Turkey: New Draft On Natural Gas Market In Turkey: Expected Judicial Amendments and Market Dynamics

Last Updated: 19 November 2013
Article by Safak Herdem and Zuhal Uysal

Turkey's extensive energy vision brought new developments on electricity, natural gas and renewable markets. The mainstream of Turkish policy makers is regulating the natural gas market with the objective to create competitive market conditions and pricing mechanism. The new draft on Natural Gas Market Law which is occupying the agenda since last year, will precisely act a prominent role on reconfiguring the market. Today, new amendments are on the front burner that will drive new investment opportunities and regulated markets with lower natural gas pricing and easier wholesale licensing benefits.

Natural Gas Market Outlook

Thereupon being a natural gas import dependent country, Turkey's natural gas purchase agreements play a crucial role on national gas supply. Russian Federation is the pivotal country by 35% market share and 24 billion m3 annual natural gas import of Turkey. Turkmenistan is the second country by 24% of Turkish total natural gas market. Azerbaijan overhauled Iran with the latest purchase agreement which was signed in 25 October 2011 and possess 19% market share.

Judicial Amendments

No stamp tax requirement

The new draft brings the obligation to contract. This means, that all transactions of the license owners in natural gas market shall be contractual and written. These transactions will be exempted from stamp tax. The contract obligation is not regulated in the Natural Gas Energy Market Law No. 4646 evidently. The stamp tax exemption is also a new advantage which the new draft brings with it.

Response to license applications within 60 days

License applications of legal entities which intend to operate in natural gas energy market to the Energy Market Regulatory Authority ("Authority") shall be processed within 60 days as from the application date. In the event that an application is refused, the Authority shall notify the applicant with its reasons.

Separate license for each import connection

According to the New Draft, the importer company shall obtain a separate license for each import connection. For the license application, the economic potential to import is required for companies intending to import in natural gas energy market. Differently from the current Law, the information obtained from the natural gas supplier concerning the resource of imported natural gas, its reserves, transmission system is one of the requirements for the license application. Another new rule which the New Draft brings with it is the opinion requirement from the Ministry of Energy and Natural Resources ("Ministry").

Manufacturing license from the Ministry

According to the New Draft, Gas explorations shall be made in accordance with the Petroleum Laws. Manufacturing operations will not be regarded as market operations. With this Draft, the marketing and import of the produced natural gas will also be possible under certain conditions which are stated in the law.

Separate license for natural gas storage

For storage of natural gas another license is required according to the New Draft. Accordingly, producers will not be able to store their produced natural gas unless they get a storage license. In that case, any manufacturer holding a manufacturing license shall undertake the both manufacturing and storage activities. Moreover, the license requirements and obtaining procedure are different for storage of natural gas in areas which are licensed in accordance with the Petroleum Law and in other areas. The licensing requirements differ also from the requirements in current Natural Gas Energy Law in certain aspects.

In brief, the New Draft on Natural Gas Energy Market Regulation provides amendments in legal aspects, especially in licensing procedure beside the advantages in natural gas energy market which it provides.

Unbundling of BOTAŞ

Currently BOTAŞ, Turkish Petroleum Corporation, is the authorized body which has monopoly rights on import, export, transmission distribution and storage of natural gas in Turkey. The new regulatory framework will restructure BOTAŞ and transform it from major dominant to a market player. In the scope of new draft, BOTAŞ will be separated into three parts regarding storage, LNG terminals management and transmission facilities. Also, government will bring limitations on new natural gas purchase agreements to BOTAŞ due to the provision of open natural gas market.

New balancing and settlement market

The new draft will enable to comprise more balanced and competitive market conditions. This structure will provide license holders, are being operated in both wholesale and retail, free trade opportunities and rights to sell natural gas to independent individuals. In parallel with these developments the new energy stock exchange (EPİAŞ) is expected to commence on operations with regard to electricity market. Besides, natural gas market is projected to integrate on EPİAŞ in the long run with purpose of a comprehensive energy stock exchange likewise in Europe.

New Incentive Scheme on Liquid Natural Gas Terminals

Provided that a LNG plant start operations before 2025, potential investments will be bolstered with a set of incentives which is anticipated to attract foreign investors with the intention of setting up new LNP terminals.

Privatization on Urban Transmission Network

In accordance with new draft, the urban transmission authority in Istanbul (İGDAŞ) will be privatized. Thus, individual natural gas consumers will be able to reach desirable prices. In addition, government will provide ten years profit guarantee to investor following signature of transfer contract.

Natural gas is one of the most self-enclosed market due to the state's ownership and over controlling policies. Based upon with new legislation, free market rules will be applied by meeting suppliers and demanding bodies. Harmonised Natural Gas Market with different countries will inevitably reduce the supplier cost of natural gas in Turkey. Furthermore, new incentives and catalyzed license obtaining procedures will foster national natural gas industry with new investment opportunities in Turkey.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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