Contributed by CMS.
1. SUMMARY
2. OVERVIEW OF THE COUNTRY’S OIL & GAS SECTOR
2.1. Legal framework – a brief outline of your jurisdiction’s oil & gas sector
Turkish law provides that all rights (i.e., ownership, exploration, exploitation, and sale) relating to natural resources belong to the state. The exploration and exploitation rights can be delegated to private parties (individuals and legal entities) through licensing, which is carried out by the Energy Market Regulatory Authority (EMRA) and the General Directorate of Petroleum Affairs (General Directorate). The Turkish Petroleum Law No. 6491 (TPL) governs procedures and principles regarding regulation, promotion, and supervision of petroleum exploration and production activities in Turkey and the Natural Gas Market Law No. 4646 (NGML) covers the import, transmission, distribution, storage, marketing, trade and export of natural gas, the licensing requirements pertaining to such activities, and the rights and obligations of all natural and legal persons involved, together with relevant secondary legislation in respect of both petroleum and natural gas.
Energy prices have risen sharply in Turkey, driven by global increases and a decline in the lira’s value against the dollar last year. Turkey is almost fully dependent on imported gas from Russia, Azerbaijan, and Iran. According to the latest official data, Iran provided 16% of Turkey’s natural gas needs in the first ten months of 2021. In January 2022, Iran cut the gas flow to Turkey claiming technical issues. Sudden stoppage in the flows caused interruptions in the industry. Following the cuts caused by Iran, it is stated that Azerbaijan will increase the gas flow to Turkey for support. Turkey has been the biggest client of Azerbaijani gas in the first 11 months of 2021.
As Turkey’s oil and natural gas demand is primarily met through imports, the country has focused on oil and natural gas exploration activities to increase domestic production. Accordingly, Turkey is looking forward to accelerating the process of making the natural gas explored in the Black Sea available for use.
2.2. Domestic oil & gas production and imports/exports
The TPL governs procedures and principles regarding regulation, promotion, and supervision of petroleum exploration and production activities in Turkey. Its secondary legislation, namely the Regulation on the Implementation of the Turkish Petroleum Law (Turk Petrol Kanunu Uygulama Yonetmeligi – the Regulation) regulates the procedures and principles for petroleum survey, exploration, production, reporting, taxation, supervising, and licensing.
As for natural gas, the NGML covers the import, transmission, distribution, storage, marketing, trade, and export of natural gas, the licensing requirements pertaining to such activities, and the rights and obligations of all natural and legal persons involved.
According to Article 4 of the NGML, the annual amount of imported natural gas held by any wholesale company cannot exceed 20% of the annual national gas consumption forecast, which is determined by the EMRA on an annual basis.
Currently, the Turkish Petroleum Pipeline Corporation (BOTAS) imports natural gas to Turkey through two methods. In addition to the natural gas purchases of liquefied natural gas (LNG) from Algeria and Nigeria and natural gas imported from Russia, Azerbaijan, and Iran through pipelines within the framework of long-term contracts, Turkey imports spot LNG from the USA and Qatar without entering into long-term contracts.
Article 22 of the TPL imposes that only 35% of crude oil and natural gas produced onshore and 45% of the same produced offshore may be exported. The remainder must be retained in Turkey to fulfill domestic demand.
Furthermore, as per Article 30 of the Natural Gas Market License Regulation, the export cannot interrupt local needs or the supply system which is relevant to the transfer of natural gas via pipelines. Accordingly, exporters of natural gas must adhere to the technical specifications introduced by the EMRA, taking into account the capacity of the transmission network and the export exit points.
As Turkey’s oil and natural gas demand is primarily met through imports, the country has focused on oil and natural gas exploration activities to increase domestic production. The Turkish Petroleum Corporation (TPAO), a state-owned oil company, has initiated an offshore exploration and discovered approximately 320 billion cubic meters of natural gas reserves in the Black Sea. Although the newly discovered reserve is far from meeting the entire demand of Turkey or effectively ending the need for imports, it is likely to increase Turkey’s bargaining power in the renegotiation of longer-term contracts.
2.3. Foreign investment and participation
According to the TPL, private entities are entitled to acquire permits and licenses for investigation, exploration, and production of petroleum, and foreign participation is allowed for upstream activities.
On the other hand, as per Article 7 of the Petroleum Market License Regulation, applications for downstream oil licenses can only be filed by Turkish legal entities (or individuals) residing in Turkey, registered with the Turkish trade registry (or industry registry) who are corporate (or income) taxpayers. However, there is no restriction that prevents a Turkish licensee company from being wholly or partially owned by foreign individuals and/or legal entities.
Article 5 of the Petroleum Market License Regulation prohibits the transfer of downstream licenses with an exception in favor of project lenders (such as banks and other financial institutions). Accordingly, depending on the terms and conditions of the financing agreements, lenders are entitled to request the EMRA to reissue the subject matter license in the name of another legal entity, provided that all of the initial license holder’s undertakings in relation to the license are transferred to that third party and the new licensee satisfies the criteria sought for license applicants within the scope of the regulation. The same practice is also applicable to the natural gas market and is governed under Article 5 of the Natural Gas Market License Regulation.
Pursuant to Article 21 of the TPL, any share transfer that may lead to a change of control in the licensed entity is subject to the prior approval of the Ministry of Energy and Natural Resources (Enerji ve Tabii Kaynaklar Bakanligi – MENR). Accordingly, as per Article 13 of the Regulation, the parties of the share transfer apply to the General Directorate with their reasoning of the proposed transfer and the General Directorate reviews the application and sends it to the approval of the MENR. Together with its opinion. If the MENR provides its consent to the transaction, the closing of the transaction must be completed within 60 days following the date on which the MENR issued its consent. Evidentiary documentation showing such a change should be provided to the General Directorate.
As per the natural gas market, applications for downstream natural gas licenses can only be filed by Turkish legal entities.
As per Article 42 of the Natural Gas Market License Regulation, acquisition of 10% (5% for listed companies) or more shares of a licensee company, directly or indirectly, by an individual or a legal entity and acquisitions that result in one of the shareholders having more than 10% of the shares and/or share transfers that result in a decrease of the shareholding of a shareholder below the abovementioned thresholds are subject to the approval of the EMRA. Any changes to the privileged shares (although there are no share transfers) and transfer of existing privileged shares (although not meeting the thresholds) are subject to the approval of the EMRA without prejudice to the exceptions provided by the legislation.
2.4. Protection of investment
Turkey is 74% dependent on imported energy to meet its energy demand. Being located as the neighbor to 60% of the oil and gas reserves in the world, Turkey aims to become the center of the energy trade within its region. For this purpose, Turkey took part in several crude oil and natural gas pipeline projects. The main ones are as follows:
Crude oil pipelines
- The Kirkuk-Yumurtalik Crude Oil Pipeline (Iraq-Turkey Crude Oil Pipeline)
- The Baku-Tbilisi-Ceyhan Crude Oil Pipeline (BTC)
Natural Gas Pipelines
- The Iran – Turkey Natural Gas Pipeline
- The Blue Stream Natural Gas Pipeline
- The Baku-Tbilisi-Erzurum Natural Gas Pipeline (BTE)
- The Turkey-Greece Natural Gas Interconnector (ITG)
- The Trans-Anatolian Natural Gas Pipeline Project (TANAP)
- The TurkStream Natural Gas Pipeline
Turkey is also party to bilateral investment treaties with 98 countries, 76 of which are currently in force, including the United States, all European Union Member States, excluding Ireland; all OECD member countries except Iceland, Canada, Norway, and New Zealand; several Asian countries such as China, Japan, and the Republic of South Korea; and Middle Eastern countries such as Lebanon and Iran.
3. EXPLORATION OF OIL & GAS
3.1. Granting of oil & gas exploration rights
The TPL governs procedures and principles regarding regulation, promotion, and supervision of petroleum exploration and production activities in Turkey whereas the Regulation (as defined under Section 2.2.) regulates the procedures and principles for petroleum survey, exploration, production, reporting, taxation, supervising and licensing.
There are different governmental authorities that take part in the process. The General Directorate is responsible for the issuance and monitoring of permits and licenses for the upstream activities pertaining to petroleum. As to the downstream licenses, the EMRA is the governmental authority that evaluates the applications. As per the TPL, any share transfer that may lead to a change of control in the licensed entity is subject to the prior approval of the MENR.
3.2. Foreign exploration
The TPAO no longer has the exclusive right to explore and produce petroleum due to Turkey’s liberalized energy regime. Private entities are entitled to acquire permits and licenses for upstream activities, mainly for the investigation, exploration, and production of petroleum. Upstream activities are also open to foreign participation.
3.3. Stages of the exploration process
There are three types of licenses and permits required to conduct upstream activities as per the TPL: (i) an investigation permit, (ii) an exploration license, and (iii) an operation license.
The investigation permit grants the right to survey the land by gathering data from the ground or air through topographic, geological, geophysical, geochemical, and similar methods for petroleum exploration purposes and by performing drilling works to gather geological information. This permit does not grant its holder the right to drill a well. The exploration license grants the holder the right to explore within the area defined in the license. As per Article 8 of the TPL, upon the discovery of a petroleum reserve for commercial production, an exploration license holder must apply for an operation license to be able to develop and produce petroleum in the defined area and to transport and trade the same to downstream licensees that hold a petroleum market activity license issued by the EMRA. The General Directorate is the authority in charge of applications for these licenses
The criteria regarding granting exploration licenses are detailed under Article 6 of the TPL and Article 16 of the Regulation. Accordingly, exploration licenses may be granted for onshore and offshore petroleum exploration. The maximum term for an exploration license is five years for onshore activities whereas the term for offshore activities is eight years, with a right of extension. In any event, the term of the license, including any extension period, cannot exceed nine years for onshore exploration and fourteen years for offshore exploration licenses. The General Directorate may also choose to close the application process for a specific field and to conduct a public auction.
Under Article 6 of the TPL, it is governed that the exploration licenses are based on map sections on a scale equal to 1/50,000 or 1/25,000. The exploration license applications for grids available for petroleum exploration are published and announced in the Official Gazette and all applications, including business and investment plans, should be submitted to the General Directorate.
As per Article 7 of the TPL, the applicants are under the obligation to provide a bank letter of guarantee to the General Directorate in an amount equal to 2% of their total investment whereas this rate is 1% for offshore activities.
Pursuant to Article 9 of the TPL, explorers or operators are under the obligation to pay the state share equal to one-eighth of the petroleum produced from the area subject to the production lease in cash on a monthly basis at the production stage.
The General Directorate examines applications based on the applicant’s business, investment plans, financial status, technical capacity, human resources, experience in the energy sector, and achievements. Upon its review, the General Directorate issues its decision within a maximum period of 60 days.
In addition to the above-mentioned sector-specific licenses, environmental permits may also be required to conduct exploration and production activities together with a workplace opening and operating license which will be obtained from the relevant municipality.
According to Article 22 of the TPL, license holders are under the obligation to build facilities and equipment without harming nature or the environment and to secure compensation for any damages that might be caused during their petroleum-related activities. The amount of the loss and damages guaranteed to be paid per hectare is 5/10,000 of the required application fee for investigation permits applicants, 1/1,000 of the required application fee for exploration license applicants, and 5/1,000 of the required application fee for operation license applicants. The President of Turkey has the authority to increase or decrease this rate by 50%.
According to Article 26 of the Regulation, the guarantee is returned to the license holder one year after the announcement of the termination of the relevant petroleum license in the Official Gazette, provided that no loss or damage has occurred and that no third-party claims have been made regarding this guarantee. In case of any loss or damage, the amount of the guarantee that remains following the compensation of such loss and damage will be returned to the license holder.
Article 4 of the NGML foresees that the natural gas exploration and production activities are conducted in line with the TPL and that the exploration and operation licenses are granted by the General Directorate. Production is not classified as market operation.
3.4. Obligatory state participation
Pursuant to Article 9 of the TPL, explorers or operators are under the obligation to pay the state share equal to one-eighth of the petroleum produced from the area subject to the production lease in cash monthly at the production stage.
As per Article 19 of the TPL, the information and data pertaining to the boreholes drilled in the exploration license site and geophysical details together with the geological and laboratory information and data become public at the end of the term of the license whereas those pertaining to the wells drilled in the operation license site become public at the end of the fifth year and information obtained as per the investigation permit become public at the end of the eighth year. Local and international marketing and sales of the information and data that are deemed to have become public are conducted by the General Directorate.
General technical, financial, and geological information, borehole locations, bowing profiles, casing tube records, and general production and sales numbers are not deemed confidential.
3.5. Risks to be considered
According to Article 23 of the TPL, those that:
- cause damages that cannot be repaired due to dangerous activities,
- carry out dangerous operations,
- operate without an exploration or operation license,
- conduct exploration activities without having an investigation permit or an exploration license,
- restrain the use of a right or prevent an officer from doing his duty in line with the law,
- make false statements on their applications,
- fail to send the information and documents required two times in one calendar year,
- shall be imposed to administrative fines.
Actions that may result in cancellation of the license such as failing to meet the criteria governed by the legislation or required by the relevant license, not paying the state share three times in one calendar year, and not meeting the undertaken business plan for two consecutive years are listed and detailed separately under Article 24 regarding administrative measures.
4. PRODUCTION OF OIL & GAS
4.1. Granting of oil & gas production rights
The production of petroleum including crude oil and gas is regulated under the TPL and its secondary legislation. As per Article 8 of the TPL, an operational license for the continuation of exploration, petroleum production, and trade of the produced petroleum is issued upon a petroleum discovery during the exploration activity conducted by an exploration license holder. An exploration license holder must promptly notify the General Directorate regarding the discovery and the General Directorate shall register or reject the discovery within six months at the latest by deciding whether to monitor the production, to carry out long-term flow and pressure tests in the well, and consequently whether the discovered petroleum accumulation will be operated commercially or not. Following the registration of the discovery, the exploration license holder is obliged to continue production, develop the petroleum field to form the basis of the operation license and sell the produced petroleum. The operation license is given for a period of 20 years maximum by considering the reserve, its economic life, production program, and work and investment program of the field. Such a period may be extended twice, each for a period of 10 years. The license holder is obliged to continue production except for force majeure events. The field, of which operation license has expired, may be put up for auction following the approval of the Minister of Energy and Natural Resources for the granting of the operation license if the TPAO does not request the field for production.
According to data provided by PETFORM (the Petroleum and Natural Gas Platform Association), Turkey provided 7.1% of its consumption in 2020 with an oil production of 60,845 barrels/day and a total of 3.2 million tons. While the country’s total producible oil reserves are 209.9 million tons, the remaining producible oil reserves are 48.1 million tons as of 2020. 37 companies, 12 of which are foreign, operate in oil production in Turkey and there are a total of 322 licensed companies.
4.2. Foreign production
The TPL provides that any foreign private legal entity established as a stock corporation according to the law of their domicile country may obtain investigation, exploration, and operation licenses. However, as per the conditions stipulated under the Regulation regarding the application procedure, such legal entities should provide information and documentation with respect to its registration in Turkey. Since there is no specific form stated under the Regulation, the foreign legal entity may establish a subsidiary or a branch to fulfill such registration requirements. According to the legislation on the protection of the value of the Turkish currency, foreign legal entities having petroleum rights are deemed to be residents in Turkey in terms of their activities in Turkey. There are no other additional obligations arising from the license holder being a foreign legal entity.
4.3. Stages of the production process
In the context of the production process, the legislation basically regulates the operation license, and no different stages are stipulated in the process. For details on the operation license, please refer to Section 4.1.
4.4. Obligatory state participation
Oil and gas producers in Turkey are obliged to pay one-eighth of the petroleum they produce as state shares. Petroleum used in transactions related to the licensing procedures is exempted from such obligation up to 0.5% of the petroleum produced. Oil and gas producers are subject to the Income Tax Law and Corporate Tax Law for their tax obligations. However, the total amount payable as tax of such producers shall not exceed 55% of their taxable income.
License holders are entitled to export 35% of the crude oil and gas they produce on onshore fields and 45% of they produce in offshore fields, either as raw or as refined. Considering the pipelines stated in Section 2.4. and the ports located at various points of Turkey, there are no infrastructure barriers for exporting the petroleum produced.
4.5. Risks to be considered
Please see Section 3.5.
5. TERMINATION OF PRODUCTION OF OIL & GAS
5.1. Abandonment and decommissioning
The Abandonment and decommissioning of oil and gas facilities are regulated under the TPL and its secondary legislation. A license holder may partially or completely abandon the investigation permit and exploration license by applying to the General Directorate at least one month in advance and the operation license by applying at least three months in advance. The license holder should also notify any related public institution or organization regarding the field if any. Rights arising from exploration or operation licenses expire on the application date for the abandoned part. Before the abandonment, together with the abandonment application, the inventory and detailed layout plans of the underground and above-ground facilities should be submitted to the General Directorate. The General Directorate should be informed on how and when this inventory and facilities will be removed from the field. With the expiration of the licenses, the license holder restores the land. In case the license holder does not remove such inventory and facilities from the land within six months following the expiry of the license, the ownership passes to the landowner. The license holder is also obliged to fully compensate and pay the damage caused to the landowner, possessor of the land, the land, the facilities over the land, and the lost profit damages arising from the product or business.
In case the abandoned facility still has the resources to produce, the operation license of the facility will be offered to the TPAO. If the TPAO does not accept such an offer, the operation license will be given to a third party by auction. To determine the price of the inventory and facilities, a commission of at least five people will be formed, one of which is the transferor’s representative, and one is the transferee’s representative. The commission determines the value of the inventory and facilities and if the parties agree, the transfer is completed over this price. In case the parties cannot agree on this price, the existing inventory and facilities are transferred to the ministry free of charge. Upon the request of the new license holder within thirty days, the ministry transfers the inventory and facilities with the price determined by the commission. If the new license holder does not want to complete the transfer at the price determined, the operation license request is deemed to have been waived and will be auctioned again.
5.2. Environmental and HSE consideration
The oil and gas facilities are deemed as “businesses with a high level of polluting effect on the environment” under the Regulation on Environmental Permit and License. Accordingly, such facilities should obtain environmental permits and licenses. As per the regulation, any business having such a permit and license should inform relevant authorities in case of termination of their activities. The authorities to be informed include the Ministry of Environment and Urbanisation and other administrations depending on the characteristics of the facility such as its location.
6. SAFETY OF OIL & GAS EXPLORATION AND PRODUCTION
6.1. International treaties to which the jurisdiction is a party
Below is a list of the main international treaties in the field of safe exploration and production of oil and gas to which Turkey is a party:
- The Energy Charter Treaty;
- The International Convention on Civil Liability for Bunker Oil Pollution Damage;
- The International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage;
- The International Convention on Civil Liability for Oil Pollution Damage;
- The International Convention on Oil Pollution Preparedness Response and Co-Operation;
- The International Convention for the Prevention of Pollution from Ships;
- The Protocol Concerning Cooperation in Preventing Pollution from Ships and, in Cases of Emergency, Combating Pollution of the Mediterranean Sea;
- The Barcelona Convention;
- The C152 Occupational Safety and Health (Dock Work) Convention;
- The C155 Occupational Safety and Health Convention;
- The C167 Safety and Health in Construction Convention; and
- The C187 Promotional Framework for Occupational Safety and Health Convention.
6.2. Offshore Safety Directive
OSD is not adopted in Turkey. There is not one legislative act that covers all the issues regulated in the OSD. Different legislative acts correspond to different sections of the OSD.
For example, the Law on the Principles of Emergency Response and Compensation for Damages in Pollution of the Marine Environment with Petroleum and Other Harmful Substances numbered 5312 which sets out (i) the principles of intervention and preparedness to be applied in order to eliminate the danger of pollution arising from activities in ships and coastal facilities in emergency situations or to reduce, limit, and eliminate pollution, (ii) principles of determination and compensation of damages resulting from the event, and (iii) principles of the fulfillment of international obligations.
As for health and safety, the occupational health and safety legislation and regulations in Turkey applicable to oil and gas operators are (i) the Occupational Health and Safety Law numbered 6331 and (ii) the Occupational Health and Safety Regulation dated December 9, 2003.
7. IMPORT, EXPORT, AND SALES OF OIL & GAS
7.1. Import and Export of oil & gas
Pursuant to the TPL, license holders are entitled to export 35% of the crude oil and gas they produce on onshore fields and 45% of they produce in offshore fields, either as raw or as refined. License holders can keep the foreign currency obtained from the exported petroleum. The amount of foreign currency is deducted from the transfer of the capital imported to Turkey and the net assets exceed this amount.
According to the NGML, gas producers can export the gas they produce by obtaining the exporter license. In addition, the importer companies can sell the gas they import to the markets abroad by obtaining the exporter license.
Pursuant to the Petroleum Market Law, those who will import crude oil and fuel must have a refiner or distributor or bunker fuel delivery company license. Those who produce crude oil in Turkey can import crude oil in an amount to be mixed with low gravity domestically produced crude oil. Crude oil and fuel imports are made through authorized customs administrations that are equipped to make certain technical measurements.
Pursuant to the NGML, legal entities are obliged to obtain an import license to import natural gas. To obtain the import license, such entities must have the technical and economical power to carry out import activities, have certain information and guarantee about the source, reserves, production facilities and transmission system of the natural gas to be imported, obtain the commitments and guarantees determined by the Energy Market Regulatory Board (Board) from the legal entities that will carry out storage activities to have underground storage facilities in the national territory within five years, have the ability to contribute to the development and security of the national transmission system and provide economic support to the investments of the legal entities that will realize the development of the system for this purpose. Importer companies must obtain a separate license for each import connection they will make and notify the EMRA of the contract periods, time extensions, anticipated annual and seasonal import quantities and the changes in these quantities, and the obligations included in the import contracts or their extensions concerning the security of the system. Importer companies can transfer the gas they obtain through import to wholesale companies or exporter companies in Turkey with a sales agreement or sell the gas abroad, provided that they obtain an export license. The transfer to the exporter companies does not remove the commitments of the importer companies given under the license. The annual amount of imported gas cannot exceed 20% of the national gas consumption estimate to be determined by the EMRA for the current year. The importer company is obliged to provide the information and documents requested by the EMRA regarding all the executed import contracts.
7.2. Transportation
Pursuant to the TPL, an operation license holder may request permission from the General Directorate for collection lines in the field, and for the connection lines to be constructed to the nearest refineries or main transmission pipelines or sales points. The General Directorate concludes the application within 90 days.
As per the Petroleum Market License Regulation, a transmission license is required to transport oil through the pipeline and operate a transmission facility. The transmission license application is made to the EMRA and decided by the Board. There are also several exemptions set out under the License Regulation. A transmission license is not required for transportation activities carried out via pipelines to facilities/warehouses owned by persons who do not serve third parties and/or who directly purchase oil from refineries. In addition, refinery license holders may carry out pipeline transportation activity to other nearby facilities without obtaining a separate license, provided that such activity is included in their licenses, and distributor license holders may transport fuel to facilities near their warehouses via pipelines without obtaining a transmission license.
According to the Natural Gas Market License Regulation, a transmission license is required to transport gas through the pipeline. The transmission license application is made to the EMRA and decided by the Board. While there is no restriction for private legal entities to obtain such a license, the only transmission license holder in Turkey is BOTAS (Petroleum Pipeline Corporation), which is a state economic enterprise owned by the Turkey Wealth Fund.
7.3. Land rights
Pursuant to the TPL, a license holder may obtain the right to use the land required for petroleum processing in or around the exploration or operation license if (i) the land is privately owned, by agreement or by expropriation in case of disagreement or if (ii) the land belongs to the Treasury or at the disposal of the state, by leasing, obtaining right of easement or right to use from the Ministry of Treasury and Finance and registering such right to its license. The ownership of the expropriated land belongs to the Treasury, and the right to use belongs to the license owner who pays the expropriation price. In this case, the right of easement is established by the Ministry of Treasury and Finance in favor of the license holder free of charge and for the duration of the license. The obtained usage rights continue throughout the license period as part of the exploration and operation license.
According to the Petroleum Market Law, it is essential that the acquisition of rights and ownership regarding the lands, plots, and buildings required for the facilities within the scope of the law is made primarily by agreement. If required by the activities regulated by the law, acquisitions regarding refinery and licenses storage facilities, the establishment of the easement right on the lands and plots where the transmission lines are located, other buildings that are inseparable parts of these lines, and immovables in their vicinity, and processing facilities to be determined by the EMRA may be acquired through expropriation. The ownership of the expropriated land belongs to the Treasury, and the right to use belongs to the legal entity paying the expropriation price. The right to use is registered to the land registry on behalf of the license holder and such rights are a part of the license and continue for the duration of the license. Legal entities may request the establishment of incorporeal rights on lands owned by the Treasury and their lease by paying their price. Upon approval of the Board, the EMRA usufruct, easement, right of construction, or long-term lease depending on the need. Such rights are also a part of the relevant license or certificate, and their validity is limited to their term.
If required by the activities regulated under the NGML, expropriation will be made on the relevant immovables. The ownership of the expropriated land belongs to the Treasury, and the right to use belongs to the legal entity paying the expropriation price. The right to use is a part of the relevant license or certificate and its validity is limited to their term. Legal entities may request the establishment of incorporeal rights on lands owned by the Treasury and their lease by paying their price. Upon approval of the Board, the EMRA usufruct, easement, right of construction, or long-term lease depending on the need. Such rights are also a part of the relevant license or certificate, and their validity is limited to their term.
Pursuant to the Law on Transit Transmission of Petroleum by Pipelines, the President of the Republic may appoint a state institution or organization to carry out the expropriation process regarding the transit petroleum pipeline project within the scope of the transit petroleum transmission within Turkey by means of a pipeline, by diverting the oil coming from or via another country to another country. The state institution or organization assigned with the expropriation must fulfill this duty as soon as possible and with priority. The said state institution or organization is also the addressee of legal disputes that may arise in relation to all kinds of actions and transactions within the framework of this expropriation. The expropriation and/or other acquisitions may be made by acquiring relevant property or establishing an easement right, including independent and permanent rights on the immovable. Such rights established in favor of the relevant state authority may be transferred and allocated to the petroleum rights holders within the scope of the project.
7.4. Access and integration
According to the TPL, those engaged in transmission activities as stated in Section 7.2. and licensed warehouses are obliged to meet the transmission and storage requests when they have the capacity in their facilities. Such request must be in accordance with the license holder’s tariff and the capacity of the relevant facility, must not cause adverse or risk increasing effects on the license holder’s facility, its operating rules, and conditions, the oil transmitted or stored, must be in accordance with the nature of the facility, transmitted or stored oil and the minimum amount specified by the license holder’s tariff. Transmission requests must be made by the producer, refiner, transmitter, or distributor by taking into account the type of oil and storage request must be made by everyone, provided that it is above the minimum amount specified in the warehouse’s tariff.
According to the Natural Gas Market License Regulation, a transmission license holder is obliged to connect the users who want to connect to the system within the framework of the criteria determined by the EMRA, at the most convenient point of the network within 12 months at the latest, provided that the system is suitable.
In case the license holder rejects the system connection request, the user may notify the EMRA of this situation. If it is determined by the EMRA that the license holder has violated the regulation regarding network operation, the license holder connects the user to the system according to the decision of the Board. The license holder must reply to the users’ connection requests within thirty days at the latest. In case of rejection, the reasons for the rejection are notified to the user. If such users apply to the EMRA within sixty days, the Board makes a decision within three months at the latest and notifies the parties. In its decision, the Board pays maximum attention not to interrupt transmission activities and not disrupt the functioning of the system.
7.5. Gas transmission and distribution
Distribution license refers to the permit issued by the Board for legal entities to engage in urban natural gas distribution activities.
The company that will be entitled to obtain a natural gas distribution license is determined by the tender announced by the EMRA. The procedures and principles regarding the distribution license and the tender are mainly set out by the Regulation on Distribution Customer Services. The distribution license is given to the company that is entitled to receive a distribution license following the fulfillment of the procedures included in the relevant legislation and the tender dossier.
The distribution license tender is made by a Board decision. The city subject to the tender, the license period, the eligible consumer limit, the subscriber connection fee to be applied during the license period, the amount of temporary, and definite letters of guarantee and other issues related to the tender are specified in the Board decision. The tender to be made by the EMRA is announced in the Official Gazette. The tender announcement contains the application period, place of application, Q&A method and timing, information, documents to be requested, and other issues.
The specification containing preparation and submission of the offer, type of currency in which the offers will be submitted, opening, evaluation, and concluding of the offers, limit of eligible consumers in the city where the distribution license will be granted, license period, subscriber connection fee to be applied throughout the license period, amount of temporary and definite letters of guarantee, the period for which the unit service and depreciation fee will be applied as fixed, the start date of the investment, the procedures and principles regarding issuance of the distribution license, the procedures and principles to be applied all stages including the design, construction, materials to be used for the construction of the distribution network, and the commissioning of the completed network and the basic principles and procedures and technical criteria are included. The specification is determined according to the characteristics of the city where the distribution license will be granted.
The tariffs to be applied by distribution companies are determined according to the Natural Gas Market Tariffs Regulation. The retail sale price to be applied by a distribution company consists of the natural gas unit purchase price, the system usage fee, and tax and tax-like liabilities. This price constitutes the upper limit to be applied by the distribution company. The distribution company cannot demand any price from the customers under any name other than the retail sale price, excluding the prices determined by law.
The system usage fee is determined to the extent that the efficiency targets determined for the relevant legal entity are achieved, taking into account the load and costs that customers bring to the system and/or the consumption levels specified by the Board in a way to allow a reasonable return to meet the variable and the fixed costs and to continue the investments within the framework of procedures and principles determined by the Board.
8. TRADING
8.1. Trading license
According to the NGML, different types of licenses allow different trading options. The licenses giving trading rights are mainly import license, wholesale license, distribution license, CNG license, and export license.
Import license holders have the right to sell imported gas to exporter companies, distribution companies, CNG sales companies, OtoCNG companies, wholesales (OtoLNG) companies, and eligible consumers.
Wholesale license holders have the right to sell gas to exporter companies, eligible consumers, CNG sales companies, OtoCNG companies, wholesales (OtoLNG) companies, importer companies, distribution companies, and other wholesale companies.
Distribution license holders have the right to sell gas to their subscribers and eligible consumers.
To obtain relevant licenses giving the right to trade, an application should be made to the EMRA. Following review and assessment of the application by the EMRA, the Board concludes the application within 60 days beginning from the application date.
8.2. Products
As per the definitions provided under the NGML and the Liquefied Petroleum Gases Market Law, natural gaseous hydrocarbons that are or can be extracted from the ground and other forms of these gases that have been liquefied, pressurized, or physically treated by various methods for placing on the market can be traded.
Tariffs for natural gas commodities (excluding LPG) are regulated in accordance with the Natural Gas Market Tariffs Regulation. The tariffs of connection, transmission and shipment control, storage, wholesale, and retail sales are determined by the Board’s approval of the application made by the relevant legal entities to the EMRA. These tariffs are binding on all relevant natural persons and legal entities.
LPG pricing is regulated under the Liquefied Petroleum Gases (LPG) Market Pricing System Regulation. Pursuant to the regulation, refiners and distributors notify the EMRA of the prices of market activities they carry out under their licenses as ceiling prices, taking into account the price formation in accessible world free markets, and are obliged to comply with such ceiling price.
9. COMPETITION
9.1. Authorities
The Turkish Competition Authority (TCA) regulates competition aspects and anti-competitive practices, based on Protection of Competition numbered 4054 (Competition Law).
There are no specific regulations for the oil & gas market, and the general provisions set forth by the Competition Law and the TCA apply to all markets.
9.2. Anti-competitive actions
As per Article 42 of the Natural Gas Market License Regulation, acquisition of 10% (5% for listed companies) or more shares of a licensee company, directly or indirectly, by an individual or a legal entity and acquisitions that result in one of the shareholders having more than 10% of the shares and/or share transfers that result in a decrease of the shareholding of a shareholder below the abovementioned thresholds are subject to the approval of the EMRA. Any changes to the privileged shares (although there are no share transfers) and transfer of existing privileged shares (although not meeting the thresholds) are subject to the approval of the EMRA without prejudice to the exceptions provided by the legislation.
Article 15 of the Petroleum Market Pricing System Regulation provides the EMRA with the power to intervene and determine a floor and/or ceiling price in case of arrangements or market practices that have the aim and effect of restricting and disrupting competition and market activities. The EMRA is also empowered to take the necessary precautionary measures in the petroleum market, be it regional or national, for a duration of two months max.
Article 7 of the Competition Law prescribes that any merger or acquisition that would result in a significant lessening of effective competition within a market for goods or services in the entirety or a part of the country, particularly in the form of creating or strengthening a dominant position, is prohibited.
The Communique on Mergers & Acquisitions that Require Permission from The Competition Board (Communique) provides details of the merger control regime. On March 4, 2022, the TCA published Communique No. 2022/2 and introduced significant changes in the control thresholds which will be effective starting from May 5, 2022.
Accordingly, parties to a merger must file an application to the TCA to receive permission:
If the total turnovers of the transaction parties in Turkey exceed TRY 100 million (to increase to TRY 750 million from May 5, 2022), and turnovers of at least two of the transaction parties in Turkey each exceed TRY 30 million (to increase to TRY 250 million from May 5, 2022), or in acquisition transactions, the turnover of the asset or activity, in merger transactions, the Turkey turnover of at least one of the transaction parties exceeds TRY 30 million (to increase to TRY 250 million from May 5, 2022) and the world turnover of at least one of the other transaction parties exceeds TRY 500 million (to increase to TRY 3 billion from May 5, 2022).
In relation to merger or acquisition agreements that fall within the scope of Article 7 of the Turkish Competition Act and exceed the turnover thresholds stipulated in the Communique, the TCA makes a preliminary examination within a 15-day time frame commencing from the date of notification. The TCA could either grant permission to the transaction or undertake a final examination. Typically, it takes around 4-6 weeks to obtain a decision approving or disapproving the transaction.
In the event that the TCA does not respond to the application regarding the merger or acquisition within the prescribed period, or does not take any action, merger or acquisition agreements enter into force 30 days after the notification date and become valid legally.
10. STABILITY CLAUSE AND DISPUTE RESOLUTION
10.1. Stability clause
Chapter 12, provisional sub-clause 1 of the TPL states that the rights and obligations regarding exploration and operation licenses obtained before the effective date of the law – May 30, 2013 – shall continue until the end of the license period.
However, apart from this sub-clause, there is no specific stability clause for oil & gas companies.
10.2. Compulsory dispute resolution procedure
Article 20 of the TPL prescribes that the applications regarding all rights received or to be acquired pursuant to the provisions of the law or objections regarding the disputes that may arise between the right holders shall be determined by the MENR. The cases to be filed against the decisions that affect the rights arising from the application, research permit, exploration license, and operating license delivered by the Ministry are heard before the Council of State (Danistay), acting as the court of first instance.
As per article 10 of the Petroleum Market Law, the EMRA has the power to settle disputes over oil and gas pricing. Dissatisfied parties may challenge the EMRA’s rulings relating to license holders’ rights and obligations before the Council of State. As per Article 46 of the Administrative Procedures Law, judgments made by administrative courts may be appealed before the Council of State within 30 days of the notification date.
According to Article 16 of the Transmission Network Operation Principles, published in the Official Gazette numbered 25561, dated August 22, 2004, disputes arising between the transporter and shipper from the implementation of the network operating principles regarding:
- Capacity reservations, cancellations,
- Allocations,
- System balancing participation fees,
- Interruption balancing fees,
- Service interruption fees, and
Emergency event, difficult day, and limited capacity day applications shall be settled by the EMRA.
Regarding the expropriation procedures, a landowner has the right to appeal an expropriation decision before the administrative courts. Should the landowner and the license holder fail to reach an agreement regarding the price of the land, the dispute shall be resolved before the civil court of first instance.
10.3. International treaty protection
Turkey is a signatory to and has duly ratified into domestic legislation both the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).
Court judgments in Turkey are not publicly available so it is not possible to check whether there have been instances in the oil & gas sector when foreign corporations have successfully obtained judgments or awards against Government authorities or state organs pursuant to litigation before domestic courts.
As for arbitral awards, ICSID records indicate that in the oil & gas sector, an investment arbitration was commenced against Turkey by Nabucco Gas Pipeline International GmbH in Liquidation on July 16, 2015, however, the proceeding was discontinued upon the claimant’s request.
