SHARE TRANSFERS UNDER TURKISH ELECTRICITY MARKET LEGISLATION
Pursuant to the Electricity Market Law numbered 6446, “the Law”, electricity market activities consist of generation, transmission, distribution, wholesale and retail sale, market operating, import and export activities. It is mandatory that the legal entities that will operate in the electricity market be incorporated as a joint stock company or a limited company and it is also required that the shares of joint stock companies other than those quoted at the stock exchange be in the name of the holder in accordance with the related legislation.
According to the Law, share transfers representing the threshold values or above of the capital of a license holder legal entity, any kind of transactions that will result in the change of control and transactions and procedures that will result in the change of ownership or right of use of the facilities are subject to the approval of EMRA.
In addition, it is prohibited by the Law that the partnership of legal entities engaged in a market activity to other legal entities operating in another market activity in some cases.
In cases where the share transfer is subject to the permission of the EMRA, the share transfers made without the permission of EMRA are subject to administrative fines and under certain conditions, the cancellation of the license.
It is mandatory that the legal entities, which are subject to private law provisions that will operate in the electricity market be incorporated as a joint stock company or a limited company in accordance with the provision of the relevant legislation.
The legal entities operating in the electricity market are subject to Turkish Commercial Code provisions. In addition, there are additional regulations in the Electricity Market Law for companies operating in this field, such as the share structure, minimum capital, partnership structure and supervision of the companies. Apart from this, share transfers of company shareholders are also subject to a number of additional regulations and restrictions, unlike the “Commercial Code”. Therefore, companies operating in the electricity market will be subject to the “Law”, “Commercial Law” and secondary legislation of Energy Market Regulatory Authority (EMRA).
Company shares represent each unit of the company’s capital, but also allow the identification of company partners. Thus, it can be determined who the shareholder behind the corporate legal personality is, who manages the company directly or indirectly and who is effective and responsible for the decisions adopted.
Article 490/1 of the Turkish Commercial Code states that unless otherwise provided by law or Articles of Association, shares in joint stock and limited companies may be transferred without any limitation. The phrase of “by law” in the said article covers the provisions that limit the transfer of shares not only in the “Commercial Code” but also in all other laws. In this regard, the “Law” and Electricity Market Licensing Regulation contain regulations regarding the share transfer.
In the aforementioned legislation, the issue of share transfer is regulated separately for the companies of the stages of pre-license and license. Since it is aimed that companies only focus on the works and transactions required for investment during the pre-license stage, except for reasons of inheritance and bankruptcy, direct or indirect change of partnership structure of the pre-license holder legal entity, transfer of shares or performing work or transactions that result in the transfer of shares are not allowed. In the Regulation, this exception was further expanded and some additional exceptions arising from the needs of the application are introduced.
According to Article 57 of the Electricity Market Licensing Regulation, license holder legal entities can make share transfer. Hereunder;
Sub-section 2 of Article 57 of the Electricity Market Licensing Regulation requires the approval of EMRA of the following each time; directly or indirectly acquiring the shares that represent ten percent or more of a legal entity’s capital and the shares that represent five percent or more in public companies by a real person or a legal entity, moreover, the share transfers that result in a change of control in the partnership structure of the legal entity or any other transactions causing the same result independent from the capital changes.
If the share rate is below the threshold where it is obligatory to obtain permission from EMRA in the relevant legislation, it is not a share transfer that will create any control change in the company and result in a change in partnership structure or result in the change of the ownership or the right of use of the facilities, it is not necessary to obtain permission from EMRA.
However, apart from these general provisions regarding share transfer, the issue also needs to be evaluated in terms of whether a company with a generation license can become a shareholder in a company with other licenses.
It is prohibited by the Law that the partnership of legal entities engaged in a market activity to other legal entities operating in another market in some cases. Under the article 9/1 of the Law on Electricity Market, it is stipulated explicitly that the legal entities conducting market activities may not directly become a partner with a distribution company, nor may the distribution companies directly become a partner with legal entities conducting market activities.
In parallel with this regulation, according to 2-t and 2-u subsection of Article 33 of the Bylaws on Electricity Market Licensing regulating “Rights and Responsibilities of the Distribution License Holder”;
- the legal entity holding distribution license may not to be a direct shareholder to other legal entities engaging in market activity.
- the legal entity holding distribution license are obliged not to include legal entities operating in the market as direct shareholder in its partnership structure.
Apart from this, there is no provision in the “Law” and other regulations that prohibits the partnership of legal entities engaged in market activities to legal entities engaged in other market activities.
In addition, there shouldn’t be any provision preventing such a shareholding in the Articles of Association of the companies.