HOW WILL PUBLIC ENERGY PERFORMANCE CONTRACTS BE IMPLEMENTED?Süleyman Bosca
Some amendments were made in Energy Efficiency Law No. 5627 with Law No. 7103 dated 21.03.2018 for increasing energy efficiency in the public sector. With these amendments, “Energy Performance Contracts” are defined in the legislation as contracts based on the principle of guaranteeing energy savings after the project and paying the expenditures made with future savings, allowing public institutions and organizations to make energy performance contracts to reduce energy costs and consumption. The procedures and principles for its implementation were also stipulated to be determined by the President.
The Decree on the Procedures and Principles Concerning the Public Energy Performance Contracts was published in the Official Gazette dated 21.08.2020. With this Decree, the procedures and principles regarding energy performance contracts to be concluded by public administrations within the scope of general government and other public institutions and organizations to reduce their energy consumption or energy expenditures are regulated. It is foreseen that other issues related to the tenders to be held within this scope will be determined by a Communique issued by the Ministry of Energy and Natural Resources (“Ministry”).
The steps to be followed by the administrations that will conclude an energy performance contract are defined in the Decree No. 2850.
- Organization of Survey Reports and Determination of Energy Efficiency Measures
In order to conclude a contract, the relevant administrations shall prepare or have prepared survey reports, the format of which is determined by the Communiqué issued by the Ministry, in accordance with the procurement procedures to which they are subjected before the tender. In the event that the administrations have survey-project certified personnel, they may prepare the said survey reports themselves or have them prepared by energy efficiency consulting companies. The administrations shall decide which energy efficiency measures to be implemented in their survey reports.
- Completion of Tender Preparations and Tender Announcement
After the completion of the tender preparations for the project, which includes energy efficiency measures to be applied in the application area determined by the administration, the tender is announced through the Electronic Public Procurement Platform (EKAP).Tenders in this scope shall not subject to Public Procurement Law No. 4734 except penalty and prohibition provisions of Law No. 5627. Tenders shall be made in accordance with the sealed bid procedure.
Possible bidders may examine the implementation area on the date and/or dates determined by the administration before submitting their bids. In case of objection to the prepared survey report or the specifications in due time, the objections raised shall be evaluated by the administration. Where necessary, an addendum shall be published and the survey report and specifications shall be finalized before the bid.
Tenders within the scope of this Decree shall be carried out under the following terms:
- a) The investment value within the scope of the contract cannot be less than TRY 2,000,000.
- b) In the measures to be implemented in buildings, savings corresponding to at least 10% of the total annual energy consumption of the area of implementation shall be guaranteed, or at least a 20% savings guarantee shall be provided for each energy efficiency measure to be applied in any final energy consumption area. In the implementation areas other than buildings, as of the start of savings, the administration shall be given a share of at least 10% of the annual savings during the remaining contract period.
- c) The simple payback period of the energy efficiency measures within the scope of the contract cannot be less than 2 years.
The administration may postpone, suspend, or cancel the tender at any stage until the signing of the contract.
- Receiving the Bids of the Bidders
Bidders with legal personality hiring measurement verification experts may place bids in tenders. Bidders with legal personality which do not hire measurement verification experts may place bids in tenders by establishing a business partnership or subcontractor relationship with an energy efficiency consulting company, hiring a measurement verification expert.
For the tender to be finalized, at least 2 bids deemed valid by the bid evaluation commission must be received. Otherwise, the tender shall be cancelled.
Bidders to participate in the tender shall submit the bid bond amount determined by the administration, which is not less than 2% of the investment cost.
The administrations may define a maximum contract term that can be offered in accordance with the project and the contract term cannot exceed 15 years.
- Evaluation of Bids by the Bid Evaluation Commission
The relevant administration constitutes a bid evaluation commission. The commission consisting of at least 5 persons including at least 3 engineers (mechanical, electrical, or civil engineers) and at least 2 people working in the field of accounting and finance, formed by the administration in accordance with the nature of the work to be done in order to evaluate the bids, conduct and finalize the tender process.
The bid evaluation commission shall examine the proposals by taking into account the project cost including investment, annual maintenance, operation and renewal costs (including personnel, spare parts, consumables, heavy maintenance, license costs, and similar expenses), equipment life, the monetary value of the savings to be achieved during the annual and economic life and the savings and the payment terms to be agreed with the contractor. The proposal with the highest NPV in terms of net benefit to be provided to the administration during the project’s economic life shall be determined as the most suitable offer. In the Decree No. 2850, NPV was defined as “the difference obtained by deducting the present value of project expenses from the present value of the income generated during the economic life of the investment expected to provide savings” and it is stipulated that the calculation method would be determined by the Communiqué to be issued by the Ministry.
- Signature of Contract with the Bidder Whose Bid is Approved
The bidder whose bid is approved by the bid evaluation commission shall be invited to sign the contract following the approval of the administration after the tender processes are completed. Following the provision of the necessary collaterals, the administration signs a contract with the bidder deemed appropriate. For the contract to be signed, the bidder eligible by the Bid Evaluation Commission must submit the final guarantee determined by the administration, provided that it is not less than 4% of the investment cost of the bid submitted.
The contract price to be signed between the administration and the contractor cannot be equal to or higher than the total savings to be provided during the economic life of the implementation project.
- Work and Transactions on Implementation and Monitoring Period
As per Article 8 of the Decree No. 2850, the contractor shall be responsible for the detailing, implementation, and guaranteeing of performance of the energy efficiency measures, as well as maintenance/repair, if included in the specifications, operation, and all other terms related to the project defined in the contract, specifications, and annexes thereof throughout the contract term.
After the signing of the contract, the implementation and monitoring period begins. In accordance with Decree No. 2850 “implementation period” means the investment period that includes the detailed engineering, procurement, installation, testing, and commissioning processes between the date the contract is signed and the date of the project’s acceptance.
The relevant administration constitutes the implementation supervision commission. The commission formed by at least three engineers (mechanical, electrical, or civil engineers) selected by the administration according to the nature of the work to be done in order to verify whether the works and proceedings to be performed during the implementation period and the monitoring period are carried out in accordance with the contract.
In the event that the project is not completed within the implementation period except for force majeure events and delays caused by the administration organizing the tender, the administration may grant additional time in accordance with the contract. If the work cannot be completed at the end of the additional time, the administration shall terminate the contract and record the collateral as revenue.
Monitoring and guarantee period starting from the date the implementation project is accepted by the implementation supervision commission. From the beginning of the monitoring period, the ownership of the investments made and the equipment used within the scope of the project passes to the administration. With the beginning of the monitoring period, a new obligation will arise for the contractor. The contractor shall prepare an annual savings verification report at the end of each 12-months completed from the beginning of the monitoring period. According to the savings verification report, if no savings are achieved, the administration shall terminate the contract and record the collateral as revenue.
- Payments to the Contractor If Conditions Arise
As stated before energy performance contracts are based on energy savings guaranteed after the project and that the expenses are paid with future savings.
Under Article 9 of the Decree No. 2850, if the savings verification report is deemed appropriate by the implementation supervision commission, the contractor shall be paid at the rate specified in the contract over the verified annual savings in accordance with the budget allocations for energy purchase costs of the administration, provided that it is not higher than the annual savings specified in the contract.
In the event that the implementation supervision commission does not approve the savings verification report, no payment shall be made. If the administration and the contractor cannot reach a final agreement on the savings verification report, upon the request of the contractor the administration receives the opinion on the savings verification report of a measurement verification expert approved by both parties, at the expense of the contractor. Following the submission of the savings verification expert’s opinion on the report, payment shall be made if the administration and the contractor agree. In case of failure to reach an agreement, the parties shall reserve their rights to take legal action.
Another obligation faced by the contractor is at the end of each 12-month period in which the monitoring period begins, the contractor must provide at least 70% of the savings guarantee it undertakes. If the verified savings amount falls below this rate, no payment shall be made to the contractor and the contractor may revise the project provided that it does not impose a financial burden on the administration.
As a result, the procedures and principles concerning energy performance contracts to be concluded by public administrations within the scope of general government and other public institutions and organizations were determined by the regulations Law No. 5627 and the Decree No. 2850. With the publication of the Communiqué provided for by the Ministry, relevant public institutions and organizations will be able to follow the steps outlined above in the energy performance contracts that they shall conclude to reduce energy consumption or energy costs.
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