HOW DOES THE COVID-19 OUTBREAK AFFECT LICENSE OBLIGATIONS IN THE TURKISH OIL MARKET?

Introduction

It is possible to define the concept of force majeure as the situations that prevent individuals from fulfilling their obligations to the administration or the other side of the contract.

It should be noted that some situations that prevent real or legal persons from fulfilling their obligations to the administration are regulated in the legislation. In the event of these reasons, which are regulated as force majeure or unexpected state, the person gets rid of either the obligation or the consequences of not fulfilling his obligation on time. Moreover, even in cases not regulated by the legislation, it is seen that the reason for force majeure is used in administrative judicial decisions. Some law and regulation provisions include the concept of force majeure and the cases that will be accepted as force majeure are either counted by direct sampling or left to the discretion of the administration.

COVID – 19 Outbreak and Force Majeure Concept

The Covid-19 pandemic was first seen in the world in Wuhan, China on 31 December 2019 and quickly affected the world. Covid-19 outbreaks were placed in the pandemic “epidemic” category on 11 March 2020 by the World Health Organization. It is not possible to predict and prevent the epidemic beforehand. In the event of an epidemic, there is a situation that cannot be prevented, avoided or eliminated even though the affected party has taken necessary care and attention.

Unfortunately, it is indisputable that the fatal Covid-19 epidemic, which started to spread by showing its effect in our country, shall be considered as a force majeure.

Force Majeure Approach in Petroleum Market Law and Petroleum Market License Regulation

The concept of force majeure is not included in the Petroleum Market Law No. 5015 “Law”. Also, in the Petroleum Market License Regulation “Regulation” prepared based on the Petroleum Market Law No. 5015, the definition of force majeure was made and the effects of the force majeure on the licensee’s obligations were regulated.

Under Article 57 titled “Force Majeure” of the Petroleum Market License Regulation, it is stipulated that;

“For an incident to be considered a force majeure event, the parties affected by the incident should not be prevented, avoided or eliminated even though they have taken the necessary care and attention, and this situation should prevent the affected party from fulfilling its obligations under the relevant legislation.

In the event that force majeure occurs, until the effects of force majeure are eliminated, the obligations of the licensee arising from the relevant legislation can be postponed by the Board decision to the extent they are affected.

In cases where it is understood that these obligations cannot be fulfilled, the Board may also decide to lift the licensee’s obligation. In order to make a decision to postpone or remove the obligations, it is obligatory for the licensee to submit its application, includes the starting date of the force majeure, its nature, the effects on its obligations and, if possible, the estimated removal time of the effects, to the Authority in writing within fifteen days from the start date of the force majeure.”

Although the cases that will be considered as force majeure in the provision of the article are not counted one by one, it is possible to conclude that what can be a force majeure in accordance with this definition and the cases accepted in the judicial decisions and the force majeure events listed in other laws.

At this point, Covid-19 global epidemic, which is taken into the pandemic (epidemic) category by the World Health Organization, is evaluated within the scope of force majeure.

However, even if the Covid-19 outbreak is objectively accepted as a force majeure, according to the regulation, this determination alone is not sufficient for the licensee to claim the force majeure. If the real or legal person who is affected by the force majeure condition is not prevented from fulfilling his obligations under the relevant legislation, force majeure cannot be mentioned.

Some obligations have been brought to the license holders with the Law and Regulation, and the license holders will be able to benefit from force majeure to the extent these obligations are affected.

Obligations of Licensed Real and Legal Persons to be Affected by Covid-19 Outbreak in the Petroleum Market

The obligations of licensee real and legal persons in the petroleum market that may be affected by the Covid-19 outbreak are discussed below.

• Persons, who have a distribution license at the date of the entry into force of the Provisional Article 24 in the Regulation, have been obliged to establish the franchise organization specified in the first paragraph of Article 34/A within the periods specified in the paragraph starting from 1/1/2020. If the distribution licensee cannot establish or maintain the franchise organization determined in accordance with Article 34/A of this Regulation, they are subject to the sanction of termination of their licenses. In this context, it may be possible to request an extension of these periods when it is understood that the dealership agency specified in the first paragraph of Article 34/A cannot be established within the periods specified in the paragraph due to the Covid-19 outbreak.
• Additionally, under Article 17 titled “Termination and Revocation of Licenses” of the Regulation, it is regulated that in some cases before the term of the license, the license may be terminated by;
• the Energy Market Regulatory Authority or
• the Presidency of Energy Market Regulatory Authority or by the Petroleum Market Department in case of authorization delegation.

 

In the subparagraph (g) of the first paragraph, where these cases are counted one by one as a determination of what these cases are, there is a case of;

 

“not selling for more than six months, except for justified and force majeure within the scope of the vendor activity.”

As can be seen, in case of force majeure, if the sales are not made for more than six months within the scope of the vendor activity, the licenses cannot be terminated based on this reason. In this case, under the vendor activity, the existence of force majeure and its effects on the vendor activity shall be evaluated before license termination on this reason of licensee who could not make sales for more than 6 months due to Covid-19.

Apart from these, it is possible for the real and legal persons, who apply for the license, to request that the duration stipulated in the regulation be extended due to Covid-19, in order to gather the necessary information and documents in the license application. As a matter of fact, in the 3rd paragraph of the Article 10 of the Regulation titled “Concluding the Review and Evaluation”, it is stipulated that;

 

“By a notification to be made to the real or legal person applicants found acceptable to obtain refining undertaking, transmission, storage, processing, lube oil, distribution undertaking or bunker delivery licenses by the Board decision; those real or legal persons shall be notified in writing that the license shall be granted if they submit the document stating that the remaining amount of the license obtaining fee has been transferred to the Authority’s account and if the other obligations, if any, stipulated within the scope of the Board’s affirmative decision, are fulfilled within ninety days. In case it is found that the license application-related project or investment is included in the scope the principles and procedures set forth in the legislation issued on the basis of the Environmental Law No. 2872; the applicant shall also submit the document regarding the Environmental Impact Assessment Affirmative Decision or the Environmental Impact Assessment Not Required Decision within this term.”

In paragraph 5 of the same article, it is stated that;

 

“In case the obligations, set forth in the affirmative decision taken about the license application, are not fulfilled within 90 days as from the date of notification to the real or legal person; the license application shall be rejected under the Board decision. In case it is found that the license application-related project or investment is included in the scope the principles and procedures set forth in the legislation issued on the basis of the Environmental Law No. 2872, this term may be extended by a Board decision due to force majeure events or due to the failure in the fulfilment of the obligations-within this context- for reasons not arising from the real or legal person.”

According to this provision, if the project or investment subject to license application is within the scope of the procedures and principles specified in the legislation issued on the basis of Environment Law No. 2872, in order to be granted a license to applicants whose license applications are eligible, the applicant must also submit the document regarding the Environmental Impact Assessment Affirmative Decision or the Environmental Impact Assessment Not Required Decision to the Energy Market Regulatory Authority within 90 days from the date of notification. However, in the same article, it has been also stated that the 90-day period foreseen for the applicants within this scope, whose license applications are deemed appropriate, to be extended by the Board decision in case of force majeure. In this case, it can be seen that real or legal persons who do not yet have a license but apply for a license can demand the postponement of their obligations to submit documents by claiming the Covid-19 outbreak as a force majeure.

Application Procedure for Force Majeure

In cases where it is understood that the obligations listed above but not limited to these cannot be fulfilled due to the Covid-19 outbreak, license holders must apply for a force majeure with a petition to the Authority within 15 days from the start date of this situation. The application requires the following;

• Indicating the date when the force majeure occurred (the date on which the Covid-19 epidemic started to hinder the operational activities),
• Indicating that the Covid-19 outbreak is a force majeure,
• Documenting and explaining the negative effects of force majeure on liabilities and why liabilities cannot be fulfilled in the desired way or time,
• If possible, specify the estimated relief time for the effects of the Covid-19 outbreak,
• After all, due to force majeure, it is necessary to demand to postpone or eliminate their obligations.

The Decision on Force Majeure Application

The final condition for the application of the force majeure is that the application made by the licensee is deemed appropriate after the examination and evaluation made by the Energy Market Regulatory Board (“Board”) and the decision is made accordingly.

As will be noted, there are two types of decisions that the Board can make in case of force majeure. The Board may decide to postpone the obligations arising from the relevant legislation until the effects of force majeure are eliminated, or to remove the obligation of the licensee when it is understood that such obligations cannot be fulfilled. The Board may decide to postpone or remove the obligations according to the nature of the force majeure, the effects of the licensee on its obligations and whether the effects can be eliminated.

Conclusion

In case of a force majeure occurs, obligations of licensees and license applicants, arising from the relevant legislation should be postponed or even eliminated by the Board decision to the extent they are affected, and a written application shall be made to the Authority by the licensees and the license applicants due to force majeure.

Even if there is no application, the Board may decide to delay the obligations of licensees for a certain period of time due to force majeure.