The investors usually choose to set up a special purpose vehicle (“SPV”) as the project company in each specific project and such SPV usually becomes the license owner or the concession granted company. Sometimes the establishment of an SPV is not optional but a requirement of the law, such as in the public-private partnership (“PPP”) projects.

The shareholding structure of the SPVs is determined in accordance with the necessities of the relevant industry sector, as well as the size and type of the relevant investment. For instance, some tender specifications set forth requirements for Turkish nationality and/or a minimum experience in the relevant sector (especially in high technology projects). Similarly, some laws, such as the Build-Operate-Transfer Law No. 3996 of 1994, require the SPVs to be established in the form of a joint stock company, as opposed to limited liability company.

In terms of the shareholder structure, especially in the bigger scale projects, investors sometimes involve two or more different groups in order to satisfy the prerequisites under the applicable tender specifications or laws and to create a stronger consortium both financially and technically.

The Turkish Commercial Code numbered 6102 (“TCC”) is the main legislation relating to the corporate governance of Turkish companies. In addition, the Capital Markets Law numbered 6362 (“CML”) and the Corporate Governance Communiqué (CGC) dated 3 January 2014, serial II, No. 17.1 with its Annex 1 (Corporate Governance Principles) are applicable to the publicly held companies. There are also additional corporate governance rules, applicable to companies operating in certain sectors (e.g., specifications of board members in companies operating in the PPP sector).

The main governance documentation of a project company is the articles of association. A project company is managed and represented by the board of directors appointed in a shareholders’ meeting. All resolutions passed at a board of directors meeting shall only be effective and binding on the project company if passed in accordance with the quorum requirements in its articles of association and the TCC. The shareholders may also opt to include certain reserved matters and supermajority quorums for both board meetings and shareholders’ meetings. The shareholders may appoint a legal entity or a real person as a board member and each board member has one vote in a board meeting and a chairman of the board of directors does not have a casting vote or any additional voting rights. Board of directors’ and shareholders’ meetings may be held electronically, at a project company’s headquarters or at any other address designated by the board of directors, depending on the requirements set forth under the articles of association of a project company and the TCC. Foreign board members will need to obtain a tax identification number prior to his/her appointment. The articles of association of the project company may include that in accordance with Article 367 of the TCC, the project company may issue an internal regulation to authorise the board of directors to partially or fully to delegate management of the project company to one or more board members or to a third party.

As to the accounting practices, there are two different standards which Turkish companies may apply, namely IFRS (International Financial and Accounting Standards) and Turkish VUK (Tax Procedural Code standards). In our experience, especially international lenders mostly prefer IFRS.

Credit Support from the sponsors: The form of sponsor support, if any, depends on the size of the project, the security package and/or risk analysis of the finance parties.

In projects where the lenders ask for sponsor support, the type of such support may vary from cash injection commitments, cost increase and completion guarantee, to continuous management and technical assistance to be provided, during the construction period and/or the operation period of the project.

Credit Support from host government: PPP projects in Türkiye are supported by the relevant public institutions through different types of government guarantees or debt assumption mechanisms. As per the data published on the website of the Presidency of the Republic of Türkiye Presidency of Strategy and Budget [1],  more than 260 PPP projects, using 4 different PPP models, were completed in the Republic of Türkiye since 1986. Among these models, the most frequently used model is the Build-Operate-Transfer model (“BOT”) with 123 projects, followed by the Transfer of Operating Rights model with 116 projects, the Build-Lease-Transfer model with 18 projects and the Build-Operate model with 5 projects.

• Transportation Projects:

In motorway PPP projects which are structured through the BOT model, the General Directorate of Highways (KGM) of the Republic of Türkiye makes payments to the project companies in accordance with a minimum traffic guarantee.

Such guarantee is provided in the project agreement signed by the project company and the relevant governmental institution. Additionally, the project company also executes a debt assumption agreement with the lenders and the relevant governmental institution (i.e., the Ministry of Treasury and Finance and/or the Ministry of Transportation and Infrastructure) for the purposes of setting forth the terms and conditions relating to governmental institution’s debt assumption or debt payment undertaking upon termination of the underlying project agreement.

• Healthcare Projects:

In healthcare PPP projects, the Republic of Türkiye Ministry of Health, which is the relevant governmental institution, guarantees the availability payments and the service payments, and a termination compensation, which includes both the equity and the senior debt as well as all financing costs in all termination scenarios including project company default termination.

• Energy Projects:

Renewable energy generation companies (wind power, solar power, biomass) benefit from a specific support mechanism, called as YEKDEM (Renewable Energy Sources Support Mechanism – Yenilenebilir Enerji Kaynakları Destekleme Mekanizması). Under the YEKDEM scheme, EPİAŞ (Energy Market Operations Co.) acts as the market operator and organizes the balance between the supply and demand in the electricity market. Any company which is an actor in the electricity market (as a generator, supplier, buyer, distributor etc.), may be registered with this mechanism, which provides comfort for (i) the sellers by means of a guaranteed market price and (ii) for the buyers by means of sufficient energy to continue their business without any energy shortages.

YEKDEM helped the market become more stabilized and predictable. The payments made to the generation companies were denominated in USD until recently, nevertheless it is now denominated in Turkish Liras.

In addition to the YEKDEM mechanism, Türkiye also adopted the “Regulation on Renewable Energy Resource Area” scheme (Yenilenebilir Enerji Kaynak Alanları or “YEKA Regulation”) in 2016 to further incentivise the renewable energies and to encourage the development and use of domestic manufacture of equipment required for large scale renewable energy generation facilities.  While the YEKDEM scheme encouraged localisation of equipment manufacturing by offering an increase in feed-in tariffs for projects that utilise domestically manufactured equipment, the YEKA scheme goes one step further by mandating the use of domestically manufactured equipment in projects that are tendered under the YEKA regulation. The YEKA regulation introduced two types of YEKA models: (a) the YUKT (“Allocation in Exchange for Domestic Production”) model, in which the developer is granted the right to construct and operate renewable energy generation facilities and to sell, at a guaranteed price, the electricity produced by the generation facilities provided that the equipment used in the facilities is also manufactured by the developer, and (b) the YMKT (“Allocation in Exchange for Use of Domestic Products”) model, in which the developer is granted the right to construct and operate renewable energy generation facilities and to sell, at a guaranteed price, the electricity produced by the generation facilities provided that the equipment used in the facilities is domestically sourced (but it need not be manufactured by the developer).

[1] Available at https://koi.sbb.gov.tr/, updated as of January 2022.

The securities applicable in a typical project financing in the Republic of Türkiye would include some or all of the followings depending on the specifics of each project:

• Share pledge on the shares of the shareholders in the project company,
• Account pledge on the project accounts of the project company,
• Movable asset pledge on the movables which are required for the realization of the project and owned by the project company,
• Mortgage on immovables / usufruct rights of the project company,
• Assignment of project receivables of the project company,
• Assignment of subordinated receivables of the shareholders of the project company,
• Assignment of insurance proceeds of the project company,
• Assignment of receivables of the insurance companies under the reinsurance policies, and

Guarantee and/or surety given by shareholders/group companies/host government.

• Share pledge is perfected by the execution of the pledge agreement, recording a blank or pledge endorsement on the relevant share certificates and delivering the endorsed share certificates to the finance parties. The pledge must be recorded in the share ledger of the company as well. A pledge on the shares of a limited liability company further requires the share pledge agreement to be executed before a notary public.
• Account pledge is perfected by the execution of the pledge agreement and delivery of the pledge notice and acknowledgement letters to the relevant account banks. The relevant account banks register the first ranking pledge in its records, as well.
• Pledge on movable assets is perfected by the registration of the pledge agreement in the movable asset pledge registry, which is an online database named TARES. The pledge agreement must be prepared either (i) in written form and signed before a TARES official or certified before the notary public; or (ii) in electronic form and signed with a secured electronic signature. Such registration to TARES is required for (i) the perfection, monitoring and the public disclosure of pledged assets; (ii) the determination of the priority among the pledgees; and (iii) registering disposals of the pledged movable assets. Establishment of a pledge on motor vehicles, aircrafts, ships and mining rights requires a written agreement and registration of the pledge with the relevant authorities.
• Mortgage on immovables / usufruct rights is perfected by the execution of a mortgage deed before the land registry office and making a record of such mortgage in the relevant land registry.
• Assignment of project receivables is perfected by the execution of an assignment agreement. The assignment agreement must be in written form to be valid. Although the assignor is not required to notify the assignment obligors of the relevant assignment, as per the relevant provisions of the Turkish Code of Obligations (“TCO”), if the assignor or the assignee does not notify the assignment of the receivables to the assignment obligor and if its assignment was in good faith, the assignment obligor shall be released of its obligations under the assignment. In this respect, the failure to notify the assignment to the assignment obligor may result in the release of the assignment obligor from its obligations with the good faith payment to the assignor. Therefore, the general practice in project finance deals in Turkish market, is to notify the assignment obligors of the assignment and request them to perform their payment obligations to the assignee.
• Assignment of subordinated receivables is perfected by the execution of the assignment agreement by the subordinated creditors and the lenders.
• Guarantee and/or surety agreements are perfected by the execution of the relevant agreement in written form. In case the guarantor/surety is an individual, the amount, type and the date of the guarantee/surety should be handwritten according to the mandatory provisions of the TCO. Another requirement is the written consent of the spouse, unless the guarantor/surety is the shareholder or the board member of the company to which the guarantor/surety provider is granting the guarantee/surety to.
• As a final note, in order to determine the exact dates of an assignment and to avoid any disputes that may arise in the future, the assignment agreements may be executed before a notary public, although it is not a legal requirement.

Pre-bankruptcy

Foreclosure of movable or immovable asset pledges as per the Law No. 2004 on Enforcement and Bankruptcy (the “Enforcement and Bankruptcy Law”): If secured obligations are not fully performed, a pledgee is entitled to foreclose a movable or immovable asset that is pledged in its favour, to ensure recovery of the payments made by the pledgee to the debtor.

The foreclosure proceedings commence once the pledgee applies to the enforcement offices with a request to issue a payment order to the debtor. Following receipt of such application, the relevant enforcement office issues and delivers a payment order to the debtor. If the debtor does not object to this notification or fails to satisfy such payment order, within the period specified under the Enforcement and Bankruptcy Law, the creditor shall be entitled to request foreclosure of the relevant movable or immovable asset. Following such, the pledged movable or immovable asset is sold by the enforcement office and the pledgee gets paid.

Law No. 6750 on Movable Asset Pledge in the Commercial Transactions: This law setting forth special terms and conditions with regards to the pledge of movable assets in commercial enterprises, entered into force in 2018. It provides certain additional remedies to the pledgee, as listed below:

1. The pledgee whose pledge is established in the first degree, may take over the ownership of the pledged assets through an execution order.
2. The pledgee may assign its receivables to an asset management company with the same pledge degree.
3. The pledgee may use tenancy or licensing rights over the pledged assets, which are not subject to the transfer of possession.

In any case, the pledgee holds the right to request the foreclosure of the pledge from the enforcement office in accordance with the Enforcement and Bankruptcy Law.

Private Sale: The security agreements sometimes also provide the option for private sale whereby the pledged asset is offered to an individual or group of individuals but not the public generally, without the need for conducting a public auction organised by the execution offices. However, the applicability of private sale mechanism is not expressly regulated under Turkish law and may not be enforceable in practice. On the other hand, the concept of “private sale though court approval” has been added to the Enforcement and Bankruptcy Law as another foreclosure method by the amendment made by Law No. 7343 dated 30 November 2021. According to this new mechanism, differently from the method of public aution, the debtor may request from the court the authorization of sale the pledged asset within seven days from the notification of the valuation. In cases where the valuation has not occurred, the debtor may also request the valuation to be made.

Post-bankruptcy

Pledge over movable or immovable assets: In case the borrower goes bankrupt prior to its payment of the secured obligations in full, the assets of the borrower that can be seized would form a “bankruptcy estate” and be allocated to the payment of the receivables of its creditors.

The pledged assets are also included in the bankruptcy estate by keeping the pre-emptive rights of the pledgee, which means that the pledgee is entitled to receive its receivables from the sale of the pledged assets, in advance of the other creditors. The undue debts of the borrower, excluding the ones secured by pledge of immovable assets only become due upon a bankruptcy decision.

Following the inclusion of the borrower’s movable or immovable assets in a bankruptcy estate, the pledged movable property is foreclosed and the pledgee’s receivables are paid in priority, after the deduction of the expenses. If the cash from the foreclosure does not cover the total amount of the creditor’s receivables, the remainder balance is included in the bankruptcy estate, with no priority.

The borrower’s secured immovable assets may only be sold to the third-party buyers together with the pledges attached to it. However, if the consideration of the secured immovable asset does not cover the receivables of the pledgee, the remaining part of the debt becomes due and is included in the bankruptcy estate with no priority.

Although the security agent and parallel debt mechanisms are frequently used under finance documents which are governed by a law other than Turkish law, neither of these concepts have been previously tested before Turkish courts. Similarly,  these concepts are not expressly regulated under the legislation. Eventually, if there is a dispute about either of these concepts before Turkish courts, there may be questions on the applicability of the exact terms on the security agent and parallel debt mechanisms.

In addition, as also stated above, the applicability of private sale as a mechanism for foreclosure of security (other than the private sale through court approval as explained above) is not expressly regulated under Turkish law and its enforceability may be questionable.

Moreover, the Court of Appeals of the Republic of Türkiye has some precedents indicating that a share pledge established over the shares, for which no share certificate has been issued, cannot be subject to a sale through public auction. Therefore, it would be advisable to duly issue share certificates before the establishment of a pledge over such shares.

Furthermore, under Turkish law, it is debatable whether future receivables which are assigned in favour of another party materialize under the ownership of the assignor or the assignee. If the assignee goes into bankruptcy before such receivables materialize, such receivables may fall within the scope of the bankruptcy estate, which will result in the assignment becoming unenforceable.

Moreover, pursuant to Article 296 of the Enforcement and Bankruptcy Law, which is a mandatory provision of Turkish law, contractual provisions stating that the submission to concordat (i.e., composition) is a ground for breach of contract, acceleration or termination are void.

There are several other considerations that the finance parties should be aware of such as the followings:

• there is a total block on creditors enforcing their security, during bankruptcy proceedings;
• the concept of trusts is not recognized under Turkish law and therefore the security trusts may not work; and
• there is a mandatory statutory preference to certain categories of creditors.

The key project risks in Turkish project financings vary depending on various factors, including but not limited to: (a) the industry sector, (b) the experience, commitment, and role of the project company and/or the sponsor, and (c) the financing model of the project. The particular risks applicable to each project should be identified on a case-by-case basis. However, the followings may be mentioned as key risks from the bankability perspective:

Construction and Completion Risks: The construction and completion risks are failure to complete on time and/or at the estimated budget due to any delay, cost-overrun, site risk (site conditions and preparation), technology risk and off-take (revenue) risk. Such risks should be assessed by the lenders by taking into consideration (i) the technical and site conditions of the project, (ii) the technical and financial strength of the project company or the contractor, (iii) the capacity of the parties to fulfil their obligations, (iv) the level of guarantees and security provided for the project and (v) the availability of off-take arrangements and/or concession agreements for the predictability on cashflows.

Performance and Operational Risks: Performance and operational risks may be summarized as: (i) the operational costs of the project exceeding the estimated operation budget, (ii) the failure of the project to meet the required performance levels, and (iii) interruption of the operation with the act or omission of the project company and/or the operator. The lenders should consider financial and technical expertise of the project company and/or the operator, to perform and operate the project in accordance with the respective project’s specifications and feasibility studies.

Market Risks: Market risks can be classified as supply and demand risks. The finance parties should duly investigate the input and/or supply chain necessary for this specific project (e.g., in a motorway project, the vehicle traffic level and toll payments; or in a renewable energy generation plant the power and frequency of such renewable natural resource) and consider whether there is a steady or guaranteed supply at a cost which does not exceed the estimated financial costs of the project. Similarly, the finance parties should further assess the demand potential and the payment risk, as any change in the market demand for project output or non-payment of third parties might have an adverse impact on revenues and profitability of the project.

Force Majeure: Although there is no clear definition under the Turkish legislation, a force majeure event may be described as events which cannot be prevented or avoided by a party exercising a reasonable and prudent care. Force majeure events generally refer to events which occur due to a natural cause or human act or omission beyond its control and are non-exhaustive. The most common force majeure event examples listed in Turkish law governed project agreements are acts of god, pandemics and epidemics, wars, legal strikes, public uprisings, declaration of mobilization and sabotage.

Political Risk: Political risks may arise from a number of events, such as governmental actions which may jeopardize the bankability or commercial viability of the projects (e.g., expropriation or imposition of restrictions on foreign currency income or change in law that directly causes an increase in project costs), or political force majeure events such as wars, riots, civil disturbances, terrorist attacks or nationwide strikes. Concession agreements usually include provisions protecting the investors against such risks. Bilateral Investment Treaties (BITs) that Türkiye signed with more than one hundred countries and certain multilateral treaties such as the Energy Charter Treaty also include similar protections. Such risks can also be mitigated through political risk insurance provided by the Multilateral Investment Guarantee Agency (MIGA), which is a World Bank institution.

Legal Challenge Risk: The legal challenge risk is another key risk for the financing of projects in the Republic of Türkiye, as in other jurisdictions, which would decelerate the development of a project. However, the mechanisms envisaged by law, such as accelerated expropriation of land (which continues despite the existence of an ongoing court process) and certain accelerated court trial measures adopted in cancellation lawsuits against the projects are among the mitigation factors against such risk.

Currency Risk: In cases where the relevant technology and/or equipment used in the projects are brought from abroad, the payment obligations and operating costs of the project companies are likely to be incurred in foreign currencies. In such cases, project companies would need to borrow foreign currency loans in order to perform their payment obligations. However, due to recent changes in the foreign exchange legislation in the Republic of Türkiye during the last couple of years, utilisation of any foreign currency loan from both local and international banks are subject to certain preconditions to be met, as explained in Answer 10 below.

Environmental and Social Risks: In light of the increasing environmental and social concerns as a result of public awareness over environment, health and safety, and enactment of more stringent environmental and social rules, the finance parties should also assess the environmental and social risks of the projects. The environmental and social risks may trigger further risks such as (i) liability for non-compliance with the laws and permits, (ii) uncertainty in licenses and permits, and (iii) exposure to legal challenges brought by third parties before courts or administrative institutions.

In order to ensure the enforceability or admissibility of a facility agreement into evidence in any action or proceeding in the Republic of Türkiye, it will be necessary:

1. for any non-Turkish documents, to submit a Turkish translation thereof (certified by a Turkish notary public or Consulate General of the Republic of Türkiye);
2. to pay statutory court fees and applicable statutory charges and the stamp taxes;
3. to pay lawyers’ fees in accordance with the most recent tariff in force at the time of judgment as published in the Official Gazette, together with other court expenses; and
4. to deposit, at the court’s discretion, a security for costs (cautio judicatum solvi), provided however, that the court may in its discretion waive such requirement for security, in the event that the plaintiff is considered to be:
   1. a national of one of the contracting states of the Hague Convention; or
   2. a national of a state that has signed a bilateral treaty with the Republic of Türkiye, which has been duly ratified, containing inter alia a waiver of the cautio judicatum solvi requirement on a reciprocal basis.

In addition, the relevant intermediary bank is required to notify the Central Bank of the Republic of Türkiye of the terms of each loan agreement with respect to the utilisation and of the repayment of each loan.

Morover, as explained under Answer 5 above, mortgages (including pledge over usufruct rights) must be executed before the relevant title deed registry in ex officio form and should be registered in the relevant title deed registry. The pledge agreement for the movable assets should also be executed before TARES officials or a notary public and should be perfected by registering into the movable asset pledge registry.

Turkish Government has taken various steps in recent years, to procure that Turkish Lira gains its strength, and enforced some additional restrictions for such purposes.

The government implemented additional foreign currency borrowing restrictions, with recent amendments on the Decree No. 32 on Protection of the Value of Turkish Currency (“Decree No.32”) and the Turkish Capital Movements Circular. These amendments, in principle, prohibit legal entities from obtaining foreign currency facilities from abroad or domestically if they are not generating a foreign currency income. However, there are also several exemptions to this prohibition, such as having more than USD 15 million loan balance, or the utilisation of the loan for the financing of a PPP project.

In order to accelerate economic development and reduce the current account deficit of Republic of Türkiye, the Ministry of Industry and Technology of the Republic of Türkiye provides investment incentives with various support elements such as VAT exemption, customs duty exemption or tax discount, depending on the region and sector and/or the subject of the investment type.

In accordance with the Priority Investment Incentive Program, some matters related to the natural resources and energy sectors are included in the incentives regardless of which region of the Republic of Türkiye they are planned, such as mining and mineral exploration, natural gas storage, nuclear power plant investments, investments in turbine and generator for renewable energy production and blade manufacturing used in wind energy production. Besides, the requirement for foreign currency earnings shall not be sought for foreign-currency loans extended to any person residing in the Republic of Türkiye who borrows such loans as part of an investment incentive certificate and for the financing of machinery and equipment (excluding the used ones, appurtenance, component and accessories) that are specified in a certain customs tariff statistics position.

It is also worth mentioning that, pursuant to the Communiqué No. 2008-32/34 on Decree No. 32, there is a requirement to notify the Turkish Central Bank by banks within 30 days, for any wire transfers to abroad, relating to import/export activities and invisible transactions, with a balance equal to or exceeding USD 50.000.

Furthermore, as a rule, all loans granted from abroad by a Turkish borrower must be utilised through a Turkish intermediary bank (exceptions of this rule are listed in the Turkish Capital Movements Circular).

Pursuant to article 10 of the Environmental Law numbered 2872 (the “Environmental Law”), “institutions, organizations and establishment that may cause environmental problems as a result of their activities that they are planning to carry out, are liable to prepare an Environmental Impact Assessment (EIA) Report or a project information file. If EIA Affirmative Decision or EIA Not Required Decision is not obtained, then other approval, consent, incentive, construction and use permits are not granted for the projects and investments cannot begin its tender by contract process”. Therefore, the activities of the project companies which may cause environmental issues, are subject to the EIA process and the project companies cannot commence operations until the EIA process is finalized. Environmental Impact Assessment Regulation regulates the administrative and technical procedures and principles to be followed in the EIA process. The Environmental Law stipulates certain measures and penalties for the projects under which construction and/or operation phase begins before the finalization of the EIA process. Pursuant to article 15 of the Environmental Law, the activities initiated without conducting EIA inspection, the activities initiated without preparing the project information file, shall be suspended.

The project companies should also act in accordance with occupational health and safety provisions under Law No. 6331 on Occupational Health and Safety (the “Occupational Health and Safety Law”). Preventing occupational risks, taking all kinds of measures, (such as training and providing information, monitoring whether the occupational health and safety measures are taken in the workplace), adapting health and safety measures to the changing conditions in the workplace, are some of the obligations arising from the Occupational Health and Safety Law.

Under Turkish Law, there is no single PPP model or a PPP framework law which is applicable to all PPP projects operating in all industry sectors [1]. Instead, there are various pieces of legislation which envisage different PPP models (i.e., Build-Operate-Transfer (BOT), Transfer of Operation Rights (TOR), Build-Operate (BO) and Build-Lease-Transfer (BLT)) in different industry sectors, as follows:

• Build-Operate-Transfer (BOT) Model

The first and the most common PPP model used in the Republic of Türkiye, is the BOT model. The BOT model was introduced by Law No. 3096 on the Authorization of Enterprises other than Electricity Authority of the Republic of Türkiye for Electricity Generation, Transmission, Distribution and Trading (the “Law No. 3096”), which was specifically enacted for the energy sector.

Another BOT legislation is Law No. 3465 on the Authorization of Enterprises other than the General Directorate of Highways for Construction, Management and Operation of Access Controlled Highways (the “Law No. 3465”), which regulates the principles relating to the construction, maintenance and operation of highways and all facilities thereon, and the transfer of such roads and facilities to the public administration at the end of the concession period.

In addition, Law No. 3996 concerning the Performance of Certain Investments and Services with the Build-Operate-Transfer Model (the “BOT Law No. 3996”) was enacted in 1994 and has been used as legal basis for several BOT projects.  It is applicable to various sectors, such as energy, transportation, communication, tourism investments and municipal services.

• Transfer of Operation Rights (TOR) Model

The TOR model as defined under the Law No. 4046 on Privatisation Procedures, allows transfer of the right to operate (i) an existing project company in its entirety or (ii) only the production units of an existing company, in each case subject to certain conditions and for a certain period. The assets of the relevant project company are not transferred under TOR model.

• Build-Operate (BO) Model

The BO model is regulated under the Law No. 4283 on Establishment and Operation of Electrical Energy Generating Facilities and Regulation of Energy Sales under the Build-Operate Model, which applies to the construction and operation of power plants only. The BO model is a form of project financing where a private entity constructs and operates a power plant and sells the generated electricity to a state entity, which undertakes to purchase such generated electricity for a guaranteed price. However, as opposed to the BOT model, the private entity holds the ownership of the power plant and does not undertake to transfer it to the public entity at the end of the contract term. Since the scope of the BO model is limited to power plant projects, this was implemented in a limited number of projects in the Republic of Türkiye.

• Build-Lease-Transfer (BLT) Model

The Law No. 6428 on the Construction of Facility, Renewal and Service Provided by the Ministry of Health (the “MoH”) with Public Private Partnership Model, and Amendments in Some Laws and Decrees (the “Law No. 6428”) allows investors to construct and provide services (other than medical services) in healthcare projects with the BLT model. Under the BLT model, the investor builds the healthcare facilities and provides certain general support and medical support services in the hospital campus, but the medical services are provided to the public by the doctors and nurses of the MoH. At the end of the contract term, the investor transfers the hospital facilities to the MoH. The BLT model can also be used in dormitory facilities pursuant to Law No. 351 on the Higher Education Credit and Dormitories Institution.

[1] Issuance of a draft framework PPP law is in debate. The draft PPP law was first prepared in 2007, discussed among the relevant public authorities and submitted to the Parliament. However, despite years of discussions, it was never enacted. It was again prepared and submitted to the Parliament with some changes in 2020, again without success.

The Republic of Türkiye is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which provides that an arbitral award issued outside the Republic of Türkiye and within the territory of a state which is a party to such convention, will be recognized and enforced by Turkish courts, without re-examination of the merits of the case, subject to the criteria and the procedures set forth in the said Convention.

For the enforcement foreign court judgments, there must be a contractual or de facto reciprocity between Türkiye and the country of the relevant foreign court. Türkiye has entered into bilateral treaties with several countries, including, among others, Austria, Bulgaria, China, Poland, Romania, Slovakia and Ukraine for the reciprocal recognition and enforcement of foreign judgments and judicial assistance in respect of commercial and civil matters. In terms of de facto reciprocity, Turkish courts recognise and enforce the judgments of many countries, such as Germany and the United Kingdom based on de facto reciprocity. The evaluation of de facto reciprocity for the United States is conducted on a state-by-state basis. However, foreign judgments which are contrary to public policy rules or mandatory Turkish law requirements cannot be enforced in Türkiye despite the existence of contractual or de facto reciprocity.

Submission to a foreign jurisdiction is valid and binding under Turkish law, except for matters which are subject to exclusive jurisdiction of Turkish courts, such as consumer contracts, insurance contracts, inheritance, rights related to immovable properties, intellectual property rights related to registry, recession and cancellation, and bankruptcy matters.

Waiver from immunity clauses are valid under Turkish law. However, there are certain restrictions regarding the seizure of public assets under the Enforcement and Bankruptcy Law, which are considered as mandatory legal provisions related to public order, and therefore, cannot be waived. In very broad terms, assets of the public entities which are allocated to the performance of a public service (as opposed to commercial assets) cannot be seized.

As explained under Answer 10 above, various steps have been taken for Turkish Lira to regain its strength. We consider the recent decision of the Banking Regulation and Supervision Agency (the “BRSA”) numbered 10250 and dated 24 June 2022 which set forth that non-financial institution companies subject to independent audit (the “Companies”) whose total foreign currency assets exceed the limit set out by the BRSA, are restricted from borrowing Turkish lira from banks (the “Restriction Decision”), is a key issue. Following the Restriction Decision, BRSA’s decisions dated 7 July 2022 and 21 October 2022 have been published to clarify the implementation of the Restriction Decision and brought some flexibility upon its implementation. In summary, pursuant to the said Decisions, the Companies with foreign currency assets (the “FX Assets”) with a value exceeding an amount corresponding to TRY 10 million, are prohibited from borrowing Turkish lira cash commercial loans, in case their FX Assets exceed 5% of the higher of their net assets and their net sales revenue over the last financial year pursuant to their most recent financial statements as of the date of the application for the Turkish lira loan.

Lastly, we see that hedging transactions became more difficult and its costs increased due to the position of Turkish lira in the international markets and its fluctuation in the currency exchange.

The main legislation governing energy transition are the Law No. 5346 on the Utilization of Renewable Energy Sources for the Purposes of Generating Electrical Energy dated 10 May 2005 (the “Renewable Energy Law”), the Energy Efficiency Law No. 5627 dated 18 April 2007 (the “Energy Efficiency Law”), and their implementation regulations.

The purpose of the Renewable Energy Law is (i) to expand the use of renewable energy resources for electrical energy generation, (ii) to contribute to the economy in a reliable, economical and high-quality manner, (iii) to increase the diversity of resources, (iv) to reduce greenhouse gas emissions and wastes, (v) to protect the environment, and (vi) to develop the manufacturing sector needed for the realization of these goals. Matters relating to geothermal energy are also covered by Law No. 5686 on Geothermal Energy and Natural Minerals.

Further to the above, the main legislation applicable to renewable energy resources are the Law numbered 6446 on Electricity Market (the “Electricity Market Law”) and the Electricity Market Licensing Regulation. The Electricity Market Law aims to create a financially strong, stable and transparent electricity energy market in order to provide sufficient, qualified, continuous, low-cost and environmentally compatible electricity to the consumers in a competitive environment.

Additional regulations implemented in connection with the energy transition in terms of renewable energy are:

1. the Regulation on Renewable Energy Resource Areas,
2. the Tender Regulation on Preliminary License Applications for Wind and Solar Power Plants,
3. the Regulation on the Renewable Energy Resource Guarantee Certificate, and
4. the Regulation on Certification and Support of Renewable Energy Resources.

The main objectives of the Energy Efficiency Law are to increase efficiency in using energy sources and energy in order to use energy effectively, avoid waste, ease the burden of energy costs on the economy and protect the environment. It covers principles and procedures applicable to increasing and promoting energy efficiency in energy generation, transmission, distribution and consumption phases at industrial establishments, buildings, power generation plants, transmission and distribution networks and transport, raising energy awareness in the general public, and utilising renewable energy sources.

Other investment incentives include certain tax exceptions and/or deductions (e.g VAT, customs duty) depending on the location of the investment. Certain PPP laws also envisage tax exemptions, such as the stamp tax and VAT exemptions for the BOT and BLT projects developed under the Law No. 3996 and the Law No. 6428.

It is important to note that the main source of financing available to the project companies is conventional syndicated loan financing. Majority of the projects are financed by a group of commercial banks or by lending groups including IFIs, export-import banks, and commercial banks. There are also a limited number of projects financed by participation banks according to the rules of the Islamic finance. That being said, after certain BOT and other PPP model infrastructure projects in the Republic of Türkiye started their operations and cleared their construction risks, refinancing alternatives (including through capital market instruments such as project bonds) have become more attractive and diversified. Over the last few years, with the introduction of various incentives and financing solutions, the possibility to use capital market instruments in infrastructure financings gained a momentum. For instance, the elimination of the 1/3 and 1/5 bond issuance limits for healthcare PPP projects on 18 February 2017 represented an important step towards incentivizing the use of bonds in the healthcare sector.

On the other hand, interest free finance instruments are also a non-conventional financing option that is available in the Turkish market. In fact, some project companies financed their projects through lease certificates (the term used for sukuk in Turkish).

There are regional development banks and export credit agencies involved in project financing projects in Türkiye, which provide financing to different type of infrastructure projects such as energy, transportation, environmental and healthcare projects, they include, among others, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Asian Infrastructure Investment Bank (AIIB) and the Black Sea Trade and Development Bank (BSTDB).

Türkiye has also an export credit agency called Türk Eximbank, which is in operation since 1980. It is the official export credit agency of the Turkish government and the country’s major export incentive instrument.

Insurance is one of the key elements of the security package from lenders’ perspective. The party responsible for arranging and maintaining the insurance and the scope of such insurance, is different in the construction and operation phases. During the construction phase, insurance is mostly arranged by the contractor through the contractor’s all risk insurance policy, and during the operation phase, relevant operational risks (insurance against physical damage to project facilities, business interruption etc.) are insured by the operation and maintenance company.

In large scale projects, the lenders usually appoint a reputable insurance adviser, to obtain advice about the scope of the insurances required for the relevant project. As part of the security package, the lenders expect the project company to assign the insurance proceeds and to annotate the lenders as co-insured and loss payee under the insurance policies.

In addition, the insurance policies in large scale projects are mostly reinsured, because the principal insurers in the Republic of Türkiye might not have the capacity to cover the project risk in full. In circumstances where there is a reinsurance policy, the lenders expect the principal insurers to execute an assignment of the reinsurance proceeds in favour of the lenders, according to which, the proceeds are first paid to the accounts of: (i) the lenders or (ii) the project companies but pledged in favour of the lenders.

The “reinstatement test” and the “uninsurability” are among the bankability concepts provided in the PPP contracts in Turkey in relation to insurance. With a reinstatement test the lenders aim to provide a mechanism whereby the proceeds of insurance policies are used to repay the loan unless a reinstatement test is passed showing that the project would continue to generate sufficient funds to repay the loan if the insurance proceeds are used to reinstate the facilities as opposed to repaying the loan. Uninsurability provision also aims to increase the bankability of the projects by providing a mechanism whereby the public party to the PPP contract assumes liability for risks which cannot be insured in the local or international insurance markets with a reasonable cost. Both concepts are commonly seen in the Turkish PPP projects, such as the BLT model healthcare projects and the BOT model motorway projects.