Local Expert: Gide Loyrette Nouel Danışmanlık Hizmetleri Avukatlık Ortaklığı

TURKEY Core Area Summary of PFI Guide recommendations 1 / Best Practice Rating Assessment 1- Policy Framework Existence of a policy framework for public private partnerships ("PPPs").and existence of specific concession law or of a comprehensive set of laws regulating concessions and allowing a workable PPP regime. 12/21 0,57 2 Institutional Framework Existence of an institutional framework for public private partnerships 5/9 3-Definitions and Scope of the Concession Law 4-Selection of the Concessionaire 5-Project Agreement 6-Security and Support Issues 7-Settlement of Disputes and Applicable Laws ("PPPs"). and clear separation from Public Procurement Existence of a clear definition of the boundaries and scope of application of the concession legal framework (definition of "concession", sectors concerned, competent authorities, eligible concessionaires) limiting the risk of a challenge to the validity of concession contracts irrespective of the name given to the act. Mandatory application of a fair and transparent selection process. Limited exceptions allowing direct negotiations, competitive rules for unsolicited proposals and the possibility to challenge illegal awards. Flexibility with respect to the content of the provisions of the concession agreements which should allow a proper allocation of risks without unnecessary or unrealistic/not bankable/compulsory requirements/interferences from the contracting authority (obligations, tariff, termination, compensation). Availability of reliable security instruments on the assets and cash-flow of the concessionaire in favor of lenders including "step in" rights and possibility of government financial support or guarantee of the contracting authority s proper fulfillment of its obligations. Possibility to obtain proper sanction for breach under the applicable law through international arbitration and enforcement of arbitral awards. 0,56 14/24 0,58 18/45 0,4 10/27 0,37 6/18 0,33 14/15 0,93 Medium Compliance Medium Compliance Medium Compliance Low Compliance Low Compliance Low Compliance Very High Compliance OVERALL RATING 53/% Medium Compliance OVERALL ASSESSMENT OF THE QUALITY OF CONCESSION LEGISLATION: 1 UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects, 2001 (hereinafter the "PFI Guide") Checklist TURKEY Local Expert: Gide Loyrette Nouel Danışmanlık Hizmetleri Avukatlık Ortaklığı

Pursuant to Article 47 of the Constitution, concessions are awarded to the extent granting of such specific concession is regulated by law. There is no general framework for PPP/ Concessions in Turkey but Concession are commonly used for a long time with different legal basis and Turkey has been one of the first pilot country to develop BOT project before the legality of the international arbitration provision under administrative contract have been successfully challenged before the Constitutional Court. Concessions are awarded on the basis of sector specific laws. For example, Transfer of Operation Rights of Airports and Ports are governed by Law No 5335 and Law No 5335 refers to Privatization Law for the selection procedures of the concessionaire for the Transfer of Operation Rights of Airports and Ports. Concessions related to construction, maintenance and operation of Highways are governed by Law No 3465 regarding the Construction, Maintenance and Operation of Highways by entities other than Turkish General Directorate of Highways. Other project are governed by the BOT law which is no longer used while other projects are govern by BO Law and a new PPP law is under preparation. Obviously all such difference create a complex PPP legal framework with always the historical background of Administrative law and the overwhelming concern of protection of public interest and public wealth which make difficult the adoption and development of new type of project finance instruments more oriented toward bankability of the project and the lenders protection. More flexibility in Concession contract negotiations as well as availability of more security instruments to the benefit of the lenders are crucial to future development of PPP as the validity of the International arbitration provisions are no longer an obstacle. 2.

3. Key for assessment of Each Question N/A Yes Yes, with reservations No, with limited compliance / redeeming features No Not applicable Key for Assessment of Each Core Area and for Overall Assessment > 90% Very High Compliance 70%-89% High Compliance 50%-69% Medium Compliance 30%-49% Low Compliance < 30% Very low Compliance

4. 1. POLICY FRAMEWORK QUESTION ANSWER ARTICLE COMMENTARY 1. Is there a general/national policy framework (explicit or implicit) for PPPs in infrastructure or public services? PPPs are understood in this context as different forms of cooperation between public authorities and the world of business which aim to ensure the funding, construction, renovation, management or maintenance of infrastructure or the provision of a public service. 2. If the answer to 1 is yes, is PPPs policy framework distinct from that for privatization? There is not a general policy framework for PPPs. Instead, there are number of Laws and Regulations governing PPPs in different sectors. Note that there is a draft law constituting a general policy framework for PPPs ( Draft PPP Law ). It is expected that the Parliament will vote for the Draft PPP Law at the second quarter of 2009. The evaluation in this document do not take account of the Draft PPP Law which is not yet in force. Even though there is no general PPP framework, we have answered this question based on the existing framework. In principle, the current framework is distinct from the privatization framework (which is the Privatization Law). Having said that, Article 15 of the Privatization Law entitles the Privatization Agency to transfer the operating rights of certain public agencies in accordance with the Privatization Law. In this respect, the Law No 5335 amending certain Laws refers to Privatization Law for the principles applicable to the selection procedures applicable to the Lease and/or

5. 3. If the answer to 1. is yes, is such policy framework supported by: 3.1. certain policy framework documents? 3.2. certain institutions (a "task force" or other institution specialized in the promotion and development of PPPs)? For information, are there: reference to PPPs in the Constitution? sector-specific policy frameworks dealing with PPPs? municipal policy frameworks dealing with PPPs? If the Country's legal or institutional framework contains undesirable restrictions on PPPs in infrastructure or public services, please mention these. YES YES NO NO Transfer of Operating rights of Airports. In addition, the tenders for the Transfer of Operating Rights of Ports (which are operated by the Turkish Railroads Directorate under the Ministry of Transportation) were conducted by the Privatization Agency and in accordance with the selection framework of the Privatization Law. Even though there is no general legal framework, we have answered this question based on the existing framework but numerous reference to PPP in the Constitution and in numerous laws. Articles 47,125 and 155 of the Constitution refers to PPP s. Municipality Laws refer to PPPs. They are however very brief and general references.

QUESTION ANSWER ARTICLE COMMENTARY 6.

7. 4. Does the country have a concessions or a PPPs law (the "Law") or if the answer is no, do the Constitution or other general laws (ex: the Civil Code, sectorial law) recognize the basic principles of concessions and regulate the granting of concessions in such a way that concessions are legally possible in the country? [For the purpose of this questionnaire, the set of rules applicable to concessions in the absence of a specific concession law will also be referred to as the Law] Legislations regulating the granting of concessions and constituting a Concessions/ PPP framework for Turkey are as follows; Law No.3996 regarding the realization of certain infrastructure and public services with the BOT model. ( BOT Law ). BOT Model is currently not used in Turkey. The legislation is still in effect since there are ongoing projects under the BOT Model. Law No.4283 on erection and operation of thermal power plants with the BO model. ( BO Law ). Note that Ministry of Energy is currently not using the BO Model for the erection of Thermal Power Plants in Turkey. The current policy of the Ministry of Energy is to have plants that are fully privately financed. The Privatization Law No.4046. Law No.3096 for the generation, transmission, distribution and sale of Electricity by private undertakings. This legislation is currently not used in Turkey. The legislation is still in effect since there are ongoing projects under the legislation.. Law No.3465 on building, maintenance and operation of the Highways. ( Highways Law ) Law No.5396 regarding Build Lease of Healthcare Institutions. Law No. 5335 amending certain Laws including provisions related to the lease and/or transfer of operating rights of Airports and privatization (including transfer of operation rights) of assets owned by Turkish Railroads (including ports). Law No.4051 regarding the application

8. of International Arbitration on Concession Agreements. Law No.576 related to the concessions (This is a narrow framework dating from before the Republic of Turkey but still in effect). Legislations referring to concessions/ppp s are as follows; The Law on Telegram and Telephone numbered 406 and The Law on Radio numbered 2813. International Arbitration Law No.4686. State Council Law No.2575. Administrative Procedural Law No.2577. Municipality Laws No.5216 and No.5393. Special Provincial Administration Law No.5302. In addition, Articles 47, 125 and 155 of the Constitution refers to concession agreements. For the purpose of this questionnaire, we will be referring to the above Laws and their related Regulations as the Laws and Regulations.

9. 5. If the country has a Public Procurement Law, is it clear to what extent the Public Procurement Law applies or not to the granting of concessions? For information: is the application of the Public Procurement Law specifically excluded? does it apply for certain types of concessions only? is it applicable to the selection of the concessionaire? is it applicable to all or some sub-contracts to be entered into by the concessionaire? YES/NO YES YES NO Turkey has two public procurement laws: (i) Law No. 4734 on Public Procurement (PPL), (ii) Law No.2886 on State Procurement (SPL). PPL and SPL together are the Public Procurement Laws. In principal, Public procurement Laws do not directly apply to granting of concessions even though they do not specifically exclude the Public Procurement Laws. Note however the following: (1) BOT Law and BO Law specifically exclude the application of SPL (PPL was not enacted at the time of their issuance). BL Law for Healthcare Institutions specifically excludes the application of SPL and PPL. Draft PPP Law specifically excludes the application of PPL. (2) Municipality Laws permit the municipalities to grant concession for certain public services but does not regulate the procedures regarding the granting of the concession. It is not cleat which law applies to the selection procedures. In practice, Municipalities apply SPL. (3) BL Regulation for Healthcare Institutions and Highways Law refer to provisions of PPL for determining the parties who cannot apply for a concession. (4) BL Regulation for Healthcare Institutions indicates

10. that the principles of SPL and PPL will be followed for issues not regulated by such Regulation. This reference seems interesting considering that BL Law specifically excludes the application of SPL and PPL.

11. 6. If the country has sector-specific laws regulating concessions in specific sectors, is it clear which law is applicable to the granting of concession for such particular sector and/or infrastructure and/or services? Please refer to our answers to Q4.

12. 7. If the country has a "local public services" law for municipalities/local concessions/ PPPs for infrastructure and/or services is it clear which law is applicable to the granting of concession for such particular local infrastructure and/or services? Local Public Services are regulated by Municipality Laws No 5216 and 5393, and Special Provincial Administrations Law No.5302. Municipality Laws entitle the Municipalities to grant concessions limited to public transportation services (bus, rail and sealines) and water supply and waste water treatment services. Municipality Laws and Special Provincial Administrations Law do not regulate the selection procedures. In practice, Municipalities follow the principles set forth in the SPL.

13. 2. INSTITUTIONAL FRAMEWORK QUESTION ANSWER ARTICLE COMMENTARY 8. Does the Law identify (or allow identification by reference to other laws or regulations) the public authorities that are empowered to award concessions and enter into project agreements ("Contracting Authority")? If yes, for information, which of the following authorities are identified: national authorities (e.g.: the government, ministries, independent agencies)? provincial authorities? local or municipal authorities? public enterprises? YES NO YES NO In principle, each of the Laws directly identify Contracting Authority. BOT Law however does not identify the Contracting Authority but authorizes the High Planning Council to appoint the Contracting Authority.

14. 9. Is there a specialized agency established to take care of concessions (which consent or recommendation is necessary for the granting of a concession, ex: Concession / PPPs Agency)? There is no specialized agency established for concessions. Contracting Authorities are required to obtain the opinion of the State Council regarding the concession agreement. This is however not in the form of a consent. Art. 47 of Constitution, Art. 6 of Draft PPP Law Under the Draft PPP Law, in order to grant a concession for projects exceeding YTL 10 million (approximately 5 million), contracting authority is required to be authorized by the High Planning Council. For projects with a value below YTL 10 million thresholds, the contracting authority can grant a concession with the affirmative opinion of the State Planning Council Department. 10. Is the division of power between different public authorities involved in the concessions granting process simple and coordinated (ex: one stop shop)? The division of power between different public authorities involved in a concession is set by laws. It is therefore clear. However we do not know how simple and coordinated the internal interaction between such public authorities is.

15. 3. DEFINITIONS AND SCOPE OF THE CONCESSION LAW 3.1 Concession definition QUESTION ANSWER ARTICLE COMMENTARY 11. Does the Law define one or several term(s) (i.e. "PPP", "concession", "BOT", others) for the arrangements to be regulated by the Law which specify the limits of application of the Law? For information, please provide the given definition, if any. (Irrespective of the name given in the Law the word concession will be used for all types of defined agreements for purposes of this questionnaire) Art.1 of Law no.406 Art.3 of Law no.3996 Art. 2 of Law no.4283 Art.7 of Law no.3395 The Laws define Concession Agreements, BOT, BO and Transfer of Operating Rights. The definitions of BOT and Transfer of Operating Rights are general definitions. The definitions of Concession Agreements and BO are sector specific definitions. BOT: BOT is defined under the BOT Law and is as follows: The BOT is a financing model to be used in projects requiring high technology or high financial resources in which the investment costs are recovered with the proceeds of the sale of goods or services during the operation period. Transfer of Operating Rights: Transfer of Operating Rights is defined under the Privatization Law and is as follows: Transfer of Operating Rights is the transfer of operating rights of an entity without transferring the ownership rights of the assets of such entity. Concession Agreement: The term concession is not

16. defined under Turkish Law. The Law No.406 regarding Telegram and Telephone provides a definition of the concession agreement for the purposes of such law and the definition is as follows: The concession agreement is an agreement executed between the Ministry of Transportation and the operator (concessionaire) for providing of telecommunication services and/or operating the infrastructure thereof. BO: BO is defined under the BO Law and for the purposes of such law is as follows: The BO is a model regulating the erection and operating of power plants by private companies and the sale of the electricity. In addition, the BL Law on Healthcare Institutions refers to BL (Build and Lease) Model for the building of the hospitals on lands allocated by the Ministry of Finance. The law does not define the BL model. Note that the following PPP models are defined in the Draft PPP Law: BOT, BO, BL, Transfer of Operating Rights. Draft PPP Law also permits the creation of new models in which Building Stage of BOT,BO or BL model includes completion, renovation, development, research, restoration and maintenance.

17. 12. Does the Law provide that it applies to all contracts entering into the definition of concession irrespective of the name given to such contract (concession, license, usufruct right, lease, etc.)? There is no such provision in the law.

18. 13. Does the Law make a clear distinction between concessions and public procurement contracts (i.e.: public works, supply or services) whereby the distinguishing criterion is the transfer of risks inherent to the exploitation? The Law does not make a distinction between concessions and public procurement contracts. State Council precedents define the distinguishing nature of the concession agreements as follows: (i) the concessionaire is entrusted with total or partial management of public infrastructures or services (i.e. works and/or services for which the public authority would normally be responsible); (ii) the concessionaire bears the risk of operating such works/services; and (iii) the concessionaire has generally the right to charge a fee for the works/services. We therefore conclude that concessions are distinguished by State Council precedents based on transfer of risk inherent to exploitation.

19. 14. Does the Law make a clear distinction between concession/ppps and license (i.e. an authorization to operate granted automatically by a public authority when certain criteria are met)? No, the Law does not make a clear distinction between concession/ppps and license. 3.2 Application of the Law QUESTION ANSWER ARTICLE COMMENTARY 15. Does the Law provide that it prevails over any sector-specific law or other laws dealing with concession? No. There is no prevailing law. 3.3 Concessionaire and Project Company

20. QUESTION ANSWER ARTICLE COMMENTARY 16. Can concession be granted to a domestic and/or foreign person or can the shareholders of the concessionaire be domestic and/or foreign persons (without discrimination)? Art. 2 of Law no.4501 Art. 2 of Law no.4686 Yes, concessionaires can be domestic and/or foreign persons and shareholders of a concessionaire can be domestic and/or foreign person. There are laws referring to foreign concessionaires such as law on International Arbitration for Concession Agreements and Law on International Arbitration. For information only, can concession be granted to public entities or to entities jointly owned by private and public entities? 3.4 Concerned sectors There are no legislation permitting/restricting public entities from becoming concessionaire. QUESTION ANSWER ARTICLE COMMENTARY 17. Does the Law identify (or allow identification by reference to other law or regulations) the sectors and/or types of infrastructure and/or services in respect of which concessions may or may not be granted? Article 47 of the Constitution The Law does not identify the sectors and/or types of infrastructure and/or services in respect of which concessions may or may not be granted. Article 47 of the Constitution provides that concessions may only be granted to the extent regulated by law. Therefore concessions may be granted only if a law is enacted for the grant of such concession. Sectorial laws allow the identification of services or sector concerned

21. 18. Do the sectors eligible for concessions correspond to a large extent to those listed below, or if not, is the list of eligible sectors an open-ended one (as opposed to being exhaustive) allowing (or at least not preventing) concessions to be granted in numerous sectors? Sectors which are currently eligible for concessions are sectors for which a law for the related concession is enacted. Sectors eligible for concessions correspond to a large extent to those listed below For information: a) does it include the transportation sector? is the railway system included? are rail transport services included? are ports included? are airports included? are public roads included? b) does it include the electricity sector? is the generation of electricity included? is the transmission of electricity included? is the distribution of electricity included? c) does it include the water and wastewater sector? is water production included? is water treatment included? is wastewater treatment included? is water distribution included? is wastewater collection (sewerage) included? Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes By way of transfer of operation rights Government has monopoly over the transmission of electricity. The Municipality Law permits granting of water concessions by Municipalities. The Law does not specify whether it refers to water production, water treatment, wastewater treatment etc. We are aware however of concessions related to water production and water distribution.

22. d) does it include solid waste collection, transfer or disposal? e) does it include the oil, gas and mineral sector? f) does it include other public services such as education, health care and prisons? g) does it include any other sectors or infrastructure (please specify)? Yes No Yes Healthcare only. Telecommunications e.g GSM operators and 3G operators. 4. SELECTION OF THE CONCESSIONAIRE 4.1 General Considerations QUESTION ANSWER ARTICLE COMMENTARY 19. Does the Law require in principle the Contracting Authority to select a concessionaire through competitive procedures? Article 3 of BO Law and Article 6 of BO Regulation (defined Even though the Laws (except BO Law and BO Regulation) do not directly refer to competitiveness, the Laws reflect competitive bidding procedures. BO Law and BO Regulations clearly indicate that the selection should be competitive.

23. 20. Is there reference in the Law to the principles of transparency, equal treatment and proportionality? below) Article 9 of the Draft Law refers to competitiveness of selection procedures as one of the main principles of the Draft Law. The Laws do not refer to the principles of transparency, equal treatment and proportionality. Draft PPL Law refers to transparency, competition, equal treatment, availability of necessary information for public supervision and efficiency. 21. Is there a provision in the Law concerning the publication of information related to the competitive procedures in the Country media and in the international media (for large projects)? Article 5 of BOT Decision, Article 6 of BO Regulation, Article 20 of Highways Regulation, Articles 8 of Regulation for the BL of Healthcare Institutions, Article 18 of Privatization Law There is not any uniform publication requirement for the Laws. (1) For BO Projects, bids are announced in the Official Gazette. (2) For BOT Projects and for Transfer of Operation Rights of Highways, bids are announced in the Official Gazette and at least 2 widely distributed newspapers. (3) For BL Projects, bids are announced in the Official Gazette, at least 2 widely distributed newspapers and the Internet. (4) For Operation Rights transferred under the Privatization Law, bids are announced in accordance with the Privatization Law which only requires the bids to be announced before the tender in accordance with the transparency principle. No detailed regulation. Draft Law does not refer to announcement provisions. This is to be regulated by regulations under the Draft

24. 22. Are there provisions of the Law, regulations or special manual, recommendation governing in detail the selection of the concessionaire ("Regulations") (i.e.: the pre-selection of bidders, the procedure for requesting proposals, other procedure such as competitive dialogue/two stage procedure)? 23. Does the Law / Regulations provide that, if the Contracting Authority rejects an applicant at the time of pre-selection or disqualifies a bidder, it must make public the reasons for the decision (or inform the rejected bidder thereof explaining the reasons for rejection)? Law. (1) Regulation for BO Projects for Thermal Power Plants (BO Regulation) dated 01.08.1997 (2) Decision of the Council of Ministers for BOT Projects (BOT Decision) dated 06.08.1994 (3) Regulation for the Construction, Maintenance and Operation of Highways (Highways Regulation) dated 01.03.1993 (4) Regulation for BL Projects for Healthcare Institutions dated 03.07.2005 Listed regulations include detailed provisions regarding the selection of the concessionaire including the preselection of bidders, the procedure for requesting proposals. Draft Law also refers to regulations (to be drafted) governing the selection of the concessionaire in detail.

25.

26. 4.2 Award of concession QUESTION ANSWER ARTICLE COMMENTARY 24. Does the Law / Regulations provide that all proposals are ranked solely on the basis of the evaluation criteria set forth in the pre-selection documents/ request for proposals? (1) BO Regulation sets forth the evaluation criteria and indicates that the bidding commission should evaluate the bids based on such criteria. Evaluation criteria includes compliance with pre-selection documents, engineering and design of the project, safety of the project (including safety standards of the suggested equipment), availability of the financing, production costs and bidding price. The bidding commission is required to prepare a comparative study of the bids. (2) BOT Decision does not require that proposals to be ranked solely on the basis of the evaluation criteria set forth in the pre-selection documents. BOT Decision require the bidding commission to select the bid with lower economic burden to Treasury when there are 2 bids with equal terms. (3) Privatization Law does not have an article providing that the proposals are ranked solely on the basis of the evaluation criteria (4) Highways Regulation require the bidding commission to select the bidder with the highest bid to the extent that such offers meets the evaluation criteria in the pre-selection documents.

27. 25. Does the Law / Regulations provide that a notice of the award of the project, identifying the concessionaire and including a summary of the essential terms of the project agreement is to be published? 26. Does the Law / Regulations provide that the Contracting Authority or any other public authority maintain records of key information pertaining to the selection and award proceedings? 27. If the answer to 26 is yes, does the Law provide that such record is accessible for public or at least to interested parties? (5) BL Regulation for Healthcare Institutions indicates that the bidding commission should evaluate the bids based on the evaluation criteria set forth in the selection documents. Article 8 of the Draft Law indicates that bidding strategy includes the evaluation criteria to be applied for the appointment of the bidder. Such a requirement is only provided in the Privatization Law and the Law on the Transfer of Operation Rights of Airports. Both laws require the notice of award to be disclosed to the public. No detailed provisions as to the scope of the notice of award. (1) BO Regulation and BOT decision require the bidding commission to prepare a bidding report including key info such as pricing of offers and the reasons of the bidding commission for selecting the winning bidder. (2) Privatization Law requires all actions during the tender process are recorded in a report to be signed by all parties to the tender.

28. 4.3 Final negotiations QUESTION ANSWER ARTICLE COMMENTARY 28. Does the Law /Regulations contain provisions regulating final negotiations (i.e. post contract award) so that transparency, equal treatment and competition are preserved? 29. Does the Law / Regulations provide that the Contracting Authority has the authority to terminate negotiations with the invited bidder when it becomes apparent that the bid will not result in an agreement and start negotiations with the second ranked candidate? Article 31 of the BO Regulation In the BO Regulation, Contracting Authority has the right to terminate the execution procedures if the concessionaire does not come to execute the agreement or does not bring the required bid security. Contracting Authority may invite the second (or third) ranked candidate if the first (or second) ranked bidder does not come to execute the agreement or does not bring the required bid security.

29. 4.4 Concession Award without competitive procedure QUESTION ANSWER ARTICLE COMMENTARY 30. According to the Law / Regulations, does the Contracting Authority have the authority to award a concession without competitive procedures only in limited exceptional circumstances such as the ones listed below? For information, which of the following conditions allowing direct negotiations are provided for? when there is an urgent need for ensuring continuity of the provision of service and engaging in a competitive selection procedure would be impractical? for projects of short duration and with an anticipated initial investment value not exceeding a specified minimal amount (or with an anticipated turnover not exceeding a specified minimal amount)? reasons of national defence or national security? cases when there is only one source capable of providing the required service (e.g.: in the case of patented technology or unique know-how)? when an invitation to the pre-selection Even though the Laws (except BO Law and BO Regulation) do not directly refer to competitiveness, the Laws reflect competitive bidding procedures which limit the possibility to use direct negotiations

30. proceedings or a request for proposals has been issued but no applications or proposals were submitted or all proposals failed to meet the evaluation criteria? others (please specify)? 31. According to the Law / Regulations, is there a procedure (rules) to be respected for the award of a concession without competitive procedures? Special case of unsolicited proposals QUESTION ANSWER ARTICLE COMMENTARY 32. Does the Law / Regulations provide for the Article 3 of BO Law/Regulation permits unsolicited proposal. If

adequate framework for the Contracting Authority to handle unsolicited proposals/private initiative concessions (proposal relating to the implementation of a concession that is not submitted in response to a request or solicitation by the Contracting Authority) that ensure transparency and equal treatment and do not distort competition? 31. BO Law and Article 6 of BO Regulation the Contracting Authority accepts an unsolicited proposal, it is then required to create competitive bidding grounds. The Contracting Authority is required to draft a tender document and announce the tender in the Official Gazette. 4.5 Review procedures QUESTION ANSWER ARTICLE COMMENTARY 33. Does the Law allow the bidders who claim to have suffered or that may suffer loss or injury, to seek review of the Contracting Authority s acts or failures to act? 5. PROJECT AGREEMENT Articles 11-13 of Law on Administrative Proceedings Not regulated in the Laws. Pursuant to the Law on Administrative Proceedings, in case a bidder claims to have suffered or that may suffer loss, it has the right to ask the Contracting Authority to review its decision/act or failure to act. If such request is dismissed by the Contracting Authority, the bidder has the right to bring an action before the Administrative Court. Article 12 of the Draft Law suggests that claims regarding the bidding procedures will be heard by the State Procurement Office in accordance with the relevant regulations.

32. 5.1 Model or list of provisions QUESTION ANSWER ARTICLE COMMENTARY 34. Does the Law contain (or refer to) a model concession/ppp agreement which use is optional (for guidance only as opposed to being mandatory) or a mandatory list of provisions to be included in the agreement (the content of such provisions being left for negotiation)? Article 10 of the BO Regulation, Article 16 BOT Decision and Article 30 of the BL Regulation for Healthcare Institutions BOT Decision, BO Regulation, BL Regulation for Healthcare Institutions set forth a mandatory list of provisions to be included in the agreement. The content of such provisions are being left to the Contracting Authority to determine. Very little flexibility however in the negotiation of the provisions of the proposed draft of Concession Agreement Privatization Law and Highways Regulation include neither a model agreement nor a mandatory list of provisions. 5.2 Duration and extension of the project agreement QUESTION ANSWER ARTICLE COMMENTARY 35. Does the Law provide that the concession duration should depend on the length of time taken for the amortization of the private investment and an appropriate return on the capital? For information, please provide the given duration (if Article 7 of BOT Law, Article 5 of the Highways Law and Article 32 of (1) BO Regulation caps the duration of the power purchase agreement between the Turkish Electricity Trading Corp and the concessionaire with 20 years. Parties can decide to extend the term of the power purchase agreement by mutual agreement to be determined 1 year before the expiry of the

any) and relevant information in the Law with respect to the conditions for extension. 33. the BL Regulation for Healthcare Institutions, Article 15 of the Privatization Law contract. (2) BOT Law caps the duration of the concession to 49 years and indicates that the Contracting Authority should determine the duration of the concession considering the nature of the project, amortization of the investment including return, repayment of the loans, the amount of the capital and operating principles. No provision for extension. (3) Privatization Law caps the duration of the transfer of operation rights to 49 years. No provision for extension. (4) BL Regulation for Healthcare Institutions caps the duration of the concession to 49 years and indicates that the Contracting Authority should determine the duration of the concession considering the feasibility of the project. Duration should include the investment phase and the operation phase. No provision for extension. (5) Highways Law provides that the concession duration shall not exceed 49 years. No provision for extension. Draft Law caps the duration of all concessions/ppp projects in Turkey with 49 years. It also requires that the Contracting Authority determines the duration of the concession considering the amortization of the investment. The Draft does not include any provisions regarding extension.

34. 5.3 Termination of the project agreement QUESTION ANSWER ARTICLE COMMENTARY 36. Does the Law provide for a restrictive list of termination events (such as those listed below)? material breach by the other party; if performance is made impossible by the occurrence of circumstances beyond either party s control; mutual consent. Article 26 of BOT Decision, Article 6 of Highways Law. The Law does not provide for a restrictive list of termination events. The following regulations provide for the termination rights of the Contracting Authority. (1) BO Law does not list the termination events. (2) BOT Law lists the termination events for the project agreements such as breach by the concessionaire, insolvency or bankruptcy of the concessionaire. The Law does not describe the list as restrictive. (3) Highways Law identifies the termination events as breach by the concessionaire and insolvency of the concessionaire. (4) Regulation of BL for Healthcare Institutions identifies the termination events as breach by the concessionaire. The Regulation provides for a curing period.

35. 37. Does the Law provide for (or does not prevent) compensation of the concessionaire: 37.1. in case of termination for public interest? 37.2. for losses incurred as a result of public authorities acts? 37.3. in all cases of early termination (including in case of serious breach or failure by the concessionaire), for the non-depreciated value of assets financed by the concessionaire? The Laws do not provide or do not prevent for compensation of the concessionaire. They indicate however that the consequences of termination are to be regulated in the concession agreement. "Turkish concession agreements have traditionally given the granting authorities a unilateral contractual right to terminate the concession for default or insolvency of the concessionaire. However, the concessionaire has been given no corresponding contractual right to terminate the agreement, whether by reason of a default of the granting authority or a prolonged force majeure event. The legal philosophy behind this stance has been that because it is only the state that can grant the concession, it is also only the state that can take it away. In the event the granting authorities did breach the terms of the concession agreement (and it must be emphasised here that these concession agreements have generally included very few obligations on the part of the grantor entity) or an extended force majeure event prevented the concessionaire from being able to benefit from the concession, the concessionaire would have no choice but to pursue legal proceedings in Turkish courts based on Turkish principles of unjust enrichment, bad faith or other similar legal doctrines. Furthermore, there have been few concession agreements in Turkey providing for any termination payment or refund of concession fees in the event of early termination of the concession agreement." (extract from "Turkish Concessions Not for the

36. Faint-Hearted"Latham & Watkins-Finance Department Number 772 8 December 2008) 5.4 Tariff setting, service standards QUESTION ANSWER ARTICLE COMMENTARY 38. Does the Law provide for clear guidance for all aspects of interaction between the bodies that have the power to award concessions and the bodies that regulate tariffs and service standards? The answer is no. Note however that the Highways Law refers to general criteria for setting the tariffs and BL Regulation for Healthcare Institutions sets forth the criteria for determining the lease amount. As a side note, please be informed that the Contracting Authority and the authority that set the tariffs/pay the fees are generally the same entity in Turkey. 5.5 Financial responsibilities of concessionaire and Contracting Authority

QUESTION ANSWER ARTICLE COMMENTARY 37. 39. Does the Law provide that the concessionaire can collect tariffs or fees for the use of the facility or its services? (1) BOT Law provides that the concessionaire can collect tariffs or fees for the use of the facility or its services for the BOT Projects. (2) BL Regulation for Healthcare Institutions and BO s, there is a direct payment mechanism from the contracting authority to the concessionaire. In the BOs, concessionaire can sell the energy which is not purchased by the contracting authority and can directly collect the fees. (3) Highways Regulation does not specifically determine who collect the tariffs. Note however that the regulation indicates that the contracting authority will receive a certain portion of the collected tolls. This implies that the concessionaire will collect the tolls and transfer a certain portion to the contracting authority.

38. 40. Does the Law provide the possibility for fixed and/or consumption-based payments to the concessionaire by the public authorities? (1) BOT Regulation provides for payments by the public authorities but does not regulate the scope of payments and indicates that the project agreements should regulate the payments. (2) BO Regulation provides for capacity payments to the concessionaire by the contracting authority. Capacity payments are up to certain percentage of the annual net production capacity. (3) BL Regulation for Healthcare Institutions determines the lease price to be paid by the public authority based on the investments costs and profit margin of the concessionaire.

39. 6. SECURITY AND SUPPORT ISSUES 6.1 Security Interests QUESTION ANSWER ARTICLE COMMENTARY 41. Does the Law provide for the possibility for (or not specifically prevent) a concessionaire to create security interests on the project assets and proceeds or other valuable guarantees related to the project? Article 40 of the BL Regulation on Healthcare Institutions The Laws do not provide for the possibility for (or not specifically prevent) a concessionaire to create security interests on the project assets. The only exception to this is the BL Regulation on Healthcare Institutions which require the approval of the Ministry of Health for transfer of lease agreements during the investment and operation phase. This may be interpreted as the approval of the Ministry of Health is required for the assignment of lease revenues. Turkish concession agreements, however, generally restrict the ability of the lenders lending to the project to obtain a security interest in the share capital of the concessionaire and there is no example of Step in right granted to the Lenders

40. 42. If the answer to 41 is yes, does the Law clearly state which types of security can be provided and include some of the most common type of guarantees in project financing (such as those listed below)? For information, can a concessionaire pledge or assign: No reference to types of security. Based on the general security law principles in Turkey the proceeds and receivables arising out of the concession? the assets for which it has rights of use under a project agreement? its property? shares of the Project Company? the project agreement? or obtain other valuable guarantees (please specify)? Yes No Yes Yes/No No Please clarify 6.2 Government support QUESTION ANSWER ARTICLE COMMENTARY

41. 43. Does the Law provide for the possibility (or not specifically prevent) the public authorities to provide support to the Contracting Authority and guarantee for the proper implementation of concessions by the Contracting Authority? 44. Does the Law provide for the possibility (or not specifically prevent) the public authorities to provide financial or economic support for the implementation of concessions? Not specifically provided or prevented depend on sectorial policy not on the PPP nature of the contract. Under the BO Law, Turkish Electricity Trade Corporation is permitted to buy a certain percentage of the net annual production capacity of the plant. Law No 4749 regarding Public Financing (including guarantees to be provided by public authorities) permit for guarantees to BOT, BO and Transfer of Operations projects by the Treasury. Guarantees are in the form of payment guarantees of the payments by the purchasing public authority.

42. 45. If the answer to 44 is yes, does the Law clearly state which public authorities may provide such support and which types of support can be provided? For information, are the following types of support provided for: interest-free or low interest public loans? loan guarantees? direct or indirect equity participation by the government in the project? subsidies for operations in non-profitable sectors? direct subsidies? pro-poor subsidies? tax and customs benefits? foreign exchange protection (convertibility and transfer guarantees)? protection from competition? No Yes No No Yes (if you include purchase guarantees) No No No (note that foreign exchange regime in Turkey is not restrictive) We have answered this question based on the Laws and the Law No 4749 regarding Public Financing. We have not included the subsidies that may be provided to the PPP projects in other regulations not because of their PPP nature but because of the sector invested. In addition to the types of support provided in the list, the Laws permit for allocation of publicly owned land to a PPP project in the form of usufruct rights. Under the BL Law for Healthcare Institutions, usufruct rights over the publicly owned land are provided to the project without cost. Article 21 of the Draft PPP Law clearly permits for the allocation of publicly owned land and/or grant of usufruct rights to PPP. Law No 4749 regarding Public Financing (including guarantees to be provided by public authorities) provide for guarantees by the Treasury of payments to concessionaires by the public authorities in BOT, BO and Transfer of Operations projects. Loan Guarantees by the Treasury are also permitted to a private company to the extent that more than 50% of the share capital of such company is owned by public entities. Article 19 of the Draft PPP Law provides for guarantees by the public authorities, Ministry of Finance or by Treasury for payments to be made to the concessionaire by the public authorities or consumers. If the demand by the public authorities or consumers is predictable, such guarantee cannot exceed 50% of the estimated demand. Draft PPP Law also permits for

43. No bridge loans, repayment guarantee for bridge loans.

44. 6.3 Lenders rights QUESTION ANSWER ARTICLE COMMENTARY 46. Does the Law provide for the possibility for the lenders to step-in or substitute a qualified new concessionaire in case of concessionaire defaults without a new tender? 5 of Licensing Regulation regarding the Electricity, Natural Gas, LPG and Oil No step-in rights in the Laws or in the existing Concession Agreements Lenders have the right to petition the Energy Board for the Energy Board to issue a license to a third party in case a electricity generation licensee defaults under the facility agreements. Note however that the Lenders are required to undertake all the obligations of the defaulting licensee before the Energy Board. 7. SETTLEMENT OF DISPUTES AND APPLICABLE LAWS 2 7.1 Settlement of disputes QUESTION ANSWER ARTICLE COMMENTARY 2 For further information on the settlement of disputes, please refer to: PFI Guide, Consolidated legislative Recommendations, Recommendations 57, 69 and 71.

45. 47. Does the Law permit the Contracting Authority to enter into concession agreement that is subject to international arbitration? 48. Has the government of the country ratified the following international conventions? 125 of Constitution- International Arbitration Law No 4501 Law No 4501 permits for international arbitration in concession agreements to the extent that (i) at least one of the shareholders of the concessionaire is a foreign entity or (ii) the project is capitalized with foreign funds or (iii) the project is financed with foreign funds/lenders. 48.1. the Washington Convention on the Settlement of Investment Disputes (ICSID) (1965)? 48.2. the New York Convention on recognition and enforcement of foreign arbitral awards (1958)? 7.2 Applicable laws QUESTION ANSWER ARTICLE COMMENTARY 49. Does the Law permit the Contracting Authority to enter into concession agreement that is governed in whole or in part by foreign law or at least allow the concessionaire to enter into financing and construction agreements governed by foreign law? 50. Has the country ratified any international convention for the protection of foreign Article 4 of Law numbered 4501 Not directly permitted. However, International Arbitration Law No 4501 permits the parties to determine the applicable law to the dispute. Therefore the parties are indirectly allowed to enter into concession agreement that is governed by foreign law. In practice, we have only seen Turkish Law governed concession agreements. Turkey ratified the Convention of the Multinational Investment Guarantee Agency. Turkey signed bilateral

46. investments? investment treaties with different countries including with the United States, United Kingdom. EFECTIVENESS ASSESSMENT: HOW THE LAW WORKS IN PRACTICE: (please comment based on the previous 2006 effectiveness general assessment)