Amendment on the Electricity Market Law for the extension of contracts - Tailor-made laws in the Western Balkans and Turkey

Law No. 7186 regarding the amendment of the Income Tax Law and some other laws (Official Gazette, 19 July 2019, No. 30836)

Act of Parliament, amendment

Substantive: 36-month extension of rights and obligations within the scope of transfer agreements and electricity sales agreements made for the purpose of establishing electricity production facilities based on renewables or domestic coal resources

Personal: energy companies active in renewable energy

Territorial: national

Temporal: provisional, 36 months from entry into force

Date of adoption: 17 July 2019

Date of entry into force: 19 July 2019

Justice and Development Party (AKP)

Justice and Development Party (AKP)

In July 2019, an omnibus bill with 32 articles amending the Income Tax Law and a number of other laws was brought before Parliament and subsequently transferred for deliberation to the Planning and Budget Committee, which was designated as the main committee. The bill remained in committee for five working days and was expanded to 35 articles. Furthermore, the bill was not transferred to and discussed in other relevant committees (National Education, Culture, Youth and Sports; Health, Family, Labour and Social Affairs; Industry, Trade, Energy, Natural Resources, Information and Technology; and Public Works, Reconstruction, Transportation and Tourism) that might then act as the main or auxiliary committees as required by the bill’s extensive content and the need for expert opinion on the various topics (see here).

According to the opposition, no relevant NGOs, professional organisations or public institutions were sought out for their opinion on the entirety of the bill, nor was an impact analysis assessment conducted. Furthermore, despite being cited as an “economic” resolution in the media, the bill contained amendments to 18 pre-existing laws, from the Customs Law to the Banking Law, all discussed solely in the Planning and Budget Committee. The law-making process of the bill violates the Constitution, the Rules of Procedure of the Parliament and the general principles of law-making because of its extensive, even excessive content, its omnibus form, and the lack of time, expertise, public opinion, and the opinions of NGOs, professional organisations and public institutions in deliberations. The opposition argued that the bill at its core pointed to the existence of an economic crisis, which could not be resolved, as the bill lacked permanent solutions for the budget deficit, while specific parts (including Article 32) served only the interests of certain companies that are close to the government. It was also described by the Communist Party of Turkey as a fast, simplified way to transfer money from the proletariat to the capital-owning class.

Parliament

Yes. The amendment provided the legal basis for the transfer of shares in the YEKA-1 GES Konya Karapınar solar energy project, the first solar panel factory in Turkey. A partnership of the Kalyon Group and Hanwha Group won the tender in 2017 with an offer of US$0.0699/kWh and a budget of US$1.3 billion. Subsequently, the two groups decided to end their partnership, but a transfer of shares was not possible because of legal constraints.

The project was named as one of the few projects set to receive state aid in the form of customs tax and VAT exemption, among other things, in a presidential decision that went into force in September 2019. Following approval of the amendment to allow the transfer of shares, Kalyon Group made a deal with China Electronic Technologies Group Corporation (CETC) in October 2019 (see here and here).

Kalyon Group, originally a construction company, is now a multi-billion dollar construction, real estate, investment, media and energy conglomerate. The company is known for its close ties to AKP and AKP leaders and for its role in mega projects such as Istanbul Airport and North Marmara Motorway. As part of the parliamentary committee’s deliberations, the amendment was also seen as a potential opportunity for the tyre-derived fuel facility ERA Erzincan ÖTL (end-of-life tyres), which will benefit, thanks to the amendment, from higher sale prices per kWh for 36 months longer as part of the contract extension, even though tyre-derived fuel is not a renewable energy source or product (see pages 52-54). Moreover, ERA Erzincan ÖTL is a subsidiary of the parent company Siyahkalem. Siyahkalem is a construction and energy company known for the high-value contracts that it has won during the AKP’s years in government, such as the construction of the new Ottoman Archives Building.

The bill as a whole was seen as a rejuvenating development for the economy. However, Article 32 received limited coverage in the media, mostly on news sites that focus on the energy sector. While some news articles stated that the amendment was a positive development for the YEKA-1 GES Konya Karapınar solar energy project in particular, other articles questioned the integrity of the amendment, citing the project’s expected revenue.

The bill as a whole brought changes to 18 different laws. Opposition MPs voiced staunch criticism against the method of discussion, drafting and passage of the bill. They criticised amending more than a dozen laws on different subjects through a single bill and argued that it was a violation of the Constitution and the Rules of Procedure of the Parliament (see here). During the discussions on the bill, the opposition objected to Article 19 on the grounds that it is against the Constitution given its extensive and occasionally excessive content and its granting of excessive powers to the President; however, their objections were not considered by the executive board of the committee. For a detailed account of the discussions prior to approval, see here and here.

The opposition have also criticised the inexpediency of designating the Planning and Budget Committee as the main committee despite the diversity of subjects covered in the amendments. In addition, they have questioned the integrity of Article 32, especially since the article envisages a 36-month extension of rights and obligations stemming from initial energy contracts to establish energy production facilities using renewables and coal. Moreover, the opposition has argued that Article 32 targets a specific energy sector and ignores the energy sector as a whole, at a time when the Turkish economy is extremely frail, with billions of dollars in bad debt accumulating in the energy sector alone (see page 67). Republican People’s Party MP Bülent Kuşoğlu recalled that the energy sector needs structural change rather than patches that aim to save a single project or company (see page 22). Despite the criticism, the bill was passed in Parliament with the articles added in the main committee.

Energy & natural resources

One group of direct beneficiaries are companies active in the renewable energy sector or domestic coal-based electricity generation, specifically the Kalyon Group, which, following the law’s approval, made a deal with China Electronic Technologies Group (CETC) in October 2019. This issue was raised by the opposition during the committee’s discussions (see here, here and here).

Another direct beneficiary is argued by the opposition to be ERA Environmental Technologies. Thanks to the amendments, the company would also benefit from higher sale prices per kWh for an additional 36 months. According to the opposition, it would be an opportunity for ERA`s tyre-derived fuel facility in Erzincan, which cannot be classified as a renewable energy project (see page 52-54).

Since ERA is one of the main subsidiaries of Siyahkalem Engineering, the latter can also be considered part of the related network that benefits from the amendments.

Other companies in the energy sector, especially local partners, are direct victims of the changes. This is because the amended law enables companies to transfer their shares or contracts to another partner of choice without the requirement to initiate a new tender and contract.

The opposition argued that because the necessary and relevant public and civil society organisations were not consulted during the law-making process, the full economic and social impact of the amendments, and therefore the fiscal burden on the national budget and national economy, could not be known (see here). The lack of due diligence in law-making negatively impacts the national economy in the long term. (See pages 24-109 for the arguments of the opposition parties.)

The tailor-made nature of the bill casts doubt on the objectivity of law-making in Turkey and the functioning of checks and balances mechanisms. Making laws in favour of a certain corporation or group tarnishes the integrity and universality of law and free and fair competition, which in turn might discourage foreign investment. Furthermore, the drafting of patchwork laws and amendments to save a select few in a flailing sector, such as the energy sector in Turkey, instead of finding comprehensive, long-lasting solutions and reforms, deepens the crisis and impacts the economy negatively and more extensively in the long run. (See the committee minutes of sessions 33 and 34 for detailed information.)

Omnibus law-making has become a significant problem in Turkey. Omnibus laws have increasingly been used since 2010. In fact, a study from 2017 reveals that only 2 omnibus laws were approved between 2002 and 2007, but that the number increased to 11 between 2007 and 2011, 21 between 2011 and 2015, and 23 between 2015 and 2017. While this method of law-making aims to increase the efficiency and effectiveness of Parliament, it also raises various questions about its legitimacy (see here and here). This method of law-making usually brings together a myriad of amendments on diverse subjects. With omnibus bills, it becomes arduous and even impossible to seek opinions from relevant institutions, make impact assessments and deliberate in the relevant committees for a sufficient amount of time, as opposition MPs have noted during the discussion of almost every omnibus bill (see pages 21 and 24).

Article 32 was passed as part of an omnibus law amending 18 different laws, after a deliberative process that violated the Constitution, the Rules of Procedure of the Parliament and the principles of law-making, as noted by the opposition during the discussions (see here). An amendment to the Electricity Market Law that benefits select companies that are known for maintaining close ties to AKP and for winning high-value public contracts, such as Kalyon Group, ERA Technologies and Siyahkalem Engineering, clearly demonstrates the tailor-made nature of the article in question. Tailoring law-making to benefit certain groups and sectors damages the rule of law and threatens the credibility and universality of Turkish law (see here and here).

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