the world bank for official use only...and is expected to fully meet its development objective ahead...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 59763-TR

PROJECT PAPER

ON A

PROPOSED ADDITIONAL LOAN

IN THE AMOUNT OF US$500 MILLION EQUIVALENT

TO

TÜRKİYE SINAİ KALKINMA BANKASI A.Ş.

IN THE AMOUNT OF (US$100 MILLION AND EUR 69.3 MILLION)

AND

TÜRKİYE KALKINMA BANKASI A.Ş.

IN THE AMOUNT OF (US$135 MILLION AND EUR 114.3 MILLION)

WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY

FOR A

PRIVATE SECTOR RENEWABLE ENERGY AND ENERGY EFFICIENCY PROJECT

OCTOBER 27, 2011

Sustainable Development Department

Europe and Central Asia Region

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without World

Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective August 31, 2011)

Currency Unit = Turkish Lira (TL) TL 1.7200 = US$1

EUR 1 = US$ 1.443

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

CO2 Carbon dioxide CTF DA

Clean Technology Fund Designated Account

DSI General Directorate of State Hydraulic Works, Turkey EE Energy Efficiency EIA EMP EMRA

Environmental Impact Assessment Environmental Management Plan Energy Market Regulatory Authority

FI FM

Financial Intermediary Financial Management

FI Financial Intermediaries GHG Greenhouse Gas GWh Gigawatt hour HPP HPP EMP IBRD IDA

Hydroelectric Power Plant HPP Environmental Mitigation Plan International Bank for Reconstruction and Development International Development Association

IFC IFR

International Finance Corporation Interim Unaudited Financial Reports

IRR Internal Rate of Return KfW Kreditanstalt für Wiederaufbau, German Development Bank MENR Ministry of Energy and Natural Resources MoEF MoEU

Ministry of Environment and Forestry Ministry of Environment and Urbanization

MW Mega Watt NBMS National Basin Management Strategy OP PDO

Operational Policy Project Development Objectives

PAD Project Appraisal Document RAP Resettlement Action Plan RE SOE

Renewable Energy Statement of Expense

Tcal TKB

Tera Calories Turkiye Kalkinma Bankasi A.Ş.

TSKB Turkiye Sinai Kalkinma Bankasi A.Ş. UNDP United Nations Development Program

Vice President: Philippe Le Houerou

Country Director: Ulrich Zachau

Sector Manager: Ranjit J. Lamech

Task Team Leader: Shinya Nishimura

TURKEY


ADDITIONAL FINANCING DATA SHEET

CONTENTS

Project Paper Data Sheet

Project Paper

I. Introduction ............................................................................................................... 1

II. Background and Rationale for Additional Financing ................................................ 1

III. Proposed Changes ...................................................................................................... 3

IV. Appraisal Summary ................................................................................................... 5

Annexes

Annex 1 Results Framework and Monitoring………………………………………….. 10

Annex 2 Operational Risk Assessment Framework (ORAF) ………………………….13

TURKEY


ADDITIONAL FINANCING DATA SHEET

Basic Information - Additional Financing (AF)

Country Director: Ulrich Zachau

Sector Manager/Director: Ranjit J.

Lamech/ Peter D. Thomson

Team Leader: Shinya Nishimura

Project ID: P124898

Expected Effectiveness Date:

December 31, 2011

Lending Instrument: Specific

Investment Loan (SIL)

Additional Financing Type: Scale up

Sectors: Renewable Energy (100%)

Themes: Climate change (P);Other

economic management (S)

Environmental category: FI

Expected Closing Date: December 31,

2016

Joint IFC:

Joint Level:

Basic Information - Original Project

Project ID: P112578

Environmental category: FI

Project Name: Private Sector

Renewable Energy and Energy

Efficiency Project

Expected Closing Date: December 31,

2014

Lending Instrument: Specific

Investment Loan (SIL)

Joint IFC:

Joint Level:

AF Project Financing Data

[ X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

Proposed terms: VSL

AF Financing Plan (US$m)

Source Total Amount (US $m)

Total Project Cost:

Cofinancing:

Borrower:

Total Bank Financing:

IBRD

IDA

New

Recommitted

650.0

0

150.0

500.0

500.0

Client Information

Borrower: Turkiye Sinai Kalkinma Bankasi (TSKB)

Contact Person: Mr. Orhan Beskok

Telephone No.: +90 (212) 334 5050

Fax No.: +90 (212) 334 5234

Email: [email protected]

Borrower: Turkiye Kalkinma Bankasi (TKB)

Contact Person: Ms. Ender Dincer

Telephone No.: +90 (312) 231 8400

Fax No.: +90 (312) 230 2395

Email: [email protected]

AF Estimated Disbursements (Bank FY/US$m)

FY 2012 2013 2014 2015 2016

Annual 100 125 150 75 50

Cumulative 100 225 375 450 500

Project Development Objective and Description

Original project development objective: To help increase privately owned and operated

energy production from indigenous renewable sources within the market-based

framework of the Turkish Electricity Market Law, enhance energy efficiency, and

thereby help reduce greenhouse gas emissions.

Revised project development objective: No changes are being made to the original

development objective.

Project description: The proposed Project will consist of two IBRD credit lines, one each

to TSKB and TKB. The FIs will allocate a minimum of 25 percent of the IBRD loan

towards investments in energy efficiency, and a maximum of 50 percent towards

Commercial Renewable Energy investments.

Renewable Energy - All renewable energy sources are eligible for financing including

HPP, wind, geothermal, biomass, and solar energy, including for heating and cooling.

Energy efficiency - Energy efficiency investments will be eligible for financing under the

proposed project as defined in the Operational Manuals.

Safeguard and Exception to Policies

Safeguard policies triggered:

Environmental Assessment (OP/BP 4.01)

Natural Habitats (OP/BP 4.04)

Forests (OP/BP 4.36)

Pest Management (OP 4.09)

Physical Cultural Resources (OP/BP 4.11)

Indigenous Peoples (OP/BP 4.10)

Involuntary Resettlement (OP/BP 4.12)

Safety of Dams (OP/BP 4.37)

Projects on International Waters (OP/BP 7.50)

Projects in Disputed Areas (OP/BP 7.60)

[X]Yes [ ] No

[ ]Yes [X] No

[ ]Yes [X] No

[ ]Yes [X] No

[ ]Yes [X] No

[ ]Yes [X] No

[X]Yes [ ] No

[X]Yes [ ] No

[ ]Yes [X] No

[ ]Yes [X] No

Does the project require any exceptions from Bank policies?

Have these been approved by Bank management?

[ ]Yes [X] No

[ ]Yes [] No

Conditions and Legal Covenants:

Financing Agreement

Reference

Description of

Condition/Covenant

Date Due

Section I of Schedule 2 of the

Loan Agreement

On-lending arrangements for

sub-loans and lease financing

N/A

Effectiveness Condition

Article 4.01 (a) of the Loan

Agreement

Adoption of the Operational

Manual by the board of

directors of Borrowers.

1

I. INTRODUCTION

1. This Project Paper seeks the approval of the Executive Directors of the World Bank to

provide an additional loan in the amount of US$500 million equivalent to Türkiye Sınai

Kalkınma Bankası (TSKB) and to Türkiye Kalkınma Bankası (TKB), guaranteed by the

Republic of Turkey, for the Private Sector Renewable Energy and Energy Efficiency Project

[P112578] – referred to as the original project hereinafter. The additional loan will be allocated

as follows:

- US$ 100 million and EUR 69.3 million to TSKB; and

- US$ 135 million and EUR 114.3 million to TKB.

2. The proposed additional loan would help finance the costs associated with scaled-up

activities to enhance the positive impact of the project. TKB and TSKB, the two Financial

Intermediaries (FI) under the project, have disbursed almost the entire original loan amounts, and

more than 80 percent of the Clean Technology Fund1 (CTF) allocation, and are in need of

resources to meet the additional demand for both renewable energy (RE) and energy efficiency

(EE) investments. The development objective and implementation arrangements will remain the

same as under the original project.

3. Additional financing is proposed for the existing International Bank for Reconstruction

and Development (IBRD) loans to TSKB and TKB, but not for the US$ 100 million CTF

allocation which accompanied these existing IBRD loans for the original project. Turkey has an

overall allocation of US$ 250 million from the CTF for the first phase of the investment plan.

Turkey’s priority is to utilize the remaining CTF allocation for energy efficiency investments in

small and medium enterprises and for “smart” grid type investments in the transmission grid (for

the efficient integration of large scale renewable generation capacity into the grid).

4. Other changes to the original project, have been made as follows: 1) updates of the

project Operational Manuals to revise the thresholds and eligibility criteria for RE and EE

investments; 2) amendment of the project results framework to account for scaled-up activities,

and 3) addition of 4 river basins to the list of eligible basins. The closing date for the additional

loan will be December 31, 2016.

II. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING

5. Current Project Performance: The Private Sector Renewable Energy and Energy

Efficiency Project was approved on May 28, 2009 and became effective on August 12, 2009.

The original IBRD loans [Ln. 77150-TU and Ln. 77140-TU] are expected to close on or before

December 31, 2014 as scheduled. The project development objective (PDO) is to help increase

privately owned and operated energy production from indigenous renewable sources within the

market-based framework of the Turkish Electricity Market Law, enhance energy efficiency, and

thereby help reduce greenhouse gas emissions. To date, the original project has performed well,

and is expected to fully meet its development objective ahead of schedule. All project ratings

1 The original project includes US$ 100 million of CTF resources blended with US$ 500 million of IBRD resources.

The original project was the first to use resources from the CTF − a US$ 4.5 billion multilateral fund managed by

the World Bank and administered through the World Bank Group and other multilateral development banks. The

CTF was set up to provide low-interest financing to scale up low carbon technologies to reduce greenhouse gas

emissions during the period until a new global climate change agreement is negotiated and becomes effective.

2

have been “satisfactory” in the last 12 months, and the project is in substantial compliance with

loan covenants.

6. The original project is financed by an IBRD loan in the amount of US$ 500 million, and

by US$ 100 million from CTF funds. The project provides financing to private sector companies

for renewable energy and energy efficiency investments. Allocation of the original loan and CTF

funds made to each FI is the following:

Table 1: Allocation of Funds under Original Project IBRD CTF

TSKB US$ 350 million US$ 70 million

TKB US$ 150 million US$ 30 million

7. As of October 26, 2011, TSKB had disbursed 83 percent of its IBRD loan and 95 percent

of its CTF loan, and TKB had disbursed 94 percent of its IBRD loan and 53 percent of its CTF

loan. Both institutions are expected to complete disbursement of the original IBRD loan by the

end of 2011. As a result, the original IBRD loan is expected to close on or before the originally

envisaged closing date of December 31, 2014. CTF disbursements stood at US$ 82.4 million as

of October 26, 2011, after a slow start due to their focus on more advanced RE technologies and

EE investments, which are still relatively underdeveloped in Turkey, and which are taking a

longer time to develop.

8. The project has financed 134 Mega Watts (MW) of completed RE investments and

energy savings of 1,422 Tera Calories (Tcal) have been achieved through EE investments as of

December 2010. These investments are expected to contribute to greenhouse gas emissions

reduction of 740,000 tons per annum. Within this portfolio, CTF financing has supported the

development of 9 small hydroelectric power plants (HPPs), 4 wind and 12 EE projects, and 1

geothermal project is under review. The concessionality provided by the CTF has been

particularly important in promoting EE investments in sectors such as petrochemicals.

9. The original project was recently restructured2 (approved on September 30, 2011).

Environmental management issues during construction had been identified at a subset of HPP

sites. Both Borrowers, with the assistance of environmental consultants, have completed a full

review of all HPP sub-project sites and have prepared HPP Environmental Mitigation Plans

(HPP EMPs) to address the issues that were identified. The HPP EMPs were submitted for

review to the World Bank in July 2011 and the final versions were accepted by the World Bank

in August 2011. The sub-project sponsors have begun implementing these HPP EMPs under an

agreed schedule and monitoring plan. Additional provisions for analysis, implementation and

monitoring of environmental issues by sub-project sponsors have been included in the

Operational Manuals for the original and additional loans, including international good practice

for identification and evaluation of potential cumulative impact. The restructuring includes the

following changes, which are reflected in the revised Operational Manual and the revised legal

agreements of the original loans: (1) change in categorization of small Hydroelectric Power

2 “Restructuring Paper on a Proposed Project Restructuring of Private Sector Renewable Energy and Energy

Efficiency Project Loans and Clean Technology Funds (CTF) Loans on May 28, 2009”, September 30, 2011,

Report No: 64698-TR.

3

Plants (HPPs) from “Emerging Renewable Energy” to “Commercial Renewable Energy”; (2)

additional environmental and social safeguards requirements; (3) reallocation of funds; and (4)

update of the applicable World Bank procurement guidelines to the latest edition.

10. Consistency with Country Partnership Strategy: The proposed additional financing is

consistent with the current Country Partnership Strategy 2008-11 (Report No. 42026-TR) and the

Country Partnership Strategy Progress Report (Report No. 51689-TR), which highlight the

importance of ensuring reliable and efficient energy supply both through supply side measures in

increasing generation capacity as well as through demand side energy efficiency improvements.

The additional loan amount is expected to lead to a proportional increase in the mitigation of the

impact of climate change, through reducing greenhouse gas emissions relating to the energy

sector. The proposed additional financing is expected to be consistent with the new Country

Partnership Strategy 2012-15, which is currently under preparation and is expected to continue to

support Turkey in ensuring reliable and efficient energy supply.

11. Rationale for Additional Financing: The Government continues to place a high priority

on the diversification of RE technologies in Turkey and to this end, in December 2010, the

Government amended the Renewable Energy Law (enacted in 2005), raising the feed-in tariffs

for renewable energy technologies such as geothermal, solar and biomass. Investors had been

waiting for this amendment as geothermal and biomass investments, in particular, are now

expected to become more financially viable. However, it is expected that such projects will

remain difficult for private financiers to consider in the near term as the application of the

technologies is new in Turkey.

12. The lower cost financing offered by the CTF and the availability of long-term IBRD

funds under this project allow the two Borrowers to respond to changing market conditions, in

particular by assisting them to take up projects that are still considered new in Turkey, such as

investments that utilize advanced RE technologies (such as wind, geothermal, biomass, etc) and

less developed EE investments. In being a tool which supports the promotion of new

technologies in Turkey, the project continues to support the implementation of the Government’s

evolving policy agenda on energy efficiency and climate change.

13. The Borrowers are requesting additional financing because they have utilized the existing

loan amount well ahead of schedule and are seeing greater than anticipated demand for financing

of RE and EE investments. In view of the fact that the objectives and fundamental design of the

project are being maintained, additional financing, is the preferred approach.

III. PROPOSED CHANGES

14. The proposed additional loan will remain consistent with the original project. There are

no changes to existing implementation arrangements. There are no new Safeguard Policies

triggered for the additional loan. The project development objective and project description also

remain unchanged. The closing date for the additional loan will be December 31, 2016. The

revised Operational Manuals, adopted through the restructuring of the original project, will also

be applicable to all projects financed by the additional loan. The amendments outlined in the

following paragraphs have been made to the Operational Manuals.

15. The allocation of funds among eligible categories of investments has been altered to

prioritize energy efficiency and newer renewable technologies. The original loan required that

at least 10 percent of the loan be allocated to EE. Under the additional loan, this threshold will be

4

increased to a minimum of 25 percent, while funding for Commercial RE (all HPPs and Waste-

to-Energy Facilities) will be limited to no more than 50 percent of the total additional financing.

At the appraisal stage of the original project, developers of small HPPs faced constraints in

securing financing for their projects. As a result, to help stimulate this market, a substantial

portion of the IBRD loan in the original project plus a portion of the CTF were directed to HPPs.

However, during the project implementation period, conditions have improved considerably in

Turkey particularly with respect to developers’ capacities to prepare bankable projects and

financial institutions’ capacity to assess the projects. Private financiers, in competition with

development banks such as TKB and TSKB, have begun regularly supporting HPPs, particularly

those developed by major corporate players.

16. The eligibility criteria for EE have been amended to provide more clarity on investment

eligibility. The eligibility criteria for EE investments in the original project were: (a) at least 20

percent reduction in energy consumption; or (b) at least 50 percent of incremental benefits from

the project to come from cost savings in energy consumption. During implementation of the

original loan, it was found that condition (a) was not sufficiently clear on whether a reduction of

20 percent of total consumption was required or whether this would be calculated on a per unit of

output basis. It was also unclear whether the reduction should be calculated based on the energy

consumption for the entire facility or just in the sections that receive project financing. To clarify

these two issues, condition (a) has been revised as follows: “at least 20 percent reduction in

energy consumption measured for the specific investments which are financed by the subproject”.

The revised criteria allow a 20 percent reduction in energy consumption per output unit or total

consumption, and they limit the calculation of the reduction to the investments financed under

the loan. However, in order to be considered for CTF financing, proposed investments will

continue to be required to demonstrate that they reduce the total consumption of energy, not just

energy per unit of output.

17. Addition of four river basins to the list of eligible river basins for financing: At the

request of the Borrowers, the following four river basins have been added to the list of eligible

river basins in the original loan – Burdur, Afyon, Orta Anadolu and Van. The additional river

basins have been reviewed and it has been confirmed that their additions would not trigger

additional Bank safeguard policies.

18. Project cost and project indicators have been revised to incorporate the scaled-up

activities under the additional financing. Revised project costs are shown in the table below:

Table 2: Project Costs for original and additional financing

(US$ million) Original

Project Additional

Financing Total

IBRD 500 500 1,000

CTF 100 - 100 Sponsor Equity 300 150 450

TOTAL 900 650 1,550

19. The project indicators (see Annex 1) have been revised to take into account: (i) only the

renewable energy generation capacity that was directly financed by the project, rather than the

total renewable energy generation capacity in Turkey, to better monitor the project impact; (ii)

5

the increase in the size of the project; (iii) the reallocation of funds from RE to EE for TSKB

(approved in the restructuring of the original project); (iv) the revision in the proportions of

types of renewable energy and energy efficiency investments; and (v) the experience to date

under the original project. The indicator for share of RE electricity generation in total electricity

generation was updated as the Government target was raised to 30 percent for the year 2023.

Table 3: Summary of Project Indicators Being Revised

(unit) Original target –

December 2014

Status

(December 2010)

Revised Target –

December 2016

Renewable Energy

Capacity of renewable electricity or

thermal heating plants MW 1,973 134 950

Potential incremental production of

electricity GWh 1,814 148 3,451

Annual emission reduction potential

000 tons of

CO2 2,270 90 2,071

Energy Efficiency

Extent of savings in heat or

electricity Tcal 554 1,422 3,495

Annual emission reduction potential

000 tons of

CO2 219 684 1,436 NB: The targets presented in this table were calculated on the assumption of the following proportions: 50 percent of funds to Commercial RE;

25 percent of funds to EE: and, 25 percent of funds to other alternative renewable energy investments.

IV. APPRAISAL SUMMARY

20. Financial and economic analysis: The original financial assessment of both TSKB and

TKB has been updated. The assessment has confirmed their continued financial strength and

high solvency ratio (see Table 4 below). An Operational Policy on Financial Intermediary

Lending (OP 8.30) eligibility compliance review has also been carried out. This confirmed the

eligibility of TSKB and TKB as Financial Intermediaries, and that the project structure is sound.

Table 4: Summary Table of Financial Results

(million USD) 2010 2009 2008 2007 2006

TSKB

Total Assets 5,146 4,642 4,080 4,212 2,890

Loan Portfolio* 3,104 2,568 2,411 2,203 1,559

Shareholders' Equity 822 700 493 637 419

Net Profit/(Loss) 138 118 78 127 76

Capital Adequacy Ratio 22.7 24.9 21.1 27.6 32.9

TKB

Total Assets 1,039 865 673 705 629

Loan Portfolio* 748 539 387 343 237

Shareholders' Equity 334 336 318 395 382

Net Profit/(Loss) 14 17 24 37 111

Capital Adequacy Ratio 75.2 70.0 79.2 91.2 208.2 Source: Banks Association of Turkey

*Does not include Leasing

6

21. Consistent with the original project, the financial and economic analysis focused on a

selection of prototype projects that may be financed under the proposed additional financing.

The assessment shows that even under conservatively estimated tariff levels between 7.4 - 8.7

cents/kWh, it is expected that the eligible prototype investments are financially and economically

viable. Table 5 below summarizes the results of the assessment.

Table 5: Financial and Economic Analysis of Prototype Projects

Technology (installed capacity) Current tariff (8.7 cents/kWh) Stress test (15% lower tariff)

FRR1 ERR FRR ERR

HPP (22 MW) 17.3% 10.6% 11.7% 8.8%

HPP (10 MW) 25.6% 16.3% 19.8% 14.0%

HPP (122 MW) 17.8% 16.5% 14.2% 14.0%

HPP (153 MW) 20.3% 18.2% 16.3% 15.1%

Wind (15 MW) 12.1% 14.9% 9.8% 12.7%

Energy Efficiency2 43.6% 44.3% 37.8% 39.1%

Energy Efficiency3 20.9% 19.4% 17.4% 16.0%

Notes: 1. FRR – Financial Rate of Return. ERR – Economic Rate of Return (including carbon benefits).

2. Estimated for a prototype set of investments in a petrochemical plant, such as installation of heat exchangers,

modernization of boilers, compressors and crude oil distillation units.

3. Estimated for a prototype set of investments in an iron and steel plant, such as waste heat recovery, modernization

of coke battery units, oxygen plants etc.

22. Technical: The higher tariffs for advanced renewable energy technologies provided

under the recent amendment to the Renewable Energy Law are expected to increase investor

interest in geothermal and biomass projects in particular. TKB and TSKB have experience in

these types of projects and have agreed to expand their technical capacities as necessary to

ensure smooth implementation of such projects. In addition to the continued training and

technical assistance for energy efficiency investments provided by Kreditanstalt für

Wiederaufbau (KfW) and United Nations Development Program (UNDP), the World Bank is

also seeking opportunities to provide additional technical assistance for energy efficiency. While

TKB and TSKB are gaining experience on energy efficiency investments under the original

project, particularly in terms of marketing loans towards such investments, and also in appraising

and monitoring them, they have agreed to continue to deepen their capacities in energy

efficiency through further capacity building and training.

23. Fiduciary: The current financial management (FM) arrangements for the original project

are satisfactory for both TKB and TSKB. Both Borrowers are in compliance with the FM

provisions of the legal agreement of the original project. Audit reports for both FIs had clean

audit opinions and were assessed as satisfactory by the World Bank. All of the subcategories of

financial management for both Borrowers are also rated satisfactory by the World Bank’s review

of FM aspects for the additional financing. The continued soundness of TSKB and TKB and

their compliance with domestic prudential regulations will be monitored through annual audit

reports.

24. TSKB and TKB will continue to use existing systems and staff for the financial

management of the additional financing. The same accounting, reporting and internal control

procedures will apply. The existing financial monitoring report templates will be used for the

7

additional financing, however, during implementation, additional information may be requested

by the World Bank, if necessary. Interim Unaudited Financial Reports (IFRs) will be prepared

each semester and will be submitted to the World Bank no later than 45 days after the end of the

semester. The IFRs, and the entity financial statements prepared in accordance with the

International Financial Reporting Standard will be audited by private external auditors on an

annual basis. The terms of reference of the audit will be reviewed by the World Bank prior to

their finalization. Both reports will be submitted to the World Bank no later than six months after

the closing of the year.

25. Disbursements: The disbursement procedures, as followed under the original project,

will continue to be used for the additional loan. Proceeds of the loan will be disbursed over a 60-

month period. Loan funds will flow to the project via the Designated Account (DA) opened at

the existing bank for the original project. The project will follow transaction-based, i.e.

traditional World Bank disbursement procedures (advance to the DAs, documentation based on

statement of expenditures; similarly for reimbursements). Further details on withdrawals from

the Loan Account will be requested in accordance with the guidance in the Disbursement Letter.

26. Project Funds for each Borrower will disburse: (i) via two Designated Accounts, with

ceilings to be specified in the Disbursement Letter, held at the existing banks for the original

project, which will be replenished on the basis of Statement of Expenditures (SOEs); and (ii)

through reimbursement. The applications documenting funds utilized from the DA will be

submitted to the World Bank on a quarterly basis. The Borrowers will be responsible for keeping

the supporting documentation for all project expenses, including those reported through SOEs,

and for making them available to the World Bank implementation support missions as well as

the auditors.

27. Procurement: An assessment of the procurement capacity of TSKB and TKB found that

procurement related risks are low, based on the experience gained by the two Borrowers under

the original project. Sub-borrowers will continue to use established private sector commercial

practices as defined in the Operational Manuals, allowing for the participation of international

suppliers, in the procurement of goods, works and consultancy contracts. The Borrowers will

continue to use annual independent procurement reviews to ensure that the procurement is

carried out using these practices and that prices in the contracts are reflective of market prices.

The additional loans will be subject to the updated Procurement Guidelines and Consultant

Guidelines dated January 2011.

28. From the IBRD loan, TSKB and TKB may finance eligible project expenditures incurred

on or after December 1, 2010 or twelve months before the signing of the Loan Agreement,

whichever date is later, up to a maximum 20 percent of the IBRD Loan amount provided that the

payments are for goods, works, consultant services and non-consulting services that are procured

in accordance with procedures outlined in the Operational Manual.

29. Social impact: As in the original project, OP 4.12 Involuntary Resettlement will apply,

because some of the facilities eligible for financing may require land acquisition. The OP 4.12

compliance requirement will continue to apply to every sub-project to be financed with project

funds for which either Energy Market Regulatory Authority (EMRA) has already issued or will

issue a Public Benefit Document for renewable energy facilities. This enables the investor to

exercise Eminent Domain for land acquisition for the sub-project.

30. EMRA has formalized its expropriation processes, which are based on the Turkish legal

framework, through regulations detailing the principles and procedures for prior public

8

consultations with potentially affected people. The Borrowers are responsible for ensuring

compliance with OP 4.12, and for obtaining the required documentation for confirmation.

EMRA provides the Borrowers with documentation relating to expropriation including public

consultation minutes, which enables the sub-project sponsor to prepare Resettlement Action

Plans (RAP) in the format agreed with the World Bank. The FI will forward the RAP along with

all supporting documentation in the agreed format for sub-projects that trigger OP 4.12 to the

World Bank for prior review and no objection. According to the OP 4.12, all RAPs will be

disclosed in country, and submitted to the World Bank for disclosure in the World Bank’s

Infoshop. Further, the FI will report semi-annually to the World Bank on the land acquisition

status of new and on-going investments. For sub-projects where land acquisition may have

already been initiated without the prior knowledge of the FI, the FI will forward the document

(as per Appendix V.2.2 of the Operational Manuals) for the first two sub-projects that trigger OP

4.12 to the World Bank for prior review and no objection. If the World Bank agrees, for

subsequent sub-projects the documents will be submitted for post review. The Operational

Manuals, which include the Resettlement Policy Framework, have been revised to clarify the

foregoing procedure.

31. Environmental impact: The proposed additional financing will not lead to a change in

the environmental category of the project (which remains as FI), nor trigger any new safeguard

policies. The sub-projects to be financed are expected to be broadly similar to those currently

being financed, and will be implemented in a manner consistent with the updated environmental

policy framework and reporting templates provided in the Operational Manuals. Technologies

such as biomass or geothermal are also likely to be financed, in which case the site-specific

environmental assessments will determine the mitigation measures that will be necessary. These

will be monitored routinely. The Borrowers will ensure that the required screening and

assessments are carried out, as well as ensuring that environmental assessment documents are

disclosed and public consultations are publicized widely to provide adequate notice and

opportunity for interested parties to attend. The revised Operational Manuals include measures

aimed at further strengthening the Borrowers’ capacity on safeguards, for instance, through

requiring that sub-project sponsors retain suitably qualified environmental specialists to identify,

propose mitigation measures for, and monitor environmental aspects throughout the sub-project

cycle.

32. Cumulative Impact Assessment. Owing to a rapid and significant increase in the

number of HPPs in Turkey in recent years, the Borrowers, the Government, and stakeholders

throughout Turkey recognize the potential cumulative effects of multiple HPPs in river basins.

While current regulations do not include a specific framework or explicit provisions for

undertaking cumulative impact assessments, the General Directorate of State Hydraulic Works

(DSI) is carrying out an assessment of the potential environmental effects of existing and

planned HPPs in Iyidere (Rize Province) and Solaklidere (Trabzon Province) river basins. This

study is expected to provide guidance on how to address cumulative effects of HPPs in these

basins. In addition, the Ministry of Environment and Urbanization (MoEU) has strengthened its

procedures for Environmental Impact Assessment (EIA) of new HPP projects. Since January

2011, MoEU has required ecosystem evaluation analysis to be conducted for all newly proposed

HPPs. Such analysis, while not a replacement for cumulative impact assessment, provides the

basis for a deeper understanding of potential downstream and cumulative effects of proposed

projects.

9

33. The project includes criteria for the preparation of cumulative impact assessments in the

Operations Manuals. The Borrowers will monitor the process of carrying out such assessments

throughout project implementation so as to take into account lessons learnt over time. If

necessary, the Operational Manuals may be updated from time to time to reflect such lessons.

34. As part of the Country Partnership Strategy with Government of Turkey, the Bank has

been engaging in a policy dialogue on watershed and resource management, in particular through

the provision of technical assistance to the government as it formulates a new National Basin

Management Strategy (NBMS). The NBMS aims to strengthen institutional coordination for

basin planning and prioritization of watershed rehabilitation investments and is expected to be

drafted by end-2011.

35. Exceptions. The additional loan does not require any exceptions to Bank policies.

10

Annex 1 Results Framework and Monitoring

TURKEY: Private Sector Renewable Energy and Energy Efficiency Project

Results Framework

Revisions to the Results Framework Comments/ Rationale for Change

Project Development Objective (PDO)

Current Project Appraisal

Document (PAD)

Proposed

The Project Development

Objective is to help increase

privately owned and operated

energy production from

indigenous renewable sources

within the market-based

framework of the Turkish

Electricity Market Law,

enhance energy efficiency, and

thereby help reduce

greenhouse gas emissions

[No change]

PDO indicators

Current (PAD) Proposed change

For Renewable Energy:

Capacity of renewable

electricity or thermal heating

plants (MW)

Revised: End target revised

from 1,973 MW to 950 MW

Revised to measure only the installed capacity

that was directly financed under the project;

and to reflect progress to date and additional

financing

Potential incremental

production of electricity or

heat (GWh)


from 1,814 GWh to 3,451 GWh

Revised to reflect the progress to date and

additional financing

Emissions reduction potential

(tons of CO2 per annum)


from 2,270,000 to 2,071,000

tons of CO2 per annum

Revised to reflect the emissions reductions as

direct result from investments financed under

the project; and to reflect the progress to date

and additional financing

For Energy Efficiency

Extent of savings in heat or

electricity (Tcal)


from 554 Tcal to 3,495 Tcal

Revised to reflect the significant progress to

date and additional financing

Emissions reduction potential

(tons of CO2 per annum)


from 219,000 tons to 1,436,000

tons of CO2 per annum

Revised to reflect the significant progress to

date and additional financing

Intermediate Results indicators

Current (PAD) Proposed change

TSKB Loan

Proportion of renewable and

energy efficiency projects in

the TSKB portfolio (%)


from 17% to 30%



TKB Loan

Proportion of renewable and

energy efficiency projects in

the TKB portfolio (%)


from 13% to 55%



11

REVISED PROJECT RESULTS FRAMEWORK

Project Development Objective (PDO):

to help increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law,

enhance energy efficiency, and thereby help reduce greenhouse gas emissions

PDO Level Results Indicators C

ore

UOM3

Baseline

Original

Project

Start

(2009)

Progress

(2010)

Cumulative Target Values

Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Notes 2011 2012 2013 2014 2015 2016

Renewable Energy

1. Capacity of renewable

electricity or thermal heating

plants

MW 0 134 315 581 815 950 950 950

Semi

Annually

TSKB/TKB

Reports TSKB/TKB

2. Potential incremental

production of electricity or heat GWh 0 148 1144 2110 2961 3451 3451 3451

3. Emissions reduction potential 000

tons

CO2/yr

0 90 686 1266 1776 2071 2071 2071

4. Renewable electricity

generation as a percent of total

generation

% 18 26 26 26 27 27 27 28

Energy Efficiency

5. Extent of savings in heat or

electricity Tcal 0 1422 1455 2152 2571 3112 3342 3495

Semi

Annually

TSKB/TKB

Reports TSKB/TKB

6. Emissions reduction potential 000

tons

CO2 /yr

0 684 697 929 1096 1301 1380 1436

3 UOM = Unit of Measurement.

12

Intermediate Results and Indicators

Intermediate Results Indicators

Co

re UOM

Baseline

Original

Project

Start

(2009)

Progress

To Date

(2010)

Target Values

Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Notes 2011 2012 2013 2014 2015 2016

1. TSKB Loan Commitments 0 77% 57% 74% 85% 95% 100%

Semi

Annually

TSKB

Reports

TSKB

2. TSKB Loan Disbursements 0 39% 42% 65% 80% 91% 96% 100%

3. % of RE+EE in total TSKB

Portfolio 17% 26% 26% 27% 27% 28% 29% 30%

4. TKB Loan Commitments 0 100% 38% 52% 73% 90% 100%

Semi

Annually

TKB

Reports

TKB

5. TKB Loan Disbursements 0 71% 27% 47% 63% 83% 93% 100%

6. % of RE+EE in total TKB

Portfolio 13% 51% 51% 52% 52% 53% 54% 55%

13

Annex 2 Operational Risk Assessment Framework (ORAF)

TURKEY: Private Sector Renewable Energy and Energy Efficiency Project

Project Development Objective(s) The Project Development Objective is to help increase privately owned and operated energy production from indigenous renewable sources within the market-based framework of the Turkish Electricity Market Law, enhance energy efficiency, and thereby help reduce greenhouse gas emissions.

PDO Level Results

Indicators:

RENEWABLE ENERGY PROJECTS 1. Total capacity of renewable electricity or thermal heating plants (MW) 2. Incremental production of electricity or heat (GWh) 3. Renewable electricity generation as a percent of total generation (%) 4. Emissions reduction potential (tons of CO2 per annum)

ENERGY EFFICIENCY PROJECTS

1. Extent of savings in heat or electricity (Tcal)

2. Emissions reduction potential (tons of CO2 per annum)

1. Project Stakeholder Risks Rating Low

Description: The investment appetite of RE and EE

investors may wane due to market downturn or lack

of clarity in investment environment and/or

Government support.

Risk Management: The risk is mitigated by enactment of amendments to the RE

law that provide for technology based tariffs.

Resp: Government Stage: Prep Due Date : Dec 30,

2010

Status:

Completed

Risk Management: The risk is mitigated by preparation of further secondary

regulations on EE to support further scale up and promote investments.

Resp:

Government Stage: Imp Due Date : NA

Status: In

progress

2. Implementing Agency Risks (including fiduciary)

14

2.1 Capacity Rating: Low

Description: Lack of implementation capacity of the

Borrowers, on both banking operations and technical

expertise to properly appraise RE and EE projects,

could lead to unsatisfactory implementation of the

Project.

Risk Management: The risk is mitigated by the Borrowers’ effort to further

increase their existing capacities through staff increases and training

opportunities on RE and EE that are currently made available to them by various

organizations.

Resp: Client Stage: Imp Due Date : NA Status: In

progress

2.2 Governance Rating: Low

Description: Lack of effective governance could lead

to financing of non-viable or non-eligible sub-loans.

Risk Management: Adequate management systems of the Borrowers,

significant experience gained in previous operations, and continued World

Bank implementation support mitigate the risk of financing non-viable and/or

non-eligible sub-loans.


Progress

Risk Management: Procurement audit reports are required from both FIs to

monitor the procurement process.


Progress

3. Project Risks

3.1. Design Rating: Low

Description: Requirements for reporting and

documentation of compliance with World Bank

safeguard and fiduciary requirements may place a

burden on participants beyond their normal operating

procedures and/or capacity.

Risk Management: The risk is mitigated by amending the Operational Manuals

to streamline and improve reporting on safeguard issues without incurring

excessive burden on their own capacity and on that of sub-borrowers.

Resp: Client Stage: Prep Due Date : Sept 30,

2011

Status:

Completed

3.2. Social & Environmental Rating: Moderate

Description: Proper evaluation, monitoring and

implementation of potential environmental effects

Risk Management: The risk is mitigated by having clear criteria and procedures

set out in the Operational Manual, including that EIAs and EMPs must fully

15

and /or land acquisition may be difficult given the

large number and nature of sub-projects which also

may include associated infrastructure.

cover associated infrastructure such as access roads, and cumulative impact

assessment will be conducted for hydropower projects where appropriate. For

land expropriation, the Manual includes reporting formats for resettlement action

plans and procedures to ensure compliance with Bank policy.

Resp: Client Stage: Prep Due Date : Sept

30, 2011 Status: Completed

Description: Owing to a rapid and significant

increase in the number of HPPs in Turkey in recent

years, there is recognition of the potential cumulative

impact of multiple HPPs in river basins. Such

environmental risks could be accompanied by

corresponding reputational risks.

Risk Management: To mitigate this risk, sub-projects that are categorized under

clearly laid out criteria to have a potential cumulative impact, will require prior

review by the Bank and cumulative impact assessment. The World Bank is

conducting an on-going policy dialogue on watershed and resource management

issues with the Government, and through this, the World Bank will work jointly

with stakeholders in Turkey to bring in international experience on this subject,

and assist in institutionalizing sustainable mitigation of cumulative impact.

Resp:

Government/Client

/Bank

Stage: Prep/Imp

Due Date : Sept 30,

2011 (inclusion of

process in Manual)

Status: In

progress

3.3. Program & Donor Rating: Low

Description: Donor-supported training opportunities

that were provided to support capacity development

of Borrowers may no longer be made available.

Risk Management: The risk is mitigated through the willingness of other donors

to continue providing their support for capacity building in EE and RE.

Resp: Partners Stage: Imp Due Date : NA Status: In

progress

3.4. Delivery Monitoring & Sustainability Rating: Low

Description : Additional safeguard requirements

and increase of fund allocation to non-conventional

RE and EE could lead to delays and over burden the

FIs’ operational capacity.

Risk Management: The risk is mitigated by the Borrowers' efforts to develop

and expand their capacity through training opportunities on RE, EE and World

Bank policies /procedures, technical training and increased number of staff

assigned to project implementation. The team is also working closely with the FIs

on both implementation and supervision.


progress

4. Overall Risk Following Review: Moderate

16

4.1 Implementation Risk Rating: Moderate

Comments: This is an additional financing to a project that has been successfully implemented by Borrowers/ Implementing Agencies

with strong capacities. However, the risk of an adverse cumulative impact of HPPs on river basins is new in Turkey and will require close

monitoring.

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