Providing services within the legal area of energy and natural resources such as drilling, producing, applying for power station set up permits, getting licenses and tenders of energy and natural resources, energy agreements, controversies between state institutions, public corporation and energy companies, energy importation and exportation.
Turkish energy industry comprises a diversified range of sub-sectors including coal, oil, gas, onshore and offshore wind, solar, hydroelectric, bioenergy, tidal and nuclear. Turkey is increasingly shifting away from fossil fuel production to renewable energy generation.
Demand for energy & natural resources has been increasing due to the economic and population growth in Turkey. It has posted the fastest growth in the OECD, with an annual growth rate of 5.5 percent since 2002. Since then, Turkey’s primary energy supply has increased from 78.4 Mtoe to 155 Mtoe, a two-fold increase within 17 years.
Turkey’s growing economic performance has also been reflected on the country’s electricity generation infrastructure given the dramatic rise in the total installed capacity from 31.8 GW to 88.5 GW, and in the electricity consumption from 132.6 TWh to 305.5 TWh as of end-2018. To satisfy the increasing needs of the country, the current capacity is expected to reach 110 GW by 2023 through further investments to be commissioned by the private sector as underlined in the 11th Development Plan for 2019-2023.
Rules Apply to Energy Contracts
Contractual interpretation is the task of ascertaining the meaning that the words of a contract would convey to a reasonable person. Under Turkish law, modern contractual interpretation is a matter of applying general principles of construction rather than strict rules. These principles apply equally to energy contracts, as to other contracts. The five key principles are:
- Language: The courts will start by looking at the language used by the parties and interpreting that language in accordance with its conventional usage to understand the parties’ objective intentions.
- Whole contract: The court will consider the words in the context of the contract as a whole.
- Business common sense: Where there are two or more possible interpretations of a term, that which has most business common sense will typically prevail.
- Reasonableness: While the courts will be reluctant to adopt an interpretation that will lead to a very unreasonable result, it will keep in mind that the parties may indeed have agreed to something unreasonable or commercially unwise.
- Context: A court will look at both the language of the contract (textualism) as well as the commercial context in which the contract was drafted (contextualism) to ascertain the objective meaning of the clause in question.
Allocating Liability Between Contracting Parties
The terms ‘wilful misconduct’ and ‘gross negligence’ are commonly used in contracts in Turkey energy sector to define and allocate liability between contracting parties. However, these terms are not recognised principles of Turkish law. Their meaning must, therefore, be defined in the contract or they will be subject to interpretation by the courts in accordance with usual principles of contractual construction.
The Turkish courts have distinguished ‘gross negligence’ from simple negligence by looking at the seriousness of the act or omission committed, or whether the conduct complained of equates to recklessnes.
Contracts in the energy sector will typically include comprehensive regimes for the allocation of liabilities between parties, using a variety of contractually agreed remedies and exclusions of liability. As a matter of Turkish law, contracting parties have discretion to limit remedies by agreement, although this must be done expressly.
Clauses excluding liability for particular types of loss are also commonly used and, consistent with the principle of freedom of contract, permissible under Turkish law. However, such clauses will be interpreted strictly and the courts will only accept that a party has surrendered legal remedies where clear words to that effect are used.
Strict liability applies to certain health and safety and environmental offences.
Independent expert evidence is used to assist the court when a claim involves particular technical or specialist issues about which the court does not have the necessary knowledge. An expert will typically give their opinion evidence in the form of a written report and will then be called to give oral evidence at trial.
Turkey is a party to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention), meaning that courts in Turkey will recognise and enforce arbitral awards made in the territory of another contracting state as if they were a Turkish award.
As with all organisations, energy companies handle sensitive personal information and face data privacy and cybersecurity risks as a result. In addition, energy companies also face significant operational and critical infrastructure risks that can arise out of data security incidents and other incidents linked to the use of networked technology.
In terms of best practice, organisations should always take steps to ascertain whether the data security and cyber-risk preparedness measures they have in place are adequate for the data privacy and security risks that they are facing. There is growing concern that energy companies are becoming increasingly prone to cyberattacks.
Turkey has a substantial body of law governing data privacy and security, much of which is derived from EU law. In particular, the General Data Protection Regulation (GDPR) imposes broad obligations on data controllers relating to the processing of data.
The success of a privatization and liberalization program going on since 2002 has handed over all of the power distribution assets and 78 percent of the power generation assets to the private sector, creating revenues of USD 23 billion for the Treasury. In the same period, about USD 100 billion of new public and private investments were completed in power generation, transmission, and distribution assets.
The privatization of electricity generation assets and the strategy to clear the way for more private investments has resulted in an increased share of private entities in electricity generation, from 40 percent in 2002 to 85 percent in 2018. Under the strategy to increase liberalization and competition in the market, the Energy Exchange Istanbul (EXIST), which is responsible for managing and operating energy markets, including power and gas commodities, was established in 2013.
Turkey’s prominent economic performance, backed by the liberalization efforts, also allowed for attraction of around USD 209 billion of FDI between 2002 and 2018, of which about USD 18 billion flowed into the energy sector. In 2018, investors carried out M&A activities across various sectors with a total deal volume of about USD 12 billion through 256 deals, with the energy industry standing among the leading sectors in terms of M&A transaction volume with USD 400 million.
Energy importer country
It is no doubt that Turkey is a net energy importer country, depending on such imports for 73 percent of its energy requirements. The energy import bill was USD 42.99 billion in 2018, increasing by nearly 15.6 percent compared to 2017. However, with the exception of fluctuations in certain years, the bills depict a significant downward trend given the considerable decline from USD 60.1 billion in 2012 to USD 37.2 billion in 2017. The import dependence has been the main driving force behind the formulation and implementation of new policies and investment models to commission local and renewable energy resources.
Turkey has a substantial amount of renewable energy potential, and utilization of this potential has been on the rise over the last decade. As of end-2018, hydro, wind, and solar resources constitute the vast majority of the country’s renewable energy resources, accounting respectively for 28.29 GW, 7.01 GW, and 5.07 GW of the total installed capacity. As part of the ongoing efforts to promote localization, the Turkish government has made it a priority to increase the share of renewables to 30 percent, with geothermal installed capacity to be 3 GW by 2023, as well as to have 16 GW of installed capacity in solar and wind each by 2027.
In order to create a favorable investment environment to strengthen renewables’ position in the market beyond the 2020s, the government has designed various investment models such as unlicensed (small-scale), licensed (medium-scale), and YEKA (large-scale) models, which address different sorts of investors and are encouraged by lucrative incentive instruments.
Utilization of local coal reserves in line with the environmental standards for electricity generation has also been prioritized as an instrument to increase localization. The government has adopted a new tender mechanism based on transfer of coal reserves to the private sector with the obligation of building and operating coal-fired power plants in the vicinity. Turkey has a substantial amount of coal reserves, totaling 17.3 billion tons and composed of mostly lignite.
Security of supply
The main coal reserves are located in Kangal, Orhaneli, Tufanbeyli, Soma, Tunçbilek, Seyitömer, Çan, Muğla, Çayırhan, Afşin-Elbistan, Karapınar, Tekirdağ, Alpu, and Afyonkarahisar. Among these reserves, the Afşin-Elbistan field alone has 4.8 billion tons of lignite resources, which constitutes 28 percent of Turkey’s total lignite reserves. The fields to be tendered in reverse-auctions bear 6.4 GW of installed generation capacity potential.
It is also worth mentioning that Turkey’s natural gas sector has been steadily improving. In order to increase security of supply and seasonal gas send-out capacity, Turkey has commissioned two Floating Storage Regasification Unit (FSRU) terminals in 2018 and opened up the first phase of the Tuz Golu (Salt Lake) Natural Gas Storage Facility. Another goal of these investments is to expand Turkey’s gas storage capacity to 11 bcm by 2023, up from its current capacity of 4 bcm.
As a crossroads between major energy consumers and suppliers, Turkey occupies a strategic location that serves as a regional energy hub. The existing and planned oil/gas pipelines, the critical Turkish straits, and promising finds of hydrocarbon reserves around Turkey allow for increased leverage over regional projects and reinforce the country’s gateway status.
Last but not least, Turkey has taken important steps in energy efficiency. In the National Energy Efficiency Action Plan, which was adopted in 2018, Turkey aims to achieve savings of USD 30.2 billion in total by 2033. In this regard, approximately USD 11 billion of investments will be made by 2023, resulting in energy savings equivalent to 23.9 Mtoe.
This saving is equal to decreasing the primary energy consumption of Turkey by 14 percent in 2023 compared to the base usage scenario. As part of Turkey’s efficiency efforts, Turkey will eliminate the need for USD 4.2 billion worth of power plant investments while also providing additional employment for 20,000 people by 2023.
Fuel Oil (Petrol) Insustry
The petrol industry includes stages such as exploring and drilling for oil, refining and delivering the outputs to vendors by marketing companies and retail selling by vendors.
Oil market operations in Turkey are enforced according to the Petroleum Market Law 5015. Searching and producing operations that are not considered to be market operations, are not regulated in the Petroleum Market Law 5015, but in the Petroleum Law 6491.
For production and distribution of certain petroleum products it is acquired to have licenses. These are examples of the petroleum products: gasoline, diesel fuel, heating oil, high sulphuric fuel oil liquefied gas. These licenses can be acquired at the Energy Market Regulatory Authority, and are a necessity if you wish to perform production, importation, exportation, domestic sales or bunker fuel sales of petroleum products and efficient and productive management of the sales process that is managed by vendors. This process requires high experience and legal knowledge that we at Bicak Law Firm possess and delightedly assist you with.
Some of our services to the companies operating in the petrol industry are as follows:
- petrol exploration and acquiring of operating licenses,
- organizing the process of acquiring exploration permissions,
- creating and proceeding with applications,
- authorization, registration and giving announcements,
- reporting, collection of the field data,
- conveyance of petrol rights,
- repayment of assurances,
- securing right to public security,
- disestablishment of facilities,
- performing capital and profit transfers,
- importation and exportation of goods,
- handling the permission process on oil exploration at marines,
- contractor agreements,
- handling foreign personnel employment permission processes,
- drilling core and getting export permits at the Ministry of Energy and Natural Resources, Directorate General for Oil Affairs.
The Turkish Petroleum Joint Stock Company is a Public Economic Enterprise that performs some petrol operations such as exploration, drilling, production, transportation, storage and refining at domestic and abroad. Turkish Petroleum International Company (TIPIC) is another Public Economic Enterprise that is extending the exploration operations in many countries that reserve a major part of the petroleum reserves, especially in Iraq, Syria, Libya, Sudan, Yemen, Russia, Azerbaijan, Turkmenistan, Uzbekistan, Kazakhstan, Colombia, Venezuela, Bolivia and Ecuador.
Some common cases in the petroleum industry are as follows;
Fuel oil that contains an invalid marker
The Directorate of Customs Enforcement, Smuggling and Intelligence of the Customs and Trade Ministry has the authority to produce reports on the basis of records that document the sale of diesel oil which contains invalid marker upon investigations carried out at the pump stations.
The diesel oil in the tankers which contains invalid marker or lacks any thereof can be confiscated upon written order of a Prosecutor, subjected to the endorsement of a Peace Judge. In the expert reports, the “smuggled product” nature of diesel oil would be verified on the basis of insufficient level of marker. In this kind of situations, criminal investigation and prosecutions launched on the ground of violation of the Law on Prevention of Smuggling are among cases we typically undertake.
No. 10 Oil
Article 2/21(c) of the Law numbered 5015 prohibits the use of oil products which are generated without any permission at all and which are used as liquid fuel though falling short of being of fuel nature. The use and sale of this type of oil product, which is also known as the no. 10 oil among public, have some legal ramifications such as whether only those who sell the no. 10 oil is the author of crime or whether those who engage in the purchase of the oil for commercial purposes can also be prosecuted, or whether the commission of the crime of use of no.10 oil incurs only an administrative fine or also imprisonment.
Theft from petroleum pipelines & damaging petroleum pipelines
Theft of petroleum may occur in shipping, processing or storage facilities, and the penalty of imprisonment is from five to twelve years enacted. If the petroleum robbery is committed by an illegal organization, the enforcement is increased by half and the members of this organization involved in the theft are imposed a punitive fine up to ten thousand days. The person who demolished, damaged or made the petroleum pipelines completely or partially unusable, is be charged for property damage, which implements from four months to three years of imprisonment or judicial fine.
Some of the methods used in petroleum smuggling are as follows: selling products of fuel oil and petroleum by smuggling by land or sea, illegal marketing of liquefied petroleum gas (LPG) or taxless fuel oil which is intended for export or use for a special purpose, smuggling to benefit from the tax differential on petroleum products, solvent, selling illegally based oil and waste metallic oil by mixing it with fuel oil, selling portable canister LPG instead of auto LPG in order to benefit from the differential of special consumption tax.
Natural Gas Industry
Natural gas is lighter than air, colourless and unscented. It can be found in subterranean areas near the petroleum. The drilling process is the same as for the petroleum. It is transported in big pipelines. 76 trillion cubic meters (41 %) of the natural gas reserves are in the Middle East, 59 trillion cubic meters (33 %) in Russia and Commonwealth of Independent States, and 31 trillion cubic meters (17 %) of it in the African and the Asian-Pacific countries.
Currently, Turkey has entered into nine different agreements that implement buying or selling liquid gas or liquefied natural gas (LNG) with six different countries that include Turkmenistan. For the transportation to the consumption points and extendance of the natural gas which is exported, there is a 1.9 billion dollar investment done by a petroleum pipeline corporation named BOTAŞ.
The Natural Gas Marketing Law 4646 is the substructure of the Turkish natural gas market. The operations, such as natural gas export, transfer, storage, wholesale, import, distribution, compressed natural gas (CNG) transfer and distribution, are conditioned under licensing. Getting mentioned licenses is in our working area.
The operations of natural gas exploration and production are realizing in the scope of the exploration and operation licenses given by General Directorate of Petroleum Affairs according to the Petroleum Law 6326. Manufacturing companies can market the natural gas to wholesale companies, importer companies, exporter companies, distribution companies, CNG companies and CNG transfer and distribution companies or eligible consumers under the condition that the oil should not be processed. In addition, manufacturing companies can export the natural gas only having acquired the exportation license. The required legal support is provided to the companies by our firm.