new opportunities in energy and infrastructure in...

NEW OPPORTUNITIES IN ENERGY AND INFRASTRUCTURE IN TURKEY

Okan Demirkan, Esq.

Warsaw, 22 September 2017

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Content

I. ELECTRICITY MARKET OVERVIEW AND OPPORTUNITIES

II. ELECTRICITY TRADING

III. NUCLEAR POWER

IV. NATURAL GAS MARKET

V. NATURAL GAS TRADING

VI. PETROLEUM MARKET

VII. INFRASTRUCTURE

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I. ELECTRICITY MARKET OVERVIEW AND OPPORTUNITIES

Turkey is planning to make an investment of TRY 15 billion (USD 4.3 billion) tostrengthen infrastructure of its electricity supply system network in the comingyears

Turkish electricity market is one of the fastest growing electricity markets in theworld, with an approximately 5.5% annual growth rate over the past 13 years

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I. ELECTRICITY MARKET OVERVIEW AND OPPORTUNITIES 1. Privatizations

A privatization program has been applied since 2002. The most important item ofthis privatization programme is privatization of power plants and electricitydistribution companies

This privatization programme gave Turkey’s energy sector a highly competitivestructure and new horizons for growth

Privatization of all state-owned electricity distribution companies previouslyowned by Türkiye Elektrik Dağıtım Anonim Şirketi (“TEDAŞ”) is completed

Turkey aims to complete privatization of all state-owned electricity generationassets owned by Elektrik Üretim Anonim Şirketi (“EÜAŞ”) within the next fewyears

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I. ELECTRICITY MARKET OVERVIEW AND OPPORTUNITIES 1. Privatizations (Completed Projects)

Power plant Approximate bid value (million)

Orhaneli and Tunçbilek Thermal Power Plant (“TPP”) USD 521

Soma B TPP USD 685.5

Yatağan TPP USD 1.1

Seyitömer TPP USD 2.2

Kangal TPP USD 985

Çatalağzı TPP USD 350

Karacaören 1 and 2 Hydroelectric Power Plants (“HPP”) TRY 515

Kadıncık 1 and 2 HPPs TRY 864.1

Doğankent, Kürtün and Torul HPPs TRY 1.2

Manavgat HPP TRY 370

Fethiye HPP TRY 128

Hopa TPP 26.5

Şanlıurfa HPP TRY 247.5

57 Small Size HPPs USD 957

Hamitabat Natural Gas Plant USD 105

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Projects in Progress

ProjectInstalled

Power(MW)

Tender Date PurchaserPrice of Transfer

(million)

TORTUM HPP 26 18/07/2017Tayfurlar Enerji Elektrik Üretimi A.Ş.

TRY 131.1

MENZELET and KILAVUZLU 178 11/O9/2017 ENTEK Elektrik Üretimi A.Ş. TRY 1,276

ANAMUR, BOZYAZI, MUT-DERİNÇAY, SİLİFKE and ZEYNE HPPs

2.831/03/2017(purchase is approved, transfer will occur)

Erg Altyapı İnşaat Turizm Ticaret ve Sanayi Ltd. Şti.

TRY 9

YENİCE HPP 3818/07/2017(purchase is approved, transfer will occur)

Kılıç Enerji Üretim Anonim Şirketi

TRY 130.3

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ProjectInstalled Power

(MW)Location

Kepez 2 HPP 6 Antalya

Kesikköprü HPP 76 Ankara

Derbent HPP 56 Samsun

Çamlıgöze HPP 32 Sivas

Seyhan 1 HPP 60 Adana

Seyhan 2 HPP 8 Adana

Yüreğir 6 Adana

Çamlıca 1 84 Kayseri

Demirköprü HPP 69 İzmir

Akköprü HPP 115 Muğla

Topçam HPP 60 Ordu

Kepez 1 HPP 26,4 Antalya

Çayırhan TPP - Ankara

Projects in the Pipeline

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I. ELECTRICITY MARKET OVERVIEW AND OPPORTUNITIES2. Renewables

Current Status

The total investments required to meet Turkey’s expected energy demand in 2023 isestimated to be approximately USD 110 billion, more than double the total amountinvested over the last decade

The Turkish government supports investments in the energy sector, with a particularfocus on renewable energy

Turkey has been making legislative amendments and legal reforms in renewableenergy since 2010

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Incentives

Utilisation of renewable energy resources for the purpose of generating electrical energy isprimarily governed by the RER Law, which entered into force in 2005

In January 2011 and 2016, the RER Law underwent a significant set of amendments

With amendments in 2011, feed-in tariffs (FIT) and other incentives were introduced. RERSMmechanism has been established. This mechanism includes prices, terms, procedures andprinciples regarding payments, from which individuals generating energy based on renewableenergy resources within the scope of the RER Law can benefit

Upon amendments in 2016, (a) the energy generated by power plants is no longer subject toan isolated RERSM portfolio system but rather subject to a system which can be consideredas partially FIT and partially feed-in premium; (b) Power plants can now sell the generatedenergy directly to the free market instead of market operator; (c) power plants are nowfinancially responsible for their imbalances

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Incentives

In order to benefit from the RERSM, investors must obtain a renewable energy resourcecertificate

Renewable energy facilities, related roads and transmission lines established in a forestryarea or on State Treasury land benefit from 85% discount on land allocation, lease orutilisation fees for ten years, if generation commences before 2015

Additional incentives are provided if domestic equipment is used in facilities commissionedbefore 31 December 2020

Investors must apply to EMRA to obtain such certificate until 31 October of each year

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a. Solar Power

Turkey has set a national solar power capacity target of 5 GW by 2023

Turkey already reached 1,503 MW of installed PV (photovoltaics) capacity as of the end ofJune 2017

Turkey aims to become Europe’s third largest PV market in 2017, after Germany and theUK

The tender for the Karapınar Resource Area, a solar-power energy zone with an allocatedcapacity of 1 GW, took place this year. In this Project, a plant with a generation capacityof minimum 500 MW of FV moduls per year will be built

Turkey built its first floating solar plant in August 2017 and plans to build two more in thenear future in Istanbul

Construction of a new FV plant has started in Kayseri district with a capacity of 10,000MW per year

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b. Wind Power

Wind energy plants constitute 41% of Turkey’s current renewableenergy capacity

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In August 2017, a tender was held for wind power of 1,000 MW

The project attracted the interest of the world’s leading wind equipment manufacturers

The winning consortium (Siemens-Türkerler-Kalyon) will set up a wind turbine plant with aninvestment cost of over USD 100 million, with a domestic input rate of 65%

450 domestic wind turbines will be manufactured in the plant

b. Wind Power

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b. Wind Power

3 new wind power plants will be established in Konya (two plants) and İstanbul(one plant)

The project value is approximately Euro 200 million

The total capacity of the plants will be 149 MW

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c. Geothermal Power

Currently, Turkey uses only 3% of its potential geothermal power. Turkey’s estimated totalgeothermal power potential is 31,500 MW

Specific incentives have been designed by the Government to encourage geothermalinvestment. Turkish Renewable Energy Resources Support Mechanism offers a feed-in tariffof USD 0.105 per KWh for geothermal facilities

Number of fields suitable for electricity generation from geothermal power has increasedfrom 16 to 25 in 2017

World Bank created an additional incentive for development through a USD 39.8 millionfunding package

78% of Turkey’s geothermal fields are situated in Western Anatolia, 9% in Central Anatolia,7% in the Marmara Region, 5% in Eastern Anatolia and 1% in the other regions

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d. Hydroelectric Power

Turkey is a high-altitude country with over 25 river basins, including the trans-boundaryTigris and Euphrates rivers

In early 2015, the Turkish Government announced that it would allocate USD 16 billion tohydro development until 2018 as part of its 10th Development Plan

The largest hydropower project currently under construction in Turkey is the 1,200 MWIlısuDam, part of the Southeastern Anatolian Project (GAP) on the Tigris

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d. Hydroelectric Power

Hydroelectric Power Plant

Number of Active Power Plants 600

Installed Power 26,952 MW

Portion in Total Installed Power 33.5%

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I. ELECTRICITY MARKET OVERVIEW AND OPPORTUNITIES3. Coal-Fired Power Plants

Coal has an important role in the energy mix, thanks to its cost and accessibility advantages

While focusing on renewable energy investments, Turkey will continue to use coal as anenergy resource in its energy strategies

Turkey is planning to enact a separate coal law, considering the specific needs of operatingcoal mines and the use of coal to meet energy demands

Turkey plans to build as many as 80 new coal plants in the next few years, on top of 25 thatalready exist

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I. ELECTRICITY MARKET OVERVIEW AND OPPORTUNITIES4. Natural Gas Power Plants

There are 213 active natural gas power plants in Turkey, with a total capacity of 22,162 MW

A new natural gas power combined cycle power plant will be established in Kırıkkale, with acapacity of 840 MW this year

Construction of a Combined Cycle Power Plant (CCPP) in Kırklareli with a total power outputof 1,200 MW is being established. Power plant is designed for 25-year lifespan. This projectis estimated to be completed in October 2017

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II. ELECTRICITY TRADING

In Turkey, supply licence holders can conduct electricity trading activities (wholesale, export,import and retail sales)

Electricity traders must either (i) conclude a bilateral electricity purchase agreement withanother licence holder or (ii) contribute to the organised markets themselves, in order toparticipate in the electricity market

In 2015 EPİAŞ was incorporated and obtained a market operation license

Upon its incorporation, EPİAŞ started conducting market operation activities of the organisedwholesale electricity markets

EPİAŞ’s future goal is to create a transparent, economically dynamic, liberal and reliable marketfor energy trades and attract cross-border investors

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III. NUCLEAR POWER1. Akkuyu Nuclear Power Plant’s Status / What Will Happen Next?

Turkey has had plans to establishing nuclear power generation since 1970

In 2010, Turkey and the Russian Federation signed an intergovernmental agreement andagreed on a BOO model for the Akkuyu NPP in Mersin district

The project is carried out by Akkuyu Nuclear Co., a subsidiary of Rosatom Energy International,which was granted a 49-year-long electricity generation license

Rosatom contemplates to sell 49% of its stake in the project company to a Turkish consortium,Cengiz-Kolin-Kalyon

The plant will have a capacity of 4,800 MW in four units

The project value is approx. USD 20 billion and it is expected to meet 6 to 7% of Turkey’selectricity demand after it is completed

In its first phase, two units with a capacity of 2,400 MW are planned to be completed by 2023

Turkish government has guaranteed the purchase of a certain amount of the generatedelectricity over Cent/USD 12 for 15 years

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III. NUCLEAR POWER2. Sinop Nuclear Power Plant’s Status / What Will Happen Next?

Since February 2008 preparatory work has been under way in Sinop to build a second nuclearplant

The intergovernmental agreement related to the Sinop Nuclear Power Plant was signed byTurkey and Japan in 2013. Turkey ratified this IGA in 2015

The Sinop NPP will be a BOT model project

The project participants started to conduct the feasibility studies for realisation of the SinopNPP. This feasibility study is due for completion by the end of 2017, and the target operationcommencement date is 2023

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III. NUCLEAR POWER3. Prospective Iğneada Project

There are plans to build a third nuclear capacity at another site: İğneada

For the purposes of a third nuclear power plant, the Chinese State Nuclear Power TechnologyCorporation, US Westinghouse Electric Company and EÜAŞ signed a memorandum ofcooperation on 24 November 2014

At the 23rd World Energy Congress held in İstanbul, the Turkish President confirmed that athird nuclear power plant is on the Turkish Government’s agenda

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IV. NATURAL GAS MARKET1. Available Activities

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The Natural Gas Market Law (the “NGML”) governs import, transmission, distribution,storage, wholesale and export of natural gas in Turkey

Each natural gas market activity is subject to a license from EMRA

For natural gas, there is no energy exchange in Turkey yet, but a natural gasorganised wholesale exchange market will be established in 2018

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The NGML sets forth specific limitations and restrictions related to gas import activities, for thepurpose of liberalizing the natural gas market and establishing a competitive natural gas market

Volume of gas imported by any import company cannot exceed 20% of the nationalconsumption forecast to be determined by EMRA in January of the relevant year. This limitationdoes not apply to LNG

BOTAŞ cannot enter into new natural gas purchase agreements, until the share of gas importedby BOTAŞ falls to 20% of the annual national consumption amount

EMRA must not permit any company to import gas from countries from which BOTAŞ is alreadyimporting natural gas, except unless the natural gas imported from these countries will bedirectly exported to other countries. This limitation does not apply to LNG

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IV. NATURAL GAS MARKET2. Limitations on Import of Natural Gas

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Import license holders must conclude lease contracts with storage license holders to ensurestorage of 6% of their annual gas import

The current total capacity of the storage facilities in Turkey is below 10% of the nation’sannual gas import volume

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IV. NATURAL GAS MARKET3. Opportunities in Gas Storage

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V. NATURAL GAS TRADING

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In Turkey, gas trading is only physical, and regulated in each separate licence and the NetworkOperation Manual of BOTAŞ

For natural gas, there is no energy exchange in Turkey yet

The newly introduced Regulation on the Natural Gas Organized Wholesale Exchange Marketprovides that a natural gas organized wholesale exchange market will be established in 2018

EPİAŞ is currently working on the technical infrastructure for establishment of this newexchange market

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VI. PETROLEUM MARKET1. Amendments and Incentives under 2013 Petroleum Law

The TPL aims to liberalize oil and natural gas production and exploration activities to the extentpossible, thereby attracting foreign investors

The TPL provides for certain rights regarding the employment of foreign personnel, as well astax, fee and stamp duty exemptions

Survey permit, exploration license and exploitation license holders are entitled to employforeign personnel for up to 6 months, to the extent necessary for their petroleum activities,subject to an affirmative opinion from the MENR and a residence permit from the Ministry ofInterior Under this incentive, the employment of the foreign personnel for up to 6 months isnot subject to a work permit

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The new Turkish Petroleum Law No. 6491 (“TPL”) was enacted on 11 June 2013 and replacedthe previous Petroleum Law No. 6326

The TPL’s aim is to ensure that the petroleum resources of the Turkish Republic are explored,developed and produced in a swift, consistent and efficient manner in accordance with thenational interests

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VI. PETROLEUM MARKET1. Amendments and Incentives under 2013 Petroleum Law

Petroleum right holders are entitled to export a certain amount of the petroleum and naturalgas (35% for onshore and 45% for offshore) that they produce in fields discovered after 1January 1980

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Additional incentives that will be given for investment to be realized by petroleum right holderswill be determined by the Council of Ministers

Companies are exempt from customs duty, levies and stamp tax for oil and gas field equipmentimported or supplied locally

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VI. PETROLEUM MARKET2. Recent Large-Scale Transactions in Down-Stream Market

2015: Doğan Group acquired 50% of Aytemiz Petrol and returned to the oil and gas sectorafter the sale of its Petrol Ofisi shares to OMV

2017: OMV sold 100% of its wholly owned subsidiary Petrol Ofisi, the leading company in theTurkish oil products retail and wholesale market, o Vitol. The total purchase price wasannounced as approximately EUR 1.4 billion

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2015: Total Oil sold its fuel retail arm in Turkey to Demirören Group, for USD 356 million

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VII. INFRASTRUCTURE1. Large-Scale Infrastructure Projects in Progress

‒ TANAP Pipeline Project (Project size USD 9 billion)

‒ Turkish Stream (Project size USD 15.1 billion)

‒ Dardanellas (Çanakkale) Bridge, Tekirdağ-Çanakkale Highway (Project size USD 5 billion)

‒ Gebze-İzmir Highway (Project size USD 5 billion)

‒ Ankara-İstanbul High Speed Train (Project size USD 5 billion)

‒ Ankara-İzmir High Speed Train (Project size USD 4.9 billion)

‒ İstanbul Subway Projects involving five new lines (Project size TRY 4 billion)

‒ Başkentray Subway Project (Project size TRY 600 million)

‒ Third Istanbul Airport PPP (Project size USD 35 billion)

‒ Canal Istanbul PPP (Project size USD 15 billion)

‒ Haliç Port (Project Size USD 1.4 billion)

Transportation

‒ Star Rafinery (Project size USD 5.7 billion)

‒ Akkuyu Nucleer Power Plant (Project size USD 20 billion)

‒ Sinop Nucleer Power Plant (Project size USD 20 billion)

‒ The third nuclear power plant is contemplated to be established in İğneada region

Pipelines

Energy Generation

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VII. INFRASTRUCTURE2. Completed Projects

– Completed in 2016

– Project value is USD 1.2 Billion

Osmangazi Bridge



Yavuz Sultan Selim Bridge (with Northern

Marmara Motorways)

– 58 viaducts within the project are

completed, the bridge is in use,

construction work in 3 viaducts continues

– Investment of approximately USD 6.5

Billion

Marmaray



Eurasia Tunnel Osmangazi Bridge

MarmarayYavuz Sultan Selim Bridge (with

Northern Marmara Motorways)

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Turkey takes the lead in the global infrastructure area with its dedicated visionand milestone projects. The Turkish Government has planned and initiated aset of infrastructure investments both as public investments and PPP projectsbefore the 100 year anniversary of the Turkish Republic in 2023

The new investment incentives include exemptions from customs duties andVAT, and social security premium support

Projects are financed both by local and international banks and financialinstitutions

VII. INFRASTRUCTURE3. Trends

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