Energy Sector in Turkey

I. General provisions

Population : 61.6 million

Area : 779.542 km2

GDP : 172 billion USD (1995 prices)

II. Brief description of the energy sector

Indigenous energy production meets nearly 48% of the total primary energy demand. Domestic production is planned to be doubled nearly 60 Mtoe by 2010, mainly in coal (lignite) which, at present, accounts for almost half of the total energy production. The hydropower should increase two-fold over the same period.

Lignite is the dominant source of energy produced in Turkey. Nearly 75% of the indigenous lignite is consumed in thermal power plants.

Oil share in the final energy consumption is about 45% and 85% of oil requirement is imported. Net oil imports are projected to increase to nearly 30.6 Mtoe in 2000 and to 41.5 Mtoe in 2010, while the crude oil production (3.3 Mtoe in 1995) is expected to decrease further.

Natural gas started penetrating the energy market in the late 1980's. Its consumption is increasing rapidly. In 1995, it represented 8% of the total final energy consumption (6.8 bcm). It is expected that the demand will reach 27 bcm and 50 bcm in 2000 and 2015 respectively.

Gross electricity production amounted to 86.3 TWh in 1995. Coal and lignite accounted for 32% hydropower 41%, fuel oil 7%, and natural gas 19%. Private operators, including auto producers accounted for 8%.

Final energy consumption is dominated by oil (45%) while coal and electricity account for 20% and 12% respectively. The share of energy investments on the total public investments accounted for 13% in 1995 and is expected to increase to 16.3% in 1997. Energy intensity is higher that the European average even if it declined from 0.29 in 1973 to 0.26 in 1995.

III. Legislation affecting the investments in the energy sector

The Petroleum Law (Law No 6326) and its amendments.

Decree No 397 on Regulating the Utilisation of Natural Gas

The Mining Law and Mining Regulation

The Privatization Law (Law No 4046)

Law Concerning the Encouragement of Foreign Capital (Law No 6224)

Foreign Capital Framework Decree

Communique Concerning the Foreign Capital Framework Decree

Law on the Protection of Free Competition

Law on Granting Authorization to Institutions other than the Turkish Electricity Authority for the Generation. Transmission, Distribution and Trade of Electricity (Law No 3096)

Regulation on Determining the Principles for Granting Permission to Institutions other than the Turkish Electricity Authority for the Construction and Operation of Electric Power Plants.

IV. Privatization and monopolies

Private companies already operate in up and down stream parts of the oil sector, in lignite production and in electricity production and distribution.

The privatization programmers announced by the Government in the sub-sectors of oil refining and distribution, electricity generation distribution and coal production are aimed at improving the energy supply and the efficiency of these sub-sectors within a more market-oriented policy framework.

Privatization Law (Law No 4046) concerning arrangements for the implementation of privatization has entered into force in November 1994. The main purpose of the Law is to regulate the principles for the privatization process with the aim of improving productivity in the economy and of reducing public expenditures.

As regards monopolies, there is a de jure monopoly situation of BOTAS in the area of transportation and importation, sale and pricing of crude oil and natural gas. Therefore, this area is closed at present for investments from both domestic and foreign companies.

Law No 3096 of 1984 removed the exclusive rights given to the state electricity company (TEK) and authorised private operators, including foreign ones, to participate in generation, transmission, distribution and trade.

V. Exceptions to national treatment

According to Article 14 of the Privatization Law (Law No 4046), "sale and transfer of real estate to foreign natural persons and/or legal entities within the framework of the privatization process to be conducted in pursuance with the provisions of this Law are subject to the provisions of the legislation in force on the basis of rules of reciprocity."

According to Article 13 of the Privatization Law, if and when more than 49% of the capital shares of the TPAO and TÜPRAS (refineries) are decided to be privatized, preference (golden) shares must be established in them.

IV. Other relevant factors

A Customs Union Treaty was signed between Turkey and the European Union in March 1995 and entered into force in January 1996 upon approval by the European Parliament.

Survey of Exceptions to National Treatment Turkey

National Energy Policy

The major energy policy goal is to assure sufficient, reliable and economic energy supplies to support economic and social development. The energy policy is based on the following crucial objectives:

• improvement of energy supply security through diversification of imports;
• promotion of energy efficiency in the energy sector including more efficient power production through structural changes in the electricity sector (decentralisation and privatization);
• transition towards a more market oriented energy sector.

Primary Energy Production and Supply

Indigenous energy production meets nearly 48% of the total primary energy demand. Domestic production is planned to be doubled to nearly 60 Mtoe by 2010, mainly in coal (lignite) which, at present, accounts for almost half of the total energy production. The hydropower should increase two-fold over the same period.

Nevertheless, the share of indigenous production is expected to decrease to 38% of the total primary energy supply (TPES) by 2010.

Lignite is the dominant source of energy produced in Turkey. Nearly 75% of the indigenous lignite is consumed in thermal power plants.

Oil share in the final energy consumption is about 45% and 85% of oil requirement is imported. Not oil imports are projected to increase to nearly 30.6 Mtoe in 2000 and to 41.5 Mtoe in 2010, while the crude oil production (3.3 Mtoe in 1995) is expected to decrease further.

Natural gas started penetrating the energy market in the late 1980's. Its consumption is increasing rapidly. In 1995, it represented 8% of the total final energy consumption (6.8 bcm.). It is expected that the demand will reach 27 bcm and 50 bcm in 2000 and 2015 respectively.

Power generation accounts for approx, half of the gas demand, followed by industrial and residential sectors.

Nearly all natural gas is imported. The current import contract form Russia provides for 6 bcm gas delivery per annum. Delivery of Algerian gas started in 1994 upon completion of the LNG terminal in the Marmara Sea. The contract with Algeria provides for 2 bcm per year for 20 years. Negotiations for additional gas deliveries are also being carried out.

The cooperation agreement was signed in 1995 between Turkey and Qatar to import 2.6 bcm of LNG per annum by 1998. Moreover, agreements have been signed with Nigeria and Egypt for annual LNG deliveries of 0.9 bcm and 4 bcm. Respectively by 2000. On the other hand, an agreement signed with Iran in mid 1996 will provide 3 bcm and 10 bcm of gas deliveries by 1999 and 2005 respectively.

A pipeline network for transmission of natural gas is being developed to connect the major urban areas.

The planned infrastructure developments aimed at enhancing economic and trade relations with the Central Asian Republics of the former USSR and turning Turkey into an energy bridge between Central Asia and Europe would provide additional resources for the Turkish market.

Electricity demand has increased very rapidly over the last decade, more than 8% a year on average against a rise in GDP of 5% a year.

Gross electricity production amounted to 86.3 TWh in 1995. Coal and lignite accounted for 32%, hydropower 41%, fuel oil 7%, and natural gas 19%. Private operators, including auto producers accounted for 8%.

Final energy consumption is dominated by oil (45%) while coal and electricity account for 20% and 12% respectively.

The share of energy investments on the total public investments accounted for 13% in 1995 and is expected to increase to 16.3% in 1997.

Energy intensity is higher than the European average even if it declined from 0.29 in 1973 to 0.26 in 1995.

Future development and investment opportunities

Oil

According to the Petroleum Law, private (domestic and foreign) companies other than Turkish Petroleum Company (TPAO) are allowed to perform exploration and production activities of hydrocarbons as well as form joint-ventures.

A favourable framework to encourage the participation of foreign capital in facilitating the exploration activities of oil/gas in the country has been established by means of the amendment of the Petroleum Law in 1983.

Oil exploration in 1995 was conducted by 29 companies, 25 of which are foreign. TPAO, the state oil company, owns 144 of the 211 exploration licenses.

Domestic and foreign companies are also permitted to operate refineries under the Petroleum Law.

Installed refinery capacity amounts to 32 million tons a year at five refineries, four of them owned by TUPRAS, the joint-stock state company. The fifth refinery, ATAS is jointly owned by foreign companies. Distillation capacity is adequate but needs to be upgraded. An upgrading programme for the three main refineries is under way and is to be completed by the end of 2000.

Distribution is carried out by 12 private companies (domestic or foreign owned) and POAS (the public-owned company), with the POAS holding a share of about 60%.

Distribution of LPG is performed only by private companies.

Within the framework of policies for liberalization of the national economy, importation of crude oil and petroleum products have been liberalized.

Gas

Turkey's three natural gas fields are owned by TPAO. In 1995, 183.3 million cubic meters of gas was produced. Natural gas appeared only recently in the national energy balance and its consumption is rapidly increasing (from 68 mcm in 1985 to 4.2 bcm in 1995)

There are no restriction on private and foreign involvement in the distribution of natural gas in cities. Private sector companies, including municipal companies, are allowed to perform distribution activities. The public-owned joint-stock company BOTAS is at present the only importer and is also owner and operator of the gas pipelines.

The Government assigns special importance to promoting bilateral and multilateral cooperation with neighbouring countries in the Black Sea Economic Cooperation area (BSEC) and with the Central Asian Republics of the former USSR.

The idea of BSEC was put forward by Turkey in 1990 leading to the BEC Agreement in 1992. Member countries are Turkey, Russia, Romania, Bulgaria, Ukraine, Greece, Azerbaijan, Armenia, Moldova, Georgia and Albania.

BEC, in a broad sense, aims to allow for free circulation of goods, capital and labour in line with economic cooperation and is characterised by bilateral and multilateral collaboration.

The public-owned oil/gas companies TPAO and BOTAS have been considering possible routes for carrying Turkmen and Kazak gas and Kazak oil to international markets through Turkey. All such projects are based on the idea of Turkey acting as an energy bridge in carrying oil and gas from Central Asia to Europe.

Two major pipeline projects are under consideration:

• gas pipeline from Turkmenistan to Europe via Turkey;
• oil pipelines linking Kazak and Azerbi oil fields to a terminal on the south eastern coast of Turkey.

An agreement for transporting oil from Azerbaijan to Ceyhan on the south eastern coast of Turkey was reached in March 1993.

A project for transporting oil from Kazakhstan following the same route is also being considered. Russia-Turkey-Israel and Iran-Turkey-Europe gas pipelines are also under consideration.

On the other hand, TPAO has been granted with the right to explore and produce oil/gas in Turkmenistan. Moreover, joint exploration and exploitation projects shall be undertaken concerning geological and geophysical surveys in oil/gas fields. Similar agreements have been signed with Kazakhstan and Azerbaijan.

Electricity

To encourage private and foreign investment in the development of the power supply industry, Law No 3096 of 1984 abolished the exclusive rights granted to TEK (The Turkish Electricity Authority) and authorised private operators (domestic and foreign) to participate in generation, transmission, distribution and trade of electricity.

Particular efforts are being made to increase private sector and foreign capital investments in the energy sector to compensate for reducing pubic expenditure in recent years.

The Government forecasts that electricity demand will increase to 134 TWh by 2000 and to 290 TWh by 2010. Accordingly, the installed capacity will have to be expanded from 21 GW in 1995 to 35 GW in 2000 and 60 GW in 2005, mostly in hydropower plants. By the beginning of the next century Turkey plans to have a I GW in nuclear power plant.

To attract private capital, a new concept, the "Built-Operate-Transfer" (BOT) model, was launched in 1985. A special law (Law No. 3096) and a decree (Decree No. 85/9799) provide the legal framework for the BOT model.

The Turkish Government intends to install all new thermal and hydropower plants through private sector participation and by utilisation of local and foreign capital under the BOT and BOO (Built-Own-Operate) models.

With the aim of more private/foreign involvement in the electricity sector and within the framework of the rehabilitation of existing transmission/distribution networks for efficiency improvement, works is under progress for transferring the operation rights of distribution networks to private operators.

The Turkish Government further wishes to commission the operation of existing power plants with the intention of upgrading their operating conditions and efficiencies.

The Turkish electricity system is not yet integrated for synchronous operation with neighbouring systems, so only limited exchanges are possible at present. Activities aimed at strengthening interconnections with Iran. UCPTE network (through Greece) and the integrated system involving Syria, Iraq, Jordan and Egypt are in the feasibility phase.