Recent Developments In Energy Sector

This article is to provide current information regarding the developments in the dynamic Turkish Energy Market. The two hot topics in the sector are the new draft regulation regarding the electricity market and the privatization efforts in the sector.

The Draft Regulation on Electricity Market Balancing and Settlement has been prepared by the Energy Market Regulatory Authority ("EMRA") and submitted to sector representatives to gather their opinions at a meeting organized in Ankara on the 18^th of August. The main objective of the Draft Regulation is the consequent balancing of the formation of prices as well as the supply and demand in the electricity market.

The Draft Regulation generally aims to put the excessive electrical energy in use and to decrease the production costs. The major strategy introduced is enabling electricity generation companies that cannot meet the demand of its customers to purchase the excessive electrical energy produced by other competitors in the market. In order to facilitate such purchases, the Draft Regulation sets forth that EMRA shall form a "pool", where the producers producing in excess and those who cannot meet their customers’ demand meet.

The "pool" mechanism will operate through agreements between actors in the electricity market with excess production and those in deficit. Accordingly, companies unable to meet the demand will issue an announcement of their intention to buy off excessive production. In return, the companies producing energy in excess will respond to such announcement, agreeing to sell excessive production to the company that put up the offer. The company in deficit will eventually acknowledge the offer of the company for the lowest cost available and as a result, the excessive electrical energy produced by the company with excessive production will be put in circulation.

Another aspect of the "pool" system introduced by the Draft Regulation is the entrance of both public and private components in the process. In addition, differently from the current system, companies active in the electricity production market shall freely determine the buy off prices for excessive electricity energy.

It was stated by EMRA officials at the meeting with the sector representatives that the best way to understand the advantages and disadvantages of the "pool" system would be to test it in practice. Therefore a test period of three months is set forth by EMRA between 1^st of October and 1^st of January 2005. The experience gained through such period shall enable the sector and EMRA to assess the costs incurred and the risks that might come up in such a system. It is also stated by the officials that, if deemed necessary, the Regulation shall be revised based on the problems and flaws observed during the three-month trail period.

At present, the Turkish Electricity Distribution Company (“TEDAŞ”), a public private company, has the monopoly in the Turkish electricity distribution market. The company has been included in the privatization program of the Government by the decision of the Privatization High Council dated 2 April 2004 and numbered 204/22. According to the official information provided by the Privatization Administration, the company is planned to be privatized via one or more applications of the methods of sale, leasing, transfer of operation rights or other methods that may be deemed fit. As part of the privatization efforts of the company, the first step, that of determination of a consultant firm has been taken. Mc Kinsey & Company won the tender, organized by the Privatization Administration, over other consultancy firms.

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