Under the Turkish Petroleum Law No 6491, the term “petroleum” includes both crude oil and natural gas.
Petroleum resources in Turkey are owned by and are at the disposal of the state. However, upstream interests are granted by way of licences with definite terms. In such cases, exploration and exploitation licence holders must pay the state a one-eighth share (12.5%) as a royalty for petroleum produced from an exploration or production area. Furthermore, the Turkish Petroleum Law allows for the export of 35% of hydrocarbons produced onshore and 45% of hydrocarbons produced offshore, but the remaining yield is required to be retained in Turkey to address domestic demand.
The Ministry of Energy and Natural Resources (Enerji ve Tabii Kaynaklar Bakanlığı) – “MENR” – is responsible for the energy sector and the determination and implementation of energy policies, as well as the transit passage of petroleum. Presidential Decree No. 1 on Presidential Organisation is the governing legislation for the MENR’s organisation, authority and responsibilities. http://www.enerji.gov.tr/tr-TR/Anasayfa)
The General Directorate of Mining and Petroleum Affairs (Maden ve Petrol İşleri Genel Müdürlüğü) – “GDMPA” – is the main service unit/department of the MENR and the regulatory authority for all mining and petroleum upstream activities. Presidential Decree No. 4 on the Organisation of Affiliated, Related and Associated Institutions and Organisations with Ministries and Other Institutions and Organisations regulates the authorities and responsibilities of the GDMPA, which mainly consist of the issuance and monitoring of permits and licences for the investigation, exploration and production of petroleum, along with mining related authorities and responsibilities. http://www.mapeg.gov.tr/
The Energy Market Regulatory Authority (Enerji Piyasası Düzenleme Kurumu) – “EMRA” – is the agency that regulates and monitors energy market activities, grants licences to conduct market activities (such as the distribution of petroleum) and has the authority to impose administrative fines and cancel licences due to non-compliance with applicable legislation. The Law Regarding Organisation and Functions of Energy Market Regulatory Authority, No 4628, is the legislation governing the EMRA’s organisation, authority and responsibilities. (http://www.emra.org.tr/)
The Turkish Petroleum Pipeline Corporation (Boru Hatları ile Petrol Taşıma Anonim Şirketi) – “BOTAŞ” – is a state-owned economic enterprise involved in the construction and operation of oil and gas pipelines. BOTAŞ does not have any authority to regulate market activities. The legislation governing the activities of BOTAŞ includes the Statutory Decree Regarding State Economic Enterprises, No 233. Its activities include: construction; the transfer or lease of pipelines for the transportation of petroleum, petroleum products and natural gas; and the transportation, purchase and sale of petroleum, petroleum products and natural gas. BOTAŞ is subject to the Natural Gas Market Law No 4646 and Petroleum Market Law No 5015 with respect to its operations (http://www.botas.gov.tr/)
The Turkish Petroleum Corporation (Türkiye Petrolleri Anonim Ortaklığı) – “TPAO” – is another state-owned economic enterprise involved in exploration, drilling, natural gas storage as well as investing in crude oil and natural gas activities. The legislation governing the organisation of the TPAO is the Statutory Decree Regarding State Economic Enterprises, No 233. The TPAO’s activities include the import and export of crude oil, natural gas and petroleum products, and the distribution and marketing of petroleum as defined under the Petroleum Market Law. TP Petrol Dağıtım A.Ş (TPDD). One of the TPAO’s subsidiaries, involved in fuel distribution activities, was privatised at the end of 2016. (http://www.tpao.gov.tr/#1)
Petroleum-related upstream activities are mainly regulated by the Turkish Petroleum Law, whereas downstream activities are primarily regulated by the Petroleum Market Law, the Natural Gas Market Law and the Liquefied Petroleum Gas (LPG) Market Law. The main laws regarding petroleum activities are summarised as follows:
Due to Turkey’s liberalised energy regime, the TPAO, the state-owned oil company, no longer has the exclusive right to explore and produce petroleum. Private entities are entitled to acquire permits, licences and leases for upstream activities, mainly for the investigation, exploration and production of petroleum. Upstream activities are also open to foreign participation.
As per the Turkish Petroleum Law, two major types of licences and permits are required to conduct upstream activities: an investigation permit and an exploration licence.
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 performing drilling works in order to gather geological information. This permit does not grant its holder the right to drill a bore well or appraisal wells.
An exploration licence gives its holder the right to explore within the area defined in the licence.
Upon the discovery of a petroleum reserve for commercial production, an exploration licence holder should apply for a production lease that entitles the licence holder to develop and produce petroleum in the area defined in the licence, as well as the transport and trade of the petroleum to downstream licensees holding a petroleum market activity license issued by the EMRA.
The GDMPA is the authority in charge of the foregoing licence applications.
The GDMPA issues an investigation permit upon the execution of an agreement between the applicant and the GDMPA, which sets forth the permit terms and conditions, the character of the applicant’s activities, as well as the rights and obligations of the applicant. Data gathered as a result of the survey should also be presented to the GDMPA; this information is to be kept confidential for eight years. Furthermore, the applicant must make a one-time payment of TRY0.50 per hectare to the GDMPA before executing the agreement. This fee is determined by the GDMPA on an annual basis.
Exploration licences may be granted for onshore and offshore petroleum exploration. Exploration licence applications for grids available for petroleum exploration are published and announced in the Official Gazette and all applications regarding the available areas, including business and investment plans, should be submitted to the GDMPA. Exploration licenses are based on map sections on scale equal to 1/50,000 or 1/25,000. Applicants should provide a bank letter of guarantee to the GDMPA in an amount equal to 2% of their total investment.
The GDMPA examines applications, together with an overall analysis of the applicant’s business, investment plans, financial status, technical capacity, human resources, experience in the energy sector and achievements, if any. Upon its review, the GDMPA issues its decision within a maximum period of 60 days. The maximum term for an exploration licence is five years for onshore activities and eight years for offshore activities, with a right of extension. In any event, the extension period cannot exceed nine years for onshore exploration and fourteen years for offshore exploration licences. The GDMPA may also choose to forego the application process and have a public auction for a specific field.
Applications for production leases are also submitted to the GDMPA. Production leases are granted for a maximum term of twenty years, which may be extended twice, up to ten years each time. Except for force majeure events, production leaseholders are required to carry out their activities during the lease term without any interruption. Otherwise, leaseholders may be exposed to administrative fines under the Turkish Petroleum Law.
If the lease term has expired and the TPAO does not conduct production activities at that location, a public auction process may be held by the GDMPA, with the approval of the MENR, in order to issue a new production lease for the same field.
In addition to the above-mentioned sector-specific licences, environmental permits (eg an environmental impact assessment report, environment permit and licence) may also be required to conduct exploration and production activities. In addition, a workplace opening and operating licence should be obtained from the relevant municipality or governorship (depending on the location).
There are two different types of guarantees, namely an investment guarantee and a loss and damages guarantee, that petroleum right holders should provide to the GDMPA in the form of bank letters of guarantee.
Exploration licence applicants for onshore areas are required to provide an investment guarantee in an amount corresponding to 2% of the total investment required to realise the work programme, submitted together with their applications. If, however, the exploration licence application is in relation to an offshore area, the amount of guarantee will be equal to 1% of the total investment. In both onshore and offshore licences, guarantees are required for both the initial licence application and any licence term extension request.
Investigation permit and exploration licence holders and production leaseholders are required to provide collateral 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, 1/1000 of the required application fee for exploration licence applicants and 5/1000 of the required application fee for production lease applicants. Following a one-year period from the announcement of the termination of the relevant petroleum licence in the Official Gazette, this guarantee is returned to the licence holder, provided that no loss or damage has occurred and no third-party claims have been made regarding this guarantee. In the event 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 licence holder.
At the production stage, leaseholders should also pay the state share (devlet hissesi), which is equal to one-eighth (12.5%) of the petroleum produced from the area subject to the production lease.
Income generated from petroleum activities is subject to corporate tax. Petroleum right holders must make the necessary withholdings and declarations as required under Income Tax Law, No 193 (Gelir Vergisi Kanunu) and Corporate Tax Law, No 5520 (Kurumlar Vergisi Kanunu). As per the Turkish Petroleum Law, the sum of the taxes that a petroleum right holder is liable to pay or withhold will not exceed 55% of the licensee’s taxable income.
Moreover, if a licensee imports materials, tools, fuel and transfer vehicles to be used for petroleum activities or procures such items from a domestic provider, the licence holder will be exempt from custom duties and levies and stamp tax.
Expired production leases are not automatically returned to the TPAO; these sites may be auctioned by the GDMPA.
However, the TPAO has the right of first refusal in respect of such fields; therefore, the MENR should initially confirm with the TPAO whether it wishes to acquire the fields. If the TPAO’s response is in the affirmative, the fields should be returned to the TPAO.
The TPAO – as a state-owned entity – is subject to a simplified procedure for expropriation compared to private investors. The TPAO files its expropriation requests directly with the GDMPA, and the GDMPA conducts the expropriation in favour of the TPAO provided that the approval of the MENR is obtained.
The old Petroleum Law No 8659, dated 16 March 1954, previously imposed an obligation on petroleum right holders to provide vocational training or internships in relevant Turkish or foreign institutions to a certain proportion of their Turkish employees. The number of Turkish personnel benefiting from this obligation would not have been less than one-quarter of the total number of foreign personnel employed under that licensee.
Unlike the old Petroleum Law, the current legislation does not impose any requirements for the use of local goods and services, local employment and training programmes in upstream operations.
The exploration licence holder has to notify the GDMPA of any petroleum discovery made during the term of the exploration license. The GDMPA will then review the discovery application and either register the discovery or reject the application. If the GDMPA registers the petroleum discovery submitted by the licence holder, the licence holder will be entitled to apply for the grant of a production lease.
Upon the registration of the discovery of petroleum, but before the grant of the production lease, the licence holder is under an obligation to continue with the production of the petroleum, develop the petroleum field and sell the petroleum produced. These activities will constitute the basis for the production lease. The licence holder must then submit a plan for the development of all discoveries in the petroleum field to the GDMPA within six months of the registration date of the discovery with the GDMPA.
Production leases are granted by the GDMPA for a maximum term of 20 years, commensurate with the business and financial investment plans of the applicant. If production does not commence within one year or is suspended at any stage but not resumed until the expiry of the period granted by the GDMPA, the relevant production lease will be cancelled.
In general, all administrative acts are subject to judicial review in Turkey, including the decisions of state authorities as well as administrative fines imposed by such authorities. The MENR usually tries to find an amicable solution in disputes arising.
According to the Turkish Petroleum Law, all objections made by applicants or licensees or all disputes arising between them should be directed to the MENR. However, the MENR’s decisions on licence applications, investigation permits, exploration licences or production leases can be challenged before the Council of State (Danıştay), which will act as the court of first instance for the relevant dispute.
Please see 2.1 Forms of Allowed Private Investment in Upstream Interests, 2.2 Issuing Upstream Licences and 2.3 Typical Fiscal Terms Under Upstream Licences above for a general overview of upstream licences.
The obligations of petroleum rights holders include: (i) refraining from any direct or indirect dangerous acts or activities that would jeopardise human health, the environment or cultural assets and (ii) adopting all necessary measures in a manner to eliminate any circumstances that are potentially hazardous.
Petroleum right holders may relinquish their exploration licences, either in whole or in part, with at least one month's prior notice, and their production leases with at least three months' prior notice, by filing an application to the GDMPA and notifying any other public institutions that are associated with the relevant field.
Upon termination of their rights, petroleum right holders must reinstate the field to its previous condition. If the petroleum right holders move out of the field and fail to remove any petroleum exploration or production construction on that field within six months from the termination date of the licence or lease, the ownership of such properties shall transfer to the owner of the land. In addition, the licence holders must compensate fully and make necessary payments to the owner of the land for all losses incurred, as well as depreciations in production (eg agricultural yield) or operating income to which the owner would originally be entitled.
Licence holders are allowed to export 35% of the petroleum, crude oil, natural gas and petroleum products generated from commercial discoveries made after 1 January 1980 if such products are produced onshore, and 45% if such products are produced offshore. Both the remaining volume of crude oil, natural gas and other petroleum products produced from commercial discoveries made after 1 January 1980 – as well as all crude oil, natural gas and other petroleum products generated from the fields discovered before 1 January 1980 – are reserved for domestic consumption.
There are two types of transfers: licence transfers upon expiry of their terms and share transfers which would result in a change of control in a company which holds a petroleum licence or lease. The transfer of upstream licences upon expiry of their terms will be made in accordance with the procedure detailed in 2.5 Special Rights for National Oil or Gas Companies above.
In the event that share transfers lead to a change of control in the licensed entity, prior to the proposed transfer both the transferor and the transferee should file an application to the GDMPA together with their reasoning for the proposed transfer. The GDMPA will review the application and send it to the MENR together with its opinion. If the MENR provides its consent to the transaction, the closing for the transfer of shares should be completed within 60 days of the date on which the MENR issued its consent. Evidentiary documentation showing such a change should be provided to the GDMPA.
Exploration licences and production leases, as well as petroleum rights arising from them, may be subject to encumbrances in favour of third parties, provided that the prior consent of the GDMPA has been obtained and that these pledges are registered with the petroleum registry kept by the GDMPA.
The grant or transfer of exploration licences and production leases, as well as the establishment of any encumbrances on them, must be published in the Official Gazette and registered with the petroleum registry.
The GDMPA may refuse to give its consent to the transfer of shares, licences, leases or the establishment of any encumbrance over the shares of a licensed entity or over the transfer of licences due to reasons such as a lack of experience or lack of financial and technical capacity.
Currently, upstream operations in the oil and gas business do not make up a significant portion in the Turkish market as production rates are not very high. In line with the existing level of operations, there are no legal or regulatory restrictions imposed on production rates. On the contrary, upstream activities are supported through various arrangements and incentives. Furthermore, Turkey is not a member state of OPEC and therefore is not subject to OPEC quotas or other restrictions.
According to the Petroleum Market Law, and the Natural Gas Market Law, a licence is required to perform market activities regulated under such legislation. Licence applications are made to EMRA. Licensees are entitled to benefit from the expropriation process if required by the licensed activities. Please see 3.10 Rules for third-party access to infrastructure below for details on the legal framework for expropriation.
The Natural Gas Market Law states that BOTAŞ is the owner of all existing, under-construction or planned sections of the national natural gas transmission networks. However, the law permits new transmission companies to be licensed to construct new pipelines, to form a connected system with the existing lines for the purpose of transmission, and to operate such newly constructed pipelines. Currently, as the only natural gas transmission licensee, BOTAŞ is effectively a monopoly in transmission activity. Apart from BOTAŞ, Baku-Tbilisi-Ceyhan Pipeline Company, owner of the Baku-Tbilisi-Ceyhan (BTC) Petroleum Pipeline, transporting oil from the Caspian Sea to Ceyhan, one of Turkey’s Mediterranean ports, has also been involved in construction of private natural gas transmission network for its own needs. As a project realised within the scope of an IGA/HGA (InterGovernmental Agreement/Host Governmental Agreement) regime, having the “force of law” effect, BTC has benefited from exclusive rights available to it in relation to the construction of this special-purpose natural gas transmission network.
While the Natural Gas Market Law provided for full opening of the market to private companies as of 2009, the dominant position of BOTAŞ on the import of natural gas in Turkey is still intact. Pursuant to current legislation, import companies cannot enter into new gas sale and purchase contracts (except for the purchase of LNG, compressed natural gas (CNG), and spot LNG) with countries that have effective gas sale and purchase contracts with BOTAŞ until such contracts expire. New entrants are not, at present, allowed to import gas from countries with which BOTAŞ has contracts, such as Russia, Azerbaijan, Turkmenistan, and Iran. This restriction on executing contracts with BOTAŞ’s existing counter-parties would not be applicable for LNG, CNG, and spot LNG imports. Apart from this exception, in order to decrease BOTAŞ’s role in the market, another requirement was imposed on BOTAŞ: to launch tenders until the year 2009 in order to transfer entirely or partially BOTAŞ’s existing natural gas purchase agreements to third parties for their access to the import system. Various takeover tenders have been realised over the past few years, and, as a result, private investors’ market share in natural gas imports has been announced as more than 20%.
BOTAŞ cannot execute a new natural gas purchase contract until the share of gas imported by BOTAŞ falls to 20% of the yearly national consumption. In addition, in order for a private company to import gas from other companies, with which BOTAŞ does not have a contract, the Energy Market Regulatory Authority Board’s (“EMRA Board”) consent is required.
Apart from the foregoing, there are no major legal or practical barriers that would be applicable to private investors for natural gas market entry. Nevertheless, given the scope of existing restrictions on natural gas import activities, until and unless these restrictions are restructured and adapted to the current realities of market activity, BOTAŞ will continue to remain as a significant player in the natural gas import.
Since the liberalisation process started in the 1990s, the most significant type of off-takers of natural gas for power generation purposes have been natural gas combined cycle power plants. The Build Operate (BO), Build Operate Transfer (BOT) and Transfer of Operation (TOR) models were all utilised in the development of these facilities. As of 2001, EMRA was given the mandate to issue licences for electricity generation plants, succeeding the former state monopoly. As per the information provided under the MENR’s official website, with an installed capacity of 28,910 MW, natural gas-fired plants constituted about 25.6% of the total capacity of commissioned electricity generation facilities. in 2018. The amount of electricity generated by these plants make up more that 29.8% of the total electricity generated.
In the natural gas market, companies holding transmission licences are not permitted to discriminate between third parties of equal status. Such companies may reject third-party access requests only on the basis of the grounds exhaustively listed under the Natural Gas Market Law.
Third-party access to the transmission network and the activities of natural gas storage facilities is regulated under the Transmission Network Operation Regulation (Doğal Gaz Piyasası İletim Şebekesi İşleyiş Yönetmeliği) and the Transmission Network Operation Principles (İletim Şebekesi İşleyiş Düzenlemelerine İlişkin Esaslar) (“Network Code”). In line with the Network Code, BOTAŞ currently operates the transmission network and manages and co-ordinates the access of third parties to the same. In order to access the network, a connection agreement must be entered into between BOTAŞ, as the sole transmission licensee and owner of the existing national transmission network, and the respective import, wholesale, generation or export company.
Following the connection agreement, a standard form transportation contract should be entered into for the transportation of the gas through the transmission system, as well as for capacity allocation at an entry or exit point. The network code sets out detailed technical criteria and formulae for the calculation of tariffs applicable to the natural gas transmission activities of third parties.
In order to conduct oil and gas market activities, licence applications should be made to the EMRA, which will issue a final decision within a maximum of 60 days from the application date. If the relevant department of the EMRA determines that the application is complete, it will notify the applicant to deposit the application fee in an amount corresponding to 1% of the licence fee.
Applicants should pay such fees within ten days following the receipt of the EMRA’s notification. Following payment, the EMRA will review and evaluate the licence applications. The EMRA will then prepare a report on its evaluation and submit it to the EMRA board, which is the decision-making body of the EMRA for licence applications, and for rendering the final decision on licence applications.
As per the Petroleum Market Licence Regulation (Petrol Piyasası Lisans Yönetmeliği), the EMRA Board annually determines the specific revenue share (gelir payı) that should be paid by processing licence holders (as explained in 3.8 below) engaged in the production of biodiesels to refinery holders. The rates determined by the EMRA Board for the year 2019 are as follows:
Remaining licence holders, other than those engaged in production of biodiesels, are not required to pay any income share.
However, all licence holders should pay a contribution share (katılma payı) to the EMRA on an annual basis in two equal instalments. Contribution shares are calculated by multiplying the total net sales of the licensee made in the relevant year with the annual contribution ratio as decided by the EMRA Board each year.
In parallel to the foregoing, natural gas licence holders are also required to pay contribution shares to the EMRA. The same formula is applicable to natural gas licence holders.
Tariffs and pricing policies in petroleum and natural gas activities are determined by the EMRA under the Petroleum Market Pricing System Regulation (Petrol Piyasası Fiyatlandırma Sistemi Yönetmeliği) and the Natural Gas Market Tariffs Regulation (Doğal Gaz Piyasası Tarifeler Yönetmeliği), respectively.
Downstream licence holders do not benefit from a special tax regime.
The only special tax incentive available is for activities involving the transportation of foreign crude oil and natural gas through transit pipelines and the construction and modernisation pipelines; as such, these activities are exempt from value-added tax in accordance with the Value Added Tax Law, No 3065 (Katma Değer Vergisi Kanunu).
BOTAŞ’s natural gas-related receivables are subject to the Law on Collection of Public Receivables No 6183 (Amme Alacaklarının Tahsili Usulü Hakkında Kanun), which allows them to benefit from special treatment in terms of debt collection. However, private market players do not benefit from such a mechanism.
Furthermore, the relevant legislation imposes a restriction on the scope of market activities that may be conducted by licence holders. Accordingly, a natural gas market licensee may only hold shares in one other natural gas licensee. However, such a restriction is not applicable to BOTAŞ or its existing or future subsidiaries.
Please refer to our explanations under 3.1 Forms of allowed private investment for BOTAŞ’s dominant status in relation to natural gas import activities.
In parallel to upstream operations (as explained in 2.6 Local Content Requirements Applicable to Upstream Operations above), there are no requirements for the use of local goods and services, local employment or training programmes in downstream operations.
Pursuant to the Petroleum Market Licence Regulation, licences granted by the EMRA may be summarised as follows:
The Petroleum Market Law imposes a national petroleum storage (ulusal petrol stoğu) obligation to secure the availability of petroleum against fluctuations in supply. To that end, refinery, and distributor licence holders are required to store fuel products in the amount of 20 times the daily average supply of the previous year in their own storage facilities,
Except for refinery licences, there are no domestic supply requirements. In the case of refinery licences, licensees are required to prioritise the procurement of crude oil from local producers as opposed to foreign suppliers.
All licences are granted up to a maximum of 49 years. Licence holders must file a written or electronic application to the EMRA for an extension to the licence term at the latest two months, and at the earliest six months, prior to the expiry of the licence term.
Licences are terminated by the decision of the EMRA board, among others, upon occurrence of the following events:
Unless terminated earlier due to the foregoing termination grounds, licences terminate upon expiry of the licence term.
The legislation further imposes an insurance obligation on licensees; as such, licensees should maintain necessary insurance coverage for physical or material damages that may be incurred by third parties due to their activities. Apart from imposing a general insurance requirement on all licensees, the legislation specifies that refinery, transmission and storage licensees should maintain an all-risks insurance policy for their facilities, storage units and petroleum. Refinery licensees should further maintain financial liability insurance to secure their portion of national petroleum storage volume. As per the Natural Gas Market Licence Regulation, the types of licences and authorities granted are summarised as follows:
Export licence holders are entitled to buy natural gas from production, wholesale or export companies and market the natural gas to foreign buyers.
Natural gas market licences terminate upon expiry of the term of the licence, the bankruptcy of the licence holder or upon request for termination of the license by the licence holder (except for refinery, transmission and storage licenses).
Natural gas market licences are granted for a term ranging between ten to thirty years. Licensees may file an extension request with the EMRA between nine months and one year prior to the expiry of the relevant licence. Licences may be extended for a term ranging between ten to thirty years.
Similar to the petroleum market requirements, natural gas market players should also maintain sufficient insurance coverage against possible risks that may arise during their activities. Apart from imposing a general insurance requirement on all licensees, the legislation specifies that transmission, distribution, CNG and storage licensees should maintain an all-risks insurance policy against natural disasters, fire and accidents etc.
In respect of publicly owned land, petroleum or natural gas licence holders may request the EMRA to establish property rights other than ownership (such as usufruct rights, servitude rights, construction rights) over publicly owned property or to lease the publicly owned property required for the licensed activities on a long-term basis. If the EMRA approves the licence holder’s request, it will then procure the establishment of such rights in favour of the licence holder according to the needs of the project. Licence holders are required to pay the costs for the grant of those rights and the term of such rights will be limited to the licence term.
If, however, the land is private property, an expropriation process would need to be triggered, equivalent to the common law process of eminent domain.
Both the Petroleum Market Law and the Natural Gas Market Law allow the expropriation of private property if it is required for licensed activities. In respect of the Petroleum Market Law, land rights necessary for petroleum activities where private property is affected should, in principle, be acquired through negotiation between the licensees and the landowners. If this is not possible, land rights may be acquired through expropriation. According to the Natural Gas Market Law, expropriation proceedings may be initiated to perform relevant natural gas market activities.
Following the expropriation process, both under the Petroleum Market Law and the Natural Gas Market Law, the State Treasury becomes the owner of the property, which usually allocates the land directly to the licence holder by the granting of a contractual usage right or property right other than ownership over the relevant land. In some instances, the State Treasury makes such an allocation to the relevant state entity (such as BOTAŞ), which then extends the right to the licensee. In both cases, the licence holder pays the expropriation fees.
According to the Petroleum Market Law, expropriation may be limited to the following activities: (i) refineries and licensed storage facilities; (ii) the grant of easement rights over lands located around transmission lines; and (iii) certain production facilities as determined by the EMRA. Unlike the Petroleum Market Law, the Natural Gas Market Law does not specify areas which may be subject to expropriation. Such areas will be determined depending on the needs of the project.
Currently BOTAŞ is the only natural gas transmission licensee and sole owner of the existing transmission network. Please see 3.1 Forms of Allowed Private Investment for Limited Private Party Involvement and 3.2 Rights and Terms of Access to Any Downstream Operation Run By a National Monopoly for details on private parties’ access to the transmission network.
A large portion of state-owned distribution companies have been privatised (some have yet to be finalised), a notable exception being the distribution company in İstanbul (ie İstanbul Gaz Dağıtım Sanayi ve Ticaret Anonim Şirketi or “İGDAŞ”). The EMRA is responsible for granting distribution licences for the supply of gas to cities with no natural gas distribution network. As BOTAŞ’s transmission network reaches a new city, the EMRA organises a natural gas distribution licence tender for that city. Access to the distribution network is regulated separately under the Natural Gas Distribution and Customer Relations Regulation (Doğal Gaz Piyasası Dağıtım ve Müşteri Hizmetleri Yönetmeliği). Distribution companies are required to connect all consumers within their designated region upon request. A connection agreement between the parties is executed and the technical connection and service lines are established. Subscription agreements, transportation service agreements and delivery services agreements may also be executed between the distribution companies, natural gas market licensees and retail consumers (including eligible consumers).
Pursuant to the Petroleum Market Law and Petroleum Market Licence Regulation, a refinery, distributor or dealership licence is required to conduct the distribution and/or sale of petroleum. Under the Natural Gas Market Law, the wholesale and distribution of natural gas is permitted by obtaining licences for such activities from the EMRA.
Refinery licence holders are obliged to store petroleum/petroleum products equivalent to 20 times the daily average supply in storage facilities in order to satisfy the national petroleum storage obligation. Furthermore, distribution licence owners are obliged to have the technical capacity, equipment and financial capability to satisfy annual white product (gasoline and diesel oil) sales in the amount of 60,000 tons.
Under the Natural Gas Market Law, 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.
Import licence holders may conduct the wholesale of natural gas without obtaining a separate wholesale licence. To that end, it is sufficient for such legal entities to inform the EMRA about their suppliers of natural gas, the types of transportation methods they intend to use, as well as their technical and financial capabilities.
A producer of natural gas is entitled to sell the gas it produces directly to eligible consumers, as long as the volume of gas sold in such a manner does not exceed 20% of the national consumption forecast, as determined by the EMRA for that year. It may sell the excess quantity of natural gas to import companies, distribution companies or wholesale companies. Producers may also export the gas produced provided that it obtains an export licence.
As for restrictions concerning significant off-takers from the oil and gas markets, concurrent ownership limitations and unbundling requirements apply to electricity generation and distribution licensees, which are licensed under Electricity Market Law No 6446 (Elektrik Piyasası Kanunu) and secondary legislation issued by the EMRA.
The Turkish Petroleum Law No. 6491 imposes an export capacity restriction: only 35% of petroleum, crude oil, natural gas and petroleum products produced onshore and 45% of petroleum, crude oil, natural gas and petroleum products produced offshore may be exported. The remaining yield must be retained in Turkey to fulfil domestic demand. Furthermore, the Natural Gas Market Licence Regulation mandates that export cannot interrupt local need or the supply system, which becomes relevant especially in the transfer of natural gas via pipelines. 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.
In respect of natural gas export, if a petroleum rights holder producing natural gas wishes to export its production, it should obtain a natural gas wholesale license. Other than that, any party wishing to export natural gas must obtain an export license from the EMRA. Accordingly, export licence holders are entitled to buy natural gas from production, wholesale or export companies and export the natural gas to foreign buyers.
As per the Petroleum Market License Regulation, crude oil and petroleum products may be exported freely. However, publicly available records reveal that no crude oil is currently being exported, solely petroleum products. In order to export petroleum products, various export authorisations must be obtained from the relevant state authorities, including the GDMPA and the EMRA, depending on the type of activity.
Pursuant to the LNG Market License Regulation (Sıvılaştırılmış Petrol Gazları (LPG) Piyasası Lisans Yönetmeliği), LNG distribution license holders and refinery license holders are entitled to export LNG.
There are no taxes or duties applicable for the export of these products. On the contrary, if export companies have purchased these products from local parties by paying VAT or special consumption tax, there are certain incentives available for the export companies to have these taxes reimbursed.
The Petroleum Licence Regulation and the Natural Gas Licence Regulation prohibit the transfer of downstream licences. However, both regulations provide for an exception in favour of project lenders (ie 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 licence in the name of another legal entity, provided that all of the initial license holder’s undertakings in relation to the licence are transferred to that third party and the new licensee satisfies the criteria sought for licence applicants.
Applications for downstream oil and natural gas licences can only be filed by Turkish companies. That being said, there is no limitation that prevents a licensee Turkish company from being wholly or partly owned by foreign individuals and/or legal entities.
The Direct Foreign Investments Law No 4875 (Doğrudan Yabancı Yatırımlar Kanunu) provides that all companies established in Turkey, regardless of the nationality of their shareholders, are accepted as Turkish companies. The Direct Foreign Investments Law also sets forth that foreign investors must be treated the same as domestic investors. As such, foreign direct investments cannot be expropriated or nationalised, except as justified by public interest and only against payment of compensation and in accordance with the due process of law, which is available both to Turkish citizens and foreign investors alike.
The settlement of disputes arising out of investment agreements may be settled by the local courts (having jurisdiction over the dispute) or where the conditions in the respective legislation are met and subject to the mutual agreement of the respective parties through national, international arbitration or alternative dispute resolution as the case may be.
In terms of dispute resolution, international arbitration is a frequently used method. Turkey is a signatory to both the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and to the Convention on Settlement of Investment Disputes between States and Nationals of Other States. In addition, Turkey has executed bilateral investment agreements with 75 countries, including: the United States; European countries such as the United Kingdom, Switzerland, Sweden and Italy; a number of Asian countries such as China, Japan and the Republic of South Korea; and Middle Eastern countries such as the Lebanon and Iran.
Environmental Law (Çevre Kanunu) No 2872 and its secondary regulations are the main pieces of legislation that govern environmental matters. In addition, the Turkish Petroleum Law, the Petroleum Market Law, the Regulation on Application of the Turkish Petroleum Law, the Petroleum Market License Regulation and the Natural Gas Market Law impose rules and standards relating to environmental protection.
Environmental Law No 2872: All related parties must prevent, stop and take necessary precautions to mitigate the effects of pollution. The law sets forth a strict liability rule.
The Turkish Petroleum Law: Petroleum right holders must not commit any dangerous act either directly or indirectly during the conduct of petroleum operations. A dangerous act is defined as any act of negligence during petroleum operations that endangers or is likely to endanger the life or health of any person within the field or which gives rise to environmental pollution or the destruction of properties or places designated under the Law on the Conservation of Cultural and Natural Properties (Kültür ve Tabiat Varlıklarını Koruma Kanunu) No 2863.
The Petroleum Market Law: persons who conduct petroleum market activities should take all necessary precautions to prevent damage to the environment and notify public authorities in the event of any risk of damage to the environment.
The Regulation on the Application of the Turkish Petroleum Law: Petroleum right holders must take all necessary measures to protect the environment and cultural assets and comply with the respective petroleum procedures provided in the regulation to prevent any adverse impact on the environment. They should not conduct any activity that would endanger nature, the environment and cultural assets.
The Petroleum Market Licence Regulation: persons who conduct petroleum market activities are obliged to refrain from any dangerous acts and should take all necessary precautions to prevent any damage to the environment.
The Natural Gas Market Law: The Natural Gas Market law sets the policy goal to provide natural gas to consumers in a competitive and cost-efficient manner without damaging the environment.
The Environmental Impact Assessment Regulation (Çevresel Etki Değerlendirmesi Yönetmeliği): Petroleum refineries, natural gas facilities, petroleum, natural gas or chemical transportation systems or storage facilities are subject to an environmental impact assessment (“EIA”). Parties must submit an EIA report prepared by an authorised company to the Ministry of Environment and Urbanisation (“MoE”). The MoE assigns a committee for examination of the report in line with the proposed environmental protection measures. Upon review by the committee, the MoE issues either a positive or negative decision regarding the impact of the project.
The Environmental Permit and Licence Regulation: Facilities where petroleum market activities are conducted are required to obtain either an environmental licence or an environmental licence and permit prior to the commencement of their activities. Non-compliance with environmental licences and permits may result in administrative fines or the cancellation of such licences and permits.
The Law regarding the Principles of Emergency Intervention and Compensation of the Damages in cases of Sea Pollution from Petroleum and other Hazardous Materials No 5312 (“Sea Pollution Law”) (Deniz Çevresinin Petrol ve Diğer Zararlı Maddelerle Kirlenmesinde Acil Durumlarda Müdahale ve Zararların Tazmini Esaslarına Dair Kanun): The definition of pollution includes the release of petroleum and other dangerous materials that may damage sea life, human health and other live resources. According to the Sea Pollution Law, all vessels carrying petroleum products and all responsible persons of offshore facilities must take all necessary precautions to prevent damage. Furthermore, the public authorities must be informed of any hazardous materials carried in vessels that may pose a pollution risk.
The Communiqué Regarding Packaging and Marketing Lube Oil (Madeni Yağların Ambalajlanması ve Piyasaya Sunumu Hakkında Tebliğ): This communiqué regulates the packaging standards of lube oil to be sold by lube oil producers and sets forth standards in order to prevent environmental pollution.
The Law on the Transit Passage of Petroleum through Pipelines (Petrolün Boru Hatları ile Transit Geçişine Dair Kanun): Participants in pipeline projects are required to prevent environmental damage to the sea, air, lakes, flora, animals and other natural resources. In the event of any damage, the project participants are required to provide compensation.
The Regulation on Control of Soil Pollution and Contaminated Sites (Toprak Kirliliğinin Kontrolü ve Noktasal Kaynaklı Kirlenmiş Sahalara Dair Yönetmelik): Crude oil and natural gas production are regarded as potentially soil polluting activities. In order to prevent pollution, the governorship of the city where the oil and natural gas facilities are located may take necessary precautions. Furthermore, facility owners/operators are required to cease any pollution creating activities, determine the effects of the pollution and carry out activities in order to clean contaminated areas.
The Industrial Air Pollution Control Regulation (Sanayiden Kaynaklı Hava Kirliliğinin Kontrolü Yönetmeliği): This regulation sets out the principles upon which crude oil facilities, petroleum refineries and storage facilities should comply in relation to industrial air emissions.
The Technical Safety and Environment Regulation of the BOTAŞ regarding Construction and Operation of Crude Oil and Natural Gas Pipeline (Boru Hatları ile Petrol Taşıma A.Ş. Genel Müdürlüğü (BOTAŞ) Ham Petrol ve Doğal Gaz Boru Hattı Tesislerinin Yapımı ve İşletilmesine Dair Teknik Emniyet ve Çevre Yönetmeliği): This regulation sets out the principles and procedures in relation to the operation of crude oil and natural gas pipeline facilities managed by BOTAŞ, which should conducted in a safe and secure manner.
The main regulatory authority regarding environmental safety is the MoE. https://cygmen.csb.gov.tr/ Its primary responsibilities are the protection of the environment, the prevention of environmental pollution and the setting forth of standards and procedures for environmental safety.
Major petroleum projects are subject to an environmental impact assessment process and are also required to obtain certain environmental licences prior to commencement of their upstream operations.
Accordingly, as per the Environmental Impact Assessment Regulation, projects that carry a high risk of environmental pollution are subject to an EIA process. Facilities that produce more than 500 tons of crude oil per day, more than 500 m3 of natural gas or shale gas per day and facilities which transit petroleum or gas via pipelines that are longer than 40 km and which have a diameter of at least 600 mm are obliged to file an EIA report and receive an affirmative opinion from the MoE before commencing any activity. With respect to projects falling within the scope of the regulation, unless an affirmative opinion or an “EIA not required” decision is issued, no approval, permit, incentive or usage licence can be issued. The MoE has the authority to evaluate the application and make the final decision.
In addition, as per the Environmental Permit and Licence Regulation, facilities engaged in certain petroleum activities, which are detailed under Annexes I and II of the Environmental Permit and Licence Regulation, are required to obtain a temporary activity permit (geçici faaliyet belgesi) prior to the commencement of their activities. However, they should obtain an environmental permit (çevre izni) or environmental permit and licence certificate (çevre izin ve lisans belgesi) within a maximum period of one year following the issuance of the temporary activity permit.
Furthermore, licensees are also required to comply with various obligations imposed under specific legislation throughout the conduct of their activities, summarised as follows:
The Sea Pollution Law and the Regulation on the Implementation of the Law Regarding the Principles of Emergency Intervention and Compensation of the Damages in Cases of Sea Pollution from Petroleum and other Dangerous Materials (“Sea Pollution Regulation”) regulate marine safety and the prevention of marine pollution.
According to the Sea Pollution Law, offshore facilities are obliged to prevent any pollution or potential hazard and should mitigate any damage in the event that a polluting event occurs and provide compensation in respect of all damage caused. Such facilities are also required to hold liability insurance for damages covered under the Sea Pollution Law. Otherwise, offshore facilities will not be permitted to conduct their activities.
As per the Petroleum Law and its secondary legislation, upon the expiration of an upstream licence, petroleum rights holders are required to reinstate the site to its former physical status as it was prior to the commencement of their upstream activities. Furthermore, in the event that licence holders fail to remove the movable property and real estate located on the site within a six-month period following the expiry of their licences, ownership over that movable property and real estate that are left on the site will transfer to the owner of the site.
Turkey has undertaken a wide range of legislative initiatives and acceded to certain international agreements relating to climate change, the most significant of which are as follows:
As a non-EU member, Turkey has not taken steps to implement the EU Climate Change Package. However, Turkey recently became a party to the Kyoto Protocol which shares the primary goals of the EU Climate Change Package, including a reduction in greenhouse gas emissions, increasing the proportion of energy produced from renewable energy resources and a reduction of energy consumption compared with projected levels by way of improving energy efficiency. Turkey is in the process of preparing legislation to conform to the requirements of the Kyoto Protocol, which will ultimately result in compliance with EU requirements. However, Turkey is not among the Annex II signatories. Therefore, Turkey's status under the Kyoto Protocol is limited to general undertakings without being bound by quantitative limitations on current emissions levels.
In this context, the MoE leads domestic climate change strategies and regulates the government’s National Climate Change Strategy and Climate Change Action Plan. Accordingly, the MoE introduced voluntary carbon emission markets in late 2010 in compliance with the United Nations Framework Convention on Climate Change and the Kyoto Protocol. The MoE introduced international carbon emission trading schemes and adopted corresponding national regulations through a board, namely the Climate Change and Air Management Co-ordination Council. Currently, there is no binding emissions reduction undertaking on a national level and carbon emissions trading proceeds on a voluntary basis.
As long as a producer holds the necessary licenses and authorisations (whether market related, ie upstream operations, or environmental, health and safety related) and complies with the terms and conditions of such licenses as well as the applicable legislation in all respects, then neither the government nor the relevant state authorities are entitled to limit oil and gas development or restrict the operations of the license holder.
Unconventional upstream activities (such as the exploration for and production of shale gas, shale oil, gas hydrates and coal bed methane) are regulated under the Turkish Petroleum Law and its secondary regulations. There is no special regime on unconventional upstream interests.
Activities concerning LNG fall within the Natural Gas Market Law as well as secondary legislation, namely the Natural Gas Market Licence Regulation, the LNG Market License Regulation (Sıvılaştırılmış Petrol Gazları (LPG Piyasası Lisans Yönetmeliği), the Regulation on the Technical Regulations Applicable to the LNG Market (Sıvılaştırılmış Petrol Gazları Piyasasında Uygulanacak Teknik Düzenlemeler Hakkında Yönetmelik) and the Regulation on the Principles and Procedures for the Use of LNG Storage Facilities (Sıvılaştırılmış Doğal Gaz Depolama Tesisi Temel Kullanım Usul ve Esaslarının Belirlenmesine Dair Yönetmelik). In order to conduct LNG activities, companies are required to obtain a relevant licence from the EMRA. Furthermore, the Regulation on the Procedures and Principles for the Use of LNG Storage Facilities governs the process for the establishment of LNG storage facilities.
Moreover, as per the Council of Ministers Decree No 2012/3305 (Yatırımlarda Devlet Yardımları Hakkında Karar), LNG investments amounting to a minimum of TRY50 million are entitled to benefit from various government incentives, including value-added tax exemption, customs tax exemption, tax deduction and advantages relating to social security premiums.
In line with Turkey’s goal of establishing a liberalised oil and gas market capable of competing with more cost-effective markets in other countries, various legislative instruments have been brought into force over the past decade.
These legislative instruments are aimed at establishing an environment conducive to the safe and secure supply of oil and gas from both domestic and foreign sources to consumers in Turkey under transparent and regulated market conditions. Furthermore, Turkey’s geographical advantages allow it to extend to wider regions where there are large energy reserves, such as the Middle East and Asia while, at the same time, serving as a safe, cost-efficient and non-stop energy transit corridor for western markets. Despite the fact that production activities in the Turkish oil and gas markets are rather limited, Turkey long ago began to play a leading role as an internationally significant oil and gas transit state in major oil and gas pipeline transportation projects, some of which pass solely through or terminate within Turkish borders.
There have been no material changes to the oil and gas legislation over the past year. However, provisions of the Petroleum Market Law in relation to administrative fines have been amended. Furthermore, amendments to the Petroleum Market License Regulation introduced a new online application system for obtaining, cancelling, and extending the period of licenses and rules and procedures in relation to production lease applications to be filed by mining license holders that produce methane. Certain provisions which relate to the collection of state royalty payments, repayment of guarantees, taxes to be applied to materials exported for petroleum transactions, and employment of foreign personnel have also been amended.