The Political Economy of Regulation in Turkey

In the last decade, the Independent Regulatory Agencies (IRA) have occupied a significant place in the Turkish political and legal environment. Following the Capital Markets Board, the Radio and Television Supreme Council, the Competition Authority, the Banking Regulatory Agency, the Energy Market Regulatory Agency, the Information Technologies and Communication Authority, the Tobacco Products and Alcoholic Beverages Market Authority, and the Public Procurement Authority have raised some legal concerns in the administrative and constitutional system. The lack of administrative control of the central government over the IRA does not seem, in our view, the main issue concerning the constitutional system. However, the lack of autonomy of the IRA vis-à-vis the politics seems to be a major concern, despite the formal securities of the IRA board.

This chapter presents a political economic analysis of the privatization movement in Turkey. In terms of pace and volume, the privatization experience in Turkey can be examined in two different periods. In the period 1985–2003, privatization amounted to only 8.2 billion dollar, while it reached approximately 36.4 billion dollar in the period 2004–2009. The radical transformation in the privatization policies of Turkey is worth analyzing from a political economy perspective. To this purpose, first, the historical background to privatization in Turkey and the circumstances leading to liberalization and privatization policies will be examined. Second, the factors influencing the privatization process such as objectives, strategies, and the effects of economic, legal, institutional, and political conditions will be discussed. Analysis of the privatization experience in Turkey reveals that factors such as legal and institutional structures, political will, unstable macroeconomic conditions, ideological resistance, and rent seeking activities shaped the privatization movement and its consequences.

This chapter examines the diffusion and actual operation of regulatory reforms since the 1990s in Turkey, focusing on national regulatory agencies (NRAs) in various sectors. It takes a step further from the mere initiation of regulatory reforms along with de jure institutional design of the NRAs and explores the actual processes through which NRAs function. It, then, finds out a considerable discrepancy between de jure design and de facto operation of the NRAs in terms of independence, accountability, and capacity to enforce; the extent of such discrepancy varies across sectors. The chapter specifically investigates the Competition Authority and NRAs in banking, telecommunications, energy, sugar, tobacco, and alcohol markets. It suggests that the operation of NRAs in practice may create new forms of rents, giving rise to significant distributive consequences.

The purpose of this study is to introduce readers to the basics of Turkish Antitrust Law and its enforcement practices. In this respect, the chapter is categorized into four parts. The first part covers the background and the sources of the Turkish Antitrust Law. After the legislative background is mentioned, the main legal sources of the law are specified. The second part is devoted to the main concepts prescribed in the Act such as the relevant market and the concept of undertaking. Substantive provisions are explained in the third part, and this part is organized under three headings. First, restrictive agreements are expounded along with the exemption rule. Subsequently, the monopoly provision is illustrated with some examples of abuse. And finally, the provision and the secondary legislation governing the concentrations are explained. Here, the procedural issues are of importance. Enforcement authorities and sanctions are discussed in the final part.

This chapter focuses on the envisaged regulatory framework to be applied after the transition period in the Turkish Electricity Industry ceases by the end of 2012, and it evaluates the performance of the electricity distribution companies under the envisaged incentive regulation scheme in 2006 when the transition period commenced. The electricity transmission and distribution will be regulated by the revenue cap and the mixture of price/revenue cap, respectively. The retail supply to captive customers will also be regulated by the price cap. The Energy Market Regulatory Authority has already announced measures to incentivize the distribution companies that are cost conscious and quality conscious. An illustrative application of the Data Envelopment Analysis on the distribution companies shows that only 8 of 20 distribution companies were operating efficiently in 2006. Had the envisaged incentive regulation framework been implemented for the transition period, these inefficient companies would have been let to benefit from any additional improvement they could achieve after they met their set targets during the 6-year transitory period. Although the necessary institutional, legal, and market arrangements were made, until the end of 2008 the reform did not progress as fast as it was planned. Accordingly, the real test of the full-scale implementation of the cost-based tariff mechanism under the new electricity market structure will be in the new regulatory period commencing in 2013. Hence, whether the new framework will manage to bring more reliable, secure, high quality, and less costly electricity supply to customers is yet to be seen.

Located between the natural gas-rich countries of Asia and Middle East on one hand and European countries with rapidly increasing demand for natural gas on the other hand, Turkey is situated at a geography where natural gas demand and supply intersect. With annual average gas demand growth rate of 10.4% during the last decade and a consumption of more than 32 billion  m³ in 2009 (which was just 12.5 billion  m³ in 1999), Turkey gradually turns out to be an important gas market in its own right. This trend is reinforced by the fact that Turkish natural gas consumption is projected to further increase remarkably in coming years. To transform Turkish gas market into a competitive one and to make sure that it develops in the lines of the European Union (EU), a reform process was initiated in 2001, which involves privatization, liberalization, as well as a radical restructuring of gas industry in Turkey. This chapter focuses on the reform process. First of all, the chapter provides a short summary of the developments taking place in the Turkish gas market since 1980s. Then it attempts to evaluate the regulatory framework created as a result of the reform process. The following subsections are devoted to two important issues in Turkish gas market, namely, Turkish gas release program and the auctions in gas distribution market. Another subsection deals with the issue of compatibility between Turkish reforms and EU norms. In the last part, the chapter touches upon some regulatory issues and provides some policy guidelines for both improvement and filling what is called the “expectations–capabilities gap” in Turkish natural gas market. The chapter concludes that in spite of relatively good legislative framework and some encouraging developments in practice, the reforms in Turkey are far from ideal and a significant amount of work still lies ahead of Turkey to set up a full fledged liberal natural gas market.

This chapter provides an overview of the state of liberalization, ­competition, and regulation of major segments of the telecommunications industry in Turkey. It shows that the competitive stance of the regulatory authority and the development of actual competition have been uneven across segments. Specifically, the degree of competition has been higher in the mobile segment relative to fixed telephony or broadband. The chapter also discusses the new Electronic Communications Law and argues that although not perfect, it provides a coherent basis on which the regulatory authority can pursue competitive objectives in a more even manner. However, the actual development of competition will depend a lot on how the law and the ensuing secondary legislation are actually implemented.

This chapter focuses on the effects of regulation, deregulation, and competition in the Turkish airline industry that has long been dominated by Turkey’s state-owned airline company, Turkish airlines (THY). Before 2003, the industry was not yet open to competition. The necessary legal environment has not yet been established to ensure that private airline firms other than THY could also operate especially in the scheduled domestic flights and cargo transport. Thirteen firms along with THY that operated in the unscheduled flights were inadequate to trigger competition, to increase demand, and to attract investments in the entire industry. The airline deregulation movement in 2003 opened the market to competition. The movement released entry to the industry. Fares are beginning to be determined by competition. This chapter analyzes the pre- and postreform structure of the industry. Accordingly, we deal with this to reveal the effects of deregulation over industry structure and quality of service. Besides, by analyzing the developments in the industry, we aim to present how the postreform structure of the industry is reshaped.

Turkey has several climatic regions ranging from the dry southeast to the rainy northeast. Water is a scarce commodity in most of them. How this scarce commodity is allocated to competing uses has both distributive and environmental consequences. The primary objective of this chapter is to discuss the water issues. Environmental issues are dealt with only insofar as they affect and are affected by water use. The chapter starts with a brief description and analysis of the water endowments and water demands by competing users in different regions and in the country as a whole. The climatic cycle and how it affects the level of regional water scarcity are also taken up. A subsection is devoted to the Southeastern Anatolia Project (GAP; acronym in Turkish) and the problems it involves with the riparian states, Syria and Iraq, regarding the allocation of the waters of the Euphrates and Tigris.

Next comes a discussion of the institutions and organizations that are responsible for the management and regulation of water and for the environment. The evolution of these institutions and their functions in response to changing demands and pressures emanating from competing uses and perception of issues especially as regards the environment is analyzed. A section takes up the current management, regulation, allocation, and pricing of water, both surface and underground. The last but one section discusses the environmental problems arising from water use, such as water pollution by agricultural uses, soil salinity, changes in water levels of lakes arising from excessive withdrawal from underground water reserves and destruction of natural habitat of flora and fauna. Finally, a concluding section is presented.