EFET GENERAL AGREEMENT(ELECTRICITY) TURKISH EXPERIENCE Değer Boden BODEN LAW OFFICE EFET Members’ Meeting Rome, 30 March 2012

EFET GENERAL AGREEMENT (ELECTRICITY) TURKISH EXPERIENCE CURRENT STATUS ON MARKET OPENING Current Market Structure Draft Electricity Market Law LICENSE REQUIREMENTS Licensing Minimum company share capital ANALYSIS UNDER TURKISH LAW Language Applicable Law Jurisdiction and Arbitration Formation of Individual Contracts (Written Confirmation Forms) Individual Contracts AMENDMENTS ON THE EFET AGREEMENT

CURRENT STATUS ON MARKET OPENING/ Current Market Structure Electricity Market Activities Generation Transmission Distribution Retail and Retail Services Wholesale Import and Export

Generation Turkish Electricity Generation Company (EUAS) Private companies operating under BOO, BOT, TOOR models Other private generators Auto-producers, auto-producer groups

State owned monopoly, TEIAS Transmission State owned monopoly, TEIAS

Distribution and Retail Division of the distribution network into 21 distribution region A separate distribution company for each distribution region Privatization process Distribution companies’ exclusive authority to sell electricity to non-eligible consumers (consumers below the eligible consumer threshold- 25,000 KWh in 2012) until 1 January 2013 Separate legal entities for distribution and retail as of 1 January 2013

Wholesale Turkish Electricity Wholesale Company (TETAS), state owned wholesale company: Activities regulated Taken over existing BOO, BOT, TOOR contracts Purchase of generation of EUAS and/or its affiliates Sale to the distribution companies Private wholesale companies

Turkish Power Trade Market Balancing Mechanism Bilateral Agreements’ Market Cross-Border Electricity Trade Limited financial futures market

Balancing Mechanism Balancing power mechanism Day ahead market Hourly settlement Market operator, financial settlement of balancing power market, day ahead market---Market Financial Settlement Center (MFSC / PMUM) within TEİAS System operator- real time balancing ---National Load Dispatch Center (NLDC) within TEIAS

Bilateral Agreements’ Market Non regulated Electricity sale/purchase agreements between: Generation companies Distribution companies holding retail license Wholesale companies Eligible consumers (eligible consumer threshold 25,000 KwH for 2012) Notification of agreement quantities to the (MFSC / PMUM)

Cross-Border Electricity Trade Parallel and synchronized operation of countries Limited import and export activity at the moment Synchronization with ENTSO-E as of 18 September 2010 Connection to Bulgarian system by Bulgarian system by two 400 kV lines Connection with Greek system by one 400 kV line Limited capacity allocation (third phase) started on June 2011 Third phase is determined to last for 11 months. Amendments on the regulations such as import and export regulation were made accordingly

DRAFT ELECTRICITY MARKET LAW Abolishment of PMUM and establishment of a new entity, separate from TEIAS, the Energy Markets Operation Joint Stock Company (EPIAS) EPIAS to operate the organized wholesale markets, except for the balancing power market and ancillary services market which will still be operated by TEIAS.

DRAFT ELECTRICITY MARKET LAW Definition of “organized wholesale markets”: “day-ahead market, real-time market, balancing power market, ancillary services market, over-the-counter (OTC) markets and derivative markets where wholesale and retail sale and purchase of power and capacity, and derivate products of these will be made and which are organized and operated by an intermediary legal entity which holds a market operation license, and power markets such as balancing power market and ancillary services market which are organized and operated by TEIAS”. Critiques on inclusion of the OTC markets into the definition of the organized wholesale markets Stamp duty exemption for the transactions made in the organized wholesale markets (written and executed documents such as contracts, letters of commitment including a monetary amount are subject to stamp duty of 0.825 %) In other words, trade in non-organized markets are not exempt from stamp duty

DRAFT ELECTRICITY MARKET LAW Merger of wholesale and retail sales activities into one license type, the “supply license” Market Restriction for suppliers: Under the current EML, a real person or entity through the wholesales companies that it controls cannot sell more than 10 percent of the total electricity consumed in the market during the preceding year. The Draft Law provides that the total electrical power amount supplied by a real person or a private sector legal entity through supply companies controlled by them (wholesale or retail sale companies) cannot exceed 20% of the total electricity energy consumed in the market in the previous year.

LICENCE REQUIREMENTS Licensing Separate license for each activity No separate license requirement for import and export, but regulation of import and export activities under wholesale or retail licenses Licensing fees and annual license fees (wholesale licensing fee circa Euro 115,000 for 2012/ annual license fee Euro cent 0,00125 per KWh sold in the preceding year)

Company Establishment Requirements Joint stock or limited liability company establishment requirement The minimum share capital requirements: Generation companies: 20% of the envisaged investment amount Distribution companies: 15% of the transfer or purchase price of the right to operate the distribution region Wholesale companies: circa Euro 835,000 Retail companies: circa Euro 415,000 Retail services companies: circa Euro 83,500 for each distribution region

ANALYSIS UNDER TURKISH LAW Language of the Contract Turkish Language Requirement under the Law No. 805 An agreement between two Turkish companies (national trade/bilateral agreements): Turkish language An agreement between a Turkish company and a foreign company (cross – border trade): Foreign language RECOMMENDATION: Turkish version to be binding between two Turkish entities

ANALYSIS UNDER TURKISH LAW Applicable Law Freedom to chose a foreign law as applicable law Court of Cassation Decision No. 1008/325: The mere fact that the parties choose a foreign applicable law constitutes a foreign element RECOMMENDATION: An agreement between two Turkish companies (national trade/bilateral agreements): Turkish law An agreement between a Turkish company and a foreign company (cross – border trade): Foreign or Turkish law

ANALYSIS UNDER TURKISH LAW Jurisdiction and Arbitration No restriction regarding selection of foreign courts or arbitration Enforcement of foreign arbitral awards subject to the New York Convention RECOMMENDATION: An agreement between two Turkish companies (national trade/bilateral agreements): Turkish courts An agreement between a Turkish company and a foreign company (cross – border trade): Foreign courts, arbitration or Turkish courts

ANALYSIS UNDER TURKISH LAW Formation of Individual Contracts No written contract requirement for validity Evidence with written document for transactions above circa Euro 1050 Electronic signature Evidence agreement RECOMMENDATION: Written individual contracts / written confirmations or evidence agreement

ANALYSIS UNDER TURKISH LAW Individual Contracts Turkey specific provisions: Notifications to MFSC (effect of notification) Compensation provisions (difference between Contract Quantity and quantity notified to MFSC)

AMENDMENTS ON THE EFET AGREEMENT Article 3.1 Inserting the phrase “unless otherwise specified in the Election Sheet” into the General Agreement and inserting the optional right to the Election Sheet regarding Article 3.1 that Individual Contracts shall be concluded in written form (additionally, specifying that the exchange of written Confirmations will be also considered as written agreement) Broadening the definition of Network Operator in General Agreement to cover Market Operator in Annex 1

AMENDMENTS ON THE EFET AGREEMENT Article 4 Specifying in the Individual Contract that the Seller is responsible for notifying the electricity quantity to PMUM and in case of a conflict between the amount in the notification made to PMUM and the Contract Quantity, the latter will prevail Article 8 Determination of a reference price as the market price: (i) system marginal price; (ii) system day-ahead price; (iii) the average of system marginal price and system day-ahead price or (iv) the higher price among system marginal price and system day-ahead price

AMENDMENTS ON THE EFET AGREEMENT Article 13.1: Inserting a standard invoicing date to Part Two of the Election Sheet (last day of the month) Article 13.2 and 13.3: Changing the currency as TL in the General Agreement; providing the option to choose Euro in the Election Sheet Article 17: references to the German Law to be removed Article 22: Selection of the Turkish law and arbitration mechanism in Turkey in the Election Sheet

AMENDMENTS ON THE EFET AGREEMENT Article 23: Inserting a provision in Part Two of the Election Sheet stating that notices and notifications will be made in accordance with the Article 20(3) of the Turkish Commercial Code or Article 18/3 of the new Turkish Commercial Code Article 23: Inserting a provision in the Part Two of the Election Sheet stating that the «Turkish version shall prevail» in contracts between Turkish companies

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