Discussions On The Efet General Agreement (Electricity)

DISCUSSIONS ON THE EFET GENERAL AGREEMENT (ELECTRICITY) Değer Boden Akalın BODEN LAW OFFICE

22 April 2011 1

DISCUSSIONS ON THE EFET GENERAL AGREEMENT(ELECTRICITY) • Overview of the EFET Agreement • Use of the EFET Agreement in the Current Market Set-Up • Analysis under Turkish Law

• Proposed Amendments on the EFET Agreement for Internal Trade (Turkey specific Election Sheet and Individual Contracts) • Discussions

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Overview of the EFET Agreement (Electricity) •Master Agreement •Standardization •Provisions agreed upon in the negotiations between the parties and alternative provisions via Election Sheet •Individual Contracts: price, quantity etc. •Netting (optional right) •Physical delivery

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Use of the EFET Master Trading Contract in the Current Market Set-Up -

Cross-border electricity trade • The parallel trial interconnection with ENTSO-E’s Continental Europe Synchronous Area passed into the third phase • Limited capacity allocations for commercial electricity exchanges were started between Turkey and Greece-Bulgaria on 20 June 2011

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Domestic electricity trade (bilateral agreement)

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Analysis Under Turkish Law • • • • •

Language of the Agreement Applicable Law Jurisdiction and Arbitration Formation of Individual Contracts Notices and Notifications

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Language of the Agreement • Turkish Language Requirement under the Law No. 805 - An agreement between two Turkish companies (internal trade/bilateral agreement): All Turkish companies are obliged to execute the agreements that they conclude in Turkey with other Turkish parties in Turkish language - An agreement between a Turkish company and a foreign company (cross – border trade): Foreign companies are required to use Turkish language in their «correspondence, transactions and communications» with Turkish parties and in «documents to be submitted to governmental authorities» in Turkey • Mandatory nature of the provisions of the Law No. 805 • Non-compliance with such provisions --- monetary fine 6

Applicable Law - Freedom to chose a foreign law as applicable law - Court of Cassation Decision No. 1008/325: The mere fact that the parties choose a foreign applicable law constitutes a foreign element - An agreement between two Turkish companies (internal trade/bilateral agreements): Turkish law - An agreement between a Turkish company and a foreign company (cross – border trade): Foreign or Turkish law

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Jurisdiction and Arbitration - No restriction regarding selection of foreign courts or arbitration - Enforcement of foreign arbitral awards subject to the New York Convention - Arbitration taking place in Turkey– local arbitral award – no enforcement procedure - Local arbitral award (with a foreign element in dispute) – IAL --- setting aside procedure and waiver - Local arbitral award (without a foreign element in dispute) – Civil Procedure Code– appeal

- An agreement between two Turkish companies (internal trade/bilateral agreement): Turkish courts/ arbitration in Turkey - An agreement between a Turkish company and a foreign company (cross – border trade): Foreign courts, arbitration or Turkish courts

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Formation of Indivudial Contracts -

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No written contract requirement for validity Evidence with written document (deed) for transactions above circa Euro 295 (under the new Civil Procedure Code which will be effective on 1 October 2011 circa Euro 1250) Electronic signature Evidence agreement Lex fori evaluation (by the authorized courts) of evidence

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Notices and Notifications • Law to apply to the form of legal transactions (Such as notices, notifications) to be determined by the competent court as per conflict of laws rules • Turkish conflict of law rules: (i) law of the country where the transaction is made, (ii) applicable law to the legal transaction • Turkish Commercial Code: Notices and notifications between merchants for putting the other party in default, terminating the contract or revoking the contract have to be made via notary public or return receipt requested mail • New TCC (effective as of 1 July 2012) Art. electronically signed and sent documents 10

Proposed Amendments on the EFET Agreement for Internal Trade (Turkey specific Election Sheet and Individual Contracts) • Article 2.4 Determination of the time zone in the Election Sheet • Article 3.1 Inserting the phrase “unless otherwise specified in the Election Sheet” into the General Agreement and inserting the optional right to the Election Sheet regarding Article 3.1 that Individual Contracts shall be concluded in written form (additionally, specifying that the exchange of written Confirmations will be also considered as written agreement) • Broadening the definition of Network Operator in General Agreement to cover Market Operator in Annex 1 11

Proposed Amendments on the EFET Agreement for Internal Trade (Turkey specific Election Sheet and Individual Contracts) • Article 4 Specifying in the Individual Contract that the Seller is responsible for notifying the electricity quantity to PMUM and in case of a conflict between the amount in the notification made to PMUM and the Contract Quantity, the latter will prevail • Article 8 Determination of a reference price as the market price: (i) system marginal price; (ii) system day-ahead price; (iii) the average of system marginal price and system dayahead price or (iv) the higher price among system marginal price and system day-ahead price

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Proposed Amendments on the EFET Agreement for Internal Trade (Turkey specific Election Sheet and Individual Contracts) • Article 13.1: Inserting a standard invoicing date to Part Two of the Election Sheet (last day of the month) • Article 13.2 and 13.3: Changing the currency as TL in the General Agreement; providing the option to choose Euro in the Election Sheet • Article 14.4, 14.5 and 14.6 to be removed • Article 17: references to the German Law to be removed • Paragraphs (g) and (l) of Article 21.1 to be removed • Article 22: Selection of the Turkish law and arbitration mechanism in Turkey in the Election Sheet 13

Proposed Amendments on the EFET Agreement for Internal Trade (Turkey specific Election Sheet and Individual Contracts) • Article 23: Inserting a provision in Part Two of the Election Sheet stating that notices and notifications will be made in accordance with the Article 20(3) of the Turkish Commercial Code or Article 18/3 of the new Turkish Commercial Code • Article 23: Inserting a provision in the Part Two of the Election Sheet stating that the «Turkish version shall prevail» in contracts between Turkish companies

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Discussions • Can we change and replace a provision of the General Agreement in the Election Sheet even if there is no «unless otherwise specified in the Election Sheet» wording in the General Agreement? • Why there is a Settlement/Termination Amount in case of a Force Majeure? • Clause 14.4 of the General Agreement: Why the counter party cannot be an end-user? • Is there a stamp duty in cross-border transactions? • Clause 10(5)(d) of the EFET Agreement is designed for situations where there would only be one delivery per day which may be amended in the Election Sheet if there would be more than one delivery per day.

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Discussions • Confusing wording of Clause 10.5 (b) (i) and (ii) (i)

any payment default under any Specified Indebtedness with an aggregate outstanding principal balance equal to three percent (3%) of the Tangible Net Worth of such (aa) Party's, or (bb) such Party's Credit Support Provider (if such Party has a Credit Support Provider) or (cc) such Party's Controlling Party (if such Party does not have a Credit Support Provider but has a Controlling Party), as the case may be as of the date of the default, or (ii) the failure of a Party or its Credit Support Provider or Controlling Party to make one or more payments in an aggregate amount (individually or collectively) of not less than the Threshold Amount specified in the Election Sheet for that Party under such agreements or instruments entered into between such Parties or their Affiliates (after giving effect to any applicable notice requirement or grace period).

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Discussions • Equivalent provision in the EFET Gas Agreement «Cross Default and Acceleration» (i) any default, event of default or other similar condition or event (however described) in respect of such Party, such Party’s Credit Support Provider (if such Party has a Credit Support Provider) or such Party’s Controlling party (if such Party does not have a Credit Support Provider but has a Controlling Party) under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the Threshold Amount (as specified for that Party in the Election Sheet) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable, or (ii)the default of a Party or its Credit Support Provider or Controlling Party (individually or collectively) to make one or more payments on the due date thereof in an aggregate amount of not less than the Threshold Amount (as specified for that Party in the Election Sheet) under one or more agreements or instruments relating to Specified Indebtedness (after giving effect to any applicable notice requirement or grace period)."

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