New Petroleum Market Law Ensures Steady Supply - International Law Office

Recent consultations concerning the liberalization of the domestic petroleum market have resulted in a major legislative change, namely the new Petroleum Market Law, which was enacted on December 4 2003. The purpose of the law is to ensure a steady and economically viable supply of petroleum from both domestic and external resources to consumers in a transparent, fair and monitored market. The law provides for three types of licences:

• refinery owner licences;

• distributor licences; and

• retailer licences.

Refinery owner licence holders may:

• carry out oil processing activities in or around their facilities;

• store and transport oil through pipelines to other nearby facilities (provided that such activities are permitted under the terms of the licence); and

• distribute fuel through their own company.

Refineries must provide details (and protect the production) of the capability of strategic fuels used by the Turkish military forces, upon request. Distributor licence holders may:

• distribute fuel to their own petrol stations as well as to retailers with whom they have a contractual relationship;

• provide fuel to customers; and

• transport fuel through pipelines to facilities that are located near to the storage facilities.

Distributors can only supply fuel to their own retailers, and the money made from selling fuel through these petrol stations cannot exceed 15% of their aggregate domestic market share. In addition, a distributor's domestic market share cannot exceed 45% of the total domestic market; it cannot subsidize petrol stations which it operates directly, and it cannot discriminate against other retailers' petrol stations.

Retailers must carry out their activities according to a centralized sale agreement to be entered into with distributors. They may not procure fuel products from other distributors, and should not add products to their fuel. In additiion, the distance between two petrol stations must not be less than 10 kilometres (km) along highways and 1km within cities. The law amends the Electricity Market Law in relation to the powers and duties of the Energy Market Regulatory Authority Board. The board may now:

• execute the provisions of the new law;

• pass any necessary regulations regarding the activities of the petroleum market;

• execute the penalties stipulated in the new law;

• set licence fees; and

• monitor general developments in the market.

The current automatic pricing mechanism will remain in force until January 1 2005, although the Council of Ministers is authorized to extend this term for up to six months. The new system of setting prices in accordance with market conditions is an important step for the establishment of a free market and for encouraging competition. The law provides that the purchase and sale price of crude oil will be set in accordance with world free market conditions. With regard to local crude oil, the market price will deemed to be that at the nearest refinery or delivery destination. The board is authorized to evaluate and settle matters that arise from the application of market prices. The new law is expected to liberalize fully refined oil product pricing. However, the board is authorized to determine minimum and maximum prices, and to take other necessary measures (for a term of up to two months in each case) regarding the occurrence or establishment of any agreement or practice that prevents or restricts competition in the procurement of goods or services in the market.

For further information on this topic please contact Okan Demirkan at Hergüner Bilgen Özeke by telephone (+90 212 310 1800) or by fax (+90 212 310 1899) or by email (odemirkan@hbo-law.com.tr).