General counsel | Polat Enerji
Burak Kepkep
General counsel | Polat Enerji
Full acquisition of Şua Elektrik Üretim AŞ. Şua Elektrik was holding a preliminary (electricity generation) license for Cıngıllı Solar Power Plant (SPP) project. Under the applicable legislation, the transfer of shares of preliminary licensed companies is prohibited as a rule, subject to certain specific exemptions. We legally structured the deal in a way Polat Enerji benefitting from a share transfer exemption in legislation. When Polat Enerji obtained the Energy Market Regulatory Authority of Turkey’s approval for the transfer of 100% shares of Şua Elektrik, this was one of the pioneer deals in the market benefitting from the exemption. Development and financing of Cıng��llı SPP (26 MW). Subsequent to the acquisition of Şua Elektrik (and the Cıngıllı SPP project), Polat Enerji initiated the development activities. In April 2019, our team negotiated the Facility Agreement with the lenders and the EPC contract with the main contractor, and reached the financial close after a straightforward process. The Cıngıllı SPP, now Turkey’s largest operational SPP project, was successfully commissioned in September 2019 and benefits from the feed-in-tariff as part of the Turkey’s renewable energy support mechanism. Development and financing of Soma IV wind extension project (48 MW). Soma wind farm is the largest operational wind farm in Turkey. In 2019, Polat Enerji approved a 48 MW extension of the project. Our team negotiated the turbine supply agreement and operation and maintenance agreement with our turbine supplier Enercon. The financing was provided by T. Garanti Bankası AŞ, a subsidiary of BBVA, through ‘gender loan’ structure – first of its kind in Turkey. Polat Enerji and Demirer Group have been cooperating in Turkish wind energy sector for more than ten years. Two parties have decided to end their cooperation by splitting the three SPVs where Doğal Enerji (150.55 MW) is transferred to Demirer Group, and Doruk Enerji (36 MW) and Poyraz Enerji (66.9 MW) are transferred to Polat Enerji. Our team was working hard to structure the deal and get the regulatory and contractual approvals with an aim to complete the closing in 2019.
In the 2017 regional auction organised by TEİAŞ, Polat Enerji acquired seven new wind energy projects (463 MW) which are currently under development. In the next 12 months, our teams will be working on the development of these projects. Further, the 2020 YEKA (a support mechanism in renewables) auctions for solar farms will be monitored closely.
In-house counsel should have practical and business minded approach to create a strong relationship with business partners. A thorough understanding of the dynamics of the sector, the relationship with the existing business partners, the reason for the specific appointment as well as the management’s approach to and interpretation of the corporate governance rules are indispensable.
Our teams are using computer-assisted legal research technology for some time. Occasionally, we try demos of artificial intelligence based due diligence software. Depending on the further progress on the technology, we may implement a similar software to Polat Enerji.
The Decree 32 on Protection of the Value of Turkish Currency sets forth the principles regarding the use of foreign exchange, among others. Various amendments introduced to the Decree limited the circumstances where parties can enter into transactions in foreign currency, and determined the exceptions where companies can borrow in a currency other than Turkish Lira. Now, compliance of each commercial transaction must be assessed in the light of the new rules. As a result of the amendments introduced to electricity market legislation, electricity capacity increases effective after 28 February 2019 cannot benefit from YEKDEM, a government support mechanism. In other words, the existing capacity may benefit from support of the feed-in-tariff (i.e. US dollar-to-megawatt prices), but the electricity generated from such increased capacity can be sold on a merchant basis in spot market (i.e. in Turkish Liras). Finally, TEİAŞ, the state owned electricity transmission company, limited the electrical capacity increases in wind and solar projects, and no additional capacities are allowed in certain regions. These decisions shape the extension pipeline of the renewable projects.
In addition to the general aspects of the transaction, the external counsel should also be made aware of the end result and commercial rationale of the transaction aimed by the company so that they can have a macro view of the assignment by taking into account the big picture. In-house counsel must be clear about company’s business’ objectives, particularly if they are not obvious from the circumstances of the situation.
Turkey’s adoption of the renewable energy law and the introduction of the feed-in-tariff (FIT), a government support mechanism, have boosted the renewable energy investments since 2011. Under the FIT mechanism, investors benefited from guaranteed US dollar-to-megawatt revenues for the first ten years of operation of the renewable facility (for example, a wind farm or solar park). The guaranteed hard currency revenues eliminated price competition and, in turn, allowed the investors a predictable cash flow management. Since the cost of acquisition of wind turbines or photovoltaic panels are determined by manufacturers in hard currency, investors have been able to determine easily the feasibility of their projects in terms of internal rate of return (IRR). The scheme eventually eased in finding project financing. All-in-all, the existing FIT mechanism helped boost renewable sector in Turkey – until now. The FIT support mechanism will end in 2020. Consequently, the projects that will be commissioned after 31 December 2020 will not benefit from the guaranteed US dollar-to-megawatt prices; these will be merchant. More specifically, since the legislator has not yet enacted a new legislation for a new FIT, 2021 onwards, investors will need to make their business plans in merchant scenarios with spot market revenues in Turkish Liras. Due to high volatility foreign exchange prices and the equipment prices being in hard currency, it will be quite difficult for investors to find project financing. This may slow down development of Turkish renewable energy sector. To avoid any adverse outcome, the legislator and the regulatory authority must intervene as soon as possible to create a viable investment environment in Turkish renewable energy sector. Unless the existing FIT support mechanism is extended, or a new support mechanism preserving the public interest is implemented, the investors and their lenders may refrain from developing renewable energy projects in Turkey.
