Economic Regulatory Reform in the Natural Gas Market in Turkey: Accession to the European Union and Future Gas Projects

By Karacor, Zeynep; Develi, Abdulkadir | Insight Turkey, April 2007 | Go to article overview

Economic Regulatory Reform in the Natural Gas Market in Turkey: Accession to the European Union and Future Gas Projects


Karacor, Zeynep, Develi, Abdulkadir, Insight Turkey


Energy is considered to be a prime agent in the generation of wealth and significant factor in economic development. The importance of energy is recognized almost universally. And the historical data attest to a strong relationship between the availability of energy and economic activity. Therefore it is believed that if a country reaches to energy before others it can find more opportunities to develop than others. (1) Especially in recent years natural gas has an important place among the other energy sources because of the economic and environmental dimensions. In other words, energy is a unique commodity; it plays an essential role for economic development, human dignity and the environment. All of these reasons have been explained to find an answer to why active participation of citizens, transparent structure and democratic control is necessary. (2)

Natural gas is believed by many to be the most important energy source for the future. The abundance of natural gas, worldwide as well as domestically, coupled with its environmental soundness and multiple applications across all sectors, it means that natural gas will continue to play an increasingly important role in meeting demand for energy needs of the world. (3)

The regulation of the natural gas market in the world has begun with privatization and deregulation of gas markets since the middle of the 1980s. In this period, states have regulated gas markets by the help of regulatory institutions. In developing countries, providing efficient distribution and transmission of natural gas according to determined rules is a function of regulatory institutions. Natural gas markets always have been regulated as vertical integration that provides decreasing of the cost by the way of developing and increasing of efficiency with information flow between two firms that protect increasing of price damage caused by dominant firms.

EU has become of the biggest consumer in recent years and the consumption level of the EU is getting up. The increase in the natural gas demand resulted as new regulation to ensure efficiency and productivity of Natural gas markets in EU according to standards that received by members of EU.

The EU has regulated its natural gas market under the name of the European Union Natural Gas Market in order to provide efficiency for using energy all over Europe. Regulatory powers under the EU Gas Directive 2003/55/EC of June 26, 2003 are described in the Directive and a set of interpretation documents published by the EU Commission. While the Gas Directive prescribes regulated (TPA7) for Transmission Systems, Distribution Systems and LNG terminals, it is a Member State's choice as to whether a regulated or negotiated TPA (Third Party Access, the system of regulations and tariffs by which the infrastructure can be used) is implemented for storage access. It is also up to Member States to decide how the regulator exercises its tariff approval powers--either by approving methodology or tariffs outright. The European Commission stresses that it expects the economic effects of both options to be the same. (4)

Turkey took up the liberalization process in 1980s. It also affects the natural gas markets that emerged from the beginnings of the 1990s. Turkey is in a very early stage in consuming natural gas but reflects very rapid increasing that is resulted as efficiency of natural gas market, and also it is both important for Turkey's aspect of accession to EU and security policy of EU.

Turkey has a structural regulatory reform on natural gas market. In 2001, Natural Gas Law has been passed that provide regulation of markets by Non-Politics Independent Regulatory Institution. The aim of the this law is composing neutral natural gas market that depends on private jurisdiction, controlling and regulation of gas markets due to free market economy for transparent structure and stabilization. The Gas law has been enacted in order to form a new understanding of restructure and privatization of all natural gas markets.

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