CASE STUDY PRICE REGULATION OF THE NATURAL GAS … · CASE STUDY PRICE REGULATION OF THE NATURAL...

CASE STUDY

PRICE REGULATION OF THE NATURAL GAS SECTOR IN TURKEY

Okan YARDIMCI Energy Expert, Energy Market Regulatory Authority, TURKEY

ERRA Training Course : Price Regulation & Tariffs

05 – 08 March 2013, Budapest - HUNGARY

Okan YARDIMCI

Price Regulation of the Natural Gas Sector in Turkey


05 – 08 March 2013, Budapest

Outline

General Information Turkey Natural Gas Market

Energy Market Regulatory Authority (EMRA)

Price Regulations of the Natural Gas Sector

Major Pipeline Projects Transit Tariff

Okan YARDIMCI




Turkey

Place of the Turkey's Natural Gas Consumption in the World

0,2% 0,3% 0,6% 1,2%0,004% 1,0%

47

43

32

2724

0

10

20

30

40

50

1985 1990 1995 2000 2005 2010

Co

un

try r

an

kin

g b

y c

on

s.

0,0%

0,3%

0,6%

0,9%

1,2%

1,5%

Pro

po

rtio

n o

f t

he T

urkey c

on

s.

Population ~ 75 million

Area ~ 800,000 km2

GDP per capita ~ $15,000

Currency Turkish Lira

In the presentation; 1 m3 = 9155 kcal = 0,038304520 GJ

1 TL = 2,3 Euro

Okan YARDIMCI




Turkey

Import

Domestic Production

0

5

10

15

20

25

30

35

40

45

50

bil

lio

n c

ub

ic m

ete

rs

Natural Gas Consumption of Turkey

~ 450 billion cubic meters

Annual consumption forecast for 2013; 47.6 BCM

TURKEY NATURAL GAS SUPPLY - 2011 (44,5 BCM)

Russia; 57%

Iran; 18%

Azerbaijan; 9%

Algeria LNG; 9%

Nigeria LNG; 3%

Spot LNG; 2% Domestic

Production; 2%

Market liberalisation

Okan YARDIMCI




Turkey

Okan YARDIMCI




Natural gas market structure before 2002

State owned comp. BOTAŞ

was the monopoly on; Import & Wholesale,

Transmission,

Distribution,

Storage

Sale

Determination of

wholesale prices,

retail prices,

connection fees

Imported Gas

Residential

Domestic Gas

Power

Industry

Distribution

BOTAŞ

LNG Facility

Okan YARDIMCI




Import

Domestic Prod.

Wholesale

SUPPLY MARKETING CONSUMPTION

Export

Eligible Customers

TSO

Storage

CNG

Non-Eligible Customers

Natural gas market structure after 2002

Distribution

Okan YARDIMCI




BOTAŞ

Established in 1974. Purpose: transportation of Iraqi crude oil

In 1984 Turkey and S.S.C.B. signed a natural gas transmission

agreement. Then companies signed gas trading agreement.

BOTAŞ activity-field was expanded: transportation and trade of natural gas.

2001: BOTAŞ’s monopoly rights on natural gas import, distribution, sales

and pricing were abolished by the Natural Gas Market Law.

Network Code is in force since 1st September, 2004.

Account separation for trade, transmission and storage.

BOTAŞ is still the major market player.

Market shares in 2013 (estimated); BOTAŞ : 75%

20 Shippers : 25 %

Okan YARDIMCI




EMRA

• Energy Market Regulatory Authority founded on 19 November 2001

with the Electricity Market Law – Independent

– Financially and administratively autonomous public institution

• Decision making body of EMRA is the Energy Market Regulatory

Board – Appointed by the Council of Ministers

– A chairman, a vice chairman and 7 members

– Chairman is the President of the Authority

– The term of office for the chairman and members of the Board is 6 years

– Board members may be re-elected following the expiry of their terms of office

• Duties and responsibilities of EMRA have been extended to include; – Natural Gas Market in 2001

– Petroleum Market in 2003

– LPG Market in 2005

Okan YARDIMCI




• EMRA is responsible mainly for; – Preparation of secondary legislation

– Setting out the annual eligibility limit

– Issuing licenses

– Monitoring market performance and ensuring the conformity with the market rules

– Drafting, amending, enforcing and auditing performance standards, distribution,

transmission and customer services codes

– Approving the regulated tariffs, setting out the pricing principles

EMRA

Okan YARDIMCI




Turkish natural gas market restructuring

• Enactment of the Natural Gas Market Law – 2001 – The aim: to liberalize the market and encourage privatization and competition

– Natural gas supply;

Good quality

Economical

Reliable

Environment friendly

– To create a financially sound, stable and transparent market

– To establish an independent regulatory authority to supervise and monitor market

– Licensing by EMRA for gas transmission, export, import, wholesale, distribution, CNG and

storage

– BOTAŞ -> transfers long-term gas supply agreements to the private sector

– To ensure natural gas supply with a competitive prices to consumers

– To maintain supply security

Liberalization Steps / EU Integration

Account Separation -> Realised

Third Party Access (2007) -> Realised

Legal Unbundling -> Not realized yet

Okan YARDIMCI




Market control and regulation; All legal entities are required to obtain a

license from EMRA

Prevention of monopoly; No legal entity is allowed to sell more than 20% of

the annual gas consumption of Turkey

Non discrimination; Gas companies are not allowed to establish another

company in the same field

Security of supply; Import and wholesale companies are required to store

10% of the imported or sold natural gas supplies

Eligibility; all consumers are eligible except the household consumers

Cross-subsides; Prohibition of cross subsidy and unbundling of BOTAŞ’s

activities as transmission, storage and trade

Monitoring; Transmission and distribution companies are obligated to

demonstrate EMRA that their operations are cost efficient, effective and

reliable

Transparency; Electronic Bulletin Board (EBB) is required in the framework of

the Network code

Some other targets level of progress

Okan YARDIMCI




Secondary legislation

• License regulation

• Certificate regulation

• Distribution & consumer services regulation

• Tariffs regulation

• Transmission network operation regulation

• Facilities regulation

• Storage regulation

Board decisions & communiqués

Governance is an important principle in the activities of EMRA. For

instance, when the drafting of any piece of secondary legislation is completed, the document is publicized on the EMRA web site in order to collect the comments and views of market participants and interested parties. The final version of such regulatory texts is finalized after incorporating the views of the public.

Okan YARDIMCI




IMPORT WHOLESALE TRANSMISSION DISTRIBUTION

COMPRESSED NATURAL GAS STORAGE EXPORT

Natural gas market activities

15 + 30 spot LNG 42 1 pipeline + 24 LNG 63

75 4 4

Total number of licences; 258

Okan YARDIMCI




Ankara

Karaman

Konya

Bursa

Eskişehir

Ereğli

İzmit

İstanbul

Batman

IRAQ

GEORGIA BLACK SEA

MEDITERRANEAN SEA

Tekirdağ

Kırklareli

Çorum

Aliağa

Karacabey

Kofçaz

Sakarya Bolu

Zonguldak

Seydişehir

Afyon

Mersin

Araban

Şanlıurfa Gaziantep

Tokat

Diyarbakır

Şırnak

Ardahan

Adıyaman

Bozova

Yapracık

Çan

Dörtyol

Adana

Samsun

Erzincan Erzurum

Bayburt

Horasan

Ağrı Sivas

Isparta

Amasya

Kayseri

Yozgat

Malatya

Çankırı

Kırşehir

Nevşehir

Burdur Muğla

Kars

Ordu

Giresun

Trabzon

Gümüşhane

Rize Artvin

Iğdır

Van

Doğubayazıt

Ceyhan

Mardin Silopi

Elazığ

Çanakkale

Denizli

Aydın

Bilecik

Balıkesir

Manisa

Aksaray

Kahramanmaraş

İzmir

M.Ereğlisi

Turgutlu

SYRIA

KKTC

Ereğli

Hatay

İskenderun

Bartın

LNG Liquifaction Terminals

Trnsmission pipelines by 2002 (~4000 km)

Planning Natural Gas Underground Storage

Uşak

Russian Fed.

(West)

6 + 8 = 14 BCM

Russian Fed.

(Blue Stream)

16 BCM

Iran

10 BCM

Algeria+Nigeria

(LNG)

4 BCM + 1,2 BCM

Azerbaijan (Agreement)

6,6 BCM

Turkmenistan (Agreement)

16 BCM

Natural gas system in 2002

Okan YARDIMCI




Length of the transmission network

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Iran

10 BCM

Azerbaijan

6,6 BCM (5,4 BCM BOTAŞ,

1,2 BCM SOCAR)

+ 16 BCM (SHAH DENIZ 2)

Turkmenistan (Agreement)

16 BCM

Russian Fed.(West)

8 BCM (4 BCM BOTAŞ, 4 BCM Private Comp.)

Spot

(LNG)

BOTAŞ+Private Comp.

Algeria+Nigeria

(LNG)

4 BCM + 1,2 BCM

Greece

0,75 BCM

Russian Fed.

(Blue Stream)

16 BCM Russian Fed.(West)

6 BCM (Private Comp.)


LNG Gasification Terminals

Underground Storage

Planning LNG Gasification Terminals

Natural gas system in 2013

Okan YARDIMCI




Import

BOTAŞ is required to transfer its import contracts until its market share decreases to 20%

The first contract release tender was completed by BOTAŞ on 30th of November 2006.

Company Transferred amounts (million cm3)

1 Shell Enerji A.Ş. 250

2 Bosphorus Gaz A.Ş. 750

3 Enerco Enerji San. ve Tic. 2500

4 Avrasya Gaz A.Ş. 500


1 Bosphorus Gaz A.Ş. 1750

2 Akfel 2250

3 Kibar 1000

4 Batı Hattı 1000

The second contract release tender was completed by BOTAŞ on 1st of January 2013.


1 SOCAR 1200

Azerbaijan contract release to SOCAR completed by BOTAŞ on 1st of January 2013.

Okan YARDIMCI




Existing contracts

CONTRACTS QUANTITY

(BCM/YEAR)

RUSSIAN FED. West-1 6 (Private Companies)

RUSSIAN FED. West-2 * 8 (4 BCM BOTAŞ, 4 BCM Private Companies)

RUSSIAN FED. Blue Stream 16

IRAN 10

AZERBAIJAN 6.6 (5.2 BCM BOTAŞ, 1.2 BCM SOCAR)

TURKMENISTAN 16

ALGERIA (LNG) 4

NIGERIA LNG) 1.2

AZERBAIJAN 16 BCM/ SHAH DENIZ 2 PROJECT

(Trans Anatolia Pipeline-TANAP agreement was signed in 2012)

Okan YARDIMCI




Wholesale

• No obligation of obtaining wholesale license for import companies

• Amount sold by each wholesale company shall not exceed 20% of

national consumption forecast

• Storage obligation in order to meet maximum seasonal natural gas demand

of the customers.

• Tariffs; Shall be determined freely among parties

concerned in free market conditions.

Because BOTAŞ was the only importer in

the market, the sales prices had been

determined by the Board between November

2002 and December 2007.

Deregulated in the beginning of 2008.

According to current tariff structure, prices are

determined freely.

Okan YARDIMCI




Cross subsidization…

& loose the cheap LNG opportunities.

We should not;

disturb the electricity market…

market based price is important…

Okan YARDIMCI




Distribution

KIRKLARELİ

İSTANBUL

KOCAELİ

YALOVA

BURSA BİLECİK

ESKİŞEHİR

SAKARYA BOLU

KARABÜK

ANKARA

KONYA

KIRIKKALE

AKSARAY

KIRŞEHİR

NEVŞEHİR

NİĞDE

ADANA

KİLİS

GAZİANTEP

DÜZCE

BARTIN KASTAMONU SİNOP

ÇANKIRI

ÇORUM

SAMSUN

AMASYA

ZONGULDAK

TOKAT

SİVAS

YOZGAT

OSMANİYE

MALATYA

ADIYAMAN

DİYARBAKIR

ŞANLIURFA

İÇEL

KAHRAMANMARAŞ

ELAZIĞ

MUŞ

TUNCELİ BİNGÖL

BATMAN SİİRT

ŞIRNAK

HAKKARİ

VAN

ERZİNCAN

ERZURUM

KARS

AĞRI

IĞDIR

ARDAHAN ARTVİN

RİZE

BAYBURT

TRABZON

GÜMÜŞHANE

GİRESUN ORDU

KAYSERİ BİTLİS

MARDİN

KARAMAN ANTALYA

BURDUR

ISPARTA

AFYON UŞAK

DENİZLİ

MUĞLA

AYDIN

EDİRNE TEKİRDAĞ

ÇANAKKALE

BALIKESİR

MANİSA

İZMİR

KÜTAHYA

HATAY

Household n.g. consumption before 2002; 7 DC in 6 provinces

6 municipal corporation

1 private company

Okan YARDIMCI




Distribution

KIRKLARELİ

2006

İSTANBUL

1992

YALOVA

2005

BURSA

1992 BİLECİK

2006

ESKİŞEHİR

1992

KARABÜK

2008

ANKARA

1988

KONYA

2004

KIRIKKALE

2004

AKSARAY

2004

KIRŞEHİR

2004

NEVŞEHİR

2006

NİĞDE

2006

ADANA

2008

HATAY

2011

KİLİS

2011

GAZİANTEP

2006

DÜZCE

2005

BARTIN KASTAMONU

2007 SİNOP

2012

ÇANKIRI

2007

ÇORUM

2004

SAMSUN

2004

AMASYA

2008

ZONGULDAK

TOKAT

2008

SİVAS

2004

YOZGAT

2006

OSMANİYE

2008

MALATYA

2006

ADIYAMAN

2007

DİYARBAKIR

2007

ŞANLIURFA

2007

İÇEL

2005

KAHRAMANMARAŞ

2006

ELAZIĞ

2007

MUŞ

TUNCELİ BİNGÖL

BATMAN

2011

SİİRT

2009

ŞIRNAK

HAKKARİ

VAN

2007

ERZİNCAN

2008

ERZURUM

2004

KARS

2006

AĞRI

2006

IĞDIR

2009

ARDAHAN

2006

ARTVİN

RİZE

2008

BAYBURT

2007

TRABZON

2008

GÜMÜŞHANE

2008

GİRESUN

2010

ORDU

2007

KAYSERİ

2004 BİTLİS

MARDİN KARAMAN

2006

ANTALYA

2007

BURDUR

2006

ISPARTA

2006

AFYON

2006 UŞAK

2003

DENİZLİ

2006

MUĞLA

2011

AYDIN

2009

EDİRNE

2007

TEKİRDAĞ

2007

BALIKESİR

2004

MANİSA

2006

İZMİR

2005

KÜTAHYA

2004

ÇANAKKALE

2006

KOCAELİ

1992

BOLU

2006

SAKARYA

2002

Household n.g. consumption now; 63 DC in 70 provinces

2 municipal corporation

61 private company

starting year of household consumption

Okan YARDIMCI




• Distribution licenses granted through a tender process.

• Evaluation based on the unit service and depreciation charge (distribution fee)

for supplying one kWh natural gas to consumers.

• Constant tariff is valid for 8 years. Licenses granted for 30 years.

• After 0 distribution fee, tenders were continued with reduction of connection

fee.

• In one region, after 0 connection fee, tender was continued with licence fee.

• Distribution companies are required to gasify every region in their respective

territories in five years.

• Distribution companies are obliged to prove that they purchase from the

cheapest source and they are obliged to purchase natural gas at least from

two different sources.

Distrubition licence tenders

Okan YARDIMCI




EGEGAZ Aliağa LNG Terrminal

Yearly Send-Out Capacity : 6.0 Billion m3

(Tank Capacity; 2 X 140.000 m3 LNG tanks)

Daily Maximum Sent Out : 16.4 million m3/day

BOTAŞ Marmara Ereğlisi LNG Terminal




TPAO Silivri Underground Natural Gas Storage Facilities

Type : Depleted gas fields (Değirmenköy and Kuzey Marmara Fields)

Total Storage Capacity : 2.7 Billion m3

Maximum Sent Out : 14.5 million m3/day

LONG TERM CONTRACT BETWEEN TPAO&BOTAŞ FOR 2,1 BCM

0

500.000.000

1.000.000.000

1.500.000.000

2.000.000.000

03 04 05 06 07 08 09 10

O.Yardımcı, F.Ceran, April 2011

Storage


LNG Gasification Terminals

Underground Storage


Okan YARDIMCI




Export

Export licence;

• Technical and economic capability

• Information on destination country and means of transportation

Gas sale agreements

• Obligatory insurance coverage

Technical capacity of transmission company is an important issue

Okan YARDIMCI




Transmission and distribution companies have an obligation to connect all users

to the system.

In case of rejection of access to system, EMRA’s decision shall be final and

binding.

Transmission and distribution companies are obligated to demonstrate EMRA

that their operations are cost efficient, effective, non-discriminative and reliable.

Network code has been in force since 1st of September 2004.

Capacity allocation is made on entry-exit system for one year base.

In case of congestion, it is arranged proportionally (pro-rata) for the

applications.

Capacity usage is based on use or loose it principle

Storage companies shall prepare the basic usage principles and procedures for

each storage facilitiy.

Third party access

Okan YARDIMCI




The last two gas grid; BAŞKENTGAZ (Ankara) and İGDAŞ (İstanbul) shall be

privatized

The new distribution companies will be private companies

The trade and storage companies of BOTAŞ shall be privatized

Reducing BOTAŞ’s share in import

BOTAŞ shall be involved only in transmission activities

Privatization

Distribution Volumes, Private Companies / State Owned Companies

0

2

4

6

8

10

12

2002 2003 2004 2005 2006 2007 2008 2009

BC

M

Private

companies

State

owned

companies

Okan YARDIMCI




Outline





Okan YARDIMCI




Price regulation

competition no competition

or

natural monopoly

price regulation

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Transmission & Dispatch Control

Wholesale

Storage

Distribution

Connection (non-eligible customers)

Price is determined by the parties (wholesale and storage tariffs are regulated temporarily - provisional article of law)

wholesale -> competition

storage -> enough capacity

Regulated tariffs

Tariffs

Connection (eligible customers)

Okan YARDIMCI




Price components

Components of Household Gas Price (7,950 Euro/GJ)

Value Added Tax;

15,3%

Private

Consumption

Tax; 3,6%

Storage Fee; 0,8%

Average

Distribution Fee;

2,9%

Average

Transmission

Fee; 3,2%

74,3%; Gas Price

+ Wholesale

Profit

fiscal legislation fiscal legislation

Okan YARDIMCI




Tariff definition process

Request an information-documentation basis for the tariffs

Submission of tariff proposals, the financial and technical information

Reviewing the proposals and financial tables

If necessary, request additional information and arrange meetings

Correspondence with the relevant department, exchange of data

Studies completed and submitted to the Board

Approval/determination of tariffs by the Board

Okan YARDIMCI




“investment decision means;

to give up something - opportunity cost!!!”

risk / return relationship

Risk & Return

Okan YARDIMCI




“fair” rate of return?

Regulatory Asset

Base

Risk Free

Rate

Risk

Premium

Resonable

Return

for

RAB

+

Risk of Shareholders

EQUITY

Risk of Creditors

DEBT

Risk Free Rate + Debt Risk Premium

Rf + ( Spread )

Risk Free Rate + Equity Risk Premium

Rf + ( βe x Market Risk Premium )

+

Okan YARDIMCI




Equity Risk

Premium

7,61%

Cost of

Equity

19,01%

Cost of Debt

After Tax

12,15%

50%

50%

WACC

Nominal

After Tax

15,58%

Expected

Inflation

7,83%

WACC

Real

Before Tax

10,80%

WACC

Nominal

Before Tax

19,48%

Debt Risk

Premium

3,79%

Corporate

Tax

20,00%

Corporate

Tax

20,00%

Market Risk

Premium

6,00%

Country Risk

Premium

3,40%

Risk Free

Rate x 1,127

11,40%

Relevered

Beta

0,81

10 years Turkish T-Bond

Nominal Interest Rate

(Average of max. and min.)

2005-2010 USA

(C-Bond) – (T-Bond)

Rate Difference

(Average of max. and min.)

Turkey / USA Eurobond

Rate Difference

20-year T-Bond Yield Ratio

to 10-year T-Bond in US,

1,127

Risk Free

Rate

10,11%

Rating of Turkey = BB+ Unlevered

Beta

0,45

Average of some

EU countries

Stock/Bond Yield Spread in USA

+ Turkey’s Risk Premium

Risk Free

Rate x 1,127

11,40%

WACC (transmission tariff, 2011-2013 period)

Central Bank

Survey of CPI Expectations

(Average of Max and Min)

Okan YARDIMCI




WACC parameters

Risk Free Rate

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WACC’s in ERRA members

Real WACC in some ERRA members

0%

2%

4%

6%

8%

10%

12%

14%

16%

Natural Gas Distribution Natural Gas Transmission

Tu

rkey

Aver

age

Okan YARDIMCI




Inflation vs Real WACC

Inflation vs Real WACC30,2%

23,4%

14,9% 15,3%

19,7% 20,5%

14,6%

10,8%

19,6%

0%

5%

10%

15%

20%

25%

30%

35%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Inflation

Real WACC

Okan YARDIMCI




Evaluating RAB? (Real WACC vs Nominal WACC)

NPV ANALYSIS - CUMULATIVE REVENUE OF 1000 EURO INVESTMENT

100

150

200

250

300

350

400

450

500

550

600

650

700

750

800

850

900

950

1.000

1.050

1.100

1.150

1.200

1.250

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Real WACC + Evaluating RAB with Inflation

Nominal WACC, RAB is not Evaluating with Inflation

Nominal WACC + Evaluating RAB with Inflation

- 22 year linear depreciation

- Real WACC; %10,80

- Inflation; %7,83

YEARLY REVENUES OF 1000 EURO INVESTMENT

0

20

40

60

80

100

120

140

160

180

200

220

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Real WACC + Evaluating RAB with Inflation

Nominal WACC, RAB is not Evaluating with Inflation

Okan YARDIMCI




Tariffs

Others;

• Transparency: in the methodology, so that all employed criteria &

procedures are made public

• Stability: in the adopted methodology, so that the concerned agents

have the least possible regulatory uncertainty. Stability is compatible

with a gradual process of adaptation of the present tariffs to the new

system

• Simplicity: in the methodology & its implementation, as far as possible

• Non-discrimination: Non-discrimination among equal parties

• Cost reflective prices: Costs not directly related to market operations

shall not be included. Cross subsidies are not allowed

Main principles of tariff structure

Okan YARDIMCI




Tarification

OPEX Return Depreciation Revenue

Requirement

Quality

Factor

(not applied)

Update

by CPI

Tariff

+

Correction

Mechanism

Investment

(Asset Value)

Average

RAB

+

Efficiency

Factor

Corrections

► Revenue Difference Correction

► Investment Difference Correction

► Cost Difference Correction

Revenue Cap – Transmission, Storage

Okan YARDIMCI




The Board shall determine prices for transmission activities having a naturally

monopolistic character.

Revenue of transmission companies shall be determined by using “revenue cap”

method.

Is being determined since January, 2003.

The current transmission price is calculated according to entry-exit

system.Transmission tariff comprises capacity and service charges;

Separate ‘Entry’ capacity tariffs for each entry point into the country.

0,011 Euro/MJ/d for Entry-1 in Feb. 2012

A single ‘Exit’ capacity tariff which recovers the costs of the ‘Socialized’

section of the network (additionaly there is a single export exit capacity tariff);

0,18 Euro/MJ/d for Exit in Feb. 2012

A commodity tariff that recovers the operating costs of the network.

0,20 Euro/GJ in Feb. 2012

Transmission & dispatch control tariff

Okan YARDIMCI




Entry exit zones

Malkoçlar

M. Ereğlisi (LNG)

Entry 3:

Durusu

(Blue Stream)

Entry 5:

Türkgözü

(Azerbaijan) Entry 8:

TPAO Akçakoca

(Production)

Entry 7:

TPAO Storage

EXIT Entry 6

Egegaz

(LNG)

Entry 9:

TEMİ

Edirne

(Production)

Export Point

(Greece)

Entry-4

Bazargan

(Iran)

Entry 1

Entry 2

Okan YARDIMCI




Step 1: Calculate the Revenue

Req. We calculate the Rate Base *

(including linepack) from historic and

future capital expenditure.

Depreciation and return on the Rate

Base must be recovered by capacity

charges.

Step 2: Forecast Capacity

Requirements To calculate capacity tariffs,

estimates of the amount of capacity

booked by suppliers are necessary.

Step 3: Calculate Capacity Tariffs Capacity tariffs are set so that, given

forecasts of booked capacity, the

Transporter fully recovers fixed costs.

Step 4: Calculate Commodity

Tariffs Commodity tariffs are set to recover the

operating costs of transporting gas.

*The RAB value has been determined through the revaluation of operating

assets based on the historic cost, straight line depreciation (22 years), evaluated

by inflation. Assets related to unregulated businesses are excluded.


Okan YARDIMCI




ideal case

OPEX Return Depreciation Revenue

Requirement (RR)

+ +

Commodity charge

(around 35% of RR)

Capacity charge

(around 65% of RR) In 2011-2013 period;

RR X 0,65 = Commodity

RR X 0,35 = Capacity

Before 2004

(less than 1 year periods)

2005-2010

(1 year periods)

2011-2013

(3 years period)


Tariff periods

transition period

Okan YARDIMCI




Dispatch Control tariffs have been defined in the relevant Regulation as follows;

Imbalance fee

difference between entry – exit amounts

Disorder fee

difference between program & actual amounts

Excess capacity charges

shipper pays in excess of capacity reservation

Interruption balancing charges

inaccurate shipper pays for the other shipper in case of interruption

Service interruption charges

transmission company pays for the service interruption


Okan YARDIMCI




EGEGAZ Aliağa LNG Terrminal




BOTAŞ Marmara Ereğlisi LNG Terminal

Yearly Send-Out Capacity : 8.2 Billion m3 (Tank Capacity; 3 X 85.000 m3 LNG tanks)


Storage tariff

TPAO Silivri Underground Natural Gas Storage Facilities

Type : Depleted gas fields (Değirmenköy and Kuzey Marmara Fields)

Total Storage Capacity : 2.7 Billion m3

Maximum Sent Out : 14.5 million m3/day

LONG TERM CONTRACT BETWEEN TPAO&BOTAŞ FOR 2,1 BCM

Storage tariff is being determined by the Board since January, 2003

Until the storage capacity in the country reaches a sufficient level,

storage prices shall be determined by the Board

LNG Gsification Terminals

Underground Storage



Okan YARDIMCI




Capacity charge (yearly capacity allocation from send-out)


Commodity charge (for the amount of send-out)


Storage charge (for the amount of stored gas per day)

0,01 Euro/GJ/day in Feb. 2013

The current storage price is been updated every month depending on

the change in the inflation rate.

Storage tariff

Okan YARDIMCI




Draft tariff methodology

Minimum WACC; 10%+inflation

Depreciation; 15 years-linear

Duration of tariff; 3-10 years

Draft of the natural gas amendment law;

exemption of the third party access till 2025 for

the new LNG terminals

Okan YARDIMCI




Connection tariff

Connection Tariffs of Non-Eligible Consumers:

135 Euro (including connection line + metering) ***

Connection Tariffs of Eligible Consumers:

• The fees shall be freely determined by the parties within the

framework of the principles.

• For construction of connection line, eligible consumers have right

to choose the firm among certificated companies or the relevant

distribution company.

*** actual cost is less than 135 Euro

the excess gain is taken into account in the distribution tariff!!!

Okan YARDIMCI




Is being determined by the Board since November, 2002.

Transportation charges and retail sale prices charged to subscribers

and eligible consumers within the region under the responsibility of the

distribution company, are being determined.

These charges and prices are being determined as ceiling price, and

relevant companies are free to charge any price, on condition that it

remains below ceiling price.

Shall be updated every month depending on the change in the

inflation rate.

Distribution tariff

Okan YARDIMCI




Distribution tariff

NET OPEX

DEPRECIATION

► Depreciation Period = 22 years

OPENING RAB

Non-amortized RAB

Indexed up by CPI

+

+

2

1

3

ALTERNATIVE COST (RETURN)

► Average RAB x WACC

► WACC = 11,83 (Real & Before Tax)

***

RAB – CONNECTION REVENUES

Okan YARDIMCI




Distribution companies are responsible with the retail supply.

Losses and the bed depts are not taking into account during the

tariff calculations.

Cap for the buildings and vehicles; %5 of the RAB.

Cap for the new investments; %5 of the RAB per each tariff year.

Distribution tariff

Okan YARDIMCI




Distribution tariff

Base OPEX

(previous years)

►Labour

►Material

►Services

►etc.

Physical

Growth

►Lenght of Lines

►Number of Subscribes

►Distributed Energy

Efficency

Factor

R&D (1%)

NET

OPEX

Correction

x + –

Okan YARDIMCI




Wholesales price applied by

BOTAŞ to distribution

companies for its customer

group 1

Distribution fee of

the group 1

customers + = Retail Sales Price

applied to Customer

group 1

Wholesales price applied by

BOTAŞ to distribution

companies for its customer

group 2

+ = Distribution fee of

the group 2

customers

Retail Sales Price

applied to Customer

group 2

The distrubition fee is determined on the basis of the consumption groups

(based on their consumption level) and this application prevents cross-

subsidation.

The allocation bases on the 1) usage rate of the network, 2) the ratio on the

consumption, 3) the ratio on the consumer number.

Distribution tariff

Okan YARDIMCI




Distribution tender results

The distribution companies winning the distribution license tender conducted by the

Board, shall be able to apply its offer as distribution tariffs in the relevant cities for 8 years.

Okan YARDIMCI




Price

Cost

Time

Excess

gain

Price cap

Distribution tender results

P was lower than MgC for 8 years.

financial viability of the regulated company?

efficiency improvements over time?

fair prices from a social point of view?

minimum regulatory intervention?

Constant tariff period (8 years) after tender

What about

sharing of benefits?

Okan YARDIMCI




Benchmarking

15,00%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

DC's OPEX Scores

decrease in the slope means strict regulation!

Okan YARDIMCI




Measuring service quality

• Customer complaint reports

reliability?

• Bill objections

number of accepted / rejected bills

• Accepted / rejected entry requests

consumer number?, reasons?

• Outages reports

duration of outage, the number of consumers affected

• Major event reports

first major exemptions

• Performance standarts

payment points, telephone operators, emercency calls, emercency vehicles

• Customer surveys

cost of survey

In order to improve performance incentives

Okan YARDIMCI




“corporate governance”

P Q Price

Quality

Quality regulation is

necessary for balance

with price regulation

Okan YARDIMCI




Outline





Okan YARDIMCI




WORLD’S 2ND LARGEST NATURAL GAS MARKET

WORLD’S LARGEST OIL AND GAS RESOURCES NATURAL TRANSIT

ROUTE

Turkey as a natural transit country

Okan YARDIMCI




Europe

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Nord stream

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South stream

The South Stream Pipeline route through the Black Sea

Okan YARDIMCI




White stream

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Southern corridor (4th corridor)

Okan YARDIMCI




Nabucco & Nabucco West

Okan YARDIMCI




TAP

Okan YARDIMCI




Nabucco tariff

Principles for tariffs; Volume, distance, time, duration,seasonality involved and to the firm, interruptible and other characteristics of the services provided. - Capacity Payments;

= {(m3/h) x (Euro/((m3/h)xkm)/y) x km} / 12 = Euro/month

An incentive structure shall be included in the Capacity Payment calculation to incentive Shippers to book capacity long-term.

Seasonality effect;

Okan YARDIMCI




Thank you for your attention!

Okan Yardımcı

EMRA, Turkey

+90 532 798 85 50

[email protected]

www.enerjiuzmani.blogspot.com

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