Turkey: Calculation Of Turnover In Terms Of A Concession Agreement: The Board's Decision On The ERG Verbund Transaction

The Competition Authority published on its official website the Board's reasoned decision¹ to unconditionally approve the acquisition of sole control over ERG Verbund Elektrik Üretim ve Ticaret A.Ş. ("ERG Verbund') by the Çelik Family, which consists of Fadli Çelik, Hasan Çelik, Mehmet Çelik, Bilal Çelik, and Tahir Çelik. As regards the question of whether the transaction was notifiable in Turkey, the Board primarily assessed that there would be a change in the control structure of ERG Verbund on a lasting basis after the consummation of the transaction, given that the Çelik Family would acquire all shares in ERG Verbund. Therefore, the Board considered the transaction at hand to be an "acquisition" within the meaning of Article 5 of the Communiqué No. 2010/4 on Mergers and Acquisitions Requiring the Approval of the Board ("Communiqué No. 2010/4").

Consequently, the Board examined whether the turnovers of the parties exceeded the jurisdictional notification thresholds set forth under Article 7 of the Communiqué No. 2010/4. In

this respect, the parties submitted in the merger control filing that, as the acquiring parties were natural persons and since ERG Verbund did not engage in any activities in Turkey, they did not generate any turnover in Turkey. Nevertheless, the Board determined that the acquiring natural persons had control over several undertakings that were active in the electricity, insurance and construction sectors. In this respect, the Board determined that these natural persons had been generating turnover in Turkey through those undertakings. In particular, the Board reached this conclusion by referring to Paragraph 21 of the Guidelines on Undertakings Concerned, Turnover and Ancillary Restraints ("Guidelines on Turnover"), which provides that natural persons will be deemed and treated as undertakings if those natural persons themselves conduct economic activities, or if they conduct economic activities through any undertakings over which they maintain control. To that end, pursuant to Article 8 of the Communiqué No. 2010/4, in terms of the calculation of the turnover of the natural persons in question, the Board took into account the total turnover generated by the economic units that were controlled by those parties.

In terms of the assessment of whether there was any turnover attributable to ERG Verbund, the Board found that ERG Verbund's economic activity consisted merely of the concession agreement executed between

ERG Verbund and the Turkish Ministry of Energy and Natural Resources ("Ministry"), which concerned (i) the operation and rehabilitation of the current units of the Afşin Elbistan (A) Thermal Power Plant ("Thermal Plant') and the construction and operation of the expanded units of the Thermal Plant, and (ii) the operation and rehabilitation of the coal fields and the facilities that provide coal to the facilities of the Thermal Plant. Although the operating rights for the Thermal Plant are yet to be transferred, the Board indicated that, further to the concession agreement in force, and after the conclusion of the ongoing negotiations between ERG Verbund and the Ministry, the operating rights of the Thermal Plant will eventually be transferred to ERG Verbund. Therefore, the Board concluded that, pursuant to the concession agreement, ERG Verbund had legally acquired the operating rights to the Thermal Plant and the coal fields providing coal to the Thermal Plant. In this respect, the Board determined that the turnover of the Thermal Plant should be attributed to ERG Verbund in terms of the calculation of the turnover amount within the meaning of the Communiqué No. 2010/4.

Accordingly, as the turnover figures of the parties exceeded the turnover thresholds provided under Article 7(1)(a) of the Communiqué No. 2010/4, the Board ruled that the concentration at hand would be deemed as an acquisition requiring the approval of the Board.

As regards the competitive analysis, given that the undertakings controlled by the Çelik Family and ERG Verbund were active in the production of electricity in Turkey, the Board found that the activities of the parties overlapped horizontally. Furthermore, given that the Çelik Family was also active in the market for retail sales of electricity, which is the downstream market of the electricity production market, the concentration at hand would lead to vertical overlap between the activities of the parties in Turkey. Having said that, the Board considered that the market shares of the parties in the affected markets were significantly low and determined that the concentration at hand would not result in the creation or strengthening of a dominant position and that it would not significantly impede competition. Therefore, the Board unanimously granted unconditional approval to the acquisition of sole control over ERG Verbund by the Çelik Family.

Footnote

1 The Board's decision dated May 3, 2018, and numbered 18-13/233-108.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in December 2018. A link to the full Legal Insight Quarterly may be found here.

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