HOW IS THE DOMESTIC CONTRIBUTION RATE CALCULATED IN RENEWABLE ENERGY RESOURCE AREAS?

The Contest Announcement on Allocation of Solar Energy Based Renewable Energy Resource Areas (“RERA”) and Connection Capacities published by the Ministry of Energy and Natural Resources in the Official Gazette dated 03.07.2020 and numbered 31174 provides that the solar modules to be installed in the Solar Power Plants in RERA shall have a Certificate of Domestic Goods with a minimum domestic contribution rate of 70% (seventy percent) in the RERA competitions to be held between 19-23 October within the framework of the announcement. In this study, the concept of domestic contribution rate, its calculation, and the confirmation of the calculation will be discussed.

The Concept of Domestic Contribution Rate

According to the Regulation on Renewable Energy Resource Areas published in the Official Gazette dated 09.10.2016 and numbered 29852, it is obligatory to obtain a preliminary license and a production license in order to carry out electrical energy production activities in RERAs within the scope of the RERA Usage Right Agreement. During the preliminary license process, within the context of Allocation in Return of Domestic Production (YÜKT), “the Certificate of Domestic Goods showing that it meets the domesticity rate specified in the Specifications and promised by the applicant legal entity” is also counted among the documents regarding the factory and must be submitted to the General Directorate of Energy Affairs within the period specified in the Specifications.

According to Article 13 of the same Regulation, during the licensing process, within the scope of YÜKT and Allocation for Use of Domestic Goods (YMKT), in case of detection that the domestic produced parts promised in RERA are not used, the license owner legal entity is warned to use domestic products in compliance with the Specifications. In case that the problem is not eliminated within the time specified in the Specifications and the commitment is not fulfilled, the production license for RERA will be canceled.

In the aforementioned Regulation, the domestic contribution rate is mentioned in definitions of two terms: “Domestic Goods” and “the Certificate of Domestic Goods”. According to this, Domestic Goods are defined as products that satisfy the domestic contribution rate calculated within the scope of the Communiqué on Domestic Goods and prescribed by the Specifications, and the Certificate of Domestic Goods is defined as the document showing the domestic contribution rate of the product and issued according to the principles specified in the Communiqué on Domestic Goods and the Specifications.

In subparagraph (ğ) of Article 3 titled “Definitions and abbreviations” of the Communiqué on Domestic Goods, which was published by the Ministry of Science, Industry, and Technology in the Official Gazette dated 13.09.2014 and numbered 29118, the certificate of domestic goods is defined as “the document showing that the goods offered by the tenderers in the tenders initiated under the provisions of the Public Procurement Law No. 4734 are domestic.” Article 6 of the same Communiqué titled “the Certificate of Domestic Goods” provides that “the Certificate of Domestic Goods is issued by the chamber or stock exchange affiliated to TOBB (Union of Chambers and Commodity Exchanges of Turkey) or TESK (Confederation of Tradesmen and Craftsmen of Turkey) where the manufacturer is registered.” The information which the standard form of the document must contain is also indicated in the continuation of the same article. One of this information is the “Domestic Contribution Rate”.

In Article 4 of the Communiqué titled “Domestic Goods”, the conditions required for industrial products to be considered as domestic goods are determined, and according to subparagraph (c) of the first paragraph, “domestic contribution rate must be at least 51%” in order for the product to be accepted as domestic.

The minimum limit of 51% for the domestic contribution rate means that even if an intermediate product or infrastructure is imported, the import price can be up to 49% of the final product’s total cost.

How is the Domestic Contribution Rate Calculated?

The method for calculating the domestic contribution rate is provided in Article 5 of the Communiqué titled “Domestic Contribution Rate”. Accordingly, the domestic contribution rate will be calculated by the manufacturer in compliance with the following formula:

                                                       Cost Amount of Final Product (TRY) – Cost Amount of Imported Input in Final Product (TRY)

Domestic Contribution Rate=————————————————————————————————————————— x 100

                                                                                     Cost Amount of Final Product

According to Article 5 of the Communiqué, in the calculation of the cost amounts of domestic and imported inputs constituting the final product, labor costs and material costs used both directly and indirectly, and general expenses related to the product will be taken into account. These inputs used in the production of the product will be determined by considering the book accounts, invoices, SGK (Social Security Institution) records, and similar documents.

How is the Domestic Contribution Rate Calculation Audited?

In calculating the domestic contribution rate of a product, the domestic contribution rate calculation sheet is filled by the manufacturer. The auditing process of the domestic contribution rate following this calculation is regulated in Article 5 of the Communiqué. Accordingly, the domestic contribution rate calculation is financially examined and approved by an independent accountant, a certified public accountant, or a sworn certified public accountant, and its compliance with official records is confirmed. Also, the domestic contribution rate is examined and approved technically by an expert.

The aforementioned document will then be submitted to TOBB (Union of Chambers and Commodity Exchanges of Turkey) or TESK (Confederation of Tradesmen and Craftsmen of Turkey) where the manufacturer is registered, in the annex of a letter of undertaking signed by the manufacturer or the person(s) authorized to represent and bind the manufacturer, and stating that all kinds of administrative, civil and criminal liability in case of a contrary determination are accepted. The domestic contribution rate checked and approved by the relevant chamber or exchange is subsequently included in the certificate of domestic goods.

On the other side, disclosure of certain trade secrets may be required to be made by the manufacturer to the relevant chamber or exchange for the calculating process of the domestic contribution rate. This information cannot be disclosed to or shared with anyone except the authorized authorities and cannot be used to gain a benefit or cause harm to anyone, by the relevant chamber or exchange. In this context, the relevant chamber or exchange will be obliged to take all kinds of measures to ensure the protection of information and documents related to trade secrets.

© 2020 BOSCA Law

BOSCA Law is a full-service Turkish law firm with major international and local clientele. This note is to inform our clients and others concerned about current legal developments in Turkey.  It does not constitute a legal opinion or advice. In special cases where necessary, please obtain legal advice.