HOW TO MAKE A FORCE MAJEURE APPLICATION IN TURKISH NATURAL GAS MARKET?

Introduction

Natural gas, which is an increasing energy resource in the world energy resources, is the subject of important trade flows in the international arena. For Turkey, as a developing country having a rapidly growing energy needs, natural gas is one of the important elements of rapid and sustainable economic development.

The operations and activities in the natural gas market in our country are mainly carried out within the framework of the Natural Gas Market Law No. 4646 (“Law”) and the Natural Gas Market License Regulation (“Regulation”).  

The Covid-19 global epidemic, the effects of which are seen globally and in all sectors, will undoubtedly affect the energy market and more particularly the businesses and transactions in the natural gas market.

In this article, the concept of force majeure and application conditions in terms of license obligations in the natural gas market are evaluated.

The Concept of Force Majeure in the Context of Natural Gas Market Law and License Regulation

Although no definition has been made in our legislation, the concept of force majeure, which affects almost all branches of law, shall be applicable in our legal system within the framework of Supreme Court decisions and precedents.

According to the general view in the doctrine, “force majeure” is an event that takes place outside the control areas of the parties, which is an unavoidable and unpredictable event that leads to the violation of a general rule of conduct or debt.

Again, in a decision of the Supreme Court Assembly of Civil Chambers, the force majeure was defined as “an extraordinary event that occurs outside parties’ activity and operation, which leads to the violation of a general rule of conduct or debt in an absolute and inevitable manner, which cannot be foreseen and resisted” and “natural disasters such as earthquake, flood, fire, epidemic diseases” are considered as force majeure (YHGK 2017 / 11-90 E., decision 2018/1259 K. and dated 27.06.2018).

Although there is no regulation on the concept of “force majeure” in the Law, force majeure is defined and the effects of force majeure on the licensee’s obligations are stipulated in Article 46 of the Regulation titled “Force Majeure”. According to this provision;

“In order for an event to be regarded as a force majeure; although the party affected by the event has taken due care and attention and has taken measures, it cannot be prevented, avoided or eliminated and this event should prevent the affected party from fulfilling its obligations under the relevant legislation.”

Although the events as force majeure are not counted one by one, it will be possible to reach a conclusion about what events may be force majeure by considering the definition of “force majeure” in the said article, the reasons specified in the Supreme Court decisions and the force majeure events listed in other legislation.

In the current situation, considering all the measures taken not only in our country but also globally, it would not be wrong to say that the Covid-19 global epidemic has a serious negative impact on the energy sector. In the energy sector, where there are serious problems in global supply chains and production, it can be seen that the effects of the global epidemic will increase as in all other sectors. Therefore, it is indisputable that the Covid-19 global outbreak will be regarded as a force majeure for the natural gas sector.

Although the Covid-19 global epidemic is objectively accepted as a force majeure, this acceptance is not sufficient for the licensee to claim the force majeure in accordance with the Regulation. For this, the current force majeure condition should prevent the licensee from fulfilling its obligations under the relevant legislation. In other words; to the extent that the obligations envisaged in the Law and Regulation are affected, license holders will be able to benefit from force majeure.

Force Majeure Application in the License Period

The license is a permission certificate given to legal entities by the Board to engage in market activities respectively for each market activity in accordance with the Law. Legal entities who want to operate in the natural gas market must obtain a license from the Board. Pursuant to Article 6 of the Law, the types of licenses that can be obtained from the Authority according to their fields of activity; import license, transmission license, storage license, wholesale license, distribution license, compressed natural gas (CNG) license, export license. Pursuant to Article 11 of the Regulation, license applications related to import, export, distribution, storage and pipeline and, transmission activities are finalized by the Board; license applications for wholesale, wholesale (OTOLNG), compressed natural gas (CNG) and transmission (LNG) activities are finalized by the Authority.

According to Article 11 of the Regulation, the applicant legal entity, who is deemed eligible to obtain a license as a result of the review and evaluation of the license application, shall be notified in writing that the relevant license shall be issued in the event that the documents, indicating the obligations listed in the third paragraph of the same article have been fulfilled, are submitted to the Authority within ninety days from the date of written notification. Provided that the other obligations in this paragraph are fulfilled within ninety days, this period is applied as three hundred days for the submission of the Environmental Impact Assessment Positive Decision for projects subject to Environmental Impact Assessment within the scope of the Environmental Impact Assessment Regulation. A license is granted by the Board/Authority to the legal entity fulfilling its obligations.

According to Article 11/4 of the Regulation;

“Except for force majeure reasons, if the documents indicating that these obligations have been fulfilled within the periods stipulated in the third paragraph are not submitted to the Authority, the license application is rejected by the Board/Authority and one percent of the license fee is registered and the application document is returned.”

Within the framework of this provision; as a consequence of the Covid-19 global epidemic, the license applicant will be able to apply to the Board/Authority if he is unable to fulfill his obligations within the periods specified in this article.

Article 46/2 of the Regulation is as follows;

“In case of force majeure conditions, the liabilities of the licensees arising from the applicable legislation may be postponed by a Board decision to the extent they affect until the effects of force majeure conditions are eliminated. In cases where it is understood that it is impossible to fulfill such obligations, the Board may also decide that the relevant obligations of the licensee be eliminated. In order to be granted postponing or elimination of obligations by a Board decision, the licensees have to file an application with the Authority within fifteen days following the start of such force majeure conditions. The application shall indicate the reason, starting date, content, the effects on the licensed activities and if possible, estimated time for elimination of such force majeure conditions. It is not possible to request the elimination of the obligations regarding transmission and distribution activities.”

Therefore, if force majeure occurs, the licensee obligations arising from the relevant legislation may be postponed to the extent that they affect by the Board’s decision until the effects of force majeure are eliminated. The Board may decide on this direction ex officio, or upon the application of the licensee. In cases where it is understood that it is impossible to fulfill such obligations, the Board may also decide that the relevant obligations of the licensee be eliminated.

Activities that cannot be postponed or abolished due to force majeure in the Natural Gas Market

Natural gas market activities are stated in the Article 4/4 of the Law as imports, production, transmission, storage of natural gas, wholesale, distribution of natural gas in the city and distribution, and transmission of compressed natural gas. Some of these activities cannot be postponed or stopped due to force majeure.

Under Article 46 of the Regulation, it is stipulated that “ It is not possible to request the elimination of the obligations regarding transmission and distribution activities.” 

Accordingly, under the provisions of the Law and Regulation; in the transmission activities defined as “natural gas delivery by gas pipeline networks excluding gathering lines used for generation purposes and distribution networks, or by delivery equipment for liquidated natural gas (LNG)” and distribution activities defined as “Transfer of natural gas for purposes of delivery to clients through a local gas pipeline network and it’s retailing”, the licensee will not be able to withstand force majeure. In other words, it will not be possible to postpone or stop the obligations specified based on force majeure. Essentially, the postponement or abolition of these obligations would clearly be against the principles of public interest and social state.

Procedure for Postponing the Licensees’ Obligations in the Context of Force Majeure

Under Article 46 of the Regulation, it is stipulated that if force majeure occurs, 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 the said obligations cannot be fulfilled, the Board may also decide to lift the liability of the legal person.

In order to make a decision to postpone or abolish the obligations, the licensee needs to explain the things following by applying to the Authority for force majeure;

• starting date of force majeure,
• its nature,
• its effects on liabilities and, if possible, the estimated removal time of the effects.

The licensee must apply in writing within fifteen days from the start date of the force majeure.

However, as stated above, it will not be demanded to postpone or abolish obligations related to transmission and distribution activities.

Result

In case of force majeure situations; as the licensees and license applicants’ obligations arising from the relevant legislation are affected by force majeure, the obligations may be postponed by the Board ex-officio, and the licensees and license applicants may claim from the Board in this direction.