All change
The power sector in Turkey has always been a field under scrutiny
due to the vast electricity energy demand of the country, growing
interest from foreign investors and the continuing innovations
being introduced to the market.
Over the last two decades Turkey has gradually pushed its power sector from absolute public monopoly to the gates of a liberal private sector. The enactment of the Electricity Market Law (?EML?)1 constitutes the most important milestone in this process. Even more significantly EML demonstrates Turkey's commitment to power reform to international institutions by satisfying the structural performance criterion in the Letter of Intent dated December 18, 2000 delivered to the International Monetary Fund by the Republic of Turkey within the context of the stand-by arrangement and requirement in the Accession Partnership Document prepared by the European Union in November 8, 2000 of putting into place a program for the adoption of the European energy acquis and the establishment of the internal electricity market.
Unfortunately, following the enactment of the EML, the Turkish government has still not been able to determine the details of the market principles in order to launch the new liberalized system. In short, there remain certain issues blocking the rapid progress required to be realized under the EML and Turkey's commitments.
Due to the fact that each of these issues requires lengthy analysis, this articles focuses on Build-Operate-Transfer (?BOT?) projects and the effects of the EML thereon.
Principles of the new electricity market envisaged under the EML
The EML stipulates the fundamental principles for a competitive, liberal and efficient environment in the power sector, by mainly encouraging private sector investments, reducing public involvement in the market and regulating the privatization of the state-owned electricity generation and distribution assets. The EML requires the establishment of an independent regulatory and supervisory body ? the Electricity Market Regulatory Agency (?Agency?) ? to secure a financially strong, constant and transparent electricity market. The Electricity Market Regulatory Board (?Board?), constituting the executive and representative body of the Agency, is required to be formed within three moths of the effectiveness of the EML.
Under the new market rules, public and private law companies are permitted to operate in the new electricity energy market by obtaining licenses to be issued by the Agency in consideration of a license fee. Such market operations may be conducted in the form of generation, distribution, transmission, wholesale and retail, import and export of electricity energy activities. Private legal entities and real persons are allowed to conduct market activities by forming generation, distribution, retail sale or wholesale companies in the form of joint stock or limited liability companies depending on the nature of their activities. State guarantees granted by the Under-secretariat of Treasury (?UT?) are principally removed by the EML with the exception of certain BOT projects.
The smooth passage to the newly formed electricity market is intended to be secured by a transition period of eighteen months starting from the effective date of the EML, which may be extended once by the Council of Ministers for a period of six months. It is aimed to complete the establishment of the Agency and enactment of regulations stipulating detailed rules regarding the operation of the electricity market in the transition phase.
29 BOT Projects and the State Guarantee Problem
The EML has created problems on certain issues in relation to BOT projects. The most significant issue has been the removal of state guarantees.
Legal Basis of state guarantees in BOT projects
The provision of state guarantees was introduced by the BOT Law of the Republic of Turkey.2 Article 11 of the BOT Law provides that the UT is authorized to guarantee the payment of sale proceeds for electricity energy as well as any other goods or services acquired by public institutions from private law companies within the framework of the BOT model.
The Energy Sale Agreements (?ESA? or ?ESAs?) executed between the project companies and Turkish Electricity Generation and Transmission Corporation (?TEAS?) include a purchase guarantee by TEAS for the energy made available to TEAS by the project companies under the ESA. The state guarantee for the payment obligations of TEAS under the ESA in relation to the purchased electricity energy has always simplified the financing of BOT projects. Foreign investors have not been hesitant to enter the power market in Turkey based on the state guarantees.
The new regime introduced by the EML
The EML, which aims at the reduction of the public entities' role in the electricity market, in its Provisional Article 8, provides that there will be no further state guarantees granted under the new regime. However, in accordance with the agreement of the UT and the World Bank, state guarantees will be provided to certain BOT projects which have undertaken to be commissioned by 2002 for the purpose of meeting the country's energy deficit, on condition that these private law companies do not fail to meet this time schedule.
In total 29 BOT projects meet these criteria according to the Under-secretariat of State Planning Organization and the Ministry of Energy and Natural Resources (?MENR?). The 29 comprise 17 wind, 4 natural gas, 1 geothermal and 7 hydro-electrical power projects.
But even though the EML stipulates the issuance of state guarantees for the 29 BOT projects, no specific principles to govern such guarantees have been set forth.
Approach of the Turkish Government towards state guarantees
Granting state guarantees by applying the principles envisaged in the BOT law requires coverage of approximately $2 billion by the UT. In the past year, the Republic of Turkey has faced a severe financial crisis and the Turkish government believes that such an obligation is an excessive burden for the Turkish State. Thus, the UT is reluctant to grant state guarantees. However, the government is also aware that breaking a promise stipulated in law would adversely affect the credibility of the Republic of Turkey in the international arena. Additionally, the statistics prove that the ongoing Build-Operate (?BO?) projects are sufficient to meet the energy demand of the country only until 2005. Thus, potential cancellations of the 29 BOT projects due to lack of state guarantees will result in a considerable energy deficit for Turkey starting from 2006. Furthermore, the discomfort caused by the situation for the foreign partners of the project companies may threaten further foreign investment in Turkey, which is crucial for the recovery of the Turkish economy.
Proposal of the Turkish government to the project companies
Accordingly, the UT has decided to revise the principles of the guarantees to be provided to the 29 BOT projects by limiting the guarantee scope.
Initially, the removal of the TEAS guarantee for the purchase of the electricity under the 20-year term of the ESAs was proposed. This way, the state guarantees would be decreased by the amount of energy TEAS chooses not to purchase. However, this proposal has attracted severe opposition from the project companies, for whom, the TEAS purchase guarantee constitutes an elementary basis in the analysis of the viability of their projects.
The Turkish government has since tried to develop a new state guarantee solution acceptable to all parties, through meetings held between UT, the MENR and Ministry in charge of Economy as well as the Prime Ministry and the Council of Ministers. Certain alternatives, including a proposal of a draft law providing for a guarantee separate from UT guarantees, have been discussed, but in vain.
Finally, the UT and the MENR approached the project companies with a new proposal for limited state guarantees. The government envisages a five-year full TEAS purchase guarantee for the energy made available by the project companies, to be covered by a state guarantee. Following the initial five years, and until the repayment of the loans obtained by the project companies for the financing of the projects, the purchase guarantee of TEAS will be limited to the amount of electricity energy required to be sold by the project companies in order to meet the operation expenses of the companies as well as the repayment amount of the loan. During this term, the state guarantees will cover the payment obligations of TEAS in relation to all of the electricity energy purchased.
Upon the full repayment of the loan obtained by project companies, it will be in TEAS's discretion to determine whether and in what amounts it will buy electricity energy from the project companies or from other market participants. For the energy amounts TEAS agrees to purchase from the project companies, state guarantees will again be applicable.
Current Position of the project companies
Even though this proposal reflects a more temperate solution, most of the project companies still find it insufficient and unacceptable. They argue that the full purchase guarantee of TEAS to be covered by the state guarantee should be applicable for the entire term of repayment of the loan, and should also include the project company making a profit margin. The project companies are hopeful that their argument will be accepted by the MENR and the UT.
The project companies are determined to overcome the state guarantee issue. If the discussions with the government prove futile, the project companies may lobby for amendment of Provisional Article 8 of the EML regarding state guarantees by the Parliament ? and lobby in a fashion that the principles governing the state guarantees as acceptable to them be stipulated in law.
Another right the project companies may exercise is bringing the issue before international arbitration. Under the implementation contracts executed between the MENR and the project companies, the TEAS purchase guarantee and the issuance of state guarantees is explicitly stipulated and the principles the state guarantees should contain are also envisaged. By virtue of these provisions, the project companies may claim damages from the Turkish government for the removal or limitation of the state guarantee and the TEAS purchase guarantee based on Turkish administrative law and by evidencing that such removal or limitation has significantly affected the project's viability.
However, it is arguable whether an award to be rendered in favor of a project company in such an arbitration proceeding would entitle the project company to compensation for the loss of company profit. Thus, international arbitration may not be a beneficial tool for the project companies. On the other hand, the Turkish government would be reluctant to permit the issue to be brought before arbitration taking into consideration its international credibility. Accordingly, it seems like the resolution of the state guarantee issue by mutual compromise is the most judicious solution.
What will be next?
Even when the state guarantee issue is resolved, the 29 BOT project companies will not be completely relieved. In line with the requirement of the EML, each of the companies have submitted to the Turkish government an undertaking to commission by 2002. The companies have also undertaken that failure to start commercial operation by a given deadline will result in the removal of state guarantees and that they will not claim any damages from the state.
Due to uncertainties regarding the projects resulting from the state guarantee issue, many of the projects have still not been financed and their construction has fallen behind. For this reason, meeting the deadline of 2002 may be difficult for certain BOT projects. Accordingly, unless this time limit is extended by the Turkish government, the project companies may also consider bringing the issue before international arbitration under their implementation contracts. Despite their undertakings, it may be possible for them to request compensation arguing that the delays in meeting the deadline have resulted from the actions of the Turkish government.
Impact of the new electricity market regime on the BOT projects in operation
Except for the ongoing 29 BOTs, the new electricity market regime does not introduce particular rules that may have substantial adverse effects on the operating of existing BOT projects. Under the EML, the implementation contracts and the ESAs executed in relation to the existing BOT projects fall under the definition of ?existing contracts? and in principle, other than the obligation of obtaining a license from the Board, the EML does not require amendments to such contracts or endanger the state guarantees already granted.
However, the organizational restructurings being carried out under the electricity market reform may be of concern for existing BOT projects.
TEAS Restructuring
TEAS has been restructured into three new companies, namely, Turkish Electricity Trade and Undertaking Company (?TETUC?), Electricity Generation Company and Turkish Electricity Transmission Company through Decree No. 2001/20263. The appointments of the board of directors of the new three companies have also been published in the Official Gazette dated September 19, 2001 and as of this date, TEAS has been dissolved.
In this context, both the EML and the Articles of Association of TETUC require TETUC to take over the existing contracts to which TEAS has been a party. Further, one of the purposes of TETUC enumerated in its Articles of Association is the amendment of the ESAs to which TETUC will be a party in line with the changing sector conditions and legislative regulations by also obtaining the affirmative opinion of the UT. Article 5 of the EML also states that the Board is authorized to propose amendments to the existing contracts concerning issues that simplify the passage to the competitive market.
The project companies of the existing BOT projects are concerned about whether the provisions of the EML and the Articles of Associations of TETUC mentioned in the preceding paragraph may constitute the legal basis for TETUC or the Board to request from the project companies to amend their contracts. It is also important to ensure that the state guarantees previously granted will not be affected by such restructuring.
Based on the general principles of Turkish law and the provisions of the existing contracts relating to the BOT projects, it is our opinion that the relationship between TEAS and TETUC is one of succession. As such, TETUC should succeed to the rights and obligations of TEAS under the ESAs, and the amendments thereto should only be possible upon mutual agreement of the parties. In our opinion, the state guarantees should also remain valid and enforceable for the payment obligations of TEAS and now TETUC, arising out of the ESA. The UT also confirms this understanding.
Electricity Energy Fund (?EEF?) Dissolution
Another concern for the existing BOT projects relates to the consequence of the dissolution of the EEF ? in effect how EEF obligations under the fund agreements would be executed in relation to the existing BOT projects and the continuity of the state guarantees granted for the EEF obligations arising out of such fund agreements.
The EEF, a public entity the functions of which are, inter alia, the financial support of the facilities to be established and the provision of consistency in the energy price, was established under Law No. 3096.4 The existing state guarantees also cover the payment obligations of the EEF under the fund agreements.
Law No. 46845 provides for the dissolution of the EEF. It stipulates that the obligations arising out of fund agreements to enter into effect until December 31, 2001 will be performed by the MENR. The ambiguity of the regulation contained in Law No. 4684 may give discomfort to the BOT project companies. Law No. 4684 does not specify whether MENR will merely be responsible for carrying out the obligations under the fund agreements or become a party thereto by succeeding the EEF.
In our opinion, explanatory regulations or communiqués are necessary to clarify the manner in which the EEF obligations will be carried out by the MENR. In any event, it is our opinion that the state guarantees should not be adversely affected by the EEF dissolution, basing on the fact that UT guarantees cover the payment obligations arising out of the fund agreements.
Conclusion
The enactment of the EML has been an important step for electricity market reform in Turkey. However, it is evident that the successful launch of the new liberalized electricity market requires the expeditious settlement of many outstanding issues, including those analysed in this Article.
We believe that once the implementing regulations detailing the application of the new regime are enacted, the issues foreseen as potential problems for the existing BOT projects may be eliminated. As for the 29 ongoing BOT projects, settlement should be imminent due to the fact that the advancement of these projects are crucial in order to meet the energy deficit of the country to be faced in the coming years. Following the resolution of the state guarantee issue, the project companies will have to proceed rapidly in order to make their financing arrangements and start commercial operation by 2002. The Republic of Turkey should be able to eliminate any problems that face the new electricity market within the duration of the transition period.
1 The EML has passed the Parliament on February 20, 2001 and entered into force by its promulgation in the Official Gazette dated Mach 3, 200, numbered 24335 bis.
2 Act No. 3996 concerning the realization of certain investments under the BOT Model, published in the Official Gazette dated June 13, 1994 and numbered 21959.
3 Council of Ministers Decree No. 2001/2026 concerning the restructuring of TEAS as three separate state economic enterprises with commercial titles Turkish Electricity Transmission Corporation, Electricity Generation Corporation, and Turkish Electricity Trade and Undertaking Corporation, published in the Official Gazette dated March 2, 2001 and numbered 24334.
4 Law No. 3096 concerning Assignment to Entities other than Turkish Electricity Authority of the Generation, Transmission, Distribution and Trade of Electricity Energy, published in the Official Gazette dated December 19, 1984 and numbered 18610.
5 Law No. 4684, published in the Official Gazette dated July 3, 2001 and numbered 24451.
Over the last two decades Turkey has gradually pushed its power sector from absolute public monopoly to the gates of a liberal private sector. The enactment of the Electricity Market Law (?EML?)1 constitutes the most important milestone in this process. Even more significantly EML demonstrates Turkey's commitment to power reform to international institutions by satisfying the structural performance criterion in the Letter of Intent dated December 18, 2000 delivered to the International Monetary Fund by the Republic of Turkey within the context of the stand-by arrangement and requirement in the Accession Partnership Document prepared by the European Union in November 8, 2000 of putting into place a program for the adoption of the European energy acquis and the establishment of the internal electricity market.
Unfortunately, following the enactment of the EML, the Turkish government has still not been able to determine the details of the market principles in order to launch the new liberalized system. In short, there remain certain issues blocking the rapid progress required to be realized under the EML and Turkey's commitments.
Due to the fact that each of these issues requires lengthy analysis, this articles focuses on Build-Operate-Transfer (?BOT?) projects and the effects of the EML thereon.
Principles of the new electricity market envisaged under the EML
The EML stipulates the fundamental principles for a competitive, liberal and efficient environment in the power sector, by mainly encouraging private sector investments, reducing public involvement in the market and regulating the privatization of the state-owned electricity generation and distribution assets. The EML requires the establishment of an independent regulatory and supervisory body ? the Electricity Market Regulatory Agency (?Agency?) ? to secure a financially strong, constant and transparent electricity market. The Electricity Market Regulatory Board (?Board?), constituting the executive and representative body of the Agency, is required to be formed within three moths of the effectiveness of the EML.
Under the new market rules, public and private law companies are permitted to operate in the new electricity energy market by obtaining licenses to be issued by the Agency in consideration of a license fee. Such market operations may be conducted in the form of generation, distribution, transmission, wholesale and retail, import and export of electricity energy activities. Private legal entities and real persons are allowed to conduct market activities by forming generation, distribution, retail sale or wholesale companies in the form of joint stock or limited liability companies depending on the nature of their activities. State guarantees granted by the Under-secretariat of Treasury (?UT?) are principally removed by the EML with the exception of certain BOT projects.
The smooth passage to the newly formed electricity market is intended to be secured by a transition period of eighteen months starting from the effective date of the EML, which may be extended once by the Council of Ministers for a period of six months. It is aimed to complete the establishment of the Agency and enactment of regulations stipulating detailed rules regarding the operation of the electricity market in the transition phase.
29 BOT Projects and the State Guarantee Problem
The EML has created problems on certain issues in relation to BOT projects. The most significant issue has been the removal of state guarantees.
Legal Basis of state guarantees in BOT projects
The provision of state guarantees was introduced by the BOT Law of the Republic of Turkey.2 Article 11 of the BOT Law provides that the UT is authorized to guarantee the payment of sale proceeds for electricity energy as well as any other goods or services acquired by public institutions from private law companies within the framework of the BOT model.
The Energy Sale Agreements (?ESA? or ?ESAs?) executed between the project companies and Turkish Electricity Generation and Transmission Corporation (?TEAS?) include a purchase guarantee by TEAS for the energy made available to TEAS by the project companies under the ESA. The state guarantee for the payment obligations of TEAS under the ESA in relation to the purchased electricity energy has always simplified the financing of BOT projects. Foreign investors have not been hesitant to enter the power market in Turkey based on the state guarantees.
The new regime introduced by the EML
The EML, which aims at the reduction of the public entities' role in the electricity market, in its Provisional Article 8, provides that there will be no further state guarantees granted under the new regime. However, in accordance with the agreement of the UT and the World Bank, state guarantees will be provided to certain BOT projects which have undertaken to be commissioned by 2002 for the purpose of meeting the country's energy deficit, on condition that these private law companies do not fail to meet this time schedule.
In total 29 BOT projects meet these criteria according to the Under-secretariat of State Planning Organization and the Ministry of Energy and Natural Resources (?MENR?). The 29 comprise 17 wind, 4 natural gas, 1 geothermal and 7 hydro-electrical power projects.
But even though the EML stipulates the issuance of state guarantees for the 29 BOT projects, no specific principles to govern such guarantees have been set forth.
Approach of the Turkish Government towards state guarantees
Granting state guarantees by applying the principles envisaged in the BOT law requires coverage of approximately $2 billion by the UT. In the past year, the Republic of Turkey has faced a severe financial crisis and the Turkish government believes that such an obligation is an excessive burden for the Turkish State. Thus, the UT is reluctant to grant state guarantees. However, the government is also aware that breaking a promise stipulated in law would adversely affect the credibility of the Republic of Turkey in the international arena. Additionally, the statistics prove that the ongoing Build-Operate (?BO?) projects are sufficient to meet the energy demand of the country only until 2005. Thus, potential cancellations of the 29 BOT projects due to lack of state guarantees will result in a considerable energy deficit for Turkey starting from 2006. Furthermore, the discomfort caused by the situation for the foreign partners of the project companies may threaten further foreign investment in Turkey, which is crucial for the recovery of the Turkish economy.
Proposal of the Turkish government to the project companies
Accordingly, the UT has decided to revise the principles of the guarantees to be provided to the 29 BOT projects by limiting the guarantee scope.
Initially, the removal of the TEAS guarantee for the purchase of the electricity under the 20-year term of the ESAs was proposed. This way, the state guarantees would be decreased by the amount of energy TEAS chooses not to purchase. However, this proposal has attracted severe opposition from the project companies, for whom, the TEAS purchase guarantee constitutes an elementary basis in the analysis of the viability of their projects.
The Turkish government has since tried to develop a new state guarantee solution acceptable to all parties, through meetings held between UT, the MENR and Ministry in charge of Economy as well as the Prime Ministry and the Council of Ministers. Certain alternatives, including a proposal of a draft law providing for a guarantee separate from UT guarantees, have been discussed, but in vain.
Finally, the UT and the MENR approached the project companies with a new proposal for limited state guarantees. The government envisages a five-year full TEAS purchase guarantee for the energy made available by the project companies, to be covered by a state guarantee. Following the initial five years, and until the repayment of the loans obtained by the project companies for the financing of the projects, the purchase guarantee of TEAS will be limited to the amount of electricity energy required to be sold by the project companies in order to meet the operation expenses of the companies as well as the repayment amount of the loan. During this term, the state guarantees will cover the payment obligations of TEAS in relation to all of the electricity energy purchased.
Upon the full repayment of the loan obtained by project companies, it will be in TEAS's discretion to determine whether and in what amounts it will buy electricity energy from the project companies or from other market participants. For the energy amounts TEAS agrees to purchase from the project companies, state guarantees will again be applicable.
Current Position of the project companies
Even though this proposal reflects a more temperate solution, most of the project companies still find it insufficient and unacceptable. They argue that the full purchase guarantee of TEAS to be covered by the state guarantee should be applicable for the entire term of repayment of the loan, and should also include the project company making a profit margin. The project companies are hopeful that their argument will be accepted by the MENR and the UT.
The project companies are determined to overcome the state guarantee issue. If the discussions with the government prove futile, the project companies may lobby for amendment of Provisional Article 8 of the EML regarding state guarantees by the Parliament ? and lobby in a fashion that the principles governing the state guarantees as acceptable to them be stipulated in law.
Another right the project companies may exercise is bringing the issue before international arbitration. Under the implementation contracts executed between the MENR and the project companies, the TEAS purchase guarantee and the issuance of state guarantees is explicitly stipulated and the principles the state guarantees should contain are also envisaged. By virtue of these provisions, the project companies may claim damages from the Turkish government for the removal or limitation of the state guarantee and the TEAS purchase guarantee based on Turkish administrative law and by evidencing that such removal or limitation has significantly affected the project's viability.
However, it is arguable whether an award to be rendered in favor of a project company in such an arbitration proceeding would entitle the project company to compensation for the loss of company profit. Thus, international arbitration may not be a beneficial tool for the project companies. On the other hand, the Turkish government would be reluctant to permit the issue to be brought before arbitration taking into consideration its international credibility. Accordingly, it seems like the resolution of the state guarantee issue by mutual compromise is the most judicious solution.
What will be next?
Even when the state guarantee issue is resolved, the 29 BOT project companies will not be completely relieved. In line with the requirement of the EML, each of the companies have submitted to the Turkish government an undertaking to commission by 2002. The companies have also undertaken that failure to start commercial operation by a given deadline will result in the removal of state guarantees and that they will not claim any damages from the state.
Due to uncertainties regarding the projects resulting from the state guarantee issue, many of the projects have still not been financed and their construction has fallen behind. For this reason, meeting the deadline of 2002 may be difficult for certain BOT projects. Accordingly, unless this time limit is extended by the Turkish government, the project companies may also consider bringing the issue before international arbitration under their implementation contracts. Despite their undertakings, it may be possible for them to request compensation arguing that the delays in meeting the deadline have resulted from the actions of the Turkish government.
Impact of the new electricity market regime on the BOT projects in operation
Except for the ongoing 29 BOTs, the new electricity market regime does not introduce particular rules that may have substantial adverse effects on the operating of existing BOT projects. Under the EML, the implementation contracts and the ESAs executed in relation to the existing BOT projects fall under the definition of ?existing contracts? and in principle, other than the obligation of obtaining a license from the Board, the EML does not require amendments to such contracts or endanger the state guarantees already granted.
However, the organizational restructurings being carried out under the electricity market reform may be of concern for existing BOT projects.
TEAS Restructuring
TEAS has been restructured into three new companies, namely, Turkish Electricity Trade and Undertaking Company (?TETUC?), Electricity Generation Company and Turkish Electricity Transmission Company through Decree No. 2001/20263. The appointments of the board of directors of the new three companies have also been published in the Official Gazette dated September 19, 2001 and as of this date, TEAS has been dissolved.
In this context, both the EML and the Articles of Association of TETUC require TETUC to take over the existing contracts to which TEAS has been a party. Further, one of the purposes of TETUC enumerated in its Articles of Association is the amendment of the ESAs to which TETUC will be a party in line with the changing sector conditions and legislative regulations by also obtaining the affirmative opinion of the UT. Article 5 of the EML also states that the Board is authorized to propose amendments to the existing contracts concerning issues that simplify the passage to the competitive market.
The project companies of the existing BOT projects are concerned about whether the provisions of the EML and the Articles of Associations of TETUC mentioned in the preceding paragraph may constitute the legal basis for TETUC or the Board to request from the project companies to amend their contracts. It is also important to ensure that the state guarantees previously granted will not be affected by such restructuring.
Based on the general principles of Turkish law and the provisions of the existing contracts relating to the BOT projects, it is our opinion that the relationship between TEAS and TETUC is one of succession. As such, TETUC should succeed to the rights and obligations of TEAS under the ESAs, and the amendments thereto should only be possible upon mutual agreement of the parties. In our opinion, the state guarantees should also remain valid and enforceable for the payment obligations of TEAS and now TETUC, arising out of the ESA. The UT also confirms this understanding.
Electricity Energy Fund (?EEF?) Dissolution
Another concern for the existing BOT projects relates to the consequence of the dissolution of the EEF ? in effect how EEF obligations under the fund agreements would be executed in relation to the existing BOT projects and the continuity of the state guarantees granted for the EEF obligations arising out of such fund agreements.
The EEF, a public entity the functions of which are, inter alia, the financial support of the facilities to be established and the provision of consistency in the energy price, was established under Law No. 3096.4 The existing state guarantees also cover the payment obligations of the EEF under the fund agreements.
Law No. 46845 provides for the dissolution of the EEF. It stipulates that the obligations arising out of fund agreements to enter into effect until December 31, 2001 will be performed by the MENR. The ambiguity of the regulation contained in Law No. 4684 may give discomfort to the BOT project companies. Law No. 4684 does not specify whether MENR will merely be responsible for carrying out the obligations under the fund agreements or become a party thereto by succeeding the EEF.
In our opinion, explanatory regulations or communiqués are necessary to clarify the manner in which the EEF obligations will be carried out by the MENR. In any event, it is our opinion that the state guarantees should not be adversely affected by the EEF dissolution, basing on the fact that UT guarantees cover the payment obligations arising out of the fund agreements.
Conclusion
The enactment of the EML has been an important step for electricity market reform in Turkey. However, it is evident that the successful launch of the new liberalized electricity market requires the expeditious settlement of many outstanding issues, including those analysed in this Article.
We believe that once the implementing regulations detailing the application of the new regime are enacted, the issues foreseen as potential problems for the existing BOT projects may be eliminated. As for the 29 ongoing BOT projects, settlement should be imminent due to the fact that the advancement of these projects are crucial in order to meet the energy deficit of the country to be faced in the coming years. Following the resolution of the state guarantee issue, the project companies will have to proceed rapidly in order to make their financing arrangements and start commercial operation by 2002. The Republic of Turkey should be able to eliminate any problems that face the new electricity market within the duration of the transition period.
1 The EML has passed the Parliament on February 20, 2001 and entered into force by its promulgation in the Official Gazette dated Mach 3, 200, numbered 24335 bis.
2 Act No. 3996 concerning the realization of certain investments under the BOT Model, published in the Official Gazette dated June 13, 1994 and numbered 21959.
3 Council of Ministers Decree No. 2001/2026 concerning the restructuring of TEAS as three separate state economic enterprises with commercial titles Turkish Electricity Transmission Corporation, Electricity Generation Corporation, and Turkish Electricity Trade and Undertaking Corporation, published in the Official Gazette dated March 2, 2001 and numbered 24334.
4 Law No. 3096 concerning Assignment to Entities other than Turkish Electricity Authority of the Generation, Transmission, Distribution and Trade of Electricity Energy, published in the Official Gazette dated December 19, 1984 and numbered 18610.
5 Law No. 4684, published in the Official Gazette dated July 3, 2001 and numbered 24451.
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