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Recent amendments to the share transfer and change of control transactions in Turkish electricity market

The Electricity Market Regulation Authority ("EMRA") introduced several amendments to the Electricity Market Licensing Regulation1 (the "Regulation") with the regulation published in the Official Gazette on 15 December 2017 (the "Amending Regulation"). The amendments entered into force on the same date. Some of these amendments relate to issues such as performance bond amounts, data storage requirements, license amendment fees, and exemptions from the share transfer restrictions during the preliminary licensing stage. Another amendment, which is the subject of this article and which may potentially be prone to different interpretations, is introduced with Article 57(8) of the Regulation, which sets out a specific procedure for share transfer and change of control transactions (the Amendment)2.

In summary, the relevant general provisions of the Regulation are as follows: under Article 57(2) of the Regulation, the license holders must obtain EMRA's prior approval for (i) the direct or indirect acquisition of shares representing at least 10% of the share capital of the license holder (or 5% for the public companies); or (ii) any transaction resulting in a change of control in the license holders. For other transactions that do not require EMRA's approval within the above framework, the license holder is not obliged to notify EMRA. Where EMRA's approval is needed, a share transfer must be completed within six months following EMRA's approval. The Amending Regulation further provides that the license holder must apply to EMRA for the amendment of the license within three months following the completion of such transaction.

The Amendment introduces a separate procedure under Article 57(8) of the Regulation for the following type of share transfer and change of control transactions relating to the license holder other than the ones subject to the regulated tariffs (such as the distribution companies): (i) any indirect changes in the shareholding structure of the license holder due to a change in the shareholding structure of its shareholder that resides abroad (i.e., foreign shareholders); and (ii) a change of control in the license holder through transactions in its foreign shareholders. Under the procedure introduced with the Amendment, the license holder must first inform EMRA of the above transactions within one year following the completion of the transaction, and then apply to EMRA for amendment of the license, if necessary, within six months following the communication of this information to EMRA.

Some share transfer and change of control transactions affecting the license holders may be governed by either Article 57(2) or Article 57(8) of the Regulation. The key question is whether EMRA's prior approval will be needed for a transaction covered under Article 57(8) of the Regulation (the "Article 57(8) Transactions"). The wording of Article 57(8) does not provide sufficient clarity on this. Hence, two different interpretations leading to contrary conclusions can be made:

1st interpretation: EMRA's approval is required

Since the Regulation does not provide an explicit wording or reference that EMRA's prior approval under Article 57(2) will not apply for the Article 57(8) Transactions, it may be thought that EMRA's approval is still required. This can be contrasted with the transactions that require notification to EMRA (in lieu of EMRA's approval) under Article 57(2) of the Regulation. Indeed, the Amending Regulation explicitly carved Article 57(8) of the Regulation out of the relevant portion of Article 57(2). Thereby, it is clarified that the procedures and timelines under Article 57(8) (not Article 57(2)) will apply to the transactions requiring simple notification to EMRA. The Amending Regulation, however, did not introduce a similar carve-out under the relevant portion of Article 57(2) that regulates EMRA's prior approval requirement. Such silence may be construed as EMRA's intention to keep the prior approval mechanism in force for Article 57(8) Transactions.

One may, at this point, raise the question as to what the practical rationale of EMRA was to introduce Article 57(8) into the Regulation in the first place, if it did not wish to eliminate the prior approval requirement. A possible answer to this question may be explained in connection with the provision of Article 57(2) of the Regulation that provides that the share transfer must be completed within six months following EMRA's approval. That is to say, under the interpretation that EMRA's prior approval would still be needed for the Article 57(8) Transactions, the Amendments under Article 57(8) of the Regulation would still relieve the license holder of the time pressure to complete the transaction within six months after EMRA's approval. This is because Article 57(8) does not place any limit (such as six months) between the time when (i) EMRA's approval is obtained and (ii) the Article 57(8) Transaction is completed. From a practical perspective, this may be a very useful relief, particularly for cross-border transactions involving lengthy clearances from competition and other authorities.

2nd interpretation: EMRA's approval is no longer required

It may be considered that, with Article 57(8) of the Regulation, EMRA aimed to create a category of exemption similar to the one that it already provides during the preliminary licensing stage. Indeed, while share transfers during the preliminary licensing period are, in principle, prohibited, Article 57(1)(c) allows indirect shareholding changes in the ownership structure of the preliminary license holders resulting from changes in the ownership structures of the foreign shareholder of such preliminary license holders. This interpretation may also be supported by EMRA's aim to decrease its work-load by providing a relatively more liberal regime for some extra-territorial transactions.

Notwithstanding this, EMRA maintains its prior approval power for regulated segments of the electricity market such as distribution companies, where the public benefit component is more dominant when compared with the generation sector. It should also be considered that the concerns related to the scarcity of electricity generation, which existed when the Regulation was first published, no longer exist (on the contrary, many sector players find that the electricity prices are too low due to the excess in electricity supply). Similarly, EMRA also maintains the prior approval requirement for transactions related to the (i) shares of the license holder directly held by its Turkish or foreign shareholders; and (ii) shares of Turkish legal entities holding indirect shareholding in the license holders. On this premise, it can be argued that EMRA's prior approval should not be needed for the discrete Article 57(8) Transactions, as otherwise there would have been no rationale for EMRA to maintain its prior approval powers with respect to the above issues to which it obviously attaches a higher importance, and thus requires a closer supervision by requiring a prior approval.

In any case, even in the absence of EMRA's prior approval, the license holder must still obtain EMRA's approval when it applies to EMRA for the amendment of its license pursuant to Article 57(8) of the Regulation, which requires such application for amendment to be made within six months after informing EMRA about the Article 57(8) Transactions. At this stage, EMRA has the discretion to reject the license amendment request, and thus refrain from providing its approval of the transaction; under the Regulation, EMRA has the discretion to amend (or not to amend) a license. We believe, however, that EMRA would likely refrain from amending the license in exceptional cases (such as indirect entry of a person prohibited from engaging in electricity market activities).

To conclude, as of today, proceeding without EMRA's prior approval for Article 57(8) Transactions seems possible and EMRA appears to share this approach. However, there are some risks to be considered. As Article 57(8) is quite new, the literal interpretation of the Article is not clear, and its application has not been observed yet, there is a risk that EMRA changes its current approach. Requesting EMRA's written clarification of Article 49 of the Regulation could be considered to avoid such risk. In addition to this, as mentioned above, even if the interpretation that EMRA's prior approval is not needed prevails, EMRA still has the authority to reject the license amendment request; this may ultimately lead to the cancellation of the license.


  1. Published in the Official Gazette No. 28809, dated 2 November 2013.
  2. Please note that a separate, and a more comprehensive analysis should be made for Renewable Energy Resource (a.k.a. YEKA) projects considering the specific YEKA legislation, and the relevant project documents.