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Annual Meeting of the Energy Regulators Regional Association

Country Update - Turkey

Yusuf Gnay President

Energy Market Regulatory Authority

Budapest, Hungary May 18, 2006

Key Events & Activities Between May 2005 April 2006

In Electricity Market: 89 licenses have been issued, 68 of which are new generation licenses with a total installed capacity of 1.659 MW, and 4 of which are wholesale licenses. 25 new generation facilities (including a 30 MW wind energy and an 8 MW geothermal energy project) with a total installed capacity of 648 MW are commissioned. Law on Utilization of Renewable Energy Resources for the Purpose of Generating Electrical Energy was enacted on May 18th, 2005. Regarding the tasks assigned to EMRA by this law; Regulation on Principles and Procedures for Granting Guarantee of Origin was issued on October 4th, 2005, Turkish average wholesale electricity price was published by EMRA as 8,36 YKr/kWh (5,89 US cent/kWh) on April 6th, 2006. Regulation Concerning Electricity Demand Forecast came into force on April 4th, 2006. In Natural Gas Market: .41 licenses have been issued by EMRA for the natural gas market activities. .In-city distribution tender processes have been completed for 13 distribution area. .12 cities began to use natural gas. .Gas Release tender of BOTA realized on 30 November 2005.

President Yusuf Gnay 5th Annual ERRA Meeting Budapest, Hungary, May 18, 2005

Slide 2

Consumers Started to Use Natural Gas

atalca Gebze orlu K.Ereli Yalova Gemlik negl Ktahya Uak Konya Aksaray Polatl Dzce
Samsun

orum Krkkale Krehir Kayseri Sivas Erzurum

Bandrma Balkesir

Between May 2005 April 2006; 12 cities began to use natural gas In total 22 cities start to use natural gas
President Yusuf Gnay 5th Annual ERRA Meeting Budapest, Hungary, May 18, 2005

Slide 3

Key Anticipated Issues & Activities for the Next Year

In Electricity Market: Implementation of the Balancing and Settlement Regulation to include fiscal liabilities, Approval of the newly established distribution companies tariffs, Licensing of the newly established distribution companies, The privatization of distribution assets. Other ongoing projects and planned legislation include; Regulation regarding the principles and procedures for the quality of service of the electrical energy distributed by the distribution companies, Press release regarding auditing of the realizations of distribution system investment plans, Amendments in the Grid Regulation regarding cross border trading, Project concerning the design of a model for emission trading, Project concerning enhancing the market monitoring capabilities of EMRA. In Natural Gas Market: Tendering of the gas release program will continue according to NGML Tem. Art.2. The existing three distribution companies will be privatized within 3 years upon clearance of their dept to the Treasury For 16 cities distribution license tenders are to be held in 2006.

President Yusuf Gnay 5th Annual ERRA Meeting Budapest, Hungary, May 18, 2005

Slide 4

Natural Gas Distribution Sector Structure

After Natural Gas Market Law Privatised After Natural Gas Market Law Before Natural Gas Market Law Scheduled Announced
President Yusuf Gnay 5th Annual ERRA Meeting Budapest, Hungary, May 18, 2005 Slide 5

Key Issues & Status of Tariff Methodologies & Levels

In Electricity Market: Distributed net energy has increased from 106 GWh (2004) to 113 GWh (2005 unofficial) Losses and theft has decreased from 18,6 % (2004) to 17,8 % (2005 unofficial) Average prices:

. Wholesale

: 5,89 US cent/kWh (Determined by EMRA)

Households: 9,50 US cent/kWh - Non-households: 8,90 US cent/kWh

In Natural Gas Market;

Types of Tariffs Connection Tariffs Transmission Tariffs Storage Tariffs Wholesale Tariffs Retail Tariffs Transmission, Retail and Connection Tariffs are being determined by EMRA. EMRA determines the rules of other tariffs. All determined tariffs are in the form of price ceilings.

President Yusuf Gnay 5th Annual ERRA Meeting Budapest, Hungary, May 18, 2005

Slide 6

Key Issues & Status of Tariff Methodologies & Levels

Natural Gas Contnd Being determined for almost one year now. Regulated as price ceilings.
Wholesale price ceilings indexed to the exchange rate and gas import prices. Distribution service charge ceilings, transmission and storage charges ceilings indexed to the national inflation. Monthly re-calculation Operational costs are monitored

Average prices (pre- tax) : Wholesale: 2,4 cent/kWh Retail sale: 2,7 cent/ kWh
President Yusuf Gnay 5th Annual ERRA Meeting Budapest, Hungary, May 18, 2005

The transmission companys income is to be regulated through a Revenue Cap methodology by 2009. An entry/exit system is going to come into force for the transmission tariffs after new suppliers come into the market. New distribution tenders are being carried out by EMRA and the company which submits the lowest unit service and unit depreciation charge wins the tender.

Slide 7