• EUAS, took over the ownership and management rights of thermal power plants from TEAS and hydraulic power plants from DSI (General Directorate of State Hydraulic Works) where keeping the property rights of the facilities including the additional investments. EUAS has the right of building, renting and managing of new production establishments, in order to improve the private corporation investments.
  
• TETAS was established to realize the wholesale of the energy buy/sell agreements signed by TEAS and TEDAS in accordance with the present agreements. TETAS, will cover the costs that occur from the BO (Build-Operate), BOT (Build-Operate-Transfer), TMR (Transfer of Management Rights) agreements.
  
• TEIAS took over all the transmission plants that were under the state property. It is responsible for preparing transmission investment plans, building, managing new transmission plants and maintaining the proper functioning of fiscal market conciliation.
  

Both “Electricity Market Law” and the “Strategy Certificate” aim to attract private sector investments and realize a large scale reorganization in order to improve productivity, establish market competitiveness and a healthy liberalization process.

Through this reorganization and liberalization process:

• EUAS, the dominant company over the electricity production market will be divided into various share companies of hydraulic, lignite and gas ignition facilities. EUAS will keep the ownership of the major hydraulic power plants assigned from DSI but the thermal power plants and small sized hydraulic power plants are being privatized since 2007. However, EUAS will still keep the ownership of the production facilities managed by companies that act under BOT (Build Operate Transfer) and TMR (Transfer of Management Rights) plans.
  
• The transmission net managed by TEIAS will stay under the state monopoly in order to maintain the independence of the current system.
  
• TETAS will maintain its position under the state monopoly, but by time it will assign its rights to private industry through bilateral agreements.
  
• Distribution will be made by private distribution companies in result of the privatization process. But TEDAS will still maintain the freehold of the assets, and in areas where the privatization process hasn’t been completed the distribution activity will be made by joint owner companies
  
• Distribution and the retail sale process will be separated from each other. Distribution companies will have the right to produce and/or realize capacity sales to independent clients in their regions. By the crossover time (2006-2010) independent clients can buy electricity from the distribution companies and/or auto producers in their regions. Even after the establishment of private retail sale companies, distribution companies will be able to make sales to independent clients in their regions or in the other regions, if indicated by the contract. Moreover, the distribution company will have the obligation of providing energy to the consumers that don’t have possibility of being supplied by another retail company. By the decision of the regulatory authority distribution and retail activities will have to be divided legally, until the end of the crossover process.
  
• Electricity import and export process is planned to be managed by TETAS, private wholesale companies, retail sale companies and retail sale licensed distribution companies.
  
• Some energy contracts have been signed between TETAS/EUAS and the production companies in order to realize a smooth transition from the current monopoly status to privatization which supports to estimate the electricity prices accurately. These contracts involve %85 of the total electricity demand of dependent clients. Transition period contracts have been signed with the prearranged prices and entail a five year period. After the ending period of these contracts, they will be replaced by new contracts, with accurate market prices.

Fiscal conciliation mechanism built by TEIAS, has been functioning since 2006. This mechanism helps to form a spot market, in order to remove the current imbalances and to create an easier market access for the small independent energy producers.

Unlike many developed and developing countries, the electricity prices have been stabilized in the same level for industrial and residential clients. However, with some new regulations, these prices are re-arranged in order to be more advantageous for industrial clients. In recent years, electricity prices have been stabilized in YTL terms where fluctuated in USD terms.

PRODUCTION

In electricity production, there are various market players such as state production company EUAS and its partners, private companies that operate under BO, BOT and TMR applications, private mobile producers and auto producers / auto producer groups.

• EUAS and its partners, administrate the state owned thermal and hydraulic power plants.
  In mid 1990’s some production companies were established by the change of private sector production law. Starting from 1985, the electricity demand increased constantly, sometimes reaching over %10.
  
• Demand is forecasted to increase which brings the necessity of more investments in the energy sector. Since the State lacks capital for these kind of investments, some plans have been made in order to attract private investors; such as BO (Build-Operate), BOT (Build-Operate-Transfer) and TMR (Transfer of Management Rights)
  
• BOT plan was arranged in accordance with the “No. 3096 Law” enacted in 1984. This law enabled the private sector to have the rights of electricity production, transmission and trade. With this implementation, private companies can build new production facilities, operate them for 20 years and then transfer it to TEAS (in the current structure to EUAS). Mostly, the companies that operate through this plan, have long term energy trade agreements with TEAS, based on mandatory purchase principle.
  
• Similar to BOT plan, TMR arrangement has been formed in accordance with the law no.3096. By TMR, private investors are obliged to finance renewal and expansion for 20 years. And the facilities will continue to be the property of the State.
  
• BO plan which allows private investors to have the right of property was formed in 1996 by 96/8269 no. Council of Ministers Conclusion. Companies that are operated by this plan have long term energy trade agreements with TEAS (TETAS in the current structure) based on mandatory purchase principle. And BOTAS (Petroleum Pipeline Corporation)is obliged to provide natural gas to these companies for 20 years with previously fixed price. In case of not being able to provide, BOTAS is responsible to cover the energy costs that may occur.
  
• Mostly, the production facilities that use fuel-oil or diesel oil are managed under the BO plan by private companies.
  Auto producers and auto producer groups, are basically described as legal entities that produce electricity for themselves or for their partners. These companies are usually joint companies of a major holding company, operating in textile, chemicals or metallurgy industries. By time, these auto producers have transformed into private energy providers of third party companies.
  
• In result of the high demand and the private companies’ entry to the market, energy production capacity has increased drastically over 20 years. In 1985 this capacity was 9.1 GW, but in 2004 it increased to 36.8 GW. (38.8 GW in the end of 2005) While the production in 1985 was 34.2 TWh, in 2004 it increased to 150.7 TWh. Because of the developing private companies operating under mobile facilities and auto producer arrangements, BO, BOT and TMR shares in the gross state production, decreased from %91 (in 1995) to %45 (in 2004)
  
• %59 of the present capacity is provided by the state production company EUAS and its joint partners. 10 lignite, 1 coal, 3 diesel and 3 natural gas power stations of EUAS and its joint partners have 10.8 GW thermal production in total. The rest of the 11.5 GW capacity of EUAS is provided by nearly 100 hydroelectric power plants. EUAS and its joint partners constitute %45 (68.0 TWh) of Turkey’s electricity production.
  
• Private and independent producers established under BO, BOT and TMR plans have %29 of the total capacity. Almost %75 of this capacity is provided by natural gas plants and the rest is provided by lignite-coal power plants and renewable energy plants. Two private companies that operate under TMR plan constitute %2 of the total capacity (0.7 GW). 13 mobile electric power plants constitute almost %2 of the total capacity (0.8 GW). All these facilities have provided %39 of the total energy produced in 2004.
  
• Total production capacity of the auto producers in Turkey is 4.4 GW (%12 of total capacity) %49 of this capacity is provided by natural gas power plants, %16 by oil/diesel power plants and %15 by hydraulic power plants. Ak Enerji, Zorlu Enerji, EnerjiSA and Colakoglu Metalurji are amongst the major auto producers. The total production of the auto producers constitute %16 of 2004 production (23.8 TWh)

PRODUCTION CAPACITY BY PRODUCER TYPES (1985-2004) (GW), (%)

• By 2004, operating 135 thermal power plants constitute %34 (12.6 GW) of the current capacity, and %31 (46.1 TWh) of the current production.
  
• Turkey is estimated to have the potential of %1 global hydraulic production. But because of the agricultural irrigation usage of the water, it is not used efficiently. This capacity is forecasted to be tripled in the 20 year long term plans. In 1986, one of the biggest irrigation and hydraulic energy production projects of the world called GAP (Southeastern Anatolia Project) has been initiated, and is supposed to be completed in 2010. This project envisages the construction of 22 dams and 19 hydraulic power plants with a capacity of 7.5 GW.
• By 2004, electricity production facilities with natural gas constituted %35 (12.8 GW) of the current capacity and %41 (62.2 TWh) of gross production.
  
• For having limited national gas resources, Turkey imports large amounts of gas in order to supply the rising demand. Because of Turkey’s advantageous geopolitics, importing gas from Middle Asia/Middle East countries or by the alternative gas pipeline projects has been a very attractive investment. Russia, for having the Blue Stream project, provides the majority of gas demand in Turkey (%65 of total demand) The rest of the gas providing countries include: Iran (%16) Algeria (%15) and Nigeria (%5)
  
• Growth of hydraulic and natural gas production led lignite/coal production decrease from %34 (1985) to %23 (2004). Gross production of lignite/coal constituted %23 of the market in 2004 (34.4 TWh)
  
• Turkey, with approximately 8 billion metric ton lignite reserves, is the seventh biggest country in terms of the reserve size. But only a small size of these reserves is suitable to utilize as an energy source. By using newer technologies and by the natural factors, it is possible to raise the quality of lignite and that would define the usage share in the future. Turkey is predicted to have 700 million tons of coal reserves. Coke coal constitutes %80 of these reserves.
  Fuel-oil constitutes %7 of the actual capacity (3.0GW) and %4 of the production (9.7 TWh) Turkey’s oil production nears approximately 1.6 million tons, and this only supplies the %5 of the national demand. Because of the low petroleum reserves, the country is dependent on oil import.
  
• Renewable energy consumption in Turkey is actually very limited. However Turkish government constituted the law no. 5346 in order to boost the consumption of this type of energy. Turkey is estimated to have a potential of 10GW wind energy. Actually a very small percentage of this energy is consumed, but it’s known that there are some wind energy projects authorized by EPDK (Energy Market Regulatory Authority)
  

Transmission activity, is managed by the state monopoly TEIAS with equal prices to all system users. Therewithal, TEIAS is responsible to supply production needs and to maintain the market conciliation in order.

Turkey has a 45,780 km. long high voltage and very high voltage electricity transmission net. This net has a total capacity of 2560 MW and is connected to all neighbor countries: Bulgaria 1250 MW, Georgia 300 MW, Azerbaijan 110 MW, Armenia 300 MW, Iraq 500 MW and Iran 100 MW. Transmission with Greece and Syria is in construction, there is a probability of secondary transmission lines with Iran and Iraq. When all completed, the capacity will be as: Greece – 750 MW, Syria – 750 MW, Iran – 600 MW and Iraq – 500 MW.

Import volume stayed considerably low until 1996, between years 1996 – 2001 with a small, expansion it reached to %3.7 of the total consumption. But in 2004 it came down to %0.3 levels.

Until 1990 transmission lines have expanded steadily, but with the decreasing investments, network growth slowed down. Especially between 1994 and 2001, when whole economy slowed down in general.

Production is mostly settled in the eastern part of Turkey, but the major consumption is in the western part. Because of the distance between the east and the west, there are some transmission restraints and the transmission loss is higher than the international norms. The new thermal power plants built in the west and the electricity import from Bulgaria has narrowed these restraints moderately. For years, transmission lost level has been maintained between %2.0 - %3.5. Transmission lost in 2004 (%2.4) was near to the levels that is seen in the developed countries .

According to the Electricity Market Law, given EPDK license, distribution sector is allowed to function as regional monopoly. By 17.03.2004 dated Strategy Certificate, Turkey has been divided into 21 distribution regions with 20 of them in privatization process. Geographical proximity, administration structure, energy demand and technical/fiscal reasons were the major criterias for these divisions. Geographical status and other details of these divisions are shown below.

By 2004, Turkish distribution network contain, 842,393 km cable (%40 Medium Voltage %60 Low Voltage; %94 by air, %6 underground) 270,000 transformer with 84,000 MVA capacity and 13 million electricity pole.

• Insufficient support and effort for fighting with illegal usage; illegal usage is thought to be as a social right.
• Illegal supply for low-income community that settle into big cities.
• Increasing technical loss, in result of insufficient investment on the network.
  

Loss / leak percentage in the distribution regions differ between %7 and %64. As shown below, loss/leak percentage is lower in the western region. Main reasons for different percentages are: geographical varieties, network quality, demographical properties (income, education level) and management conception.

• TEDAS and its distribution companies formed new teams to detect loss/leak in high consuming areas. In 2003 these teams inspected 5 to 6 million clients, detected 300.000 leak cases, punished $ 170 million and collected $ 46 million
  
• Clients who install the count meter improperly were tracked and necessary actions were taken.
  
• Retail service duties such as measurement, invoicing and collecting have been given to subcontractor companies. Some award projects are developed for the personnel that detect leak/loss.
  

RETAIL SALE

In the current market structure, retail sales to dependent clients are done by TEDAS owned distribution companies and KCETAS but for the independent clients the retail sales are also done by auto producers and private producers.

In 2005 net electricity consumption was 121 TWh. Total client number is approximately 27 million. Industrial clients consume almost %49, residential clients %23, commercial clients and state corporations %23 of the total outcome. The rest is consumed by city lightings and agricultural irrigation. In 2004 TEDAS and its joint partners supplied %71 of the retail sale. They have the share of %45 sale in industrial consumption and %96 in residential consumption.

TEDAS and joint partners serve approximately 22.6 million residence clients, 3.5 million commercial corporation clients (including state) , 0.3 million agricultural irrigation clients. Because of the high population, urbanization and industrialization, electricity consumption in the western part is the most highest in the country. But home residents’ share on the total consumption has some differentials between %15 and %43 depending on each region’s characteristics.