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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
PRIVATE SECTOR RENEWABLE ENERGY AND ENERGY EFFICIENCY PROJECT
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
PRIVATE SECTOR RENEWABLE ENERGY AND ENERGY EFFICIENCY PROJECT
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)
Revised: End target revised
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)
Revised: End target revised
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)
Revised: End target revised
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)
Revised: End target revised
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 (%)
Revised: End target revised
from 17% to 30%
Revised to reflect the progress to date and
additional financing
TKB Loan
Proportion of renewable and
energy efficiency projects in
the TKB portfolio (%)
Revised: End target revised
from 13% to 55%
Revised to reflect the progress to date and
additional financing
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.
Resp: Client Stage: Imp Due Date : NA Status: In
Progress
Risk Management: Procurement audit reports are required from both FIs to
monitor the procurement process.
Resp: Client Stage: Imp Due Date : NA Status: In
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.
Resp: Client Stage: Imp Due Date : NA Status: In
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.