Turkey's energy market is changing. With the establishment
of the EPİAŞ exchange boosting the country's
electricity market, and reforms to its gas sector imminent,
corporates and investors can look forward to a quite different
environment in the years to come. There are still challenges
though, including anti-corruption challenges and expensive
licensing systems. Here, Dr Jan Haizmann, a senior business
consultant and board member of the European Federation of
Energy Traders, assesses the sector.
What are the most noteworthy developments within
Turkey's energy sector that investors, corporates or their
advisers should be aware of?
The most important development has been the setting up of
EPİAŞ, an exchange authorised to manage and control
electricity trading throughout the country. Established in
September 2015, EPİAŞ is getting increasing interest
from market players in Europe seeking access to the Turkish
electricity market. It's also gaining traction among
over-the-counter (OTC) market participants from Turkey
– mostly generators – which is channelling
more trades through the exchange.
What are the benefits of EPİAŞ?
It's a more transparent tool for price discovery in the
Turkish wholesale power market, and functions as a market
exchange along with the broker platforms that traditionally
operate the OTC market. The EPİAŞ also plans to build
products for the futures and forward market and to add natural
gas products to the platform in 2018. Eventually there will be
a Turkish energy exchange, comprising electricity and gas
product offerings together.
The electricity market has, until recently, suffered from a
lack of transparency, so EPİAŞ is certainly an
improvement. Turkey's electricity market is finally reaching a
degree of transparency. As far as price discovery for natural
gas is concerned, we are expecting further improvements in the
The Turkish government should actively pursue the market
opening for natural gas, otherwise there is a risk that the
recent reform of the electricity market will have a very
limited effect. Unbundling trade and supply from the
transmission department of BOTAŞ, the state-owned crude
oil and natural gas pipelines and trading company in Turkey,
remains an obstacle.
What should companies or investors dealing with
Turkey’'s Energy Market Regulatory Authority
(Emra) for the first time be aware of?
The current licensing system undertaken by Emra is fairly
complex. Applications can take up to six months and it's an
expensive process too, costing approximately €100,000
($113,950) for each licensed activity, such as supply.
The option to become an electricity trader, for example, is
only open to Turkish companies. This need to create a separate
legal trading entity can create transfer pricing problems for
international organisations, because they cannot run the
trading operations out of the non-Turkish central trading
"Turkey really needs to get on with liberalising the
gas market now"
As the system is now, any EU entity will have to employ
Turkish staff, and all commercial dealings will have to be
through that Turkish entity.
This requirement constitutes a market barrier to entry for
non-Turkish trading entities. Better integration of the Turkish
energy market with the neighbouring south east Europe markets
could be realised if Turkey gained access to the Energy
Community. The Energy Community Secretariat recently published
a study which concluded that Turkey could be integrated
relatively easily. This integration would not only benefit the
energy markets in Greece and Bulgaria in particular, but it
would also improve the competitiveness of the Turkish energy
As well as that, the Turkish government has not yet settled
the issues surrounding stamp duty. At the moment, every single
deal is subject to stamp duty, which obviously dampens
large-scale deals potentially featuring multiple transactions,
as they would be taxed multiple times. To develop a wholesale
market, the Turkish government must find a warehouse solution
for trades, exempting these trades from any taxation.
Are there are other anti-corruption points to be wary of in
Anti-corruption is an issue in Turkey, as it is in other
emerging countries. I am not aware of any new anti-corruption
initiatives under the existing regime.
Managing the creditworthiness of counterparties is likely to
become an issue where efficient clearing solutions do not exist
and many companies suffer from poor capitalisation.
Most of the companies in Turkey that are active in the
country's electricity market are not rated. As a consequence,
no rating is available to evaluate the creditworthiness of
counterparties. Because of this, there is a higher counterparty
risk in Turkey. The netting arrangements in the OTC
documentation relating to closed out netting in insolvency
scenarios also do not work in Turkey, so there is a certain
legal risk, as well as credit risk, when dealing with Turkish
counterparties. Corruption is certainly an issue to be aware of
in the country.
You are a board member of the European Federation of Energy
Traders (EFET). What are the EFET’'s priorities
for the next 12 months?
Our main focus at EFET is advocating for liquid wholesale
markets in the EU, and there is still a lot of work to do in
the central and eastern European markets. In Turkey we don't
have a frontline stake. It is more difficult for us to become
active because Turkey is not regulated by the EU. From a
trader's position, admittance to the Energy Community would
change this. From EFET's perspective, we think that Turkey
should increase transparency into the balancing market, notably
for gas. As far as gas is concerned, we need a trading and
balancing gas platform where wholesale market participants can
obtain reliable price signals, which is missing from the
Turkish gas market at the moment.
Turkey needs to make more progress on liberalising the gas
market now following its work in the electricity market. A lot
of time has already been lost.
Why have authorities not pushed gas market reform yet?
Because gas is linked to security of supply, and not every
decision-maker in Turkey understands that energy markets are
far more resilient at tackling supply crises compared to
centralised opaque gas markets. Some have advised the
government that a tight control of all market activity is the
best hedge against supply disruptions, but the same people
argue that Turkey should retain price control and a complex
system of cross-subsidies to strengthen the economy.
In Europe we have learned that diversity of supply is the
best hedge against supply disruption. Diversity of gas supply
should be combined with sound cross-border infrastructure
integration. If Turkey does not follow these lessons, it will
remain subject to the arbitrary decisions of its major gas
supplier. Russia has no reason to favour market reform in
Turkey, but it has an interest in maintaining its market share.
Protection of market share operates at best through retaining
the quasi-monopoly off-take of BOTAŞ. For a dominant
supplier, it is much easier to influence one sole off-taker
compared to a multitude of off-takers that could source their
supply from elsewhere. The import price for Russian gas will
decrease only if Turkish companies have real alternatives to
Russian gas supplies.
We are optimistic that the Turkish government will be able
to embark on the path of reforming vertically integrated
structures in favour of free market concepts.
There are several projects preparing for the unbundling of
the gas market. There is one currently being run and
co-financed by the EU that is looking at platform developments
and gas balancing markets.
For Turkish companies, the market opening would certainly be
beneficial. They are currently operating without any price
signals, and there are few opportunities to hedge their
operational risks. Because Turkey is fairly industrialised, I
think domestic companies will push for further opening.
Dr Jan Haizmann
European Federation on Energy Traders
T: +32 472 365725
Dr Jan Haizmann is a senior business consultant and
board member of the European Federation of Energy
Traders. He holds law degrees from Germany, UK and
In 1999, Haizmann moved to London to work as a
regulatory affairs manager for a large wholesale energy
trader, focusing on industry regulation in the power
and gas sector. From 2002 until 2005 he gained
commercial experience as gas origination manager at
Glencore in London.
Since 2005, Haizmann has been an independent
consultant to the energy trading industry. He is
managing director of Correggio Consulting, an advisory
company with activities in energy dispute settlements
and regulatory and compliance advice for the energy
Haizmann has actedas a key expert in the context of
EU technical assistance to build energy markets,
notably in Turkey. He has held various executive
functions at the European Federation of Energy Traders,
and serves a member of the EFET board of directors. HE
also heads up EFET's EU liaison office in Brussels.