Legal considerations for energy projects in Turkey
Few countries are better located from a strategic standpoint than Turkey. Acting as the gateway between southeast Europe and the Middle East, being able to navigate the country’s legal and regulatory system is imperative when planning largescale energy and pipeline projects such as recently inaugurated TANAP.
The Trans-Anatolian Natural Gas Pipeline (TANAP) is a project that plays an important part in Turkey’s developing infrastructure. It has strategic importance to both Azerbaijan and Turkey, enabling the first Azerbaijani gas exports to be delivered to Europe and strengthening Turkey’s position as a regional energy hub.
TANAP runs from the Turkish border with Georgia, through 20 Turkish provinces, until it ends up at the Greek border in Edirne.
Alongside the South Caucasus Pipeline (SCP) and the Trans-Adriatic Pipeline (TAP), TANAP forms the key constituent element of the Southern Gas Corridor, connecting the Shah Deniz gas field in Azerbaijan to Turkey and Europe. As a project, TANAP aims to bring natural gas that is produced from Azerbaijan’s Shah Deniz-2 gas field, and other areas of the Caspian Sea, primarily to Turkey, but also to different European countries.
Construction of the pipeline, which is 1,144 miles long, began in March 2015 and was officially inaugurated in June 2018. Given its enormous size, it is no surprise that the financing and production figures for TANAP are equally remarkable. The pipeline will eventually be completed at a cost $8.5bn with part of the funding ($800m) supplied by the International Bank for Reconstruction and Development.
According to TANAP’s main shareholder, SOCAR, one billion cubic meters of gas was delivered to Turkey by the pipeline in 2018. This year, that figure is anticipated to rise to two billion cubic meters, reaching four billion in 2020, and six billion in 2021.
As with any project on this scale, its construction and operation involves multiple contractors and sub-contractors. In the context of Turkey, it also requires compliance with a variety of national regulations and regulatory authorities, which play a pivotal role in issuing the relevant licences that are required before construction and operation can begin.
In order to launch and develop a significant energy project like TANAP, a broad spread of legal as well as commercial considerations need to be undertaken in order to ensure that it meets Turkish legislative requirements.
From a legal perspective, many different aspects of Turkish law need to work in tandem to bring such a large and complex project to fruition. In addition to the various financing aspects, this includes: drafting vital engineering, procurement and construction (EPC) contracts, securing trademarks, managing the reputation of the project, complying with local energy laws, as well as multiple employment, environment and stakeholder engagement considerations.
Turkish Petroleum Law (TPL) is the main domestic legislation to be considered. This covers the terms and procedures regarding the regulation, management, provision of incentives for and auditing of petroleum exploration and production activities in Turkey, as well as the compilation, evaluation and provision of necessary information and data for exploration and production.
There are no onerous or unusual clauses in TPL: its overriding principle is that ‘the petroleum resources of the Republic of Turkey are rapidly, continuously and effectively explored, developed and produced by preserving the national interests.’
Mandatory licences required by entities planning to develop a project in Turkey are issued by the Energy Market Regulatory Authority (EMRA), an autonomous regulatory body which is responsible for regulating and supervising the downstream oil and gas markets. In addition to issuing licences to energy market participants, EMRA is also authorised to implement and enforce the relevant legislation.
The authority has an additional remit to impose sanctions to ensure that a competitive market environment is preserved and to set and maintain standards for participants.
In order to realise their plans to operate in Turkey, developers and operators need to engage with other arms of government.
First among these is the Turkish Ministry of Energy and Natural Resources (MENR), which plans the country’s strategic energy and natural resources requirements, determining its short and long term needs and planning for appropriate policy objectives in procurement. It also acts as a market supervisor across a wide range of activities in Turkey’s energy sector including: exploration, development, facility building, production, exploitation and distribution.
MENR supervises another important agency, the General Directorate of Petroleum Affairs (GDPA), which is responsible for the issuing of licences relating to exploration and exploitation activities and for supervising the upstream petroleum and natural gas markets.
There are two other government ministries which have a further regulatory impact on the Turkish energy sector: the Ministry of Environment and Urban Planning (MEUP) and the Ministry of Labour and Social Security (MLS).
MEUP is responsible for setting and maintaining standards in order to protect the environment. The scope of legislation which it implements includes recycling, waste collection and the inspection of relevant facilities. MEUP also has authority to impose sanctions and to conduct investigations in order to ensure compliance with the relevant environmental standards.
MLS is primarily responsible for the implementation, regulation, enforcement and supervision of occupational health and safety measures which have to be undertaken by employers in Turkish workplaces. It also has authority to impose sanctions and to conduct investigations in order to ensure that appropriate occupational health and safety measures are correctly complied with in each workplace.
Renewable energy also has a critical role to play in shifting dependence away from fossil fuels. As part of Turkey’s growth as regional energy hub, it increasingly competes with traditional energy sources, such as coal and oil and gas.
Turkish energy policy is rolling out the adoption of renewable energy and boosting the necessary infrastructure with plans to increase the share of renewable energy resources in electricity production to at least 30% by 2023.
To realise this, the government is implementing supportive policies, such as feed-in tariffs and investment incentives for renewable energy.
Levent Lezgin Kılınç, Founding Partner
Kılınç Law & Consulting based in Istanbul, Turkey, which specialises in energy law. The firm is expert at handling applications to the country’s public authorities, such as MENR and EMRA, as well as preparing agreements for project finance.