President vetoes new Turkish Petroleum Law
President Ahmet Necdet Sezer notes that no activity can be held above national security interests, including oil production. The president vetoed a bill regulating the export of oil and petroleum products on Tuesday, citing risks to national security.
President Ahmet Necdet Sezer's explained the reasons for his veto saying that the bill made crude oil – a resource of strategic importance – subject to exporting activities, thus creating a risk for national security, the presidential press office said on Tuesday.
The statement compared the bill to an older law dating back to the year 1954. The first article of the proposed law aims to improve and expand oil production while its third article proposes regulating the licensing of oil production and resale but did not stipulate that national interests would be made a priority to achieve its stated purpose. The article also would call for review of license applications, which are mentioned in relevant articles of the 1954 oil law. Details about how national interests would be protected were also excluded in other articles of the stipulated law, in contrast to the two articles in the 1954 law that prescribe methods of securing national interests in detail.
The statement also said the proposal went against an article in the constitution which stipulates that no activity could be held above national security interests. “In other words, the fact that the protection of national interest is not being explicitly mentioned in the law obviously does not eradicate the responsibilities and duties of state agencies assigned to them by the Constitution. These agencies and officials are under the obligation of preserving national interests and public good as a priority in every activity and procedure.
Undoubtedly, this responsibility is larger when the products in question are of high strategic value such as oil and natural gas resources.”Sezer said the proposed law did not explicitly clarify the percentages of petroleum and natural gas products to be allotted for domestic use or exports, allowing these products to be sold to other countries without regard to the domestic consumption requirements.
Another reason for the veto was ambiguity in the percentage of state ownership of oil produced in the country.
The president, who said resources located in the country's territory belonged to the entire nation, urged the introduction of limitations on exportation of crude oil and natural gas in the proposed law.
Oil production in TurkeyOil provides over 40 percent of Turkey's total energy requirements, but its share is declining as the share of natural gas rises.
Around 90 percent of Turkey's oil supplies are imported, mainly from the Middle East and Russia. Turkey's port of Ceyhan is a major outlet for Iraqi oil exports, but oil flows have been sporadic since late March 2003, following the outbreak of the Iraq war.
Three companies account for the majority of Turkey's oil production – the Turkish State Petroleum Company (TPAO), and foreign operators Royal Dutch/Shell (Shell) and ExxonMobil.
In December 2003, a petroleum market reform bill was passed in parliament which aims to remove state controls on the sector, to liberalize the pricing of oil and oil products, end restrictions on vertical integration, and integrate pipelines, refining, and distribution functions.
In early 2004, the Turkish government approved the sale of a 66.76 percent stake in the then state-owned oil-refiner Tüpras for $1.3 billion to a group led by Russia's Tatneft. In late May 2004, a Turkish court suspended the sale after a union filed a lawsuit claiming that privatization procedures were not properly followed.
Turkish Daily News- Istanbul
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Toreador Press release
Dallas Monday, January 29, 2007
New Turkish petroleum law passed
Earlier this month, a new petroleum law was approved by the Turkish parliament that has a beneficial impact for Toreador and other exploration and production companies in Turkey. Some of the provisions include:
The royalty rate for offshore natural gas production was reduced from 12.5% to a sliding scale that will result in South Akcakoca Sub-basin production being subject to a 3% royalty for the first 3.3 million cubic meters per day (116 MMCFD) of production and 6% royalty up to 8.2 MMCMPD (290 MMCFD);
Stamp tax of 0.75% of the value of all service contracts was removed;
License terms were extended to eight years offshore and five years onshore for exploration and there is no time limit on production licenses as long as production continues.
Restrictions were lifted on the number of licenses allowed any one company, but a bond equal to 2% of the value of the work program must now be placed at the license award;
Changes to regulations and restrictions governing offshore operations were made that will reduce costs and simplify the operating environment.
In addition, Toreador is now eligible to recover $50 million of ‘registered capital’ associated with the original acquisition of Arco Turkey property and can repatriate the capital free of tax.
New Petroleum Law
Yilmaz Oz
08 February 2007 NewAnatolian
The old Petroleum Code No. 6326 in its original form (1954) was drafted with assistance from specialists of international expertise and renown and contained a multitude of very liberal and attractive incentives for oil exploration and production. However, during subsequent revisions (particularly, in 1973), most of the incentives were deleted, despite the fact that Turkey was and still is an energy-deficit country. In early 1980s, although not at the same level or scope as in the original, some of the minor incentives were re-incorporated into the Code. However, these fell pitifully short of the objectives and domestic Turkish production steadily declined while consumption requirements kept rising.
Several governments in the immediate past had not been able to push through new legislation, despite the fact that various draft laws were prepared and widely discussed. It is the current government which finally succeeded to push through a major overhaul of the system. Hence, the Parliament adopted a new code (Law No.5574, January 17, 2007), replacing Law 6326 in its entirety. The new Code will be supplemented by a set of Regulations which are as yet unpublished. This Code must be greeted as a step forward, albeit somewhat insufficient.
It is regrettable, however, that instead of focusing on where we are today as compared to 60 years ago (and why we have not been successful), we observe the same old chauvenistic criticism being repeated. The fact is that the subject of exploration and production of petroleum shows a dismal failure since 1954. As against great increases in our crude oil requirements each year, petroleum activities both on-land and offshore have steadily decreased with corresponding decrease in production. Since the Council of Ministers’ landmark Decree in 1966, declaring and reasserting Turkey’s exclusive rights to exploration and production, not only on the Turkish territorial waters but also on the Continental Shelf area and the Exclusive Economic Zone contiguous thereto, as issuing from International Maritime Law, only a handful sea-drillings have been made. Yet, all over the World new substantial oil is being found on, particularly, offshore areas.
Turkey today produces about 60,000 barrels of crude oil daily, as against 800,000 it consumes. In 2005, the last year for which statistics were located, the total of wells drilled in Turkey by 35 different operators was 89, bringing the overall total wells drilled since 1934 to 3118. The naked
truth remains that some of the countries such as Libya, Egypt, Algeria, Nigeria, and Gabon which have initiated their oil and gas legislation much later than Turkey, have surpassed and are now selling us oil and gas.
The new Code is much simplified as compared to the old, which in its attempt to cover all relevant issues in a single text, had contained 135 articles (along with many more in its supplementary Regulations).
The following may be cited among the new incentives introduced by the Code:
Aggregate tax burden not to exceed 40 % of corporate income; Royalties progressively reduced based on such factors as production rates, production from offshore areas; secondary production or low-gravity crudes; VAT exemption on purchases of goods and services for the conduct of bona fide“exploration” activities ; Reduced corporate tax withholding rate (5 %) on professional services when they relate to exploration; Stamp tax exemption on papers relating to exploration and production; Exemption from Special Consumption Tax for heavy-duty tractors,loaders, transporters, mobile cranes and field vehicles.
The new Code has not yet been publicised in the Official Journal, since the President, invoking his prerogative under the Constitution returned it to the Parliament on February 7, 2007, to be debated again. The President’s objections , in summary, are that the new Code fails to include the “national interest” criteria in the grant of petroleum rights; the grant of the right to export all production may place the country in difficulties during extraordinary times; provision of the old Code should be reinstated disallowing companies owned or controlled by foreign governments to obtain petroleum rights; and, reductions envisioned in royalties cannot be justified. The President also objects to allocation of half of the royalties to
provinces wherein the production licenses are issued.
Respectfully, we beg to differ. From a legal standpoint, it is immaterial whether or not the “national interest” criteria is inserted or emphasized upon in the new Code, inasmuch as it is an underlying principle of all legislation of the Republic, anyway. It does not need to be reaffirmed in every piece of legislation and all governments are duty bound to comply with it, especially when the grant of rights is in question. Any application which the Government deems to be against national interests could and should, of course, be denied; the right to export all production may be curbed invoking authority under other laws already existing; the old Code did not entirely disallow companies owned or controlled by foreign governments, as it provided for exceptions per Council of Ministers’ decree, and such exception was invoked at least 7 or 8 times for such companies from several friendly countries; in view of current state of Turkey’s geology, economy and geopolitical situation, reductions in royalties based on quantity and quality and provenance (onland or offshore) do make sense. On the other hand, we feel that the President is quite correct in demanding that the royalty revenues not be shared with provinces, but rather be incorporated in the national budget.
In summary, the new Turkish Petroleum Code, although not suffiiciently bold, represents a realistic and correct step in the right direction. It should serve to attract new and serious players with a view to increase exploration and production of oil and gas in Turkey in the immediate future.
Sezer vetoes Oil Law, cites national interests
The government’s efforts to open Turkey’s energy resources up to private investment was stopped by President Ahmet Necdet Sezer, who vetoed the Oil Law on Tuesday.
Sezer sent the law back to Parliament to be discussed once more, noting that the law went against national interests. He objected to it because of the apparent lack of power given to governmental authority and exclusive rights bestowed on foreign investors.
Sezer pointed out that wars erupted over gaining control of oil resources and said Turkey had taken precautions as it had faced isolation after Turkey’s 1974 intervention in Cyprus. He said that Turkey couldn’t find enough fuel to fly its aircraft during the intervention in Cyprus, so the law was legislated to prevent the same thing from happening again. He said the abolishment of barriers erected to prevent foreign countries from having access to Turkey’s strategic resources would threaten Turkey’s security in the future.
Sezer said the law didn’t meet the “obligations to fit the national interests during the completion of the goal,” in its original version. He also said that there were no statements that said how to protect national interests over this “critical” issue. “This conflicts with the statement about ‘activities that contradict national interests’ mentioned in the Constitution,” said the president. Sezer said the constitution was superior to legislative, executive and judicial bodies and other institutions.
“This superiority shows that the national interests should be protected by all bodies and persons. As it regards the strategic resources like oil and natural gas, it is doubtless that this responsibility becomes heavier,” Sezer said. The law didn’t specify how much of the oil and natural gas would be used for the country’s own needs and how much would be sold, he emphasized. “In other words, it was understood that the law doesn’t mention any rule that obligates sparing natural gas or oil extracted in the country for the country’s needs,” he said.
Sezer also noted the law required the public to give up its exclusive right to explore for oil and natural gas and sign it over to local and foreign investors. He reiterated that the law must have provisions forbidding foreign companies from exploring for oil, acquiring property or setting up establishments to search or extract oil. “The lack of obligation to spare shares for the country’s needs means leaving the country at the mercy of foreign countries,” said Sezer. He said the regulation that was brought by the legislation would harm the nation’s unity and feed regional sectarian movements over natural resources. 07.02.2007
Istanbul Today’s Zaman
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