Energy Project Financing Agreements in Turkey: Key Clauses for Foreign Lenders (2026)

Discover the essential legal clauses in Turkish energy project financing agreements. Learn how foreign lenders can protect their investments through security packages, direct agreements, step-in rights, covenants, and Turkish law.

Turkey remains one of the largest energy investment markets in the region, attracting substantial financing for solar, wind, hydroelectric, geothermal, battery storage, electricity transmission, LNG, and natural gas infrastructure projects. Foreign banks, export credit agencies (ECAs), development finance institutions (DFIs), private equity funds, infrastructure investors, and international lenders regularly participate in financing Turkish energy projects.

Because these projects involve significant capital expenditures and long repayment periods, financing documentation is considerably more complex than ordinary commercial loan agreements. A carefully drafted financing package is essential to protect lenders against construction risks, operational failures, regulatory changes, insolvency, and project underperformance.

Foreign lenders should understand that Turkish energy financing is governed not only by the loan agreement itself but also by Turkish banking law, security legislation, electricity market regulations, corporate law, insolvency rules, and the contractual framework governing the underlying energy project.

This guide explains the most important legal provisions foreign lenders should negotiate when financing energy projects in Turkey.

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Legal Framework Governing Energy Project Finance

Energy project financing in Turkey is generally governed by:

• Turkish Code of Obligations No. 6098
• Turkish Commercial Code No. 6102
• Electricity Market Law No. 6446
• Banking Law No. 5411
• Enforcement and Bankruptcy Law No. 2004
• Movable Pledge Law
• Capital Markets legislation (where applicable)
• EMRA regulations
• Corporate documents of the project company
• Finance documents

Cross-border financings frequently combine Turkish law security documents with English law or New York law finance documentation.

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Typical Financing Structure

Most utility-scale projects are financed through Special Purpose Vehicles (SPVs).

The financing package generally includes:

• Facility Agreement
• Common Terms Agreement
• Intercreditor Agreement
• Security Documents
• Direct Agreements
• Account Agreements
• Share Pledge Agreements
• Assignment Agreements
• Mortgage Documents
• Insurance Assignments
• Sponsor Support Agreements
• Hedging Agreements

Each document allocates risks among lenders, sponsors, contractors, and project companies.

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Key Parties

Typical participants include:

• Foreign commercial banks
• Export Credit Agencies
• Development Finance Institutions
• Multilateral lenders
• Project sponsors
• Turkish project companies
• EPC contractors
• O&M contractors
• Offtakers
• TEİAŞ
• Distribution companies
• Insurance providers
• Security agents
• Facility agents

Each party assumes specific contractual obligations throughout the financing period.

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Loan Agreement

The Facility Agreement forms the core financing document.

It regulates:

• Loan amount
• Currency
• Interest rate
• Drawdown conditions
• Repayment schedule
• Availability period
• Fees
• Default interest
• Mandatory prepayment
• Financial covenants
• Representations
• Warranties
• Events of Default

Large energy financings often involve syndicated lending structures.

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Conditions Precedent

Lenders usually require extensive Conditions Precedent before the first drawdown.

Common CPs include:

• Corporate approvals
• EMRA licences
• Environmental permits
• Grid connection agreements
• Land rights
• EPC contract execution
• Insurance policies
• Security creation
• Legal opinions
• Financial model approval
• Tax registrations
• Account opening
• KYC documentation

Failure to satisfy CPs may delay funding.

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Security Package

A comprehensive security package is fundamental for project finance.

Typical security includes:

• Share pledge
• Mortgage over project land
• Assignment of receivables
• Bank account pledge
• Equipment pledge
• Insurance assignment
• EPC contract assignment
• O&M contract assignment
• Power Purchase Agreement assignment
• Grid connection agreement assignment
• Intellectual property security
• Cash collateral

The objective is to provide lenders with multiple enforcement options if the borrower defaults.

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Share Pledge

Foreign lenders commonly require a pledge over all shares of the project company.

This enables lenders to:

• Control ownership after default
• Replace sponsors
• Facilitate project restructuring
• Preserve project continuity
• Maximize recovery

Share pledges are among the most important security interests in Turkish project finance.

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Mortgage Over Project Assets

Where ownership exists, lenders may require mortgages over:

• Project land
• Buildings
• Administrative facilities
• Warehouses
• Fixed infrastructure

The mortgage secures repayment if enforcement becomes necessary.

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Assignment of Receivables

Project revenues are commonly assigned as collateral.

Assigned receivables may include:

• Electricity sales revenue
• Capacity payments
• Renewable support payments
• Compensation claims
• Insurance proceeds
• EPC warranties
• Government receivables

Receivable assignments improve lender protection without interrupting project operations.

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Bank Account Security

Project finance structures generally establish controlled bank accounts.

These may include:

• Revenue Account
• Debt Service Account
• Reserve Account
• Maintenance Reserve
• Operating Account
• Distribution Account

Account control agreements regulate the movement of project cash.

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Debt Service Reserve Account (DSRA)

Many lenders require a Debt Service Reserve Account.

Its purpose is to:

• Cover temporary cash shortages
• Ensure timely loan repayment
• Protect against revenue fluctuations
• Improve project bankability

The required reserve often equals several months of debt service obligations.

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Direct Agreements

Direct Agreements are among the most valuable protections for foreign lenders.

They are typically signed with:

• EPC Contractor
• O&M Contractor
• Offtaker
• Landowner
• Equipment supplier

These agreements provide lenders with important contractual rights.

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Step-In Rights

Step-in rights allow lenders to intervene before critical project contracts are terminated.

Typical rights include:

• Cure project defaults
• Replace project sponsors
• Appoint new operators
• Continue construction
• Maintain electricity generation
• Preserve collateral value

Without step-in rights, project value may collapse after borrower default.

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Financial Covenants

Financing agreements usually contain financial covenants such as:

• Debt Service Coverage Ratio (DSCR)
• Loan Life Coverage Ratio (LLCR)
• Project Life Coverage Ratio (PLCR)
• Minimum liquidity
• Leverage ratio
• Debt-to-equity ratio
• Cash sweep provisions

Regular compliance reporting is normally mandatory.

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Information Covenants

Borrowers generally undertake to provide:

• Audited financial statements
• Management accounts
• Production reports
• Budget updates
• Insurance certificates
• Regulatory correspondence
• Environmental reports
• Tax filings
• Litigation updates
• Compliance certificates

Failure to report may itself constitute a default.

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Representations and Warranties

Borrowers usually confirm:

• Valid incorporation
• Corporate authority
• Ownership of assets
• Accuracy of financial statements
• Compliance with laws
• Valid licences
• Tax compliance
• No undisclosed litigation
• Solvency
• Enforceability of project documents

False representations may trigger immediate default.

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Events of Default

Common Events of Default include:

• Non-payment
• Covenant breach
• Insolvency
• Licence revocation
• Material litigation
• Cross-default
• Fraud
• Invalid security
• Project abandonment
• Change of control
• Misrepresentation
• Environmental violations

Following default, lenders may accelerate the loan and enforce security.

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Change of Control

Sponsors are generally prohibited from transferring ownership without lender consent.

Unauthorized ownership changes may constitute:

• Event of Default
• Mandatory prepayment event
• Security enforcement trigger

This protects lenders from unknown investors acquiring project control.

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Insurance Requirements

Financing agreements usually require comprehensive insurance including:

• Construction All Risks
• Operational Property Insurance
• Machinery Breakdown
• Business Interruption
• Third-Party Liability
• Environmental Liability
• Employer’s Liability
• Marine Cargo
• Delay in Start-Up Insurance

Lenders are commonly named as loss payees.

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Environmental and ESG Covenants

International lenders increasingly require compliance with:

• IFC Performance Standards
• Equator Principles
• World Bank Environmental Guidelines
• OECD Anti-Bribery Standards
• Anti-Corruption Laws
• Human Rights Standards
• Climate Reporting Requirements

Non-compliance may affect continued funding.

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Sanctions Compliance

Finance documents commonly require compliance with:

• UN sanctions
• EU sanctions
• UK sanctions
• OFAC regulations
• Anti-Money Laundering legislation
• Counter-Terrorist Financing rules

Borrowers are usually prohibited from engaging in sanctioned transactions.

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Force Majeure

Energy projects should contain detailed force majeure provisions covering:

• Earthquakes
• Floods
• War
• Terrorism
• Epidemics
• Grid failures
• Government restrictions
• Civil unrest

The financing documents should clearly explain whether repayment obligations continue during prolonged force majeure events.

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Political Risk

Foreign lenders frequently assess:

• Regulatory changes
• Currency restrictions
• Expropriation
• Licence cancellation
• Tax changes
• Import restrictions
• Capital controls

Political risk insurance may be appropriate for large investments.

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Foreign Currency Issues

Energy financing often involves:

• USD loans
• Euro loans
• Turkish Lira revenues
• Currency hedging
• FX swaps
• Interest rate hedging

Currency mismatch remains one of the most significant financial risks in Turkish project finance.

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Dispute Resolution

Financing agreements may provide for:

• Turkish court jurisdiction
• English court jurisdiction
• ICC Arbitration
• LCIA Arbitration
• ISTAC Arbitration

The governing law of the finance documents should be carefully coordinated with the governing law of the security documents.

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Enforcement of Security

Upon borrower default, lenders may enforce:

• Share pledges
• Mortgages
• Receivable assignments
• Account pledges
• Cash collateral
• Guarantees

Enforcement procedures are governed primarily by Turkish enforcement and insolvency legislation where Turkish assets are involved.

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Common Legal Risks

Foreign lenders should carefully investigate:

• Invalid licences
• Defective land rights
• Zoning restrictions
• Environmental liabilities
• Grid connection risks
• EPC disputes
• Construction delays
• Sponsor insolvency
• Currency volatility
• Regulatory amendments
• Tax exposure
• Incomplete security registration

Comprehensive legal due diligence significantly reduces financing risks.

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Practical Recommendations for Foreign Lenders

Before financing a Turkish energy project, lenders should:

1. Conduct comprehensive legal due diligence.
2. Verify all EMRA licences and permits.
3. Review land ownership and easement rights.
4. Confirm the validity of all security interests.
5. Negotiate robust step-in rights.
6. Secure assignments of key project agreements.
7. Monitor financial covenant compliance.
8. Require adequate insurance coverage.
9. Assess sanctions and ESG compliance.
10. Engage experienced Turkish energy counsel before financial close.

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Frequently Asked Questions

1. Can foreign banks finance Turkish energy projects?

Yes. Foreign lenders regularly finance renewable and conventional energy projects in Turkey through syndicated loans, bilateral facilities, and export credit structures.

2. What is the most important security for lenders?

A comprehensive security package typically includes share pledges, receivable assignments, bank account security, mortgages, and contractual assignments.

3. What are step-in rights?

Step-in rights allow lenders to temporarily replace the borrower or assume control of key project contracts after a default to preserve the project’s value.

4. Are Turkish-law security documents required?

Yes. Security over Turkish assets is generally governed by Turkish law, even where the facility agreement is governed by foreign law.

5. Why is legal due diligence important?

Legal due diligence identifies licensing, land, regulatory, environmental, corporate, and contractual risks before financing is completed.

6. Can lenders enforce security after borrower default?

Yes. Subject to Turkish law and the relevant security documents, lenders may enforce valid security interests following an event of default.

7. Do financing agreements require ESG compliance?

Many international lenders require compliance with ESG standards, anti-corruption policies, and environmental obligations throughout the loan term.

8. Is arbitration common in energy finance?

Yes. Large cross-border financings frequently include ICC, LCIA, or ISTAC arbitration clauses.

9. What is a Debt Service Reserve Account (DSRA)?

A DSRA is a dedicated account that holds reserve funds to ensure scheduled debt payments if temporary cash flow shortages occur.

10. Should foreign lenders hire a Turkish energy lawyer?

Yes. Turkish energy finance transactions involve complex regulatory, corporate, security, and enforcement issues that require specialised local legal advice.

Client-Focused Legal Support

Fırat Fesih Kaya Law Office advises foreign banks, export credit agencies, investment funds, project sponsors, renewable energy developers, EPC contractors, and multinational investors on project finance, energy security packages, EMRA compliance, due diligence, loan documentation, collateral enforcement, refinancing, restructuring, cross-border financing, and energy disputes throughout Turkey.

Phone: +90 312 434 22 22

Mobile: +90 532 769 22 22

Email: info@firatfesihkaya.av.tr

Office: Mevlana Boulevard No:221, Yıldırım Tower No:148, 06520 Balgat, Çankaya, Ankara, Turkey

This article is provided for general informational purposes only and does not constitute legal advice. Every energy financing transaction should be assessed individually in light of the applicable Turkish legislation, finance documents, security package, and commercial objectives.