September 06 2004
Recently, the Energy Market Regulatory Authority (EMRA) and other governmental authorities have conducted talks about privatizing the electricity distribution sector and reducing the number of electricity distribution districts. The overarching aim of the discussions is to create a liberal and competitive environment in line with the Electricity Market Law. According to the latest news reports, EMRA, the Ministry of Energy and Natural Resources, the Ministry of Finance and the Treasury Undersecretariat have agreed to privatize the electricity distribution sector and to liberalize the market by increasing private sector involvement.
In 1994 the Turkish Electricity Distribution Company was incorporated to operate the low-voltage distribution network, in line with the domestic programme to encourage privatization in electricity generation, distribution and transmission. The company failed in its operations due to illegal hook-ups to low-voltage lines. As a result, the government chose to tender electricity distribution companies under the transfer of operating rights (TOR) model, through long-term concessions and private contracts. Nonetheless, attempts to liberalize the market were unsuccessful. Following the World Bank’s criticism of the partial privatization model, the Council of Ministers called for the cancellation of a large number of the TORs.
Following International Monetary Fund (IMF) and World Bank recommendations (not to mention Turkey's undertakings to the IMF in its letter of intent of December 18 2000), the Turkish government decided to accelerate deregulation of the electricity sector and to privatize state-owned power plants with a view to attracting domestic and foreign private capital. Accordingly, Law 4,628 was enacted in 2001. The law states that:
Privatization of the electricity distribution companies is seen as one way of providing a transparent, competitive and relatively risk-free market. It is assumed that electricity prices will decrease automatically upon liberalization, and that the relevant legal and technical capabilities will then be in place for the privatization of electricity generation facilities. The number of electricity distribution districts must be determined as a first step in the privatization process. According to the press, the private sector may be more attracted to districts that do not include larger cities. An energy strategy report was prepared during the World Bank Committee's most recent visit to Turkey in February 2004. In opposition to the government's plans, the report states that privatization of the distribution facilities will not start before 2005. In addition, the committee would prefer privatization of the energy sector to commence only after the relevant legal and technical foundations have been laid. In this respect, privatization of the distribution facilities will be carried out pursuant to Law 4046. The Privatization Administration will prepare the relevant specifications and outline the process up to the end of 2004, and distribution and privatization tariffs will be set for the next five years. Currently, the proposed date for privatization tenders is April 1 2005.
For further information on this topic please contact Yesim Api or Kemal Mamak at Hergüner Bilgen Özeke by telephone (+90 212 310 1800) or by fax (+90 212 310 1899) or by email (email@example.com or firstname.lastname@example.org).
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