PRE-RELEASE i TURKEY POWER 2015 This issue, notably, has underscored the role which vested interests continue to play in shaping the regulatory structures that govern Turkey's energy sector. Yosmaoğlu, who recently petitioned Turkey's energy regulator far a redress of unlicensed energy projects, explained: "Upon bringing the issues associated with the lack of regulation of unlicensed projects and the attendant conflict that they create with Turkey's legal system to the attention of EMRA, the regulator announced that a requirement would be imposed in line within the legislation governing fossil fuel fi re cogeneration, that the proportion of electricity that could be traded would be limited to 40% of total unlicensed production. Later, EMRA back-stepped, issuing a statement stating that the size of these projects did not necessitate a regulatory framework. The rationale diving this: the Minister himself, many of the MPs, several heads of municipalities and figures within EMRA have applied far unlicensed projects." Global Bu-sıness Reports lectively, the legislative climate of Turkey is similar to that of the European Union. The government has justified its position with past performance and there are few inconsistencies to be found in policy making. Turkey offers no legal or legislative risks but the added benefit of returns faund only within emerging markets. That is the beauty of T urkey." Mehmet Ali Neyzi, CEO, at STFA, one of Turkey's largest distributors of natura! gas with significant holdings in generation, confirmed: "Turkey has a vast population and low penetration far energy. There is a huge growth potential in electricity and per capita usage of energy. With EMRA regulating the market, we will have more transparency. The energy market is quite sophisticated, so for a foreign investor there is a great incentive to invest in Turkey. Turkey is an emerging market and it iseasyto conduct business here as opposed to other developing countries. it is a lucrative market with limited legal and financial restraints." So why then, in spite of these many challenges, should Turkey attract investors? The answer to this is nuanced and lies in both the fundamentals Dr. Zafer Demircan, Republic of Turkey, general director ofenergy The beauty of Turkey's energy sector also rests in that quality which has made the sector, at least initially, difficult to navigate: its market liberalization of Turkey's energy market and the country's political and economic framework. Turkey is a burgeoning energy market. Dr. Zafer Demircan, the Republic of Turkey's general director of energy, said: "Economic expansion, rising per capita income levels, positive demographic trends and the rapid pace of urbanization will continue to drive domestic energy, which is expected to increase around 6% per annum until 2023." lndeed, Turkey offers a young population - the youngest of any European nation - and a GDP that the government projects will increase by 4% in 2015 and 5% in 2016. Owing to this, the Government targets far energy generation to reach 120 gW by 2023. This will necessitate a projected $110 billion of investment into the country's energy sector. With the country currently indulging in several other massive infrastructure projects, a large proportion of this capital must come from foreign markets. A failure to court the foreign investor and develop a regulatory framework that is responsive to market participants, both fareign and domestic, could shackle the pace of the country's growth. The government is thus expected to respond. Beyond this though, the fareign investor must alsa place the challenges currently faced by the country's energy sector in context. The domestic energy market of ten years ago - state-controlled and highly regulated - was far different from the energy market of today. ıssues associated with the country's natura! gas market, its transmission system, and the energy sector's licensing and tender process are not symptomatic of a country unsure ofthe role of private sector participation in its development, but rather the nascence of its new institutional power structures. Should fareign i nvestors seek further reassurance, they need only look to the country's regulatory processes as a whole. Ferhat Melik, board member at Vis Hydro, explained: "Taken colO Global Business Reports 1 1 I I ı!', process. The early stages of market liberalization present investors with an opportunity to enter into segments of the market that would otherwise, in more mature markets, possess high barriers to entry. This is observed in the case of retail electricity distribution. Historically controlled by the Turkish Electricity Distribution Company {TEDAŞ), Turkey's retail electricity market opened to investors through the tender of six distribution companies in 2010, since when several businesses have established themselves in the segment. Among those was Bis Energy, which currently stands as the sector's 6th most profitable business with revenue of E636 million in 2014 through its 486 mW of generation capacity and which entered the retail market through the establishment of its subsidiary, Bisen Energy, in 2011. Underscoring the company's decision to establish Bisen Energy were the lucrative prospects offered by a market just opening. Mesut Alparslan, CEO of Bisen Energy, explained: "Market liberalization presented our parent company, Bis Energy, with an opportunity to enter a market at a very early stage in its development. The profits, and lack of competition, offered by the retail electricity market, if compared against the institutional market far energy, are larger. Moreover, retail consumers show far less sensitivity to energy prices than institutional customers. While a discount of 1% might spur an institutional consumer to switch accounts, the grounds upon which energy retailers compete are more solid. The sector also offers, comparatively, far less risk." This is not to say that the impediments faced by Turkey's energy sector should not be given due consideration. The role that the government plays in addressing these structural issues will determine which path the country takes at its currentjuncture. Yet in opening its energy markets to investors ten years ago, the country already set its footwork on the path of reform. Far this, Turkey demands consideration.
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