No.4646 (Official Gazette 2 May 2001, No. 24390)

• By-law on Licensing
• By-law on Tariffs
• By-law on Internal Installations
• By-law on Certificate
• By-law on Transmission Network Operation
• By-law on Distribution and Consumer Services
• By-law on Facilities
• Various Communications and Board Decisions

Tariff setting

The procedures and principles regarding the tariffs issued are to be approved by the Board according to the market law.

• Connection Tariff: The connection tariff shall include the terms and conditions based on the principle of non-discrimination among free consumers which have equal standings for the connection to a transmission or distribution system which shall be included in the relevant connection agreements.

• Transmission and Storage Tariff: The tariffs shall be determined regarding the transmission and supervision of conveyance. The transmission tariff shall include prices, terms and tariff conditions applicable without discrimination among all users with equal standings, benefiting from the transmission facility for the conveyance of the generated, imported or exported natural gas. The Authority shall also be authorised to determine the transit transmission tariffs according to procedures and principles different from those applicable to local transmission tariffs for the purposes of encouraging the transit transmission of the natural gas. The storage tariffs shall be determined freely between the companies involved in storage business and the legal entities receiving the storage services.

• Wholesale Tariff: The Authority shall determine the principles and conditions to be taken as basis for the natural gas sale tariffs. The sale prices, on the other hand, shall be determined freely within the framework of such principles by the parties involved in natural gas purchase and sale.

• Retail Sale Tariff: Distribution companies must prove that they obtain gas from the cheapest source and that they operate effectively and safely; and they must fulfil this obligation within the license term. No price under any name can be requested from the consumers except for the retail sale price so established. The retail sale tariffs can be re-determined by taking into consideration the inflation and other issues, upon application of the distribution companies to the Authority.

Oil Market

In the framework of the liberalization public institutions operating in the electricity sector have been restructured, while natural gas distribution in the cities has been carried out by the private sector. With the enactment of the Oil Market Law No. 5015 (December 20, 2003) for oil products and with the Law No. 5307 on Amending the Liquefied Petroleum Gas (LPG) Market Law ( March 13, 2005) and with the Market Law for LPG, it is provided that EMRA will perform the necessary regulating, directing, monitoring and supervising activities in order to ensure LPG market activities to be carried out in a transparent, equitable, and stable manner.

The oil sector has seen important changes due to the Petroleum Market Law which stimulated competition in the sector by abolishing price ceilings and removing import quotas on petroleum products at the beginning of 2005. TUPRAS (petroleum refinery Corporation) and POAS (major petroleum product retailer) have been privatised. EMRA has been assigned the responsibility to issue secondary regulations and licences, approve certain tariffs and carry out investigations concerning market activities. In 2006 introduction of a national chemical oil marker is expected to help regulating the market activities and keeping the sector under control, securing quality and preventing smuggling. Also, there is a new draft petroleum law which will amend Petrolum Law No. 6326 (1954), regarding new and substantial incentives for exploration and production of hydrocarbons.

Other important oil and gas market laws and regulations, particularly regarding stocks of liquid fuels, include the LPG Market Law, the Decree of the Council of Ministers No. 2005/8374 on the Procedures and Principles of National Oil Stock Commission, January 2005, the By-law on Petroleum Market Licence, 17 June 2004, and the By-law on the LPG Market License 16 September 2005, and the Law on Transit Pipeline Transportation of Petroleum (Law No. 4586).

The Petroleum Market Law reduced government intervention in oil pricing. The automatic pricing system was abolished as of December 30, 2004. The prices are now formed based on free market conditions. Under the previous law, some import restrictions applied to distributors, which were required to procure at least 60% of their supply from national sources. This restriction has been lifted by the Petroleum Market Law.

Apart from these, the refineries are now allowed to own distribution companies. In general terms, the restrictions for starting a new distribution business in the petroleum market have been relaxed by the Petroleum Market Law.

Coal market

Three entities are responsible for about 90% of Turkey’s coal production. Turkish Hard Coal Enterprises (TTK) produces, processes, and distributes hard coal at Zonguldak, while the Turkish Coal Enterprises (TKI) produces most of Turkey's lignite. In addition, Turkey's Electricity Generating Corporation (EUAS) produces lignite for three power plants