NATURAL GAS IMPORT LICENSES
ABSTRACT
With the development of industry and technology, due to the increasing population ratio, societies have met and continue to meet their energy needs from fuels such as coal, petroleum and natural gas. Even countries that do not have natural gas reserves prefer to import natural gas as an energy source. With the increase in demand for natural gas in Turkey, it is being imported from different countries and a legal basis has been established for the application terms and conditions for natural gas imports. The application conditions for a natural gas import license are regulated in Natural Gas Market Law2No. 4646, which was accepted on 18.04.2021, and in Natural Gas Market Licensing Regulation No. 24869, which was published in the Official Gazette dated 07.09.2002. This article firstly evaluates natural gas market activities and natural gas imports, then evaluates the license types and obtainable import licenses, import license requirements and application process, the acceptance of a license application, and the general principles of import licenses within the framework of Turkish legal legislation.
This increased demand for natural gas means countries without natural gas reserves are importing the gas from countries with reserves, leading to the establishment of a very long transmission network system.
I. INTRODUCTION
Natural gas was first used for lighting purposes on streets and in houses1. Later, with the widespread use of natural gas and the increase in transmission networks, it began to be used as fuel in residential centers, industry, and electricity generation. With the increase in natural gas transmission networks, it has become easier to transport natural gas long distances for commercial purposes and from country to country. Developing technology has meant transportation is no longer limited to transmission networks. With liquification of natural gas, it can now be transportation by tanker and ship. These developments and the fact that natural gas is colorless, odorless, and light and because it is considered to do the least harm to the environment, the demand for natural gas has continued to increase and now is the fuel with the highest consumed in developed countries. This increased demand for natural gas means countries without natural gas reserves are importing the gas from countries with reserves, leading to the establishment of a very long transmission network system.
There are various legal regulations governing the importation of natural gas from one country to another through transmission networks. Due to a lack of sufficient natural gas reserves in Turkey, the country imports natural gas from various countries through transmission systems and has set in law regulations regarding naural gas import.
II. NATURAL GAS MARKET A CTIVITIES AND NATURAL GAS IMPORT
A. Natural Gas Market Activities in General
Natural Gas Market Law (Law)2 No. 4646, which was adopted on 18.04.2021, limits the types of activities that can be carried out by legal entities operating in the natural gas market on license. Article 4 of the Law divides natural gas market activities into eight parts: import, production, transmission, storage, distribution, wholesale, export, and compressed natural gas (CNG) distribution and transmission. No activity other than these eight activities can be carried out.
Article 4 of the Natural Gas Market Licensing Regulation3 (Regulation), published in the Official Gazette dated 07.09.2002 and numbered 24869, provides the following definintions with regard to ac - cepted activities and the legal entities who carry out these activities:
"Definitions Article 4-19) Importer com - pany: means the legal entity that carries out the activities of procuring natural gas in LNG or gas form from abroad for the purpose of selling natural gas to whole - sale companies, eligible consumers or exporter companies or directly selling it abroad.
4-43) Production: means the extraction from underground to surface in Turkey, cleaning and purifying, transportation to the transmission lines by gathering lines of natural gas pursuant to Petroleum Law dated 7.3.1954 and numbered 6326.
4-16) Transmission: means the natu - ral gas transport carried out by the gas pipeline network or liquefied natural gas (LNG) transportation vehicles other than the gathering lines and distribution net - works for production.
4-10) Storage: Storage of natural gas as liquefied natural gas (LNG) or gas in order to meet the daily and seasonal changes and to eliminate the natural gas deficit caused by the reduction or ceas - ing of natural gas supply.
4-7) Distribution: means transport and retail sale of natural gas through the lo - cal gas pipeline network to be delivered to customers.
4-37) Wholesale: means the sale of nat - ural gas to distribution companies and eligible consumers.
4-15) Export company: means legal entity who markets the gas to overseas which it purchas - es from the production company, wholesale companies or importer companies.
4-28) Compressed natural gas (CNG) sales, transmission and distribution: means pur - chase and compression of natural gas from the wellhead, national transmission network or urban distribution system, filling into pres - sure vessels and selling; the transportation of compressed natural gas between cities by special vehicles, the sale of compressed nat - ural gas, which is obtained from the CNG fill - ing facility and/or from wholesale companies engaged in production at the wellhead, com - pressed with the compression equipment on the transport vehicle and filled into pressure vessels, by reducing its pressure in places where transmission networks cannot reach, and as fuel in vehicles as sales activities."
This Article states the scope of the activities that can be carried out in the natural gas market and provides details of the licenses that need to be obtained.
When the nature of the activities in the natural gas market is examined, it is seen that there is no qualification in the Law regarding the activities in question, and therefore, the regulations in the Law should be evaluated in determining the quality. In the Law, not all natural gas market activities are clearly defined as a "public service". Some activities listed in Article 4 of the Law are considered public service market activities. They are considered public service activities in terms of distribution, transmission, and storage4. Importing is not considered a public service, although there are different opinions reagrding this5.
B. Natural Gas Import
Natural gas import is the activity of procuring natural gas in LNG or gas form from abroad for sale to wholesale companies, eligible consumers or exporter companies, or for the direct sale of the gas overseas. Natural gas imports are carried out by transporting liquified natural gas (LNG) or supplying it in gas form via transmission networks. Importer companies can also transfer the natural gas they supply domestically and by importing it with a sales contract, as well as market it abroad, provided that they obtain an export license.
Any company willing to import natural gas must apply to the Energy Market Regulatory Authority (Authority) by submitting the necessary information and documents. The legal entity is granted an import license and allowed to import natural gas once the Authority finds that the necessary conditions are fulfilled. The obligation to obtain a license is regulated in Article 4 of the Law and Article 5 of the Regulation as follows:
“Natural gas market activities
Article 4- 4-a) Import: The supply of natural gas import is made according to the import license.”
"License and liability to obtain a license Article 5- (Amended paragraph: OG-17/4 / 2018-30394) License is the license granted to legal entities by the Board/ Authority for each market activity in order to engage in market activities. Legal entities willing to operate in the natural gas market must obtain a license from the Authority.”
C. Provisional Article 2 of Natural Gas Market Law as a Special Regulation
According to the second provisional article of the Law, the Pipelines and Petroleum Company (BOTAŞ) can’t make a new natural gas purchase contract, except for the import of liquefied natural gas (LNG) unless its natural gas import rate of falls below twenty percent of national natural gas consumption, and BOTAŞ must transfer all rights and obligations of existing natural gas purchases or sales contracts to legal entities holding import licenses until BOTAŞ reduces its total annual import amount by 2009 to twenty percent of annual national consumption. The relevant issue is regulated as follows:
"Provisional Article 2- (Amended first clause: 16/6 / 2005-5367 / 2 art.) (Amended first sentence: 9/7 / 2008-5784 / 20 art.) After the publication of this Law, BOTAŞ cannot enter into a new natural gas purchase contract, except for liquefied natural gas (LNG) imports, until its imports fall to twenty percent of national consumption.
Until 2009, until the total annual import amount is reduced to twenty percent of the annual national consumption, tender in which other import license holders, who are willing for the transfer of existing natural gas purchase or sale contracts with partially or as a whole with all its rights and obligations and who has received approval from the seller company for the transfer of the contract, participate is made by BOTAŞ. Starting with the first company in the tender, BOTAŞ gives consent to legal entities in order to negotiate with the seller party and to obtain the seller's approval for signing the new contract. […]”
The transfer will become effective after the relevant legal entity makes a new contract for the amount to be transferred with the seller party of the contract. If the legal entity wants to import natural gas from countries where BOTAŞ does not have an existing contract, it may import natural gas by applying to the Energy Market Regulatory Board (Board) and obtaining permission from the Board. However, the relevant legal entity cannot sign a new natural gas purchase contract with countries where BOTAŞ has a contract and this contract is in effect. This subject is regulated as follows:
"Provisional Article 2- (Amended first clause: 16/6 / 2005-5367 / 2 art.) (Amended first sentence: 9/7 / 2008-5784 / 20 art.) In addition, in applications to be made from countries other than the countries where BOTAŞ has existing contracts, the Board may allow the import by evaluating the applications within the obligations arising from existing contracts, export connections and the establishment of a competitive environment in the market and within the framework of the procedures and principles which determined by itself. However, new gas purchase contracts cannot be made by any importer company with countries with which BOTAŞ has existing contracts until the expiration of these contracts. New import contracts can be made for the same quantities as of the expiration date of the current contracts in question. However, for export purposes or in cases of a domestic natural gas supply deficit to be determined by the Authority, new gas purchase connections can be made with these countries."
As the Article makes clear, new import contracts can be made for the same amounts with the expiry of the legal entity’s existing contracts and BOTAŞ with the relevant countries. However, a legal entity can import natural gas from the relevant countries by establishing a gas purchase connection if it is for export purposes or if there is a domestic natural gas supply deficit.
It should be noted that, in accordance with the same provisional article, the aforementioned provisions do not apply to LNG, spot pipe gas, and compressed natural gas (CNG) imports.
III. LICENSETYPES AND IMPORT LICENSES IN THE NATURAL GAS MARKET
According to the law, persons who operate in the natural gas market must obtain a license from the Authority according to the relevant activity type before starting their activities. Licensing takes place before the commencement of the natural gas operation and has the qualification of a pre-audit, because at this stage, persons who are qualified to carry out the activity properly are licensed by the Authority6.
A. License Types in the Natural Gas Market
Legal entities willing to operate in the natural gas market have to make an application to the Authority regarding this issue by collecting the necessary information and documents. If there is no deficiency after the application, the Authority issues a license to the legal entity according to the relevant field of activity. License types regarding the activities that can be carried out in the natural gas market are stated in Article 6 of the Regulation as follows:
“License types
Article 6- The license types that can be obtained from the Authority according to the fields of activity are:
a) Import license,
b) Transmission license,
c) Storage license,
d) Wholesale license,
e) Distribution license,
f) Compressed natural gas (CNG) license,
g) Export license.”
Legal entities can obtain the licenses listed above by applying to the Authority according to their activity types. Regarding the duration of the licenses to be obtained, a certain period has been determined in the Regulation, and the relevant issue is regulated in Article 7 of the Regulation as follows:
“License period
Article 7- Licenses are given for a period of at least ten and at most thirty years at a time.” As it can be understood from this Article, the licenses are granted by the Authority for a certain period of time, and if the license is not renewed, the legal entity will no longer be able to perform the activity that has been carried out upon the expiry of the term.
B. Import Licenses in the Natural Gas Market
Legal entities interested in importing in the natural market can apply for an import li - cense from the Authority. Legal entities obtain an import license for natural gas which they will not provide as spot, and this import license is taken separately for pipeline im - ports and LNG imports. Pursuant to the first paragraph of Article 19 of the Regulation, importing companies must obtain a sepa - rate license for each import connection they make.
However, a separate regulation has been stipulated for spot imports and CNG im - ports. The eighth subsection of Article 19 of the Regulation states as follows:
Article 19- 8 (Amended paragraph: OG-6/4 / 2019-30737) Legal entities that will engage in the import of spot liquefied natural gas (LNG), spot pipe gas and compressed natu - ral gas (CNG) must obtain an import (Spot) license. Companies that will engage in spot liquefied natural gas (LNG), spot pipe gas and compressed natural gas (CNG) import activities obtain a single import (Spot) li - cense for the import connections subject to these activities. […]”
As stated in the relevant regulation, it is suffi - cient to obtain a single import (spot) license for spot LNG, spot pipe gas, and CNG imports.
IV. IMPORTLICENSE PROCEDURES IN THE NATURAL GAS MARKET
A. License Application
Legal entities are required to have an import license granted by the Authority to be able to import natural gas from overseas. The Authority seeks the existence of certain features and conditions before the legal entities’ application is granted. Application conditions are regulated in the eighth article of the Regulation. Accordingly, if the legal entities that will operate in the market are established as a incorporated company or a limited company, all of the shares must be registered. The legal entities that meet this condition will be able to apply for an import license by submitting to the Authority the information and documents specified in the Regulation. In this context, a “License Application Letter”, “Undertaking” and information and documents stated in Annex-3 of the Regulation (Information and Documents to be Submitted by Legal Entities in the License Application) must be submitted to the Authority in order to obtain an import license. In Annex-3, along with the documents and information that must be submitted in all license applications, the information and documents that must be presented specific to each type of activity are also included, as follows: · Exact information and guarantee about the source, reserve, production facilities, and transmission system of the natural gas to be imported to ensure natural gas supply security, · The amounts of natural gas to be imported for each calendar year during the period stipulated for the requested license and from whom this gas will be purchased, · Lease agreements regarding the possibility of storing the amount of natural gas to be imported for each calendar year in underground storage facilities in the national territory as determined by the Board, or preliminary agreements with legal entities that will carry out storage activities for these amounts in the country within five years and commitments received from these legal entities, · Declaration regarding the competence of the legal entity to contribute to the development and security of the national transmission system and, in this regard, the extent of its economic competence, including providing economic support within reason to the investments of legal entities which would realize the development of system. · Information and documents regarding contract terms and time extensions, limit values of natural gas properties (chemical composition, upper calorific value, etc.) and foreseen annual and seasonal import amounts in their import contracts. It should be emphasized that, in according to subsection 5 of Note section of Article 10 of Annex 3 of the Regulation, this information and documents are not required by the Authority for import (spot) license applications. The Authority’s evaluation regarding whether the documents requested from legal entities during the application have been delivered in accordance with the relevant legislation, is completed within ten working days following the date of entry of these documents into the central documents of the Authority and the results are notified to the relevant legal entity in writing. If any faults or inaccuracies in the license applications are not corrected within ten working days from the date of written notification, the application is deemed not made and the application document is returned.
In accordance with subsection 6 of Article 8 of the Regulation, the documents and information requested for some license types to be determined by the decision of the Board, can be submitted electronically. However, within the scope of the Board 's decision numbered 8522 and dated 04.04.2019, the import license is not included among the licenses that can be applied for electronically.
B. Review of License Applications
After determining that the information and documents required for the license have been submitted by the Authority in full, the applicant receives a written notification that the application will be reviewed and eval - uated in accordance with Article 9 of the Regulation and a request for one percent of the license acquisition fee to be deposited into the Authority’s account within ten busi - ness days from the notification date. If this obligation is not fulfilled, the application is deemed not made and the application doc - uments are returned to the legal entity that made the application. Once the legal entitiy has proved that one percent of the license acquisition fee has been deposited in the Authority’s account, the license application is reviewed and evaluated by the Authority. The license acquisition fee deposited in the Authority's account is valid for the following year and is determined by the Board by the end of December of each year, published in the Official Gazette, and announced on the Authority’s website. License acquisition fees are determined according to the type of ac - tivity and paid according to the provisions of the Regulation.
C. Evaluation of License Applications
While reviewing and evaluating the legal entity’s license application, the Authority basically considers the following points ac - cording to the relevant license type:
· Compliance with the purposes stipulated in the relevant legislation,
· Protection of consumer rights and the impact on the development of competition and the market,
· Legal entity and/or the financial strength of the partners and funding sources,
· Experience and performance of the applicant legal entity and/or its partners in domestic and international markets, if any.
The Authority may request that the legal entity provide additional information and documents to complete the review and evaluation process. If the information and/or documents the Authority requires are not submitted to the Authority within sixty days from the written notification date, one percent of the license acquisition fee is recorded as revenue and the license application is deemed rejected and the application documents are returned to the legal entity making the application.
D. Finalization of License Applications
The Board is obliged to respond to a legal entity’s license application within sixty days at the latest from the date of application. However, for LNG import licenses, this period is thirty days.
License applications for import activities are finalized by the the Board. If the license application is rejected, the reasons for the rejection are notified in writing to the legal entity making the application within ten working days following the Board 's decision. As a result of review and evaluation, the applicant legal entity whose license is approved by the Board will:
· Amend the company's articles of association, if deemed necessary, in line with the provisions of Annex-4 of the Regulation and to submit documents showing that the amendments to the articles of association are registered with the trade registry.
· Submit the document showing that the remaining amount of the license acquisition fee has been deposited into the Authority’s account.
And if the documents showing the fulfillment of these obligations are submitted to the Authority within ninety days from the date of written notification, the applicant receives written notification that that the li cense will be granted.
A license is given by the Authority/Board to the legal entity that fulfills its obligations. Apart from force majeure, if the legal entity does not submit to the Authority the documents showing that the obligations have been fulfilled within the period stipulated above, the license application is rejected by the Board and one percent of the license acquisition fee is recorded as revenue and the application document is returned to the legal entity by the Board. The date on which the license takes effect once an application is approved by the Board is regulated according to provisions of Article 12 of the Regulation as follows: “Validity of licenses
Article 12- Licenses and the rights and ob - ligations of licensed legal entities become valid from the date specified in the license.
In this respect, the licenses which are obtained become valid from the date specified in the license.
V. THE GENERAL PRINCIPLES OF LICENSES
The Regulation stipulates some general principles for licenses granted to legal entities who operate in the natural gas market. According to Article 19 of the Regulation regarding the import license:
· Importer companies must obtain a separate license for each import connection they will establish.
· The annual amount of natural gas procured by any importer company through import within the scope of one or more import li - censes cannot exceed twenty percent of the relevant year's national natural gas consumption forecast published by the Authority in January every year.
· Importer companies cannot sell more than twenty percent of the relevant year's national natural gas consumption forecast published by the Authority in January every year within the scope of one or more import licenses.
· If the importer companies have submitted a preliminary contract or undertaking according to which they will provide underground storage within five years of the amount of natural gas they will import in each calen - dar year as determined by the Board, they must submit the lease agreements to the Authority which will be signed with the storage companies in order to fulfill the storage obligation.
· Importer companies notify the Authority with regard to the changes in contract terms and time extensions in their import contracts, natural gas properties (chemical composition, upper calorific value, etc.), as well as changes in information and documents on the projected annual and seasonal import amounts, and with regard to their obligations which are stated in import contracts and its extensions as to the security of the system and give the information and documents requested by the Authority pertaining to all import contracts they have made.
In addition to the general principles listed above in the Regulation regarding the import license, there are also some principles for licenses in Article 6 of the Law. According to Article 6 of the Law:
· Legal entities which will engage in market activities, before starting their activities, must obtain separate licenses for each activity and for each facility if the said activities are to be carried out in more than one facility.
· The same legal entity with more than one license or legal entities conducting the same activity in more than one facility must keep separate accounting records for each activity or facility subject to license.
· The license terminates automatically upon the expiry of its terms or in case of bankruptcy of the real person or legal entity holding the license, unless the terms are extended by the Board in accordance with the method specified in the license. However, in the event that the licensee real person or legal entity wishes to withdraw from the license, termination happens only with the approval of the Board.
VI. CONCLUSION
Legal entities willing to operate in the natural gas market can obtain a license within the scope of the activities specified in the Law and the Regulation, and only those activities listed as activity types can be performed in the natural gas market. As stated in the Law and Regulation, legal entities willing to operate in the natural gas market can apply for a license through making an application to the Authority after preparing the necessary information and documents regarding the license they wish to obtain. Within the scope of the import license, legal entities obtain an import license for natural gas not provided as spot, and a separate import license is obtained for pipeline imports and LNG imports. Pursuant to the first subsection of Article 19 of the Regulation, importer companies must obtain a separate license for each import connection they will make. However, it is sufficient to obtain a single import (spot) license for spot LNG, spot pipe gas, and CNG imports.
A license will be granted by the Board/Authority to legal entities that fulfill their obligations, and the license will become valid from the date specified in it. An import license granted to the legal entity by the Board is automatically terminated upon expiry of its term, and if the licensee real person or legal entity wishes to renounce the license, it will only be terminated with the approval of the Board.
BIBLIOGRAPHY
AHMET YAYLA, İdarenin Doğal Gaz Piyasasını Düzenleme Faaliyeti, Unpublished Doctorate Thesis (2012): 37-175.
ERHAN BULUT, Doğal Gaz Depolama Sözleşmesi, Unpublished PhD Thesis (2020): 1.
FOOTNOTE
1 Erhan Bulut, Doğal Gaz Depolama Sözleşmesi, Unpublished PhD Thesis (2020): 1.
2 Natural Gas Market Law No. 4646 and dated 10.04.2001, published in the Official Gazette dated 02.05.2001 and numbered 24390
3 Natural Gas Market Licensing Regulation published in the Official Gazette dated 07.09.2002 and numbered 24869
4 Ahmet Yayla, İdarenin Doğal Gaz Piyasasını Düzenleme Faaliyeti, Unpublished PhD Thesis, (2012): 113-155.
5 Ahmet Yayla, İdarenin Doğal Gaz Piyasasını Düzenleme Faaliyeti, Unpublished PhD Thesis, (2012): 37.
6 Ahmet Yayla, İdarenin Doğal Gaz Piyasasını Düzenleme Faaliyeti, Unpublished PhD Thesis, (2012): 175.
