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Turkey to see over-the-counter electricity trading agreements before year-end

07 Sep 2011 14:55:22 | edem

Turkey's over-the-counter (OTC) traded electricity market could take off by the end of the year, as counterparties are expected to sign the first standard master agreement within a month, ICIS Heren has learnt.

The Turkish Energy Traders Association (ETD) and the European Federation of Energy Traders (EFET) launched the Turkish version of the standard OTC contract earlier in July (see EDEM 20 July 2011).

Statkraft, a European company active in Turkey, has now told ICIS Heren that it is in the process of completing the required financial and risk checks, and that it will sign the contract with a major private counterparty within a month.

"We want to be pioneers in the market," said Statkraft trader Servet Akgün. "In a month's time, we are hoping to sign the first one [contract]. And when we have a number of them, then we are calling on all parties to start trading. The next step would be to meet people on [broker] screens."

The contracts will allow counterparties to trade standard OTC products on broker screens.

He admitted that OTC trading could be hampered by the Turkish stamp duty, a tax that represents 0.825% of a deal's value, and would have to be applied to traded contracts.

The trader said ETD has been overhauled to increase its clout when lobbying the government and other related bodies: "The only serious hurdle at the moment is the stamp duty. I have no doubt, however, that ETD will be lobbying hard on this issue, which will hopefully be sorted out soon."

Akgün explained that the launch of a financial futures exchange on TurkDEX, Turkey's derivatives exchange, would not only allow parties to start trading on a platform, but also pave the way for scrapping the stamp tax.

"If electricity is traded as a financial instrument, rather than [as] a commodity, it will be exempt from the levy. If TurkDEX is allowed to start trading electricity without stamp tax, this will be a very easy step towards granting an exemption on OTC because it is basically the same," he told ICIS Heren.

The trader pointed out that the bulk of trading on European markets was on OTC screens: "I support both options. At this moment, Turkey is the region's rising star. No-one wants to miss the train of trading in this vast market with vast potential. Growth rates are high, inflation is getting lower, all macroeconomic indicators - bar the current account indicator, which is very structural - everything is getting better.

"The most important thing is to get all stakeholders on board. There are still state-owned outfits that are unlikely to get on the screens from day one. Then there are big private companies in Turkey [that] still prefer [signing] bilateral contracts with eligible customers and distribution companies, as well as playing a bit on PMUM, the local power exchange. It will be simply a case of getting everyone to understand the potential of this market and what it could bring to the economy as a whole."

Demand in the Turkish electricity market is predicted to increase by an annual 7.2% over the next 10 years, and its total installed capacity is tipped to double to 60GW by 2019.

The country is also liberalising its energy markets. Distribution grids have already been privatised, and the same is set to happen to assets belonging to EÜAŞ, the state-owned power incumbent. A total of 16GW from the EÜAŞ portfolio is now up for grabs.

Day-ahead launch

There are expectations that Turkey would launch its own Day-ahead market in December, which could replace the existing transitional Day-ahead planning exchange.

Energy regulator EMRA has published a document that includes structural changes within the current exchange set-up. The changes will penalise any arbitration deals between the balancing market and the Day-ahead platform, and aim to ensure that the market would reflect the supply-demand logic.

The launch of the upgraded Day-ahead exchange would be a landmark in the Turkish power market, as participants are expecting the bourse to publish a much-needed daily index. However, the launch of the platform has been delayed on several occasions, and could be postponed further because of software problems (see EDEM 25 August 2011). EMRA and PMUM have not made any official relevant comments.

Statkraft's Akgün said: "Hopefully, as of 1 December, the Day-ahead market will move into a new stage, as promised months ago, which we believe would accelerate the overall market development.

"But we want to stress the importance of the credibility of governing bodies in the markets. It is understandable that any process can be delayed. However, this should not happen all the time, and every related party should stick to deadlines." AS

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