TUR_20101105Memorandum_HPP_WBS_region.pdf

8/20/2019 TUR_20101105Memorandum_HPP_WBS_region.pdf

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HYDROEHYDROEHYDROEHYDROELECTRIC POWERLECTRIC POWERLECTRIC POWERLECTRIC POWER PLANT TURPLANT TURPLANT TURPLANT TUR

BUSINESS PROPOSALBUSINESS PROPOSALBUSINESS PROPOSALBUSINESS PROPOSAL

OCTOBER 2010OCTOBER 2010OCTOBER 2010OCTOBER 2010

KEY KEY KEY KEY


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Albars Consulting | Hydroelectric Power Plant Turkey 2

Our client is a corporation assigned by the Energy Market Regulatory Board (“EMRB”) for

the purpose of energy production. The firm has facilitated and commissioned two Hydroelectric

Energy projects, with a capacity of 15,6 MW and 8,1 MW, via “Electric Market License Regulation”

and secured operation licenses for a period of 49 years in 2006. The firm is looking for a financial

partnership or a financial take-over of the plants.

The project sites are located on several brooks located in the Western Black Sea Region.

Due to the fact that the region is hilly it is possible to develop relatively higher heads without

expensive civil engineering works, so that relatively smaller flows are required to develop for the

desired power. With regulators constructed on the brooks the whole water potential of the river

beds upstream is appraised. Both projects are run-of-the-river plants, with no storage facility and

consist of a cofferdam, sedimentation pool, derivation channels, compulsory piping, plant buildingand tail water discharging canal facilities.

For the completion of construction and hardware works and commissioning of the

Hydroelectric facilities, an application plan of 3 years was considered by the “EMRB”, starting

from the approval of the production license. In the first year of this duration the firm performed

investigation and drilling works, map and final project preparation, and executed all other

bureaucratic processes such as obtaining required permissions and approvals, preparation of

documents and specifications for construction works and hardware procurement tenders, tender

execution, expropriation of the facility area, renovation of transportation roads, construction site

establishment and mobilization works. In the second and third year of the firm’s investment plan

construction works, procurement and assembly of electro mechanic equipment, hydration and

test production were done.

BUSINESS PROPOSALBUSINESS PROPOSALBUSINESS PROPOSALBUSINESS PROPOSAL


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Because of social and economic development of the country, the demand for energy and

particularly for electricity is growing rapidly in Turkey. Turkish major sources of energy are oil

(28%), coal (34%), natural gas (30%), hydro energy (5%) and others (9%). Although Turkey is

very rich in natural energy resources, the country is a large importer of primary energy. Since

Turkey does not possess large oil and gas reserves and annual coal production is not enough, 70

percent of the energy needs have to be satisfied by imports and alternative sources. Therefore

optimum use of domestic resources and expanded use of alternative and renewable energy

resources is required.

Energy is considered to be one of the key factors in economical development.

Sustainable energy resources are of vital importance and the energy resources, which are

continuously available for long durations and which have no detrimental social effects, are

compulsory for sustainable development. The alternative energy resources, including hydropower,

have some important advantages, such as being sustainable, renewable, environmentally friendly

and clean resources. The inherent technical, economic and environmental benefits of

hydroelectric power make it an important contributor to the future world energy mix, particularly in

the developing countries. Hydropower potential, especially small, is emphasized as Turkey’s

renewable energy sources. Turkey’s hydro electric potential can meet 33 to 46 percent of its

electric energy demand in 2020 and this potential may easily and economically be developed.

TURKEY: RENEWABLE ENERGY TURKEY: RENEWABLE ENERGY TURKEY: RENEWABLE ENERGY TURKEY: RENEWABLE ENERGY

HYDROPOWERHYDROPOWERHYDROPOWERHYDROPOWER


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The installed hydroelectric capacity

of 13.8 GW in Turkey corresponds

to just 38 percent of the country’s

technical hydroelectricity capacity of

37.1 GW. Turkey’s annual total

gross, technically feasible and

economically feasible hydropower

potentials calculated by the General

Directorate of State Hydraulic Works

(DSI) are 435, 215, and 128 TWh,

respectively. In preparing the hydro

power potential many small hydro

plants are not taken in consideration.

In total there are 25 hydrological basins in Turkey, 120 lakes, many rivers and five

separate watersheds. The Persian Gulf watershed in eastern Turkey includes the Tigris and

Euphrates rivers. The Aras/Caspian watershed in eastern Turkey includes the Aras river. The

Black Sea watershed covers much of northern Turkey, and includes Turkey’s longest river, the

Kizilirmak. Most of the Black Sea region is hilly and can thus be relatively easily used to develop

power plants. The Mediterranean watershed covers much of southwestern Turkey. The fifth

watershed covers the region around the Marmara Sea, which includes several smaller rivers.

Turkey’s annual hydropower potential according to DSI together with installed power values are

given in the following table.

38%

10%22%

8%

9%

13%

Breakdown of technicalhydroelectric capacity (37.1 GW)

Installed capacity

Licensed andunderconstructioncapacityLicensed capacity

Licence approved

Licence application

under review

Unconsidered

PLANTS & CENTRALSPLANTS & CENTRALSPLANTS & CENTRALSPLANTS & CENTRALS


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Basin Gross Potential

(GWh)

Potential According to DSI

Economic

Feasibility

Potential (GWH)

Installed Power

(MW)

Firat (Euphrates) 84 122 39 375 10 345

Dicle (Tigris) 48 702 17 375 5 416

Eastern Black Sea 48 478 11 474 3 257

Eastern

Mediterranean

27 445 5 216 1 490

Antalya 23 079 5 355 1 537

Coruh 22 601 10 993 3 361

Ceyhan 22 163 4 825 1 515

Seyhan 20 875 7 853 2 146

Kizilirmak 19 552 6 555 2 245

Yesilirmak 18 685 5 494 1 350

Western Black Sea 17 914 2 257 669

Western

Mediterranean

13 595 2 628 723

Aras 13 114 2 372 631

Sakarya 11 335 2 461 1 175

Susurluk 10 573 1 662 544

Others (total) 30 774 1 788 546

TOTAL 432 981 127 623 36 950

The development of hydro-electricity in the 20th century was usually associated with the

building of large dams. Small, mini and micro hydro plants play a key role in the Turkey’s

hydropower energy sector. Small-scale hydro is mainly “run-of-river”, and so does not involve the

construction of large dams and reservoirs. In Turkey, the upper limit of “small” hydro is accepted

as 50 MW, while internationally the upper limit varies between 2.5 and 25 MW. Turkey has 555

large dam reservoirs, 150 hydro electric power plants (HEPPs) and 664 small dams.


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Devlet Su Işleri (DSI), which is the General Directorate of State Hydraulic Works, is

Turkey’s state water agency and has the responsibility for developing all water resources in the

country. Bilateral agreements have been signed with a number of countries to further international

cooperation in hydropower development. The majority of the HPPs are operated by the state itself.

The rest is divided among build-own-operate (BOT) and transfer-operational-rights (TORs) and

the private sector players. The government currently started privatizing its distribution companies

as a step towards full liberalization of the energy market. The 67% share in the total number of

new licenses granted to the private sector in 2008 being for the construction of new HPPs is

obviously to improve the private presence in the hydroelectricity generation sector. Moreover, theSouthwestern Anatolia Project (GAP), considered as one of the most ambitious water

development projects ever undertaken, will erect 22 dams, 19 hydro electronic power stations,

and an expensive network of tunnels and irrigation canals covering 1.7 million hectares of land.

Comparable projects are the Eastern Anatolia Project (DAP) and Konya Plain Project (KOP).

Despite not being excluded from the credit crunch, the Turkish renewable market is still

heating up, as reflected in consecutive disclosures of new investments and M&A activities by

‘cash-ready’s, and supportive statements by the domestic and international financing institutions

for the ‘cash-needy’s. Much of the sector is now in the hands of domestic and private

undertakings. The main national actors in increasing energy investments in Turkey are: Sabancı

Group (Enerjisa), Koç Group (Tüpraş), Zorlu Group (Zoren), Akkök Group (Akenerji), Çalık,

Alarko, and Enka. Important recent Mergers & Acquisition transactions in the field of hydroelectric

power have been performed by Starkraft, Alstom, Pogry, Andritz, Voith Siemens and Sumitomo

Cooperation.

TTTTHE MAIN ACTORSHE MAIN ACTORSHE MAIN ACTORSHE MAIN ACTORS


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Recent developments in Turkey such as the liberalization of the electricity market and

improvements in the renewable legislations have opened the door for growth and investment

opportunities in renewable energy resources. The Ministry of Energy and Natural Resources is

mainly responsible for assisting, guiding, coordinating, and encouraging public sector involvement

in the energy industry.

The government provides a feed-inn tariff, an incentive structure to encourage the

adaptation of renewable energy through government legislation. The last decade the ministry

started restructuring the energy sector. The Electricity Market Law No. 4628 (the “EML), whichwas enacted in March 2001, authorizes the Energy Market Regulatory Authority (“EMRA”) to take

the necessary measures to promote the utilization of renewable energy resources. The Electricity

Market Licensing Regulation (the “Licensing Regulation”) also sets forth a number of provisions

aimed at promoting the exploitation of renewable energy resources and was revised in May 2005

by Law No. 5346 concerning the decentralization of the renewable energy sector in Turkey. The

Law aims to increase renewable energy resources’ utilization and generate low cost, secure, and

high quality electricity. Large HEPPs in terms of installed capacity are excluded from the law.

Incentives to facilities generating electrical energy from renewable energy resources are, as

provided by the Renewable Energy Law, made dependent on those facilities being granted theRenewable Energy Resources Certificate (“RER Certificate”) by the EMRA.

Within the framework of Electricity Market Law and the related secondary legislation,

generation plants that generate electricity based on renewable sources are supported by the

following mechanisms:

The legal entities applying for licenses for the construction of facilities based on domestic

natural resources and renewable energy resources pay only one percent of the total

licensing fee.

The generation facilities based on renewable and domestic energy resources do not pay

annual license fees for the first eight years following the facility completion date inserted

in their respective licenses.

TEİAŞ and/or distribution licensees are obliged to assign priority for system connection of

generation facilities based on domestic natural resources and renewable resources.

INCENTIVE SYSTEMSINCENTIVE SYSTEMSINCENTIVE SYSTEMSINCENTIVE SYSTEMS


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Applicable for sales to non eligible consumers; if the price of electricity generated at

generation facilities based on renewable energy resources is equal to or lower than the

sales price of TETAŞ and if there is no cheaper alternative, the retail licensees are

obliged to purchase such energy for the purposes of re-sale to the non-eligible

consumers.

The legal entities engaged in generation activity at facilities based on renewable energy

resources may purchase electricity from private sector wholesale companies on the

condition not to exceed the annual average generation amounts indicated in their

licenses in a calendar year.

The Renewable Energy Law provides for a 7-year price guarantee for entities generating

electricity from renewable energy resources. The Council of Ministers may increase this

price with up to 20% per year.

The prices for rent, rights of access or usage of State owned land are reduced by 85% for

the first 10 years of investment or operation for the projects that will be finalized before

31/12/2012 where the property is to be used for the purpose of generating electrical

energy from renewable energy resources by undertakings being granted a RER

certificate.

Next to the above specified incentives, the undertakings being granted a RER certificate

may benefit from subsidies or other incentives determined by the Council of Ministers regarding

investments in energy generation facilities.


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According to the Law, all market activities in the electricity market may only be conducted

by licensed undertakings. The licenses are to be obtained from the Energy Market Regulatory

Authority (“EMRA”) for a period of 49 years with a minimum term for generation & transmission

and distribution licenses of 10 years. Separate licenses are required for each market activity and

for each facility/region where the activity is carried out.

License holders are obliged to keep separate accounts for each of the licensed they have.

In order to obtain the relevant licenses to operate in the electricity market, the legal entities are

required to apply to EMRA by submitting the full documents determined by the decision of the

board of EMRA. A license holder shall deposit an annual generation license fee (e.g. for 5-10MW

produced 5.000 TL; for 10-25 MW produced 10.000 TL). The license transfers are allowed only

between companies whose shareholders are the same. The transfers of shares of the licensee

are subject to the Board approval of EMRA.

The rules and procedures regarding the license applications in order to operate in the

electricity market are provided in the Electricity Market Licensing Regulation of 4 August 2002

(‘Regulation’). In line with this Regulation, all legal entities that have been established as joint

stock or limited liability companies in accordance with the provisions of the Turkish Commercial

Code No. 6762 and that have been granted a license by EMRA, may engage in generation,

transmission, distribution, wholesale, retail sale, retail sale services, and import and export

activities in the electricity market. However, undertakings in organized industrial zones may

perform distribution and/or generation activities within their approved borders in order to meet the

electricity demands of the undertakings in the zone upon receiving the relevant licenses from

EMRA, without being subject to the condition of incorporating according to the Turkish

Commercial Code.

LICENCELICENCELICENCELICENCE


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For activities on the market for renewable energy, in addition to the above reviewed

legislation there is also special legislation in the form of Law No. 5346 Concerning the Use of

Renewable Energy Resources for the Generation of Electrical Energy (‘Renewable Energy Law’).

Within the framework of this law, electricity generation based on renewable energy resources is

promoted and EMRA is commissioned to issue Renewable Energy Certificates (RES Certificates).

These certificates entitle the holders to benefit from the incentives under the Law. The

procedures and principles regarding the issuance of this Certificate are specified in a regulation.

A HPP project can be started by a private player in two ways:

1. Self-initiated projects: Private players may develop their own project and apply to

the DSI for a Water Use Agreement (WUA).

2. DSI announces the list of HPP projects to be transferred to the private sector for

operation. In case there is one applicant, the project is granted to this applicant.

In case of more than one applicant, a tender is launched to collect bids per KWh

to be generated, and the winning bid is posted as income by DSI.

RES CERTIFICATERES CERTIFICATERES CERTIFICATERES CERTIFICATE

PRIVATE PLAYERSPRIVATE PLAYERSPRIVATE PLAYERSPRIVATE PLAYERS


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Turkey offers many benefits and competitive advantages; with a fast growing economy,

the largest youth population of Europe, and a good strategic location it forms a great location for

foreign direct investment. The Government of Turkey views foreign direct investment as vital to

the country's economic development and prosperity. Accordingly, Turkey has one of the most

liberal legal regimes for FDI in the OECD. Foreign investors find Turkey attractive for a number of

reasons:

The Government maintains a liberal policy towards all forms of foreign investment

The market is large and continuously growing

The location is unique: between Asia and Europe

The labor force is relatively cheap and abundant

There is Customs Union with the EU since 1 January 1996

Turkey has Free Trade Agreements with EFTA and several countries

There are several privatization projects under progress

Regulations governing foreign investment are, in general, transparent. The Law on

Foreign Direct Investment (No. 4875) has been in force sine June, 2003. The objective of the FDI

Law is to regulate the principles to encourage foreign direct investments; to protect the rights of

foreign investors; to define investment and investor in line with international standards; to

establish a notification-based system for foreign direct investments rather than screening and

approval; and to increase foreign direct investments through established policies.

FDI CLIMATEFDI CLIMATEFDI CLIMATEFDI CLIMATE


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Equal Treatment for Domestic and Foreign Capitalized Companies

All rights, exemptions and privileges granted to domestic capital and businesses will be

available under the same conditions to foreign capital and businesses operating in the same field.

All permits granted by the General Directorate of Foreign Investment have been abolished. As a

result, all transactions for establishing a company with foreign capital are the same as local

companies. Foreign investors are entitled to establish or participate in any of the company types

designated by Turkish Commercial Code and Code of Obligations. The national treatment

principle is applicable by all means. With respect to this principle, no additional approvals and

authorizations are required for the establishment of the foreign companies, branches and

participation to the existing companies. However establishment of liaison offices is subject to the

approval of the Undersecretaries of Treasury. The principle also includes the acquisition of real

estate by foreign-owned corporate entities registered under Turkish law, and in most sectors does

not have an investment screening system.

No Capital Requirement

Foreign investors are no longer required to bring a minimum capital of USD 50,000 since

this obligation was abolished as a result of the introduction of the Foreign Direct Investment Law.

Foreign investors are now required to bring those capital amounts which are required by the

Turkish Commercial Code.

Unrestricted Foreign Ownership

Foreign investors can freely transfer a variety of capital abroad including: net profits,

dividends, proceeds of sale and liquidation, compensation payments, funds arising from license,

management or similar agreements, and reimbursement of loans and interests. Accordingly, it is

no longer necessary to register royalty, cost sharing, management service and similar types of

agreements with the Foreign Investment Directorate of the Treasury.


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Companies that are established by foreign investors in Turkey under the provisions of the

Turkish Commercial Code, either on their own or with Turkish partners, are regarded as Turkish

companies and entitled to all the rights granted to companies founded by Turkish citizens. Turkish

Commercial Code, in its provisions related to the formation of companies, makes no essential

distinction between Turkish citizens and foreigners, nor does it distinguish between partners and

founding partners, be they Turkish or foreigners.

According to the Turkish Commercial Code (TCC), legal forms of business entities may

be classified as follows: Corporations (“AnonimŞ

irketi” – A.Ş

.); Limited Liability Companies(“Limited Şirketi” – Ltd. Şti.); Ordinary Partnerships (“Adi Ortaklık”); Limited Partnerships

(“Komandit Şirket”); Registered Partnerships (“Kollektif Şirket”; Limited Partnership Divided into

Shares (“Sermayesi Paylara Bolunmuş Komandit Şirket”); and, Sole Proprietorships.

Comparison of the three most common types of legal presenceComparison of the three most common types of legal presenceComparison of the three most common types of legal presenceComparison of the three most common types of legal presence

Corporation (A.Ş.)Corporation (A.Ş.)Corporation (A.Ş.)Corporation (A.Ş.) Limited Liability CompanyLimited Liability CompanyLimited Liability CompanyLimited Liability Company(Ltd.)(Ltd.)(Ltd.)(Ltd.)

BranchBranchBranchBranch

Legal StatusLegal StatusLegal StatusLegal Status Independent legal entity Independent legal entityLegally dependent on its

headquarters

Tax StatusTax StatusTax StatusTax Status Full tax liability (resident) Full tax liability (resident) Limited tax liability

Number of shareholdersNumber of shareholdersNumber of shareholdersNumber of shareholders Min: 5 – Max: no limit Min: 2 – Max: 50 N/A

Capital RequirementsCapital RequirementsCapital RequirementsCapital Requirements 50.000 TL 5.000 TL No specific limit

Executive bodyExecutive bodyExecutive bodyExecutive body Board of DirectorsManaging partners and/or

ManagerBranch manager

Responsibility forResponsibility forResponsibility forResponsibility for

shareholders for tax andshareholders for tax andshareholders for tax andshareholders for tax and

public liabilitiespublic liabilitiespublic liabilitiespublic liabilities

Limited to the amount of

capital contributed.

Liability is in proportion to

the share in capital

The headquarters are

liable.

Corporate income taxCorporate income taxCorporate income taxCorporate income tax raterateraterate 20% 20% 20%

Dividend withholding taxDividend withholding taxDividend withholding taxDividend withholding tax

raterateraterate15% (if profit is distributed) 15% (if profit is distributed) 15% (if profit is distributed)

Legal reservesLegal reservesLegal reservesLegal reserves Must be provided Must be provided N/A

LEGAL BUSINESS FORMSLEGAL BUSINESS FORMSLEGAL BUSINESS FORMSLEGAL BUSINESS FORMS


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In recent years, due to the increase in the competition among developing countries for

foreign investment, Turkey has implemented several regulations and modifications to the tax

systems and amended its Tax System and Code in order to have a more transparent and simple

tax regime. As a result of these changes, many tax incentives have been granted to foreign

investors and reductions have been made in the tax rates in order to attract foreign direct

investment.

Income Tax

Income taxes in Turkey are levied on all income, including domestic and foreign

individuals and corporations residing in Turkey. Non-residents earning income in Turkey through

employment, ownership of property, business transactions or any other activity which generates

income are also subject to taxation but only on the income earned in Turkey.

Corporate Income Tax

Whether a company is subject to full or limited tax liability depends on its status of

residence. A company, whose statutory domicile or place of management is established in Turkey

(resident company), will have full tax liability; in this case worldwide income is taxable. In Turkey

the basic corporate income tax rate levied on business profits is 20 percent. If a non-resident

company conducts business through a branch or joint venture, it will have limited tax liability, i.e.

fully subject to corporate tax on profits that are earned in Turkey on an annual basis.

Withholding Tax

The companies residing in Turkey are subjected to withholding tax - 15% of the profits,

15% of Bank deposits and 15% of REPO agreements must be paid as a withholding tax. Interests

on treasury bonds and other bonds or bills which are derived by resident corporations are free

from taxes.

TAXTAXTAXTAX STRUCTURESTRUCTURESTRUCTURESTRUCTURE


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Individual Income TaxThe limited tax liability covers trade or business income from a permanent establishments,

salaries for work done in Turkey (regardless of payment location or whether or not remitted to

Turkey), rental income from real property in Turkey, Turkish derived interest, and income from the

sale of patents, copyrights and similar intangible assets. Income tax rates applicable to yearly

gross earnings earned in 2010 are as follows:

Income Salaries (TL) Rate (%)

Up to 8,800 15

8,801 – 22,000 20

22,001 – 50,000 27

50,001 and over 35

Value Added Tax

The generally applied value added tax (KDV in Turkish) rate varies between 1% and 18%,where VAT payable on local purchases and imports is regarded as “input VAT” and VAT

calculated and collected on sales is considered as “output VAT”. VAT is not levied on exported

goods.


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Albars Consulting | Hydroelectric Pow

ALBARS CONSULTING

A.Nafiz Gürman Mah. Meh

Turunçlu Sok. No 25 D 2 M

34173 Merter / Güngören –

Ramazan Arslan

T. +90 212 557 50 00

F. +90 212 557 50 00

E. rarslan@albarsconsultin

er Plant Turkey 17

et Akif Cad.

esa Plaza

ISTANBUL

.com

TUR_20101105Memorandum_HPP_WBS_region.pdf

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