Turkey's experience with greenfield gas distribution since 2003

Energy Sector Management Assistance Program

Turkey’s Experience

with Greenfield Gas

Distribution since

2003

Formal Report 325/07

May 2007

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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

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energy-poverty and market efficiency and governance.

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the ESMAP Website: www.esmap.org. ESMAP can also be reached by E-mail at [email protected]

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ESMAP

c/o Energy and Water Department

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1818 H Street, NW

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Fax: 202.522.3018


Formal Report 325/07

Turkey’s Experience

with Greenfield Gas

Distribution

since 2003

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

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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

iii

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

TURKEY'S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

iv

Tables

Table 3.1: Distribution Margins for Old Distribution Regions ............................................... 14

Table 3.2: Alternative Estimates for Residential Penetration Rates (Based on the

Number of Dwellings and Installed Meters .................................................... 20

Table 3.3: Asset Transfers from BOTAS – Costs for Licensees .............................................. 23

Table 3.4: 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

v

CONTENTS

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

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

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

Acknowledgments

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.

vii

APEC Asia-Pacific Economic Cooperation

BOTAS Boru Hatlari ve Petrol Tasima AS (Turkey’s Petroleum Pipeline Corporation)

Dosider Turkey’s Natural Gas Equipment Manufacturers and

Businessmen Association

EIA United States Energy Information Administration

EMRA Energy Market Regulatory Authority

IEA International Energy Agency

LPG Liquefied Petroleum Gas

NGMDCR Natural Gas Market Distribution and Customer Services Regulation

NGML Natural Gas Market Law (#4646, adopted on May 2, 2001)

NGMLR Natural Gas Market License Regulation

YTL New Turkish Liras

PE Polyethylene

TPES Total Primary Energy Supply

TSI Turkish Statistics Institute

UGETAM International Gas Training Technology Research Center

USD United States Dollar

VAT Value Added Tax

Licensee Gas distribution company which has obtained a license for gas

distribution from the Energy Market Regulatory Authority

1 USD = 1.33 YTL

1 cent/kWh = 10.64 cent/m3

Acronyms, Abbreviations

and Conversions

ix

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.

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

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

xi


xii

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;

• 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

xiii

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.

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.

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 forward-

looking by licensees; and

• Careful sequencing of gas market reforms,

where the focus has been on gas

distribution-related initiatives in the

short term.

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

EXECUTIVE SUMMARY


xiv

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

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,

xv

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

EXECUTIVE SUMMARY

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.

1

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.

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,

3

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).

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

Box 2.1: BOTAS’ Contract Transfer – Implications for Gas Distribution

4

TURKEY’S EXPERIENCE WITH GREENFIELD GAS DISTRIBUTION SINCE 2003

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.

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

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.

5

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 low for the greates t s impl ic 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

Prequalification Tender

Acquisition

of License

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)

6


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.

7

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 m2

; 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);

TURKEY’S GREENFIELD GAS DISTRIBUTION MODEL SINCE 2003

8


• 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).

9

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

2

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.

10


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

Kayseri

Sivas

Erzurum

Sam

sun

Gebze.

Konya

Kuta

hya

Corlu

Corum

Yalo

va

Aksaray

Bandirm

a

Kirik

kale

-Kirsehir

Inegol

Balikesir

Gem

lik

Karadeniz

-Eregli-D

uzce

Konya-Eregli

Usak

Cata

lca

Potential Number of Subscribers

Number of Subscribers

Source: EMRA.

60.0

50.0

40.0

30.0

20.0

10.0

0.0

Corum

Konya

Cata

lca

Konya-Eregli

Erzurum

Inegol

Kayseri

Balikesir

Bandirm

a

Kirik

kale

-Kirsehir

Gebze.

Usak

Sam

sun

Karadeniz

-Eregli-D

uzce

Kuta

hya

Yalo

va

Corlu

Gem

lik

Aksaray

Sivas

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

Source: EMRA.

11

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

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.

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

5.3

4.3

3.3

2.3

1.3

0.3

-0.7

2001 2002 2003 2004 2005

Old Regions

New Regions

bcm

Source: Dosider.

12


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

Sivas

Kuta

hya

Konya E

regli

Konya

Kayseri

Inegol

Gebze.

Erzurum

Corum

Corlu

Cata

lca

Bandirm

a

Balikesir

Gem

lik-U

murbey

Aksaray

Kirik

kale

-Kirsehir

Sam

sun

Usak

Karadeniz

Eregli-D

uzce

Yalo

va

Pola

tli

Yozgat

Nig

de-N

evsehir

Sanliurfa

Karabuk-Kasta

monu-C

ankiri

Mala

tya

Manisa

Bilecik

-Bolu

Isparta

-Burdur

Izm

ir

K. M

aras

Canakkale

Edirne-Kirkla

reli-T

ekirdag

Deniz

li

G. A

nte

p-Kilis

0.3

0.25

0.2

0.15

0.1

0.05

0

20

18

16

14

12

10

8

6

4

2

0

2003 2004 2005

Figure 3.4: Winning Bids in Gas Distribution Tenders (US cents/kWh) over 2003-05

Winning Bid (U

S cents kW

h)

No. o

f B

idders a

t T

ender

Source: EMRA.

Winning Bid (US cents/kWh) No. of Bidders at Tender Ave. Bid Amount in the Year (US cents/kWh)

13

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.


14


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

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.

Table 3.1: Distribution Margins for Old Distribution Regions

Distribution Region Distribution Margins (cents/kWh)*

Izmit 0.492

Adapazari 0.492

Bahcesehir 0.492

Istanbul 0.424

Ankara 0.410

Eskisehir 0.235

Bursa 0.235

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

15

pointed out two major developments they

believe should address the widespread

skepticism regarding their projects:

• Investments have continued rapidly

despite low margins. Nearly al l

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.


16


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 m2

).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

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.

Old Distribution Regions; New Distribution Regions with Low Transportation Fees

New Distribution Regions with High Transportation Fees

Adapazari

Ankara

Bahcesehir

Bursa

Eskisehir

Ista

nbul

Izm

it

Deniz

li

Edirne-Kirkla

reli-Tekirdag

G. A

nte

p-Kilis

Canakkale

K. M

aras

Izm

ir

Isparta

-Burdur

Bilecik

-Bolu

Manisa

Yalo

va

Karadeniz

Eregli-D

uzce

Corlu

Mala

tya

Cata

lca

Erzurum

Gebze.

Sam

sun

Usak

Inegol

Konya

Karabuk-Kasta

monu-C

ankiri

Kayseri

Corum

Sanliurfa

Nig

de-N

evsehir

Balikesir

Kuta

hva

Kirik

kale

-Kirsehir

Sivas

Konya E

regli

Bandirm

a

Yozgat

Pola

tli

Aksaray

Gem

lik-U

murbey

0.3

0.25

0.2

0.15

0.1

0.05

0

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

Source: EMRA.

17

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 l icensees 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

expert ise 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).


18


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

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.

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 icense. Based on the World Bank ’s

interviews with licensees, none of them

have experienced problems regarding this

ru le . They have a l l regarded th i s

requirement as one that provides sufficient

time to meet the minimum requirement of

connecting their first consumers.

19


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.

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 distr ibution

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

20


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.

Table 3.2: Alternative Estimates for Residential Penetration Rates (Based on the Number

of Dwellings and Installed Meters)

Distribution Number of Estimated Number Number of Estimated Residential

Region Dwellings as in of Dwellings Meters Installed Penetration Rate

the Beginning of in 2000-01 for Residential (Number of Meters/

2006 (Licensee’s (According to TSI) Users (As in the Number of

Own Estimates) Beginning of 2006) Dwellings in 2006) (%)

Kayseri – 169,302 (a) – –

Konya 237,664 172,043 (a) 16,411 6.9

Erzurum – 71,511 (a) – –

Çorlu 72,000 54,253 (b) 1,851 2.6

Gebze. – 81,239 (b) – –

Inegol – 31,092 (b) – –

Catalca 13,500 6,176 (b) 2,163 16.0

Bandirma 67,713 40,568 (b) 4,299 6.3

Balikesir 127,185 64,145 (a) 4,647 3.7

Sivas 87,850 66,249 (a) 2,189 2.5

Kutahya – 55,537 (a) – –

Konya-Eregli 20,316 27,743 (b) 1,604 7.9

Corum 52,204 43,520 (a) 26,015 49.8

Samsun – 118,580 (a) – –

Aksaray – 38,641 (a) – –

Karadeniz- 101,100 45,910 (b) 610 0.6

Eregli-Duzce

Kirikkale-Kirsehir – 89,814 (a) –

Gemlik 33,250 24,179 (b) 492 1.5

Yalova 60,000 17,798 (a) 543 0.9

Usak 48,066 48,586 (a) 643 1.3

has been included in their feasibil i ty

studies. It is, however, tbetweenoo early to

conclude whether licensees will experience

any major difficult ies in meeting this

requirement or not. Some uncertainty

pertaining to precise definitions of this

requirement remains. Addressing this

requirement, to a large extent, will hinge

upon resolving several definitional issues

between EMRA and the d is t r ibut ion

companies. These issues are examined in

the last section.

21


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

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

ref lects l icensees’ project ions of the

cumulative investment requirements for the

30-year period of the l icense. Such

projections are communicated to EMRA

following the tender and before EMRA’s

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.

50

45

40

35

30

25

20

15

10

5

0

Corum

Cata

lca

Konya-Eregli

Konya

Bandirm

a

Balikesir

Corlu

Sivas

Gem

lik

Usak

Yalo

va

Karadeniz-

Eregli-D

uzce

Figure 3.6: Estimated Residential Penetration Rate (Number of Meters/Number of Dwellings in

the Beginning of 2006, %)

22


Source: Distribution companies.

Figure 3.7: Completion Rate of Distribution Company Investments, End-2005 (%)

80

70

60

50

40

30

20

10

0

Corum

Konya-Eregli

Gem

lik

Corlu

Cata

lca

Yalo

va

Erzurum

Bandirm

a

Balikesir

Karadeniz

-Eregli-D

uzce

Sivas

Gebze.

Konya

Usak

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.

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

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

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.

23


Table 3.3: Asset Transfers from BOTAS – Costs for Licensees

Distribution Payment for Share in Cumulative Winning Date of Date of Asset

Region BOTAS Assets Investment as at the a Tender for Transfer

(US$ million) End of 2005 (%) Distribution License

Kayseri 4.5 16.7 6/19/2003 10/1/2004

Çorum 1.9 15.5 12/18/2003 10/12/2004

Konya 2.6 18.8 7/31/2003 10/27/2004

Kütahya 3.7 30.6 11/6/2003 1/4/2005

Balikesir 1.6 15.5 10/16/2003 1/5/2005

Bandirma 1.2 21.7 10/9/2003 1/7/2005

Gemlik 2.3 47.5 4/22/2004 2/2/2005

Gebze. 9.9 50.9 9/11/2003 4/2/2005

Yalova 3.6 36.4 7/1/2004 4/11/2005

Kdz.Eregli-Duzce 5.7 55.4 4/8/2004 9/28/2005

Uºak 2.3 49.1 12/2/2004 10/1/2005

Konya-Ereglili 1.4 58.0 12/4/2003 10/13/2005

Samsun 2.2 10.5 1/22/2004 10/27/2005

Aksaray 1.3 23.4 2/12/2004 11/22/2005

Kirikkale-Kirºehir 2.7 23.8 1/8/2004 1/18/2006

Polatli 1.6 NA 1/13/2005 2/9/2006

Bilecik-Bolu 5.9 NA 6/9/2005 3/3/2006

Sivas 1.1 15.4 10/30/2003 4/1/2006

Erzurum 0.0 0 8/13/2003 –

Corlu 0.0 0 8/28/2003 –

Inegol 0.0 0 9/18/2003 –

Catalca 0.0 0 9/25/2003 –

Source: BOTAS.

24


Table 3.4: Investment Progress in Turkey’s Gas Distribution Regions as on

February 2006

Distribution Starting Date Steel Pipes Polyethylene Service Lines District

Region of License* (Meters) Pipes (Meters) Number Length (Meters) Regulators

(Number)

Old Distribution Regions

Adapazan December 1993 45,794 338,013 11,918 78,563 20

Ankara November 1988 854,520 3,112,232 130,591 194,577 245

Bahçeºehir NA 9,432 55,623 1,616 12,400 4

Bursa December 1992 184,373 1,628,550 79,898 673,776 84

Eskiºehir October 1996 84,996 395,307 25,411 313,971 37

Istanbul January 1992 1,044,000 8,712,000 471,000 235,500 595

Izmit September 1996 231,706 1,200,260 49,225 417,632 64

New Distribution Regions

Kayseri 10/2/2003 120,200 312,000 9,800 148,000 48

Konya 12/5/2003 68,550 239,365 6,864 56,664 19

Çorlu 1/27/2004 43,408 108,365 2,064 16,341 2

Erzurum 2/6/2004 20,000 158,250 2,588 31,172 8

Gebze. 2/10/2004 27,000 105,000 2,200 NA 7

Inegöl 2/10/2004 3,269 74,644 2,962 18,934 2

Çatalca 2/23/2004 20,743 44,446 1,436 8,765 3

Çorum 3/16/2004 25,320 231,854 4,999 NA 5

Bandirma 3/23/2004 19,126 96,258 4,219 28,360 5

Balikesir 3/30/2004 40,766 207,648 8,111 50,818 4

25


Distribution Starting Date Steel Pipes Polyethylene Service Lines District

Region of License* (Meters) Pipes (Meters) Number Length (Meters) Regulators

(Number)

Sivas 4/6/2004 25,113 140,430 3,148 23,361 6

Aksaray 5/25/2004 21,583 110,298 289 2,333 3

Samsun 7/6/2004 43,911 174,528 4,106 27,685 18

Gemlik 9/21/2004 7,664 67,250 1,463 8,400 3

Uºak 4/14/2005 NA NA 600 5,000 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.

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 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. 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

28


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

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.”

Figure 4.1 : Share of Industrial and Residential Gas Consumption (%), 2005

100

90

80

70

60

50

40

30

20

10

0

Corlu

Gebze

Bandism

a

Cata

lca

Aksaray

Sam

sun

Balikesir

Kayseri

Erzurum

Usak

Corum

Konya

Sivas

Source: Dosider.

Share of Industrial Consumption (%) Share of Residential Consumption (%)

29

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

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

18

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.

30


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

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 well-

established 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

Figure 4.2: Turkey’s Gas Distribution Regions24

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).

31

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

relat ively 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.

27

“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.


32


• Cross-subsidization in favor of

residential consumers: The price

advantage of natural gas used by residential

consumers has been possible partly due to

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

0.30

0.25

0.20

0.15

0.10

0.05

0.00

LPG (Aygaz) Electricity Domestic Lignite Gas (Istanbul) Imported

(TEDAS) (Soma) Russian Lignite

Coal (Eskisehir)

YTL

/1,0

00 k

cal

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

the presence of some degree of cross-

subsidization between eligible consumers

and households. Compared to a number

of other Organization for Economic

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

Source: International Energy Agency (IEA).

1200

1000

800

600

400

200

0

Portu

gal

Spain

Pola

nd

France

Mexic

o

Irela

nd

New

Zeala

nd

Sw

itzerla

nd

Fin

land

United S

tate

s

Czech R

epublic

Slo

vak R

epublic

Turkey

Hungary

Gas Prices in Industry Gas Prices in Households

33


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.

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

36


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).

37

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. Distr ibution

companies have called for government

subsidies directed at covering the

installation and equipment costs of low-

income households; however, no progress

has been achieved;

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

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.

38


• 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.

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

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

35

EMRA agreed to become directly involved in cases of problems associated with licensee nonpayment to BOTAS.

36

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.

39

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

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

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.

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

42


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.

43

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

i ts 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

MAJOR CHALLENGES AHEAD

44


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 addit ion 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”

distr ibution margins and agreed to

significantly reduce the connection fees for

households. As many of these companies rely

on bank loans, future margins will have debt-

servicing 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

45

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.


46


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.

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

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 differentiat ion 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.

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

47

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.

Table A

1: Participation in G

as D

istribution Tenders and Their Results

Regions

Winner

Winning

Starting D

ate

Winning Bid

C

onnection

Num

ber of

Num

ber of

Num

ber of

Bid Bond

Perform

ance

Date

of L

icense

(cents/kW

h)

Fee (U

S$)

Bidders a

t

Applicants for

Prequalified

(U

S$)

Bond (U

S$)

Tender

Prequalification

Firm

s

2003

0.0926

Kayseri

HSV

6/19/2003

10/2/2003

0.076

180

18

27

23

1,000,000

2,000,000

Konya

Gaznet

7/31/2003

12/5/2003

0.064

180

14

35

29

1,500,000

3,000,000

Erzurum

Pale

n

8/13/2003

2/6/2004

0.046

180

5

19

16

1,000,000

2,000,000

Corlu

A

rsan

8/28/2003

1/27/2004

0.036

180

6

24

23

1,000,000

2,000,000

Gebze.

Palg

az

9/11/2003

2/10/2004

0.052

180

8

32

29

1,000,000

2,000,000

Inegol

Kale

n

9/18/2003

2/10/2004

0.061

180

2

29

26

500,000

1,000,000

Cata

lca

Anadolu

9/25/2003

2/23/2004

0.044

180

7

29

27

250,000

500,000

Bandirm

a

Anadolu

10/9/2003

3/23/2004

0.174

180

2

19

19

1,000,000

2,000,000

Balikesir

Aksa

10/16/2003

3/30/2004

0.112

180

2

21

20

1,000,000

2,000,000

Siv

as

Anadolu

10/30/2003

4/6/2004

0.164

180

3

13

13

1,000,000

2,000,000

Kuta

hya

Ongaz

11/6/2003

1/13/2004

0.124

180

3

17

17

1,000,000

2,000,000

Konya E

regli

Gaznet

12/4/2003

6/22/2004

0.172

180

2

15

14

500,000

1,000,000

Corum

G

aznet

12/18/2003

3/16/2004

0.079

180

5

21

19

1,000,000

2,0

00

,0

00

(C

orum

gaz)

49

Annex I

50


Regions

Winner

Winning

Starting D

ate

Winning Bid

Connection

N

um

ber of

Num

ber of

Num

ber of

Bid Bond

Perform

ance

Date

of L

icense

(cents/kW

h)

Fee (U

S$)

Bidders a

t

Applicants for

Prequalified

(U

S$)

Bond (U

S$)

Tender

Prequalification

Firm

s

2004

0.1

15

Kirik

kale

-

Gunay

1/8/2004

6/4/2004

0.158

180

1

20

18

1,000,000

2,000,000

Kirsehir

Sam

sun

Cengiz

1/22/2004

7/6/2004

0.055

180

7

19

19

1,000,000

2,000,000

Aksaray

Ers

2/12/2004

5/25/2004

0.236

180

2

14

12

1,000,000

2,000,000

Karadeniz

Aksa

4/8/2004

8/3/2004

0.034

180

5

19

18

1,000,000

2,000,000

Eregli-D

uzce

Gem

lik-

Anadolu

4/22/2004

9/21/2004

0.239

180

3

16

16

500,000

1,000,000

Um

urbey

Yalo

va

Arsan

7/1/2004

11/9/2004

0.031

180

7

22

20

1,000,000

2,000,000

Usak

Udas (STFA

)

12/2/2004

4/14/2005

0.055

180

11

24

23

1,000,000

2,000,000

2005

0.0

52

Pola

tli

Delta

1/13/2005

6/23/2005

0.2

3

180

2

22

20

1,000,000

2,000,000

Izm

ir

Kolin

1/27/2005

7/7/2005

0.0

12

180

11

21

14

2,000,000

5,000,000

Manisa

Aksa

2/24/2005

10/27/2005

0.0

16

180

9

27

17

1,000,000

2,000,000

Nig

de-

Metangaz

3/17/2005

9/29/2005

0.0

98

180

3

14

12

1,000,000

2,000,000

Nevsehir

Bilecik

-Bolu

Aksa

6/9/2005

11/28/2005

0.0

16

180

13

30

25

1,000,000

2,000,000

51

Regions

Winner

Winning

Starting D

ate

Winning Bid

C

onnection

N

um

ber of

Num

ber of

Num

ber of

Bid Bond

Perform

ance

Date

of L

icense

(cents/kW

h)

Fee (U

S$)

Bidders

Applicants for

Prequalified

(U

S$)

Bond (U

S$)

at T

ender

Prequalification

Firm

s

Karabuk-

Corum

gaz

6/16/2005

2/9/2006

0.0

69

180

7

25

18

1,000,000

3,000,000

Kasta

monu-

Cankiri

Edirne-

Zorlu

6/23/2005

1/25/2006

0

0

14

32

25

2,000,000

4,000,000

Kirkla

reli-

Tekirdag

Yozgat

Corum

gaz

6/30/2005

1/25/2006

0.1

76

180

4

21

18

1,000,000

2,000,000

Mala

tya

Peker

7/7/2005

10/20/2005

0.0

37

180

5

23

18

1,000,000

2,000,000

K. M

aras

Arsan

7/14/2005

12/23/2005

0.0

09

180

10

21

18

1,000,000

2,000,000

Deniz

li

Metangaz

7/21/2005

2/16/2006

0

149

10

30

25

1,000,000

3,000,000

G.A

ntep-

Zorlu

7/28/2005

2/24/2006

0

30

10

31

25

1,000,000

4,000,000

Kilis

Sanliurfa

Gur-D

ag

11/9/2005

Pendin

g

0.0

95

180

24

21

1,000,000

2,000,000

Canakkale

Aksa

12/16/2005

Pendin

g

0.0

01

180

9

29

28

1,000,000

2,000,000

Isparta

-

Sel-Tan

12/23/2005

Pendin

g

0.0

15

180

7

22

21

1,000,000

3,000,000

Burdur

ANNEX I: STATISTICAL ANNEX

52


Table A2: Progress in Gas Penetration in New Distribution Regions as at the End of 2005

Distribution Number of Potential Number Current

Regions Subscribers* of Subscribers** Penetration Ratio

Kayseri 56,967 250,000 22.79

Konya 38,088 70,000 54.41

Erzurum 20,134 83,000 24.26

Corlu 2,109 58,000 3.64

Gebze. 6,051 75,000 8.07

Inegol 8,000 35,000 22.86

Catalca 2,933 6,000 48.88

Bandirma 4,441 40,000 11.10

Balikesir 5,756 30,000 19.19

Sivas 1,722 86,000 2.00

Kutahya 4,318 65,000 6.64

Konya-Eregli 2,944 10,000 29.44

Corum 29,374 50,000 58.75

Samsun 6,070 80,000 7.59

Aksaray 1,081 47,318 2.28

Karadeniz-Eregli-Duzce 1,200 18,000 6.67

Kirikkale-Kirsehir 4,101 40,000 10.25

Gemlik 717 23,000 3.12

Yalova 2,312 50,000 4.62

Usak 776 10,000 7.76

Total 199,094 1,126,318 17.68

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.

53

Table A3: Transportation Fees Charged in Old and New Distribution Regions

Distribution Regions Transportation Fee (Cents/kWh)

Old Regions

Adapazari 0.111

Ankara 0.068

Bahcesehir 0.068

Bursa 0.068

Eskisehir 0.068

Istanbul 0.068

Izmit 0.068

New Regions with Comparatively Low Transportation Fees

Denizli 0

Edirne-Kirklareli-Tekirdag 0

G.Antep-Kilis 0

Canakkale 0.001

K. Maras 0.009

Izmir 0.012

Isparta-Burdur 0.015

Bilecik-Bolu 0.016

Manisa 0.016

Yalova 0.031

Karadeniz Eregli-Duzce 0.034

Corlu 0.036

Malatya 0.037

Catalca 0.044

Erzurum 0.046


54


Distribution Regions Transportation Fee (Cents/kWh)

Gebze. 0.052

Samsun 0.055

Usak 0.055

Inegol 0.061

Konya 0.064

New Regions with Comparatively High Transportation Fees

Karabuk-Kastamonu-Cankiri 0.069

Kayseri 0.076

Corum 0.079

Sanliurfa 0.095

Nigde-Nevsehir 0.098

Balikesir 0.112

Kutahya 0.124

Kirikkale-Kirsehir 0.158

Sivas 0.164

Konya-Eregli 0.172

Bandirma 0.174

Yozgat 0.176

Polatli 0.23

Aksaray 0.236

Gemlik-Umurbey 0.239

Source: EMRA.

55

Table A4: Cumulative and Projected Investments by Distribution Companies in Regions

where Residential Consumption has Already Commenced*

Distribution Cumulative Investment Planned Total Completion Rate for

Regions as at the End of 2005 Investment Within Investments as at

(US$ million) 30 Years (US$) the End of 2005 (%)

Kayseri 26.7 NA NA

Konya 13.8 38 36.4

Erzurum 10.2 18 56.4

Corlu 12.0 17 70.6

Gebze. 19.4 50 38.5

Inegol 5.0 NA NA

Catalca 4.2 7 63.9

Bandirma 5.4 10 52.8

Balikesir 10.2 20 51.2

Sivas 7.4 19 39.4

Kutahya 12.0 NA NA

Konya-Eregli 2.3 3 75.2

Corum 12.0 16 75.5

Samsun 20.9 NA NA

Aksaray 5.7 0

Karadeniz-Eregli-Duzce 10.4 23 46.0

Kirikkale-Kirsehir 11.2 NA NA

Gemlik 4.8 7 71.1

Yalova 10.0 17 58.8

Usak 4.7 24 .5

Total 208.3 NA NA

Source: Distribution companies.

* 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.


56


Table A5: The Share of Industrial Consumption in Licensees’ Distribution Regions in 2005*

Distribution Total Residential Gas Consumption by Share of

Regions Gas Consumption Industry in a Licensee’s Industrial

in Licensee’s Region Region in 2005 Consumption (%)

in 2005 (cubic meters) (cubic meters)

Kayseri 38,769,028 204,925,886 84.1

Konya 17,540,930 15,018,950 46.1

Erzurum 4,658,900 13,409,491 74.2

Corlu 392,081 137,373,109 99.7

Gebze. 2,632,907 68,992,000 96.3

Inegol 4,048,680 NA NA

Catalca 145,965 1,807,209 92.5

Bandirma 1,084,943 23,311,498 95.5

Balikesir 1,463,379 8,794,654 85.7

Sivas 1,796,181 899,135 33.3

Kutahya NA NA NA

Konya-Eregli NA NA NA

Corum 17,479,280 21,290,400 54.9

Samsun 426,202 2,675,718 86.2

Aksaray 125,358 1,015,963 89.0

Karadeniz-Eregli-Duzce NA NA NA

Kirikkale-Kirsehir NA NA NA

Gemlik NA 15,784,005 NA

Yalova NA NA NA

Usak 22,000 30,000 57.7

Source: Dosider.

* Industrial consumption includes gas consumed by power plants.

57

Table A6: Ranking of Relative Prices for Selected Fuels Consumed by Households

Type of Fuel Minimum Heat Unit Cost YTL/m3

Assumed Cost per

(Location) Value or YTL/kg or Efficiency 1,000 kcal

YTL/kWh

Gas (Eskisehir) 8,250 kcal/m3

0.484 93% 0.063

Gas (Bursa) 8,250 kcal/m3

0.484 93% 0.063

Gas (Ankara) 8,250 kcal/m3

0.512 93% 0.069

Gas (Istanbul) 8,250 kcal/m3

0.518 93% 0.068

Imported Siberian Lignite Coal (Istanbul) 6,000 kcal/kg 0.244 60% 0.068

Gas (Izmit) 8,250 kcal/m3

0.530 93% 0.069

Domestic Soma Coal (Mugla) 4,661 kcal/kg 0.227 60% 0.081

Imported South African Coal (Ankara) 6,500 kcal/kg 0.260 65% 0.062

Imported Russian Lignite Coal (Eskisehir) 6,200 kcal/kg 0.255 65% 0.063

Domestic Soma Coal (Istanbul) 5,500 kcal/kg 0.210 60% 0.064

Fuel Oil (Istanbul) 9,875 kcal/kg 1.380 80% 0.175

Electricity (TEDAS) 860 kcal/kWh 0.158 99% 0.186

LPG (Aygaz) 11,000 kcal/kg 2.708 90% 0.274

Diesel Fuel (Istanbul) 10,256 kcal/kg 2.485 84% 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 Gas Prices in Difference Between

Industry ($/toe) Households Household and

($/toe) Industrial prices (%)

Hungary 385.2 406.0 5.4

Turkey 338.6 402.6 18.9

Slovak Republic 319.3 465.6 45.8

Czech Republic 325.0 476.9 46.7

United States 373.7 578.8 54.9

Finland 211.3 331.2 56.7

Switzerland 446.7 744.0 66.6

58


Country Gas Prices in Gas Prices in Difference Between

Industry ($/toe) Households Household and

($/toe) Industrial prices (%)

New Zealand 445.6 755.6 69.6

Ireland 415.6 730.8 75.8

Mexico 396.8 702.1 76.9

France 351.4 656.1 86.7

Poland 249.6 492.5 97.3

Spain 282.4 760.7 169.4

Portugal 378.2 1070.6 183.1

Source: International Energy Agency (IEA).

59

Data on the following:

• Number of households connected; and

• 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?

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?

• For companies that have not fulfilled their

18-month requirements:

• Reasons:

– 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)?

Annex II

Questionnaire for Gas

Distribution Companies

60


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?

Relations with EMRA:

• What kind of data do distcos provide

to EMRA?

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 relat ions with

such companies.

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 city government:

• Any problems, etc?

Consumers in the license area:

• Who are they?

• Why do they shift to gas? What fuels are

primarily replaced?

List of Formal Reports

Region/Country Activity/Report Title Date Number

SUB-SAHARAN AFRICA (AFR)

Africa Regional Anglophone Africa Household Energy Workshop (English) 07/88 085/88

Regional Power Seminar on Reducing Electric Power System

Losses in Africa (English) 08/88 087/88

Institutional Evaluation of EGL (English) 02/89 098/89

Biomass Mapping Regional Workshops (English) 05/89 --

Francophone Household Energy Workshop (French) 08/89 --

Interafrican Electrical Engineering College: Proposals for Short-

and Long-Term Development (English) 03/90 112/90

Biomass Assessment and Mapping (English) 03/90 --

Symposium on Power Sector Reform and Efficiency Improvement

in Sub-Saharan Africa (English) 06/96 182/96

Commercialization of Marginal Gas Fields (English) 12/97 201/97

Commercializing Natural Gas: Lessons from the Seminar in

Nairobi for Sub-Saharan Africa and Beyond 01/00 225/00

Africa Gas Initiative — Main Report: Volume I 02/01 240/01

First World Bank Workshop on the Petroleum Products

Sector in Sub-Saharan Africa 09/01 245/01

Ministerial Workshop on Women in Energy 10/01 250/01

and Poverty Reduction: Proceedings from a Multi-Sector 03/03 266/03

and Multi-Stakeholder Workshop Addis Ababa, Ethiopia,

October 23-25, 2002

Opportunities for Power Trade in the Nile Basin: Final Scoping Study 01/04 277/04

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) 01/04 278/04

Énergies modernes et réduction de la pauvreté: Un atelier

multi-sectoriel. Actes de l'atelier régional. Douala, Cameroun 09/04 286/04

du 16-18 juillet 2003. (French Only)

Energy and Poverty Reduction: Proceedings from the Global Village

Energy Partnership (GVEP) Workshops held in Africa 01/05 298/05

Power Sector Reform in Africa: Assessing the Impact on Poor People 08/05 306/05

The Vulnerability of African Countries to Oil Price Shocks: Major 08/05 308/05

Factors and Policy Options. The Case of Oil Importing Countries

Angola Energy Assessment (English and Portuguese) 05/89 4708-ANG

Power Rehabilitation and Technical Assistance (English) 10/91 142/91

Africa Gas Initiative - Angola: Volume II 02/01 240/01

61


62

Benin Energy Assessment (English and French) 06/85 5222-BEN

Botswana Energy Assessment (English) 09/84 4998-BT

Pump Electrification Prefeasibility Study (English) 01/86 047/86

Review of Electricity Service Connection Policy (English) 07/87 071/87

Tuli Block Farms Electrification Study (English) 07/87 072/87

Household Energy Issues Study (English) 02/88 --

Urban Household Energy Strategy Study (English) 05/91 132/91

Burkina Faso Energy Assessment (English and French) 01/86 5730-BUR

Technical Assistance Program (English) 03/86 052/86

Urban Household Energy Strategy Study (English and French) 06/91 134/91

Burundi Energy Assessment (English) 06/82 3778-BU

Petroleum Supply Management (English) 01/84 012/84

Burundi Status Report (English and French) 02/84 011/84

Presentation of Energy Projects for the Fourth Five Year Plan

(1983-1987) (English and French) 05/85 036/85

Improved Charcoal Cookstove Strategy (English and French) 09/85 042/85

Peat Utilization Project (English) 11/85 046/85

Energy Assessment (English and French) 01/92 9215-BU

Cameroon Africa Gas Initiative – Cameroon: Volume III 02/01 240/01

Cape Verde Energy Assessment (English and Portuguese) 08/84 5073-CV

Household Energy Strategy Study (English) 02/90 110/90

Central African

Republic Energy Assessment (French) 08/92 9898-CAR

Chad Elements of Strategy for Urban Household Energy

The Case of N'djamena (French) 12/93 160/94

Comoros Energy Assessment (English and French) 01/88 7104-COM

In Search of Better Ways to Develop Solar Markets:

The Case of Comoros 05/00 230/00

Congo Energy Assessment (English) 01/88 6420-COB

Power Development Plan (English and French) 03/90 106/90

Africa Gas Initiative – Congo: Volume IV 02/01 240/01

Côte d'Ivoire Energy Assessment (English and French) 04/85 5250-IVC

Improved Biomass Utilization (English and French) 04/87 069/87

Power System Efficiency Study (English) 12/87

Power Sector Efficiency Study (French) 02/92 140/91

Project of Energy Efficiency in Buildings (English) 09/95 175/95

Africa Gas Initiative – Côte d'Ivoire: Volume V 02/01 240/01

Ethiopia Energy Assessment (English) 07/84 4741-ET

Power System Efficiency Study (English) 10/85 045/85

Agricultural Residue Briquetting Pilot Project (English) 12/86 062/86

Bagasse Study (English) 12/86 063/86

Cooking Efficiency Project (English) 12/87

Energy Assessment (English) 02/96 179/96

Gabon Energy Assessment (English) 07/88 6915-GA

Africa Gas Initiative – Gabon: Volume VI 02/01 240/01

The Gambia Energy Assessment (English) 11/83 4743-GM

Solar Water Heating Retrofit Project (English) 02/85 030/85

Solar Photovoltaic Applications (English) 03/85 032/85

Petroleum Supply Management Assistance (English) 04/85 035/85


63

LIST OF FORMAL REPORTS

Ghana Energy Assessment (English) 11/86 6234-GH

Energy Rationalization in the Industrial Sector (English) 06/88 084/88

Sawmill Residues Utilization Study (English) 11/88 074/87

Industrial Energy Efficiency (English) 11/92 148/92

Corporatization of Distribution Concessions through Capitalization 12/03 272/03

Guinea Energy Assessment (English) 11/86 6137-GUI

Household Energy Strategy (English and French) 01/94 163/94

Guinea Bissau Energy Assessment (English and Portuguese) 08/84 5083-GUB

Recommended Technical Assistance Projects (English &

Portuguese) 04/85 033/85

Management Options for the Electric Power and Water Supply

Subsectors (English) 02/90 100/90

Power and Water Institutional Restructuring (French) 04/91 118/91

Kenya Energy Assessment (English) 05/82 3800 KE


Status Report (English) 05/84 016/84

Coal Conversion Action Plan (English) 02/87 --

Kenya Solar Water Heating Study (English) 02/87 066/87

Peri-Urban Woodfuel Development (English) 10/87 076/87

Power Master Plan (English) 11/87 --

Power Loss Reduction Study (English) 09/96 186/96

Implementation Manual: Financing Mechanisms for Solar

Electric Equipment 07/00 231/00

Lesotho Energy Assessment (English) 01/84 4676-LSO

Liberia Energy Assessment (English) 12/84 5279-LBR

Recommended Technical Assistance Projects (English) 06/85 038/85


Madagascar Energy Assessment (English) 01/87 5700-MAG

Power System Efficiency Study (English and French) 12/87 075/87

Environmental Impact of Woodfuels (French) 10/95 176/95

Malawi Energy Assessment (English) 08/82 3903-MAL

Technical Assistance to Improve the Efficiency of Fuelwood

Use in the Tobacco Industry (English) 11/83 009/83


Mali Energy Assessment (English and French) 11/91 8423-MLI


Islamic Republic

of Mauritania Energy Assessment (English and French) 04/85 5224-MAU

Household Energy Strategy Study (English and French) 07/90 123/90

Mauritius Energy Assessment (English) 12/81 3510-MAS


Power System Efficiency Audit (English) 05/87 070/87

Bagasse Power Potential (English) 10/87 077/87

Energy Sector Review (English) 12/94 3643-MAS

Mozambique Energy Assessment (English) 01/87 6128-MOZ

Household Electricity Utilization Study (English) 03/90 113/90

Electricity Tariffs Study (English) 06/96 181/96

Sample Survey of Low Voltage Electricity Customers 06/97 195/97

Namibia Energy Assessment (English) 03/93 11320-NAM



64

Niger Energy Assessment (French) 05/84 4642-NIR

Status Report (English and French) 02/86 051/86

Improved Stoves Project (English and French) 12/87 080/87

Household Energy Conservation and Substitution (English

and French) 01/88 082/88

Nigeria Energy Assessment (English) 08/83 4440-UNI

Energy Assessment (English) 07/93 11672-UNI

Strategic Gas Plan 02/04 279/04

Rwanda Energy Assessment (English) 06/82 3779-RW


Improved Charcoal Cookstove Strategy (English and French) 08/86 059/86

Improved Charcoal Production Techniques (English and French) 02/87 065/87

Energy Assessment (English and French) 07/91 8017-RW

Commercialization of Improved Charcoal Stoves and Carbonization

Techniques Mid-Term Progress Report (English and French) 12/91 141/91

SADC SADC Regional Power Interconnection Study, Vols. I-IV (English) 12/93 -

SADCC SADCC Regional Sector: Regional Capacity-Building Program

for Energy Surveys and Policy Analysis (English) 11/91 -

Sao Tome

and Principe Energy Assessment (English) 10/85 5803-STP

Senegal Energy Assessment (English) 07/83 4182-SE


Senegal Industrial Energy Conservation Study (English) 05/85 037/85

Preparatory Assistance for Donor Meeting (English and French) 04/86 056/86

Urban Household Energy Strategy (English) 02/89 096/89

Industrial Energy Conservation Program (English) 05/94 165/94

Seychelles Energy Assessment (English) 01/84 4693-SEY

Electric Power System Efficiency Study (English) 08/84 021/84

Sierra Leone Energy Assessment (English) 10/87 6597-SL

Somalia Energy Assessment (English) 12/85 5796-SO

Republic of

South Africa Options for the Structure and Regulation of Natural

Gas Industry (English) 05/95 172/95

Sudan Management Assistance to the Ministry of Energy and Mining 05/83 003/83

Energy Assessment (English) 07/83 4511-SU



Wood Energy/Forestry Feasibility (English) 07/87 073/87

Swaziland Energy Assessment (English) 02/87 6262-SW

Household Energy Strategy Study 10/97 198/97

Tanzania Energy Assessment (English) 11/84 4969-TA

Peri-Urban Woodfuels Feasibility Study (English) 08/88 086/88

Tobacco Curing Efficiency Study (English) 05/89 102/89

Remote Sensing and Mapping of Woodlands (English) 06/90 --

Industrial Energy Efficiency Technical Assistance (English) 08/90 122/90

Power Loss Reduction Volume 1: Transmission and Distribution

System Technical Loss Reduction and Network Development

(English) 06/98 204A/98

Power Loss Reduction Volume 2: Reduction of Non-Technical

Losses (English) 06/98 204B/98


65


Togo Energy Assessment (English) 06/85 5221-TO

Wood Recovery in the Nangbeto Lake (English and French) 04/86 055/86

Power Efficiency Improvement (English and French) 12/87 078/87

Uganda Energy Assessment (English) 07/83 4453-UG


Institutional Review of the Energy Sector (English) 01/85 029/85

Energy Efficiency in Tobacco Curing Industry (English) 02/86 049/86

Fuelwood/Forestry Feasibility Study (English) 03/86 053/86


Energy Efficiency Improvement in the Brick and

Tile Industry (English) 02/89 097/89

Tobacco Curing Pilot Project (English) 03/89 UNDP

Terminal

Report

Energy Assessment (English) 12/96 193/96

Rural Electrification Strategy Study 09/99 221/99

Zaire Energy Assessment (English) 05/86 5837-ZR

Zambia Energy Assessment (English) 01/83 4110-ZA


Energy Sector Institutional Review (English) 11/86 060/86

Power Subsector Efficiency Study (English) 02/89 093/88

Energy Strategy Study (English) 02/89 094/88


Zimbabwe Energy Assessment (English) 06/82 3765-ZIM



Power Sector Management Assistance Project (English) 04/85 034/85

Zimbabwe Power Sector Management Institution Building (English) 09/89 --

Petroleum Management Assistance (English) 12/89 109/89

Charcoal Utilization Pre-feasibility Study (English) 06/90 119/90

Integrated Energy Strategy Evaluation (English) 01/92 8768-ZIM

Energy Efficiency Technical Assistance Project:

Strategic Framework for a National Energy Efficiency

Improvement Program (English) 04/94 --

Capacity Building for the National Energy Efficiency

Improvement Programme (NEEIP) (English) 12/94 --

Rural Electrification Study 03/00 228/00

Les réformes du secteur de l’électricite en Afrique: Evaluation

de leurs conséquences pour les populations pauvres 11/06 306/06

EAST ASIA AND PACIFIC (EAP)

Asia Regional Pacific Household and Rural Energy Seminar (English) 11/90 --

China County-Level Rural Energy Assessments (English) 05/89 101/89

Fuelwood Forestry Preinvestment Study (English) 12/89 105/89

Strategic Options for Power Sector Reform in China (English) 07/93 156/93

Energy Efficiency and Pollution Control in Township and

Village Enterprises (TVE) Industry (English) 11/94 168/94

Energy for Rural Development in China: An Assessment Based

on a Joint Chinese/ESMAP Study in Six Counties (English) 06/96 183/96

Improving the Technical Efficiency of Decentralized Power

Companies 09/99 222/99



66

Air Pollution and Acid Rain Control: The Case of Shijiazhuang City 10/03 267/03

and the Changsha Triangle Area

Toward a Sustainable Coal Sector In China 07/04 287/04

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 12/05 314/05

Fiji Energy Assessment (English) 06/83 4462-FIJ

Indonesia Energy Assessment (English) 11/81 3543-IND


Power Generation Efficiency Study (English) 02/86 050/86

Energy Efficiency in the Brick, Tile and

Lime Industries (English) 04/87 067/87

Diesel Generating Plant Efficiency Study (English) 12/88 095/88


Biomass Gasifier Preinvestment Study Vols. I & II (English) 12/90 124/90

Prospects for Biomass Power Generation with Emphasis on

Palm Oil, Sugar, Rubberwood and Plywood Residues (English) 11/94 167/94

Lao PDR Urban Electricity Demand Assessment Study (English) 03/93 154/93

Institutional Development for Off-Grid Electrification 06/99 215/99

Malaysia Sabah Power System Efficiency Study (English) 03/87 068/87

Gas Utilization Study (English) 09/91 9645-MA

Mongolia Energy Efficiency in the Electricity and District

Heating Sectors 10/01 247/01

Improved Space Heating Stoves for Ulaanbaatar 03/02 254/02

Impact of Improved Stoves on Indoor Air Quality in

Ulaanbaatar, Mongolia 11/05 313/05

Myanmar Energy Assessment (English) 06/85 5416-BA

Papua New

Guinea Energy Assessment (English) 06/82 3882-PNG

Papua New

Guinea Status Report (English) 07/83 006/83

Institutional Review in the Energy Sector (English) 10/84 023/84

Power Tariff Study (English) 10/84 024/84

Philippines Commercial Potential for Power Production from

Agricultural Residues (English) 12/93 157/93

Energy Conservation Study (English) 08/94 --

Strengthening the Non-Conventional and Rural Energy

Development Program in the Philippines:

A Policy Framework and Action Plan 08/01 243/01

Rural Electrification and Development in the Philippines:

Measuring the Social and Economic Benefits 05/02 255/02

Solomon Islands Energy Assessment (English) 06/83 4404-SOL

Energy Assessment (English) 01/92 979-SOL

South Pacific Petroleum Transport in the South Pacific (English) 05/86 --

Thailand Energy Assessment (English) 09/85 5793-TH

Rural Energy Issues and Options (English) 09/85 044/85

Accelerated Dissemination of Improved Stoves and

Charcoal Kilns (English) 09/87 079/87

Northeast Region Village Forestry and Woodfuels

Preinvestment Study (English) 02/88 083/88

Impact of Lower Oil Prices (English) 08/88 --


67


Coal Development and Utilization Study (English) 10/89 --

Why Liberalization May Stall in a Mature Power Market: A Review 12/03 270/03

of the Technical and Political Economy Factors that Constrained the

Electricity Sector Reform in Thailand 1998-2002

Reducing Emissions from Motorcycles in Bangkok 10/03 275/03

Tonga Energy Assessment (English) 06/85 5498-TON

Vanuatu Energy Assessment (English) 06/85 5577-VA

Vietnam Rural and Household Energy-Issues and Options (English) 01/94 161/94

Power Sector Reform and Restructuring in Vietnam: Final Report

to the Steering Committee (English and Vietnamese) 09/95 174/95

Household Energy Technical Assistance: Improved Coal

Briquetting and Commercialized Dissemination of Higher

Efficiency Biomass and Coal Stoves (English) 01/96 178/96

Petroleum Fiscal Issues and Policies for Fluctuating Oil Prices

In Vietnam 02/01 236/01

An Overnight Success: Vietnam's Switch to Unleaded Gasoline 08/02 257/02

The Electricity Law for Vietnam — Status and Policy Issues —

The Socialist Republic of Vietnam 08/02 259/02

Petroleum Sector Technical Assistance for the Revision of the 12/03 269/03

Existing Legal and Regulatory Framework

Western Samoa Energy Assessment (English) 06/85 5497-WSO

SOUTH ASIA (SAS)

Bangladesh Energy Assessment (English) 10/82 3873-BD

Priority Investment Program (English) 05/83 002/83



Small Scale Uses of Gas Pre-feasibility Study (English) 12/88 --

Reducing Emissions from Baby-Taxis in Dhaka 01/02 253/02

India Opportunities for Commercialization of Non-conventional

Energy Systems (English) 11/88 091/88

Maharashtra Bagasse Energy Efficiency Project (English) 07/90 120/90

Mini-Hydro Development on Irrigation Dams and

Canal Drops Vols. I, II and III (English) 07/91 139/91

WindFarm Pre-Investment Study (English) 12/92 150/92

Power Sector Reform Seminar (English) 04/94 166/94

Environmental Issues in the Power Sector (English) 06/98 205/98

Environmental Issues in the Power Sector: Manual for

Environmental Decision Making (English) 06/99 213/99

Household Energy Strategies for Urban India: The Case of

Hyderabad 06/99 214/99

Greenhouse Gas Mitigation In the Power Sector: Case

Studies From India 02/01 237/01

Energy Strategies for Rural India: Evidence from Six States 08/02 258/02

Household Energy, Indoor Air Pollution, and Health 11/02 261/02

Access of the Poor to Clean Household Fuels 07/03 263/03

The Impact of Energy on Women's Lives in Rural India 01/04 276/04

Environmental Issues in the Power Sector: Long-Term Impacts

And Policy Options for Rajasthan 10/04 292/04

Environmental Issues in the Power Sector: Long-Term Impacts 10/04 293/04



68

And Policy Options for Karnataka

Nepal Energy Assessment (English) 08/83 4474-NEP


Energy Efficiency & Fuel Substitution in Industries (English) 06/93 158/93

Pakistan Household Energy Assessment (English) 05/88 --

Assessment of Photovoltaic Programs, Applications, and

Markets (English) 10/89 103/89

National Household Energy Survey and Strategy Formulation

Study: Project Terminal Report (English) 03/94 --

Managing the Energy Transition (English) 10/94 --

Lighting Efficiency Improvement Program

Phase 1: Commercial Buildings Five Year Plan (English) 10/94 --

Clean Fuels 10/01 246/01

Household Use of Commercial Energy 05/06 320/06

Regional Toward Cleaner Urban Air in South Asia: Tackling Transport 03/04 281/04

Pollution, Understanding Sources.

Sri Lanka Energy Assessment (English) 05/82 3792-CE

Power System Loss Reduction Study (English) 07/83 007/83


Industrial Energy Conservation Study (English) 03/86 054/86

Sustainable Transport Options for Sri Lanka: Vol. I 02/03 262/03

Greenhouse Gas Mitigation Options in the Sri Lanka

Power Sector: Vol. II 02/03 262/03

Sri Lanka Electric Power Technology Assessment

(SLEPTA): Vol. III 02/03 262/03

Energy and Poverty Reduction: Proceedings from South Asia 11/03 268/03

Practitioners Workshop How Can Modern Energy Services

Contribute to Poverty Reduction? Colombo, Sri Lanka, June 2-4, 2003

EUROPE AND CENTRAL ASIA (ECA)

Armenia Development of Heat Strategies for Urban Areas of Low-income 04/04 282/04

Transition Economies. Urban Heating Strategy for the Republic

Of Armenia. Including a Summary of a Heating Strategy for the

Kyrgyz Republic

Bulgaria Natural Gas Policies and Issues (English) 10/96 188/96

Energy Environment Review 10/02 260/02

Central Asia and

The Caucasus Cleaner Transport Fuels in Central Asia and the Caucasus 08/01 242/01

Central and

Eastern Europe Power Sector Reform in Selected Countries 07/97 196/97

Increasing the Efficiency of Heating Systems in Central and

Eastern Europe and the Former Soviet Union (English and Russian) 08/00 234/00

The Future of Natural Gas in Eastern Europe (English) 08/92 149/92

Kazakhstan Natural Gas Investment Study, Volumes 1, 2 & 3 12/97 199/97

Kazakhstan &

Kyrgyzstan Opportunities for Renewable Energy Development 11/97 16855-KAZ

Poland Energy Sector Restructuring Program Vols. I-V (English) 01/93 153/93

Natural Gas Upstream Policy (English and Polish) 08/98 206/98

Energy Sector Restructuring Program: Establishing the Energy

Regulation Authority 10/98 208/98


69


Portugal Energy Assessment (English) 04/84 4824-PO

Romania Natural Gas Development Strategy (English) 12/96 192/96

Private Sector Participation in Market-Based Energy-Efficiency 11/03 274/03

Financing Schemes: Lessons Learned from Romania

and International Experiences.

Slovenia Workshop on Private Participation in the Power Sector (English) 02/99 211/99

Turkey Energy Assessment (English) 03/83 3877-TU

Energy and the Environment: Issues and Options Paper 04/00 229/00

Energy and Environment Review: Synthesis Report 12/03 273/03

Turkey’s Experience with Greenfield Gas Distribution since 2003 03/07 325/05

MIDDLE EAST AND NORTH AFRICA (MENA)

Turkey Turkey’s Experience with Greenfield Gas Distribution since 2003 05/07 325/07

Arab Republic

of Egypt Energy Assessment (English) 10/96 189/96

Energy Assessment (English and French) 03/84 4157-MOR


Morocco Energy Sector Institutional Development Study (English and French) 07/95 173/95

Natural Gas Pricing Study (French) 10/98 209/98

Gas Development Plan Phase II (French) 02/99 210/99

Syria Energy Assessment (English) 05/86 5822-SYR

Electric Power Efficiency Study (English) 09/88 089/88

Energy Efficiency Improvement in the Cement Sector (English) 04/89 099/89

Energy Efficiency Improvement in the Fertilizer Sector (English) 06/90 115/90

Tunisia Fuel Substitution (English and French) 03/90 --

Power Efficiency Study (English and French) 02/92 136/91

Energy Management Strategy in the Residential and

Tertiary Sectors (English) 04/92 146/92

Renewable Energy Strategy Study, Volume I (French) 11/96 190A/96

Renewable Energy Strategy Study, Volume II (French) 11/96 190B/96

Rural Electrification in Tunisia: National Commitment,

Efficient Implementation and Sound Finances 08/05 307/05

Yemen Energy Assessment (English) 12/84 4892-YAR

Energy Investment Priorities (English) 02/87 6376-YAR

Household Energy Strategy Study Phase I (English) 03/91 126/91

Household Energy Supply and Use in Yemen. Volume I:

Main Report and Volume II: Annexes 12/05 315/05

LATIN AMERICA AND THE CARIBBEAN REGION (LCR)

LCR Regional Regional Seminar on Electric Power System Loss Reduction

in the Caribbean (English) 07/89 --

Elimination of Lead in Gasoline in Latin America and

the Caribbean (English and Spanish) 04/97 194/97

Elimination of Lead in Gasoline in Latin America and

the Caribbean - Status Report (English and Spanish) 12/97 200/97

Harmonization of Fuels Specifications in Latin America and

the Caribbean (English and Spanish) 06/98 203/98


Energy Partnership (GVEP) Workshop held in Bolivia 06/05 202/05



70

Power Sector Reform and the Rural Poor in Central America 12/04 297/04

Estudio Comparativo Sobre la Distribución de la Renta Petrolera

en Bolivia, Colombia, Ecuador y Perú 08/05 304/05

OECS Energy Sector Reform and Renewable Energy/Energy 02/06 317/06

Efficiency Options

The Landfill Gas-to-Energy Initiative for Latin America

and the Caribbean 02/06 318/06

Bolivia Energy Assessment (English) 04/83 4213-BO

National Energy Plan (English) 12/87 --

La Paz Private Power Technical Assistance (English) 11/90 111/90

Pre-feasibility Evaluation Rural Electrification and Demand

Assessment (English and Spanish) 04/91 129/91

National Energy Plan (Spanish) 08/91 131/91

Private Power Generation and Transmission (English) 01/92 137/91

Natural Gas Distribution: Economics and Regulation (English) 03/92 125/92

Natural Gas Sector Policies and Issues (English and Spanish) 12/93 164/93

Household Rural Energy Strategy (English and Spanish) 01/94 162/94

Preparation of Capitalization of the Hydrocarbon Sector 12/96 191/96

Introducing Competition into the Electricity Supply Industry in

Developing Countries: Lessons from Bolivia 08/00 233/00

Final Report on Operational Activities Rural Energy and Energy

Efficiency 08/00 235/00

Oil Industry Training for Indigenous People: The Bolivian

Experience (English and Spanish) 09/01 244/01

Capacitación de Pueblos Indígenas en la Actividad Petrolera. Fase II 07/04 290/04

Boliva-Brazil Best Practices in Mainstreaming Environmental & Social Safeguards

Into Gas Pipeline Projects 07/06 322/06

Estudio Sobre Aplicaciones en Pequeña Escala de Gas Natural 07/04 291/04

Brazil Energy Efficiency & Conservation: Strategic Partnership for

Energy Efficiency in Brazil (English) 01/95 170/95

Hydro and Thermal Power Sector Study 09/97 197/97

Rural Electrification with Renewable Energy Systems in the

Northeast: A Preinvestment Study 07/00 232/00

Reducing Energy Costs in Municipal Water Supply Operations 07/03 265/03

"Learning-while-doing" Energy M&T on the Brazilian Frontlines

Chile Energy Sector Review (English) 08/88 7129-CH

Colombia Energy Strategy Paper (English) 12/86 --

Power Sector Restructuring (English) 11/94 169/94

Energy Efficiency Report for the Commercial

and Public Sector (English) 06/96 184/96

Costa Rica Energy Assessment (English and Spanish) 01/84 4655-CR

Recommended Technical Assistance Projects (English) 11/84 027/84

Forest Residues Utilization Study (English and Spanish) 02/90 108/90

Dominican

Republic Energy Assessment (English) 05/91 8234-DO

Ecuador Energy Assessment (Spanish) 12/85 5865-EC

Energy Strategy Phase I (Spanish) 07/88 --

Energy Strategy (English) 04/91 --

Private Mini-hydropower Development Study (English) 11/92 --

Energy Pricing Subsidies and Interfuel Substitution (English) 08/94 11798-EC


71


Energy Pricing, Poverty and Social Mitigation (English) 08/94 12831-EC

Guatemala Issues and Options in the Energy Sector (English) 09/93 12160-GU

Health Impacts of Traditional Fuel Use 08/04 284/04

Haiti Energy Assessment (English and French) 06/82 3672-HA



Honduras Energy Assessment (English) 08/87 6476-HO

Petroleum Supply Management (English) 03/91 128/91

Jamaica Energy Assessment (English) 04/85 5466-JM

Petroleum Procurement, Refining, and

Distribution Study (English) 11/86 061/86

Energy Efficiency Building Code Phase I (English) 03/88 --

Energy Efficiency Standards and Labels Phase I (English) 03/88 --

Management Information System Phase I (English) 03/88 --

Charcoal Production Project (English) 09/88 090/88

FIDCO Sawmill Residues Utilization Study (English) 09/88 088/88

Energy Sector Strategy and Investment Planning Study (English) 07/92 135/92

Mexico Improved Charcoal Production Within Forest Management for

the State of Veracruz (English and Spanish) 08/91 138/91

Energy Efficiency Management Technical Assistance to the

Comisión Nacional para el Ahorro de Energía (CONAE) (English) 04/96 180/96

Energy Environment Review 05/01 241/01

Proceedings of the International Grid-Connected Renewable

Energy Policy Forum (with CD) 08/06 324/06

Nicaragua Modernizing the Fuelwood Sector in Managua and León 12/01 252/01

Policy & Strategy for the Promotion of RE Policies in

Nicaragua. (Contains CD with 3 complementary reports) 01/06 316/06

Panama Power System Efficiency Study (English) 06/83 004/83

Paraguay Energy Assessment (English) 10/84 5145-PA

Recommended Technical Assistance Projects (English) 09/85

Status Report (English and Spanish) 09/85 043/85

Reforma del Sector Hidrocarburos (Spanish Only) 03/06 319/06

Peru Energy Assessment (English) 01/84 4677-PE


Proposal for a Stove Dissemination Program in

the Sierra (English and Spanish) 02/87 064/87

Energy Strategy (English and Spanish) 12/90 --

Study of Energy Taxation and Liberalization

Peru of the Hydrocarbons Sector (English and Spanish) 120/93 159/93

Reform and Privatization in the Hydrocarbon

Sector (English and Spanish) 07/99 216/99

Rural Electrification 02/01 238/01

Saint Lucia Energy Assessment (English) 09/84 5111-SLU

St. Vincent and

the Grenadines Energy Assessment (English) 09/84 5103-STV

Sub Andean Environmental and Social Regulation of Oil and Gas

Operations in Sensitive Areas of the Sub-Andean Basin



72

(English and Spanish) 07/99 217/99

Trinidad and

Tobago Energy Assessment (English) 12/85 5930-TR

GLOBAL

Energy End Use Efficiency: Research and Strategy (English) 11/89 --

Women and Energy -A Resource Guide

The International Network: Policies and Experience (English) 04/90 --

Guidelines for Utility Customer Management and

Metering (English and Spanish) 07/91 --

Assessment of Personal Computer Models for Energy

Planning in Developing Countries (English) 10/91 --

Long-Term Gas Contracts Principles and Applications (English) 02/93 152/93

Comparative Behavior of Firms Under Public and Private

Ownership (English) 05/93 155/93

Development of Regional Electric Power Networks (English) 10/94 --

Round-table on Energy Efficiency (English) 02/95 171/95

Assessing Pollution Abatement Policies with a Case Study

of Ankara (English) 11/95 177/95

A Synopsis of the Third Annual Round-table on Independent Power

Projects: Rhetoric and Reality (English) 08/96 187/96

Rural Energy and Development Round-table (English) 05/98 202/98

A Synopsis of the Second Round-table on Energy Efficiency:

Institutional and Financial Delivery Mechanisms (English) 09/98 207/98

The Effect of a Shadow Price on Carbon Emission in the

Energy Portfolio of the World Bank: A Carbon

Backcasting Exercise (English) 02/99 212/99

Increasing the Efficiency of Gas Distribution Phase 1:

Case Studies and Thematic Data Sheets 07/99 218/99

Global Energy Sector Reform in Developing Countries:

A Scorecard 07/99 219/99

Global Lighting Services for the Poor Phase II: Text

Marketing of Small "Solar" Batteries for Rural

Electrification Purposes 08/99 220/99

A Review of the Renewable Energy Activities of the UNDP/

World Bank Energy Sector Management Assistance

Program 1993 to 1998 11/99 223/99

Energy, Transportation and Environment: Policy Options for

Environmental Improvement 12/99 224/99

Privatization, Competition and Regulation in the British Electricity

Industry, With Implications for Developing Countries 02/00 226/00

Reducing the Cost of Grid Extension for Rural Electrification 02/00 227/00

Undeveloped Oil and Gas Fields in the Industrializing World 02/01 239/01

Best Practice Manual: Promoting Decentralized Electrification

Investment 10/01 248/01

Peri-Urban Electricity Consumers — A Forgotten but Important

Group: What Can We Do to Electrify Them? 10/01 249/01

Village Power 2000: Empowering People and Transforming


73


Markets 10/01 251/01

Private Financing for Community Infrastructure 05/02 256/02

Stakeholder Involvement in Options Assessment: 07/03 264/03

Promoting Dialogue in Meeting Water and Energy Needs:

A Sourcebook

A Review of ESMAP's Energy Efficiency Portfolio 11/03 271/03

A Review of ESMAP's Rural Energy and Renewable Energy 04/04 280/04

Portfolio

ESMAP Renewable Energy and Energy Efficiency Reports 05/04 283/04

1998-2004 (CD Only)

Regulation of Associated Gas Flaring and Venting: A Global 08/04 285/04

Overview and Lessons Learned from International Experience

ESMAP Gender in Energy Reports and Other related Information 11/04 288/04

(CD Only)

ESMAP Indoor Air Pollution Reports and Other related Information 11/04 289/04

(CD Only)


Energy Partnership (GVEP) Workshop on the Pre-Investment

Funding. Berlin, Germany, April 23-24, 2003. 11/04 294/04

Global Village Energy Partnership (GVEP) Annual Report 2003 12/04 295/04


Energy Partnership (GVEP) Workshop on Consumer Lending and

Microfinance to Expand Access to Energy Services,

Manila, Philippines, May 19-21, 2004 12/04 296/04

The Impact of Higher Oil Prices on Low Income Countries 03/05 299/05

And on the Poor

Advancing Bioenergy for Sustainable Development: Guideline 04/05 300/05

For Policymakers and Investors

ESMAP Rural Energy Reports 1999-2005 03/05 301/05

Renewable Energy and Energy Efficiency Financing and Policy

Network: Options Study and Proceedings of the International

Forum 07/05 303/05

Implementing Power Rationing in a Sensible Way: Lessons 08/05 305/05

Learned and International Best Practices

The Urban Household Energy Transition. Joint Report with 08/05 309/05

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 10/05 310/05

Analysis of Power Projects with Private Participation Under Stress 10/05 311/05

Potential for Biofuels for Transport in Developing Countries 10/05 312/05

Experiences with Oil Funds: Institutional and Financial Aspects 06/06 321/06

Coping with Higher Oil Prices 06/06 323/06



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Washington, DC 20433 USA

Tel: 1.202.458.2321

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Internet: www.esmap.org

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Documents

Turkey's experience with greenfield gas distribution since 2003