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ESM325

Turkey’s Experience with Greenfield Gas Distribution since 2003 Formal Report 325/07

Formal Report 325/07

Turkey’s Experience with Greenfield Gas Distribution since 2003
May 2007

Energy Sector Management Assistance Program

Energy Sector Management Assistance Program (ESMAP)
Purpose The Energy Sector Management Assistance Program (ESMAP) is a global technical assistance partnership administered by the World Bank and sponsored by bi-lateral official donors, since 1983. ESMAP’s mission is to promote the role of energy in poverty reduction and economic growth in an environmentally responsible manner. Its work applies to low-income, emerging, and transition economies and contributes to the achievement of internationally agreed development goals. ESMAP interventions are knowledge products including free technical assistance, specific studies, advisory services, pilot projects, knowledge generation and dissemination, trainings, workshops and seminars, conferences and round-tables, and publications. ESMAP work is focused on four key thematic programs: energy security, renewable energy, energy-poverty and market efficiency and governance. Governance and Operations ESMAP is governed by a Consultative Group (the ESMAP CG) composed of representatives of the World Bank, other donors, and development experts from regions which benefit from ESMAP’s assistance. The ESMAP CG is chaired by a World Bank Vice-President, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Program’s strategic agenda, its work plan, and its achievements. ESMAP relies on a cadre of engineers, energy planners, and economists from the World Bank, and from the energy and development community at large, to conduct its activities. Funding ESMAP is a knowledge partnership supported by the World Bank and official donors from Belgium, Canada, Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom. ESMAP has also enjoyed the support of private donors as well as in-kind support from a number of partners in the energy and development community. Further Information For further information on a copy of the ESMAP Annual Report or copies of project reports, please visit the ESMAP Website: www.esmap.org. ESMAP can also be reached by E-mail at esmap@worldbank.org or by mail at: ESMAP c/o Energy and Water Department The World Bank Group 1818 H Street, NW Washington, D.C. 20433, U.S.A. Tel.: 202.458.2321 Fax: 202.522.3018

Formal Report 325/07

Turkey’s Experience with Greenfield Gas Distribution since 2003

Energy Sector Management Assistance Program (ESMAP)

Copyright © 2007 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Produced in India First printing May 2007 ESMAP Reports are published to communicate the results of ESMAP’s work to the development community with the least possible delay. The typescript of the paper therefore has not been prepared in accordance with the procedures appropriate to formal documents. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author and should not be attributed in any manner to the World Bank or its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The Boundaries, colors, denominations, other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the ESMAP Manager at the address shown in the copyright notice above. ESMAP encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee.

Contents
Acknowledgments ............................................................................................................... vii Acronyms, Abbreviations and Conversions ........................................................................... ix Executive Summary .............................................................................................................. xi 1. Introduction .................................................................................................................... 1 2. Turkey’s Greenfield Gas Distribution Model since 2003 .................................................... 3 Current Natural Gas Market in Turkey ........................................................................ 3 The Greenfield Gas Distribution Model ........................................................................ 4 3. Review of Turkey’s Progress with Greenfield Gas Distribution Projects since 2003 .............. 9 The Drive for Gasification of all Major Cities ................................................................ 9 Participation in the Distribution Tenders and the Winning Bids .................................... 12 Licensees’ justifications for the low winning bids ........................................................ 13 Licensees’ Progress in Meeting their Investment Requirements .................................... 17 4. Major Drivers in Turkey’s Recent Experience with Greenfield Gas Distribution Projects ...... 27 5. Primary Constraints on Further Progress in Turkey’s Greenfield Gas Distribution Projects ...... 35 Some Shortcomings of the Licensing Process ............................................................. 35 Constraints on Expanding the Licensee’s Consumer Base .......................................... 36 Difficulties Related to BOTAS ...................................................................................... 38 6. Major Challenges Ahead ............................................................................................... 41 Securing and Measuring Progress ............................................................................. 41 Tariff Regulation after the Eight-year Period of Fixed Distribution Margins .................... 44 Transformation in the Distribution Companies’ Main Activity ....................................... 46 Upfront Capital Costs for Consumers ........................................................................ 46 Annex I: Statistical Annex .................................................................................................... 49 Annex II: Questionnaire for Gas Distribution Companies .................................................... 59

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TURKEY'S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Tables
Table 3.1: Table 3.2: Table 3.3: Table 3.4: Distribution Margins for Old Distribution Regions ............................................... 14 Alternative Estimates for Residential Penetration Rates (Based on the Number of Dwellings and Installed Meters .................................................... 20 Asset Transfers from BOTAS – Costs for Licensees .............................................. 23 Investment Progress in Turkey’s Gas Distribution Regions as on February 2006 .. 24

Table A1: Participation in Gas Distribution Tenders and Their Results ..................................... 49 Table A2: Progress in Gas Penetration in New Distribution Regions as at the End of 2005 .... 52 Table A3: Transportation Fees Charged in Old and New Distribution Regions ........................ 53 Table A4: Cumulative and Projected Investments by Distribution Companies in Regions where Residential Consumption has Already Commenced ..................... 55 Table A5: The Share of Industrial Consumption in Licensees’ Distribution Regions in 2005 ..... 56 Table A6: Ranking of Relative Prices for Selected Fuels Consumed by Households ................... 57 Table A7: End user Average Gas Prices in Industry and Households in 2005 – International Comparisons .................................................................... 57

Figures
Figure 2.1: Major Steps in a Gas Distribution Project ............................................................. 5 Figure 3.1: Progress in Gas Penetration in New Distribution Regions, 2005 .......................... 10 Figure 3.2: Current Penetration Ratio (Current Subscribers to Potential Subscribers, %) ............................................................................................. 10 Figure 3.3: Residential Gas Consumption in New and Old Distribution Regions in 2001-05 ...................................................................................................... 11

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CONTENTS

Figure 3.4: Winning Bids in Gas Distribution Tenders (US cents/kWh) over 2003-05 ...................................................................................................... 12 Figure 3.5: Transportation Fees (US cents/kWh) Across Distribution Regions ........................ 16 Figure 3.6: Estimated Residential Penetration Rate (Number of Meters/Number of Dwellings in the Beginning of 2006, %) ......................................................... 21 Figure 3.7: Completion Rate of Distribution Company Investments, End-2005 (%) ................ 22 Figure 4.1: Share of Industrial and Residential Gas Consumption (%), 2005 ......................... 28 Figure 4.2: Turkey’s Gas Distribution Regions ..................................................................... 30 Figure 4.3: Relative Prices of Select Fuels Consumed by Households, 2005 ........................... 32 Figure 4.4: Industrial and Household Gas Prices ($/toe), 2005 ............................................ 32

Boxes
Box 2.1: BOTAS’ Contract Transfer – Implications for Gas Distribution ................................... 3 Box 2.2: The Tendering and Licensing Process for Gas Distribution Licenses in Turkey ............. 6 Box 3.1: The Case of the Lowest Winning Bids .................................................................... 18

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Acknowledgments
This study was commissioned by the Energy Sector Management Assistance Program (ESMAP) and was prepared by Adnan Vatansever. The task of preparing and finalizing the report was managed by Sameer Shukla (ECSSD). The research, data collection and analysis, and background interviews with various stakeholders were carried out by Adnan Vatansever. Ranjit Lamech, Gurhan Ozdora and James Moose (ECSSD) contributed significantly to the finalization of the report. Kalpana Seethapalli from the Energy Mining Sector Unit (EASEG) provided valuable assistance in finalizing the report and bringing together the data in a presentable structure. Selma Karaman (ECCU6) and Yukari Tsuchiya (ECSSD) assisted in editing and finalizing the report. The report benefited tremendously from comments, advice and guidance from World Bank peer reviewers, Franz Gerner (ECSSD) and Bent Svensson (COCPO), to whom the task team is particularly grateful. The team also wishes to acknowledge the assistance from ESMAP in producing this report.

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Acronyms, Abbreviations and Conversions
APEC BOTAS Dosider EIA EMRA IEA LPG NGMDCR NGML NGMLR YTL PE TPES TSI UGETAM USD VAT Licensee 1 USD 1 cent/kWh = = Asia-Pacific Economic Cooperation Boru Hatlari ve Petrol Tasima AS (Turkey’s Petroleum Pipeline Corporation) Turkey’s Natural Gas Equipment Manufacturers and Businessmen Association United States Energy Information Administration Energy Market Regulatory Authority International Energy Agency Liquefied Petroleum Gas Natural Gas Market Distribution and Customer Services Regulation Natural Gas Market Law (#4646, adopted on May 2, 2001) Natural Gas Market License Regulation New Turkish Liras Polyethylene Total Primary Energy Supply Turkish Statistics Institute International Gas Training Technology Research Center United States Dollar Value Added Tax Gas distribution company which has obtained a license for gas distribution from the Energy Market Regulatory Authority 1.33 YTL 10.64 cent/m3

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Executive Summary
Purpose of the Study
A growing number of countries have embarked upon greenfield gas distribution projects which aim to spread the benefits of natural gas to a larger part of their population. Turkey appears as one of the newest examples of rapid progress in such projects. In less than three years, construction of gas distribution grids has commenced in nearly three dozen cities. In 20 cities, residential consumers secured access to gas for the first time in the 2003-05 period. The report has two main objectives. First, it aims to provide a detailed assessment of Turkey’s progress in greenfield gas distribution projects. Turkey’s experience can help to provide valuable lessons for other countries who have recently initiated gas distribution projects or plan to do so in the near future. Second, the report aims to highlight the strengths of Turkey’s current licensing system for gas distribution, as well as indicate certain challenges. Addressing these challenges may facilitate Turkey’s continuous progress with greenfield gas distribution in the following decade. on May 2, 2001) and vigorous efforts by Turkey’s Energy Market Regulatory Authority (EMRA) to create a growing and competitive gas market. This model provides a distinctive environment for building gas distribution networks based on the following key features: • Heavy state involvement in gas distribution is replaced with regulation by an autonomous regulatory body (EMRA); • Gas distribution projects are initiated after a competitive tender designed to allow for the greatest simplicity, transparency, objectivity, and speed; • Competition in gas distribution occurs in conjunction with a gas market which is rapidly moving toward liberalization; and • Private companies are assigned a leading role in realizing gas distribution projects with no public finance involved in the process.

Progress in Greenfield Gas Distribution Projects in 2003-05
This study focused on two broad areas related to Turkey ’s progress in greenfield gas distribution projects: EMRA’s ability to finalize gas distribution tenders and the level of investment completed by license holders. Since 2003, EMRA has seen unprecedented success in finalizing tenders which aim to spread gas consumption in every major city of
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Turkey’s New Model for Greenfield Gas Distribution since 2003
Much of Turkey’s recent success in rapidly expanding gas distribution projects throughout the country is the result of the decision to adopt a new model for developing gas distribution. The new model is an outcome of the Natural Gas Market Law (NGML) (Law#4646, adopted

TURKEY'S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Turkey. By the end of 2005, the regulatory agency was able to finalize the tenders for gas distribution in 35 separate regions. It announced an ambitious plan to finalize 24 additional tenders in 2006, seven of which were completed in the first two months of 2006. EMRA’s initiative has been met with considerable interest among Turkey’s private companies willing to undertake gas distribution projects. The interest has varied across tenders, but the overall trend has been an initial downturn after the relatively low winning bids in 2003, followed by a significant upward swing in 2005. There has been a noteworthy increase in the number of participants in the distribution tenders during the last year. Moreover, some large Turkish conglomerates, which had shelved their plans for involvement in gas distribution following the initial low winning bids, decided to return. The higher level of competition has been reflected in the winning distribution margins, which reached record low levels in 2005. Interestingly, despite widespread criticism about the low level of winning bids at the tenders, distribution companies have continued with their investment projects. Furthermore, growing experience in the field has not barred these companies from accepting even lower distribution margins in new tenders. In terms of the progress made in meeting the investment requirements set for distribution companies, it is possible to arrive at the following conclusions. • Licensees have been able to meet their investment requirements so far: Winners of distribution tenders are required to commence investment within six months of acquiring a distribution license. In addition, they are required to complete their first gas connections within 18 months. There have been no reports of licensees failing to reach these requirements;
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• However, initial requirements are relatively easy to meet: Both requirements (for six and 18 months) are set in very broad terms and do not require licensees to invest specific amounts in the projected distribution networks. Neither do they require the licensees to connect a certain minimum number of consumers. As a result, meeting the requirements is relatively easy; • Progress in meeting medium-term requirements is substantial: Licensees face a much tougher requirement in the medium-term: within the first five years of their operation, they are required to connect every willing potential consumer in their settlement zone (imarli area), if the requested connection is economically and technically feasible. Most companies have been involved in rapid investment in infrastructure. Many of them have reported significant penetration rates in their respective regions. In some distribution regions, more than 50 percent of the potential consumers have already been connected. Meanwhile, a comparison of licensees’ cumulative investments so far with their projected investment volume for the duration of their licenses provides an additional indicator of progress. Accordingly, for most regions for which data are available, the level of investment far exceeds the current penetration ratios concerning potential consumers; and • It may, however, be early to predict success for distribution projects overall. First, no licensee of the new distribution regions has been operating for more than three years. As a result, it is too early to judge their ability to meet their five-year requirements. Second, figures on gas connections and penetration rates are subject to bias. This is partly due to the lack of a clear definition of what needs to be done by the licensees in their first five years of operation. In addition, licensees are potentially able to demonstrate relatively

EXECUTIVE SUMMARY

higher penetration ratios by keeping low estimates about the potential number of consumers, as well as by connecting the larger commercial consumers. Finally, a real criterion for success would appear in the form of an absence of complaints by potential consumers about not being connected by the licensees, when they appear in a region deemed as economically and technically feasible. So far, there have been no such disputes, but this is partly because licensees have initially focused on areas with higher population densities. The main challenge for licensees will be to maintain their successful performance after they turn their attention toward regions (within their existing settlement zone) where gas connection costs are relatively higher.

Yet, it is clear that the main reason for the success in attracting private investment into greenfield gas distribution rests with EMRA. There is a wide consensus among representatives of Turkey’s gas sector that the presence of a well structured tendering process under the guidance and supervision of an independent regulatory body has constituted the principal driver for Turkey’s rapid progress with greenfield gas distribution projects. The process has had several major strengths: • EMRA’s success in establishing a simple and transparent bidding system for gas distribution tenders; • EMRA’s ability to remain largely autonomous from political pressures; • Limited interference by the regulatory body in investment decisions, which has allowed some room for flexibility in the investment strategies of licensees; • The regulator’s propensity for improving its regulations based on feedback from the industry; • Key regulatory decisions (such as on connection fees and transportation fees), which have been considered forwardlooking by licensees; and • Careful sequencing of gas market reforms, where the focus has been on gas distribution-related initiatives in the short term.

Primary Factors Assisting Turkey’s Progress in Gas Distribution Projects
Turkey’s rapid move toward the gasification of its cities between 2003-05 has benefited from a number of factors. Some are not unique to Turkey and have proven to be highly important for successfully realizing gas distribution projects on a global scale. Thus, for instance, by the time EMRA announced its first tenders, Turkey had already acquired some major experience in gas distribution in some of its largest cities. Generally, new distribution regions have significantly benefited from such an experience in the past. Also, Boru Hatlari ve Petrol Tasima AS (BOTAS) (Turkey ’s petroleum pipeline corporation) the national pipeline operator, had already established a comprehensive transmission network, while it continued its vigorous investment program in its further expansion. As a result, by 2003-05, natural gas had already become available to most parts of Turkey. In addition, environmental concerns, as well as competitive pricing for natural gas, have helped significantly in introducing this fuel to new regions in the country.

Remaining Challenges
Interviews with a large number of representatives of Turkey’s gas distribution companies has revealed that, overall, there is strong support for the existing licensing process adopted by EMRA. Many of the issues mentioned by licensees thus far have appeared minor and inconsequential in terms of endangering their ability to meet their
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requirements. However, as an increasing number of licensees are advancing through their projects, they will soon need to comply with much tougher requirements (such as the obligation to connect all feasible consumers willing to use gas within the first five years). If licensees are able to meet these requirements as well, then Turkey’s recent experience with greenfield gas distribution can be defined as a major success story. Overall, there are several challenges which, if addressed, will facilitate Turkey ’s further progress in gas distribution projects. • Licensees’ rights and responsibilities: During the first five years of operation, EMRA requires distribution companies to connect all consumers willing to use natural gas, if they are located in a region where it is economically and technically feasible to do so. However, there is potential for some uncertainty about the rights and obligations of licensees in meeting this requirement, as discussions with licensees have shown. The legislation also seems to lack an objective test of feasibility about consumer connections; • Monitoring targets and evaluating performance: One of the major responsibilities of the regulatory body lies in ensuring that distribution companies meet the license requirements. Lack of complete clarity on targets among licensees complicates this task. The lack of intermediate targets between the 18th month and fifth year of operations has further potential to make monitoring complicated. EMRA, however, has taken steps to develop a complex monitoring system regarding the performance of distribution companies. Independent auditing companies supervise financial books and reports of the distribution companies. Companies which are granted construction and service certificates by EMRA supervise
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the compliance of the construction of the distribution network with the relative legislation. In addition, EMRA staff also performs supervision and surveillance of the distribution companies’ activities. • Tariff regulation after the eight-year period of fixed distribution margins: During the first eight years of operation, licensees are required to operate at fixed distribution margins. However, there is much lack of clarity about the margin after this first phase. The regulatory body has announced that the second-phase distribution margin will be based on the price cap method, but it has not yet defined the methodology for applying the price cap, and determining the types of expenditures which will be included in the licensees’ asset base is a work in progress. An early resolution of this issue is highly important in terms of shaping the investment strategies of licensees. It will provide more clarity about future revenues and facilitate the process of preparing for new distribution tenders; • Licensees’ readiness for transformation in their main activity: Investment in infrastructure appears to be the main activity of distribution companies at this point. However, as they progress with their projects, investment will emerge as a secondary activity, as priorities will shift toward operating their network. At this new stage, distribution companies will need access to expertise and new types of skills for managing their networks and the associated consumer base. In this regard, they will need to be prepared to adequately address safety issues and consumer satisfaction; and • Consumers’ upfront capital costs: Estimates of upfront costs for consumers are primarily the costs related to installing heating systems, piping and related infrastructure. These costs vary significantly,

EXECUTIVE SUMMARY

depending on whether it is a central heating system or an individual one. Quick estimates based on discussions with some licensees and some industry associations suggest that the cost for individual heating systems (with combined functions for space heating, water heating, and cooking) could vary between 2,000 and 3,500 New Turkish Liras (YTL) (US$1, 500-2,630). The cost of a central heating system (serving the same purpose) per subscriber depends on the number of units in a building. Such costs are typically found to

be lower, and usually range from 500 to 1,000 YTL (US$376-752). Data show that central heating is still quite limited in buildings, and such buildings are also primarily restricted to the larger cities. Licensees in other cities, therefore, may have to deal with consumers who will require individual heating. The challenge, therefore, will be to convince consumers of the long-term benefits of the high upfront costs. In some cases, licensees may be required to provide financing to consumers, to enable them to bear the upfront costs.

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1. Introduction
As in early 2006, residents of about 24 distribution regions in Turkey have obtained access to natural gas. The number of gasified cities is expected to more than double within less than two years. This represents a major breakthrough for Turkey in its experience with greenfield gas distribution projects. Until only 2003, in spite of a significantly long experience with city gasification projects (dating back to the late 80s), only six cities’ residents had the opportunity to use natural gas. The objective of the report is to provide an assessment of Turkey’s progress with gas distribution projects. The report aims to provide a detailed analysis of Turkey’s current experience with gas distribution, which can possibly serve as an example for greenfield gas distribution for other countries – especially for those that are undergoing gas market liberalization. In addition, it aims to highlight some major challenges which, if addressed, will help to ensure successful progress in Turkey ’s gasification in the next decade. The report examines the following: • Specifics of Turkey ’s new model for greenfield gas distribution; • Progress in gas distribution projects through the end of 2005 regarding the level of gasification, completed investment, and the ability of licensees to meet their requirements; • Perspectives of distribution companies on major issues related to Turkey ’s new distribution model; • Major drivers of Turkey’s recent experience with gas distribution; and • Current and potential challenges faced by the sector. In addressing these issues, the report largely constitutes a follow-up to a previous the World Bank study (conducted in mid-2004) which examined Turkey ’s experience with gas distribution. Meanwhile, due to the relatively rapid advance in most of the distribution projects in 2004-05, the report benefits from the availability of a larger number of cases. The report is based on a field study conducted in Turkey in December 2005. It reflects on consultation with distribution companies representing 26 distinct distribution regions (out of the total of 35 as in the end of 2005). It has also benefited from meetings with officials at EMRA, Turkey’s energy market regulatory authority; BOTAS, the national pipeline operator; companies in charge of feasibility studies; Dosider, Turkey’s Natural Gas Equipment Manufacturers and Businessmen Association; and other participants in the gas sector.

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2. Turkey’s Greenfield Gas Distribution Model since 2003
Current Natural Gas Market in Turkey
Before discussing the greenfield distribution model, it may be pertinent to reflect upon the current industry structure in the Turkish gas market. At present, BOTAS has monopoly over the gas industry down to the gates of the distribution business. So, all gas imports, transmission and sales, down to the level of supply to the distribution companies and to eligible consumers are in the hands of BOTAS. Market risk is currently borne largely by BOTAS, and ultimately by the Government as owner of the company. Exports and private new entrant wholesale is yet to begin, although EMRA attempted to carry out a contract transfer program in 2005 in keeping with the requirements of the Law (See Box 2.1).

Box 2.1: BOTAS’ Contract Transfer – Implications for Gas Distribution NGML #4646 requires BOTAS to gradually transfer its import contracts to private companies. Each year, BOTAS needs to transfer at least 10 percent of its total contracted volumes. The objective is to reduce BOTAS’ allowable import share of the national gas market to 20 percent by 2009. To realize this ambitious goal, BOTAS made several attempts at contract transfer in 2005. Its latest initiative came on November 30, 2005, when it successfully completed a tender for part of its import contracts. This was largely an outcome of the consent of Turkey’s main gas supplier (Gazprom) for its involvement in the impending contract transfer negotiations with the tender participants. Thus, Gazprom has authorized a contract release for 4 bcm of its total supply to Turkey. This is for the gas contracted (between Gazprom and BOTAS) in 1998 and transported to Turkey through Bulgaria. Authorizations for Turkey’s other gas import contracts have not been made. The success of BOTAS’ tender is shown by the presence of four applicants who submitted their bids after obtaining a for an import license from EMRA, as well as Gazprom’s initial consent to the import contract transfer under question. However, the contract transfer process for these companies is not complete. Some procedures remain before EMRA’s approval is complete, and the approval of the competition board is needed. BOTAS is in the process of submitting information about the bidders, at the tender, to Gazprom. Following this, the companies will start negotiations with Gazprom for gas delivery terms. Some of the final

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steps involve a contract transfer agreement between Gazprom and BOTAS and a gas sales agreement between the Russian supplier and the private companies. A successful realization of BOTAS’ initiatives for contract transfer will provide a major boost to wholesale competition in Turkey’s gas market. However, its implications for gas distribution, in the short- and medium-term (six to eight years from now), will be minimal: • Changes in the gas price delivered to distribution companies as a result of wholesale competition will not have a direct impact on company profits since the gas price is a pass through; and • As the law prohibits cross-subsidization between various segments of the gas chain, any distribution company planning to get involved in wholesale will not be able to cross-subsidize its gas distribution business. Moreover, the legislation prohibits distribution companies from executing any market activity other than distribution. As a result, accepting low distribution margins at EMRA’s gas distribution tenders, based on prospects for involvement in wholesale, will not bear results for the gas distribution segment of their business. While wholesale competition development will not have significant implications for gas distribution in the near future, the gas distribution business itself is likely to emerge as an essential force behind wholesale competition. Accordingly, the Law requires gas distribution companies to procure not more than 50 percent of their gas from a single supplier. This rule has not been enforced due to BOTAS’ wholesale monopoly. However, if contract release is successfully accomplished, gas distribution companies will need to purchase part of their gas from the new wholesalers. As a result, distribution companies are likely to play a significant role in fostering wholesale competition. The contract transfer has not been completed yet. BOTAS has spun off its distribution businesses into separate regional companies. Further, in keeping with the principles of the Law, BOTAS has begun separating its accounts for the transmission, natural gas wholesale, gas storage, and petroleum businesses. EMRA has also awarded separate tariffs for each of these businesses. The next phase of this gradual restructuring process will be the establishment of independent importers and wholesalers, once the contract transfers are completed. These wholesalers will then compete with BOTAS for sales to distribution companies and to eligible consumers. According to the Gas Sector Strategy Note (September 2004), this was expected to happen by 2006, but has been delayed.
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The Greenfield Gas Distribution Model
Following the enactment of the NGML (#4646), Turkey has adopted a new model for developing its gas distribution networks. This model appears to be one of the primary reasons for the rapid progress which has recently occurred in the gasification of Turkey ’s major cities. In several cities (Istanbul, Ankara, Izmit and Adapazari), gas distribution has been undertaken by municipally owned companies, though some major steps for their privatization have been taken (and have been completed in Adapazari). As an example of another model, gasification of two cities (Bursa and Eskisehir) was undertaken by the state-owned pipeline monopoly BOTAS. These two companies were subsequently privatized by the national

TURKEY’S GREENFIELD GAS DISTRIBUTION MODEL SINCE 2003

privatization agency, which has helped to boost investment for expanding the existing network in these two cities. The following are the factors which distinguish Turkey’s new model from those adopted previously. • The process involving the distribution projects is regulated by an independent energy regulatory body (EMRA). The previous two models were initiated in a period when EMRA was not yet established, which led to heavy state interference in the process of regulating the gas distribution sector. Yet, since the establishment of EMRA, there has been an increasing tendency toward reaching uniformity in the rules governing various gas distribution entities; • A competitive tender is at the core of the process which has been designed to a l l o w f o r t h e g r e a t e s t s i m p l i c i t y, transparency, objectivity and speed. This is at odds with the previous two models, where greenfield projects were

initiated by public entities following government decisions; • Private companies, rather than public entities, have fully undertaken investment in these greenfield gas distribution projects and their operation. As a result, EMRA reports that there has been no need for public financial involvement in this process so far. Financial difficulties experienced in the public sector had often been a cause for investment delays in the previous models; • The gas distribution projects are undertaken in the context of a gas market which is rapidly moving toward liberalization; and • The new model appears to have sparked off significant interest among investors, resulting in a nearly massive drive for gasification projects throughout Turkey. Figure 2.1 and Box 2.2 briefly summarize the major aspects of the tendering and licensing process concerning the new gas distribution model.

Figure 2.1: Major Steps in a Gas Distribution Project
Tender Announcement Acquisition of License

Prequalification

Tender

Commencement of Investment (Wthin Six Months)

Expiration of the License/Renewal (30 Years)

Revision of the Fixed Distribution Margin (After Eighth Year)

Gasification of all Distribution Region (Within Five Years)

First Gas Connections (Within 18 Months)

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Box 2.2: The Tendering and Licensing Process for Gas Distribution Licenses in Turkey

Tender’s stage
• EMRA determines the size of the distribution region and announces a tender. Companies can apply within a specified time span – usually between two and six weeks following the tender announcement. A commission established by EMRA evaluates the applicants using two general criteria: financial viability and experience (Natural Gas Market Distribution and Customer Services Regulation [NGMDCR], Article 9); The minimum equity requirement for applicants has been set at 1 million YTL1 (US$752,000); Prequalified applicants are invited by EMRA to obtain the tender documents; and Prequalified applicants willing to participate at the tender are required to submit bid bonds, whose value is determined in the tender announcement.

• •

Determining the winner of the tender
• Bidding is evaluated by a single criterion – the lowest distribution margin (unit service and depreciation charge) offered by an applicant. The margin is fixed for the following eight years; EMRA determines the three lowest bids and the relevant bidders are asked to revise their bids; and The winner is invited to submit a performance bond (at the amount determined in the tender document) and to obtain the distribution license (NGMDCR, Article 9). The performance bond has ranged from 500,000 to 5,000,000 YTL (US$376,000-3,760,000).

Major rights for licensees and their primary sources of revenues
• The licensee acquires the license for 30 years. With EMRA’s approval one year before the license’s expiration, the licensee has the right to apply for an extension of the license term. The licensee is allowed to sell the distribution network in its possession before the license’s expiration with EMRA’s approval; The licensee collects connection fees from residential subscribers, the amount of which is defined in the distribution license. It is usually about US$180 for the first 200 m2 per household, and commercial/public consumers who use gas for heating purposes. Supplementary connectione fees (usually US$150) apply per every 100 m2 of additional space. Connection fees collected from industrial users and “eligible consumers” are higher, based on a rule that the distribution company may charge up to 10 percent above the

1 YTL = New Turkish Liras.

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connection cost. Commercial consumers, according to EMRA, are charged in the same way as industrial ones, though there is an ongoing disagreement on the interpretation of the relevant regulation; • The licensee receives a distribution margin per kilowatt-hour (kWh) of gas sold to its own consumers. When providing a gas transportation service to “eligible consumers,” the distribution company is allowed to charge the amount equivalent to the distribution margin (EMRA Decision #397); Licensees operate at fixed distribution margins during the first eight years, after which EMRA will apply a price cap; Less significant sources of income for a licensee include fees related to approval, testing, and commencement of internal installations designed by installation companies; and Upon signing of a contract with a consumer, the licensee may collect deposits from consumers only once to address potential nonpayment problems (NGMDCR, Article 38). As in mid-2006, the deposit for households which plan to use gas as a part of a central heating system is 132 YTL (US$99.2) per subscription unit – an area of up to 200 m 2; for individual households planning to use gas for oven and water heating only, 32 YTL (US$24.1); and for combined (heating and water heating) purposes, 162 YTL (US$121.8).

Licensees’ responsibilities related to investment in infrastructure
• A distribution company is required to begin investment in infrastructure within six months of its license acquisition; A distribution company must inaugurate the gas connection of a certain area in its distribution region within 18 months; In the first five years, the licensee is required to connect all consumers within the region of its responsibility to the distribution network upon their request; however, this obligation depends on the availability of capacity of the system and on whether the requested connection is economically and technically feasible. In the event of a dispute between a prospective consumer and a licensee, the feasibility of the projected connection is determined by EMRA (NGMDCR, Article 36, and Natural Gas Market License Regulation [NGMLR], Article 27); and It is obligated to ensure adequate network capacity according to the demand in the area under its responsibility (NGMDCR, Article 56).

Other major responsibilities for licensees
• Unbundling of activities: Legal entities are allowed to engage in more than one market activity upon obtaining a separate license. However, legal entities engaged in gas wholesale activity are allowed to perform neither transmission nor distribution (NGMLR, Article 31);

7

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Separation of accounts: Licensees engaged in more than one market activity or carrying out the same activity at more than one facility are required to keep separate accounts and are prohibited from cross-subsidization between these accounts. Moreover, distribution companies are required to keep separate accounts for sales to “eligible” consumers, sales to noneligible consumers, and the transportation services provided to system users. Cross-subsidization between these accounts is also prohibited (NGMLR, Article 35); and Nondiscriminatory access to the network: In provision of services, distribution companies are not allowed to discriminate between users. They may reject access to their network only if they do not have adequate capacity or where they will no longer be able to fulfill their obligations if access is provided (NGMLR, Article 32-33).

Monitoring of licensees by the regulatory agency
• EMRA is authorized to guide, supervise, and monitor distribution companies. It is authorized to purchase such services at the expense of distribution companies (NGMLR, Article 28); Licensees are required to prepare annual balance sheets and income statements regarding their investment process, and submit them to EMRA. This is in addition to progress reports submitted periodically (NGDCSR, Article 28-29); and For submission to EMRA upon request, licensees have to maintain certificates obtained from the Turkish Statistics Institute (TSI), certifying that the equipment and material used in the infrastructure are in compliance with the relevant legislation and standards (NGDCSR, Article 28).

8

3. Review of Turkey’s Progress with Greenfield Gas Distribution Projects since 2003
The Drive for Gasification of all Major Cities
Once the Natural Gas Law came into force, EMRA initiated a vigorous preparation of tenders which aimed to spread gas consumption in every major city of Turkey. In 2003, the first year of implementation of this new model of greenfield gas distribution, EMRA completed the tenders for 13 distribution regions. In 2004, the number of finalized tenders dropped to seven, while in 2005, 15 new regions were tendered, bringing the total number of completed tenders to 35.2 At the end of 2005, EMRA announced an ambitious plan to finalize 24 additional tenders in 2006,3 seven of which were completed in the first two months of 2006. EMRA’s progress with distribution tenders has been successfully matched with a growing number of cities which have secured access to natural gas.4 Accordingly, while there were only six provinces in which residents had obtained access to gas before the initiation of EMRA’s tendering process in 2003, the total number of new distribution regions where gas consumption has commenced5 reached 20 by the end of 2005 (see Table A 2 in Annex I). Figure 3.1 shows the absolute numbers of current and potential subscribers, while Figure 3.2 displays the penetration ratio, that is, the ratio of current to potential subscribers. Taken together, Figures 3.1 and 3.2 show the impressive, albeit varied, progress of gas penetration in the 20 new distribution regions by the end of 2005. In the period 2003-05, investment started in more than 10 other distribution regions, though previous gas connections were still pending. This is impressive growth, given that major investment activities only started in 2004. Turkey’s current experience stands out among a number of developing (and some industrial) countries which embarked upon greenfield gas

As a result of the time span between EMRA’s announcement of a tender’s winner and its approval of the distribution license of the winner, the number of distribution licenses granted each year stood at: two in 2003, 18 in 2004, and seven in 2005. Additionally, in 2003, EMRA issued seven distribution licenses to distribution companies which had initiated their investments before the new Natural Gas Law took effect. 3 The tender announcement for 12 of these was already made in 2005. 4 “City with an access to natural gas” is defined by the presence of a gas distribution infrastructure serving any number of households and commercial and public consumers. 5 Commencement of gas consumption in a particular distribution region refers to the inauguration of the first gas connections to households and commercial and public consumers by a distribution company. The number of consumers at the end of the first month following commencement may vary depending on the season. The number of distribution regions where gas consumption has commenced is different from numbers provided by BOTAS, which refer to provinces where the transmission network has been completed. Accordingly, as in the end of 2005, there were 40 provinces (out of Turkey’s total of 81) where gas was available to large consumers.

2

9

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

distribution projects. One common problem experienced in a number of countries (such as Bulgaria, Bolivia and Tunisia) has been the slow speed of gasification. Thus, after more than a decade of activity by gas distribution companies,

the number of subscribers has remained only a few thousand. Another common problem has been the concentration of greenfield gas distribution projects in a select number of large cities, beyond which any gas distribution-

Figure 3.1: Progress in Gas Penetration in New Distribution Regions, 2005
250,000 225,000 200,000 175,000 150,000 125,000 100,000 75,000 50,000 25,000 0
Konya Yalova Balikesir Corum Kutahya Kayseri Kirikkale-Kirsehir Gebze. Gemlik Sivas Inegol Corlu Konya-Eregli Aksaray Bandirma Usak Aksaray Erzurum Samsun Karadeniz-Eregli-Duzce Catalca Sivas

Potential Number of Subscribers Number of Subscribers

Source: EMRA.

Figure 3.2: Current Penetration Ratio (Current Subscribers to Potential Subscribers, %)
60.0

50.0

40.0

30.0

20.0

10.0

0.0
Konya Usak Balikesir Yalova Kirikkale-Kirsehir Kutahya Konya-Eregli Bandirma Catalca Gebze. Erzurum Samsun Karadeniz-Eregli-Duzce Gemlik Corum Inegol Kayseri Corlu

Source: EMRA.

10

REVIEW OF TURKEY’S PROGRESS WITH GREENFIELD GAS DISTRIBUTION PROJECTS SINCE 2003

related investments has remained minimal (as in the case of China, Brazil, India, Indonesia, Mexico and Greece). EMRA expected the number of cities with access to natural gas will be as high as 55 by the end of 2006. Having completed the tendering process for nearly all designated distribution regions in its more industrialized provinces (primarily in western Turkey), the attention has shifted toward the provinces in the Black Sea region, eastern and south-eastern Turkey. Meanwhile, the recent growth in the number of cities with access to natural gas has occurred in conjunction with a substantial rise in Turkey’s overall residential gas consumption. Accordingly, Dosider, the

association for gas-burning appliances, has reported that residential consumption reached 5.1 bcm in 2005, up from 4.3 bcm in 2004. In fact, in December 2005, Turkey’s monthly residential consumption topped 1 bcm. Most of this increase, however, appears to have resulted from the ongoing investment in gas distribution projects in Turkey’s old distribution regions, which cover some of the most populated cities.6 Only a small portion of this increase has been associated with the greenfield projects in new cities (Figure 3.3). For instance, total residential consum ption in all of the new gas distribution regions stood at 90 million cubic meters in 2005. However, their share in Turkey’s overall residential gas consumption is expected to grow substantially in the following years.7

Figure 3.3: Residential Gas Consumption in New and Old Distribution Regions in 2001-05
5.3 Old Regions 4.3 New Regions

3.3
bcm

2.3

1.3

0.3

-0.7 2001 2002 2003 2004 2005

Source: Dosider.

6

In Istanbul alone, 400,000 new households were subscribed to have access to gas in 2005, bringing the total number of subscribers to just over 3 million. Other cities with distribution projects initiated before Natural Gas Law #4646 also witnessed continuing growth in their number of residential subscribers. 7 EMRA has reported that the total number of gas subscribers in the new distribution regions was only 199,094 as at the end of 2005. Thus, their contribution to Turkey’s overall gas consumption was mainly at the industrial-user level.

11

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Participation in the Distribution Tenders and the Winning Bids
The level of participation and the distribution margin
Turkey’s gas distribution tenders have exhibited a considerable variation both in terms of the number of participants in these tenders and the resulting winning bids (Figure 3.4, see also Table A1 in Annex I). Thus, for example, the number of bidders has varied from one to 18, while the discrepancy between the lowest and the highest winning distribution margin has been equally astounding – between 0 and 0.239 cents per kWh. Interviews with representatives of distribution companies have revealed that this variation (both in terms of the number of participants and winning margins) has been associated primarily with the following:

• The potential size of gas demand in the distribution region: There has been significantly greater interest in regions where the expected gas demand can allow the winner to benefit from significant economies of scale. Naturally, in such regions, the bidders have been willing to operate at relatively lower distribution margins. In this respect, Izmir, Thrace (or Trakya), Denizli and Gaziantep appear as the most significant examples; • The expected share of industrial users in total gas demand: In a similar manner, regions with significant industrial activity have secured greater interest among participants who have hoped to benefit from scale economies; and • Expectations for the distribution margin after the eighth year: There has been some variation in licensee expectation about the

Figure 3.4: Winning Bids in Gas Distribution Tenders (US cents/kWh) over 2003-05
0.3 2003 2004 2005 20 18 0.25
Winning Bid (US cents kWh)

16 14 12
No. of Bidders at Tender

0.2

0.15

10 8

0.1

6 4 2

0.05

0
Gemlik-Umurbey Aksaray Kirikkale-Kirsehir Samsun Usak Karadeniz Eregli-Duzce Yalova Sivas Kutahya Konya Eregli Konya Kayseri Inegol Gebze. Erzurum Corum Corlu Catalca Bandirma Balikesir Polatli Yozgat Nigde-Nevsehir Sanliurfa Karabuk-Kastamonu-Cankiri Malatya Manisa Bilecik-Bolu Isparta-Burdur Izmir K. Maras Canakkale Edirne-Kirklareli-Tekirdag Denizli G. Antep-Kilis

0

Winning Bid (US cents/kWh)

No. of Bidders at Tender

Ave. Bid Amount in the Year (US cents/kWh)

Source: EMRA.

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REVIEW OF TURKEY’S PROGRESS WITH GREENFIELD GAS DISTRIBUTION PROJECTS SINCE 2003

distribution margin to be applied after the eighth year. Companies accepting lower distribution margins have usually (though not always) expected a greater increase in the distribution margin in the new phase of operation in their regions. Yet, a closer look at the tenders completed so far reveals that the number of bidders and the winning bid have been closely interrelated. Thus, a higher level of competition at the tender has often resulted in lower bids, which cannot always be justified by referring to the distribution companies’ expected scale economies. Based on this correlation between the level of competition and the size of the winning distribution margin, it is possible to observe the following trends related to Turkey’s gas distribution tenders so far: • The initial interest in gas distribution tenders was significantly high in terms of both the number of participants as well as the presence of some of Turkey ’s largest conglomerates. Thus, the first tender (for the Kayseri distribution region) attracted 18 bidding companies, with 14 bidders at the second tender (for Konya). After the fifth tender (for Gebze.), most of the tenders attracted two or three bidders. Given the initial high interest toward the tenders, the average distribution margin for the 13 tenders conducted in 2003 was relatively low: 0.093 cents/kWh; • In 2004, the applicants’ interest in the tender never managed to reach the levels which were present when the process was initiated in 2003. The number of applicants varied between one and seven. The average distribution margin for the seven tenders conducted throughout the year was relatively higher than in 2003 – 0.115 cents/kWh. EMRA recorded some of the highest winning distribution margins within this period: 0.239 cents/kWh (for Gemlik) and 0.236 cents/kWh (for Aksaray); and

• In 2005, there was a sharp turnaround in interest in the distribution tenders. Thus, eight out of 15 tenders conducted in 2005 attracted nine or more bidders (up to 14). Another indication of the growing interest in the tenders was the participation of some large Turkish conglomerates who had shelved their gas distribution plans for a while following the initial low winning bids, as well as some large companies which expressed interest for the first time. The growing interest was partly a result of tendering some large and industrialized distribution regions (such as Izmir and Thrace). But the interest in smaller and less industrialized distribution regions was markedly higher than in the previous year. The high level of competition translated into comparatively low distribution margins. While the average winning margin for the 15 tenders conducted in 2005 was as low as 0.052 cents/kWh, in three of the tenders, the winning companies agreed to a “0” cent/ kWh distribution margin. Moreover, in one (Thrace), the winner agreed to abstain from any gas connection fees from households in the first five years and make a payment of 2.55 million YTL (about US$1.9 million) for the 30-year distribution license.

Licensees’ justifications for the low winning bids
The considerably low distribution margins accepted by the winners at EMRA’s distribution tenders have resulted in heated debates about the viability of these projects. Criticism of the low level of margins and skepticism about the distribution projects’ future has been abundant. Probably, the sharpest criticism has come from Turkey’s older distribution companies operating in cities such as Istanbul, Ankara and Izmit, which have been operating at margins close to the levels found in the European Union (EU). In fact, a comparison of the distribution margins of these companies and those resulting from EMRA’s tenders reveals a considerable discrepancy.
13

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

As in the beginning of 2006, the distribution margins for the older distribution regions are considerably higher than the winning margins at EMRA’s tenders. Accordingly, while the highest winning bid at EMRA’s tender through the end of 2005 stood at 0.239 cents/kWh (for Gemlik), the distribution margin for five of the older distribution regions are as follows: 0.424 cents/kWh for Istanbul; 0.410 cents/kWh for Ankara; 0.492 cents/kWh for Izmit, Adapazari and Bahcesehir. 8 For the old distribution regions which were originally undertaken by BOTAS and were subsequently subject to privatization (Eskisehir and Bursa), EMRA has set the distribution margin at 0.235 cents/ kWh, which is fixed for the first eight years of operation. While these margins are slightly closer to the winning bids at EMRA’s tenders, they still appear to be significantly higher than most margins resulting at these tenders (Table 3.1). The low level of distribution margins has been bewildering not only for the representatives

of Turkey ’s well-established distribution companies, but also for those who have been involved in the process of conducting feasibility studies for the winning companies. The World Bank’s interviews have revealed that on several occasions the winning bid has been below the “pessimistic” scenarios recommended by the company conducting the feasibility study. This has indicated that some bidders have been willing to take risks above those suggested by their feasibility study consultant. Low winning bids continue to be a cause of skepticism about the profitability, if not viability, of the distribution projects in Turkey. However, the World Bank’s interviews with distribution companies representing 26 out of 35 new distribution regions (as in the end of 2005) have revealed that they have maintained much more optimistic views about operating under low distribution margins. It is too early to determine the profitability of these projects. However, Turkish gas distribution companies have

Table 3.1: Distribution Margins for Old Distribution Regions
Distribution Region Izmit Adapazari Bahcesehir Istanbul Ankara Distribution Margins (cents/kWh)* 0.492 0.492 0.492 0.424 0.410

Eskisehir Bursa
*Based on EMRA’s Decision #616, effective January 1, 2006.

0.235 0.235

8

The distribution margin for these five old distribution regions is set in terms of local currency per kWh. As a result, the conversion rate of US$1=1.33 YTL is used.

14

REVIEW OF TURKEY’S PROGRESS WITH GREENFIELD GAS DISTRIBUTION PROJECTS SINCE 2003

pointed out two major developments they believe should address the widespread skepticism regarding their projects: • Investments have continued rapidly despite low margins. Nearly all distribution companies have proceeded rapidly with their investment programs following the tender for the respective distribution region. In a number of regions, gas distribution companies claim to have reached penetration rates significantly above their most optimistic scenarios, which has come as a surprise to most observers. For instance, licensees in Corum, Konya and Catalca have been able to subscribe more than half of their potential consumers. In Kayseri and Erzurum, gas distributors have subscribed about a quarter of the potential consumers, which is above their initial targets. No company has expressed any major concern about not being able to meet the requirements determined by its distribution license because of low distribution margins (see “Licensees’ Progress in Meeting their Investment Requirements”); and • Despite growing experience in the field, the tendency among distribution companies has been to accept even lower distribution margins. Several distribution companies that were subject to criticism about submitting “unreasonably” low bids at the distribution tenders, have already completed sizable distribution networks (see Table A2 in Annex I). In comparison to the early stage of EMRA’s tenders, they have acquired significant knowledge and experience in Turkey’s gas distribution business, and, therefore, such

companies are well aware of the pitfalls of operating at low distribution margins. Yet, they have continued applying for new tenders and have submitted bids which appear to be even lower than the initial bids in 2003. Gas distribution companies have given a number of reasons for accepting these low distribution margins. • Significant revenues from gas transportation services to “eligible consumers” 9: Many of the distribution licensees have acquired ownership over high-pressure pipelines in their respective regions, or are in the process of negotiating with BOTAS on the transfer of such assets. As a result, licensees perform transportation services through high-pressure pipelines to industrial consumers and power plants. This is in addition to their distribution services within their designated regions. Thus, when EMRA issued a binding opinion (Decision #397 issued in 2004) which allowed them to charge “eligible consumers” transportation fees which are equivalent to their distribution margins, as “eligible consumers” usually account for the bulk of most regions’ overall gas demand, they have been transformed into a major source of revenue for the distribution companies. In this respect, this represents a major difference between older and new distribution companies. Accordingly, licensees in the older distribution regions receive comparatively higher distribution margins, but are subject to transportation fees which are nearly a fraction of this margin. For instance, as in 2006, six of the older distribution companies are allowed to charge up to 0.068 cent/kWh for

9

The Law defines eligible consumers as those whose annual consumption is above 15 mcm/year. In each distribution region, this threshold is subject to a revision after the end of the fifth year of operation of the licensee.

15

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

transportation services.10 In contrast, 15 out of 35 new distribution companies are able to charge transportation fees (in some cases significantly) above those charged by Turkey ’s six old gas distributors (see Table A3 in Annex I). Figure 3.5 shows the transportation fee schedule of all 41 distribution companies; • Connection fees as a means for covering most of investment costs: With very few exceptions, the licensees collect a connection fee standing at US$180 per residential consumer (up to 200 m 2 ). 11 These connection fees are essential for covering the investment costs of the licensees in the

first eight years of their projects. Estimating investment costs, however, is complicated, as licensees’ capital expenditure data refers to overall project costs rather than money invested for residential connections. Moreover, part of the infrastructure serves a range of consumers apart from residential subscribers. As a result, there is an upward bias in the projected investment costs per residential and commercial and public subscribers. Licensees in charge of 18 distribution regions have provided a rough estimate for their investment costs. The ratio of cumulative investment costs per residential consumer (as at the end of the fifth year of operation) range

Figure 3.5: Transportation Fees (US cents/kWh) Across Distribution Regions
0.3

0.25

0.2

0.15

0.1

0.05

0
Denizli Edirne-Kirklareli-Tekirdag G. Antep-Kilis Canakkale K. Maras Izmir Isparta-Burdur Bilecik-Bolu Manisa Yalova Karadeniz Eregli-Duzce Corlu Malatya Catalca Erzurum Gebze. Samsun Usak Inegol Konya Karabuk-Kastamonu-Cankiri Kayseri Corum Sanliurfa Nigde-Nevsehir Balikesir Kutahva Kirikkale-Kirsehir Sivas Konya Eregli Bandirma Yozgat Polatli Aksaray Gemlik-Umurbey Adapazari Ankara Bahcesehir Bursa Eskisehir Istanbul Izmit

Old Distribution Regions;

New Distribution Regions with Low Transportation Fees

New Distribution Regions with High Transportation Fees

Source: EMRA.

10 According to EMRA Decision #616, this is the fee collected from consumers obtaining transportation services but who are not direct consumers of Igdas (Istanbul), Ego (Ankara), Izgaz (Izmit), Bahcesehirgaz (Bahcesehir), Eskisehir (Esgaz) and Bursagaz (Bursa). Agdas (Adapazari) has been awarded the right to charge a transportation fee of up to 0.111 cents/kWh. 11 The exceptions are for several regions where licensees agreed to lower their connection fees. As at the end of 2005, there were three such distribution regions – Edirne-Tekirdag-Kirklareli, Gaziantep and Denizli.

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REVIEW OF TURKEY’S PROGRESS WITH GREENFIELD GAS DISTRIBUTION PROJECTS SINCE 2003

between US$144 and US$288. The average is US$186.2 for the 18 distribution regions. 12 Naturally, regions with low population and a dominant role for industrial consumers will have a higher investment cost per residential subscriber. Thus, most licensees claim that the US$180 connection fee determined by EMRA will be enough or close enough to cover their costs related to residential consumers. Yet, the relation between investment costs and connection fees per subscriber is closely related to the stage of project development. Accordingly, initial costs per subscriber are relatively high and tend to decrease as the number of connected consumers per given km of completed infrastructure grows. Subsequently, when licensees start connecting households in areas with lower densities, connection costs will grow again. As a result, licensees face the prospect of connecting areas with lower population densities, where investment costs will exceed connection fees; • A long-term perspective on the gas distribution initiatives projects: Gas distribution companies have consistently indicated that they have acquired licenses which secure the right for operating their networks for at least 30 years. As the currently low distribution margins are valid only for the first eight years, many of them hope to benefit from a significant rise in these margins in the remaining period of their license (see below);

• Lower investment and operation costs: Representatives of distribution companies have indicated that nearly 15 years of experience with gas distribution in Turkey has significantly reduced investment and operation costs. Unlike the pioneers in the industry, new distributors have access to a sizable domestic industry,13 securing nearly all of the required equipment and materials for investing in a distribution network. Igdas also claims to benefit from a large reduction in investment costs.14 In addition, they have rarely needed to rely on importing management and expertise from abroad, which has helped to further reduce their costs. Finally, they have expressed concerns about ongoing cross-subsidization among some of the municipally owned distribution companies, which has resulted in higher operating costs; and • Benefiting from horizontal integration: Few companies have justified their low winning bids by pointing to plans to get involved in electricity distribution in their gas distribution regions. Such horizontal integration is common in some EU countries and aims to reduce some operating costs.

Licensees’ Progress in Meeting their Investment Requirements
EMRA has determined three major milestones regarding the investment requirements for licensees. This section examines the licensees’ ability to meet these requirements.

12 The estimates for connection costs per subscriber belong to distribution companies, which have presented data. These are only estimates and the exact value for each licensee may appear different (though most likely in the provided range, as variations in terms of costs are minimal across the country). 13 Based on Dosider’s estimates, at the end of 2005, there were 20 indigenous companies producing gas pipes, 50 companies producing gas valves, and four companies producing gas meters. 14 One source claims that Igdas’ costs have dropped from US$1,000 to US$150 per residential connection in 15 years (“Dogalgaz Dagitim Piyasasinda Tek Rekabet Unsuru Fiyat Olmamali,” PetroGas, July 20, 2004).

17

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

The six-month requirement
Licensees are required to commence investment within six months of acquiring a distribution license. This requirement is set in very broad terms and does not require licensees to invest specific amounts in the projected distribution network. Partly because of this, none of the interviewed distribution companies have experienced any major problems regarding this requirement. A few of them have reported some minor delays related to seasonal causes, such as the need to postpone investment until spring due to winter weather conditions. The regulatory agency has maintained an accommodating approach toward such delays.

The 18-month requirement
Distribution companies are required to have completed their first gas connections within Box 3.1: The Case of the Lowest Winning Bids

18 months of acquiring a distribution license. This requirement has also been set in relatively broad terms. It does not require distribution companies to connect a certain number of consumers within the 18-month period. It gives a high degree of flexibility to licensees regarding the scope and specifics (such as focusing on a certain part of a distribution network region) of their investment program. In the event of a violation of this requirement, EMRA warns the licensees and they may incur penalties which could include suspension of their l i c e n s e . B a s e d o n t h e Wo r l d B a n k ’s interviews with licensees, none of them have experienced problems regarding this rule. They have all regarded this requirement as one that provides sufficient time to meet the minimum requirement of connecting their first consumers.

Companies which have agreed to operate with the lowest distribution margins for the first eight years (0 cents/kWh) have justified their low bids by referring mainly to the industrialized nature of their respective regions. The associated size of the overall gas demand is considered a potential source of significant distribution margins and transportation revenues for the future. The most surprising winning bid has come from a company which has agreed to collect no connection fees or to keep them at extremely low levels (such as US$30). This is in addition to “0” distribution margins. Its justification has been based on the following: • The sizable potential demand in their respective regions; • The large share of industrial consumers (for example, 92 percent in Thrace and 41 percent in Gaziantep at the end of the fifth year); • Expectations for a significant revision in the distribution margins after an eight-year period (2 cents/kWh or more anticipated for the post8th-year period); • The opportunity to provide gas to industries belonging to the same holding company which operates the gas distribution project in the respective region*; • Plans to get involved in other parts of the gas chain (such as upstream and wholesale) which may reduce overall operating costs*; and • The process of enhancing a positive public image for the holding company. * As the Natural Gas Law and associated regulations prohibit cross-subsidization, some of these expected benefits may not be justified.

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REVIEW OF TURKEY’S PROGRESS WITH GREENFIELD GAS DISTRIBUTION PROJECTS SINCE 2003

The five-year requirement
Licensees are required by law to connect all consumers within their settlement zone (imarli alan) to the distribution network, upon consumers’ request, by the end of five years. This obligation depends on the availability of system capacity and on whether the requested connection is economically and technically feasible. According to EMRA, the legislation requires distribution companies to complete their distribution network, including service lines and service boxes needed for connecting consumers, in the first five years. Connection fee covers this part of the infrastructure and the meter. Further installations, such as internal piping and installing gas-burning appliances, are not the responsibility of licensees.15 The main criterion for success would be the ability of licensees to complete the whole distribution network, plans for which they have communicated to EMRA in their engineering studies. The real success criterion, however, will be the absence of potential consumers who have expressed willingness to connect but have been rejected by a licensee despite its inability to prove that they are located in a region where it is not technically and economically feasible to connect them to the network. Many of the interviewed distribution companies believe that they will not have any significant problems in meeting their five-year requirements. Some of them (located primarily in smaller municipalities, such as Corum) believe that they will be able to gasify the whole settlement zone, eliminating any possibilities for disputes with the regulatory body. Several others have reported that the potential consumers who will fall outside the

“economically and technically feasible” category will constitute only about 1 to 2 percent of the households in their settlement zones, even though this may refer to about 15 to 20 percent of the geographic size of the settlement zone. This is largely because most distribution companies initially focus on areas with a higher population density, whereas areas they deem unfeasible have relatively few potential consumers. Meanwhile, distribution companies have regarded the five-year period as being sufficiently long enough to complete their required investments. Moreover, many companies have indicated that they will be able to complete the required investments in a significantly shorter period (such as three years). Some companies have already reached gas penetration rates above 50 percent, being able to subscribe the majority of the potential consumers (such as Corum, Catalca and Konya) (Figure 3.2; see also Table A2 in Annex I). This has occurred in a time span as short as about two years. EMRA’s data about penetration rates (Table A2 in Annex I) is based on licensees’ assumptions about the number of potential consumers in their regions, and hence there is a potential for a slight upward bias. Generally, these numbers appear to be significantly below the actual number of dwellings in their current distribution regions. Table 3.2 provides an alternative estimate of the current residential penetration rates. This is based on data provided by licensees, rather than the TSI. The licensees’ claim that TSI’s estimates are not updated, as they are based on a census undertaken almost six years ago (in 2000). As a result, each licensee has come with its own estimates about the actual number of dwellings, which

15

As a result, consumers are required to hire companies other than the distribution company in charge of their region for this type of installations.

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TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Table 3.2: Alternative Estimates for Residential Penetration Rates (Based on the Number of Dwellings and Installed Meters)
Distribution Region Number of Dwellings as in the Beginning of 2006 (Licensee’s Own Estimates) – 237,664 – 72,000 – – 13,500 67,713 127,185 87,850 – 20,316 52,204 – – 101,100 Estimated Number of Dwellings in 2000-01 (According to TSI) Number of Meters Installed for Residential Users (As in the Beginning of 2006) – 16,411 – 1,851 – – 2,163 4,299 4,647 2,189 – 1,604 26,015 – – 610 89,814 (a) 492 543 643 Estimated Residential Penetration Rate (Number of Meters/ Number of Dwellings in 2006) (%) – 6.9 – 2.6 – – 16.0 6.3 3.7 2.5 – 7.9 49.8 – – 0.6 – 1.5 0.9 1.3

Kayseri Konya Erzurum Çorlu Gebze. Inegol Catalca Bandirma Balikesir Sivas Kutahya Konya-Eregli Corum Samsun Aksaray KaradenizEregli-Duzce

169,302 (a) 172,043 (a) 71,511 (a) 54,253 (b) 81,239 (b) 31,092 (b) 6,176 (b) 40,568 (b) 64,145 (a) 66,249 (a) 55,537 (a) 27,743 (b) 43,520 (a) 118,580 (a) 38,641 (a) 45,910 (b) – 24,179 (b) 17,798 (a) 48,586 (a)

Kirikkale-Kirsehir Gemlik Yalova Usak 33,250 60,000 48,066

Note: (a) estimates are provided by TSI based on 2001 data about the number of residential water subscribers in the given cities. Residential water subscription figures are used as a potential measure for the number of dwellings. Such figures are available only for the select number of cities; and (b) estimates are provided by TSI based on the 2000 census on the number of dwellings in all of Turkey’s municipalities.

has been included in their feasibility studies. It is, however, tbetweenoo early to conclude whether licensees will experience any major difficulties in meeting this requirement or not. Some uncertainty pertaining to precise definitions of this
20

requirement remains. Addressing this requirement, to a large extent, will hinge upon resolving several definitional issues between EMRA and the distribution companies. These issues are examined in the last section.

REVIEW OF TURKEY’S PROGRESS WITH GREENFIELD GAS DISTRIBUTION PROJECTS SINCE 2003

Based on data on the actual number of dwellings and installed meters for residential purposes, the penetration rate for each of the cities for which information is available shown in Figure 3.6 (and Table 3.2) appears significantly lower in Figure 3.2 (and Table A2 in Annex I). This is partly because some of these dwellings are not in the officially recognized settlement zone (imarli alan) and licensees are not liable to connect them. In some of the areas, however, the high penetration rates are associated with the connection of larger consumers, such as commercial and public buildings, rather than achieving significant progress in residential penetration. Each of these consumers are equivalent to multiple

While, for most regions, current penetration rates appear to be significantly low, most companies estimate that by the end of their five-year period, their penetration rates will be equivalent to (or in some cases even above) those in Istanbul and Ankara. According to licensees’ feasibility studies, the average residential penetration rate expected at the end of the fifth year of operation in 25 distribution regions stands at 69.5 percent. In the older distribution regions reaching penetration rates of 80 percent took as long as 15 years to achieve, and so new distribution companies hope to have a more accommodating attitude from the regulatory agency.

Figure 3.6: Estimated Residential Penetration Rate (Number of Meters/Number of Dwellings in the Beginning of 2006, %)
50 45 40 35 30 25 20 15 10 5 0
Konya Balikesir Corum Gemlik Sivas Usak Yalova Corlu KaradenizEregli-Duzce Konya-Eregli Bandirma Catalca

Note: Residential penetration rate calculated on the basis of licensees’ estimates of the number of meters installed as a proportion of number of dwellings.

(sometimes hundreds) subscription units. This can provide a slightly upward bias about progress in achieving high subscription rates. Yet, as long as distribution companies continue to establish the distribution network in their designated region by connecting all potential consumers, access to which is economically and technically feasible, licensees are considered to be meeting EMRA’s five-year requirement. In fact, from EMRA’s perspective, the penetration rate is not a criterion for meeting the five-year requirement

Figure 3.7 displays the completion rate for investments of distribution companies (cumulative investment as at the end of 2005/ planned total investment within 30 years) as at the end of 2005. This type of information is regarded as crucial by EMRA, as it provides an indication of progress. Meanwhile, it reflects licensees’ projections of the cumulative investment requirements for the 30-year period of the license. Such projections are communicated to EMRA following the tender and before EMRA’s
21

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

decision to grant the winner its license. Within this short time span, EMRA examines the winner’s projections and compares them to its commitment to invest in a network whose capacity will be sufficient for the duration of the license.

substantial infrastructure, which facilitates their goals in rapidly gasifying their respective regions. Table 3.3 highlights the importance of such asset transfers for gas distribution licensees. For some companies asset transfers have constituted more than half of the

Figure 3.7: Completion Rate of Distribution Company Investments, End-2005 (%)
80 70 60 50 40 30 20 10
Yalova Balikesir Gemlik Corum Konya-Eregli Bandirma Catalca Erzurum Karadeniz-Eregli-Duzce Gebze. Konya Corlu Sivas Usak

0

Source: Distribution companies.

Accordingly, in nine distribution regions, the licensees have invested more than half of the total amount planned to be invested during the 30-year license period. In four out of these nine regions, the completion rate for investments is above 70 percent. In five of the remaining regions, the completion rate has remained below 50 percent. However, these numbers are subject to a downward bias, as they refer to 30-year projections, and the required investments in the first five years are slightly lower (see Table A4 in Annex I). Meanwhile, part of the investment costs have been associated with assets transferred from BOTAS. Such costs imply that actual greenfield investment has been slightly lower than what figures for total investments so far would imply. However, such costs constitute an integral part of a licensee’s 30-year investment program and are often associated with the transfer of a

cumulative investment costs as at the end of 2005. Table 3.4 highlights the physical progress of investment in infrastructure by distribution companies. As at this point, the investment needed for meeting EMRA’s five-year requirement (such as connecting all willing potential consumers) is not clear – partly due to the lack of clarity on which potential consumers will be considered economically and technically not feasible – the information provided is only indicative of the ongoing infrastructure investments. Except in a few distribution regions (such as Kayseri, Konya, Balikesir, and Samsun), progress measured in terms of km of pipelines appears significantly below older distribution regions. Besides the starting date, what accounts for the comparatively larger physical investment in the older regions is the relatively larger size of their population.

22

REVIEW OF TURKEY’S PROGRESS WITH GREENFIELD GAS DISTRIBUTION PROJECTS SINCE 2003

Table 3.3: Asset Transfers from BOTAS – Costs for Licensees
Distribution Region Payment for BOTAS Assets (US$ million) 4.5 1.9 2.6 3.7 1.6 1.2 2.3 9.9 3.6
5.7 2.3
1.4 2.2 1.3 2.7 1.6 5.9 1.1 0.0 0.0 0.0 0.0

Share in Cumulative Investment as at the End of 2005 (%) 16.7 15.5 18.8 30.6 15.5 21.7 47.5 50.9 36.4
55.4 49.1
58.0 10.5 23.4 23.8 NA NA 15.4 0 0 0 0

Winning Date of a Tender for Distribution License 6/19/2003 12/18/2003 7/31/2003 11/6/2003 10/16/2003 10/9/2003 4/22/2004 9/11/2003 7/1/2004
4/8/2004 12/2/2004
12/4/2003 1/22/2004 2/12/2004 1/8/2004 1/13/2005 6/9/2005 10/30/2003 8/13/2003 8/28/2003 9/18/2003 9/25/2003

Date of Asset Transfer

Kayseri Çorum Konya Kütahya Balikesir Bandirma Gemlik Gebze. Yalova Kdz.Eregli-Duzce
Uº ak Konya-Eregli
Samsun Aksaray Kirikkale-Kirº ehir Polatli Bilecik-Bolu Sivas Erzurum Corlu Inegol Catalca
Source: BOTAS.

10/1/2004 10/12/2004 10/27/2004 1/4/2005 1/5/2005 1/7/2005 2/2/2005 4/2/2005 4/11/2005
9/28/2005 10/1/2005
10/13/2005 10/27/2005 11/22/2005 1/18/2006 2/9/2006 3/3/2006 4/1/2006 – – – –

23

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Table 3.4: Investment Progress in Turkey’s Gas Distribution Regions as on February 2006
Distribution Starting Date Region of License* Steel Pipes (Meters) Polyethylene Pipes (Meters) Service Lines Number Length (Meters) District Regulators (Number)

Old Distribution Regions Adapazan Ankara Bahçeº ehir Bursa Eskiº ehir Istanbul Izmit December 1993 November 1988 NA December 1992 October 1996 January 1992 September 1996 45,794 854,520 9,432 184,373 84,996 1,044,000 231,706 338,013 3,112,232 55,623 1,628,550 395,307 8,712,000 1,200,260 11,918 130,591 1,616 79,898 25,411 471,000 49,225 78,563 194,577 12,400 673,776 313,971 235,500 417,632 20 245 4 84 37 595 64

New Distribution Regions Kayseri Konya Çorlu Erzurum Gebze. Inegöl Çatalca Çorum Bandirma Balikesir 10/2/2003 12/5/2003 1/27/2004 2/6/2004 2/10/2004 2/10/2004 2/23/2004 3/16/2004 3/23/2004 3/30/2004 120,200 68,550 43,408 20,000 27,000 3,269 20,743 25,320 19,126 40,766 312,000 239,365 108,365 158,250 105,000 74,644 44,446 231,854 96,258 207,648 9,800 6,864 2,064 2,588 2,200 2,962 1,436 4,999 4,219 8,111 148,000 56,664 16,341 31,172 NA 18,934 8,765 NA 28,360 50,818 48 19 2 8 7 2 3 5 5 4

24

REVIEW OF TURKEY’S PROGRESS WITH GREENFIELD GAS DISTRIBUTION PROJECTS SINCE 2003

Distribution Starting Date Region of License*

Steel Pipes (Meters)

Polyethylene Pipes (Meters)

Service Lines Number Length (Meters)

District Regulators (Number)

Sivas Aksaray Samsun Gemlik Uº ak

4/6/2004 5/25/2004 7/6/2004 9/21/2004 4/14/2005

25,113 21,583 43,911 7,664 NA

140,430 110,298 174,528 67,250 NA

3,148 289 4,106 1,463 600

23,361 2,333 27,685 8,400 5,000

6 3 18 3 3

Source: Dosider. No data are available for several distribution regions where gas consumption by residential consumers has already commenced. Data on length of steel pipelines include assets transferred from BOTAS. * Starting data for old distribution regions refer to the date when first residential gas consumption commenced. Following NGML #4646, these companies were required to obtain new distribution licenses.

25

4. Major Drivers in Turkey’s Recent Experience with Greenfield Gas Distribution Projects
Turkey’s recent experience with gas distribution has benefited from a range of factors. There is a wide consensus among representatives of Turkey’s gas sector that the presence of a wellstructured tendering process, under the guidance and supervision of an independent regulatory body, has constituted the principal driver for Turkey’s rapid progress with greenfield gas distribution projects. Indeed, the process has had some major strengths. • Simple and transparent bidding system: Only one criterion (the bid for the distribution margin) has been used to select the winners at the gas distribution tenders. This has contributed to avoiding any major delays and has left limited room for distorting the procedures; • Autonomous regulatory body: EMRA has remained largely autonomous of political pressures. This has been particularly true for gas distribution tenders; • Limited interference by EMRA in investment decisions: EMRA determines the requirements for licensees, but it has avoided interfering in the investment decisions of the distribution companies. Thus, companies have been able to customize their investment strategies (such as those related to the speed of investment, partnerships, etc.) based on the needs of their respective distribution regions; • Setting the right connection fee: The standard connection fee for licensees is US$180 per residential consumer (up to 200 m3). Distribution companies strongly appreciate this choice by EMRA, claiming that a higher fee could have discouraged consumers from switching to gas, while a lower fee would have affected their balance sheets negatively. Based on licensees’ feasibility studies, for most of them the connection fee appears sufficient to cover the investment costs in the first phase of their license (first eight years). This US$180 connection fee may appear relatively low based on international comparisons; 16 however, Turkey ’s gas distribution regulations require this fee only to maintain the right of the potential consumer to be connected to gas and obtain a meter (the cost of which stands around US$30). Distribution companies are not involved

16

For instance, the average connection costs that gas distributors are allowed to recover in Egypt stands at US$460. However, this fee includes a range of activities which are not included in the connection fee charged by distribution companies in Turkey. In Egypt, as in several other places, connection fees include everything from construction of the pipeline which connects the household to the distribution main network, to installing all internal and external equipment, the meter and the conversion of existing appliances. “Arab Republic of Egypt: Connecting Residential Households to Natural Gas – An Economic and Financial Analysis,” The Global Partnership on Output-based Aid, The World Bank, March 2006.

27

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

in investing in infrastructure beyond the service box17 of the consumer, and as a result are not liable for these additional costs such as internal installations or conversion of appliances. To promote competition in this segment, EMRA has assigned the task for building this type of an infrastructure to installation companies. Such companies are in charge of constructing the lines from the service box and the internal piping, as well as installing any requested appliances at the expense of consumers; • EMRA’s decision related to transportation fees: Distribution companies claim to benefit significantly by EMRA’s decision to allow them to charge transportation fees (for “eligible consumers”) which are equivalent to their distribution margins. This decision was an

outcome of a long debate between EMRA and BOTAS, as the latter disagreed with allowing distribution companies to charge transportation fees which, in many cases, appear to be higher than BOTAS’ transmission fees. Transportation fees have emerged as a major source of cash flows for distribution companies, particularly at the initial stage of investment, which has often focused on large industrial consumers. Such fees have been especially important in regions with a predominant share of gas consumption for “eligible consumers.” As illustrated in Figure 4.1, gas sold or transited to eligible consumers (including power plants) forms the bulk of the gas handled by licensees. Thus, in 2005, in most distribution regions, sales to residential consumers constituted only a fraction of the

Figure 4.1 : Share of Industrial and Residential Gas Consumption (%), 2005
100 90 80 70 60 50 40 30 20 10 0
Usak Balikesir Corum Konya Bandisma Aksaray Catalca Samsun Kayseri Corlu Gebze Erzurum Sivas

Share of Industrial Consumption (%)

Share of Residential Consumption (%)

Source: Dosider.

17

The NGMDCR defines a service box as follows: “Box containing the service regulator-meter set and/or the valve, or the main valve itself, installed at the end of a service line or a connection line.” It defines service line as follows: “Pipeline and the relevant equipment including the service box or pressure-reducing and metering station, connecting the distribution network to the noneligible consumer’s service box or pressure-reducing and metering station.” Connection line is defined as: “Pipeline and the relevant equipment including the service box or pressure-reducing and metering station, connecting the national transmission network or a distribution network to an eligible consumer’s service box or pressure-reducing and metering station.”

28

MAJOR DRIVERS IN TURKEY’S RECENT EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION PROJECTS

gas sold or transited to industrial users. Transportation fees collected from eligible consumers will continue to constitute a significant part of the licensees’ revenues. Based on a questionnaire (see Annex II) responded to by licensees of 25 gas distribution regions, the expected share of gas sold or transported to industrial users, who are eligible consumers, is substantial. According to the feasibility studies of these licensees, industrial consumers (purchasing gas from the distribution company or paying for its transportation services) will constitute, on an average, 48.9 percent of total gas volume sold or transported at the end of the fifth year of operation;18 • EMRA’s willingness to improve its regulations: EMRA has remained open to revising the legislation related to gas distribution. For example, following widespread criticism by licensees, it has taken some major measures aimed at securing larger economies of scale for licensees. Thus, on the one hand, it has twice revised the number of distribution regions in which a particular company can participate.19 This has contributed to a significant level of market consolidation based on three or four large players who are in charge of most of the distribution regions tendered so far. On the other hand, a major

feature of its more recent tenders has been the larger geographic size of the distribution regions. The tenders for Izmir20 and Thrace appear as major examples. Meanwhile, EMRA has recently allowed licensees to expand their distribution regions to include new areas which are within their province’s boundaries but are not part of their license.21 The result has been some consolidation in Turkey’s gas distribution business, where several players have acquired a dominant role (Figure 3.7); • EMRA’s choice of sequencing gas market reforms: EMRA’s choice regarding gas market reforms was based on a careful sequencing. Accordingly, gas distribution tenders have preceded other measures aimed at liberalizing Turkey’s gas wholesale and import business. In fact, distribution tenders have created strong interest in favor of a liberalized gas market, and EMRA has already taken major steps in this area (contract transfer being a major example); and • A role for municipalities in gas distribution: The legislation has allowed municipalities to acquire 10 percent in the distribution company in their region without requiring a deposit of any capital. Licensees are obliged to invite the municipality to become a shareholder.22 This has provided

The expected high share of industrial users is partly because most new distribution regions have a relatively small population (compared to the old distribution regions). As a result, the presence of several industrial users can often account for the bulk of the gas sold or transported. By contrast, the expected share of commercial and public consumers at the end of the fifth year of operation in the 25 distribution regions stands at 5.5 percent of total gas sales. 19 The initial regulation allowed a distribution company to hold licenses in only two distribution regions. Subsequently, this number was raised to five and, further, to eight distribution regions. As most of the remaining distribution regions are relatively small in terms of potential demand, this regulation has also aimed at ensuring that interest in new tenders does not subside. 20 For example, the distribution region for Izmir covers 178 counties, districts and villages, whereas initially EMRA had tendered distribution regions covering a single small city (such as Konya-Eregli). 21 The new regulation requires the licensee to apply to EMRA if it is willing to expand its existing distribution region. EMRA has the right to announce a new tender for these additional regions. If other companies show no interest or abstain from offering a bid lower than the existing distribution margin of the applicant company, EMRA revises the license of the latter to include the additional areas in its distribution region. 22 A municipality is allowed to acquire another 10 percent stake in the distribution company in its region, if it has paid its debts to Turkey’s Iller Bank and pays for the stake. The value of the additional stake is based on negotiation between the two parties. Since most municipalities continue to owe substantial debts to Iller Bank, they have not been able to benefit from this clause and raise their stakes.

18

29

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

a significant motivation for municipal governments to facilitate the investment activities related to gas distribution in their regions.23 Meanwhile, as municipal governments are not required to make any financial contribution for their 10 percent stake, this has alleviated potential delays associated with financial difficulties on the part of municipalities. Other major factors which have contributed to Turkey’s recent impressive progress with greenfield gas distribution are: • Benefiting from Turkey ’s past experience with gas distribution: By the time EMRA announced its first tenders for gas distribution licenses, Turkey had already acquired some major experience in Figure 4.2: Turkey’s Gas Distribution Regions24

the field for more than a decade and a half. Thus, by 2002, Turkey’s pioneers in gas distribution had already connected 2.9 million residential and commercial consumers.25 This helped new distributors to benefit from multiple externalities, such as access to a wellestablished domestic industry for materials and equipment associated with gas distribution, and access to the expertise of the older distribution companies. For example, many of the new distribution companies have greatly benefited from transferring managerial skills from older gas distributors, such as Istanbul’s Igdas. Igdas itself has established a training center, International Gas Training Technology Research Center (UGETAM), which has

23

Some minor problems have been reported. Thus, in several cases, municipal governments have exerted pressure on the distribution companies to obtain materials (mainly for road construction, such as asphalt) from the municipal company. 24 EYH, AKSA/Anadolu and Zorlu each have more than one distribution region license. The “Others” typically represent single region licensees. 25 Source: Dosider (www.dosider.org).

30

MAJOR DRIVERS IN TURKEY’S RECENT EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION PROJECTS

acquired an indispensable role in knowledge transfer to the new gas distributors;26 • Vigorous program for completing Turkey’s transmission network: Before EMRA initiated its tenders, BOTAS had already established a comprehensive transmission network. Meanwhile, between 2003-2005 there has been a vigorous investment program by BOTAS in new transmission lines. Accordingly, at the end of 2003, the length of the transmission network was about 4,500 km. It reached 5,952 km by the end of 2005, and because of ongoing investments, BOTAS estimates that the transmission network reached 7,689 km toward the end of 2006.27 Most of this investment by BOTAS has been related to providing access to gas to the provinces where EMRA has announced gas distribution tenders; • Concerns about excess gas supply: The economic downturns of 1999 and 2001 raised concerns about Turkey’s gas demand prospects. This resulted in heated debates about potential implications related to Turkey’s “take-or-pay” agreements. Partly related to such concerns, consumption of natural gas has often been promoted in a variety of areas, such as power generation, industry and households. BOTAS officials have frequently associated their drive to expand Turkey’s transmission network with the need to expand gas usage as a means to address “take - or-pay ” requirements. This appears to be in stark contrast with part of the 90s, when

expected deficits in gas supply occasionally interrupted gas distributors’ campaigns for new subscriptions; • Addressing environmental concerns: Gasification of Ankara and Istanbul provided major examples for success in addressing these cities’ environmental predicaments in the late 80s and early 90s. These two cities, which once had alarming levels of air pollution, now rank far behind cities with major air pollution problems. Similarly, many of the new gas distribution projects have garnered widespread support (especially from municipal governments) due to environmental concerns. Distribution companies have widely advertised the environmental advantages of natural gas in their respective regions. Some of them already claim to have significantly reduced air pollution in their distribution regions;28 • Natural gas – a relatively inexpensive fuel: Distribution companies have actively advertised natural gas as a means for providing households with significant cost savings. Indeed, a study on the relative fuel costs in Turkey found that natural gas is significantly cheaper than fuels such as electricity, diesel fuel, fuel oil, and Liquefied Petroleum Gas (LPG). Occasionally, the price of coal (both domestic and imported from Siberia) has constituted the only exception, but its price advantage has been relatively small and has recently disappeared (Figure 4.3, see also Table A6 in Annex I); 29

26

From 2002 to March 2005, UGETAM trained 5,600 people, of which 2,300 were not employees of Igdas. “Natural Gas Projects in Turkey – Recent Developments,” UNECE –16th Session of the Working Party on Gas, January 24-25, 2006, presentation by Hulya Aktan, Strategy and Business Development Department, BOTAS. 28 For example, Corumgaz, which has achieved the highest gas penetration rate among the new distribution companies, claims to have reduced air pollution by nearly 50 percent toward the end of 2005. 29 The study on relative fuel prices conducted by Dosider covers only five major cities (Istanbul, Ankara, Izmit, Bursa and Eskisehir). As distribution companies operating in distribution regions tendered by EMRA charge significantly lower distribution margins, the final cost of natural gas for the consumer in these regions is generally lower than in the above-mentioned five cities. As a result, coal’s price advantage in these regions is even smaller.
27

31

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Figure 4.3: Relative Prices of Select Fuels Consumed by Households, 2005
0.30

0.25

0.20
YTL/1,000 kcal

0.15

0.10

0.05

0.00 LPG (Aygaz) Electricity (TEDAS) Domestic Lignite (Soma) Gas (Istanbul) Imported Russian Lignite Coal (Eskisehir)

Source: Dosider (as on April 14, 2005); Prices include Value-Added Tax (VAT).

• Cross- subsidization in favor of residential consumers: The price advantage of natural gas used by residential consumers has been possible partly due to

the presence of some degree of crosssubsidization between eligible consumers and households. Compared to a number of other Organization for Economic

Figure 4.4: Industrial and Household Gas Prices ($/toe), 2005
1200

1000

800

600

400

200

0
Ireland Spain Switzerland Slovak Republic New Zealand United States Czech Republic Hungary Poland Portugal Finland France Mexico Turkey

Gas Prices in Industry

Gas Prices in Households

Source: International Energy Agency (IEA).

32

MAJOR DRIVERS IN TURKEY’S RECENT EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION PROJECTS

Co-operation and Development (OECD) countries, residential consumers in Turkey have been required to pay only slightly more than large consumers (Figure 4.4, see also Table A7 in Annex I). For instance, households in 2005 paid on an average only 18.9 percent more than industrial users. EMRA’s regulations which allow licensees in new distribution regions to charge eligible consumers transportation fees equivalent to the distribution margin faced by residential consumers, has also implied some degree of cross-subsidization of the latter by the former; and

• Favorable investment environment: Following the economic downturn in 2001, Turkey ’s economy has experienced impressive growth levels for four consecutive years. In the meantime, both inflation rates and real interest rates have dropped significantly, which has facilitated decisions related to long-term investments. Many participants in the gas distribution business believe that Turkey’s current drive toward gasifying its major cities would not have achieved similar success rates in the preceding decade.

33

5. Primary Constraints on Further Progress in Turkey’s Greenfield Gas Distribution Projects
Some Shortcomings of the Licensing Process
The World Bank ’s interviews with gas distribution companies in Turkey have revealed that, overall, these companies strongly support the existing licensing process undertaken by EMRA. While they have emphasized several points which could help to facilitate progress with greenfield gas distribution, only a few of them have been related to the existing tendering system and the regulatory body. In general, they have perceived the regulatory body as their major partner in resolving a number of issues. The following are the areas where distribution companies have expressed concerns about EMRA’s regulations and its tendering process. • The lack of requirement for a feasibility study: Many representatives of the distribution business have considered this a potential cause for the involvement of an “excessively” large number of bidders at the tender and the resulting low winning bids. The major concern has been that some companies which have poor knowledge of the project’s expected returns may become involved in bidding; • Relatively easy prequalification for the tenders: It is important to prequalify a reasonable number of suitable firms. Many licensees believe that toughening the criteria for prequalification may help to reduce the number of bidders, which may eventually result in higher winning bids; • Short time to prepare for the prequalification: Once EMRA announces a tender, interested parties have been provided with a relatively short period to prepare their prequalification documents (between two and six weeks); • Presence of multiple bidding rounds: For most licensees, this has been another cause for low winning bids at the tenders. There have been cases where the winner was determined after more than 70 rounds (for example, Thrace); • Varying perceptions of investment targets: In some key areas related to progress in meeting the investment requirements, the regulations are subject to interpretation. As a result, some licensees have prepared their investment plans having read the regulations differently from what EMRA intended. The regulations may need to be further clarified for licensees to meet these requirements (see below); • Uncertainty about the distribution margins after the eighth-year period: The profitability of distribution projects hinges upon EMRA’s decisions regarding the price cap after the eighth year of the licensee’s operation. Distributors have been concerned about the lack of a clear methodology for estimating distribution
35

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

margins after the eighth-year period ends (see below); and • The need for standardization in gas distribution: EMRA’s regulations require companies to abide by Turkey’s standards for infrastructure development, household internal installations, and metering (set by the TSI). Many insiders believe that the existing standards are not applied strictly, which may result in problems related to the quality and safety of distribution projects. Meanwhile, progress in standardization is believed to facilitate the supervisory functions of EMRA. While concerns about these issues have been shared widely within the gas distribution industry in Turkey, some of them have appeared to be relatively inconsequential in practice. For instance, the lack of a requirement for conducting a feasibility study may have contributed to “too many” bidders participating in the tenders. However, all interviewed gas distributors (representing 26 distribution regions) have noted that they did carry out a feasibility study prior to the tender. Evidently, those that have abstained from conducting a feasibility study have not won a distribution tender. Another example is related to the length of the preparation period for the tenders. Many gas distributors have noted that preparing for a tender started long before EMRA’s tender announcement (sometimes as long as one to two years before the announcement). As a result, not all bidders have been practically constrained by the officially short preparation

period. Meanwhile, the criteria for the prequalification stage have remained relatively easy for applicants to meet, but EMRA appears to have made these requirements stricter, as evidenced by the increased number of disqualified applicants in 2005.

Constraints on Expanding the Licensee’s Consumer Base
Distribution companies have referred to a number of challenges in their experience with gas distribution in the past two to three years. Many of these challenges could be instructive for what may cause delay in a greenfield gas distribution project. • Cultural preference among households in favor of individual heating systems: Households in Turkey predominantly prefer individual heating systems, both before and after switching to natural gas. Only a very small percentage of households relies on central heating. 30 Households hope to benefit in the long run by opting for individual heating, as it provides a better control over gas bills; however, this has two-fold implications. First, it has raised the overall investment costs of distribution companies. Naturally, they prefer central heating systems, as they collect connection fees for each household, and the connection costs are considerably lower for buildings with such systems. Second, internal heating appliances constitute the largest cost component for households, yet the actual cost depends primarily on whether they rely on individual or central heaters. The appliance cost per household with

30

Dosider reports that, as in August 2005, Turkey’s total gas subscribers were 4,774,937, of which 3,245,791 used individual heating systems. Within this total, there were only 42,421 buildings with central heating, which was equal to 691,774 individual subscribers. As most of the buildings with central heating are located in Turkey’s largest cities, many of the new distribution companies (operating in Turkey’s remaining smaller cities) have to rely predominantly on consumers preferring individual heating systems. Meanwhile, according to data from the State Statistics Institute, there were 12.5 million dwellings in Turkey in 2000, 16 percent of which used central heating systems (Source: “Arastirma Dosyasi – Sehirlerde Dogal Gaz Kullaniminin Guncel Durumu,” Dogal Gaz Dergisi, October 2005; www.dogalgaz.com.tr).

36

PRIMARY CONSTRAINTS ON FURTHER PROGRESS IN TURKEY’S GREENFIELD GAS DISTRIBUTION PROJECTS

central heaters is estimated to be nearly a fraction of the cost of individual heaters.31 This cost is a major hindrance for most households to shift to natural gas. In this respect, distribution companies have been often at odds with companies marketing internal appliances, which have widely advertised the convenience of individual heating systems; • Issues related to companies in charge of internal installations: Distribution companies, as required by law, are not directly involved in installing the internal infrastructure of households and commercial consumers. Instead, this is performed by specialized companies which need to be approved by the distribution companies. Several issues have surfaced regarding such companies. First, in many regions, their number has been too small to meet existing requests for gas connections, leading to delays and disillusionment among subscribers.32 In most cases, subscribers have blamed their distribution company for not being aware of the source of the problem. Second, distribution companies have been accorded limited advantage against companies in charge of internal gas infrastructure. If quality or safety issues arise, the gas distributor may decline to approve the installation, but this often results in additional expenses for the distribution company, as costs related to the approval process are not fully

covered in the current legislation.33 Finally, the lack of standardization regarding the contracts between distribution companies and firms installing internal installations leads to additional delays because of quality and safety problems;34 • Relaxed environmental requirements: At the beginning of 2005, Turkey’s Ministry of Environment and Forestry issued a regulation (#25699, Article 20) which required households, businesses and industrial consumers to use natural gas for their heating purposes, if there is access to gas in their location. This regulation was subsequently revised and softened (Regulation #25758) and, as a result, these users are promoted, but not required to consume natural gas and renewables. However, several municipalities have adopted a tougher attitude toward consumption of less environment-friendly fuels; • Subsidized coal for low-income families: In many cities, local governments have provided subsidized coal to low-income families. Given the competitive pricing for coal, this has weakened their incentive to switch to natural gas. Distribution companies have called for government subsidies directed at covering the installation and equipment costs of lowincome households; however, no progress has been achieved;

31

One licensee estimates that the cost for individual heating systems (with combined functions for space heating, water heating and cooking) stands between 2,000 and 3,500 YTL (US$1,503-2,631). The cost of a central heating system (serving the same purpose) per subscriber depends on the number of units in a building. Such costs usually range from 500 to 1,000 YTL (US$376-752). 32 For example, Aksa has reported that in some of its distribution regions, subscribers have been required to wait three to four months to switch to gas due to the lack of a sufficient number of installation companies. 33 Companies in charge of installing internal equipment and piping are required to pay certain fees to the licensee for the approvals and tests related to their projects. According to EMRA’s Decision #617, currently such fees stand at 12.5 YTL (= US$9.4) for households (using the typical G4-type household gas meters). Fees for larger consumers are slightly higher. If such companies fail to get approval at the first round, they are liable to pay half of the charge in the second approval round. In the third round, they pay 25 percent of the original approval fee. After the third round, there is no charge. 34 There is no single standard contract between distribution companies and companies in charge of installing internal installations. There have been proposals to adopt Igdas’ installation contract as a framework for a standard contract.

37

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

• Households’ conservative approach toward gas: In most distribution regions, households have been worried about the safety of switching to gas. Some distribution companies and Dosider, the association for gas appliances, have been involved in educating consumers about the safety and benefits of natural gas; • Issues related to city planning and mapping: In a number of cities, distribution companies have complained about excessive costs resulting from infrastructure-related problems, such as the lack of sufficiently wide roads. Occasionally, because of the lack of detailed maps for underground infrastructure, they have had to delay their investments and prepare their own studies; • Problems in the procurement of infrastructure materials: As over a dozen greenfield gas distribution projects have commenced simultaneously, some companies have experienced delays in procuring the necessary equipment and materials for their infrastructure purposes; and • Lack of funding for public buildings: Gas distributors can benefit greatly from connecting some major public entities, but limited progress has been achieved in gas connections due to the latter ’s financial constraints.

the coming years. Some minor problems, such as the requirement for licensees to provide a payment guarantee on their gas purchases from BOTAS, have been resolved through EMRA’s mediation.35 The major issue between the national pipeline operator and the distribution licensees is the transfer of assets.36 The legislation requires that distribution companies pay for the existing assets belonging to BOTAS in their designated regions.37 BOTAS determines the value of these assets and specifies it in the distribution license. Problems in transferring such assets have arisen when BOTAS is involved in an ongoing investment activity related to the asset. As a result, BOTAS and gas distribution licensees are often drawn into disputes about revising the value of the particular asset. Distribution companies have often associated delays in their investment programs with asset transfer problems. Distributors also cite BOTAS’ inability to provide discounts to some of its consumers, namely those in the so-called organized industrial zones. Because of this, distribution companies have had repeated complaints from consumers within organized industrial zones who do not benefit from this discount because they are located within a certain gas distribution region. This problem was partially resolved at the beginning of 2006. Accordingly, an EMRA decision (#616) required BOTAS to secure gas for all of its consumers at the same rate. However, there are two reasons for continued price differences across various consumers in Turkey: first, the difference in distribution margins across distribution regions causes some consumers to benefit from overall lower

Difficulties Related to BOTAS
Overall, gas distributors’ relations with BOTAS have been devoid of any serious problems. For instance, all interviewed licensees have praised BOTAS for completing the required transmission network and securing an adequate capacity for

35 36

EMRA agreed to become directly involved in cases of problems associated with licensee nonpayment to BOTAS. In some distribution regions, BOTAS has owned distribution networks and a certain number of noneligible consumers. Following a tender for that particular region, BOTAS is required to transfer these assets (and the consumers as well). 37 In general, distribution companies have not had objections related to the presence of BOTAS assets. Usually, the size of the assets subject to transfer is associated with the presence of large consumers in the designated distribution region.

38

PRIMARY CONSTRAINTS ON FURTHER PROGRESS IN TURKEY’S GREENFIELD GAS DISTRIBUTION PROJECTS

gas tariffs; and, second, consumers served directly from BOTAS’ transmission grid are able to avoid transportation charges paid by similar consumers located within distribution regions. As a result, eligible consumers appear to be at a disadvantage by being located within regions designated for distribution companies. Finally, the massive spread of gasification projects in Turkey may require commensurate adjustments within BOTAS. Due to the growing number of gasified cities, BOTAS’ tasks will expand significantly. A particular focus will be

necessary for meeting transmission capacity requirements in a growing number of gasified regions in Turkey. This concern appears to be valid for the long run when growing consumption may call for expanding part of the transmission network. Meanwhile, both in the short and long run, issues such as balancing demand and supply for a growing number of participants in Turkey’s gas sector will need to be addressed, and BOTAS will need to play an important role in these efforts because of its major role in wholesale and transmission network control.

39

6. Major Challenges Ahead
Securing and Measuring Progress
One of the major responsibilities of a regulatory body lies in ensuring that distribution companies meet license requirements. Success in this area requires elaborate supervision of licensee activities. Such supervision will benefit highly from efforts aimed at resolving problems associated with potential sources of vagueness in the investment requirements set for licensees. The World Bank ’s interviews with gas distribution companies have revealed that licensees have different interpretations about a number of issues central to the investment requirements. Major areas where definitional problems have remained on the ground are described as follows: • Requirements in the first five-year period: According to EMRA, the tender document requires distribution companies to complete the whole distribution network in the settlement zone of their distribution region. This includes the steel and polyethylene (PE) network, as well as the service lines and service boxes needed for connecting consumers. Some companies perceive that this requirement encompasses completing the main steel and PE network only. Their investment plans envision investment in service lines and service boxes based on consumer demand. This will involve making such investments throughout the 30-year period determined in their licenses. As a result, some distribution companies do not plan to install service lines and service boxes throughout the settlement zone in their distribution regions; • Definition of a “technically and economically feasible” connection: Licensees are required to connect all potential consumers if the requested connection is economically and technically feasible. The current legislation does not determine an objective test of feasibility. This is partly because ex ante determination regarding technical and economic feasibility is hardly possible. EMRA’s evaluation is envisaged to be made after a dispute arises on an ad hoc basis. However, as a result of this lack of an objective test for feasibility, licensees have different assumptions about the potential consumers that fall into the category of being “technically and economically feasible.” Thus far, EMRA reports that no potential consumers have had complaints about not being connected because they were located in an area deemed unfeasible by the licensee. However, this is partly due to licensees’ initial focus on areas with higher population density, as well as higher income; • Definition of “settlement zone:” Licensees are required to connect all potential consumers in their settlement zones (imarli alan). Settlement zones are areas

41

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

subject to the jurisdiction of a certain municipality. The size of such areas is subject to periodic revisions, and it has been a common tendency among municipalities to include new areas within their jurisdiction. Such new areas are often located at a considerable distance from regions with dense population. Some distribution companies are worried that connecting most of such areas will raise their costs, and, therefore, they will most likely regard such connections as “technically and economically not feasible;” • Connection fees applying to commercial consumers: According to EMRA, connection fees collected from “commercial consumers involved in the production of goods and services” are subject to the same rules as those for industrial consumers: licensees are allowed to charge up to 10 percent above the exact cost of the connection. Some gas distributors have reported that their feasibility studies are based on the assumption that commercial consumers will be treated in the same way as residential consumers.38 Their justification is that it is hard to create a viable definition about what constitutes a connection cost for commercial consumers. This is especially true when the consumer in question, such as a large hotel, is expected to consume relatively large volumes which will necessitate investment in a steel and PE network with a larger capacity. Resolving this vagueness is of particular importance for a number of companies for whom commercial consumers constitute a large chunk of the potential demand; and • Revenues from gas connections for some of the licensees: Connection fees constitute a crucial element in the investment program

of gas distribution companies. As a rule, a licensee collects a US$180 connection fee per residential consumer for the first 200 m2, and US$150 for each additional 100 m2. However, it is not clear what rule will apply to companies who have agreed to collect connection fees below US$180 and whether they have to accept a discount for each additional 100 m2. Due to the larger physical space occupied by commercial consumers, this issue will be of special importance if EMRA decides to treat commercial consumers in the same way as they do residential consumers. Part of the challenge of supervising Turkey’s greenfield gas distribution projects arises due to the lack of intermediate targets until the end of the fifth year of operation. The legislation sets six- and 18-month requirements; however, these are relatively easy to meet as no certain investment limits are specified. Licensees seem to have differing perceptions of what their requirements actually are.Within this context, EMRA has been developing a complex system for monitoring the performance of distribution companies which aims to ensure that they comply with the terms of their licenses. Indeed, successful realization of the gas distribution projects hinges largely upon this monitoring process. EMRA’s monitoring has focused on the following areas: • Submission of progress reports by licensees: Distribution companies are obliged to provide frequent updates on their investment progress. They are required to submit periodic reports (weekly, monthly, and annual) which include details on progress made in their gas distribution networks. Misrepresentation of such reports is subject to serious fines (determined by Article 9, NGML #4646). These reports

38

This implies that commercial consumers are expected to pay the usual US$180 for the first 200 m2, and an additional US$150 for each 100 m2 thereafter.

42

MAJOR CHALLENGES AHEAD

provide the regulator valuable grounds to assess the progress in the greenfield gas distribution projects it supervises, and provides it with the opportunity to communicate its concerns to licensees during their investment process; • Supervision of compliance with required standards: Upon EMRA’s request, licensees need to submit certificates obtained from TSI which verifies that the equipment and material used in the infrastructure complies with the relevant legislation and standards. However, compliance with required standards is further supervised through EMRA-certified companies whose representatives are authorized to observe the process of network construction in the distribution regions. Gas distribution licensees are required to pay for such companies’ expenses; • Supervision of compliance with the license: Based on decision #4872, the regulator has started developing an additional mechanism aimed at supervising distribution licensees. The development of this new mechanism is in progress and is expected to be enforced in 2006 following the authorization of companies certified to implement the decision. The new mechanism provides an additional authority to EMRA in supervising gas distribution companies. EMRA is authorized to determine the issues to be supervised, their duration, and the number of people who will be involved in the supervision. The authorized company can supervise both the distribution companies as well as the certified companies which examine their compliance with required standards and relevant regulation. The decision for supervision is made by EMRA on an ad hoc basis, and it can result in unscheduled supervisor visits at distribution licensee sites. One of the primary purposes of this mechanism is to ensure that distribution companies comply with all the

details listed in their licenses. As a result, the authorized entity is required to prepare reports which outline how the license terms are implemented; and • Financial supervision of licensees: Financial supervision of distribution companies is essential not only for their compliance with accounting standards but also for assessing the actual progress of licensees’ investment programs. The legislation requires licensees to be audited by independent companies (authorized by EMRA) who need to submit annual reports to the regulator. Besides the annual audit reports prepared based on accepted standards in Turkey, the auditing companies are required to submit additional data (capital structure, annual sales, insurance coverage, license holder income, etc.) on the gas distribution licensees. In addition to its authority to supervise the licensees, the regulator also has the power to force them to comply with their commitments. Accordingly, there are significant fines for violations of the license terms (ranging between US$600,000 to US$1.5 million in 2006). If a distribution company fails to meet its investment requirements, EMRA is empowered to revoke the company’s license and call in the performance bond, which, depending on the size of the distribution region, ranges from US$500,000 to US$5 million. Following a license revocation, EMRA retenders the distribution region within four months. The value of the license and the terms of the tender are determined by EMRA. Yet, resorting to such means is highly undesirable for both EMRA and the licensees. If the former licensee has failed to meet its investment requirements on the grounds that the gasification of some regions is unfeasible, this will very likely remain as a challenge for the new license owner as well. The new license can hardly be offered to the new owner on improved
43

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

terms, as this may lead to legal proceedings between EMRA and the old licensee. As a result, EMRA’s attempts to establish a complex monitoring system of the distribution companies constitute a valuable initiative which can help to minimize such problems.

Tariff Regulation after the Eight-year Period of Fixed Distribution Margins
The legislation requires the distribution companies to operate at fixed distribution margins for the first eight years of the project. The margins for the remainder of the period clearly appear to be of the utmost importance in determining the profitability of a greenfield distribution project. The regulatory body has announced that after the eighth year, the distribution margin will be set in accordance with the price cap method. However, the methodology for applying the price cap is not clear at this stage, and there is work in progress to determine the types of expenditures which will be included in the licensees’ asset base. EMRA believes that the details of the new model determining the tariffs will get clearer as multiple licensees achieve significant project completion rates. This will provide the regulatory body with the ability to compare investment and operation costs in various distribution regions. As a result, EMRA hopes to prepare the requested methodology and determine the price cap for each of the designated regions. To prepare the price cap methodology, EMRA collects detailed information on each of the companies through the various monitoring mechanisms examined earlier. Among these, the mechanism for financial supervision of the licensees is of utmost importance. However, EMRA may need to improve this mechanism to fully benefit from it when establishing the methodology for determining the regulatory asset base and the posteighth-year period distribution margin.

The lack of uniform accounting requirements for distribution companies may lead to problems at a later stage. Licensees have been allowed to choose between two different accounting reporting models, one based on the capital markets board and the other prepared on principles adopted by the Ministry of Finance. As various distribution companies have opted for one of the two reporting models, this is likely to cause difficulties in comparing licensee income and expenditures. The methodology for determining the price cap in the second phase is not totally clear, leading to uncertainty among licensees. Ideally, having a clear methodology from the start of the tendering process would help determine financial reporting requirements specific to assessing licensee regulatory asset bases. In addition to standard audit reports, the current reporting by auditing companies, requested by EMRA, appears to be beneficial for determining unforeseen changes in licensees’ cash flows and governance structure. Uncertainty about the tariff after the eighth year of operation has led to different expectations among licensees. With the tenders conducted in 2005, it has become clear that the profitability of some of the distribution projects will depend solely on the distribution margin in the second phase (that is, after the eighth year). Without a considerably higher margin, projects may not be profitable well into the second phase for companies who have accepted “0” distribution margins and agreed to significantly reduce the connection fees for households. As many of these companies rely on bank loans, future margins will have debtservicing implications. In principle, the connection fees should cover all or most of the investment costs for the first eight years of the project, while distribution margins (and transportation fees) should cover the operational costs. Investment costs are

44

MAJOR CHALLENGES AHEAD

expected to be quite marginal in the second phase of the project, when the distributor will undertake fewer new connections. Thus, operational costs will constitute the bulk of the costs in the second phase. According to a the World Bank questionnaire responded to by 18 licensees, the annual average for 30 years ranges between US$4.5 and US$20 per subscription unit. The average for the 18 licensees stands at US$12.7. The new distribution margin should be able to cover these operational costs, as well as secure some rate of return determined by the distribution company. Most distribution companies interviewed by the World Bank have been guided by this principle when estimating the profitability of their projects. Based on licensees’ feasibility studies, most gas distributors expect to have positive cash flows between the fifth and eighth years of operation. However, since 2005, a growing number of companies have been willing to operate under distribution margins which will be insufficient for securing positive cash flows until the second phase. These licensees have viewed their projects as a means to secure themselves the right to be the sole gas distributor in a designated region for 30 years and possibly longer. They have viewed the tenders as a kind of a “concession” which has a certain cash value. To acquire this “concession,” they have been willing to accept very low distribution margins in the first phase of operation (the first eight years) and occasionally reduce the connection fees for their consumers.39 For such companies, the overall profitability of the project is much more sensitive to EMRA’s decision about the distribution margin in the second phase. As in the case of the considerable discrepancy in the winning bids, licensees’ assumptions

about the distribution margin in the second phase have also varied. Quite commonly, licensees oppose the idea of applying a certain percentage increase in the distribution margin. Instead, they prefer to focus on a certain range for these margins, below which they may not be willing or able to operate their distribution licenses. Based on interviews with gas distributors, the expected margin in the price cap period has varied from 1 cent to 2.5 cents per m3. While some companies have claimed that 1 cent/m3 will be sufficient for the overall profitability of the project, a more common expectation is that the distribution margin should be between 2 cents and 2.5 cents per m3. A widely stated claim is that this is the current margin determined by EMRA for two of the privatized gas distributors (Bursa and Eskisehir), and, therefore, they expect similar margins in their second phase. Although the regulatory framework for the posteight-year period is not clear, most distribution companies have faith in the regulatory framework, and are of the view that margins in the second phase will be reasonable and will enable recovery of current as well as past costs. A common justification among them is that, as a rule of thumb, the additional cost (for consumers) of increasing the distribution margin by 1 cent/m3 is considerably small. Based on an assumption that the average annual consumption per household will be 1,500 m3, this implies US$15 additional costs for the consumers. Meanwhile, EMRA recently reduced the distribution margins for five of Turkey’s older gas distributors. As in 2006, EMRA decided to lower their distribution margins by nearly five percent. EMRA’s move is partly explained by the growing discrepancy between the distribution margins in the old and new distribution regions.

39

One licensee (in charge of the Denizli gas distribution region), which has submitted a “0” winning bid and agreed to slightly reduce its connection fees, claims that the connection fees will be sufficient to cover the investment costs.

45

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

In addition, the reduction has aimed to promote improvements in efficiency in operating the old distribution networks. Another major question is about the future of transportation fees collected by distribution companies. Currently, licensees in Turkey’s new distribution regions are allowed to charge transportation fees in an amount up to their distribution margins. This secures the licensees significant revenues, particularly from large consumers, such as eligible consumers and power plants that purchase gas from BOTAS (and other wholesalers in the future). The transportation fees appear fixed for the first eight years, as they are the equivalent of the distribution margin. However, it is not clear at this point whether EMRA will revise this policy in the second phase. In case a revision of this rule results in a relative reduction in the transportation margins (compared to a licensee’s new distribution margins), licensees are expected to demand even larger increases in their distribution margins as a means of compensation.

network and its associated consumer base. In this regard, two issues, safety and consumer satisfaction, will become increasingly important. Companies will need to possess adequate capacity to respond to safety-related issues. The safety of their networks will largely hinge upon the quality of the investment materials they use today. EMRA has charged a number of companies with the specific responsibility of examining the quality of the ongoing investments. Distribution companies are required to disclose all necessary information to such companies, as well as fund their expenses. As a result, this promising mechanism may enhance the safety of the distribution infrastructure in the future. Consumer satisfaction is another area where licensees will have to channel a larger share of their resources. This will particularly be the case when wholesale competition begins and the threshold for “eligible” consumers is reduced. However, to ensure quality of service, distribution companies will need to be prepared for a differentiation in transportation fees and distribution margins, as at some point they may emerge as service providers (rather than gas sellers) for most of their current consumers.

Transformation in the Distribution Companies’ Main Activity
As distribution companies are required to gasify the entire region designated in their license within five years, most of their investments will be completed in that period. After a point, investment in infrastructure will remain a secondary activity for the licensees, as their priorities will shift toward operating their networks. In this new phase of their licenses, distribution companies will need to prepare for various challenges. One of them is related to revenues from connection fees, which will be minimal, and licensees will need to rely mainly on distribution margins (and transportation fees). Another challenge for distribution companies is that they will need access to expertise and new types of skills for managing the existing

Upfront Capital Costs for Co7nsumers
Estimates of upfront costs for consumers are primarily the costs related to installing heating systems, piping and related infrastructure. These costs vary significantly, depending on whether it is a central heating system or an individual one. Quick estimates based on discussions with some licensees and some industry associations suggest that the cost for individual heating systems (with combined functions for space heating, water heating, and cooking) could vary between 2,000 and 3,500 YTL (US$1,500-2,630). The cost of a central heating system (serving the same purpose) per subscriber depends on the number of units

46

MAJOR CHALLENGES AHEAD

in a building. Such costs are typically found to be lower, and usually range from 500 to 1,000 YTL (US$376-752). In August 2005, only 42,421 buildings in Turkey had central heating, which is equal to 691,774 individual subscribers. As most of the buildings with central heating are located in the larger cities, many of the new distribution companies

(operating in Turkey’s remaining smaller cities) may have to rely predominantly on individual heating systems. The challenge, therefore, will be to convince consumers of the long-term benefits of the upfront costs. In some cases, licensees may be required to provide financing to consumers, to enable them to bear the upfront costs.

47

Annex I
Starting Date of License Winning Bid (cents/kWh) Connection Fee (US$) Number of Bidders at Tender Number of Applicants for Prequalification Number of Bid Bond Prequalified (US$) Firms Performance Bond (US$)

Table A1: Participation in Gas Distribution Tenders and Their Results

Regions

Winner

Winning Date

2003 10/2/2003 12/5/2003 2/6/2004 1/27/2004 2/10/2004 2/10/2004 2/23/2004 3/23/2004 3/30/2004 4/6/2004 1/13/2004 6/22/2004 3/16/2004 0.079 0.172 0.124 180 180 180 0.164 180 0.112 180 0.174 180 2 2 3 3 2 5 0.044 180 7 0.061 180 2 0.052 180 8 0.036 180 6 24 32 29 29 19 21 13 17 15 21 0.046 180 5 19 0.064 180 14 35 0.076 180 18 27 23 29 16 23 29 26 27 19 20 13 17 14 19

0.0926 1,000,000 1,500,000 1,000,000 1,000,000 1,000,000 500,000 250,000 1,000,000 1,000,000 1,000,000 1,000,000 500,000 1,000,000 2,000,000 3,000,000 2,000,000 2,000,000 2,000,000 1,000,000 500,000 2,000,000 2,000,000 2,000,000 2,000,000 1,000,000 2,000,000

Kayseri

HSV

6/19/2003

Konya

Gaznet

7/31/2003

Erzurum

Palen

8/13/2003

Corlu

Arsan

8/28/2003

Gebze.

Palgaz

9/11/2003

Inegol

Kalen

9/18/2003

Catalca

Anadolu

9/25/2003

Bandirma

Anadolu

10/9/2003

Balikesir

Aksa

10/16/2003

Sivas

Anadolu 10/30/2003

Kutahya

Ongaz

11/6/2003

Konya Eregli

Gaznet

12/4/2003

Corum

Gaznet 12/18/2003 (Corumgaz)

49

50
Starting Date of License Winning Bid (cents/kWh) Connection Fee (US$) Number of Bidders at Tender Number of Applicants for Prequalification Number of Bid Bond Prequalified (US$) Firms Performance Bond (US$)

Regions

Winner

Winning Date

2004 6/4/2004 0.158 180 1 20 18 1,000,000

0.115 2,000,000

KirikkaleKirsehir 7/6/2004 5/25/2004 8/3/2004 0.034 180 5 19 18 0.236 180 2 14 12 0.055 180 7 19 19 1,000,000 1,000,000 1,000,000

Gunay

1/8/2004

Samsun

Cengiz

1/22/2004

2,000,000 2,000,000 2,000,000

Aksaray

Ers

2/12/2004

Karadeniz Aksa Eregli-Duzce 9/21/2004 0.239 180 3 16 16

4/8/2004

GemlikUmurbey 11/9/2004 4/14/2005 0.052
6/23/2005 7/7/2005 10/27/2005 9/29/2005 0.098 180 0.016 180 0.012 180 11 9 3 0.23 180 2 22 21 27 14

Anadolu

4/22/2004

500,000

1,000,000

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Yalova 0.055 180 11 24

Arsan

7/1/2004

0.031

180

7

22

20 23

1,000,000 1,000,000

2,000,000 2,000,000

Usak

Udas (STFA)

12/2/2004

2005

Polatli

Delta

1/13/2005

20 14 17 12

1,000,000 2,000,000 1,000,000 1,000,000

2,000,000 5,000,000 2,000,000 2,000,000

Izmir

Kolin

1/27/2005

Manisa

Aksa

2/24/2005

NigdeNevsehir 11/28/2005 0.016

Metangaz

3/17/2005

Bilecik-Bolu Aksa

6/9/2005

180

13

30

25

1,000,000

2,000,000

Regions

Winner

Winning Date

Starting Date of License

Winning Bid (cents/kWh)

Connection Fee (US$)

Number of Bidders at Tender 7 25 18 1,000,000 3,000,000

Number of Applicants for Prequalification

Number of Prequalified Firms

Bid Bond (US$)

Performance Bond (US$)

ANNEX I: STATISTICAL ANNEX

KarabukKastamonuCankiri

Corumgaz

6/16/2005

2/9/2006

0.069

180

EdirneKirklareliTekirdag
1/25/2006 10/20/2005 12/23/2005 2/16/2006 2/24/2006 0 30 10 31 0 149 10 30 0.009 180 10 21 0.037 180 5 23 18 18 25 25 0.176 180 4 21 18

Zorlu

6/23/2005

1/25/2006

0

0

14

32

25

2,000,000

4,000,000

Yozgat

Corumgaz

6/30/2005

1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

2,000,000 2,000,000 2,000,000 3,000,000 4,000,000

Malatya

Peker

7/7/2005

K. Maras

Arsan

7/14/2005

Denizli

Metangaz

7/21/2005

G.AntepKilis Pending Pending Pending 0.015 180 0.001 180 9 7 0.095 180

Zorlu

7/28/2005

Sanliurfa

Gur-Dag

11/9/2005

24 29 22

21 28 21

1,000,000 1,000,000 1,000,000

2,000,000 2,000,000 3,000,000

Canakkale

Aksa

12/16/2005

IspartaBurdur

Sel-Tan

12/23/2005

51

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Table A2: Progress in Gas Penetration in New Distribution Regions as at the End of 2005
Distribution Regions Kayseri Konya Erzurum Corlu Gebze. Inegol Catalca Bandirma Balikesir Sivas Kutahya Konya-Eregli Corum Samsun Aksaray Karadeniz-Eregli-Duzce Kirikkale-Kirsehir Gemlik Yalova Usak Total
Source: EMRA. * The number of subscribers is based on EMRA’s definition of residential equivalent subscription: one unit of residential equivalent subscription refers to households or commercial and public services with a size of up to 200 m2. For spaces above 200 m2, each additional 100 m2 refers to an additional unit of residential equivalent subscription. ** Distribution companies provide the potential number of subscribers, and, as a result, penetration ratios are subject to the bias of licensees’ estimates.

Number of Subscribers* 56,967 38,088 20,134 2,109 6,051 8,000 2,933 4,441 5,756 1,722 4,318 2,944 29,374 6,070 1,081 1,200 4,101 717 2,312 776 199,094

Potential Number of Subscribers** 250,000 70,000 83,000 58,000 75,000 35,000 6,000 40,000 30,000 86,000 65,000 10,000 50,000 80,000 47,318 18,000 40,000 23,000 50,000 10,000 1,126,318

Current Penetration Ratio 22.79 54.41 24.26 3.64 8.07 22.86 48.88 11.10 19.19 2.00 6.64 29.44 58.75 7.59 2.28 6.67 10.25 3.12 4.62 7.76 17.68

52

ANNEX I: STATISTICAL ANNEX

Table A3: Transportation Fees Charged in Old and New Distribution Regions
Distribution Regions Old Regions Adapazari Ankara Bahcesehir Bursa Eskisehir Istanbul Izmit New Regions with Comparatively Low Transportation Fees Denizli Edirne-Kirklareli-Tekirdag G.Antep-Kilis Canakkale K. Maras Izmir Isparta-Burdur Bilecik-Bolu Manisa Yalova Karadeniz Eregli-Duzce Corlu Malatya Catalca Erzurum 0 0 0 0.001 0.009 0.012 0.015 0.016 0.016 0.031 0.034 0.036 0.037 0.044 0.046 0.111 0.068 0.068 0.068 0.068 0.068 0.068 Transportation Fee (Cents/kWh)

53

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Distribution Regions Gebze. Samsun Usak Inegol Konya New Regions with Comparatively High Transportation Fees Karabuk-Kastamonu-Cankiri Kayseri Corum Sanliurfa Nigde-Nevsehir Balikesir Kutahya Kirikkale-Kirsehir Sivas Konya-Eregli Bandirma Yozgat Polatli Aksaray Gemlik-Umurbey
Source: EMRA.

Transportation Fee (Cents/kWh) 0.052 0.055 0.055 0.061 0.064

0.069 0.076 0.079 0.095 0.098 0.112 0.124 0.158 0.164 0.172 0.174 0.176 0.23 0.236 0.239

54

ANNEX I: STATISTICAL ANNEX

Table A4: Cumulative and Projected Investments by Distribution Companies in Regions where Residential Consumption has Already Commenced*

Distribution Regions

Cumulative Investment as at the End of 2005 (US$ million) 26.7 13.8 10.2 12.0 19.4 5.0 4.2 5.4 10.2 7.4 12.0 2.3 12.0 20.9 5.7 10.4 11.2 4.8 10.0 4.7 208.3

Planned Total Investment Within 30 Years (US$) NA 38 18 17 50 NA 7 10 20 19 NA 3 16 NA 0 23 NA 7 17 24 NA

Completion Rate for Investments as at the End of 2005 (%) NA 36.4 56.4 70.6 38.5 NA 63.9 52.8 51.2 39.4 NA 75.2 75.5 NA

Kayseri Konya Erzurum Corlu Gebze. Inegol Catalca Bandirma Balikesir Sivas Kutahya Konya-Eregli Corum Samsun Aksaray Karadeniz-Eregli-Duzce Kirikkale-Kirsehir Gemlik Yalova Usak Total
Source: Distribution companies.

46.0 NA 71.1 58.8 .5 NA

* Cumulative investments include payments for assets transferred by BOTAS. Such payments are required in several regions with BOTAS assets, and are part of the 30-year investment plan. Data for companies with information available only for cumulative investments has been obtained from EMRA.

55

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Table A5: The Share of Industrial Consumption in Licensees’ Distribution Regions in 2005*
Distribution Regions Total Residential Gas Consumption in Licensee’s Region in 2005 (cubic meters) 38,769,028 17,540,930 4,658,900 392,081 2,632,907 4,048,680 145,965 1,084,943 1,463,379 1,796,181 NA NA 17,479,280 426,202 125,358 NA NA NA NA 22,000 Gas Consumption by Industry in a Licensee’s Region in 2005 (cubic meters) 204,925,886 15,018,950 13,409,491 137,373,109 68,992,000 NA 1,807,209 23,311,498 8,794,654 899,135 NA NA 21,290,400 2,675,718 1,015,963 NA NA 15,784,005 NA 30,000 Share of Industrial Consumption (%)

Kayseri Konya Erzurum Corlu Gebze. Inegol Catalca Bandirma Balikesir Sivas Kutahya Konya-Eregli Corum Samsun Aksaray Karadeniz-Eregli-Duzce Kirikkale-Kirsehir Gemlik Yalova Usak
Source: Dosider.

84.1 46.1 74.2 99.7 96.3 NA 92.5 95.5 85.7 33.3 NA NA 54.9 86.2 89.0 NA NA NA NA 57.7

* Industrial consumption includes gas consumed by power plants.

56

ANNEX I: STATISTICAL ANNEX

Table A6: Ranking of Relative Prices for Selected Fuels Consumed by Households
Type of Fuel (Location) Minimum Heat Value Unit Cost YTL/m3 or YTL/kg or YTL/kWh 0.484 0.484 0.512 0.518 0.244 0.530 0.227 0.260 0.255 0.210 1.380 0.158 2.708 2.485 Assumed Efficiency Cost per 1,000 kcal

Gas (Eskisehir) Gas (Bursa) Gas (Ankara) Gas (Istanbul) Imported Siberian Lignite Coal (Istanbul) Gas (Izmit) Domestic Soma Coal (Mugla) Imported South African Coal (Ankara) Imported Russian Lignite Coal (Eskisehir) Domestic Soma Coal (Istanbul) Fuel Oil (Istanbul) Electricity (TEDAS) LPG (Aygaz) Diesel Fuel (Istanbul)

8,250 kcal/m3 8,250 kcal/m3 8,250 kcal/m3 8,250 kcal/m3 6,000 kcal/kg 8,250 kcal/m3 4,661 kcal/kg 6,500 kcal/kg 6,200 kcal/kg 5,500 kcal/kg 9,875 kcal/kg 860 kcal/kWh 11,000 kcal/kg 10,256 kcal/kg

93% 93% 93% 93% 60% 93% 60% 65% 65% 60% 80% 99% 90% 84%

0.063 0.063 0.069 0.068 0.068 0.069 0.081 0.062 0.063 0.064 0.175 0.186 0.274 0.289

Source: Dosider (as on April 14, 2005); Prices include Value-Added Tax (VAT).

Table A7: End user Average Gas Prices in Industry and Households in 2005 – International Comparisons
Country Gas Prices in Industry ($/toe) Gas Prices in Households ($/toe) 406.0 402.6 465.6 476.9 578.8 331.2 744.0 Difference Between Household and Industrial prices (%) 5.4 18.9 45.8 46.7 54.9 56.7 66.6

Hungary Turkey Slovak Republic Czech Republic United States Finland Switzerland

385.2 338.6 319.3 325.0 373.7 211.3 446.7

57

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Country

Gas Prices in Industry ($/toe)

Gas Prices in Households ($/toe) 755.6 730.8 702.1 656.1 492.5 760.7 1070.6

Difference Between Household and Industrial prices (%) 69.6 75.8 76.9 86.7 97.3 169.4 183.1

New Zealand Ireland Mexico France Poland Spain Portugal

445.6 415.6 396.8 351.4 249.6 282.4 378.2

Source: International Energy Agency (IEA).

58

Annex II

Questionnaire for Gas Distribution Companies
Data on the following:
• Number of households connected; and • Reasons: • Specifics about households connected: – Density; – Types of predominant heating systems used; – Share of eligible consumers in total consumption so far; visions about their share in future (five to 10 years); and – The average investment costs in the licensed area (for example, US$ per supplied 1000 cm of gas)? How different are they from the investment costs of distcos in other regions? – What has been EMRA’s response? What type of warnings? – Any problems which can cause delay in the investment process up to five years? Any request due to these problems forwarded to EMRA which have not been fulfilled, or plans for requests? – What is the company’s understanding of imarli alan? How different is it from EMRA’s understanding? What part of the cities will most likely be left without gas connections? Any idea about their potential size in terms of their share in the total population of the licensed area? – What are the estimated sales per household? – What are the sources of income in the first five (and up to eight) years? Will they be enough to make the project feasible within the 30-year period of the license? Or how will it affect the overall feasibility of the project? – How do companies finance the project in the initial period (up to five or eight years)? • For companies that have not fulfilled their 18-month requirements:

Thoughts on the tendering process:
• Any strengths and weaknesses of the tendering process? • Any possibilities for improvements? In what specific areas?

The investment process up to five (or eight) years:
• What type of consumers are the first connections for? • How do companies decide where to start their investment process which will be the showcase for meeting the EMRA requirements up to 18 months?

59

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Investments after Year 8:
• What will be the sources of income after Year 8? • What is the expectation for the price cap after Year 8? • What are the expectations for asset base estimates for the posteight-year period? • How will the company finance investments after Year 8?

Future trends in gas market liberalization – implications:
• What will be the impact of a change in the definition of “eligible consumers” after Year 5?

Transfer of BOTAS assets:
• What are the assets that need to be transferred? • What are (were) the problems in relations with BOTAS so far? Reasons?

Relations with EMRA:
• What kind of data do distcos provide to EMRA?

Relations with city government:
• Any problems, etc?

Relations with “financially supervisory” (mali denetim) and control (teknik denetim) companies:
• What type of data is provided to each type of companies? • Evaluation of the relations with such companies.

Consumers in the license area:
• Who are they? • Why do they shift to gas? What fuels are primarily replaced?

60

List of Formal Reports
Region/Country Activity/Report Title SUB-SAHARAN AFRICA (AFR) Africa Regional Anglophone Africa Household Energy Workshop (English) Regional Power Seminar on Reducing Electric Power System Losses in Africa (English) Institutional Evaluation of EGL (English) Biomass Mapping Regional Workshops (English) Francophone Household Energy Workshop (French) Interafrican Electrical Engineering College: Proposals for Shortand Long-Term Development (English) Biomass Assessment and Mapping (English) Symposium on Power Sector Reform and Efficiency Improvement in Sub-Saharan Africa (English) Commercialization of Marginal Gas Fields (English) Commercializing Natural Gas: Lessons from the Seminar in Nairobi for Sub-Saharan Africa and Beyond Africa Gas Initiative — Main Report: Volume I First World Bank Workshop on the Petroleum Products Sector in Sub-Saharan Africa Ministerial Workshop on Women in Energy and Poverty Reduction: Proceedings from a Multi-Sector and Multi-Stakeholder Workshop Addis Ababa, Ethiopia, October 23-25, 2002 Opportunities for Power Trade in the Nile Basin: Final Scoping Study Energies modernes et réduction de la pauvreté: Un atelier multi-sectoriel. Actes de l'atelier régional. Dakar, Sénégal, du 4 au 6 février 2003 (French Only) Énergies modernes et réduction de la pauvreté: Un atelier multi-sectoriel. Actes de l'atelier régional. Douala, Cameroun du 16-18 juillet 2003. (French Only) Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshops held in Africa Power Sector Reform in Africa: Assessing the Impact on Poor People The Vulnerability of African Countries to Oil Price Shocks: Major Factors and Policy Options. The Case of Oil Importing Countries Energy Assessment (English and Portuguese) Power Rehabilitation and Technical Assistance (English) Africa Gas Initiative - Angola: Volume II 07/88 08/88 02/89 05/89 08/89 03/90 03/90 06/96 12/97 01/00 02/01 09/01 10/01 03/03 085/88 087/88 098/89 --112/90 -182/96 201/97 225/00 240/01 245/01 250/01 266/03 Date Number

01/04

277/04

01/04 09/04

278/04 286/04

01/05 08/05 08/05 05/89 10/91 02/01

298/05 306/05 308/05 4708-ANG 142/91 240/01

Angola

61

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Region/Country Benin Botswana

Activity/Report Title Energy Assessment (English and French) Energy Assessment (English) Pump Electrification Prefeasibility Study (English) Review of Electricity Service Connection Policy (English) Tuli Block Farms Electrification Study (English) Household Energy Issues Study (English) Urban Household Energy Strategy Study (English) Energy Assessment (English and French) Technical Assistance Program (English) Urban Household Energy Strategy Study (English and French) Energy Assessment (English) Petroleum Supply Management (English) Status Report (English and French) Presentation of Energy Projects for the Fourth Five Year Plan (1983-1987) (English and French) Improved Charcoal Cookstove Strategy (English and French) Peat Utilization Project (English) Energy Assessment (English and French) Africa Gas Initiative – Cameroon: Volume III Energy Assessment (English and Portuguese) Household Energy Strategy Study (English) Energy Assessment (French) Elements of Strategy for Urban Household Energy The Case of N'djamena (French) Energy Assessment (English and French) In Search of Better Ways to Develop Solar Markets: The Case of Comoros Energy Assessment (English) Power Development Plan (English and French) Africa Gas Initiative – Congo: Volume IV Energy Assessment (English and French) Improved Biomass Utilization (English and French) Power System Efficiency Study (English) Power Sector Efficiency Study (French) Project of Energy Efficiency in Buildings (English) Africa Gas Initiative – Côte d'Ivoire: Volume V Energy Assessment (English) Power System Efficiency Study (English) Agricultural Residue Briquetting Pilot Project (English) Bagasse Study (English) Cooking Efficiency Project (English) Energy Assessment (English) Energy Assessment (English) Africa Gas Initiative – Gabon: Volume VI Energy Assessment (English) Solar Water Heating Retrofit Project (English) Solar Photovoltaic Applications (English) Petroleum Supply Management Assistance (English)

Date 06/85 09/84 01/86 07/87 07/87 02/88 05/91 01/86 03/86 06/91 06/82 01/84 02/84 05/85 09/85 11/85 01/92 02/01 08/84 02/90 08/92 12/93 01/88 05/00 01/88 03/90 02/01 04/85 04/87 12/87 02/92 09/95 02/01 07/84 10/85 12/86 12/86 12/87 02/96 07/88 02/01 11/83 02/85 03/85 04/85

Number 5222-BEN 4998-BT 047/86 071/87 072/87 -132/91 5730-BUR 052/86 134/91 3778-BU 012/84 011/84 036/85 042/85 046/85 9215-BU 240/01 5073-CV 110/90 9898-CAR 160/94 7104-COM 230/00 6420-COB 106/90 240/01 5250-IVC 069/87 140/91 175/95 240/01 4741-ET 045/85 062/86 063/86 179/96 6915-GA 240/01 4743-GM 030/85 032/85 035/85

Burkina Faso

Burundi Burundi

Cameroon Cape Verde Central African Republic Chad Comoros

Congo

Côte d'Ivoire

Ethiopia

Gabon The Gambia

62

LIST OF FORMAL REPORTS

Region/Country Ghana

Activity/Report Title Energy Assessment (English) Energy Rationalization in the Industrial Sector (English) Sawmill Residues Utilization Study (English) Industrial Energy Efficiency (English) Corporatization of Distribution Concessions through Capitalization Energy Assessment (English) Household Energy Strategy (English and French) Energy Assessment (English and Portuguese) Recommended Technical Assistance Projects (English & Portuguese) Management Options for the Electric Power and Water Supply Subsectors (English) Power and Water Institutional Restructuring (French) Energy Assessment (English) Power System Efficiency Study (English) Status Report (English) Coal Conversion Action Plan (English) Solar Water Heating Study (English) Peri-Urban Woodfuel Development (English) Power Master Plan (English) Power Loss Reduction Study (English) Implementation Manual: Financing Mechanisms for Solar Electric Equipment Energy Assessment (English) Energy Assessment (English) Recommended Technical Assistance Projects (English) Power System Efficiency Study (English) Energy Assessment (English) Power System Efficiency Study (English and French) Environmental Impact of Woodfuels (French) Energy Assessment (English) Technical Assistance to Improve the Efficiency of Fuelwood Use in the Tobacco Industry (English) Status Report (English) Energy Assessment (English and French) Household Energy Strategy (English and French) Energy Assessment (English and French) Household Energy Strategy Study (English and French) Energy Assessment (English) Status Report (English) Power System Efficiency Audit (English) Bagasse Power Potential (English) Energy Sector Review (English) Energy Assessment (English) Household Electricity Utilization Study (English) Electricity Tariffs Study (English) Sample Survey of Low Voltage Electricity Customers Energy Assessment (English)

Date 11/86 06/88 11/88 11/92 12/03 11/86 01/94 08/84 04/85 02/90 04/91 05/82 03/84 05/84 02/87 02/87 10/87 11/87 09/96 07/00 01/84 12/84 06/85 12/87 01/87 12/87 10/95 08/82 11/83 01/84 11/91 03/92 04/85 07/90 12/81 10/83 05/87 10/87 12/94 01/87 03/90 06/96 06/97 03/93

Number 6234-GH 084/88 074/87 148/92 272/03 6137-GUI 163/94 5083-GUB 033/85 100/90 118/91 3800 KE 014/84 016/84 -066/87 076/87 -186/96 231/00 4676-LSO 5279-LBR 038/85 081/87 5700-MAG 075/87 176/95 3903-MAL 009/83 013/84 8423-MLI 147/92 5224-MAU 123/90 3510-MAS 008/83 070/87 077/87 3643-MAS 6128-MOZ 113/90 181/96 195/97 11320-NAM

Guinea Guinea Bissau

Kenya

Kenya

Lesotho Liberia

Madagascar

Malawi

Mali Islamic Republic of Mauritania Mauritius

Mozambique

Namibia

63

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Region/Country Niger

Activity/Report Title Energy Assessment (French) Status Report (English and French) Improved Stoves Project (English and French) Household Energy Conservation and Substitution (English and French) Energy Assessment (English) Energy Assessment (English) Strategic Gas Plan Energy Assessment (English) Status Report (English and French) Improved Charcoal Cookstove Strategy (English and French) Improved Charcoal Production Techniques (English and French) Energy Assessment (English and French) Commercialization of Improved Charcoal Stoves and Carbonization Techniques Mid-Term Progress Report (English and French) SADC Regional Power Interconnection Study, Vols. I-IV (English) SADCC Regional Sector: Regional Capacity-Building Program for Energy Surveys and Policy Analysis (English) Energy Assessment (English) Energy Assessment (English) Status Report (English and French) Industrial Energy Conservation Study (English) Preparatory Assistance for Donor Meeting (English and French) Urban Household Energy Strategy (English) Industrial Energy Conservation Program (English) Energy Assessment (English) Electric Power System Efficiency Study (English) Energy Assessment (English) Energy Assessment (English) Options for the Structure and Regulation of Natural Gas Industry (English) Management Assistance to the Ministry of Energy and Mining Energy Assessment (English) Power System Efficiency Study (English) Status Report (English) Wood Energy/Forestry Feasibility (English) Energy Assessment (English) Household Energy Strategy Study Energy Assessment (English) Peri-Urban Woodfuels Feasibility Study (English) Tobacco Curing Efficiency Study (English) Remote Sensing and Mapping of Woodlands (English) Industrial Energy Efficiency Technical Assistance (English) Power Loss Reduction Volume 1: Transmission and Distribution System Technical Loss Reduction and Network Development (English) Power Loss Reduction Volume 2: Reduction of Non-Technical Losses (English)

Date 05/84 02/86 12/87 01/88 08/83 07/93 02/04 06/82 05/84 08/86 02/87 07/91 12/91 12/93 11/91 10/85 07/83 10/84 05/85 04/86 02/89 05/94 01/84 08/84 10/87 12/85

Number 4642-NIR 051/86 080/87 082/88 4440-UNI 11672-UNI 279/04 3779-RW 017/84 059/86 065/87 8017-RW 141/91 5803-STP 4182-SE 025/84 037/85 056/86 096/89 165/94 4693-SEY 021/84 6597-SL 5796-SO

Nigeria

Rwanda

SADC SADCC Sao Tome and Principe Senegal Senegal

Seychelles Sierra Leone Somalia Republic of South Africa Sudan

Swaziland Tanzania

05/95 05/83 07/83 06/84 11/84 07/87 02/87 10/97 11/84 08/88 05/89 06/90 08/90

172/95 003/83 4511-SU 018/84 026/84 073/87 6262-SW 198/97 4969-TA 086/88 102/89 -122/90

06/98 06/98

204A/98 204B/98

64

LIST OF FORMAL REPORTS

Region/Country Togo

Activity/Report Title Energy Assessment (English) Wood Recovery in the Nangbeto Lake (English and French) Power Efficiency Improvement (English and French) Energy Assessment (English) Status Report (English) Institutional Review of the Energy Sector (English) Energy Efficiency in Tobacco Curing Industry (English) Fuelwood/Forestry Feasibility Study (English) Power System Efficiency Study (English) Energy Efficiency Improvement in the Brick and Tile Industry (English) Tobacco Curing Pilot Project (English)

Date 06/85 04/86 12/87 07/83 08/84 01/85 02/86 03/86 12/88 02/89 03/89

Number 5221-TO 055/86 078/87 4453-UG 020/84 029/85 049/86 053/86 092/88 097/89 UNDP Terminal Report 193/96 221/99 5837-ZR 4110-ZA 039/85 060/86 093/88 094/88 121/90 3765-ZIM 005/83 019/84 034/85 -109/89 119/90 8768-ZIM

Uganda

Zaire Zambia

Zimbabwe

Zimbabwe

Energy Assessment (English) Rural Electrification Strategy Study Energy Assessment (English) Energy Assessment (English) Status Report (English) Energy Sector Institutional Review (English) Power Subsector Efficiency Study (English) Energy Strategy Study (English) Urban Household Energy Strategy Study (English) Energy Assessment (English) Power System Efficiency Study (English) Status Report (English) Power Sector Management Assistance Project (English) Power Sector Management Institution Building (English) Petroleum Management Assistance (English) Charcoal Utilization Pre-feasibility Study (English) Integrated Energy Strategy Evaluation (English) Energy Efficiency Technical Assistance Project: Strategic Framework for a National Energy Efficiency Improvement Program (English) Capacity Building for the National Energy Efficiency Improvement Programme (NEEIP) (English) Rural Electrification Study Les réformes du secteur de l’électricite en Afrique: Evaluation de leurs conséquences pour les populations pauvres EAST ASIA AND PACIFIC (EAP)

12/96 09/99 05/86 01/83 08/85 11/86 02/89 02/89 08/90 06/82 06/83 08/84 04/85 09/89 12/89 06/90 01/92

04/94 12/94 03/00 11/06

--228/00 306/06

Asia Regional China

Pacific Household and Rural Energy Seminar (English) County-Level Rural Energy Assessments (English) Fuelwood Forestry Preinvestment Study (English) Strategic Options for Power Sector Reform in China (English) Energy Efficiency and Pollution Control in Township and Village Enterprises (TVE) Industry (English) Energy for Rural Development in China: An Assessment Based on a Joint Chinese/ESMAP Study in Six Counties (English) Improving the Technical Efficiency of Decentralized Power Companies

11/90 05/89 12/89 07/93 11/94 06/96 09/99

-101/89 105/89 156/93 168/94 183/96 222/99

65

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Region/Country

Activity/Report Title Air Pollution and Acid Rain Control: The Case of Shijiazhuang City and the Changsha Triangle Area Toward a Sustainable Coal Sector In China Demand Side Management in a Restructured Industry: How Regulation and Policy Can Deliver Demand-Side Management Benefits to a Growing Economy and a Changing Power System Energy Assessment (English) Energy Assessment (English) Status Report (English) Power Generation Efficiency Study (English) Energy Efficiency in the Brick, Tile and Lime Industries (English) Diesel Generating Plant Efficiency Study (English) Urban Household Energy Strategy Study (English) Biomass Gasifier Preinvestment Study Vols. I & II (English) Prospects for Biomass Power Generation with Emphasis on Palm Oil, Sugar, Rubberwood and Plywood Residues (English) Urban Electricity Demand Assessment Study (English) Institutional Development for Off-Grid Electrification Sabah Power System Efficiency Study (English) Gas Utilization Study (English) Energy Efficiency in the Electricity and District Heating Sectors Improved Space Heating Stoves for Ulaanbaatar Impact of Improved Stoves on Indoor Air Quality in Ulaanbaatar, Mongolia Energy Assessment (English) Energy Assessment (English) Status Report (English) Institutional Review in the Energy Sector (English) Power Tariff Study (English) Commercial Potential for Power Production from Agricultural Residues (English) Energy Conservation Study (English) Strengthening the Non-Conventional and Rural Energy Development Program in the Philippines: A Policy Framework and Action Plan Rural Electrification and Development in the Philippines: Measuring the Social and Economic Benefits Energy Assessment (English) Energy Assessment (English) Petroleum Transport in the South Pacific (English) Energy Assessment (English) Rural Energy Issues and Options (English) Accelerated Dissemination of Improved Stoves and Charcoal Kilns (English) Northeast Region Village Forestry and Woodfuels Preinvestment Study (English) Impact of Lower Oil Prices (English)

Date 10/03 07/04

Number 267/03 287/04

Fiji Indonesia

12/05 06/83 11/81 09/84 02/86 04/87 12/88 02/90 12/90 11/94 03/93 06/99 03/87 09/91 10/01 03/02 11/05 06/85 06/82 07/83 10/84 10/84 12/93 08/94

314/05 4462-FIJ 3543-IND 022/84 050/86 067/87 095/88 107/90 124/90 167/94 154/93 215/99 068/87 9645-MA 247/01 254/02 313/05 5416-BA 3882-PNG 006/83 023/84 024/84 157/93 --

Lao PDR Malaysia Mongolia

Myanmar Papua New Guinea Papua New Guinea

Philippines

08/01 05/02 06/83 01/92 05/86 09/85 09/85 09/87 02/88 08/88

243/01 255/02 4404-SOL 979-SOL -5793-TH 044/85 079/87 083/88 --

Solomon Islands South Pacific Thailand

66

LIST OF FORMAL REPORTS

Region/Country

Activity/Report Title Coal Development and Utilization Study (English) Why Liberalization May Stall in a Mature Power Market: A Review of the Technical and Political Economy Factors that Constrained the Electricity Sector Reform in Thailand 1998-2002 Reducing Emissions from Motorcycles in Bangkok Energy Assessment (English) Energy Assessment (English) Rural and Household Energy-Issues and Options (English) Power Sector Reform and Restructuring in Vietnam: Final Report to the Steering Committee (English and Vietnamese) Household Energy Technical Assistance: Improved Coal Briquetting and Commercialized Dissemination of Higher Efficiency Biomass and Coal Stoves (English) Petroleum Fiscal Issues and Policies for Fluctuating Oil Prices In Vietnam An Overnight Success: Vietnam's Switch to Unleaded Gasoline The Electricity Law for Vietnam — Status and Policy Issues — The Socialist Republic of Vietnam Petroleum Sector Technical Assistance for the Revision of the Existing Legal and Regulatory Framework Energy Assessment (English) SOUTH ASIA (SAS)

Date 10/89 12/03

Number -270/03

Tonga Vanuatu Vietnam

10/03 06/85 06/85 01/94 09/95

275/03 5498-TON 5577-VA 161/94 174/95

01/96 02/01 08/02 08/02 12/03 06/85

178/96 236/01 257/02 259/02 269/03 5497-WSO

Western Samoa

Bangladesh

India

Energy Assessment (English) Priority Investment Program (English) Status Report (English) Power System Efficiency Study (English) Small Scale Uses of Gas Pre-feasibility Study (English) Reducing Emissions from Baby-Taxis in Dhaka Opportunities for Commercialization of Non-conventional Energy Systems (English) Maharashtra Bagasse Energy Efficiency Project (English) Mini-Hydro Development on Irrigation Dams and Canal Drops Vols. I, II and III (English) WindFarm Pre-Investment Study (English) Power Sector Reform Seminar (English) Environmental Issues in the Power Sector (English) Environmental Issues in the Power Sector: Manual for Environmental Decision Making (English) Household Energy Strategies for Urban India: The Case of Hyderabad Greenhouse Gas Mitigation In the Power Sector: Case Studies From India Energy Strategies for Rural India: Evidence from Six States Household Energy, Indoor Air Pollution, and Health Access of the Poor to Clean Household Fuels The Impact of Energy on Women's Lives in Rural India Environmental Issues in the Power Sector: Long-Term Impacts And Policy Options for Rajasthan Environmental Issues in the Power Sector: Long-Term Impacts

10/82 05/83 04/84 02/85 12/88 01/02 11/88 07/90 07/91 12/92 04/94 06/98 06/99 06/99 02/01 08/02 11/02 07/03 01/04 10/04 10/04

3873-BD 002/83 015/84 031/85 -253/02 091/88 120/90 139/91 150/92 166/94 205/98 213/99 214/99 237/01 258/02 261/02 263/03 276/04 292/04 293/04

67

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Region/Country

Activity/Report Title And Policy Options for Karnataka Energy Assessment (English) Status Report (English) Energy Efficiency & Fuel Substitution in Industries (English) Household Energy Assessment (English) Assessment of Photovoltaic Programs, Applications, and Markets (English) National Household Energy Survey and Strategy Formulation Study: Project Terminal Report (English) Managing the Energy Transition (English) Lighting Efficiency Improvement Program Phase 1: Commercial Buildings Five Year Plan (English) Clean Fuels Household Use of Commercial Energy Toward Cleaner Urban Air in South Asia: Tackling Transport Pollution, Understanding Sources. Energy Assessment (English) Power System Loss Reduction Study (English) Status Report (English) Industrial Energy Conservation Study (English) Sustainable Transport Options for Sri Lanka: Vol. I Greenhouse Gas Mitigation Options in the Sri Lanka Power Sector: Vol. II Sri Lanka Electric Power Technology Assessment (SLEPTA): Vol. III Energy and Poverty Reduction: Proceedings from South Asia Practitioners Workshop How Can Modern Energy Services Contribute to Poverty Reduction? Colombo, Sri Lanka, June 2-4, 2003 EUROPE AND CENTRAL ASIA (ECA)

Date

Number

Nepal

Pakistan

08/83 01/85 06/93 05/88 10/89 03/94 10/94 10/94 10/01 05/06 03/04 05/82 07/83 01/84 03/86 02/03 02/03 02/03 11/03

4474-NEP 028/84 158/93 -103/89 ---246/01 320/06 281/04 3792-CE 007/83 010/84 054/86 262/03 262/03 262/03 268/03

Regional Sri Lanka

Armenia

Bulgaria

Development of Heat Strategies for Urban Areas of Low-income Transition Economies. Urban Heating Strategy for the Republic Of Armenia. Including a Summary of a Heating Strategy for the Kyrgyz Republic Natural Gas Policies and Issues (English) Energy Environment Review

04/04

282/04

10/96 10/02 08/01 07/97 08/00 08/92 12/97 11/97 01/93 08/98 10/98

188/96 260/02 242/01 196/97 234/00 149/92 199/97 16855-KAZ 153/93 206/98 208/98

Central Asia and The Caucasus Cleaner Transport Fuels in Central Asia and the Caucasus Central and Eastern Europe Power Sector Reform in Selected Countries Increasing the Efficiency of Heating Systems in Central and Eastern Europe and the Former Soviet Union (English and Russian) The Future of Natural Gas in Eastern Europe (English) Kazakhstan Natural Gas Investment Study, Volumes 1, 2 & 3 Kazakhstan & Kyrgyzstan Opportunities for Renewable Energy Development Poland Energy Sector Restructuring Program Vols. I-V (English) Natural Gas Upstream Policy (English and Polish) Energy Sector Restructuring Program: Establishing the Energy Regulation Authority

68

LIST OF FORMAL REPORTS

Region/Country Portugal Romania

Activity/Report Title Energy Assessment (English) Natural Gas Development Strategy (English) Private Sector Participation in Market-Based Energy-Efficiency Financing Schemes: Lessons Learned from Romania and International Experiences. Workshop on Private Participation in the Power Sector (English) Energy Assessment (English) Energy and the Environment: Issues and Options Paper Energy and Environment Review: Synthesis Report Turkey’s Experience with Greenfield Gas Distribution since 2003 MIDDLE EAST AND NORTH AFRICA (MENA)

Date 04/84 12/96 11/03

Number 4824-PO 192/96 274/03

Slovenia Turkey

02/99 03/83 04/00 12/03 03/07

211/99 3877-TU 229/00 273/03 325/05

Turkey Arab Republic of Egypt

Turkey’s Experience with Greenfield Gas Distribution since 2003 Energy Assessment (English) Energy Assessment (English and French) Status Report (English and French) Energy Sector Institutional Development Study (English and French) Natural Gas Pricing Study (French) Gas Development Plan Phase II (French) Energy Assessment (English) Electric Power Efficiency Study (English) Energy Efficiency Improvement in the Cement Sector (English) Energy Efficiency Improvement in the Fertilizer Sector (English) Fuel Substitution (English and French) Power Efficiency Study (English and French) Energy Management Strategy in the Residential and Tertiary Sectors (English) Renewable Energy Strategy Study, Volume I (French) Renewable Energy Strategy Study, Volume II (French) Rural Electrification in Tunisia: National Commitment, Efficient Implementation and Sound Finances Energy Assessment (English) Energy Investment Priorities (English) Household Energy Strategy Study Phase I (English) Household Energy Supply and Use in Yemen. Volume I: Main Report and Volume II: Annexes LATIN AMERICA AND THE CARIBBEAN REGION (LCR)

05/07 10/96 03/84 01/86 07/95 10/98 02/99 05/86 09/88 04/89 06/90 03/90 02/92 04/92 11/96 11/96 08/05 12/84 02/87 03/91 12/05

325/07 189/96 4157-MOR 048/86 173/95 209/98 210/99 5822-SYR 089/88 099/89 115/90 -136/91 146/92 190A/96 190B/96 307/05 4892-YAR 6376-YAR 126/91 315/05

Morocco

Syria

Tunisia

Yemen

LCR Regional

Regional Seminar on Electric Power System Loss Reduction in the Caribbean (English) Elimination of Lead in Gasoline in Latin America and the Caribbean (English and Spanish) Elimination of Lead in Gasoline in Latin America and the Caribbean - Status Report (English and Spanish) Harmonization of Fuels Specifications in Latin America and the Caribbean (English and Spanish) Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshop held in Bolivia

07/89 04/97 12/97 06/98 06/05

-194/97 200/97 203/98 202/05

69

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Region/Country

Activity/Report Title Power Sector Reform and the Rural Poor in Central America Estudio Comparativo Sobre la Distribución de la Renta Petrolera en Bolivia, Colombia, Ecuador y Perú OECS Energy Sector Reform and Renewable Energy/Energy Efficiency Options The Landfill Gas-to-Energy Initiative for Latin America and the Caribbean Energy Assessment (English) National Energy Plan (English) La Paz Private Power Technical Assistance (English) Pre-feasibility Evaluation Rural Electrification and Demand Assessment (English and Spanish) National Energy Plan (Spanish) Private Power Generation and Transmission (English) Natural Gas Distribution: Economics and Regulation (English) Natural Gas Sector Policies and Issues (English and Spanish) Household Rural Energy Strategy (English and Spanish) Preparation of Capitalization of the Hydrocarbon Sector Introducing Competition into the Electricity Supply Industry in Developing Countries: Lessons from Bolivia Final Report on Operational Activities Rural Energy and Energy Efficiency Oil Industry Training for Indigenous People: The Bolivian Experience (English and Spanish) Capacitación de Pueblos Indígenas en la Actividad Petrolera. Fase II Best Practices in Mainstreaming Environmental & Social Safeguards Into Gas Pipeline Projects Estudio Sobre Aplicaciones en Pequeña Escala de Gas Natural Energy Efficiency & Conservation: Strategic Partnership for Energy Efficiency in Brazil (English) Hydro and Thermal Power Sector Study Rural Electrification with Renewable Energy Systems in the Northeast: A Preinvestment Study Reducing Energy Costs in Municipal Water Supply Operations "Learning-while-doing" Energy M&T on the Brazilian Frontlines Energy Sector Review (English) Energy Strategy Paper (English) Power Sector Restructuring (English) Energy Efficiency Report for the Commercial and Public Sector (English) Energy Assessment (English and Spanish) Recommended Technical Assistance Projects (English) Forest Residues Utilization Study (English and Spanish) Energy Assessment (English) Energy Assessment (Spanish) Energy Strategy Phase I (Spanish) Energy Strategy (English) Private Mini-hydropower Development Study (English) Energy Pricing Subsidies and Interfuel Substitution (English)

Date 12/04 08/05 02/06

Number 297/04 304/05 317/06

Bolivia

02/06 04/83 12/87 11/90 04/91 08/91 01/92 03/92 12/93 01/94 12/96 08/00 08/00 09/01 07/04 07/06 07/04 01/95 09/97 07/00 07/03 08/88 12/86 11/94 06/96 01/84 11/84 02/90 05/91 12/85 07/88 04/91 11/92 08/94

318/06 4213-BO -111/90 129/91 131/91 137/91 125/92 164/93 162/94 191/96 233/00 235/00 244/01 290/04 322/06 291/04 170/95 197/97 232/00 265/03 7129-CH -169/94 184/96 4655-CR 027/84 108/90 8234-DO 5865-EC ---11798-EC

Boliva-Brazil

Brazil

Chile Colombia

Costa Rica

Dominican Republic Ecuador

70

LIST OF FORMAL REPORTS

Region/Country

Activity/Report Title Energy Pricing, Poverty and Social Mitigation (English) Issues and Options in the Energy Sector (English) Health Impacts of Traditional Fuel Use Energy Assessment (English and French) Status Report (English and French) Household Energy Strategy (English and French) Energy Assessment (English) Petroleum Supply Management (English) Energy Assessment (English) Petroleum Procurement, Refining, and Distribution Study (English) Energy Efficiency Building Code Phase I (English) Energy Efficiency Standards and Labels Phase I (English) Management Information System Phase I (English) Charcoal Production Project (English) FIDCO Sawmill Residues Utilization Study (English) Energy Sector Strategy and Investment Planning Study (English) Improved Charcoal Production Within Forest Management for the State of Veracruz (English and Spanish) Energy Efficiency Management Technical Assistance to the Comisión Nacional para el Ahorro de Energía (CONAE) (English) Energy Environment Review Proceedings of the International Grid-Connected Renewable Energy Policy Forum (with CD) Modernizing the Fuelwood Sector in Managua and León Policy & Strategy for the Promotion of RE Policies in Nicaragua. (Contains CD with 3 complementary reports) Power System Efficiency Study (English) Energy Assessment (English) Recommended Technical Assistance Projects (English) Status Report (English and Spanish) Reforma del Sector Hidrocarburos (Spanish Only) Energy Assessment (English) Status Report (English) Proposal for a Stove Dissemination Program in the Sierra (English and Spanish) Energy Strategy (English and Spanish) Study of Energy Taxation and Liberalization of the Hydrocarbons Sector (English and Spanish) Reform and Privatization in the Hydrocarbon Sector (English and Spanish) Rural Electrification Energy Assessment (English) Energy Assessment (English) Environmental and Social Regulation of Oil and Gas Operations in Sensitive Areas of the Sub-Andean Basin

Date 08/94 09/93 08/04 06/82 08/85 12/91 08/87 03/91 04/85 11/86 03/88 03/88 03/88 09/88 09/88 07/92 08/91 04/96 05/01 08/06 12/01 01/06 06/83 10/84 09/85 09/85 03/06 01/84 08/85 02/87 12/90

Number 12831-EC 12160-GU 284/04 3672-HA 041/85 143/91 6476-HO 128/91 5466-JM 061/86 ---090/88 088/88 135/92 138/91 180/96 241/01 324/06 252/01 316/06 004/83 5145-PA 043/85 319/06 4677-PE 040/85 064/87 --

Guatemala Haiti

Honduras Jamaica

Mexico

Nicaragua

Panama Paraguay

Peru

Peru

120/93 159/93 07/99 02/01 09/84 09/84 216/99 238/01 5111-SLU 5103-STV

Saint Lucia St. Vincent and the Grenadines Sub Andean

71

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

Region/Country

Activity/Report Title

Date

Number

(English and Spanish) Trinidad and Tobago Energy Assessment (English)

07/99 12/85

217/99 5930-TR

GLOBAL Energy End Use Efficiency: Research and Strategy (English) Women and Energy -A Resource Guide The International Network: Policies and Experience (English) Guidelines for Utility Customer Management and Metering (English and Spanish) Assessment of Personal Computer Models for Energy Planning in Developing Countries (English) Long-Term Gas Contracts Principles and Applications (English) Comparative Behavior of Firms Under Public and Private Ownership (English) Development of Regional Electric Power Networks (English) Round-table on Energy Efficiency (English) Assessing Pollution Abatement Policies with a Case Study of Ankara (English) A Synopsis of the Third Annual Round-table on Independent Power Projects: Rhetoric and Reality (English) Rural Energy and Development Round-table (English) A Synopsis of the Second Round-table on Energy Efficiency: Institutional and Financial Delivery Mechanisms (English) The Effect of a Shadow Price on Carbon Emission in the Energy Portfolio of the World Bank: A Carbon Backcasting Exercise (English) Increasing the Efficiency of Gas Distribution Phase 1: Case Studies and Thematic Data Sheets Global Energy Sector Reform in Developing Countries: A Scorecard Global Lighting Services for the Poor Phase II: Text Marketing of Small "Solar" Batteries for Rural Electrification Purposes A Review of the Renewable Energy Activities of the UNDP/ World Bank Energy Sector Management Assistance Program 1993 to 1998 Energy, Transportation and Environment: Policy Options for Environmental Improvement Privatization, Competition and Regulation in the British Electricity Industry, With Implications for Developing Countries Reducing the Cost of Grid Extension for Rural Electrification Undeveloped Oil and Gas Fields in the Industrializing World Best Practice Manual: Promoting Decentralized Electrification Investment Peri-Urban Electricity Consumers — A Forgotten but Important Group: What Can We Do to Electrify Them? Village Power 2000: Empowering People and Transforming 11/89 04/90 07/91 10/91 02/93 05/93 10/94 02/95 11/95 08/96 05/98 09/98 ----152/93 155/93 -171/95 177/95 187/96 202/98 207/98

02/99 07/99 07/99

212/99 218/99 219/99

08/99

220/99

11/99 12/99 02/00 02/00 02/01 10/01 10/01

223/99 224/99 226/00 227/00 239/01 248/01 249/01

72

LIST OF FORMAL REPORTS

Region/Country

Activity/Report Title Markets Private Financing for Community Infrastructure Stakeholder Involvement in Options Assessment: Promoting Dialogue in Meeting Water and Energy Needs: A Sourcebook A Review of ESMAP's Energy Efficiency Portfolio A Review of ESMAP's Rural Energy and Renewable Energy Portfolio ESMAP Renewable Energy and Energy Efficiency Reports 1998-2004 (CD Only) Regulation of Associated Gas Flaring and Venting: A Global Overview and Lessons Learned from International Experience ESMAP Gender in Energy Reports and Other related Information (CD Only) ESMAP Indoor Air Pollution Reports and Other related Information (CD Only) Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshop on the Pre-Investment Funding. Berlin, Germany, April 23-24, 2003. Global Village Energy Partnership (GVEP) Annual Report 2003 Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshop on Consumer Lending and Microfinance to Expand Access to Energy Services, Manila, Philippines, May 19-21, 2004 The Impact of Higher Oil Prices on Low Income Countries And on the Poor Advancing Bioenergy for Sustainable Development: Guideline For Policymakers and Investors ESMAP Rural Energy Reports 1999-2005 Renewable Energy and Energy Efficiency Financing and Policy Network: Options Study and Proceedings of the International Forum Implementing Power Rationing in a Sensible Way: Lessons Learned and International Best Practices The Urban Household Energy Transition. Joint Report with RFF Press/ESMAP ISBN 1-933115-07-6 . Pioneering New Approaches in Support of Sustainable Development In the Extractive Sector: Community Development Toolkit, also Includes a CD containing Supporting Reports Analysis of Power Projects with Private Participation Under Stress Potential for Biofuels for Transport in Developing Countries Experiences with Oil Funds: Institutional and Financial Aspects Coping with Higher Oil Prices

Date 10/01 05/02 07/03

Number 251/01 256/02 264/03

11/03 04/04 05/04 08/04 11/04 11/04

271/03 280/04 283/04 285/04 288/04 289/04

11/04 12/04

294/04 295/04

12/04 03/05 04/05 03/05

296/04 299/05 300/05 301/05

07/05 08/05 08/05

303/05 305/05 309/05

10/05 10/05 10/05 06/06 06/06

310/05 311/05 312/05 321/06 323/06

73

Energy Sector Management Assistance Program (ESMAP) 1818 H Street, NW Washington, DC 20433 USA Tel: 1.202.458.2321 Fax: 1.202.522.3018 Internet: www.esmap.org Email: esmap@worldbank.org