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Energy

Implications of Amendments to the Electrical Facilities Project Regulation

In the energy market, the term electrical facility refers to facilities related to the generation, storage, transmission, distribution and consumption of electrical energy. This article examines and assesses the amendments made to the Regulation governing electrical facilities. The Regulation on Amendments to the Electrical Facilities Project Regulation, published in the Official Gazette dated 09.02.2025 and numbered 32808, introduces significant updates to the existing Regulation. These amendments, which took effect upon publication, include various revisions aimed at ensuring that electrical facilities comply with modern technology standards. The key focus areas of the amendments include project approval processes, authorization procedures, and new regulations for storage facilities. Key Amendments: Purpose The Regulation’s objective has been revised to ensure that electrical facility aligns with modern technological advancements. New procedures for authorization and certification of individuals or entities responsible for project approvals and commissioning have been introduced. Scope The updated Article 2/1 states that authorization processes for individuals conducting facility commissioning and certification are included within the Regulation’s scope. The amendment to Article 2/2(d) states that, within the premises of electrical facility, any facilities that are not directly involved in electricity generation, storage, transmission, distribution, or consumption are excluded from the Regulation. Definitions Several key definitions have been updated or added, including: Electrical facility (Article 4/1(m)): Now explicitly includes energy storage facilities. Installed capacity (Article4/1(çç)): Now considers the maximum power (Mwe) from storage units that can be supplied to the system. Preliminary project (Article 4/1 (hh)): Now defined as a document covering the characteristics of storage-integrated power plants. Facility (Article 4/1 (tt)): Now explicitly includes all activities related to electricity generation, storage, transmission, distribution, and consumption. Storage unit (Article 4/1 (bbb)): Expanded to independent storage units that can store and discharge energy. New concepts are introduced (Articles 4/1 eee-rrr) Relevant Standards & Documents Article 5/3 prohibits the use of non-standardized materials or equipment in electrical facilities unless they comply with regulatory standards. Delegation of Authority Project approvals and acceptance processes are now under the authority of the Ministry (Article 8/1). The Ministry publishes approval formats online and updates them as necessary (Article 8/2). Procedures and Principles It is stipulated in Article 9/1 that the public institution/organization Project Approval Units (“PAU”) may determine and publish the relevant procedures and principles under the specified conditions. Project Preparation & Submission Electrical Facilities Project Scope/ Power Plant, Storage Integrated Power Plants, and Storage -Based Generation Facility Preliminary Project Scope must now be included in project documentation (Article 10/1). Project submission rules have been revised to require specific conditions for preliminary licensed and licensed storage-integrated power plants and preliminary licensed and licensed storage-based generation facilities (Article 11/1, 11/2). Project Approval Electromechanical equipment must now be certified by accredited institutions or meet standard compliance requirements (Article 12/7). Construction Suitability Reports are now required for storage-integrated power plants and storage-based generation facilities along with power plants, before submission (Article 12/8). Electronic signatures are now allowed for project approvals (Article 12/10). Preliminary Project Approval Preliminary licenses now allow for the preliminary project approval of a power plant, storage integrated power plant, and storage -based generation facility (Article 13/1). Preliminary project approval will only be granted for preliminary licensed/licensed power plants, preliminary licensed/licensed storage integrated power plants and preliminary licensed/ licensed storage-based generation facilities (Article 13/3). Facility Construction The construction of licensed power plants, licensed storage-integrated power plants, and licensed storage-based generation facilities may begin only after the listed tasks and procedures have been completed (Article 14). Multi-Source Electricity Generation Facilities A new article (15/A) has been added to cover regulations for hybrid and multi- source power plants. All existing power plant regulations will now apply to multi-source generation facilities. In license applications, one energy source must be designated as the “main source” while others will be classified as “auxiliary sources”. General Assessment It is expected that the revisions will promote the use of renewable energy, ensuring energy supply security and increasing the stability of the electricity market. By allowing electronic approval processes and better defining hybrid, storage-integrated power plants, and storage-based generation facility, the Regulation is anticipated to contribute to the modernization and efficiency of the electricity sector.  
09 April 2025
Project Finance

Construction and Financing of Electricity Distribution Facilities by Investors Seeking Network Connection

In recent years, the increasing demand in the energy and infrastructure sectors has brought various challenges to existing electricity distribution systems. The expansion of electricity services to growing residential areas and industrial zones has imposed significant financial and operational burdens on distribution companies. Traditionally, these infrastructures were established and operated by distribution companies. However, with the new regulation, both individuals and legal entities have been allowed to establish distribution assets. The main reason for this change is to accelerate investment processes and meet infrastructure needs through a more flexible model. The connection of generation or consumption facilities to the distribution system and the fulfillment of the increasing electricity demand of generation and consumption facilities are constrained by the system’s limited capacity. Due to the lack of sufficient installed capacity, new lines, transformers, and distribution centers may need to be constructed. If the demand for connection is not included in the current investment plans of the distribution company, or if physical conditions make it difficult to expand the existing grid or require the establishment of a new one, these factors can lead to delays in the application process. In such cases, allowing the applicant to finance and construct the necessary infrastructure themselves has become an important necessity to overcome these challenges rapidly. Since distribution companies can invest only within a specific budget and plan, it is not always possible for them to respond to every regional need at the same speed. Ensuring rapid infrastructure access is especially crucial for industrial facilities, large-scale housing projects, and commercial areas. However, existing procedures sometimes lead to delays. Furthermore, the regulatory framework and investment plans set for distribution companies make it difficult to meet all demands simultaneously. At this point, Establishment of Distribution Facilities by Individuals and Legal Entities and the Reimbursement Methodology (“New Methodology”) comes into play, allowing users (applicants) to establish the infrastructure that suits their needs, thereby expediting the process. From a financial perspective, this model reduces the financial burden on distribution companies. Consequently, in high-demand areas, infrastructure expansion processes accelerate, and economic resources are used more efficiently. In the first section of this document, we will discuss the opportunities that applicants may encounter. In the second section, we will analyze the new regulation by comparing it with Methodology for Establishment of Distribution Facilities by Users (“Repealed Methodology”) The terms “applicant”, “user”, and “investor” will be used interchangeably. Applicants may be individuals or legal entities. This includes Individual Consumers (residential subscribers who use electricity in their homes), Commercial and Industrial Consumers (factories, businesses, shopping malls, Organized Industrial Zones (OIZs), and other high-consumption commercial and industrial entities), Public Institutions and Municipalities, Irrigation Cooperatives and Agricultural Enterprises using electricity, and Electricity Producers. Indirect Gains for the Applicant Applicants who establish distribution assets do not generate direct profits but obtain economic advantages through indirect means. Under the new methodology, investors can benefit from reimbursement mechanisms, reduced operational costs, strategic advantages, and future business opportunities by improving the grid infrastructure. Reimbursement Mechanism to Cover Investments According to the New Methodology, applicants who invest in distribution assets can recover their expenditures. This reimbursement process follows TEDAŞ’s (Turkish Electricity Distribution Company) cost tariff and the Consumer Price Index (CPI) rates. The applicant finances and constructs (or has constructed) the necessary electrical infrastructure (transformers, lines, poles, distribution centers, etc.) to connect to the distribution system. All expenditures are documented and submitted to the distribution company. TEDAŞ and the distribution company verify the expenditures and calculate the reimbursement amount. Payments are made to the investor within the specified timeframe. However, no direct profit is made from this process; only the initial investment is reimbursed. The reason investors undertake such an investment lies in the potential indirect gains. For Electricity Producers: Increasing Electricity Sales Renewable energy producers (solar, wind, biomass, etc.) and large-scale energy producers can invest in distribution infrastructure with the aim of ensuring faster and uninterrupted access to the grid. If there is a capacity issue in the distribution system, producers can strengthen the infrastructure and accelerate the process of feeding the electricity into the grid. As a result, they can start selling electricity earlier and generate more revenue. They gain a competitive advantage by securing priority grid access. Example: A solar power plant investor facing transformer capacity issues can finance the necessary infrastructure, ensuring grid connection and generating income from electricity sales. For Industrial and Commercial Enterprises: Lower Electricity Costs Large-scale electricity consumers (industrial facilities, shopping malls, OIZs, large manufacturing factories) can reduce long-term energy costs and improve profitability by establishing distribution assets. A reliable and uninterrupted energy infrastructure prevents production losses. Minimizing operational halts due to power outages reduces overall costs. By increasing grid capacity, businesses can meet their future energy needs at lower costs. Example: A factory suffering from frequent power outages can invest in distribution assets to secure an uninterrupted energy supply, improving operational efficiency and achieving indirect financial gains. Preparing for Future Investments: Creating New Business Opportunities Investing in distribution assets provides long-term advantages for investors. Companies investing in electricity infrastructure may gain priority status in future energy projects. Government incentives and grants may become available. Example: An investor developing a transformer station in a specific region may gain a competitive edge and be prioritized in larger future energy projects in the area. Public and Strategic Advantages Large companies investing in energy infrastructure contribute to environmental and social sustainability goals. Investors supporting public projects may benefit from government incentives and long-term financing advantages. Lower energy prices and reduced operational costs can be achieved over time. Example: A municipality investing in distribution assets to reduce power outages can enhance public satisfaction and lower long-term infrastructure costs, leading to savings. Summary: How Do Investors Benefit from Establishing Distribution Assets? Applicants do not profit directly from reimbursements but can gain advantages through indirect means. Electricity producers investing in distribution infrastructure can expedite grid access and generate earlier revenue from electricity sales. Industrial and commercial enterprises can lower operational costs by securing a reliable power supply. Investors can create long-term business opportunities and secure priority positions in future projects. Government incentives, grants, and energy cost advantages can be utilized. Competitive advantages can be gained, strengthening the investor’s market position. Key Changes Introduced by the New Methodology The Energy Market Regulatory Authority (EPDK) approved the Methodology for the Establishment of Distribution Facilities by Users (“Repealed Methodology”) in a meeting on August 27, 2014. However, with EPDK’ s Decision No.13289, dated February 13, 2025, this methodology was repealed and replaced with the Establishment of Distribution Facilities by Individuals and Legal Entities and the Reimbursement Methodology (“New Methodology”). The New Methodology is based on Article 9 of the Electricity Market Law 6446, dated March 14, 2013, and Article 21 of the Regulation on Electricity Market Connection and System Usage. It was published in the Official Gazette No.32818 on February 19, 2025, and has since been in effect. This change restructured the processes between investors and distribution companies, increased investor responsibilities, and detailed reimbursement mechanisms. Key Innovations Introduced With the New Methodology, several significant changes and innovations have been implemented. These can be summarized in comparison with the previous methodology as follows:         Role of the Applicants Repealed Methodology: Only users could establish distribution assets in specific cases where there was insufficient capacity at connection points; the process was at the discretion of distribution companies. New Methodology: Now, both individuals and legal entities can establish distribution assets, and the process will have a broader scope. Additionally, a financing option has been introduced, allowing applicants to contribute directly to investments.         Connection Opinions and Agreements Repealed Methodology: Distribution companies evaluated connection requests based on their investment plans. However, connection opinions were not detailed enough and were not structured within a clear framework. New Methodology: Connection opinions will now be more detailed, specifying necessary network assets and required investment timelines in advance, making the process more transparent.         Reimbursement and Cost Calculations Repealed Methodology: The reimbursement process for facilities established by users were uncertain. New Methodology: Since TEDAŞ’s published unit prices and Consumer Price Index (CPI) rates will be used in reimbursement calculations, investors will have clarity on which costs will be reimbursed, and reimbursement processes will become standardized.         Guarantees and Process Management Repealed Methodology: The application of financial guarantees was unclear, and there were no established rules on how processes would operate. New Methodology: Distribution companies will now have the authority to request guarantees from applicants under specific conditions for facilities that affect investment plans.         Expropriation and Permit Procedures Repealed Methodology: Expropriation and permit processes were the responsibility of distribution companies, and the responsibilities of applicants were not clearly defined. New Methodology: Distribution companies will be able to assign specific responsibilities to applicants based on requests, potentially speeding up expropriation processes.         Provisional Provisions and Status of Previous Investments Repealed Methodology: Reimbursement procedures for previously established facilities were uncertain. New Methodology: The new regulation provides an opportunity to assess past investments under New Methodology and aims to address deficiencies in previous applications. Legal Precautions for Investors Carefully reviewing agreements related to the connection and reimbursement process, Seeking legal counsel regarding expropriation and permit procedures, Establishing written agreements with distribution companies regarding payments and cost calculations. Legal Precautions for Distribution Companies Preparing connection opinions and investment plans in compliance with regulations, Ensuring transparency in reimbursement processes, Maintaining clear communication with investors during expropriation procedures. Conclusion: The New Methodology aims to regulate the establishment of distribution facilities and reimbursement processes in a more detailed and transparent manner, addressing uncertainties from previous applications. However, since it may introduce new risks for both investors and distribution companies, it is essential for both parties to carefully manage the process and seek legal counsel as necessary.  
09 April 2025
Dispute Resolution

Arbitrators’ Challenges In International Arbitration: Insights From LCIA Decisions

Introduction In today's global world, international arbitration is increasingly preferred due to its qualities of speed, confidentiality, and flexibility. The most crucial element determining the effectiveness and legitimacy of international arbitration is the principle of independence and impartiality that arbitrators must possess in carrying out the arbitration process. This principle is not only a legal obligation but also a necessity for creating an acceptable and valid resolution between the parties. Independence and impartiality, while distinct concepts, complement each other and are often difficult to distinguish due to their interconnected nature. Independence refers to an arbitrators’ ability to be free from external factors, especially the influences of the parties or third parties. In this context, an arbitrator is obligated to make decisions without being subject to any social, political, economic, or intellectual pressures. External factors influencing the appointment of an arbitrator, such as political, economic, or social pressures from the parties, may also be considered as external influences. The existence of any potential external factor threatens the fairness and validity of the decision. On the other hand, impartiality is the arbitrators’ ability to maintain an equal distance from both parties without favoring the interests of any side. Impartiality requires that the arbitrator is free from personal beliefs and biases when making decisions. In this regard, an arbitrator must demonstrate an objective approach throughout the arbitration process, recognizing that both parties have equal rights, and each party's arguments must be evaluated fairly. While independence refers to the arbitrators’ detachment from external influences, impartiality is more related to internal factors, encompassing the arbitrators’ ability to approach both parties equidistantly. In this context, these two principles are fundamental criteria for ensuring that the decision rendered in the arbitration process is valid and effective. If these principles are violated, the mechanism for challenging the arbitrator comes into play. When an arbitrator acts in violation of the principles of independence and impartiality, the parties acquire the right to request the removal of the arbitrator under specific conditions. Procedures for Challenging an Arbitrator (An Evaluation Within the Scope of ICC, LCIA, ICSID, and UNCITRAL Arbitration) Under the rules of the International Chamber of Commerce (“ICC”), the time limit for challenging an arbitrator is 30 days from the notification of the appointment or confirmation of the arbitrator, or 30 days from the date the party becomes aware of the event or circumstances that warrant the challenge. A challenge may be submitted to the Secretariat, and if the ICC Court determines that the arbitrator is unable to perform their duties or is not acting in accordance with the rules, it may replace the arbitrator sua sponte. After a challenge is made to the Secretariat, the arbitrator and the other party are given an opportunity to submit their views in writing. If the ICC Court accepts the challenge, the arbitrator will be replaced. The decision of the ICC Court is final and binding. Under the rules of the London Court of International Arbitration (“LCIA”), a request to challenge an arbitrator must be made within 14 days of the arbitrators’ appointment or within 14 days of the date the party learns of the event that warrants the challenge. Parties may submit their requests in writing to the arbitrator, or the LCIA Court may replace an arbitrator sua sponte. The written notification of the challenge is sent to the LCIA Court, which then seeks the views of the challenged arbitrator and the other party. If the parties agree to the replacement of the arbitrator, the LCIA Court may cancel the appointment without providing reasons. If the arbitrator resigns or the parties fail to agree, the final decision is made by the LCIA Court. According to the arbitration rules of the International Centre for Settlement of Investment Disputes (“ICSID”),each party may challenge the arbitrator immediately after learning of the event that warrants the challenge. This challenge may be based on the argument that the arbitrator lacks the necessary qualifications or that they did not possess the necessary qualifications at the time of their appointment. The decision regarding the challenge is made by the other arbitrators. If no unanimous decision can be reached on this matter, or if the challenged individual is the sole arbitrator, the decision regarding the challenge is made by the President of the ICSID Administrative Council (President of the World Bank). Without being monopolized by any arbitral institution, the United Nations Commission on International Trade Law (“UNCITRAL”) Arbitration Rules, which establish standard arbitration procedures, state that if a party wishes to challenge an arbitrator, the challenge must be submitted in writing to the other party, the challenged arbitrator, and the other members of the arbitral tribunal within fifteen days from the date of the appointment of the challenged arbitrator or the date the grounds for the challenge are known. The grounds for the challenge must be stated in the notification. If the challenge is not accepted by all parties or the challenged arbitrator does not withdraw from the proceedings within 15 days of the notice, the party making the challenge must request a decision from the appointing authority within 30 days from the date the notice was made. Acceptance of the challenge by the parties or the withdrawal of the challenged arbitrator does not imply acceptance of the validity of the grounds for the challenge. Grounds for Challenging an Arbitrator Under the ICC Rules, the grounds for challenging an arbitrator are not specifically defined, and a claim of a lack of impartiality or independence, or any other relevant reason, is generally considered sufficient. The rules provide a broad approach, allowing challenges based on these general grounds. Similarly, the LCIA Rules adopt a general approach, where the presence of circumstances that raise justifiable doubts about an arbitrators’ impartiality or independence is deemed sufficient grounds for a challenge. In addition, the LCIA Court may also remove an arbitrator sua sponte if it finds that the arbitrator has intentionally breached the arbitration agreement; failed to act fairly and impartially between the parties; failed to demonstrate a reasonable level of efficiency, diligence, and professionalism during the arbitration process; or has not participated in the arbitration proceedings. Under the ICSID Rules, any situation that clearly shows that the arbitrator does not possess the required qualifications (see ICSID Rules, Art. 14(1)) is considered a valid ground for challenging the arbitrator. This ensures that any deficiency in the necessary qualifications of the arbitrator may lead to their removal. The UNCITRAL Arbitration Rules stipulate that, when an arbitrator is appointed, they must disclose any circumstances that may give rise to justifiable doubts regarding their impartiality or independence. In this context, if there is a risk or presence of such doubts, the arbitrator is required to provide an explanation regarding the issue. The disclosure requirement is aimed at ensuring transparency and mitigating any concerns that could undermine the fairness of the arbitration process. An Evaluation Under the IBA Guidelines When it comes to challenges against an arbitrator, one of the most important soft law sources to consider is the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (“IBA Guidelines”). Published by the IBA Arbitration Committee, these guidelines provide standards regarding when arbitrators should withdraw and when they must disclose potential conflicts of interest. The general purpose of the IBA Guidelines is to ensure consistency in practice, prevent unnecessary challenges, and avoid the removal or resignation of arbitrators without cause. In this context, the IBA Guidelines categorize the situations in which an arbitrator may or may not serve, or when disclosure is required, into four main categories: - Green Category: Situations where it is absolutely acceptable for an arbitrator to serve, and no disclosure is required. - Orange Category: Situations where there are circumstances that may raise doubts about the arbitrators’ independence or impartiality, and therefore disclosure is required. - Red (Waivable) Category: Situations where there are justifiable doubts about the arbitrators’ impartiality or independence, but the parties are aware of these concerns and have expressly accepted them. - Red (Non-Waivable) Category: Situations where it is impossible for the arbitrator to be impartial or independent, and the parties cannot waive this disqualification. According to the guidelines, if there is any justifiable doubt about an arbitrators’ impartiality or independence, or if a third party has legitimate reasons to believe that the arbitrator cannot remain impartial or independent, or if the arbitrator falls under a red (non-waivable) category or a red (waivable) category but the parties cannot reach a consensus, the arbitrator should not accept the appointment or should withdraw from the arbitration. The IBA Guidelines also provide specific scenarios in which an arbitrator is required to disclose their circumstances. In the Green Category, for example, disclosure is not required for situations such as when an arbitrator has previously provided services to one party, entered into a contract with a party or another arbitrator, or expressed an opinion in favor of one party on the issue at hand. In the Orange Category, disclosure is necessary when an arbitrator is actively providing services to one of the parties, holds a position in the arbitral institution managing the arbitration, or has a controlling interest in the organization that one of the parties is affiliated with. The Red (Waivable) Category involves situations where an arbitrator has a direct or indirect financial interest in the outcome of the dispute, has a personal relationship with one of the parties, or is otherwise in a position where their impartiality could reasonably be questioned, but the parties have expressly agreed to continue with the arbitrators’ appointment. In the Red (Non-Waivable) Category, the guidelines set out situations where the arbitrator should be disqualified, and their continued participation in the arbitration is not allowed. These situations include cases where the arbitrator is acting as an advisor to one of the parties for financial gain, serves as legal counsel for one of the parties, or is directly controlling one of the parties. The IBA Guidelines aim to set general standards for the impartiality and independence of arbitrators in international arbitration and guide the parties in making informed decisions. While these guidelines are not legally binding, they are widely cited and frequently applied in practice as a soft law source. Of course, due to the unique factual circumstances of each case, rigid rules or general standards may not always lead to fair outcomes. Therefore, in situations where there may be a theoretical conflict of interest that could affect the arbitrators’ impartiality or independence, the specific circumstances of the case will be carefully assessed to determine whether there is an actual issue of impartiality or independence. Evaluation of Arbitrator Challenge Decisions Published by the LCIA In line with the principle of transparency, the London Court of International Arbitration (LCIA) regularly publishes summaries of decisions regarding challenges to arbitrators. The LCIA made its first publication in 2011, summarizing 28 arbitrator challenge decisions from 1996 to 2010. Subsequently, summaries of 32 arbitrator challenge decisions from 2010 to 2017 were made available online, and most recently, in December 2024, the LCIA published 24 additional arbitrator challenge decisions. This initiative provides a valuable resource for practitioners and researchers seeking insight into the LCIA's processes for handling arbitrator challenges. The latest publication from December 2024 once again highlights the LCIA's commitment to procedural transparency, while also demonstrating the effectiveness of its arbitrator challenge mechanisms. These summaries allow for a better understanding of the reasoning behind the arbitrator challenge decisions, thereby enhancing predictability in arbitration proceedings and reinforcing trust in the institution. The decisions published by the LCIA offer an important perspective on how institutional arbitration rules and soft law norms are applied in concrete disputes, providing insight into the situations where challenges to arbitrators are accepted or rejected. Our review of the 2024 publication reveals that of the 24 arbitrator challenge decisions issued by the LCIA between 2017 and 2022, only two were upheld. This suggests that challenges to arbitrators are considered exceptional in arbitration proceedings. For instance, in one of the decisions published in 2024 (see Decision No. 14, dated 2019), the LCIA Court evaluated a challenge based on the claim that an arbitrator was connected to the claimant's expert. It was found that the expert had been appointed in another arbitration case by the law firm where the arbitrator had worked. However, since the arbitrator had not directly selected the expert, had no prior relationship with the expert, and the reports from the expert in the related cases addressed entirely different issues, the LCIA Court concluded that there was no link that would undermine the arbitrators’ impartiality, and the challenge was rejected. In this case, the arbitrator had initially considered resigning but decided to stay on after the parties agreed to change the expert. The arbitrators’ transparency in disclosing the relationship and readiness to resign, if necessary, was considered a positive factor by the LCIA Court. Similarly, in a challenge against an arbitrator for having expressed firm opinions on various issues in previous cases, the LCIA Court concluded that when the parties accepted the same panel of arbitrators for similar cases, it was a natural consequence for the arbitrators to decide on similar issues in the previous case. The challenging party’s argument, based on the nemo iudex in causa sua principle, which asserts that no one should be their own judge, was not seen by the LCIA Court as an absolute loss of impartiality. Therefore, the challenge was rejected, with the LCIA Court finding no conflict with the arbitrators’ impartiality (see Decision No. 21, dated 2021). As demonstrated by the above decisions, the LCIA's approach to challenges is that the mere existence of a connection is not sufficient to justify the removal of an arbitrator. When examining the decisions alongside others, it is clear that even when an arbitrator has represented one of the parties, the disclosure of such a relationship to the parties and the LCIA Court, along with the necessary examination, is sufficient to ensure that no doubt arises regarding the arbitrators’ impartiality and independence. This approach is consistent with the categories outlined earlier. Similarly, in cases where the arbitrator is a member of a professional organization or association that also includes lawyers representing one of the parties, or where the arbitrator has attended conferences or events without informing the parties, no doubt regarding impartiality or independence was found. On the other hand, in two challenges accepted by the LCIA in its December 2024 publication, one challenge was based on the existence of a prior employment relationship between the arbitrator and a party, a pending case between one of the parties and the arbitrator, the arbitrators’ involvement in regular academic projects with one of the party’s attorneys, and the arbitrators’ participation as a speaker in events organized by the respondent. While these situations alone would not constitute a valid challenge, the LCIA Court accepted that the subjective concerns arising from these circumstances objectively gave rise to legitimate doubts. For example, the arbitrators’ long career spent largely with one of the parties created, in the LCIA Court’s view, legitimate concerns about the arbitrators’ independence and impartiality from a third-party perspective (see Decision No. 3). In another challenge accepted by the LCIA, the arbitrator had provided consultancy to the law firm that drafted some of the contracts in the dispute for about eight years and had frequently organized events with the law firm. The LCIA Court found that the relationship between the arbitrator and the law firm, which was allegedly involved in the dispute, raised doubts about the arbitrators’ impartiality. Although the law firm was unlikely to be directly involved in the dispute, the relationship between the arbitrator and the law firm was considered sufficient to accept the challenge (see Decision No. 19). In summary, the LCIA Court’s decisions demonstrate that when parties accept the same arbitrator panel for different arbitrations, they also accept the associated risks. In cases where an arbitrator has previously represented one of the parties, disclosing this relationship and making the necessary notifications can alleviate concerns. The mere fact that an arbitrator has a relationship with one of the parties (such as attending events) does not, by itself, provide grounds for a challenge, and each case must be evaluated based on its specific facts. Furthermore, the LCIA Court has emphasized that challenges based solely on procedural reasons (such as an arbitrator not accepting a time extension) will fail unless there is concrete evidence of bias. Acceptance and Rejection Criteria in Light of Published Decisions When analyzing the two accepted challenges by the LCIA (see Decision No. 3 and No. 19 of LCIA’s 2024 Release), it becomes clear that certain circumstances, such as a significant professional connection between the arbitrator and one of the parties (for instance, the arbitrator having worked at a law firm previously representing one of the parties), or the failure to disclose critical relationships, can raise justifiable doubts about the impartiality of the arbitrator. In cases like Decision No. 3 (of LCIA’s 2024 Release), where professional connections were not disclosed, or Decision No. 19 (of LCIA’s 2024 Release), where communications between the arbitrator and a party were not disclosed, the LCIA accepted the challenge on the grounds that, from the perspective of a reasonable and informed observer, these undisclosed relationships gave rise to doubts about the arbitrators’ impartiality. As a result, the challenges in these cases were found to be valid and were accepted. On the other hand, when reviewing rejected challenges, several important criteria emerge regarding the powers of arbitrators in arbitration proceedings. For instance, in Decision No. 2, a challenge was raised against the arbitrators’ decisions on procedural matters (bifurcation) such as scheduling and the request for security for costs. However, the LCIA ruled that these issues fell within the arbitrators’ discretionary authority. This underlines that the LCIA does not interfere with decisions made by the arbitrator unless there is a clear and justifiable reason to do so. Moreover, in cases where a challenge is based on the alleged incorrectness of the arbitrators’ decisions (either legally or factually), the LCIA maintains that it is not responsible for reviewing the substance of the arbitrators’ decisions unless there is an issue related to impartiality or independence. In situations where the arbitrator expresses preliminary opinions or comments on specific issues, as seen in Decision No. 1, where an arbitrator mentioned that one of the parties might face difficulties in presenting evidence, the LCIA emphasized that such statements do not, by themselves, constitute grounds for a valid challenge. The LCIA noted that the arbitrator did not present this as a final decision or opinion, and thus, the challenge was not accepted. This shows that the LCIA takes a pragmatic approach and distinguishes between casual observations and definitive rulings that might affect impartiality. The LCIA’s stance on challenges related to an arbitrators’ decisions is also evident in its approach to challenges based solely on the arbitrators’ favoring or disfavoring one of the parties. In these cases, where the challenge is based solely on the perceived bias of the arbitrator, the LCIA found that such challenges were not sufficient grounds for rejection unless there was clear and objective evidence that would lead a reasonable observer to believe that the arbitrator was indeed partial. Therefore, challenges based solely on an arbitrators’ decision that one party’s position is stronger, without further evidence of bias, were considered unfounded and were rejected. The LCIA’s approach to arbitrator challenges emphasizes the importance of maintaining the stability and efficiency of the arbitration process. For example, in Decision No. 13, the LCIA highlighted the broad discretion that arbitrators have in making procedural decisions, asserting that procedural challenges based solely on the dissatisfaction of one party were not sufficient grounds for a challenge. This reinforces the need to respect the arbitrators’ authority and prevents unnecessary interference in procedural decisions. Similarly, in Decision No. 17, the LCIA refused to allow parties to accumulate grievances throughout the arbitration process and present them all at once as a challenge. This decision emphasized that objections should be raised in a timely manner during the process to ensure that the arbitration can proceed without disruption. The LCIA’s decision to reject such accumulative challenges further serves to protect the efficiency of the process and prevent abuse of the challenge mechanism by the parties. In conclusion, the LCIA's decisions show a clear distinction between legitimate and illegitimate challenges to arbitrators. Challenges based on undisclosed connections or comments that raise legitimate concerns about impartiality are typically upheld, whereas those based on procedural dissatisfaction or the mere perception of bias without substantive evidence are generally rejected. The LCIA's approach aims to safeguard the integrity and effectiveness of the arbitration process by ensuring that challenges are based on substantial and reasonable grounds and by discouraging misuse of the challenge mechanism. Conclusion The case law of the LCIA is shaped by principles aimed at preserving the efficiency and order of the arbitration process. Upon examining the general approach of the LCIA Court, it is evident that the Court maintains a consistent stance that mere dissatisfaction of the parties with the arbitrators’ decisions cannot, by itself, serve as a valid ground for a challenge. In some cases, parties have raised objections claiming that the arbitrators’ decisions were inadequately reasoned or that the arbitrators failed to address all issues. However, the LCIA has rejected these objections, making it clear that the challenge mechanism is not intended to serve as a means for a comprehensive review of the arbitration process from start to finish. The LCIA’s summaries of decisions regarding arbitrator challenges serve as an important guide for understanding how such objections are handled and which situations are deemed to have legitimate grounds. These summaries provide a roadmap for parties in arbitration, offering a framework for similar situations that may arise. Additionally, the publication of anonymized decisions on arbitrator challenges by the LCIA represents a significant step toward increasing transparency and accountability in international arbitration. When considering all of these factors, it becomes apparent that challenges to arbitrators do not constitute an appeal process for the decisions rendered in the course of arbitration. In order for an objection to succeed and be accepted, there must be reasonable and tangible evidence of doubt concerning the arbitrators’ impartiality and independence, and this doubt must be substantiated with clear evidence. Speculative or tactical objections are likely to be rejected by the LCIA. In conclusion, the LCIA’s approach emphasizes the need for challenges to be based on legitimate, evidence-backed concerns rather than dissatisfaction with the outcome of the arbitration. This approach upholds the integrity of the arbitration process and reinforces the importance of impartiality and transparency in arbitration proceedings.  
09 April 2025
Corporate and Commercial Law

Squeeze-Out and Exit Mechanisms in Joint Stock Companies

A. Introduction The Turkish Commercial Code ("TCC") No. 6102 and the Capital Markets Law ("CML") No. 6362 regulate the right of a dominant shareholder to remove minority shareholders from a company. In foreign legal systems, this process is often referred to as a "squeeze-out" or "freeze-out." The TCC addresses this under Article 208 as the "right to purchase," while the CML refers to it in Article 27 as the "right to remove from the partnership." Additionally, Article 141 of the TCC provides justification for this mechanism as the "removal of a partner through a merger." The squeeze-out mechanism grants dominant shareholders, holding a qualified majority, the right to purchase the shares of minority shareholders at a fair price, thereby expelling them from the company. The primary aim is to prevent decision-making deadlocks caused by minority shareholders and enhance the company’s operational efficiency. This mechanism is particularly critical for ensuring agility and effectiveness in large-scale corporate structures. The right of the dominant shareholder to remove minority shareholders is anchored in corporate group law and merger and acquisition frameworks. In group company law, this right ensures effective coordination among affiliated companies and facilitates centralized management. Within mergers and acquisitions, it streamlines public tender offers and accelerates acquisition processes by reducing resistance from minority shareholders. These frameworks share a common focus on overcoming obstacles caused by minority shareholders, enhancing strategic alignment, and enabling swift execution of corporate decisions. B. Legal Assessment of the Squeeze-Out Concept The squeeze-out mechanism under Turkish law is grounded in the concept of "dominance," setting it apart from traditional expulsion mechanisms. Unlike international systems where squeeze-outs often lack this requirement, TCC Article 208 necessitates just cause to justify expulsion. In contrast, CML Article 27, applicable to publicly traded companies, omits this requirement, enabling a more flexible approach focused on corporate efficiency. This distinction highlights the differing policy objectives between the two regulations: while the TCC emphasizes shareholder rights and fairness, the CML prioritizes governance and operational efficiency. C. Conditions for Exercising the Dominant Shareholder’s Right Conditions Under TCC Article 208 The right to expel, regulated under TCC Article 208, applies to capital companies and is a provision related to group company law. This regulation grants the dominant company the right to expel minority shareholders by purchasing their shares under certain conditions. According to TCC Article 208, in order for the right to be exercised, the dominant company must: Hold at least 90% of the company’s capital and voting rights, either directly or indirectly. Demonstrate just cause for the expulsion, such as obstruction of operations, violations of good faith, or actions that disrupt company management. The 11th Civil Chamber of the Court of Cassation, in decision 2019/915 E. and 2019/7720 K., confirmed that this right is exclusive to group companies and cannot be invoked by individual shareholders. Similarly, in decision 2021/4719 E. and 2022/9173 K., the court ruled that the right is available only to corporate shareholders. Just Cause in Turkish Law TCC Article 208 introduces the concept of just cause as a unique condition. Just causes include: Actions violating good faith principles. Obstruction of the company’s basic operations. Harmful or reckless behavior disrupting corporate sustainability (Harun Keskin, Hakim Pay Sahibinin Azınlığı Şirketten Çıkarma Hakkı (Squeeze-Out), 2022). In this context, just causes include situations where minority shareholders engage in conduct that endangers the sustainability of the company’s operations or violate the principles of honesty and trust. Minority shareholders obstructing the company’s basic functions, harming its commercial activities, or excessively disrupting management may be expelled. This just cause condition ensures stability in intra-company relations and preserves managerial peace. Therefore, the right to expel can only be exercised against minority shareholders whose behavior disrupts the company’s operations, violates principles of good faith, and harms sustainability. Scope and Conditions Under CML Article 27 CML Article 27 grants the dominant shareholder of a publicly traded joint-stock company the right to expel minority shareholders if they reach a qualified majority through a public tender offer or other means. Unlike TCC Article 208, CML Article 27 does not require just cause, making it more flexible. Under CML, expulsion occurs by canceling minority shareholders’ shares, with the dominant shareholder purchasing them through newly issued shares. A key distinction is that under CML Article 27, the expulsion right does not require a public tender offer. The dominant shareholder may acquire the necessary stake through a tender offer or acting in concert with others. According to the Communiqué on Squeeze-Out and Sell-Out Rights II-27.3 (“Communiqué”) Article 3/(c), the dominant shareholder can be a natural person or a legal entity, offering flexibility. Article 4 requires holding at least 98% of voting rights to exercise the expulsion right. The threshold must be met before exercising this right, and shares based on usufruct or call options are excluded from this calculation. If the 98% threshold is reached, the dominant shareholder must: Make a public announcement. Prepare an appraisal report within one month and disclose a summary. Complete the expulsion process within two months, paying the share price in compliance with the Communiqué’s provisions. D. Exercise of the Right and Determination of the Expulsion Price TCC Article 208 provides two methods for determining minority shares' value: Stock Market Value: If available, market price applies. Actual Value: If no market price exists, shares are valued based on net asset value. Unlike TCC Article 208, which requires a court decision, CML Article 27 requires a Capital Markets Board-determined period for share cancellation and issuance of new shares. E. Minority Shareholder’s Right to Exit TCC Article 202/1(b) protects minority shareholders by ensuring an exit if the dominant shareholder misuses control and causes financial harm. Minority shareholders can: File a compensation lawsuit. Request the court to compel the dominant shareholder to purchase their shares. F. Expulsion from the Company in Cases of Termination for Just Cause TCC Article 531 allows minority shareholders to seek company termination for just cause. If termination is not feasible due to economic or social factors, the court may expel minority shareholders and compensate them at actual value. Just causes include: Poor management. Systematic denial of shareholder rights. Misuse or waste of company assets (Prof. Dr. Reha Poroy et al., Ortaklıklar Hukuku Cilt II, 2017). G. Conclusion The squeeze-out mechanism in Turkish law balances corporate efficiency and minority shareholder rights. TCC requires a 90% majority, just cause, and judicial approval, prioritizing fairness. CML allows expulsion with a 98% majority, streamlining governance. TCC Article 531 provides an alternative expulsion remedy in termination cases. Both frameworks ensure predictability and sustainability in corporate governance while protecting minority rights.
09 April 2025
Employment

Extraordinary Termination of Employment Contracts: Termination Due to Suspicion

Legal Analysis The termination of suspicion is not explicitly regulated under Labor Law No. 4857 ("the Law") but has been recognized in practice through decisions of the Supreme Court. Initially, the concept of termination due to suspicion emerged in German law and was first introduced into Turkish law by the 9th Civil Chamber of the Supreme Court in the decision with file number 2007/16878 and decision number 2007/30923. Definition and Doctrine The termination of suspicion is defined in Supreme Court precedents as follows: "Termination of suspicion is an exceptional type of termination applicable in cases where the employer cannot prove or is not yet in a position to prove that the employee has committed a crime or has significantly violated the employment contract." (See Supreme Court 22nd Civil Chamber, 17.10.2017, File No. 2017/40841, Decision No. 2017/21915) In the doctrine, it is argued that a serious, significant, and concrete suspicion justified by facts, which cannot be eliminated, renders the employee's performance of work meaningless in trust-intensive employment relationships. Moreover, strong suspicion by the employer eliminates the suitability of the employee for that job in employment contracts where the employee's personality holds significant importance (Yenisey, Şüphe Feshi, Sicil İş Hukuku D., September 2008, p. 66). In this aspect, termination due to suspicion is not a penalty imposed on the employee but a contractual tool that the employer can use to protect the interests of their business (Baysal, Şüphe Feshi Kavramı ve Şüphe Feshine İlişkin Yargıtay Kararlarının Değerlendirilmesi, Sicil İş Hukuku D., 2016/35, p. 89). Conditions Required for the Existence of Termination Due to Suspicion Several conditions must be met for termination due to suspicion to be considered valid: Suspicion: There must be a suspicion that the employee has committed a crime or engaged in behavior contrary to the contract. Strong suspicion: The suspicion must be based on objective facts and incidents. Efforts by the employer: The employer must have demonstrated all efforts reasonably expected of them, yet the suspicion remains unresolved. Employee’s defense: The employee's defense must have been taken. In a decision by the Supreme Court, it was stated that for termination due to suspicion to be applicable, there must be a strong suspicion based on objective facts and incidents capable of destroying the trust necessary for the continuation of the employment relationship. Furthermore, it is required that, despite the employer demonstrating all reasonable efforts to clarify the situation, the act in question cannot be proven. (See Supreme Court General Assembly, Date: 15.11.2018, File No. 2015/2715, Decision No. 2018/1720) It is necessary to prove the existence of serious, important, and concrete incidents that justify the suspicion, and what needs to be proven here is not the incident itself but the incident that justifies the suspicion. Indeed, if it is clearly understood that the employee's behavior falls within one of the valid or justified reasons regulated by the Law, then there should be no resort to termination due to suspicion in such a situation. In determining the termination due to suspicion, the employer's subjective assessment alone is insufficient. The presence of suspicion, whether the suspicion seriously undermines the employer's trust in the employee, and finally, whether the employer can continue to employ the employee despite this suspicion, is evaluated by the judge ex officio, considering the specifics of each case. Case Law Analysis In the case of termination due to suspicion, a strong suspicion justified by serious, important, and concrete events that cannot be dispelled leads to a breakdown in the trust relationship between the employer and the employee. As a result of a crime or serious breach of duty that cannot be proven to have been committed by the employee, but where there are concrete indications of the employee's involvement, the employer's expectation of the employee's performance becomes meaningless. On the other hand, termination due to suspicion executed by the employer is accepted as based on a valid reason according to high court decisions. In the decision of the Ankara Regional Court of Justice 7th Civil Chamber, Date: 14.11.2017, File No. 2017/3903, Decision No. 2017/2936, it was stated "The suspicion felt by the employer towards the employee in the employment relationship leads to a deterioration in the trust relationship between them. Due to a suspicion that cannot be tolerated by the employer, the employee's suitability for continuing the employment relationship is eliminated, and the suspicion, which causes the trust relationship to be shaken, emerges as a reason inherent in the employee's personality. A suspicion justified by serious, important, and concrete events eliminates the suitability of the employee for work that cannot be performed without a potential for trust. Thus, termination due to suspicion arises as a type of termination related to the employee's competence. The suspicion must be based on certain objective facts and indications existing at the time of termination. The employer's mere subjective assessment is not sufficient, and the examination must reveal that it is highly probable that the employee committed the suspected act. Termination due to suspicion is among the valid reasons for termination." the termination executed by paying severance and notice compensation is accepted as a termination based on a valid reason. Accordingly, it is possible to state that in the case of termination due to suspicion, the employee will be entitled to severance and notice compensation but will not be entitled to reinstatement. Conclusion Termination due to suspicion will come into play when there is a strong suspicion based on objective facts and incidents capable of destroying the trust necessary for the continuation of the employment relationship. Termination due to suspicion provided that the above-mentioned conditions are met, is an extraordinary type of termination that the employer can resort to and is accepted as termination with a valid reason. Therefore, if the conditions mentioned above are met by the employer, the termination due to suspicion option can be utilized, and the employee's contract can be terminated by paying severance and notice compensation.
09 April 2025
Energy

Understanding the New Regulation on Aggregation Activities in the Electricity Market

The Regulation on Aggregation Activities in the Electricity Market (“Regulation”), long anticipated by the energy sector, was published in the Official Gazette on December 17, 2024 (No. 32755), and came into effect on January 1, 2025. Aggregation activities were first introduced into the legislative framework through a December 22, 2022, amendment to the Electricity Market Law (“Law”) and are now comprehensively regulated under this Regulation, issued pursuant to Article 12/A of the Law. The Regulation aims to optimize portfolio management, facilitate trade and enhance system balance by consolidating small and medium-sized energy generation and consumption facilities. An aggregator is defined as a legal entity holding either an aggregator license or a supply license and authorized through agreements with network users to manage their electricity production and/or consumption schedules, execute related market transactions, and participate in ancillary service supply processes. The Regulation provides a robust legal framework for aggregation, clearly delineating the aggregator's role in the energy market. Aggregation is a cornerstone of energy market transformation and sustainable energy management. It integrates renewable energy sources and reduces energy costs. With the digitalization of energy markets and the expansion of distributed energy systems, the importance of aggregation continues to grow. This article examines the Regulation’s impact on existing legislation, the application areas and future prospects of aggregation, and insights from the Energy Market Regulatory Authority’s (“EMRA”) workshop held in May 2024, attended by sector stakeholders. Trends in Aggregation Activities In energy management, aggregation is often associated with electric vehicles (“EVs”), leveraging two key technologies: Grid-to-Vehicle (“G2V”) and Vehicle-to-Grid (“V2G”). G2V enables EVs to draw energy from the grid for charging, creating a unidirectional energy flow. V2G, on the other hand, allows EVs to feed stored energy back into the grid, enabling bidirectional energy flow. Globally, G2V is widely adopted in countries such as China, the United States, and several European nations. In contrast, V2G remains in pilot stages in countries like Denmark, Japan, and the United Kingdom, demonstrating its potential for energy management and grid balancing. Both technologies are expected to play significant roles in Turkey’s energy transition, especially under aggregator management, where EVs can provide energy storage and grid balancing services. Effective aggregation requires robust technical infrastructure. Aggregators must implement real-time monitoring systems, communication networks, and end-to-end data transmission systems to seamlessly interact with grid operators and ensure operational efficiency. Key Regulatory Changes Introduced by the Regulation The Regulation has brought notable amendments to related legislation, particularly the Balancing and Settlement Regulation in the Electricity Market (“DUY”). Key changes include: Balancing Areas A "balancing area" is a new concept introduced in the DUY. Defined as “a section of the network determined by Turkish Electricity Transmission Company (“TEİAŞ”),” it encompasses production, consumption, and/or storage facilities participating in ancillary services or the balancing power market. While balancing areas do not involve separate pricing, they serve as a labeling method to enhance system flexibility by enabling aggregators to guide consumption and production processes effectively. Opportunities for Small Investors Aggregation provides small energy investors with a viable revenue model. Rather than establishing costly balancing teams, investors can rely on aggregators to manage their operations. By leveraging storage facilities and flexible business models, aggregators can enhance system efficiency while opening new revenue streams for small-scale producers. Market Participant Code Aggregation introduces key distinctions from existing portfolio systems like the Balancing Responsible Group (“DSG”). Unlike DSG participants, facilities under an aggregator’s management lose their individual market participant codes, with all transactions conducted under the aggregator’s single code. This streamlines market operations and shifts responsibilities for collateral and imbalance management to the aggregator. Deviation Amount from Finalized Production Plan (KÜPST) Under the aggregator model, KÜPST penalties for deviations are calculated at the portfolio level rather than per unit, allowing for greater flexibility. Amendments to Article 110/5 of the DUY enable the Board to implement tailored methodologies for energy imbalances and deviations, incentivizing aggregation. Unlicensed Producers and Aggregation Aggregation presents significant opportunities for unlicensed producers benefiting from the Renewable Energy Support Scheme (“YEKDEM”). Producers nearing the end of their 10-year YEKDEM incentive period face a choice: join aggregators for potentially better payment terms or remain with supply companies while avoiding imbalance risks. Unlicensed producers entering aggregation can benefit from full Market Clearing Price (“PTF”) payments, as opposed to the partial payments offered under YEKDEM. This shift could create a competitive environment where portfolio management becomes increasingly critical. Separation of Supply and Aggregation Activities The Regulation allows aggregation activities to be conducted under either an aggregator license or a supply license. While these activities may seem complementary, some stakeholders advocate for separating them to avoid conflicts of interest. Aggregators focus on demand-side participation, balancing services, and load optimization, while suppliers aim to maximize sales. Separating these roles could ensure clearer objectives and operational efficiency. Conclusion The Regulation on Aggregation Activities in the Electricity Market marks a significant step toward enhancing portfolio management and system balance in Turkey’s energy market. By consolidating small and medium-sized production and consumption facilities, the Regulation paves the way for more efficient, flexible, and sustainable energy management. Market participants with technical expertise and robust infrastructure are expected to lead the transition to aggregation. While practical challenges will emerge during implementation, the Regulation is a dynamic framework that will continue to evolve with market needs. Aggregation activities are set to play a pivotal role in shaping the future of energy markets in Turkey and beyond.
09 April 2025
Content supplied by Kesikli Law Firm