1. Energy Market Regulatory Authority of TURKEY (EMRA) Yusuf GÜNAY President, Energy Market Regulatory Authority Budapest, Hungary May 19, 2004 4 th Annual Meeting of the Energy Regulators Regional Association

2. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 2 Key Events and Activities in 2003 Through May 2004 ELECTRICITY Over 3,000 MW of production licenses granted to the private sector Strategy Paper dated March 17, 2004 presents a timetable for privatization of distribution and generation assets. Privatization will start in the distribution sub- sector. Therefore Turkish Electricity Distribution Company (TEDAŞ) and Subsidiaries have been included in the privatization programme. 21 distribution regions have been determined. The generation facilities to be privatized will be identified and grouped on the basis of minimization of market power and financial viability Provided that Market Management System by Transmission Company is operational, the privatization process for portfolio generation groups will commence on July 1st, 2006 NATURAL GAS Majority of secondary legislation has been completed in conformity with EU Gas Directive 2003/55/EC. As of May 2004, 18 city distribution license tenders have been completed. National demand projection has been determined for 2004. Licenses granted:  Transmission 1  Distribution19  Wholesale 4  Import 9  Export 1  Storage 3  CNG11  LNG Transmission 2  TOTAL50

3. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 3 Key Anticipated Issues & Activities for the Next Year ELECTRICITY The transitional balancing and settlement system will be operational by January 2005 Formation of spot market will gain momentum. Balancing & settlement mechanism will be operational by 2006. Regulation on the reliability and quality of supply and the regulation for demand forecasts will be issued this year. NATURAL GAS Network Code is expected to be issued before the end of 2004. Entry-exit tariff methodology will be prepared. Approximately 20 city distribution license tenders are planned in 2004 BOTAŞ is expected to be conducting tenders to transfer at least 10 % of its existing natural gas purchase and sales contracts Eligibility threshold is 1 million m3 in the Law However, the Board may decide different threshold for the distribution regions.

4. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 4 Key Issues and Status of Tariff Methodologies and Levels NATURAL GAS  Tariffs are approved by the Board  Regulated with a variation of the price cap.  Wholesale price ceilings indexed to the exchange rate and gas import prices.  Distribution service charge ceilings, transmission charge ceilings and storage charge ceilings indexed to the inflation.  Monthly re-calculation of tariffs consider operational costs The transmission company’s income is to be regulated through a “Revenue Cap” methodology by 2009. An entry / exit system is anticipated for the transmission tariffs, but details are under preparation. New distribution tenders are being carried out by EMRA and the company which submits the lowest unit service and depreciation charge wins the tender.

5. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 5 Key Issues and Status of Tariff Methodologies and Levels ELECTRICITY Transition period implementations are currently valid with regard to restructuring and privatizations processes. At the end of the transition period, regulation types determined in the Law and secondary legislation for specified activities will be implemented. ACTIVITYTYPE of REGULATION PUBLIC WHOLESALEDetermined by Board (Pass-through) TRANSMISSIONRevenue Cap (RC) Connection Fee for Transmission Cost reflective within the determined principles DISTRIBUTIONHybrid Model (RC + PC) Connection Fee for DistributionCost reflective within the determined principles RETAIL SALE & SERVICEPrice Cap & RC