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NATURAL GAS MARKET STRUCTURE

Natural Gas Market Implementation Department

ENERGY MARKET REGULATORY AUTHORITYOF TURKEY

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Turkish Natural Gas MarketGeneral InformationThe Natural Gas Market Law and Regulatory ProcessKey Issues

LicensingTariffsThird Party AccessEligible CustomersDistribution License TenderGas Release Program

Comparison of the new structure with EU Natural Gas Directive

Final Remarks

CONTENT

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Electricity IndustryResidential Fertilizer

NATURAL GAS CONSUMPTION BY SECTORS (2004)

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2004 annual consumption is 22,74 billion m3

Total contracted natural gas amount in platou period is 67.8 BCM/year

%57,18

%2,28%19,30

%21,24

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CONTRACTS

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In Operation (1999)2219951,2NIGERIA LNG)

67.8TOTAL

In Operation (1994)2019884ALGERIA (LNG)

200630199916TURKMENISTAN

20061520016,6AZERBAIJAN

In Operation (2001)25199610IRAN

In Operation (2003)25199716RUSSIAN FED.

In Operation (1998)2319988RUSSIAN FED.

In Operation (1987) 2519866RUSSIAN FED.

STATUSTERM

(YEARS)DATE OF SIGNATURE

QUANTITY(BCM/YEAR

EXISTING CONTRACTS

NATURAL GAS SALE AND PURCHASE AGREEMENTS

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LEBA

NON

Ankara

Karaman

Konya

Bursa

Eskişehir

Ereğli

İzmit

İstanbul

Batman

Kırklareli

Çorum

Aliağa

Karacabey

Kofçaz

SakaryaBolu

Zonguldak

Seydişehir

Afyon

Mersin

Araban

ŞanlıurfaGaziantep

Tokat

DiyarbakırŞırnak

Ardahan

Adıyaman

Bozova

Çan

Dörtyol

Adana

Samsun

Erzincan Erzurum

BayburtHorasan

Ağrı Sivas

Isparta

Amasya

Kayseri

Yozgat

Malatya

Çankırı

Kırşehir

Nevşehir

Niğde

BurdurMuğla

Kırıkkale

KarsOrdu

Giresun

Trabzon

Gümüşhane

RizeArtvin

Iğdır

Van

Doğubayazıt

Ceyhan

MardinSilopi

Elazığ

Çanakkale

Denizli

Aydın

Bilecik

Balıkesir

Manisa

Aksaray

Kahramanmaraş

İzmir

M.Ereğlisi

Turgutlu

Kütahya

Ereğli

Hatayİskenderun

BartınÇaycuma

Uşak

Antalya

Edirne

LNG Terminals

Existing LinesUnder ConstructionTendered Lines

Planned Underground Storages

Planned Lines

IRAN

IRAQ

ARMENIA

GEORGIA

BULG

ARIA

GREECE

BLACK SEA

MEDITERRANEAN SYRIA

6.6 B

CM

Russian Fed (14 BCM)Russian Fed (Blue Stream)

Iran

Azerbaijan

14 BCM

Turkmenistan

Egypt

4 BC

M

16 BCM

LNG

(Alg

eria

+ N

iger

ia) 5.

2 BC

M 10 BCM

16 BCM

Planned Gas Volumes

Contracted Gas Volumes

CS

CS-1

CS-2

CS-3

CS-4

LEBA

NON

16”24”40”

48”

40”

40”

16”

24”

30”

24”

24” 36”

18”16”

16”

20”

24”40”

48”

48”

48”

48”

24”24”

24”36”

40”40”

CS-5

40’’

40’’

48”

40”

Yapracık

Existing Imports (Plateau Period)

CS-1

M.Ereğlisi

NATURAL GAS AGREEMENTS & PIPELINES

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PREVIOUS STRUCTURE

BOTAŞ was empoweredunder Decree No. 397 as a monopoly on;

Import,Transmission,Sale and determination of

sales prices of imported natural gas

Imported Gas

Residential

Domestic Gas

Power

Industry

Distribution

BOTAŞ

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Enactment of the Natural Gas Market Law – May 2, 2001

Objectives;

To establish the legal framework for natural gas import, export, transmission, wholesale, city distribution, storage, and CNG sale, transmission and distributionTo develop a fair, transparent and competitive natural gas market To unbundle market activities and eliminate the monopolistic structure in the market To create a market open to new entrants in all areasTo ensure an independent regulatory and supervisory system in the natural gas market

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TURKISH NATURAL GAS MARKET LAW

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THE REGULATORY PROCESS

Preparation and enactment of the secondary legislation;

License RegulationInternal Installations RegulationCertificate RegulationTariffs RegulationTransmission Network Operation RegulationFacilities RegulationDistribution and Customer Services Regulation

and relevant communiqués

Market Opening – November 2, 2002

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NEW MARKET STRUCTURE

Wholesale

SUPPLY MARKETING CONSUMPTION

Export

Distribution

Eligible Customers

DomesticProduction

Import

Non-Eligible Customers

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Licenses are required in order to engage in any natural gas market activity,

Separate licenses are required for each market activity and each facility,

Types of Licensesa) Import License b) Transmission License c) Storage License d) Distribution License e) Wholesale Licensef) CNG Licenseg) Export License

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LICENSING

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Types of Tariffs;

Connection Tariffs Transmission & Supervision of Conveyance TariffsStorage TariffsWholesale TariffsRetail Sale Tariffs

However, until sufficient competition is in place, all tariffs shall be determined by EMRA.

All determined tariffs are in the form of price ceilings and they are in place at the moment.

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TARIFFS

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Transmission and distribution companies have an obligation to connect all users to the system.

In case of rejection of access to system, EMRA’s decision shall be final and binding.

Transmission and distribution companies are obligated to demonstrate EMRA that their operations are cost efficient, effective and reliable.

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THIRD PARTY ACCESS

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Customers whose annual consumption is above the threshold set by the Board,

Companies purchasing natural gas for power generation, and

Domestic natural gas producers

have the right to choose their suppliers..

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ELIGIBLE CUSTOMERS

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Distribution licenses shall be granted through a tenderprocess.

Prequalification shall be based on financial strength and experience of the companies.

Evaluation shall be based on the unit service and depreciation charge for supplying one kWh natural gas to consumers.

Licenses shall be granted for a minimum of 10 and for a maximum of 30 years.

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DISTRIBUTION LICENSE TENDERS

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BOTAŞ is required by the Law to gradually transfer its import obligations to private enterprises through a tendering process.

The minimum contracted amount to be transferred by BOTAŞ each year is 10% of the total contracted amount as at the effective date of Natural Gas Market Law.

BOTAŞ is required to transfer its import contracts until its market share decreases to 20% by the year 2009.

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GAS RELEASE PROGRAM

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EU NATURAL GAS DIRECTIVE VS NEW STRUCTURE (1)

Objective and non-discriminatory

Objective and non-discriminatory

Authorisation

Seperation of activities andAccounts

Seperation of activities andAccounts

Unbundling of activities & accounts

RegulatedRegulatedRegulated/Negotiated (for Storage)

Access to Networks(Third Party Access)

Customers whose annual consumption is above the threshold set by the Board,

Non-Household customersby July 2004

All customers by July 2007

Eligible customers & market opening

Natural Gas Market Legislation

EU Natural Gas Directiveissue

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EU NATURAL GAS DIRECTIVE VS NEW STRUCTURE (2)

Prohibition of cross-subsidyProhibition of cross-subsidyCross-subsidy

Secure, reliable, non-discriminatory and efficient

Secure, reliable, non-discriminatory and efficient

Operation of system

Transparent andinteroperability (ISO,EN)

Transparent andinteroperability

Technical rules

EMRA(one month)

an independent authority(two months)

DisputeResolution

Natural Gas Market LegislationEU Gas Directiveissue

***Natural Gas Market Law and relevant secondary legislation are consistent with the EU Natural Gas Directive (2003/55/EC)

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FINAL REMARKS

A successful gas release program is of utmost importancefor a competitive natural gas market.

Smooth transition into a liberalized market is crucial.

Success depends on acceptance of and support for reform by all concerned parties.

Close cooperation and effective coordination are essential for success.

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ENERGY MARKET REGULATORY AUTHORITY OF TURKEY

www.emra.org.tr