Oil and gas regulation in Turkey: overview
A Q&A guide to oil and gas regulation in Turkey.
The Q&A gives a high level overview of the domestic oil and gas sector, rights to oil and gas, health safety and the environment, sale and trade in oil and gas, tax and enforcement of regulation. It covers transfer of rights; transportation by pipeline; environmental impact assessments; decommissioning; waste regulations and proposals for reform.
To compare answers across multiple jurisdictions, visit the energy and natural resources Oil and gas regulation Country Q&A tool.
This Q&A is part of the multi-jurisdictional guide to energy and natural resources. For a full list of content visit www.practicallaw.com/energy-mjg.
Domestic industrial production
The Turkish Energy Market Regulatory Authority (EMRA) oversees three main areas of industrial production within the Turkish oil and gas sector:
Petroleum. In total, 21.55 million tonnes of petroleum products were produced in Turkey during 2013. These were produced at refineries operated by Türkiye Petrol Rafinerileri A.Ş. (TÜPRAŞ).
Currently, six companies hold petroleum refinery licences in Turkey, but only four sites are actively carrying out refinery activities (located in İzmir, İzmit, Kırıkkale and Batman).
Natural gas. In total, 632 million cubic meters of natural gas were produced in Turkey during 2012. Gas-fired electricity plants accounted for 43% of the electricity generated in 2012.
Liquefied petrol gas (LPG). In Turkey, LPG production activities are performed by Türkiye Petrol Rafinerileri A.Ş. (TÜPRAŞ), a company that completed privatisation in 2005. During 2013, TÜPRAŞ produced 733,353 tonnes of LPG at refineries in İzmit, İzmir and Kırıkkale.
The import/export market
Petroleum. During 2013, Turkey imported 18.55 million tonnes of crude oil, including imports from Iran, Russia, Iraq, Saudi Arabia, Kazakhstan and Libya.
In 2013, Turkey exported 8.66 million tonnes of petroleum products (2013 Annual Market Sector Report, published by the General Directorate for the Petroleum Market).
Natural gas. Turkey imported 45.92 million cubic meters of natural gas during 2012. Turkey has eight agreements in effect with foreign countries for the purchase and import of natural gas. These countries are (in order of greatest to least import volume):
Russia (three separate agreements).
Turkey is significantly dependent on Russia for the import of natural gas.
State-owned Boru Hatları İle Petrol Taşıma A.Ş. (BOTAŞ) dominates the natural gas import and export markets. In 2012, BOTAŞ accounted for over 92% of all gas imports. Despite this market dominance, natural gas importation is an increasing area of activity in Turkey, with 13 different corporations applying to the EMRA during 2012 to obtain import licences.
During 2012, Turkey exported 611 million cubic meters of natural gas to:
Natural gas production companies must obtain a wholesale licence from the EMRA to sell natural gas to wholesale trade companies, import/export companies, and/or distribution companies. As of 2012, there are eight natural gas wholesale licence holders in Turkey:
Türkiye Petrolleri Anonim Ortaklığı (TPAO) (state-owned). It produces 52% of total natural gas production.
Thrace Basin Natural Gas Corporation.
Transatlantic Exploration Med. Int. Pty. Ltd.
Tiway Turkey Ltd.
Petrogas Petrol Gaz ve Petrokimya Ürünleri İnşaat San. Ve Tic. A.Ş.
Petrol Ofisi Arama Üretim San. Ve Tic. A.Ş.
Foinavon Energy Inc.
Amity Oil International Pty. Ltd.
Consumer-facing natural gas prices in Turkey are comparatively low. According to Eurostat, for every 100-kilowatt hours of natural gas consumed in housing during 2012, the average price among European countries was EUR7.90. In Turkey, the price was much cheaper, at EUR4.10. The lower prices can be linked to BOŞTAS being dominant in this market segment and also being exempt from the cost-based pricing mechanism for state-owned enterprises, which in turn influences consumer prices (2012 Annual Market Sector Report, published by the General Directorate for the Natural Gas Market).
LPG. In 2013, Turkey imported 3,088,191 tonnes of LPG from 13 different countries. These imports were primarily received from Algeria, Russia, Norway, Kazakhstan and Ukraine. The LPG import sector is broken down as follows:
OMV Petrol Ofisi: 7.5%.
Other importers: 20.4%.
Turkey exported 79,995 tonnes of LPG to Switzerland, the Turkish Republic of Northern Cyprus, Greece and Singapore during 2013.
Due at least in part to high-priced petrol, Turkey is a major consumer of auto-LPG. However, Turkish consumption of cylinder and bulk LPG is trending downwards as natural gas consumption increases (2013 Annual Market Sector Report, published by the General Directorate for the LPG Market).
Domestic market structure
See Question 5.
Government policy objectives
The Turkish Government's primary policy in this area is to gradually liberalise and deregulate the oil and gas industry. According to the Ministry of Energy and Natural Resources (MENR), the Turkish Government aims to:
Encourage investments into energy infrastructure.
Reform the energy markets to increase competition.
Liberalise the oil and gas market.
Reduce dependency on foreign resources, while taking advantage of Turkey's own resources in an environmentally friendly way.
New regulations were recently introduced to create a more investor-friendly environment:
Turkish Petroleum Law numbered 6491 (published in the Official Gazette numbered 28674, 11 June 2013).
Application Regulation for the Turkish Petroleum Law (published in the Official Gazette numbered 28890, 22 January 2014).
These new regulations support privatisation and liberalise the upstream licence regime so that the TPAO and other applicants are assessed in the same way for upstream licences.
Current market trends
In general, Turkish oil and gas imports are trending upwards, whereas domestic production is trending downwards. Turkey is estimated to be 89% dependent on foreign sources for crude oil and this reliance is a concern for the Government in terms of energy security. The Turkish Finance Minister stated in June 2014 that he expected the country's energy import bill to reach US$61 billion in 2014, compared with US$56 billion in 2013. To improve energy security, the Turkish government has put emphasis on privatisation programmes with the intention that increased infrastructure investments will reduce security constraints.
To date, 60 gas distribution companies have been privatised and tenders for two others are in progress. İGDAŞ in Istanbul is the last remaining inner-city distribution company awaiting privatisation.
The Turkish government aims to eventually unbundle the vertically integrated structure of state-owned companies, such as BOTAŞ. The Natural Gas Market Law requires BOTAŞ' wholesale, transmission and storage businesses to be unbundled into separate legal entities (Article 4, Natural Gas Market Law). However, despite the Natural Gas Market Law taking effect in 2012, no unbundling has taken place yet. Draft amendments to the Natural Gas Market Law propose a deadline of 1 January 2015 for unbundling BOTAŞ into three separate legal entities (transmission, storage and trade). The Law further contemplates establishment of an autonomous Transmission System Operator to own and operate the gas transmission network (Article 4, Natural Gas Market Law; Regulation of Transmission System Operator of Natural Gas Market).
Turkey is geographically close to more than 70% of the world's discovered oil and gas reserves. The country also forms a natural bridge between source countries (the Middle East and Caspian basin) and consumer markets in Europe. Therefore, Turkey is a key country in ensuring European energy security, with major pipeline corridors running on both an East-West as well as North-South axis.
Around 4% of the world's daily oil consumption is shipped through the Turkish Straits and this figure is expected to increase. However, potential maritime accidents in the Straits threaten global supply security. Therefore, alternative transit options are being explored, in particular, the Samsun-Ceyhan by-pass oil pipeline, running 550km from North-South through central Anatolia. When completed, this pipeline is predicted to reduce tanker traffic in the Straits by 50%.
The percentage of domestic energy needs met by oil and gas is as follows (2012 Annual Market Sector Reports, published by the General Directorate for the Petroleum Market and the General Directorate for the Natural Gas Market, respectively; Electricity Generation Company (Elektrik Üretim AŞ Genel Müdürlüğü)):
Natural gas: 32.2%. Domestic natural gas sources met 1.4% of total energy consumption in 2012.
Oil (including LPG): 26.6%. Domestic oil sources met 10.7% of total energy consumption in 2012.
Other (including renewable energy and wood): 9.9%.
In Turkey, the three main governmental authorities regulating the oil and gas market, including extraction, licensing and inspection are the:
Ministry of Energy and Natural Resources (MENR) (Enerji ve Tabii Kaynaklar Bakanlığı). The MENR has the following functions:
determining Turkey's short and long term requirements for energy and natural resources;
planning appropriate policy objectives for procurement;
supervising all exploration, facility building, development, production, and distribution activities for energy and natural resources.
General Directorate of Petroleum Affairs (GDPA) (Petrol İşleri Genel Müdürlüğü). The GDPA exists within the MENR and is responsible for issuing and overseeing research permits and licences for exploration and operation (the upstream segment of the oil and gas markets).
Energy Market Regulatory Authority (EMRA) (Enerji Piyasası Düzenleme Kurumu). The EMRA is an autonomous authority responsible for regulating and supervising the downstream oil and gas market, including import and export licences and monitoring all energy market activities. It has the power to:
issue licences for generation, transmission, distribution and supply;
prepare, enforce, amend, and implement oil and gas market legislation to create performance standards;
establish and supervise the tariff pricing mechanism for consumers that legislation prevents from choosing their own retail supplier;
impose sanctions for improper activities (for example, monetary penalties or licence suspension); and
resolve disputes between licence holders.
The regulatory regime
Upstream activities for oil and gas are regulated by the recently enacted Turkish Petroleum Law, numbered 6491 (Petroleum Law). Both oil and natural gas fall within the Petroleum Law's definition of "Petroleum". Licences and permits must be obtained from the General Directorate of Petroleum Affairs (GDPA) to undertake research and extraction, or operate petroleum-related facilities (Article 6, Petroleum Law).
Downstream activities for oil and gas are respectively regulated by the:
Petroleum Market Law numbered 5015 (Petroleum Market Law).
Natural Gas Market Law numbered 4646 (Natural Gas Market Law).
This includes activities which are sometimes referred to as "midstream". For the purpose of this article, midstream activities are included in the term "downstream".
The Energy Market Regulatory Authority (EMRA) classifies licences for downstream oil activities as follows (Article 3, Petroleum Market Law):
Delivery of bunker oil.
Independent user licence.
Mineral oil licence for production of mineral oil.
Dealership licences for obtaining goods from the distributor and being authorised to sell them.
The EMRA classifies licences for downstream gas activities as follows (Article 4, Natural Gas Market Law):
Wholesale sale licence.
Transmission, distribution and sale of CNG. This is a single licence.
Upstream LPG activities are governed by the Petroleum Law. Downstream LPG activities are regulated by the LPG Market Law numbered 5307, which requires that a similar range of licences be obtained from the EMRA to undertake activities in relation to LPG (Article 3, LPG Market Law).
Rights to oil and gas
Natural resources belong to the state, along with the right to explore and exploit these resources (Article 168, Turkish Constitution). The state can delegate these rights to persons or corporate bodies for a certain period of time.
Before privatisation, state-owned companies TPAO (petroleum) and BOTAŞ (natural gas and LPG) held the exclusive rights to research, explore and operate facilities for these resources. Under the recently adopted Petroleum Law, private entities (both Turkish and foreign) can now acquire permits and licences from the General Directorate of Petroleum Affairs in the same way and on the same conditions as TPAO. Unlike the repealed law, the Petroleum Law no longer includes a provision stating that TPAO has the right to obtain research permits, as well as exploration and operation licences on behalf of the state. Sector commentators have noted this exclusion as supporting privatisation activities (see Question 1).
51% state-owned TPAO retains an advantage under the Petroleum Law (compared to private entities). If a private entity operation licence holder ceases its petroleum activities, or the licence period expires, TPAO has a legislative right to apply for the licence before other entities may do so (Article 8, Petroleum Law).
Nature of oil and gas rights
Lease/ licence/ concession term
The General Directorate of Petroleum Affairs (GDPA) issues upstream oil and gas licences for the following periods:
Exploration licences for (Article 16, Application Regulation of the Petroleum Law):
5 years maximum for land-based activities;
8 years maximum for sea-based activities.
If a licence holder proposes an investment programme and provides a guarantee of 2% of the proposed investment amount, it can extend its licence by up to two years for land-based activities and three years for sea-based activities. If the licence holder completes the investment programme within the extension period, the licence holder can apply to re-extend the licence period for a further two years for land-based activities and three years for sea-based activities. However, in total, the licence period cannot exceed nine years for land-based activities or 14 years for sea-based activities (Article 6(6), Petroleum Law).
Operation licences. There is no specified minimum period, but there is a maximum period of 20 years, including extensions (Article 18, Application Regulation of the Petroleum Law).
Research permits. There is no specified permit duration. The Petroleum Law states that such permits are granted via an agreement prepared by the GDPA (Article 15, Turkish Petroleum Law Application Regulation).
The Energy Market Regulatory Authority (EMRA) issues downstream licences for the following periods and the respective laws do not state specific extension procedures:
Licences granted under the Petroleum Market Law. There is no specified minimum period, but the maximum period is 49 years (Article 14, Petroleum Market Licence Regulation).
Licences granted under the Natural Gas Market Law. The minimum period is ten years and maximum period is 30 years (Article 7, Natural Gas Market Licence Regulation).
Licences granted under the LPG Market Law. There is no specified minimum period, but the maximum period is 49 years (Article 14, LPG Market Licence Regulation).
Licence holders must pay a guarantee to the GDPA before obtaining a research permit, exploration licence, or operation licence (Article 22(8), Petroleum Law). The amount is paid back at the end of the licence period, provided all the conditions are met. The guarantee is intended to meet any loss or damages that may arise during licence activities. The guarantee amount depends on the licence type and is calculated as follows:
Research permit. 5/10,000 of the investigation permit duty for each hectare of the licence area being applied for.
Exploration licence. 1/1,000 of the exploration licence duty for each hectare of the licence area being applied for.
Operation licence. 5/1,000 of the production lease duty for each hectare of the licence area being applied for.
The Council of Ministers has the discretion to increase or decrease this rate by up to 50%, if it is deemed necessary.
Applicants for research permits must pay a fee to the GDPA against potential damages. The fee is calculated as TRY0.05 per hectare of research area and is non-refundable (Article 5, Petroleum Law).
Under the old law, licence holders were required to pay an annual royalty based on the size of the licence area. The Petroleum Law no longer includes such a royalty. However, the new Petroleum Law introduces an obligation on exploration and operation licence holders to pay the state one eighth of the market rate value for the extracted petroleum and natural gas (Article 9(1), Petroleum Law) (see Question 9).
The fees associated with downstream licences are outlined in an annual decree issued by the EMRA. Licence fees differ between oil, gas and LPG, as well as between activity types.
The Petroleum Law and respective market laws provide detailed obligations for the various classes of oil, gas and LPG licence holders. If a licence holder breaches a requirement or fails to satisfy an obligation, sanctions available to the EMRA or GDPA include administrative fines and licence revocation (see Question 23).
The main restrictions on licence holders include:
Any share transfer that may cause a change in the majority shareholding is subject to the Ministry of Energy and Natural Resources' pre-approval (Article 21, Petroleum Law).
Holders of research permits, as well as exploration and operating licences must compensate the owner of the relevant area for any loss of income which results from being prevented from using the area (Article 21, Petroleum Law).
The volume of natural gas imported annually by a single entity cannot exceed 20% of the annual national consumption forecast for that year, as estimated by the EMRA (Article 19, Natural Gas Market Licence Regulation).
No single legal entity can sell more than 20% of estimated national natural gas consumption forecast for that year, as estimated by the EMRA (Article 25, Natural Gas Licence Regulation).
Upstream licences are granted by the General Directorate of Petroleum Affairs (GDPA), while downstream licences are granted by the Energy Market Regulatory Authority (EMRA). The conditions for each type of licence are determined in detail by the Petroleum Law, Petroleum Market Law, Natural Gas Market Law and LPG Market Law.
Provided the legislatively mandated licence conditions are met, neither the GDPA nor the EMRA have explicit discretion to reject any licence application. However, in practice, these government entities have a limited discretion regarding the adequacy and appropriateness of the documents and information that make up the applications.
As part of the licence application process, an entity can also be required to provide an Environmental Impact Assessment report to the Ministry of Environment and Urban Planning and receive a decision about the proposed project (see Questions 15 and 16).
A separate import licence is required for each import contract that an entity may enter into (Article 4(4), Natural Gas Market Law).
Transfer of rights
To transfer an upstream oil or gas licence, the licence holder (transferor) and transferee must jointly apply to the General Directorate of Petroleum Affairs (GDPA). The rights covered by upstream licences are recorded in the oil registry, which is maintained by the GDPA. Both of the parties must provide detailed documents, maps and information about the proposed transfer to the GDPA for its consideration. The GDPA assesses the transfer application on the basis of detailed criteria related to the transferee's finances, technical abilities, qualifications and goodwill (Article 50, Petroleum Bylaw number 14111, issued by the Board of Ministers on 11 May 1989).
While the GDPA has sole discretion to decide on transfer requests, these decisions can be challenged by making an objection to the Ministry of Energy and Natural Resources. A further appeal mechanism exists beyond this, allowing parties with legitimate interests to make claims about the Ministry's decisions to the Council of State as the court of first instance (Articles 20, Petroleum Law).
Downstream licences issued by the EMRA are not transferable (Article 5, Natural Gas Market Licensing Regulation; Article 5, Petroleum Market Licensing Regulation). If a party wishes to take over an existing downstream oil or gas licence, they must make a fresh application to the EMRA. The old licence holder must also contact the EMRA to rescind its licence.
However, if a bank or financial institution provides limited or irrevocable project financing to a licencee, it can state in the loan agreements that the bank and/or finance institution has the right to ask the EMRA to grant the licence to another legal entity. Justification for the request must be provided to the EMRA and the new legal entity will only be granted the related licence if it meets the usual requirements for obtaining such a licence (Article 42, Natural Gas Market Licensing Regulation; Article 5, Natural Gas Market Licensing Regulation and Article 5, Petroleum Market Licensing Regulation).
Upstream licence holders in Turkey must pay royalties equal to one eighth of the market rate value for the extracted oil and gas (Article 9(1), Petroleum Law). These royalties are paid monthly to the tax office to which the licence holder is registered. If the licence holder fails to pay the royalty for two months in a row, or three times in a year, the licence will be cancelled (Article 24(4), Petroleum Law).
All licence holders (both upstream and downstream) are subject to income and corporate tax, as well as other charges and duties, provided their licence is valid. However, some exemptions and incentives exist:
The total proportion of taxes that licence holders are liable to pay on their net income, combined with the income tax deduction which they are liable to withhold on behalf of their shareholders, must not exceed 55% of the net profit gained through a petroleum transaction.
Agreements concerning petroleum licence holders' exploration and operation activities are exempt from stamp duty.
The withholding tax rate decreases from 15% to 5%.
Imported materials, equipment and fuel oil which are necessary for carrying out petroleum activities are exempt from customs tax and duties. Licence holders who intend to import materials must obtain permission from the General Directorate of Petroleum Affairs (Article 35, Petroleum Law Implementation Regulation). This exemption from taxes also applies to materials, equipment and fuel oil which are imported into Turkey and then sold on. The exemption lasts for ten years.
Petroleum transactions performed by a licence holder are separately taxed to transactions the entity may be involved with which are un-related to petroleum (Article 12(3), Petroleum Law).
Petroleum licence holders are taxed separately even if a partnership is established between them, provided their principal business activities are the performance of petroleum transactions (Article 12(3), Petroleum Law).
See Question 11.
Apart from the royalties, taxes, charges and duties mentioned above (see Question 9), the Turkish government does not derive any other economic benefit from exploration and production of oil and gas.
There are a number of taxes, duties and exemptions in respect of the import and export of oil and gas (see also Question 9):
Transportation of foreign oil and gas through Turkish transit pipelines are exempt from value added tax.
Crude oil and gas imported into Turkey is subject to standard value added tax (18%) and stamp duties. An exception exists for imported equipment and fuel oil (see Question 9).
Oil and gas imported from the European Union or the European Free Trade Association countries are exempt from customs tax.
Imported crude oil is exempt from special consumption tax. However, petroleum products derived from imported crude oil may be subject to the tax (Article 13, Special Consumption Tax Law). Imported gas is always subject to special consumption tax.
Oil and gas exports from Turkey are exempt from all taxes, except for stamp duty.
Transportation by pipeline
To build and operate pipelines, the following regulatory requirements must be met:
Obtain the necessary licence from Turkish Energy Market Regulatory Authority.
Obtain a construction licence from the relevant public authority.
Obtain an Environmental Impact Assessment Report from the Ministry of Environment and Urban Planning (see Question 15).
Depending on the nature of the pipeline project, other additional requirements may be imposed, such as specific approvals from BOTAŞ.
Quality standard regulations outline the types of the materials which must be used to build the facilities and pipelines.
Parties involved in transporting oil and gas through Turkey via pipeline must obtain an authorisation certificate from the Ministry of Energy and Natural Resources.
BOTAŞ has long held a monopoly role in Turkey and it was not till 2007 that the first party besides BOTAŞ could access the BOTAŞ transmission network.
The Natural Gas Market Law numbered 4646 (Natural Gas Market Law) provides that connection and transmission tariffs are set by the EMRA, rather than third parties negotiating with the company owning the transmission network (Article 11(1) and 11(2), Natural Gas Market Law). Third parties can apply to EMRA if a dispute arises with BOTAŞ regarding access to the transmission network (Article 16, Transmission Network Operation Principles, published in the Official Gazette numbered 25561, dated 22 August 2004).
Parties wishing to use the BOTAŞ transmission network must first apply for a capacity allocation at an entry and exit point. Entities wishing to transport gas through a transmission or distribution pipeline owned by another licencee must enter a standard transportation contract with the licencee (Transmission Network Operation Regulation, published in the Official Gazette numbered 24918, 26 October 2002; BOTAS Transmission Network Operation Principles, published in the Ofﬁcial Gazette, 1 September 2004).
Health, safety and the environment
Health and safety
With regard to the health and safety of the environment and third parties, licencees are required to build and operate facilities in a manner which does not (Article 22, Petroleum Law):
Directly or indirectly cause any dangerous act, or which may allow such acts to occur during petroleum transactions.
Obstruct the life of local residents.
Cause harm to the environment.
All employers are required under Turkish law to (Article 6, Occupational Health and Safety Law):
Prevent occupational risks and protect against or mitigate such risks.
Provide occupational health and safety services to employees, including establishing a workplace health unit and providing training.
Under occupational health and safety legislation, oil and gas activities fall within the "very dangerous" class (Hazard Class List Communiqué on Occupational Health and Safety, published in the Official Gazette, numbered 28509, 26 December 2012). By virtue of this classification, employers in the oil and gas sectors are subject to other occupational health and safety obligations besides the general ones noted above. For example, such employers must provide and keep records of staff training and professional education regarding occupational health and safety matters.
These regulations also apply to entities operating in the oil and gas sector:
Regulation Regarding the Health and Safety Precautions to be taken for Working with Chemical Materials (published in the Official Gazette numbered 25328, 26 December 2003).
Regulation Regarding Occupational Health and Safety in Mining Workplaces (published in the Official Gazette numbered 28770, 19 September 2013).
The health and safety regime applicable to oil and gas extraction is similar to the framework which applies to exploration (see above, Exploration).
By land. Parties transporting oil and gas by land must, among others things:
Obtain an authorisation certificate.
Obtain a vehicle compliance certificate.
Hold valid liability insurance.
The authority to contact regarding these certificates differs depending on the regulatory class of material being transported. Detailed regulatory restrictions and obligations also exist in relation to parking, as well as transit through tunnels, or over bridges (Regulation Regarding Land Transportation of Dangerous Materials numbered 28801, published in the Official Gazette, 24 October 2013 and European Contract Regarding International Land Transportation of Dangerous Materials).
By sea. Parties transporting oil and gas by sea must ensure they show internationally recognised documents to prove their compliance with navigation, life, property, and environment safety standards, as set by international conventions signed by Turkey. Failure to do so will mean such vessels will not be allowed to enter Turkish waters (International Convention for the Prevention of Pollution from Ships).
Transportation of oil and gas by sea is primarily regulated in Turkey by the Law Concerning the Principles of Emergency Response and Compensation for Damages for Pollution of the Marine Environment by Oil and Other Harmful Substances, numbered 5312 (Law Numbered 5312). The transportation safety rules contained in Law Numbered 5312 are based on the International Convention for the Prevention of Pollution from Ships (MARPOL), as well as other international conventions.
Ships are required to inform public authorities of any dangerous materials they are carrying and any risk of pollution (Article 5, Implementation Regulation for Law Numbered 5312, published in the Official Gazette 26150, 26 April 2006).
By pipeline. Parties transporting oil and gas by pipeline are subject to detailed health and safety requirements, as well as certain provisions for transit pass via BOTAŞ pipelines. For example, transit pipelines through Turkey must be guarded by private security organisations and be insured against third party damage (Code Regarding the Transit Pass of Oil Through Pipelines numbered 4586; Regulation Regarding Technical Safety and Environment of Pipelines Concerning BOTAŞ Petroleum and Natural Gas).
Environmental impact assessments (EIAs)
Parties must obtain an EIA report from the Ministry of Environment and Urban Planning for the following activities (Annex 1, Article 7, Environmental Impact Assessments Regulation):
Extraction of more than 500 tonnes of crude oil per day.
Extraction of more than 500,000 cubic metres of natural gas per day.
Transportation of oil or gas with 600 millimetre calibre pipes that are longer than 40 kilometres (pipelines with capacity or length less than these thresholds are not ostensibly covered by the scope of the EIA process).
Storage facilities for filling and discharging petroleum, natural gas, petro chemistry and chemical materials, with a capacity of more than 50,000 cubic metres.
Facilities for refining crude oil.
Facilities for liquefaction and gasification of natural gas.
Facilities for production of explosive and flammable materials.
For activities that exceed the above thresholds, obtaining an EIA report from the Ministry of Environment and Urban Planning is mandatory. The project owner must submit a project presentation file directly to the Ministry.
For activities that do not meet the thresholds above, or which are listed in Annex 2, Article 7 of the Environmental Impact Assessments Regulation (see below), the project owner must first apply to the local Governorship. The project owner must submit a project presentation file to the local Governorship for an initial assessment and evaluation of the proposed project's regulatory compliance. The local Governorship will give a determination about whether an EIA report from the Ministry is required in the circumstances, or not. If the Governorship decides that no EIA report is required for the proposed project, no further environmental permissions are required.
Parties undertaking the following activities must submit a project presentation file to the Governorship as a first step (Annex 2, Article 7, Environmental Impact Assessments Regulation):
Storage facilities for filling and discharging petroleum, natural gas, petro chemistry and chemical materials, with a capacity between 500 and 50,000 cubic metres (facilities with capacity less than 500 cubic metres are not ostensibly covered by the scope of the EIA process).
Storage facilities for explosive and flammable materials, with a total capacity of more than 500 tonnes (facilities with capacity less than 500 tonnes are not ostensibly covered by the scope of the EIA process).
Demolition of facilities mentioned in Annex 1 of the Environmental Impact Assessments Regulation (listed above).
If the local Governorship decides an EIA decision is required, or the project is required to undertake this process by the Environmental Impact Assessments Regulation (listed in Annex 1, Article 7, see Question 15), the project owner must submit a project presentation file to the Ministry of Environment and Urban Planning.
Certain private institutions and organisations are authorised by the Ministry to prepare EIA reports as environmental experts (Authorised Environmental Experts). When preparing a project presentation file and EIA report, the project owner must use an Authorised Environmental Expert (Article 4, Environmental Impact Assessments Regulation).
Once the project presentation file is submitted to the Ministry of Environment and Urban Planning, the general process is as follows:
The Ministry assesses the project presentation file.
A public meeting is held. The chairman can decide to receive public submissions in writing.
The project owner arranges for an Authorised Environmental Expert to complete an initial EIA report. The Environmental Impact Assessments Regulation requires that a specific format be followed.
The project owner submits the initial EIA report to the Ministry's Observation Commission.
The Ministry's Observation Commission checks the initial EIA report to ensure it complies with the required format. If the initial EIA report is in the correct format, the Observation Commission notifies the project owner and the project owner arranges for an Authorised Environmental Expert to prepare a final EIA report.
The project owner submits the final EIA report to the Ministry of Environment and Urban Planning (not the Ministry's Observation Commission).
The Ministry submits the final EIA report to the general public via newspapers or the Ministry's website (Article 11, Environmental Impact Assessments Regulation). The Governorship announces the schedule and contact information for the general public to submit opinions.
A second public meeting is held.
The Ministry issues a final decision regarding the proposed project, either positive or negative. The Ministry's decision takes the public's views into account, but is not bound by these.
If the Ministry gives a negative decision about the proposed project, there is no specific appeal mechanism in the regulations. However, the Administrative Court could potentially cancel an EIA decision on the basis that such a decision is arguably an "executive decision" and the Administrative Court has the power to review the procedural aspects of all such decisions. The Administrative Court cannot consider the substantive matters and arguments that were raised during the initial executive decision, merely whether the appropriate procedure was followed. It is not settled law whether an EIA decision is or is not an executive decision.
Entities active in the energy sector must obtain an environment licence and environment permit from the Ministry of Environment and Urban Planning (Article 4, Regulation Regarding Permits and Licences Required to Be Obtained according To Environment Law, numbered 27214). Collectively, these permits and licences contemplate emissions, discharges, dangerous material discharges, waste collection and recycling matters.
These environment permits and licences must be obtained before operations begin. They are different to the EIA reports and related positive or negative decision from the Ministry of Environment and Urban Planning (see Questions 15 and 16).
The Ministry monitors ongoing compliance with the terms of environment licences and environment permits via audits, although these are not conducted on a regular schedule. Non-compliance can result in administrative fines or cancellation of the licence or permit.
In Turkey, waste disposal is regulated according to the type of waste involved. Waste products produced during the extraction and processing of oil and gas fall within the scope of the:
Regulation Regarding Handling of Dangerous Waste, numbered 25755.
Regulation Regarding Handling of Waste Oils, numbered 26952.
According to these Regulations, producers of waste related to oil and gas must:
Take the necessary measures to minimise waste production and render waste harmless.
Obtain permission from the local governorship for waste storage.
Keep records of the waste that has been produced.
Analyse waste products and submit the related documents to the Ministry of Environment and Urban Planning.
The Ministry audits waste production and mitigation measures, although not on a regular schedule.
Entities which extract and process oil and gas must annually report their waste to the Ministry of Environment and Urban Planning via an online "waste declaration form". This disclosure includes information about disposal methods, hazardous properties, chemical compositions, and volumes, among other information.
Flares and vents
In addition to general health and safety obligations, environment permits (see Question 17) require employers to ensure flare and ventilation systems also comply with the Regulation Regarding Controlling of Air Pollution Based on Industry (published in the Official Gazette numbered 27277, 3 July 2009).
The Ministry may determine that an area requires special attention to improve air quality and decide not to allow the permit holder to operate its facilities, or to build the facilities at all. The Ministry can also prohibit use of certain raw materials and/or fuels (Article 31 and 32, Regulation Regarding Controlling of Air Pollution Based on Industry).
Under the requirements of environment permits, every two years the permit holder must report the current emissions measurements of its facility to the Ministry of Environment and Urban Planning, as well as the improvements it has made with regard to air pollution matters.
There are no specific provisions in Turkish legislation addressing decommissioning requirements, although upstream licence holders are required to return the land to its former condition (Article 22(3), Petroleum Law). While legislation is silent on the decommissioning requirements, the obligation to comply with environmental rules remains, along with the obligation to avoid endangering society and the environment (see Questions 17 and 18).
When an entity operating in the upstream market segment wishes to decommission its facilities, the entity must arrange for its rights to be deregistered from the GDPA's petroleum registry (Article 21, Petroleum Law).
If a licencee ceases its activities permanently, or temporarily ceases its activities for a period exceeding one month, it must advise the Ministry of Environment and Urban Planning (Article 14, Regulation Regarding Permits and Licences Required according to the Environment Law).
An Environmental Impact Assessment process applies for licence holders that wish to decommission oil and gas refineries (Article 15 and Annex 2, Regulation Regarding Permits and Licences Required according to the Environment Law)
Since decommissioning generally involves closing a place of business, the employer must also notify the relevant tax office of the decommissioning, as well as other institutions, such as the social security and district labour offices.
Sale and trade
Crude oil can only be traded between holders of refinery and producer licences (Article 9, Petroleum Market Law). Holders of refinery licences can trade in fuel oil, crude oil and related products. The Ministry of Energy and Natural Resources' (EMRA's) approval is not required for oil trade between such parties.
Under Turkish law, parties can freely import crude oil and fuel oil, provided they hold a refinery, distributor or bunker licence as well as obtain a letter of conformity from the EMRA (Communiqué on the Principals Regarding Procurement of Petroleum Products Apart From Fuel Oil Domestically or Abroad; Article 9, Petroleum Market Law). There is no specific import licence applicable to oil, as there is for gas.
To trade gas, entities must obtain an import, export, or wholesale licence from the EMRA. Entities that extract natural gas must obtain a wholesale licence from the EMRA to trade the extracted gas (Article 26, Natural Gas Market Licensing Regulation).
Upstream oil and gas
The Petroleum Law regulates upstream oil and gas prices to ensure that Turkey is balanced and comparable to other markets. Consequently, upstream prices in Turkey are legislatively required to be in line with the geographically closest global free market price (Article 10, Petroleum Market Law).
For domestic crude oil, the market price is calculated as being the free competitive price, adjusted for the quality and specific gravity (density) of crude oil in Turkey, or in the nearest accessible world market, plus half of the expenses that would be incurred in transporting the same quality of crude oil from world markets to a Turkish delivery point. In calculating this price, Suez Channel crossing and Batman-Dörtyol pipeline fees are not included. The price for oil extracted in and around Batman is either the market price calculated at Batman, or the actual sales price applied at a delivery point in Turkey by the producer (excluding taxes). This is also the price applied if no accessible world market price is available.
Prices in the Turkish downstream oil sector are freely determined by the transaction parties. The exception is that storage tariffs and the BOTAŞ transmission tariffs are subject to the approval of the Ministry of Energy and Natural Resources (EMRA) (Article 10, Petroleum Market Law).
The EMRA regulates downstream gas market activities in Turkey, including prices (Article 11, Natural Gas Market Code and Tariff Regulation). Consequently, the EMRA regulates the following tariffs for gas in Turkey:
Transmission and storage tariffs.
Imported crude oil
The price of imported crude oil must be in line with globally announced prices and spot market valuations (Article 10, Petroleum Market Law). Parties operating in the Turkish oil market must inform the EMRA monthly of their price determinations of each stage, as required according to each licence type.
Enforcement of regulation
Legislation outlines in detail the circumstances where the GDPA and the Ministry of Energy and Natural Resources (EMRA) can make orders to suspend or cancel licences.
Circumstances where an upstream licence can be suspended include (Article 24(5), Petroleum Law):
Failure to compensate a land owner for damages or loss of profits.
Entering a prohibited area.
A change in circumstances which threaten the petroleum operation.
The upstream licence holder will be given 90 days to rectify the situation. If the situation is not resolved at the end of that period, the GDPA can choose to either suspend the licence for between 90 and 180 days, or cancel the licence entirely.
The Minister of Energy and Natural Resources makes the final decision about cancelling upstream licences (Article 24(8), Petroleum Law). Circumstances where a licence could be cancelled include:
Dangerous acts. If an upstream licence holder does not address dangerous situations within a certain period of time, the GDPA can take the necessary measures to prevent the dangerous act occurring any further. The GDPA is empowered to charge the licence holder for rectification. The necessary amount is taken from the guarantee which the licence holder paid during its licence application (Article 22(8), Petroleum Law, see Question 6). The licence holder is given two months to repay any amount used. If the licence holder fails to do so, the outstanding balance will increase 10% per month until paid. If this remains unpaid after one year, the licence will be terminated (Article 24(2), Petroleum Law).
Failure to comply with a legal obligation or licence condition. The GDPA will send a warning to the licence holder with notification that failure to comply within 90 days will result in the licence being cancelled. The GDPA has the discretion to give extensions of up to 60 days (Article 24(3), Petroleum Law).
Failure to use an operation licence. If no production has begun within one year of the GDPA issuing an upstream licence, or on-going production is halted, the GDPA can ask for production to begin within 180 days. The GDPA can provide a further 180 days to begin operations. However, if production has not begun at the end of the extension period, the licence will be cancelled (Article 24(7), Petroleum Law).
For downstream oil licence holders, the EMRA can initiate a preliminary inquiry or investigation if it believes the licence holder is failing to comply with the licence terms, EMRA directives, or obligations under the Petroleum Market Law and related regulations. The licence holder will be given 15 days to rectify the non-compliance. If the licence holder fails to do so, the EMRA can choose to suspend the licence for between 30 and 180 days, or cancel the licence entirely (Article 20, Petroleum Market Law).
For downstream natural gas licence holders, the EMRA can issue a notification to a licence holder if it believes the licence holder is failing to comply with the licence terms, EMRA directives, or obligations under the Natural Gas Market Law and related regulations. The length of time the licence holder is allowed to rectify the non-compliance depends on the breach (either 15 or 30 days). If the licence holder fails to rectify the breach, the EMRA can issue a fine. If a licence holder's fines exceed 20% of its net sale revenue for the previous financial year, the EMRA can choose to cancel the licence (Article 9, Natural Gas Market Law).
Fines and penalties
The GDPA can issue fines to upstream licence holders ranging from TRY10,000 to TRY500,000 and the EMRA can issue fines to downstream licence holders of between TRY1,000 and TRY913,719.
Circumstances in which a fine can be issued include where a licence holder (Article 23(2), Petroleum Law; Article 20 Petroleum Market Law; Article 9, Natural Gas Market Law):
Causes serious and irreparable damage by a dangerous act.
Conducts a dangerous act during petroleum operations (this attracts a daily fine if the act is not rectified in the given time).
Conducts petroleum operations without a licence.
Impedes a party appointed to enforce the law.
Provides false declarations or representations during licence applications, inspections or information requests.
Fails to submit required information and documents.
Performs activities beyond the licence scope.
Provides incomplete, incorrect or deceptive information to the EMRA during site surveys or information requests.
Begins construction and/or operation of facilities without holding a licence.
Fails to meet licence or permit conditions, or the obligations imposed by specified legislative clauses.
Hinders access to transmission and storage facilities.
Revenues and petroleum obtained without an exploration or operation licence can be confiscated by the state (Article 24(1), Petroleum Law).
Oil smuggling is punishable with imprisonment for a period between two and five years (Supplementary Article 5, Petroleum Market Law).
Any administrative act is subject to judicial review in Turkey, including decisions, as well as administrative fines issued by the General Directorate of Petroleum Affairs (Article 125, Turkish Constitution). Once they have been notified of the decision, parties with a legitimate interest are allowed 60 days to apply to the Council of State for judicial review (as the first instance court). The Council of State must consider such requests as urgent matters.
For administrative acts made by the Energy Market Regulatory Authority, parties with a legitimate interest can file a suit before the administrative courts within 60 days following the notification. The competent administrative court must consider such requests as urgent matters.
The Turkish Petroleum Law numbered 6491 came into force in June 2013. It has the specific purpose on enabling expedient, continuous and effective exploration, development and production of petroleum resources, in accordance with national interests. In the short term, both the Government and industry's focus will be on implementation of the new legislation and its requirements, rather than further reform. For example, the new Law introduced a new royalties scheme for upstream licence holders (see Question 9).
Privatisation of state-owned oil and gas activities continues in Turkey. The Prime Ministry Privatisation Administration has undertaken a programme to restructure and liberalise the Turkish energy sector with a view towards creating a competitive and liberal energy market. The programme involves expanding the private sector's role in the Turkish energy sector, in turn reducing the burden of public institutions on the Government budget and improving operational efficiency through increased commercial competition (see Question 1).
The Ministry of Energy and Natural Resources prepared two draft laws in 2013 that respectively:
Extend the Petroleum Market Law to include LPG and CNG.
Amend the current Natural Gas Market Law to be in line with the new Petroleum Law.
These two drafts contain overlapping provisions in relation to CNG. While the draft laws have been published, there is no information available about the enactment timetable.
The regulatory authorities
Ministry of Energy and Natural Resources (MENR) (Enerji ve Tabii Kaynaklar Bakanlığı) (ETKB)
Main responsibilities. The MENR is responsible for preparing and implementing energy policies, plans and programmes in co-ordination with affiliated governmental institutions.
General Directorate of Petroleum Affairs (GDPA) (Petrol İşleri Genel Müdürlüğü) (PİGM)
Main responsibilities. GDPA, affiliated with MENR, is responsible for regulating upstream oil and gas activities.
Energy Market Regulatory Authority (EMRA) (Enerji Piyasası Düzenleme Kurumu) (EPDK)
Address. İşçi Blokları Mahallesi Muhsin Yazıcıoğlu Caddesi, (Eski 1483 Cd) No. 51/C 06530,
T +90 312 201 4001
F +90 312 201 4050
Main responsibilities. EMRA is responsible for the regulation and supervision of downstream oil and gas market activities. EMRA is authorised to issue secondary legislation (regulations and communiqués), issue downstream licences, as well as apply sanctions if necessary.
Ministry of Energy and Natural Resources
Description. The official website of the Ministry of Energy and Natural Resources. The website is in Turkish and the English version of the site may not be accurate, or only include certain parts of the Turkish site.
General Directorate of Petroleum Affairs
Description. The official website of the General Directorate of Petroleum Affairs. The website is in Turkish and the English version of the site may not be accurate, or only include certain parts of the Turkish site.
Energy Market Regulatory Authority
Description. The official website of the Energy Market Regulatory Authority. The website is in Turkish and the English version of the site may not be accurate, or only include certain parts of the Turkish site.
Ergun Benan Arseven, Partner
Professional qualifications. Istanbul Bar Association, Turkey, 1997; Registered Trade mark Attorney, Turkey, 1997; LLB (Istanbul University, School of Law, 1996)
Areas of practice. Cross-border and domestic corporate and commercial transactions; mergers and acquisitions; joint venture competition and commercial regulations; distribution agreements; tax and fiscal law; project finance; healthcare; energy; sports and entertainment law; technology and telecoms; real estate.
Languages. Turkish, English
Professional associations/memberships. IBA; International Sports Lawyers Association (ISLA); UIA; British Chamber of Commerce of Turkey. Regularly attends international legal conferences and often invited to be a speaker or presenter on topics such as sports and commercial law.
Burcu Tuzcu Ersin, Partner
Professional qualifications. LLM Business Law (Istanbul Bilgi University, 2006); Istanbul Bar Association, Turkey, 2003; LLB (Ankara University, School of Law 2001)
Areas of practice. Cross-border and domestic corporate and commercial transactions; mergers and acquisitions; corporate structuring; project finance; securities law; venture capital; angel investments; energy; technology and telecoms; healthcare; manufacturing, real estate and construction.
Languages. Turkish, English
Professional associations/memberships. Board member of Common Purpose Turkey; member of several working groups of the Turkish Industrialists' and Businessmen's Association (TUSIAD); the International Technology Law Association; the International Bar Association (IBA).