Document of The World Bank...Date achieved 12/31/2009 12/31/2015 12/31/2015 12/31/2015 Comments (including % achievement) The end target value was revised from 17.5 GW to 28 GW, as

Document of

The World Bank

Report No: ICR00003768

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IBRD-79570)

ON A

LOAN

IN THE AMOUNT OF €169.2 MILLION (US$220 MILLION EQUIVALENT)

TO THE

REPUBLIC OF TURKEY

FOR THE

THIRD TEİAŞ PROJECT

IN SUPPORT OF

THE ENERGY COMMUNITY OF SOUTH EAST EUROPE

ADAPTABLE PROGRAM LOAN 6 PROJECT

June 29, 2016

Energy and Extractives Global Practice Turkey Country Unit Europe and Central Asia Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2015)

Currency Unit = New Turkish Lira (TL) TL 2.92 = US$1

US$1.09 = €1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AMR Automatic Meter Reading APL Adaptable Program Loan APL 2 Second Phase APL to Turkey APL 3 Third Phase APL to Turkey APL 6 Sixth Phase APL to Turkey BIST Borsa Istanbul BSS Balancing and Settlement System CTF Clean Technology Fund CPS Country Partnership Strategy DAM Day-ahead Market ECSEE Energy Community of South East Europe EMP Environmental Management Plan EMRA Energy Market Regulatory Authority EMS Energy Management System ENTSO-E European Network of Transmission System Operators for Electricity EPİAŞ Energy Market Operations Corporation ERP Enterprise Resource Planning ERR Economic Rate of Return EU European Union EÜAŞ Electricity Generation Corporation FM Financial Management GIS Gas-insulated Switchgear HVDC High-voltage Direct Current ICR Implementation Completion and Results Report IFRS International Financial Reporting Standards ISR Implementation Status and Results Report IT Information Technology M&E Monitoring and Evaluation MENR Ministry of Energy and Natural Resources MMS Market Management System NGCCP Natural Gas Combined Cycle Plant NGCCPP Natural Gas Combined Cycle Power Plant NPV Net Present Value NTGP National Transmission Grid Project PAD Project Appraisal Document

PCU Project Coordination Unit PDO Project Development Objective RCC Remote Control Center REIP Renewable Energy Integration Project RTU Remote Terminal Unit SCADA Supervisory Control and Data Acquisition SEE South East Europe SOE State-owned Enterprise TA Technical Assistance TAS Turkish Accounting Standards TEDAŞ Turkish Electricity Distribution Corporation TEİAŞ Turkish Electricity Transmission Corporation TETAŞ Turkish Electricity Trading and Contracting Corporation TTL Task Team Leader WPP Wind Power Plant

Acting Senior Global Practice Director: Anna M. Bjerde Practice Manager: Ranjit J. Lamech

Project Team Leader: Yesim Akcollu ICR Team Leader: Juliana Victor

Primary Author: Yesim Akcollu

REPUBLIC OF TURKEY Third TEİAŞ Project in Support of the Energy Community of South East Europe

APL 6 Project

CONTENTS

Data Sheet A. Basic Information ...................................................................................................... i B. Key Dates ................................................................................................................... i C. Ratings Summary ...................................................................................................... i D. Sector and Theme Codes ......................................................................................... ii E. Bank Staff ................................................................................................................ ii F. Results Framework Analysis .................................................................................. ii G. Ratings of Project Performance in ISRs ................................................................ v H. Restructuring (if any) ............................................................................................ vi I. Disbursement Profile ................................................................................................ vi

1. Project Context, Development Objectives, and Design .............................................................. 1

2. Key Factors Affecting Implementation and Outcomes .............................................................. 8

3. Assessment of Outcomes .......................................................................................................... 19

4. Assessment of Risk to Development Outcome ......................................................................... 24

5. Assessment of Bank and Borrower Performance ..................................................................... 25

6. Lessons Learned........................................................................................................................ 28

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ........................... 29

Annex 1. Project Costs and Financing .......................................................................................... 31

Annex 2. Outputs by Component.................................................................................................. 32

Annex 3. Economic and Financial Analysis ................................................................................. 40

Annex 4. Bank Lending and Implementation Support/Supervision Processes ............................. 46

Annex 5. Beneficiary Survey Results ........................................................................................... 48

Annex 6. Stakeholder Workshop Report and Results ................................................................... 49

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR .................................... 50

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................................... 55

Annex 9. List of Supporting Documents ...................................................................................... 56

MAP ............................................................................................................................................. 57

i

A. Basic Information

Country: Turkey Project Name: Energy Community of South East Europe APL 6 Project -

Project ID: P110841 L/C/TF Number(s): IBRD-79570

ICR Date: 06/29/2016 ICR Type: Core ICR

Lending Instrument: Adaptable Program Loan

Borrower: Republic of Turkey

Original Total Commitment:

US$220.00 million Disbursed Amount: US$220.00 million

Revised Amount: US$220.00 million

Environmental Category: B

Implementing Agencies: TEİAŞ

Cofinanciers and Other External Partners: Not applicable. B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 12/14/2009 Effectiveness: 02/01/2011 12/15/2010

Appraisal: 07/23/2010 Restructuring(s): 07/08/2013 07/30/2015

Approval: 08/30/2010 Mid-term Review: 06/30/2013 06/10/2013

Closing: 12/31/2015 12/31/2015 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Low or Negligible

Bank Performance: Satisfactory

Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Satisfactory

Overall Bank Performance:

Satisfactory Overall Borrower Performance:

Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators

QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Public administration - Energy and mining 2 2

Transmission and Distribution of Electricity 98 98

Theme Code (as % of total Bank financing)

Infrastructure services for private sector development 67 67

Regional integration 33 33 E. Bank Staff

Positions At ICR At Approval

Vice President: Cyril E. Muller Phillipe Le Houerou

Country Director: Johannes Zutt Ulrich Zachau

Practice Manager: Ranjit J. Lamech Ranjit J. Lamech

Project Team Leader: Yesim Akcollu Sameer Shukla

ICR Team Leader: Juliana Victor

ICR Primary Author: Yesim Akcollu F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document)

The project development objectives (PDOs) were to increase the reliability and capacity of the power transmission system in Turkey and improve its ability to integrate renewable energy into the system.

Revised Project Development Objectives

The PDO remained unchanged throughout the project.

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(a) PDO Indicators

Indicator Baseline

Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1: Long-term system faults (faults per km per year) Temporary system faults (faults per km per year)

Value (quantitative or qualitative)

0.0038 0.0746

0.0036 0.0709

0.0018 0.0641

Date achieved 12/31/2009 12/31/2015 12/31/2015

Comments (including % achievement)

The targets for long-term and temporary system fault indicators were exceeded by 50% and 10%, respectively, showing a major improvement in the system, for example, decrease in the possibility of major blackouts due to system faults.

Indicator 2: Increased energy transmitted through the transmission system under the project (TWh)


172 201 260 263.8

Date achieved 12/31/2009 12/31/2015 12/31/2015 12/31/2015


This indicator was revised at restructuring in 2015 as “energy transmitted through the transmission system in Turkey” because the project had an impact on the whole interconnected transmission system in Turkey and the figures reported since the project inception reflected nationwide overall figures. The end target value was also revised as the former target had been surpassed in the first few years of the project.

Both the original and the revised targets were exceeded (31% and 1.5% improvement from original and revised targets, respectively), leading to enhanced supply capacity and increased transmission access and power trade possibilities in the regional market and increasing the energy transmitted from 172 TWh in 2009 to 263.8 TWh in 2015.

Indicator 3: Increased maximum capacity of the transmission system under the project (GW)


29.9 35 41 43.28

Date achieved 12/31/2009 12/31/2015 12/31/2015 12/31/2015


This indicator was revised at restructuring in 2015 as “peak load handled by the transmission system in Turkey” because the project had an impact on the whole interconnected transmission system in Turkey and the figures reported since the project inception reflected the nationwide overall figures and peak load, not the capacity of the system. The end target value was also revised as the former target had been surpassed in the first few years of the project.

Both the original and the revised target were exceeded by 23% and 5.5%, respectively, by increasing the peak load handled from 29.9 GW in 2009 to 43.28 GW in 2015.

iv

Indicator Baseline

Value


approval documents)

Formally Revised

Target Values



Indicator 4: Renewable generating capacity connected to the system (GW) Value (quantitative or qualitative)

15.7 17.5 28 31.23

Date achieved 12/31/2009 12/31/2015 12/31/2015 12/31/2015


The end target value was revised from 17.5 GW to 28 GW, as the former target was surpassed in the first few years of the project. Both the original and the revised targets were exceeded by 78% and 11.5%, respectively, allowing more renewable energy generation to be connected to the grid.

(b) Intermediate Outcome Indicators

Indicator Baseline

Value


approval documents)

Formally Revised Target

Values



Indicator 1: Substation and cable contracts completed (% of contract value) Value (quantitative or qualitative)

0 100

Date achieved 12/31/2009 12/31/2015


This indicator was dropped at restructuring in 2015 as it did not provide any information on the success of the project due to the fact that all thesubprojects/contracts significantly contributed to the success of the project regardless of their much differing contract values and sequencing. For example, APL 6 was front-loaded with the procurement of small projects, and larger contracts such as submarine cables were completed toward the end of the project. Thus, the values for this indicator werevery low in the first few years of the project, although small subprojects also contributed much to the success of the project.

Indicator 2: Transmission lines constructed or rehabilitated under the project (km) Value (quantitative or qualitative)

0 0 22.5 22.5

Date achieved 12/31/2009 12/31/2015 12/31/2015 12/31/2015


This indicator was added as a World Bank requirement to use core sector indicators. The end target value (22.5 km) was set at restructuring in 2015.

Target was fully achieved with increased efficiency through lower operating costs, reduced technical losses, increased reliability, and less probability of power outages.

v

Indicator Baseline

Value


approval documents)

Formally Revised

Target Values



Indicator 3: Additional substation capacity under the project (MVA) Value (quantitative or qualitative)

0 0 3,000 3,450

Date achieved 12/31/2009 12/31/2015 12/31/2015 12/31/2015


This indicator was added at restructuring in 2015 to better capture the physical infrastructure established under the project.

Target exceeded by 15%, allowing increased efficiency through lower operating costs, reduced technical losses, increased reliability, and less probability of power outages.

Indicator 4: Renewable energy capacity connected to the grid under the project (MW)


0 0 317 395

Date achieved 12/31/2009 12/31/2015 12/31/2015 12/31/2015


This indicator was added at restructuring in 2015 to better capture the physical infrastructure established under the project.

Target exceeded by 25%, allowing more renewable energy generation to be connected to the grid under APL 6.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual Disbursements

(US$, millions) 1 05/18/2011 Satisfactory Satisfactory 13.18 2 04/13/2012 Satisfactory Satisfactory 42.60 3 03/15/2013 Satisfactory Satisfactory 95.81 4 01/07/2014 Satisfactory Moderately Satisfactory 105.67 5 11/10/2014 Satisfactory Moderately Satisfactory 126.52 6 06/19/2015 Satisfactory Satisfactory 194.63 7 12/30/2015 Satisfactory Satisfactory 220

vi

H. Restructuring (if any)

Restructuring Date(s)

Board Approved PDO

Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in US$, millions

Reason for Restructuring and Key Changes Made

DO IP

07/08/2013 S S 100.36

Level 2 restructuring to apply the World Bank's January 2011 Procurement and Consultant Guidelines for procurement initiated on or after March 15, 2013

07/30/2015 S S 195.62

Level 2 restructuring regarding (a) reallocation of funds between disbursement categories and (b) revision of the Results Framework.

I. Disbursement Profile

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1. Project Context, Development Objectives, and Design

1.1 Context at Appraisal

Country Context

1. The Turkish economy was in a recovery phase during the appraisal of the project, following the contraction by nearly 5 percent in 2009 due to the economic crisis in 2008, with the following developments: (a) Turkish economy bounced back close to pre-crisis levels of output, and lasting effects were felt in public finances and in labor markets; (b) the Medium-Term Program (2010–12) announced in September 2009 and the proposed Fiscal Rule of 2010 set the macroeconomic framework of the Government for the near future; (c) vulnerability to further economic turbulence in Europe came more from generalized risk aversion than from direct trade and financial links; and (d) reforms in the energy sector in Turkey, including Turkish Electricity Transmission Corporation (TEİAŞ), had significant macroeconomic implications.

Sectoral and Institutional Context

2. Since the early 2000s, the Government of Turkey embarked upon a comprehensive reform and restructuring program of the energy sector to improve energy security, support climate change mitigation, and promote sustainable environmental management. The highlights and progress of the reform were as follows:

The Electricity Market Law was passed in 2001, specifically to (a) unbundle the sector into separate generation (Electricity Generation Corporation, EÜAŞ), transmission (TEİAŞ), and trading (Turkish Electricity Trading and Contracting Corporation, TETAŞ) companies; (b) create an independent regulatory authority, the Energy Market Regulatory Authority (EMRA), with jurisdiction over electricity, gas, and petroleum; and (c) establish the basis for an electricity market that would be operated by TEİAŞ.

A wholesale electricity market was created in 2006, which handled about 30 percent of electricity consumption in Turkey on average in 2015 with nearly 600 participants.

Cost-based pricing was implemented for electricity tariffs that were established by the EMRA and became effective on July 1, 2008.

Privatization was completed for five distribution companies at the time of loan appraisal, and all distribution companies were privatized by September 2013.

The eligibility threshold level was reduced for market opening: consumers whose annual consumption exceeded 0.1 GWh became eligible to choose their own supplier. This represented about 82 percent of the total nonresidential electricity market demand. The eligibility threshold has been gradually decreased to 3.6 MWh as of January 2016, and the overall electricity market opening ratio has reached over 85 percent.

2

From 2001 to 2014, over 31,000 MW of market-based, private sector power generation capacity was commissioned.

The regulatory framework for renewables and development of electricity market facilitated 16,000 MW generation capacity addition based on renewable sources in the 2001–2014 period.

The Energy Community of South East Europe

3. The South East European (SEE) countries recognized that the emerging supply security concerns could be addressed more efficiently by regional cooperation. In 2002, the governments of SEE countries and the European Commission signed a Memorandum of Understanding on the formation of a regional electricity market in SEE and its integration into the Internal Electricity Market of the European Union (EU). The regional market development process was referred to as the Athens Process. The treaty establishing the Energy Community was signed on October 25, 2005,1 which formalized the arrangements under the Athens Memorandum. The treaty had aims, including the establishment of an integrated market in natural gas and electricity, based on common interest and solidarity and creation of a stable regulatory and market framework capable of attracting investment.

4. The World Bank’s Energy Community of South East Europe (ECSEE) Adaptable Program Loan (APL) approved by the Board in January 2005 provided tailored financial support to the SEE countries to enable them to meet the regional market integration targets under the Athens Process. Countries have remained eligible for subsequent loans under the ECSEE APL Program as long as the World Bank has been satisfied that the country/borrower meets its key obligations to effectively participate in the regional market, as well as these policy triggers: (a) signing the treaty; (b) ratifying the treaty; (c) establishing distribution system operators; and (d) opening its electricity market to non-household customers.

Turkey and the ECSEE Treaty

5. As a signatory of the Athens Memorandum, Turkey participated in the program through the ECSEE Second Phase APL to Turkey (APL 2) in 2005. Turkey did not sign the treaty owing to concerns emanating from the fact that several issues in the treaty were also key aspects of the Energy and Environment chapters of the acquis, which Turkey hoped to negotiate separately as part of its negotiations for accession to the EU. Although Turkey did not sign the treaty, it remained committed to the goals and principles of the Athens Process and continued implementing the key provisions of the Athens Memorandum and the treaty. The World Bank reviewed Turkey’s progress in meeting the provisions of the treaty and concluded that even though Turkey did not sign the treaty, it had been in compliance at least at the same level. In practical terms, the key requirements of the treaty for the development of the electricity market (including the minimum requirements for the establishment of competitive electricity markets) have been substantially met by Turkey, as explained in the ‘Sectoral and Institutional Context’ section. It was on this basis that

1 The signatories to the treaty are Albania, Bosnia, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Montenegro, Romania, Serbia, and the then United Nations Interim Administration Mission in Kosovo (UNMIK), now Kosovo.

3

the World Bank provided support to Turkey under the ECSEE Third Phase APL to Turkey (APL 3) and continued the ongoing support under the current Sixth Phase APL to Turkey (APL 6).

6. Turkey continued to make progress in its electricity reform process during the APL 6 implementation period. Although Turkey has not sought to become a contracting party in the Energy Community, its convergence with the treaty deepened and the EU’s acquis communautaire continued to inform Turkey’s electricity reform including Turkey’s 2013 Electricity Market Law. Launching of separate day-ahead and balancing electricity markets by TEİAŞ (the day-ahead market [DAM] was subsequently transferred to the Energy Market Operations Corporation, EPİAŞ) and the unbundling of the distribution and supply functions of the distribution companies was among the notable steps that brought Turkey closer to full convergence. The most challenging remaining step would undoubtedly be the completion of the liberalization of the electricity market. It would require full market opening, granting all electricity consumers the freedom (making them eligible) to choose their electricity suppliers, and the removal of regulated electricity tariffs. Currently consumers with an annual consumption of at least 3.6 MWh are eligible to choose their suppliers. They account for 85 percent of total electricity consumption, but this limit excludes most electricity consumers and leaves them captive customers of their respective distribution companies. Regulated tariff supply is still available to all consumers. In the EU, removal of regulated tariffs has proven more challenging than consumer eligibility. Synchronous interconnection of the Turkish power system with the European system was completed in 2015, and TEİAŞ became an observer in the European Network of Transmission System Operators for Electricity (ENTSO-E), which, among other things, is responsible for establishing compliance and authorizing such interconnections. However, the certification of the compliance of the unbundling of TEİAŞ with the EU’s current (third) electricity directive would still require additional measures. Long-term power purchase agreements signed in Turkey with independent power producers in the 1990s would raise questions inside the EU, but the concerns will automatically disappear as they expire in the next few years. The recent long-term power purchase agreements for two very large nuclear power projects would have to be reviewed by the EU’s competition authorities. Nevertheless, it can be highlighted that Turkey’s convergence with the treaty in the electric power sector compares favorably with current contracting parties. The Energy Community Secretariat stated in 2015 that the degree of harmonization already reached is striking and called Turkey and the Energy Community ‘legally synchronized’.

7. The ECSEE is a regional program and the World Bank investment support was provided on a regional basis using the APL instrument. The regional APL approach strengthened the framework for electricity trade in the region and thus significantly benefited the economy of the region. Using the ECSEE APL Program in Turkey helped acknowledge the strong commitment and progress that Turkey has made in implementing the Athens Process and allowed Turkey to use the inherent flexibility of the ESCEE APL Program to access financing for its high-priority investments within a short time period.

Rationale for World Bank Involvement

8. The World Bank assisted in the design and implementation of the energy reform program in Turkey over the last decade, through investment financing, policy advisory support, and technical assistance (TA). APL 6 was aimed at continuing the World Bank’s ongoing support for

4

the implementation of internal market development and regional integration by financing essential transmission investments.

9. There were four main energy sector development priorities that underpinned continued World Bank involvement with the Turkish electricity transmission system through APL 6.

10. Ensuring system security and reliability. Turkey was forecasting a return to high electricity demand growth rates as robust economic growth (11.7 percent in the first quarter of 2010) resumed in Turkey, following the impact of the global economic crisis in 2008 and economic contraction in Turkey by 5 percent in 2009. High demand growth necessitated continued investment in the transmission system to ensure reliability of supply and avoid increasingly overloaded substations and transmission lines and voltage drops.

11. Facilitating continued power market development and integration with SEE and the European transmission network. Further strengthening of the transmission system was important for the continued opening of the Turkish electricity sector and its further integration with the regional market. A functioning electricity market was established in Turkey, with a steadily increasing number of market participants across the country. The work was also underway for the Turkish electricity grid to be connected synchronously with the European grid and to countries to its east and south (Georgia in particular). Investment under the project would assist the expansion of the Turkish grid and increase its cross-border power trading capacity.

12. Integrating renewable energy generation. The transmission system needed to be strengthened and modernized to be able to cope with the rapid expansion of renewable energy capacity. As of January 1, 2010, 803 MW of wind capacity was in operation, and about 2,600 MW extra wind capacity was licensed and expected to be installed over the following years. In addition, applications for another 8,500 MW (for 730 projects) were being reviewed by the EMRA. Because wind generation is intermittent, to integrate large-scale wind capacity, the power system needed to be modernized to handle power output fluctuations in time scales ranging from minutes to a few hours.

13. Improving TEİAŞ performance and supporting its transition to a company with greater operational capacity and financial strength. TEİAŞ, the state-owned electricity transmission company, has been the market (till the operationalization of EPİAŞ in September 2015), transmission, and system operator. With the liberalization of the electricity market, there were growing needs to strengthen TEİAŞ’ capacity to manage its increasingly complex and strategic role in the electricity sector. TEİAŞ needed enhanced operational strength over key institutional aspects as well as the overall governance of the sector.

Higher Level Objectives to Which the Project Contributes

14. The ECSEE is integral to the regional members’ and the EU’s efforts for all states in SEE to have access to stable and continuous energy supply that they regard as essential for economic development and social stability. The creation of an area without internal frontiers for energy contributes to economic and social progress and a high level of employment as well as balanced and sustainable development.

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15. The Stability Pact made regional energy cooperation one of its core objectives in its efforts to strengthen regional cooperation and foster the conditions for peace, stability, and economic growth in SEE. The Stability Pact characterized the ECSEE as a unique political chance for the SEE region, to consolidate reconciliation and provide a driver toward a more comprehensive economic and political integration into the EU. The ECSEE APL facility is a key component of the World Bank’s support for the Stability Pact and working partnership with the European Commission.

16. The ECSEE APL 6 Project aimed to support the provision of low-cost, less-polluting, and high-quality electricity supply to various parts of the country through the strengthening of the transmission system. The project was consistent with Turkey’s Country Partnership Strategy (CPS, FY2008–11), which called for continued support for the development of a sustainable energy sector and envisaged substantial World Bank Group financing in the energy sector. By financing priority investments that created a stable and safe electricity market in Turkey and the conditions for regional trade, the project also supported Turkey’s EU accession process. In addition, the project continued the advisory and investment support for internal market implementation and its integration with the European market.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)

17. The PDO was to increase the reliability and capacity of the power transmission system in Turkey and improve its ability to integrate renewable energy into the system.

18. The original key outcome objectives and indicators were as follows:

Increased reliability of the transmission system as measured by (a) long-term system faults and (b) temporary system faults

Increased capacity of the transmission system as measured by (a) increased energy transmitted through the transmission system under the project and (b) increased maximum capacity of the transmission system under the project

Improved ability of the transmission system to integrate renewable energy as measured by renewable capacity connected to the system

1.3 Revised PDO (as Approved by Original Approving Authority) and Key Indicators, and Reasons/Justification

19. The PDO remained unchanged throughout the project. However, both the PDO and intermediate outcome indicators were changed following the project restructuring in 2015 based on the request by the borrower, the Undersecretariat of Treasury, endorsing an earlier request of the implementing agency, TEİAŞ, to better reflect the project development impact and physical accomplishments. The changes to the Results Framework are illustrated in Table 1.

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Table 1. PDO and Intermediate Outcome Indicators (Original and Revised)

PDO Indicators Targets Comments

Original Indicator

Revised Indicator

Original Target

Revised Target

1 Long-term system faults (faults per km per year) Temporary system faults (faults per km per year)

— 0.0036

0.0709

— No change.

2 Increased energy transmitted through the transmission system under the project (TWh)

Energy transmitted through the transmission system in Turkey (TWh)

201 260 This indicator was revised as the project had an impact on the whole interconnected transmission system in Turkey, and baseline data in the PAD as well as the figures reported from project inception reflected the nationwide overall figures. The end target value was also revised as the former target had been surpassed in the first few years of the project.

3 Increased maximum capacity of the transmission system under the project (GW)

Peak load handled by the transmission system in Turkey (GW)

35 41 This indicator was revised as the project had an impact on the whole interconnected transmission system in Turkey, and baseline data in the PAD as well as the figures reported since the project inception reflected the nationwide overall figures. The end target value was also revised as the former target had been surpassed in the first few years of the project.

4 Renewable capacity connected to the system (GW)

Renewable generating capacity connected to the system (GW)

17.5 28 The end target value was revised as the former target had been surpassed in the first few years of the project.

Intermediate Outcome Indicators Targets Comments

Original Indicator Revised

Indicator Original Target

Revised Target

1 Substation and cable contracts completed (% of contract value)

— 100 — This indicator was dropped as it did not provide any information on the success of the project due to the fact that the subprojects significantly contributed to the success of the project regardless of their much differing contract values and sequencing.

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2 — Transmission lines constructed or rehabilitated under the project (km)

— 22.5 This indicator was added as a corporate requirement to use core sector indicators. The end target value (22.5 km) was set.

3 — Additional substation capacity under the project (MVA)

— 3,000 This indicator was added to better capture the physical infrastructure established under the project.

4 — Renewable energy capacity connected to the grid under the project (MW)

— 317 This indicator was added to better capture the physical infrastructure established under the project.

1.4 Main Beneficiaries

20. According to Project Appraisal Document (PAD), the main beneficiaries of the project were the population in Turkey who benefitted from (a) more reliable electricity supply and (b) associated economic and employment opportunities. The SEE region would benefit from improved conditions for power exchange, and the global community would benefit from reduced greenhouse gas emissions. Besides, electricity suppliers and distribution companies benefitted much from the investments under the APL 6 Project for increased system reliability and capacity, and thus better service quality.

1.5 Original Components (as approved)

21. The project had two components as follows.

Component 1: Transmission System Strengthening and Expansion. Carrying out subproject investments to expand the capacity and increase the reliability of the power transmission system and to enhance the ability of the transmission system to integrate renewable energy, including investments in substations, cables, and related systems. TEİAŞ identified the need for several new substations and cables as having high priorities. The World Bank reviewed and agreed with the immediate priority for investing in these subprojects. However, it was understood that TEİAŞ’ investment priorities might change over time because of the uncertainty of the distribution of demand growth and, more importantly, because of the variable pace and unpredictability of private investment in generation plants. Therefore, subprojects to be financed under the project might change over time (as experienced under the National Transmission Grid Project [NTGP] and ECSEE APLs 2 and 3) to respond to the new entries to the generation market, especially renewable energy, whose timing was uncertain. In this regard, Annex 2 of the PAD listed the main eligibility criteria for assessing the future subprojects.

Component 2: Institutional Strengthening. Provision of TA, training, and goods to strengthen the institutional and operation capacity of the implementing agency,

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including in the areas of financial and operation management, accounting, auditing, enterprise resource planning (ERP), and wholesale markets (the balancing market and DAMs).

1.6 Revised Components

22. The project components remained unchanged throughout the project.

1.7 Other Significant Changes

23. Restructuring: The project was restructured twice. The first restructuring was conducted in July 2013 to apply the World Bank's January 2011 Procurement and Consultant Guidelines for procurement initiated on or after March 15, 2013. This change in applicable procurement guidelines allowed the initiation and partial financing of three subproject investments, with the remainder of their financing to come from the Renewable Energy Integration Project (REIP) once it was approved and to which the January 2011 Procurement and Consultant Guidelines would apply. Second restructuring carried out in July 2015 did not involve any changes in the PDO and contained the following changes to the project:

Reallocation of funds between disbursement categories. According to the borrower’s request, €2,132,691.56 was reallocated from the ‘consultants’ services and training’ category to the ‘goods’ category to be used to finance strategically important and urgent investments (Lapseki-Sutluce 1 submarine cable and Kartal Gas-insulated switchgear [GIS] substation). Some of the consulting and training activities initially planned had either been completed (market management systems [MMSs] including the DAM and balancing and settlement system [BSS]) within the scope of the project or contracted (consulting services, training, and preparation of the secondary legislation for financial management [FM] and auditing purposes) from the borrower’s own funds.

Revision of the Results Framework. The Results Framework of the project was revised as described in Section 1.3.

2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design, and Quality at Entry 24. Table 2), which had been implemented satisfactorily in Turkey with the same implementing agency (TEİAŞ). Not only was APL 6 the continuation of these projects with regard to their components, but some subprojects started under APL 2 and APL 3 also continued and completed under the APL 6 project. 25. Therefore, the project design, safeguards, procurement, and implementation arrangements were time-tested, and TEİAŞ was well experienced in implementing the investments involved in APL 6. The project also benefited from the innovative and well-prepared and well-designed ECSEE APL Program.

Table 2. Components and Financing Amounts for APL 2 and APL 3 Projects

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Components Financing amount (€,

millions) APL 2 Component 1 (MMS) 4.5 Component 2 (Supervisory Control and Data Acquisition, SCADA/Energy Management System, EMS)

1.0

Component 3 (Grid Strengthening) 44.8 Total 50.3 APL 3 Component 1 (Transmission Network Strengthening) 68.7 Component 2 (Urban Transmission Network Upgrading) 56.0 Total 124.7

26. The World Bank’s country knowledge and extensive engagement with Turkey in the energy sector as well as the World Bank’s participation in the development of the energy community provided a good basis for the World Bank’s cooperation with Turkey through lending, policy advice, and TA. The use of the APL instrument gave the World Bank the flexibility to respond to the pace of the Government and TEİAŞ, and Turkey knew that they could rely on the World Bank to support them in achieving the goals of the ECSEE.

27. Key lessons that the project incorporated are as follows:

Regional markets require strong national market operational capabilities and close attention to the design and operation of national electricity markets.

Political commitment and adequate financial support are key ingredients of successful reform programs.

28. Assessment of the project design. PDO indicators were defined at appraisal, and the target values were revised through restructuring to (a) better reflect intended outcomes and (b) revise targets upward for some of the outcome indicators, which were already achieved and surpassed during implementation. During appraisal, there was only one intermediate outcome indicator (“substation and cable contracts completed”) and this indicator did not reflect the project’s success or outcome. The reason for this shortcoming was due to the fact that only a limited number of indicative projects were defined at appraisal; thus, the intermediate outcome indicators could not have been identified properly. During implementation, three new intermediate outcome indicators were added through restructuring as described in Section 1.3.

29. Project components were realistic to achieve the PDO, centered on covenants in the project agreement for TEİAŞ to maintain debt service coverage, self-financing, and current ratios. The project activities such as substations, underground and submarine cables, automatic meter reading (AMR) systems, SCADA/EMS upgrade, remote terminal units (RTUs), and remote control centers (RCCs) under the transmission system strengthening and expansion component and BSS under the institutional strengthening component) were aligned with the PDO and helped increase the reliability and capacity of the power transmission system in Turkey as well as improved its ability to integrate renewable energy into the system.

30. Government commitment. The Government was highly committed to the project. This was demonstrated by numerous aspects including the following:

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The financial and legislative measures taken to improve the financial situation of TEİAŞ, such as amendment in the Electricity Market Law allowing direct payment by the treasury for street lighting on behalf of the municipalities, letting TEİAŞ charge interest payments on the outstanding receivables between public sector entities, passing a legislation for onetime net-off of receivables/payables among public energy companies, and intensification of bill collections by the Turkish Electricity Distribution Corporation (TEDAŞ) (as explained in detail in section 4)

Inclusion of the electricity transmission related priorities in the Ninth and Tenth Development Plans of the Government so as to increase the system reliability and capacity, integrate renewable energy to the system, and achieve synchronized parallel connection to the ENTSO-E system

Adoption of new Electricity Market Law in 2013 enabling the establishment of the energy exchange which took over the market operations, including the DAM operations funded under the APL 6 project, from TEİAŞ in September 2015

The sustained reforms (as explained in section 5.2) for the development of a liberalized market with more private sector players and increased share of renewable generation capacity through measures including energy price reform; legislation regarding gas, electricity, and renewable energy; and privatization of electricity distribution companies

31. Assessment of risks. At appraisal, the project’s risk was found to be mainly related to TEİAŞ’ operational capacity and financial condition; thus, the project was rated low risk. The Implementation Completion and Results Report (ICR) supports this rating. The PAD appropriately identified eight risks (and mitigation measures), of which seven were low risks. The remaining risk was with regard to implementing agency risk, and it was rated moderate due to financial and capacity constraints of TEİAŞ and possible delays due to potential procurement and FM issues relating to the quality of the TETAŞ’ entity financial audits. All these risks, which were defined at appraisal and mostly rated low, did not materialize during project implementation, owing to the mitigation measures during project implementation as illustrated in Table 3. No unidentified risks materialized during implementation.

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Table 3. Risks Identified at the Appraisal of the Project and Mitigation Measures Taken during the Implementation

Risk Category Risk Rating Risk Description Mitigation Measures Applied 1. Project Stakeholder Risks

1.1 Stakeholders 1 (Low) Stakeholders could cease to support the project or the reform process for the electricity sector.

The Government continued its effort in sustaining the electricity sector reform and the World Bank supported the Government in this regard through several instruments, such as development policy loans, and investment and TA projects.

2. Implementing Agency Risks 2.1. Implementing Agency

2 (Moderate) Capacity weaknesses of TEİAŞ could affect project implementation. Financial constraints and management vacancies could create problems. TEİAŞ’ finances were affected adversely by inadequate payments from TEDAŞ and TETAŞ. Delays might happen due to unclear bidding documents, or the planning and priorities of TEİAŞ might change during project implementation as observed in the previous projects. FM issues relating to the quality of the entity financial audits could continue.

The Government took all the necessary measures to help improve TEİAŞ’ financial situation (as explained in section 4). In addition, a new general manager and deputy general managers filled the vacant posts. The World Bank organized several workshops for TEİAŞ’ relevant personnel on the fiduciary and safeguards policies of the World Bank. Moreover, the World Bank was involved during the preparation of the bidding and other procurement-related documents and worked closely with TEİAŞ project staff. TEİAŞ hired internationally well-known consultants to improve the quality of the financial statements.

3. Project Risks 3.1 Design 1 (Low) There could be incorrect

design of the project. Well-tested, well-established designs and technologies were used. Close interaction with various approving authorities, such as the Ministry of Development, Ministry of Environment and Urbanization, and EMRA continued for the quality of the outputs.

3.2 Social and Environmental

1 (Low) TEİAŞ might face problems in implementing safeguard policies.

TEİAŞ had many years of experience in implementing projects and handling safeguards. The World Bank team supported TEİAŞ staff through frequent visits, including to project sites.

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Risk Category Risk Rating Risk Description Mitigation Measures Applied 3.3 Program and

Donor 1 (Low) Possibility that the

program could be rejected

In-depth and continued policy-level interaction and partnership continued with the Government, and there was broad support for the program.

3.4 Delivery Quality 1 (Low) PDO or outcome indicators might not be attained.

High attention was paid and support was provided by the World Bank to implementation capacity and continued dialogue with TEİAŞ and the Government on power sector reforms; eventually, all the objectives of the project were surpassed.

3.5 Sustainability 1 (Low) The risk that the project would not be sustainable after it was completed.

Policy dialogue with the Government and the commitment of the Government on the energy reform continue.

2.2 Implementation

32. Overall implementation of the project was satisfactory. The project implementation was complex given the total number (17) of subprojects covered under APL 6; sizable and first-time subprojects in Turkey such as two submarine power cables; seven subprojects inherited from three previous World Bank-funded projects (NTGP - effective as of September 17, 1998, APL 2 - effective as of September 1, 2005, and APL 3 - effective as of May 9, 2006) which were at different stages of implementation and had challenges in the reconciliation of accounts; and the wide geographic dispersion of investment-related subprojects (11 investments in five provinces). Despite these challenges, the APL 6 project was implemented successfully.

33. The Government sustained the reforms in the electricity market (as explained in sections 2.1 and 5.2), which directly or indirectly affected the APL 6 project implementation, such as the adoption of the new Electricity Market Law in 2013 to enable establishment of the energy exchange. Specifically for APL 6, the Government took measures to improve the financial situation of TEİAŞ (as explained in sections 2.1 and 4) such as the legislation passed in 2011 allowing onetime netting off of receivables and payables among the public energy companies, filled the vacant senior-level positions of TEİAŞ, for example, general manager appointed between the negotiations and the approval of APL 6, and allocated adequate budget for TEİAŞ’ operating and investment costs as agreed during appraisal (throughout the project life span, budget allocation to TEİAŞ was nearly US$3.8 billion) showing the dedication of the Government for the improvement of the security and reliability of electricity supply. All these had a positive impact on the implementation of APL 6.

34. TEİAŞ’ familiarity with the World Bank’s policies and requirements, through its previous experience in NTGP, APL 2, and APL 3 and the APL instrument contributed to the good progress of the project. The subprojects fell under the jurisdiction of four departments of TEİAŞ, namely Substations, Communication and Information Systems, Electricity Market Services and Financial Settlement, and Trade Departments, and all of them performed satisfactorily for awarding and implementing the contracts. For all investment-related subprojects, monitoring of the contract implementation was performed by the staff of TEİAŞ’ regional directorates, who performed well. However, in the sizable and unprecedented contracts such as the first submarine power cable,

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namely Lapseki-Sutluce I, where TEİAŞ did not have any experience in the implementation, it would have been better to recruit an experienced supervision consultant supporting TEİAŞ in the implementation, to have more effective and timely supervision. TEİAŞ should consider benefiting from a supervision consultant for the Lapseki-Sutluce II submarine power cable subproject, which started under APL 6 and continues under the REIP.

35. The Project Coordination Unit (PCU) of TEİAŞ was effective in fostering coordination and cooperation within TEİAŞ, including operational, safeguards, financial affairs, and information technology (IT) and communications staff, and among other stakeholders such as the EMRA, Ministry of Development, and Undersecretariat of Treasury. Implementation delays were minor in the project, and these were mostly not related to TEİAŞ’ implementation or supervision flaws, but due to the other factors such as delays in the land acquisition process and delays caused by the contractors because of reasons such as delays in the delivery of the equipment. Immediate actions were taken to avoid delaying the project’s overall implementation, such that two subprojects (the Kadikoy GIS and Caglayan GIS) which had initially been included in the project were dropped and disbursements were directed to other subprojects as their land acquisition process was much delayed because of the difficulties in the transfer of land and they could not have been completed during the life of the APL 6 project.

36. TEİAŞ and the World Bank collaborated well during the implementation of the project. The World Bank provided continuous support in areas such as fiduciary, safeguards, and technical aspects, including trainings in the areas where (such as safeguards and fiduciary trainings) and when needed, for the capacity strengthening of TEİAŞ staff. TEİAŞ and the World Bank, together, closely monitored the project to ensure timely and proactive identification of potential problems and addressing them.

37. A restructuring was conducted in July 2013 to introduce a revision to apply the World Bank's January 2011 Procurement and Consultant Guidelines, enabling the initiation of the procurement of the three strategically important and urgent subprojects, namely Lapseki-Sutluce II submarine power cable, Yeni Ambarli-Yenibosna underground cable, and SCADA and EMS upgrade.

38. Eventually, successful implementation of the project and proactive resolution of the issues resulted in the completion of all subprojects (other than the three projects which were planned to be completed under the REIP) on the closing date scheduled at project appraisal, without any extensions or cancellation of funds.

2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization

39. M&E design reflected the project design parameters, including the evolution of subprojects during implementation. There was a minor challenge with the formulation of PDO indicators two and three during appraisal of the project, as well as the definition of the intermediate outcome indicators. The names of PDO indicators two and three were formulated to mean project-level achievement, although the baseline data and the target values determined were based on the overall nationwide figures. There was only one intermediate outcome indicator (“substation and cable contracts completed”), which did not reflect the project’s overall success or outcome. The reason for the latter’s shortcoming was due to the fact that only a limited number of indicative

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projects could be defined at appraisal because the project would cover a time slice of investments, that is, it would finance a share of TEİAŞ’ investments within a defined time frame, as all other APL project series did. The time-slice approach was reasonable because of a few factors, namely, (a) high demand growth, (b) generation investments that have been market-driven following the liberalization brought by the Electricity Market Law in 2001 and have been realized at different places of Turkey at differing timings, and (c) changing investment priorities of TEİAŞ from one year to another to respond to the connection requests of the private generation investments to the transmission grid.

40. During implementation, new subprojects had been identified until end-2013 in addition to the existing ones decided at appraisal, and all subprojects were awarded by 2014. The restructuring regarding the revision of the results framework needed to wait until the new subprojects have been identified and awarded, which had taken place in 2014. Through restructuring in mid-2015, three new intermediate outcome indicators were added as described in section 1.3, and the target values of PDO indicators were revised to (a) better formulate the indicators and reflect intended outcomes and (b) revise targets upward for some of the outcome indicators which were already achieved and surpassed during implementation. Thus, the project and its implementation were not negatively affected by this minor shortcoming during the time of the appraisal.

41. M&E implementation had some challenges due to the inadequate formulation and definition of the indicators at appraisal, as explained in paragraph 39. PDO indicators two and three were reported based on the overall nationwide figures, as baseline data and the target values had been determined based on nationwide figures, although the name of these indicators reflected project-level achievements. During the second restructuring, new indicators were introduced into the Results Framework to better formulate the indicators, reflect the project development impact and physical accomplishments and revise targets upward for some of the outcome indicators, which were already achieved and surpassed during implementation, as explained in section 1.3. Progress data for the indicators were updated timely, twice a year. The progress data were provided mainly by TEİAŞ, supported by the EMRA and Ministry of Energy and Natural Resources (MENR), which were reliable official figures of the Government for the Turkey energy sector, showing progress achievement on the interventions and activities supported by the project. The quality of the data was good and responded to the issues required for successful implementation and performance management over the life of the project.

42. M&E utilization. Results Framework was used to evaluate and inform decision making and resource allocation with respect to the investments to increase the reliability and capacity of the transmission grid and improve its ability to integrate renewable energy into the system in line with the PDO. For example, while deciding on the new subprojects that would be included in the project during the implementation, the Results Framework was used. It would have only been better and more consistent with the baseline, target, and actual data if the PDO indicators two and three meant nationwide overall figures from the outset. The data was also useful to see that the achievements in the project surpassed the initially envisaged targets; thus, the targets were revised during restructuring.

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2.4 Safeguard and Fiduciary Compliance

43. Safeguards. The project, categorized ‘B’, triggered two policies: OP 4.01 - Environmental Assessment and OP 4.12 - Involuntary Resettlement. This categorization remains relevant in retrospect. The project complied with the World Bank safeguards policy without deviations or waivers.

44. Environmental safeguards were rated as satisfactory throughout the project implementation. TEİAŞ prepared an Environmental Management Framework instead of site-specific environmental assessment reports during the project preparation stage because the exact locations (footprints) of the subprojects were not decided at the time of appraisal. During implementation, the site-specific environmental management plans (EMPs) were prepared by TEİAŞ in line with the approved Environmental Management Framework document. EMPs approved by the World Bank were added to the bidding documents. The compliance supervision missions of the World Bank were conducted by taking these EMPs as references. Besides, TEİAŞ’ group directorates were responsible for the overall supervision of the construction works. In addition, practical implementation of the EMPs has been regularly reported to TEİAŞ by an independent environmental consulting firm, and TEİAŞ shared these EMP monitoring reports with the World Bank. As a conclusion, TEİAŞ environmental team implemented the requirements of the subproject EMPs in a successful manner, and TEİAŞ has also been a good example of regular reporting about EMP compliance in a World Bank-financed operation. This is due to its timely and comprehensive submission in line with the World Bank requirements.

45. Social safeguards were generally rated satisfactory or moderately satisfactory except the ratings in the April 2012 and March 2013 Implementation Status and Results Reports (ISRs) where it was rated moderately unsatisfactory because TEİAŞ did not provide information on the economic status of the project affected people. In this regard, frequent changes in both the World Bank’s social safeguards specialists (four in number throughout the project) and the reporting arrangements to improve the implementation of the World Bank’s social safeguards policies also caused some difficulties in the timely collection and reporting of the relevant information. Frequent change of the team member required additional time to learn about Turkey’s country systems and client projects and diagnose the gaps between the World Bank policies and national systems. Besides, it was confusing and time consuming for TEİAŞ to adjust to frequent changes in the World Bank’s team and reporting requirements. As TEİAŞ collected and submitted information to the World Bank eventually, the rating was upgraded to moderately satisfactory in the ISR of August 2013. There was no physical displacement of households or businesses or significant livelihood impacts on affected people under the APL 6 subprojects. TEİAŞ had the capacity and extensive experience in applying the Turkish legal framework on expropriation in its projects. Because all expropriation for APL 6 was implemented under the Turkish Urgent Expropriation Law, TEİAŞ implementation practice on consultations and providing adequate advance notice did not fully comply with the requirements of the World Bank’s OP 4.12 on Involuntary Resettlement (covering land acquisition) initially in a few subprojects. In these few cases, TEİAŞ conducted land acquisition and started construction before the requisite Abbreviated Land Acquisition/Resettlement Action Plans were submitted to, reviewed, and cleared by the World Bank. In such instances, as a remedy, the World Bank requested that construction on these sites be paused until a social audit is completed by TEİAŞ to assess whether there were gaps between the implementation of land acquisition and OP 4.12 requirements, and mitigation

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measures be implemented, if necessary. TEİAŞ conducted the social audits, took necessary remedial action, and disclosed these on its website. At the time of the project closing, there were no pending issues.

46. Financial management. TEİAŞ had an acceptable FM system for the ECSEE APL 6 Project throughout the project life according to the FM reviews on the basis of the six components of an FM system, which are planning and budgeting, internal controls, fund flows, accounting, reporting, and auditing. The project was also in compliance with the three FM covenants that were the maintenance of an FM system, submission of quarterly interim unaudited financial reports, and submission of annual audit reports. The FM reviews revealed that the system and relevant control procedures were in place. Financial statements were also audited externally to ensure data quality. The interim unaudited financial reports were submitted on time. The project audit reports were submitted on time without any qualifications in the opinion of the treasury controllers, the auditors of the project financial statements. There are no overdue audit reports as of April 2016.

47. The FM arrangements were rated moderately satisfactory from the first FM supervision in 2011. This rating was upgraded to satisfactory from 2013 onward. The upgrade was not related to the change in the quality of the FM arrangements of the project but to the progress on the resolution of a number of qualifications in the entity audit report. The main reason behind the previous moderately satisfactory rating was delayed audit reports with disclaimer of opinions; the improvement of the audit opinion was a loan covenant in previous projects implemented by TEİAŞ. This covenant had been removed in the APL 6 project as TEİAŞ faced resource limitations in addressing major issues. Major qualifications leading to a disclaimer of opinion were discussed with the Financial Affairs Department of TEİAŞ and these are summarized in Table 4:

Table 4. Financial Qualifications and Comments

Qualification Comments There was no sufficient evidence to confirm the inventory accounts as the auditors could not participate in the year-end inventory counts.

The audit firm was contracted after the year-end and could not participate to the 2014 counts. The auditors had a contract for the 2015 audit of TEİAŞ’ accounts and therefore participated in the counts at selected sites at 2015 year-end.

The fixed asset inventory was not complete. TEİAŞ started registering the title deeds information in a database. The Financial Affairs Department collaborated with the IT Department to finalize the database, after which TEİAŞ will compare the information in the database with the accounting records to have the accounts complete and accurate.

Potential impairment of fixed assets could not be assessed. The related standards were the International Accounting Standard 36 on impairment of assets, which sought to ensure that the entity’s assets were not carried at more than their recoverable amount.

TEİAŞ intended to have its assets assessed from that perspective once it finalized the fixed asset inventory. For that purpose, it will use the valuation companies accredited by the Ministry of Finance. This is a relatively medium- to long-term action on TEİAŞ’ part.

48. A TA component was included in this project during appraisal to support TEİAŞ in its efforts for improving its control over the financial reporting environment. In place of this TA component, TEİAŞ demonstrated strong commitment to improving the overall corporate financial reporting by contracting a reputable audit firm for two years for the provision of consultancy services to support TEİAŞ in its move to the Turkish Accounting Standards (TAS), equivalent to

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the International Financial Reporting Standards (IFRS), as well as in addressing the qualifications issued in the independent audit reports.

49. As seen from Table 5, TEİAŞ’ financial performance was satisfactory over the period 2010 to 2015 and has been significantly above the minimum stipulated ratios (for more details, please see Annex 3). Throughout the project, TEİAŞ complied with the agreed financial covenants which were:

a self-financing ratio (ratio of net after-tax cash from operations to a three-year average of capital expenditures for the preceding, current, and following years) of at least 35 percent;

a current ratio (ratio of current assets to current liabilities) of at least 1.0; and

a debt service coverage ratio (ratio of net income after tax plus depreciation plus interest to debt service, that is, the sum of interest and principal repayments) of at least 1.5.

Table 5. Key Financial Indicators (2010–2015)

Indicator Unit Covenant 2010 2011 2012 2013 2014 2015

Audited Preliminary (Unaudited)

Transmission volume

GWh — 184,335 206,246 216,794 223,672 234,358 242,015

Average tariff TL/kWh — 0.0068 0.0069 0.0089 0.0085 0.0093 0.0129 Net profit after tax

TL million

— 259 247 902 869 1,272 1,081

Net after-tax profit/revenues

% — 3.0 2.3 6.0 5.7 5.5 5.4

Current ratio Ratio >1.0 2.1 1.5 1.5 1.4 1.3 1.7 Debt service coverage ratio

Ratio >1.5 3.0 6.1 5.1 5.2 6.8 11.0

Self-financing ratio

% >35 177 83 164 31 169 61

50. Procurement. Procurement was rated as satisfactory throughout the project implementation. Procurements under the project were conducted by TEİAŞ in accordance with the provisions in the Loan Agreement. No procurement waiver was needed during the project implementation. The original procurement plan was updated twice due to the changes in the needs and priorities of TEİAŞ and also to update the cost estimates. The main updates were (a) the procurement of the two originally agreed GIS substations (Kadikoy and Caglayan) was excluded from the project scope due to delays in the transfer of land during the expropriation process; (b) the direct contracting for the SCADA/EMS upgrade (including a wind desk having two modules for short-term wind power forecast and dynamic stability) was added to the scope; (c) consultancy services envisaged for the assessment of TEİAŞ’ operational capacity and to support the quality of financial audits were excluded from the scope; (d) the estimated cost of the Lapseki-Sutluce I submarine power cable procurement was revised; and (e) schedules of some procurements were revised. Such updates can be accepted as ‘expected’ changes during the course of project

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implementation, given the large number and size of the contracts, some including complex attributes as well.

51. The procurement activities were conducted by four different departments (namely Substations, Communication and Information Systems, Electricity Market Services and Financial Settlement, and Trade Departments) under TEİAŞ, and all of them performed satisfactorily for awarding the contracts successfully with no complaints or noncompliance. The quality of the bidding documents was satisfactory with regard to both commercial requirements and technical specifications. All the contracts under the project were subject to the World Bank’s prior review because they were all international competitive bidding or single-source contracts, and the sizes of the contracts were large. TEİAŞ completed the contracts timely or with a few months of delay due to reasons beyond the control of TEİAŞ such as the delays stemming from land acquisition process or delays caused by the contractors, which resulted in liquidity damages. The good procurement performance of TEİAŞ in this project provided sufficient assurance to the World Bank to establish a prior-review threshold of €12 million in the REIP.

2.5 Post-completion Operation/Next Phase

52. TEİAŞ indicated its interest to continue collaboration with the World Bank through a new loan. This aspect will be identified based on the priorities of the Government of Turkey, TEİAŞ’ needs, and the World Bank’s value added, before and during the preparation of the World Bank Group 2017–2020 Country Partnership Framework. Yet, three subprojects that are initiated under APL 6 due to emergency, namely Lapseki-Sutluce II submarine power cable, Yeni Ambarli-Yenibosna underground cable, and SCADA/EMS upgrade, will continue with TEİAŞ under the REIP, funded by the World Bank and approved in 2014. The REIP also covers subprojects for strengthening the transmission system and facilitating large-scale renewable energy generation, specifically wind energy. Besides, the Renewable Energy Integration TA Project funded by the Clean Technology Fund (CTF), comprising generation planning for TEİAŞ and smart grid aspects, is under implementation.

53. Under the Instrument for Pre-Accession Energy Sector TA Program, funded by the EU, administered by the World Bank, and implemented by the MENR, a TA project regarding the consulting services for the capacity enhancement of EPİAŞ is being developed. This TA will help EPİAŞ perform its activities in the DAMs and intraday markets and financial settlement operations whose execution the World Bank and the MENR will continue to work on, in cooperation with all stakeholders, including TEİAŞ and EPİAŞ.

54. Similarly, another TA project for the development of the renewable energy sector covering electricity transmission takes place under the EU-Instrument for Pre-Accession Program. The contract for this project was awarded in October 2015, will be completed by end-March 2017, and includes the following items for enhancing the capacity of TEİAŞ and its transmission-related activities, including the integration of renewable energy resources as aimed by the APL 6 project:

(a) Recommendations for technical and administrative improvement of transmission and distribution system planning, design, and operation and a plan for the implementation of these recommendations

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(b) Identification of shortfalls in licensing and permit procedures for renewable energy (comprising wind and solar energy), including reporting and information flow

(c) Draft regulation to overcome obstacles and gaps.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design, and Implementation

Relevance of Objectives

55. Rating: High. The PDO was ‘to increase the reliability and capacity of the power transmission system in Turkey and improve its ability to integrate renewable energy into the system’. This objective continues to be of relevance in relation to national priorities, the World Bank’s current assistance strategies in Turkey, and TEİAŞ goals.

56. The project contributes to the World Bank’s FY2012–16 Turkey CPS, one of whose main strategic objectives is to deepen sustainable development in energy, environment, and climate change in an integrated manner. The project is also in line with the Tenth Development Plan (2014–18) of the Government of Turkey, which attaches importance to the transmission investments to integrate renewable energy to the system and aims for synchronized parallel connection to the ENTSO-E. In addition, the latest Energy Strategy of the Government of Turkey (2009) aims to strengthen the transmission system and TEİAŞ’ institutional capacity building. Moreover, the project supports TEİAŞ on the objectives of its Strategic Plan (2015–2019) that calls for maintaining a reliable, economic, and transparent transmission system, meeting the requirements of increasing electricity demand and supply, and strengthening information technology, the SCADA/EMS, and institutional capacity of TEİAŞ.

Relevance of Design and Implementation

57. Rating: Substantial. The project design and implementation remained relevant and functional. The components under the project, namely, (a) Transmission System Strengthening and Expansion and (b) Institutional Strengthening, were closely linked to the project objective.

58. The development objectives were relevant to the project and measurable. The Results Framework was simple and presented a logical causal chain between the project’s activities and attainment of the objectives. The upgrading of the transmission network, involving the completion of five underground cable and five substation subprojects, was expected to increase efficiency as measured by lower operating costs and reduced technical losses. They would also result in greater reliability, allowing load growth to be serviced, with fewer major blackouts and significant adverse incidents. Satisfactory completion of these investments led directly to enhanced supply capacity as well as the ability to integrate renewable energy into the system. Moreover, the project was forward looking as it provided the systems such as the DAM and the financial settlement mechanisms, which have been used by EPİAŞ since September 2015 as part of its energy exchange activities, benefited by all the market players, including both the public and private energy companies. Besides, the project investments as a whole contributed to increased transmission access and power trade possibilities in the regional market.

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3.2 Achievement of Project Development Objectives

59. The achievement of the PDO is rated High.

60. The project’s Satisfactory rating before restructuring combines with a Satisfactory rating at completion, weighted according to the 92:8 share of project disbursements before and after restructuring, to give a Satisfactory rating overall, as shown in Table 6. The Satisfactory rating corresponds to High on the four-point scale for achievement of the objectives according to Independent Evaluation Group guidelines. The two PDOs (see paragraph 61) are treated equally important in the absence of an explicit basis to do otherwise.

Table 6. Rating of Achievement of PDOs and Accounting for Restructuring

Before

Restructuring After

Restructuring Overall

1. Rating Satisfactory Satisfactory —

2. Rating value 5 (out of 6) 5 (out of 6) 5 (out of 6)

3. Disbursement before/after restructuring2

US$201,953 million

US$18,047 million

US$220 million

4. Weight (% disbursed before/after restructuring)

91.8 8.2 100

5. Weighted value (row 2 x row 4) 4.59 0.41 5

6. Final PDO rating — — Satisfactory

61. The PDOs “to increase the reliability and capacity of the power transmission system in Turkey and improve its ability to integrate renewable energy into the system” can be broken down into the following:

(a) Increase the reliability and capacity of the power transmission system in Turkey, and

(b) Improve its ability to integrate renewable energy into the system

62. Progress toward achieving the PDO is reflected in achievement of project outcomes and is assessed as High. The original indicators before the second restructuring in July 2015 had already been surpassed, as seen in Table 7. Regarding the revised indicators, other than one of the intermediate outcome indicators (“transmission lines constructed or rehabilitated under the project”) that met the target value exactly, all the other performance monitoring indicators, including all the PDO-level indicators surpassed the target values (original and revised) at project closure.

2 The World Bank operational policy (personal communication, November 19, 2015) advises to use all project financing for this purpose.

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Table 7. Achievement of PDO Indicator Target (Original and Revised)


Original Indicator Revised Indicator Original Target

Revised Target

Actual

1 Long-term system faults (faults per km per year) Temporary system faults (faults per km per year)

— 0.0036

0.0709

— 0.0018

0.0641

Target exceeded (50% and 10% improvement, respectively)

2 Increased energy transmitted through the transmission system under the project (TWh)

Energy transmitted through the transmission system in Turkey (TWh)

201 260 263.8 Target exceeded. (31% and 1.5% improvement from original and revised targets, respectively)

3 Increased maximum capacity of the transmission system under the project (GW)

Peak load handled by the transmission system in Turkey (GW)

35 41 43.28 Target exceeded.(23% and 5.5% improvement from original and revised targets, respectively


Original Indicator Revised Indicator Original Target

Revised Target

Actual

4 Renewable capacity connected to the system (GW)

Renewable generating capacity connected to the system (GW)

17.5 28 31.23 Target exceeded. (78% and 11% improvement from original and revised targets, respectively

(a) Increased reliability and capacity of the transmission system in Turkey.

The long-term and short-term system faults were 50 percent and 10 percent below the targets in 2015, respectively, showing a major improvement in the system. Major blackouts have not occurred in the last few years (other than the one on March 31, 2016, which was mostly caused by operational mistakes, rather than technical incapability).

Project-supported investments increased transmission capacity at the substations by 3,450 MVA.

The peak demand carried by the transmission system rose to 43.3 GW in 2015 from 29.9 GW at the end of 2009; the original and revised targets were 35 GW and 41 GW, respectively.

The volume of electricity transmitted rose from 172 TWh in 2009 to 263.8 TWh in 2015; the original and revised targets were 201 TWh and 260 TWh, respectively.

(b) Improved ability of the transmission system to integrate renewable energy in Turkey. The project-supported investments such as the Hatay substation increased renewable energy capacity connected to the system by 395 MW.

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63. In short, 17 subprojects under APL 6 regarding the substations, underground cables, monitoring equipment, and SCADA/EMS upgrade made a significant contribution to the reliability and the capacity of the system as well as to the ability to integrating renewable energy into the system. They were targeted at geographic and power system areas that were experiencing rapid growth in load and demand, and the analysis of TEİAŞ showed that the system was or could be at risk precisely because of these factors. Besides, the introduction of the electricity market, enabling a closer matching of demand and supply by power system areas at times of peak load, also increased the stability of the system.

3.3 Efficiency

64. Efficiency rating: High. The financing provided by APL 6 was designed to fund a time slice of the transmission investment program of TEİAŞ (2010–2015), 3 and the cost-benefit calculations were done on the total transmission investment program of TEİAŞ, not just the World Bank-financed part (for more details, see Annex 3).

65. The positive net present values (NPVs) and economic rates of return (ERRs) as well as the outcome indicator values demonstrate that the costs involved in the transmission investment program and in achieving APL 6 objectives were reasonable and that the investments were efficient. The main benefit of this investment program was that it allowed electricity to be transmitted from larger, lower-cost power plants located at some distance from the main centers of consumption to these centers, rather than supplying these centers with electricity from smaller and less-efficient local gas-fired plants where this could be done. Offsetting this benefit was the cost of the investment program and modest costs for operating the transmission system. The APL 6 PAD analysis, taking into account these costs and benefits, yielded an estimated ERR of 27 percent for the transmission investment program and an NPV discounted at 10 percent of €1.53 billion or about US$2.0 billion.

66. The ICR takes into account the larger investment program (2010–15) than anticipated and changes in both operating costs of the transmission system and benefits. However, the results of the ICR are broadly similar to those of the PAD. The ERR is estimated at 22 percent in the ICR and the NPV is estimated at US$1.2 billion. The decline in the ERR and NPV is largely due to the larger investment program than anticipated. However, they are still satisfactory and show that the investments were economically well justified.

67. ERRs were also calculated as part of the PAD for the major components that were to be financed. These consisted of certain large substations and cables linking certain substations to each another. The main benefits of investments in these substations and cables were as follows: (a) more electricity could be transmitted, (b) technical losses would be reduced, and (c) the probability of outages or loss or electricity supply would also be reduced. The range of ERRs for the individual components ranged from 17 percent to 148 percent, as shown in Table 8. The same calculations were done for these components in the ICR with the updated data. The components had changed somewhat over time with two substations that were listed in the PAD not being financed and the routes of two cables changed. However, the results of calculating the ERRs in the ICR for the 3 APL 6 was designed flexibly with no specific activities identified (but rather indicative list of a few projects at appraisal), and project components were broadly defined to allow the Bank to provide just-in-time support to TETAŞ' program as investment needs and priorities would evolve over time.

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various components were similar to those in the PAD with the ERRs ranging from 20 percent to 116 percent. These high ERRs show that the project was economically well justified, as explained further in Annex 3.

Table 8. Economic Rates of Return of Subprojects

Major Components PAD (%) ICR (%) Van Substation 95 85 Hatay Substation 62 64 Kartal Substation 37 41 Maltepe Substation and Cable4 17 20 Lapseki Submarine Cable 148 50 Yenibosna Substation Not calculated 30 Yenibosna-Davutpasa Cable Not calculated 116

3.4 Justification of Overall Outcome Rating

68. Overall outcome rating: Satisfactory. This rating is based on the combination of the aforementioned ratings: (a) substantial relevance of objectives, design, and implementation; (b) high achievement of PDOs—the intended outcomes were exceeded; and (c) high efficiency, meaning more reliable electricity supply and the improved conditions for power exchange for the SEE region. Besides, electricity suppliers and distribution companies benefitted much from the increased system reliability and capacity, thus leading to better service quality for target beneficiaries.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development

69. Electricity consumers in Turkey benefited from a more cost-effective and efficient power supply facilitated by the subprojects under APL 6, which in turn expected to have a positive impact on economic and social development.

(b) Institutional Change/Strengthening

70. The World Bank’s engagement with TEİAŞ and the Government in the energy sector over many years (through the NTGP, the three APL installments, the REIP, the development policy loan series, policy dialogue, and TA) has significantly contributed to the operational and institutional capacity of TEİAŞ and the energy sector as a whole. Several TEİAŞ departments, including those responsible for the technical, planning, and safeguards issues, have benefited from the cooperation with and the trainings provided by the World Bank regarding feasibility studies, procurement and bidding processes, environmental management, and land acquisition.

71. In addition, the APL 6 project continued the tradition of the APL series in making an institutional impact to TEİAŞ and a contribution to the Turkey energy sector by the establishment of the balancing market through the BSS. With the 2001 Electricity Market Law, most of Turkey’s electricity was planned to be traded through bilateral contracts, and the remaining energy would 4 In the PAD, the cable went from the Maltepe substation to the Kartal substation, but this was changed and the cable financed by the World Bank went to the Kucukbakkalkoy substation instead.

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be traded in the DAM and the imbalances in the power market by TEİAŞ through a separate department (Electricity Market Financial Reconciliation Center). The BSS commenced operations in August 2006, and though it was meant to be a market for imbalances, it quickly developed into an effective wholesale trading platform, where private generators were able to attract much better prices for their electricity, triggering a significant increase in supply that helped improve the stability of the system and the energy security of the country as a whole. Furthermore, the market provided a profitable, viable offtake mechanism for renewable energy that otherwise had been struggling to find viable buyers.

72. The balancing market gradually evolved into a real DAM, which became a voluntary market place where supply and demand were balanced by the bids and offers of suppliers and consumers, and the prices were determined accordingly. The APL 6 project also supported the establishment of the DAM (or MMS) that has been operational since December 2011. The DAM constitutes 25–30 percent of the electricity trade in Turkey with over 600 participants comprising generators, suppliers, distribution companies, and designated retailers. It is a very crucial market instrument for the market players, especially renewable energy generators, to supply or buy energy for their needs on top of their contracted amounts through bilateral agreements.

(c) Other Unintended Outcomes and Impacts (positive or negative)

73. According to the new Electricity Market Law (Law No. 6446, replacing the 2001 Electricity Market Law) enacted in 2013, a market operation activity defined as “the operation of organized wholesale power markets and the financial settlement of the transactions made in these markets” was separated from TEİAŞ and transferred to EPİAŞ whose shareholders are TEİAŞ (30 percent), private sector companies (40 percent), and Borsa Istanbul (the Istanbul Stock Exchange, BIST, 30 percent). However, TEİAŞ continues to operate the balancing power and ancillary services markets. EPİAŞ, which serves as an energy market exchange, is now using the systems such as the DAM and the financial settlement mechanisms funded under the APL 6 project, and eventually all the market players, including both the public and private energy companies, benefit from these operations provided by EPİAŞ.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

74. Not applicable.

4. Assessment of Risk to Development Outcome Rating: Negligible to Low

75. Political. The risk to the contributions made by Turkey to meeting the objectives of the overall ECSEE APL Program is Low. While Turkey did not sign the Energy Community Treaty, it remained committed to its objectives, and the Government implemented many energy sector reforms that were directly relevant to the Energy Community objectives.

76. Technical. The subprojects financed by the project are being operated and maintained by TEİAŞ’ relevant operational departments, which are experienced, and the risk that the outcomes would not be maintained is Low. TEİAŞ implements an extensive investment program, largely financed from its budget appropriations, which further supports the ECSEE APL Program as well as the PDOs and the objectives of the Energy Community.

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77. Financial. The risk that TEİAŞ’ financial situation would have a negative impact on the outcomes is Negligible. TEİAŞ financial situation has improved much from 2010 after making losses in two consecutive years (2008 and 2009) due to reasons based on systemic problems of the Turkey energy sector that were beyond TEİAŞ’ control. The accounts receivable issue was a systemic problem of the Turkey energy sector until 2011 and was outside TEİAŞ’ control. Although transmission charges were adequate for TEİAŞ to realize a small profit margin, its financial performance had suffered from a knock-on effect of payment delays by EÜAŞ and TEİAŞ, which were in turn affected by payment delays from TEDAŞ. Besides, since 2006 TEİAŞ has been responsible as an intermediary for the market operations, which resulted in the accumulation of corresponding accounts receivable, with fewer accounts payable due to delays in payments. The problem partly stemmed from the retail sector, including municipalities, which did not pay for public street lighting and were slow to pay for other uses, creating a cash flow problem for TEDAŞ. Besides, before the privatization of the distribution companies, TEDAŞ suffered much from high distribution losses and inadequate bill collection. These shortfalls flowed back up the chain, leading to cash flow shortages at EÜAŞ and TEİAŞ, causing in turn high levels of accounts receivable at TEİAŞ.

78. Several measures5 were taken by the Government in this regard, because of which the financial situation of TEİAŞ has improved considerably from 2010, remained strong throughout the project’s life-span, and seems to remain viable in the foreseeable future.

79. Institutional. The main longer-term challenges faced by TEİAŞ relate to the need to operate more like a commercial entity, retain qualified staff, and continue investing appropriately to meet the rapidly growing electricity demand. TEİAŞ also needs institutional capacity strengthening to meet the expectations and needs of electricity distributors and suppliers, which are already or planned to be privatized, respectively.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory

5 The Government took several measures to improve the situation. First, it recognized the need to ensure sustained bill payments to TETAŞ by EUAŞ, TEDAŞ, and TEİAŞ, to enable private suppliers in the wholesale market to be paid in time. Second, an amendment in the Electricity Market Law in mid-2008 also helped improve cash flows. This amendment created a mechanism for direct payment by the treasury for street lighting on behalf of the municipalities. Third, intensification of bill collections by TEDAŞ (with the government support) and the privatized distribution companies also increased collections and reduced losses. Fourth, in 2010, the treasury allowed TETAŞ to charge interest payments on any outstanding receivables between public sector entities. This enabled TETAŞ to pass on the cost of delayed payments to the state-owned power companies and collect its receivables (dating as far back as 2003) from EUAŞ, TEİAŞ, and TEDAŞ much more efficiently. Finally, legislation that allowed a onetime net-off of receivables/payables among public energy companies was passed as of February 2011. The write-off allowed the companies, except for TEDAŞ, to clear their balance sheet and increase their capital efficiency. According to the law, net debt of all the public energy companies, over TL 10 billion, was borne by TEDAŞ. TETAŞ reconciled their mutual debts with EUAŞ, TEİAŞ, and TEDAŞ. Consequently, TETAŞ’ financials improved significantly from 2010 to net profit from net losses in 2008 and 2009. Throughout the APL 6 project, TETAŞ’ overall financial condition remained strong.

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80. The decision to provide World Bank financing had a strong justification, as the World Bank identified, prepared, and appraised APL 6 in the broader policy context of Turkey’s electricity sector reform, and the objectives of the project were timely and in line with the government priorities, including the 2009 Privatization Strategy Paper and Ninth Development Plan (CY2007–13), the CPS (FY2008–11), and criteria of the ECSEE APL Program. The World Bank mobilized a team with all necessary skills, including specialists in electricity markets, utilities, engineering, procurement, environmental and social safeguards, and finance/FM. The team also included consultants with extensive experience in the finance/FM and environment sectors in Turkey. In retrospect, one of the things that the Bank could have done better was to have a clearer formulation and definition of the project indicators. The combination of solid skills and experience enabled the team to develop a good working relationship with TEİAŞ, other energy sector agencies, and government officials and effectively contribute to the high-quality project. The World Bank conducted a thorough background analysis, designed the project based on the lessons learned from the previous projects with TEİAŞ, including two APL installments, and identified the risks (and the mitigation measures) appropriately. Given these aspects, World Bank performance during identification, preparation, and appraisal of the APL 6 project is rated Satisfactory.

(b) Quality of Supervision Rating: Satisfactory

81. The World Bank team was effective in integrating the implementation support for this project with other efforts in Turkey, enabling frequent dialogue with TEİAŞ and with the ability to respond to events on time. Although the task team leader (TTL) changed three times during supervision, the project benefited from all TTLs. Transfer of the project to a country-office-based TTL in the second half of the project implementation, in addition to all of the fiduciary and safeguard staff being based in the field, allowed much more frequent and closer dialogue and, thus, support to the client and a proactive approach to the issues. Formal World Bank missions took place 2–3 times per year. During field visits, which took place during all formal missions and when needed outside the formal mission dates, the team was able to monitor and verify social and environmental impacts, meet with contractors, clients, and other relevant authorities, as well as beneficiaries, to listen to and discuss possible adverse impacts. The World Bank provided TEİAŞ teams with support in the preparation and execution of technical documents such as bidding documents and contracts as well as training in fiduciary and safeguards aspects to increase the quality of the project implementation and the reporting. The restructuring of the project was done to reflect the impact of the project’s development impact and physical accomplishments before the closing of the project. These intensive efforts and continuous involvement by the World Bank team helped ensure timely and proactive identification of potential problems, advice to the borrower to help address them, and quick resolution of the issues. This was also reflected in the overall performance rating of the project, which was mostly rated Satisfactory in the ISRs (other than the two ISRs where it was rated Moderately Satisfactory due to delays in the land acquisition process that resulted in the disbursements behind schedule). Based on these, World Bank performance during supervision is rated Satisfactory.

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(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory

82. Overall World Bank performance is assessed as Satisfactory based on the satisfactory performance during both identification, preparation, and appraisal of the project and project supervision.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory

83. The Government remained committed to the implementation of its reform agenda in the energy sector, through a variety of interlinked measures, including legislation regarding electricity, gas, and renewable energy; the establishment of an independent energy regulator (EMRA); energy price reform; the creation of a functional electricity market; the large-scale introduction of natural gas; and large-scale private sector participation through privatization and new investment. As a result, (a) an electricity market with over 800 participants has been developed; (b) from 2001 to 2014 over 31,000 megawatts (MW) of market-based, private-sector power generation capacity was commissioned; (c) investors took over the entire power distribution system between 2008 and 2013; and (d) a separate energy exchange (EPİAŞ) was established in 2015, taking over the market activities from TEİAŞ.

84. In line with the reform agenda, the Government also attached much importance to the strengthening of the electricity transmission system, as stated in the Ninth and Tenth Development Plans, which called for increasing the transmission system reliability and capacity, integrating renewable energy to the system, and achieving synchronized parallel connection to the ENTSO-E. The Government also took several measures to improve the financial situation of the state-owned enterprises (SOEs) in the energy sector, including TEİAŞ, as explained in section 4. Besides, the budgets provisioned for TEİAŞ for its operating and investment costs have been adequate in recent years. Throughout the project life-span, budget allocation to TEİAŞ was nearly US$3.8 billion, showing the dedication of the Government for the improvement of security and reliability of electricity supply.

(b) Implementing Agency or Agencies Performance Rating: Satisfactory

85. TEİAŞ was the implementing agency of the APL 6 project, and it responded well to the challenges of the rapidly evolving electricity sector and related regulations, although it had difficulties in recruiting and retaining high-quality staff due to limitations regarding its SOE status. A PCU within TEİAŞ was established under the Research, Planning, and Coordination Department (renamed ‘Planning and Strategic Management Department’ in 2015), which also covered transmission and generation planning and TEİAŞ’ investment planning and strategy. The PCU fostered coordination and cooperation with all units within TEİAŞ, including operational, safeguards, financial affairs and IT and communications staff and among other stakeholders such as the EMRA, Ministry of Development, Undersecretariat of Treasury, the borrower of APL 6. TEİAŞ implemented all requirements related to World Bank safeguard and fiduciary policies in a satisfactory manner, and the implementation and monitoring of EMPs can be deemed a good

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practice example. Quarterly progress reporting by TEİAŞ on implementation of the project was timely and comprehensive, and TEİAŞ provided the World Bank with periodic and accurate M&E figures.

86. Besides, TEİAŞ adjusted to the necessary changes in the project promptly and took the necessary actions, as in the case for the subproject on the TA to support TEİAŞ to increase the quality of the financial audit. This subproject was included during appraisal; however, the associated loan amount for it had to be reallocated for the urgent investment needs of TEİAŞ under the project. In this case, TEİAŞ demonstrated strong commitment to improving the overall corporate financial reporting by contracting a reputable audit firm for two years to support it in its move to the TAS, equivalent to the IFRS, as well as in addressing the qualifications issued in the independent audit reports.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory

87. Overall borrower performance is assessed as Satisfactory based on the satisfactory performance of both the Government and the implementing agency.

6. Lessons Learned

88. Political commitment and sustained dialogue are critical for market and institutional reform. During the implementation of the APL 2 and APL 3 projects, concern had emerged that the institutional setup of TEİAŞ might not be sustainable in the medium to long term. Private generation was projected to increase rapidly and electricity distribution was to be fully privatized, leaving TEİAŞ in an increasingly challenging position in the middle, as an SOE with limited operational and financial autonomy. In dialogue at the time of the APL 6 project preparation, there was a broad agreement about the diagnosis of TEİAŞ constraints in recruiting and retaining staff, finance, procurement, timely decision making, and so on and emerging interest to consider options for increasing TEİAŞ operational capacity and financial strength. TEİAŞ’ constraints originated from Decree Law 233 on State-owned Enterprises, the Law on the Court of Accounts, the Public Procurement Law, and a series of controls by the MENR, Ministry of Development, and the treasury. A program of measures, reflecting relevant international best practices suitably adapted to local conditions, was agreed to be developed. A World Bank-managed study—Assessment of Options for Improving the Operational Effectiveness of TEİAŞ—financed by the Energy Sector Management Assistance Program was carried out. It identified a number of options for consideration. The highlights included (a) restructuring of TEİAŞ into a separate transmission system and electricity market operators and (b) processing a special law to provide TEİAŞ with sufficient autonomy. The World Bank also suggested private sector participation in the proposed new electricity market operator, the listing of TEİAŞ at BIST, and progressive reduction of government ownership as effective means for addressing TEİAŞ’ constraints. TEİAŞ could have benefitted more from a more comprehensive study as initially envisaged at appraisal, in a way as continuation of the aforementioned study, to improve TEİAŞ’ operational and institutional capacity, if the amount allocated for this activity had not been reallocated to the strategically important and urgent investment-related subprojects.

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89. Considerable, though markedly mixed progress was achieved reflecting different interests and objectives of the Government. Electricity distribution privatization was completed in September 2013. About 25,000 MW private generation was commissioned in 2010–2015. EPİAŞ was established, taking over from TEİAŞ its electricity market operations functions in September 2015. TEİAŞ holds 30 percent of EPİAŞ shares; BIST holds 30 percent and over 100 energy market participants hold the remaining 40 percent. These developments in generation and distribution and the ownership structure of EPİAŞ take them substantially out of the purview of the laws and ministries that control the operations of SOEs, including TEİAŞ. EPİAŞ and the distribution companies remain under the regulation of the EMRA. In contrast to this impressive progress in institutional reform in generation, distribution, and market operations, no progress has been made in easing TEİAŞ’ constraints, through the modernization of the decree law, enactment of a special law for TEİAŞ, or listing TEİAŞ at BIST. Similar uneven progress characterizes the Government’s overall energy reform: successful liberalization and attraction of large-scale private investment while tightening the control of the government electricity SOEs and national gas company BOTAŞ (Petroleum Pipeline Corporation of Turkey). These accomplishments, remaining issues, and options are discussed in a 2015 World Bank report ‘Turkey’s Energy Transition—Milestones and Challenges’.

90. Continuity and consistency of the implementation arrangements and the policy dialogue are crucial for the successful execution of the World Bank’s safeguards policies. Throughout the project, the World Bank’s team has experienced frequent changes with regard to social safeguards team members and reporting arrangements that were revised to improve the implementation of the World Bank’s social safeguards policies. However, these changes required a new adjustment period as well as some confusion and difficulties in timely collection and reporting of the relevant information.

91. Flexibility of the APL instrument allows adaptation to the changing circumstances. The APL instrument was particularly useful in the rapidly developing Turkish environment, allowing both the borrower and the World Bank to react to changing priorities. Its programmatic and time-slice nature allowed flexibility to continue investments initiated under the NTGP, APL 2, and APL 3 on to APL 6 and replace subprojects with higher-priority ones during implementation, based on the criteria clearly defined during appraisal.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies

92. A summary of TEİAŞ’ ICR is presented in Annex 7. The World Bank has no comments on issues raised in the borrower’s ICR.

(b) Cofinanciers

93. The APL 6 project did not have cofinancing.

(c) Other Partners and Stakeholders

94. The European Commission and the Energy Community Secretariat are the World Bank’s main partners in the ECSEE APL Program. The European Commission and World Bank staff cooperated during the ECSEE APL Program preparation, and European Commission, Energy

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Community Secretariat, and World Bank staff cooperated during implementation of APL 6. The European Commission and Energy Community Secretariat comments on the overall ECSEE APL Program were included in their comments on the ICR for the APL1 Romania Hidroelectrica S.A. Project and are not duplicated here.

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$, millions equivalent)

Components Appraisal Estimate

(US$, millions)Actual/Latest Estimate

(US$, millions)Percentage of

AppraisalTransmission System Strengthening and Expansion

177 117.35 123.1

Institutional Strengthening 3.7 2.1 55.9 Total Baseline Cost 180.7 219.45 121.4

Physical Contingencies 0.00 0.00 0.00 Price Contingencies 12.5 0.00 0.00

Total Project Costs 193.2 219.45 113.6 Project Preparation Fund 0.00 0.00 0.00 Front-end fee IBRD 0.483 0.55 0.00

Total Financing Required 193.683 220 113.6

(b) Financing

Source of Funds Type of

Cofinancing

Appraisal Estimate

(US$, millions)

Actual/Latest Estimate

(US$, millions)

Percentage of Appraisal

Borrower 20.00 20.006 100 IBRD 220.00 220.00 100

6 This amount was largely spent on the acquisition of land for the project sites and environmental aspects, including the preparation of the environmental-related documents and permits, and the supervision of the projects.

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Annex 2. Outputs by Component

1. APL 6 investments represent a time slice of a large, ongoing investment program of TEİAŞ. Therefore, the investments identified in the PAD were somewhat indicative and changed during implementation due to reprioritization of TEİAŞ’ needs and investments over time, as discussed in section 1.5 and as detailed in Table 2.1.

Table 2.1. Pre-identified and Implemented/Actual Subprojects Financed by APL 6

Pre-identified/Planned Implemented/Actual7 Component 1: Transmission System Strengthening and Expansion Yenibosna 380 GIS substation Yenibosna 380 GIS substation Van substation Van substation Hatay substation Hatay substation Maltepe 380 GIS substation Maltepe 380 GIS substation Kartal 380 GIS substation Kartal 380 GIS substation Davutpasa-Yenibosna underground cable Davutpasa-Yenibosna underground cable Maltepe-Kartal underground cable8 Maltepe-Kucukbakkalkoy underground cable Lapseki-Gelibolu submarine cable Lapseki-Sutluce I submarine cable9 Kadikoy GIS substation10 Not financed Caglayan GIS substation11 Not financed Mobile cranes (5 ton telescopic boom, #25) Mobile cranes (5 ton telescopic boom, #25) — 75 RTUs and 3 new RCCs — MMS (DAM Trading and Settlement System) — AMR system — Lapseki-Sutluce II submarine cable — SCADA/EMS upgrade — Yeni Ambarli-Yenibosna underground cable Component 2: Institutional Strengthening Extension of the BSS contract (originally signed under the NTGP)

BSS (second extension)

— BSS (third extension) TEİAŞ’ operational capacity study12 Not financed Consultants services to support TEİAŞ to increase the quality of financial audit13

Not financed

7 Procurement and progress payments of some subprojects that had been planned under the REIP were completed under APL 6 due to the urgency of these projects. These subprojects are the SCADA/EMS upgrade, Lapseki-Sutluce II submarine power cable, and Yeni Ambarli-Yenibosna. 8 Maltepe-Kartal underground cable was replaced with Maltepe-Kucukbakkalkoy underground cable. 9 Lapseki-Sutluce I refers to the same subproject (Lapseki-Gelibolu), only the name has changed. 10 Kadikoy GIS substation was dropped as its land acquisition process was much delayed because of the difficulties in the transfer of land, and it could not have been completed during the life of the APL 6 project. 11 Caglayan GIS substation was also dropped due to the same reason above (significant delays in the transfer of the land during the land acquisition process). 12 This TA component was partly funded by the Energy Sector Management Assistance Program. 13 This TA component was reallocated to other components for the urgent investment needs of TETAŞ. Instead, TETAŞ demonstrated strong commitment to improving the overall corporate financial reporting by contracting a reputable audit firm for two years for the provision of consultancy services to support it in its move to the TAS, equivalent to the IFRS, as well as in addressing the qualifications issued in the independent audit reports.

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2. In summary, the APL 6 project was composed of 17 subprojects (see Table 2.2 for more details). These included seven subprojects started under the three previous projects with TEİAŞ, namely, the NTGP (effective as of September 17, 1998), ECSEE APL 2 (effective as of September 1, 2005), and ECSEE APL 3 (effective as of May 9, 2006). All of these seven subprojects that started under the three previous projects have been completed under the APL 6 project. These projects are namely Van substation, Yenibosna 380 GIS substation, Davutpasa-Yenibosna underground cable, MMS (DAM Trading and Settlement System), AMR system, 75 RTUs and 3 new RCCs, and second extension to the BSS contract.

3. ERP, which had been a covenant under APL 2, but not implemented, was also discussed under Component 2 of APL 6, as it would assist TEİAŞ to run its management systems more efficiently and effectively. However, due to the bankruptcy of the consulting firm, TEİAŞ decided to pursue the ERP project with its own IT department from its own resources. Within that scope, the Human Resources Module and Inventory Module have been operational for the last two years. The Financial Affairs Department used the Finance Module from 2014 onward and has an integrated accounting system with the regional offices facilitating the consolidation of the financial statements on an online basis. The remaining module on maintenance is expected to be completed in 2017.

4. As shown in Table 2.2, the total contract cost is higher than the amounts financed by APL 6, with the balance financed from other sources (including the NTGP, APL 2, APL 3, and REIP in some cases).

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Table 2.2. Actual Contract Values, Start/End Dates, and Sources of Funds for the Subprojects Financed under APL 6

Contract Value (including

Change Orders)

Disbursements Timeline From APL

2/APL 3/NTGP/REIP

/Own Resource

From APL 6 Start Date End Date

Component 1

Substations

Extension of VAN substation to accommodate 380 kV lines

€12,752,980 €2,008,591 €10,744,289 05/27/2010 02/05/2012

Construction of new 380 kV Hatay substation

€10.475.418 — €10,475,418 11/09/2010 12/12/2012

Construction of new Maltepe GIS substation

€8,764,648 — €8,764,648 08/04/2011 01/28/2013

Construction of new Yenibosna GIS substation

€20,732,678 €17,048,545 €3,684,133 06/30/2009 04/09/2013

Construction of new 380 kV Kartal GIS substation

€22.672.329 — €19,610,003 07/31/2013 03/25/2015

Cables

Davutpasa-Yenibosna underground cable

€5,189,949 TL 13,210,790

€2,072,617 TL 4,472,703

€3,138,713 TL 9,003,738

12/29/2009 07/12/2011

Maltepe-Kucukbakkalkoy underground cable

Swiss franc 2,046,900

TL 15,740,810 US$15,751,570

— €19,864,025 01/16/2012 04/08/2013

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Change Orders)


2/APL 3/NTGP/REIP

/Own Resource


Lapseki-Sutluce I submarine cable €66,866,001 — €66,055,451 09/19/2012 04/18/2015

Lapseki-Sutluce II submarine cable

€63,606,712 €4 million (advance payment)

€5.5 million (advance payment)

12/04/2014

01/18/2017 (To be

completed under the

REIP)

Yeni Ambarlı-Yenibosna underground cable

€19.3 million US$19.758,257 TL 14.377.286

— €8,912,550 09/11/2014

07/02/2016 (To be

completed under the

REIP)

Others

Upgrade of SCADA/EMS €7,822,733 €421.981 €902,561 02/27/2014

12/27/2015 (Mechanical completion - remaining disbursements will be done under the REIP)

AMR €1,158,314 €840,043 €225,628 01/08/2008 05/11/2012

MMS (DAM Trading and Settlement System)

€1,991,000 €1,617,602 €194,777 01/28/2009 08/20/2010

75 RTUs and 3 new RCCs €5,080,203 €925,089 €3,771,955 07/14/2008 06/14/2011

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Change Orders)


2/APL 3/NTGP/REIP

/Own Resource


Mobile cranes (5 ton with telescopic boom, #25)

US$2,404,630 — €1,711,537 01/13/2012 09/28/2012

Component 2

Second extension of BSS US$1,159,680 US$587,396 US$572,124 03/26/2010 10/05/2011

Third extension of BSS US$1,499,960 — US$1,499,348.22 10/24/2011 01/24/2013

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5. Overall, APL 6 consisted of five substations:

(a) 380 kV Yenibosna GIS (380/154 kV, 2x250 MVA; 380/33 kV, 2x125 MVA; 154/33 kV, 2x100 MVA). It is located in Istanbul and was completed in September 2013. The Yeni Ambarli-Yenibosna underground cable that had been procured by the World Bank under APL 6 is connected to the Yenibosna GIS, and it will continue under the REIP. This subproject is important because it provides the enhancement of the transformer capacity in Istanbul where it is highly needed and it serves as the reserve capacity to the Davutpasa and Ambarli substations.

(b) 380 kV Maltepe GIS (380/33 kV, 2x125 MVA). This subproject was completed in January 2013, as planned. The Maltepe GIS is connected to the Kucukbakkalkoy GIS through the 380 kV underground cable (financed by the World Bank under APL 6) and is connected to the Kartal GIS that was also financed and completed under APL 6. The Maltepe GIS is located on the coastline in a highly populated residential area where there are several residential buildings.

(c) 380 kV Kartal GIS (380/154 kV, 2x250 MVA; 380/33 kV, 2x125 MVA; 154/33 kV, 2x100 MVA). This project converted the existing 154/33 kV conventional air-insulated substation to the new indoor 380/154/33 kV GIS. The substation is energized and the initial 380 kV power source is supplied through a 380 kV Maltepe-Kartal single-circuit underground cable from the Maltepe GIS, which was financed by the World Bank under APL 6 and has been operational since 2013. The Kartal GIS was completed in March 2015. All as-built drawings submitted by the subcontractor were approved by TEİAŞ, and TEİAŞ made the payment for the last 10 percent retention money by end-2015. The Kartal GIS connects to the Maltepe GIS financed by the World Bank through the 380 kV Maltepe-Kartal underground cable. Also, the Kartal GIS will be connected to a new 865 MW natural gas combined cycle power plant (NGCCPP) (Gebze) through the Tepeören-Kurtköy-Kartal transmission line as a second alternative connection.

(d) 380 kV Hatay substation (380/154 kV, 2x250 MVA; 154/33 kV, 100 MVA). This subproject was completed by end-2012 and connected to the system 395 MW of wind energy in the region. Wind power plants (WPPs) in the Samandag and Yayladag regions and the Reyhanlı substation will soon be connected to the system through the 380 kV Hatay substation.

(e) 380 kV Van substation (380/154 kV, 2x250 MVA; 154/33 kV, 2x100 MVA). The Van substation was completed in May 2012. It is very crucial in its location, as without this subproject, there would have been frequent voltage drops. Besides, there are hydro power plants and an organized industrial zone (Van) connected to it. The current energy import in Iran is being performed through the Van 380 substation, and a safer and higher-capacity high-voltage direct current (HVDC) back-to-back construction will also be connected to this substation. The HVDC back-to-back project has been awarded from TEİAŞ’ own resources, and it is planned to be completed within 2–3 years.

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6. The APL 6 project covered three 380 kV underground cables (Davutpasa-Yenibosna, Maltepe-Kucukbakkalkoy, and Yeni Ambarli-Yenibosna) in Istanbul.

(a) 380 kV Davutpasa-Yenibosna underground cable (7 km). This subproject was completed in July 2011. It helped form a transmission loop for the N-1 requirement in Istanbul and the neighboring area. It is connected to the Davutpasa GIS and Yenibosna GIS, which were both financed by the World Bank.

(b) 380 kV Maltepe-Kucukbakkalkoy underground cable (11 km). It was completed in April 2013.

(c) 380 kV Yeni Ambarli-Yenibosna underground cable (16.65 km). Contract for the Yeni Ambarli-Yenibosna underground cable was awarded in September 2014 under APL 6, and it is scheduled to be completed in July 2016. Excavation works have been completed regarding 50 percent of the route (8.2 km), and the remaining excavation will continue from April 2016 according to the permit of the Istanbul Metropolitan Municipality. Cable laying started in February 2016. Nearly €9 million was paid from APL 6, and the remaining disbursements will be made from the REIP.

7. There are two submarine power cables under APL 6.

(a) 380 kV Lapseki-Sutluce I submarine power cable. It is a €66.859 million (excluding the change order of €129,223) project for the design, supply, installation, and commissioning of a 380 kV submarine power cable. The link transmits the power, including wind energy between Lapseki on the Asian side and Sutluce on the European side crossing the Dardanelles Straits. All works for this project have been completed, and the cable was energized in August 2015. TEİAŞ approved all the as-built drawings, issued an operational acceptance, and made the payment for the remaining 10 percent by end-2015. An opening ceremony was held on December 18, 2015, with the participation of nearly 70 delegates from TEİAŞ (both headquarters and regional directorates), the MENR, EÜAŞ, the World Bank, and the contractor. This subproject is the first submarine power cable project that connects Asia and Europe. It helps form a large transmission loop around the Marmara Sea, including industrial and highly populated provinces like Istanbul and Izmit. Another feature of the cable is that it is a 4.5 km cable with no joints, which is another first in the world. It also integrates the wind energy in Canakkale/Gallipoli to the system, helps with the stabilization of the ENTSO-E connection, and decreases much of the energy losses.

(b) 380 kV Lapseki-Sutluce II submarine power cable. This €63.6 million subproject was procured under APL 6, and €5.5 million was paid from APL 6. The remaining disbursements will be made from the REIP. It is close and similar to Lapseki-Sutluce I except for the exclusion of the interfaces on Lapseki and Sutluce sides. The interface poles required for this project were awarded by TEİAŞ from its own resources. The contract was signed in December 2014, the manufactured cable has been delivered to the site, and the cable laying will start shortly.

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8. Among the subprojects that are financed under APL 6, there were MMS (DAM), AMR (connecting to nearly 2,900 generation plants and substations), BSS contract (second and third extensions), SCADA/EMS (3 new RCCs and 75 RTUs), upgrade, and 25 mobile cranes (used by the regional directorates of TEİAŞ for carrying load). Key subprojects among these are as follows:

(a) SCADA/EMS upgrade. This subproject upgraded both hardware and software of TEİAŞ’ National Control Center, Emergency National Control Center, and nine RCCs to Siemens 4.7. Presently, the SCADA system broadly covers 380 kV substations, but not 154 kV substations. With the implementation of this component, TEİAŞ had the latest commercially available SCADA system to operate both 380 kV and 154 kV substations. This subproject also comprises operator desk for wind energy resources (wind desk) and training of TEİAŞ staff on the SCADA/EMS.

The single-source contract was awarded in February 2014 under APL 6. All equipment was delivered at the site and installed. All tests were completed on December 18, 2015, and a mechanical completion certificate was issued on December 23, 2015. The first two rounds of SCADA training for TEİAŞ staff were held in March and August 2015, and more training sessions are planned within 2016. About €0.9 million (€902,561) was paid from APL 6, and the remaining disbursements will be made from the REIP.

Besides, a wind desk was established under this contract, and it has two modules: (i) short-term wind power forecast, which does hourly forecasts for a two-day period regarding 60 WPPs; and (ii) dynamic stability, which is crucial for the curtailment function.

(b) MMS (DAM). The DAM has been operational since December 2011 under TEİAŞ. Following the operationalization of EPİAŞ in September 2015, EPİAŞ took over this component. The DAM constitutes 25–30 percent of the electricity trade in Turkey with over 600 participants composed of generators, suppliers, distribution companies, and designated retailers. Besides, the intraday market has been operational under TEİAŞ from July 2015 (and under EPİAŞ from September 2015), which supplements the electricity DAM.

9. The APL 6 project also provided the advisory and investment support for internal market implementation and its integration with the European market through the subprojects mentioned earlier, allowing for cross-border energy trade and integration with the EU market. The trial interconnection with the ENTSO-E began in September 2010. Turkey and the ENTSO-E signed a long-term agreement in April 2015, and Turkey became an observer member on January 16, 2016. This allows for commercial electricity exchange between Turkey and continental Europe through interconnections with the Bulgarian and the Greek power grids.

40

Annex 3. Economic and Financial Analysis

Economic Analysis

Original PAD Analysis of APL 6

1. The economic analysis in the PAD for APL 6 was undertaken using two different approaches, as follows:

(a) Economic analysis of the TEİAŞ transmission investment program as a whole. The ERR of TEİAŞ’ entire investment program of which the World Bank has cumulatively financed a ‘time slice’ under the World Bank’s loans (the NTGP, APL 2, APL 3, and APL 6) was assessed.

(b) ERR on specific components. Major specific subprojects whose economic benefits had been discussed in the PAD were (i) new substations at Van, Hatay, Kartal, Kadikoy, and Caglayan; (ii) a substation at Maltepe with an underground cable to the Kartal substation; and (iii) a submarine cable between the substations of Lapseki and Sutluce. The rapid growth in load in these areas and the importance of the substations and cables in reducing electricity losses and enhancing reliability of supply provide an economic rationale for them.

TEİAŞ Transmission Investment Program

2. The financing provided by APL 6 was designed to fund a time slice of the transmission investment program of TEİAŞ. Thus, the cost-benefit calculations were done on the total transmission investment program of TEİAŞ, not just World Bank financing. In the PAD, the investment program of TEİAŞ was estimated to total US$1.85 billion or about US$2.4 billion between 2010 and 2015, averaging nearly US$300 million per year. This investment program would provide the funding to upgrade and expand TEİAŞ’ transmission system to increase the quantity and reliability of electricity transmitted.

3. In the assessment of TEİAŞ’ investment program, the APL 6 PAD used a similar approach to that used in the APL 2 and APL 3 PADs. For APL 6, the incremental benefit from transmitting an additional kilowatt-hour of electricity was valued at €0.91 per kWh. This was the estimated difference in cost between supplying an area with electricity produced by larger, low-cost plants located some distance away and moving that electricity through the transmission system, compared with supplying the electricity locally using single-cycle gas-fired plants and not going through the transmission system. The incremental operating cost of transmitting 1 kWh of electricity was estimated in the PAD as €0.29 per kWh based on TEİAŞ’ financial information.

4. Based on these assumptions, the ERR for TEİAŞ’ investment program was 27 percent. The NPV of this program at a 10 percent discount rate was €1.53 billion or about US$2.0 billion.

ERRs on Specific Components

5. ERRs on most of the individual substations and cables to be constructed under APL 6 were estimated as well. The estimated value-added of a substation was composed of three components.

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First, it was the substation’s share of the incremental benefits of transmitting electricity, which was determined by multiplying this benefit (given above) by the share of substations in total transmission investment. Second, new and larger substations and cables reduce technical losses and these loss reductions were valued at the wholesale price of electricity. Third, new substations and cables reduce the probability of power outages with the value of this unserved energy, that is, each kilowatt-hour not supplied being taken as €0.75 per kWh or close to US$1.00 per kWh based on earlier consultant studies and the Ministry of Development (formerly, State Planning Organization).

6. The ERRs for the individual subprojects calculated for APL 6 ranged from a low of 17 percent for the Maltepe substation and the cable from Maltepe to the Kartal substation to 148 percent for the Lapseki-Sutluce I submarine power cable. These higher ERRs for the individual subprojects compared with the ERR for TEİAŞ’ total investment program would appear to be due to the differences in the ways the ERRs are calculated but also may indicate that the APL 6 project is tending to finance the more urgent projects.

Analysis for ICR

TEİAŞ Transmission Investment Program

7. The same approach was used in the ICR to calculate the benefit of the entire investment program as in the APL 6 PAD, but with all of the numbers updated. The benefits of the program per kilowatt-hour transmitted changed little although estimates of operating costs per kilowatt-hour transmitted fell somewhat, excluding depreciation, costs of operating the electricity market, and taxes. However, total investment in the transmission system over the period 2010 to 2015 was US$3.1 billion rather than the US$2.4 billion forecast in the PAD. The result of these changes was that the ERR for the total investment program fell from an estimate of 27 percent in the PAD to the current estimate of 22 percent in the ICR, which is still quite good and shows a high level of efficiency.

8. The NPV of the transmission investment program discounted at 10 percent was estimated at about US$2.0 billion in the PAD and US$1.2 billion in the ICR, again very good.

ERRs on Specific Components

9. The ERRs were calculated for major individual components in the ICR using the approach that was used in the PAD but with the numbers updated. The benefits and costs of the subprojects were all slightly different between the PAD and the ICR but the general results were the same—showing that all of the subprojects have good ERRs and some of them have extremely good ERRs.

10. The actual subprojects undertaken and shown in the ICR are in several cases slightly different from those anticipated in the PAD. This was expected because the overall project was designed to fund TEİAŞ’ most urgent projects, and it was anticipated that these would change somewhat over time. Two substations that the PAD expected APL 6 to fund, the Kadikoy and Caglayan substations, were not funded by APL 6. The two cables that APL 6 planned to fund were changed slightly. The project actually funded the cable from Maltepe to Kucukbakkalkoy and not the anticipated cable from Maltepe to the Kartal substation. While the Yenibosna substation and Yenibosna-Davutpasa cable were initially part of APL 3, they were completed under APL 6.

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Basically, the changes listed are secondary with the main thrust of the project, building needed substations and transmission lines—often in the Istanbul area, remaining unchanged.

11. Table 3.1 shows the estimated ERR on the individual components of the project that were calculated for the PAD and the ERR as calculated for the ICR.

Table 3.1. ERRs of Subprojects

Major Components PAD (%) ICR (%) Van substation 95 85 Hatay substation 62 64 Kartal substation 37 41 Maltepe substation and cable14 17 20 Lapseki submarine cable 148 50 Yenibosna substation Not calculated 30 Yenibosna-Davutpasa cable Not calculated 116

Financial Analysis

12. No project-level financial analysis was carried out at appraisal. Accordingly, the post-completion financial analysis has been carried out only at the level of TEİAŞ, the project implementing entity.

13. Financial performance of TEİAŞ. A summary of the main financial statement items, including key financial indicators, is provided in Table 3.2, and the main features are discussed below.

14. Prior to 2009, TEİAŞ’ financial performance was adversely affected by a number of factors including (a) transmission and system tariffs not keeping pace with the increase in operating expenses; (b) delays in receiving payments from the distribution companies due to the problems faced by the latter in collecting payments from customers; and (c) the financial impact of balancing market operations with inflows of funds to TEİAŞ not sufficiently keeping pace with the payments that TEİAŞ was obliged to make to market participants. Starting from 2010, these problems were progressively resolved and TEİAŞ’ financial situation improved substantially as a result.

15. Profitability. Revenues from transmission and system operations increased substantially from TL 1,249 million in 2010 to TL 2847 million in 2015 as a combined result of transmission volumes growing at an average rate of about 4 percent per year and an increase in the average transmission tariff from TL 0.0068 per kWh in 2010 to TL 0.0129 per kWh in 2015 (that is, by about 93 percent over the six-year period). At the same time, TEİAŞ was able to control increases in its operating expenses. As a result, the gross operating profit increased from TL 340 million in 2010 to about TL 1,282 million in 2015 while the net profit after tax increased from TL 332 million to about TL 1,081 million in the same period.

14 In the PAD, the cable went from the Maltepe substation to the Kartal substation, but this was changed, and the cable financed by the World Bank went to the Kucukbakkalkoy substation instead.

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16. Liquidity. In regard to the current ratio (current assets / current liabilities), as compared to the minimum covenanted ratio of 1.0, TEİAŞ was able to substantially exceed the ratio in each of the years during project implementation.

17. Debt service coverage. As compared to the minimum covenanted ratio of 1.5, TEİAŞ was able to achieve significantly higher ratios in each of the years during project implementation.

18. Self-financing ratio. As compared to the minimum covenanted ratio of 35 percent, TEİAŞ was able to substantially exceed the stipulated ratio in most years, with the exception of 2013 when the ratio achieved was 31 percent, slightly below the covenanted ratio. For three of the six years, the achieved ratio was in excess of 100 percent. This was enabled by TEİAŞ being able to realize additional non-operating revenues from the sales of assets and other investment-related income, which increased the funds available to it for financing investment activities.

Table 3.2. Summary of Financial Statement Items (2010–2015)

Indicator Unit 2010 2011 2012 2013 2014 2015

Audited Audited Audited Audited Audited Preliminary

Estimates Income Statement Items Transmission volume

GWh 184,335 206,246 216,794 223,672 234,358 242,015

Average tariff TL/kWh 0.0068 0.0069 0.0089 0.0085 0.0093 0.0129 Operating revenues Transmission and system operating revenues

TL, million 1,249 1,373 1,934 2,456 2,805 2,847

Balancing market and other revenues

TL, million 7,243 8,963 12,230 12,867 20,528 16,454

Other net operating revenues

TL, million −7 585 759 — −5 739

Total operating revenues

TL, million 8,485 10,921 14,923 15,323 23,328 20,039

Operating expenses Transmission and system operating expenses

TL, million 943 1,621 1,709 1,612 1,431 2,301

Balancing market expenses

TL, million 7,202 8,964 12,230 12,839 20,556 16,456

Gross operating profit

TL, million 340 336 984 872 1,341 1,282

Nonoperational items Financial and other nonoperational expenses

TL, million 186 35 170 221 149 280

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Indicator Unit 2010 2011 2012 2013 2014 2015


Estimates Net other nonoperational revenues

TL, million 240 −80 317 339 402 353

Income before tax

TL, million 394 221 1,131 990 1,594 1,355

Net tax on income

TL, million 135 −26 229 121 322 274

Net income after tax

TL, million 259 247 902 869 1,272 1,081

Balance Sheet Items Trade accounts receivable

TL, million 1,167 837 608 1,862 2,843 749

Other current assets

TL, million 916 2,599 3,638 3,024 2,478 694

Total current assets

TL, million 2,083 3,436 4,246 4,886 5,321 1,443

Net fixed assets

TL, million 4,992 5,157 5,560 6,144 7,645 10,487

Other non-current assets

TL, million 212 602 799 1,032 1,087 1,132

Total assets TL, million 7,287 9,195 10,605 12,062 14,053 13,062 Trade accounts payable

TL, million — 263 114 1,284 2,021 440

Current portion of long-term debt

TL, million 74 109 104 130 130 —

Other current liabilities

TL, million 900 1,882 2,600 1,957 1,945 394

Total current liabilities

TL, million 974 2,254 2,818 3,371 4,096 834

Medium- and long-term liabilities

TL, million 1,074 1,526 1,470 1,500 1,573 1,900

Equity TL, million 5,239 5,415 6,317 7,191 8,383 10,328 Total liabilities and equity

TL, million 7,287 9,195 10,605 12,062 14,052 13,062

Cash Flow Items Cash flow from operations Cash flow before working capital changes

TL, million 659 681 1,493 1,704 2,140 n.a.

Effect of working capital changes

TL, million 327 −25 65 −849 −545 n.a.

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Indicator Unit 2010 2011 2012 2013 2014 2015


Estimates Net cash flow from operations

TL, million 986 656 1,558 855 1,595 1,414

Cash flow from investment activities Purchase of plant, property and machinery

TL, million −2,448 −1,711 −2,087 −1,117 −4,074 −1,100

Effect of other investment activities

TL, million 2,145 1,143 1,245 11 2,075 —

Net cash from investment activities

TL, million −303 −568 −842 −1,106 −1,999 −1,100

Cash flow from financing activities New borrowings

TL, million 92 100 100 342 96 —

Repayment of loans

TL, million 95 74 109 104 130 130

Other financing items

TL, million — 166 — 1 12 —

Net cash from financing activities

TL, million −3 192 −9 239 −22 −130

Changes in cash balances Cash balance at beginning of the year

TL, million 85 765 1,045 1,752 1,557 n.a.

Net change in cash during the year

TL, million 680 280 707 −196 −561 n.a

Cash balance at the end of the year

TL, million 765 1,045 1,752 1,557 996 n.a

Key Financial Ratios Net profit after tax/total revenues

% 3.0 2.3 6.0 5.7 5.5 5.4

Current ratio Ratio 2.1 1.5 1.5 1.4 1.3 1.7 Debt service coverage ratio

Ratio 3.0 6.1 5.1 5.2 6.8 11.0

Self-financing ratio

% 177 83 164 31 169 61

Note: Information for 2015 is preliminary pending finalization of financial statements by TEİAŞ.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending Bernard Baratz Consultant GEEDR Sergio Augusto Gonzalez Coltrinari Senior Energy Specialist GEE04 Power engineer Shinya Nishimura Senior Financial Analyst GEE07 Financial analysis Norval Stanley Peabody Consultant GEEDR Social safeguards Sameer Shukla Operations Adviser GEE07 TTL Yukari Tsuchiya Temporary GSU01 Team assistant Fan Zhang Senior Economist SARCE Economist Salih Kemal Kalyoncu Senior Procurement Specialist GGO03 Procurement Zeynep Lalik Senior Financial Management Specialist GGO21 Financial management Selma Karaman Program Assistant ECCU6 Team assistant Margaret Png Lead Counsel LEGLE Legal Chukwudi H. Okafor Senior Social Development Specialist GSU07 Social safeguards James Moose Economist/Consultant GEE03 Economic analysis Hannah Koilpillai Senior Loan Officer LOA Legal

Esra Arikan Senior Environmental Specialist GEN03 Environmental safeguards

Supervision/ICR Yesim Akcollu Senior Energy Specialist GEE03 TTL, ICR author Sergio Augusto Gonzalez Coltrinari Senior Energy Specialist GEE04 Power engineer, TTL Sameer Shukla Operations Adviser GEE07 TTL Debabrata Chattopadhyay Senior Energy Specialist GEESO Power engineer

Esra Arikan Senior Environmental Specialist GEN03 Environmental safeguards

Chukwudi H. Okafor Senior Social Development Specialist GSU07 Social safeguards Zeynep Durnev Darendeliler Social Development Specialist OPSPF Social safeguards Arzu Uraz Social Development Specialist GSU03 Social safeguards Salih Kemal Kalyoncu Senior Procurement Specialist GGO03 Procurement Zeynep Lalik Senior Financial Management Specialist GGO21 Financial management

Juliana Chinyeaka Victor Senior Monitoring and Evaluation Specialist

GEESO ICR TTL

Selma Karaman Program Assistant ECCU6 Team assistant Selcuk Ruscuklu Program Assistant ECCU6 Team assistant Margaret Png Lead Counsel LEGLE Legal Shinya Nishimura Senior Financial Analyst GEE07 Financial analysis Hiwote Tadesse Operations Analyst GEE03 Operational Quality

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(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeks US$ Thousands (including travel and

consultant costs) Lending FY08 1.90 8.55 FY09 .20 1.53 FY10 28.29 220.78 Supervision/ICR FY11 20.09 120.78 FY12 28.42 132.76 FY13 44.03 242.39 FY14 20.67 90.61 FY15 22.36 56.94 FY16 16.14 42.0 Total: 182.10 916.34

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Annex 5. Beneficiary Survey Results

Not applicable.

49

Annex 6. Stakeholder Workshop Report and Results

Not applicable.

50

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR

1. The cooperation between TEİAŞ and the World Bank has progressed since 1985 until today. With the loans financed by the World Bank, the operational and institutional capacity of both TEİAŞ and the energy sector of Turkey have been strengthened. TEİAŞ has financed some of its investments with the World Bank funds to ensure the transmission system security and reliability. In addition, feasible investments have been realized by taking into account the experience of the World Bank’s expert staff.

2. During the implementation of these World Bank-funded projects as an investment support, the World Bank’s social safeguards team has experienced frequent changes with regard to social safeguard issues; therefore, some difficulties were encountered. As a conclusion of these inconsistencies, there have been problems in the reporting phases.

3. Throughout the appraisal process as well as the implementation process of the APL 6 Loan Agreement, the TEİAŞ and World Bank teams have worked in cooperation and with commitment to achieve the project in an effective and timely manner. Within the span of the project implementation process, as in previous projects, the experienced and qualified teams and consultants of the World Bank as well as their performance, suggestions, predictions, high level of technical equipment capacity, and approach toward our organization made significant contribution to TEİAŞ.

4. The project’s two components, namely, Transmission System Strengthening and Expansion and Institutional Strengthening, are implemented by our organization within the scope of the ECSEE APL 6 Project and have successfully been completed in every respect. All of our subprojects that are financed and completed under the ECSEE APL 6 Project have supported our national electricity transmission system to operate in a more secure and reliable way. Within the scope of this loan, 18 km of underground cable, 4.5 km of double circuit submarine cable, and 3,450 MVA of additional transformer capacity have been added to our installed capacity. Together, these investments provide enormous additional capacity to TEİAŞ’ interconnected transmission grid and have significantly improved the reliability, efficiency, and safety of the system.

ECSEE APL 6 Project

Component 1: Transmission System Strengthening and Expansion

5. Our most important region that we should support with new and supportive investments in the field of energy transmission system is the Marmara region, which includes the İstanbul province. Within the scope of this loan, most of our projects that contribute to ensure the reliability of the system take place in the Marmara region, which includes the İstanbul province, and we are highly concentrated on these projects.

6. 380 kV Maltepe GIS and 380 kV Maltepe-Küçükbakkalköy GIS underground cable. To provide the stable load flow especially on the Anatolian side where there is intense urbanization, our project (380 kV Maltepe GIS), which is constructed with the capacity of 2x125 MVA transformer, is connected to Küçükbakkalköy substation, which was also financed under a previous World Bank loan with the Maltepe-Küçükbakkalköy underground cable (11 km). On the other hand, the 380 kV Kartal GIS project, which is also financed under a World Bank loan, is

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connected to this substation with the Maltepe-Kartal underground cable, which was financed by our own resources.

7. In conclusion, an important loop for energy transmission system reliability in the Anatolian side of İstanbul has been established with the construction of these projects.

8. 380 kV Kartal GIS. Our project, which is located in the Anatolian side of İstanbul, is established as the region’s largest GIS substation. To avoid overloading of the existing substations in the region, it is designed with 950 MVA capacity and four transformers. It is a very important substation for our security of supply, and it eliminates the risk of blackouts and brownouts in the region.

9. Yenibosna GIS substation and Yenibosna-Davutpaşa underground cable. Fast-growing İstanbul has huge energy consumption. Considering the average 4.0 percent increment of Turkish power system load, local increment value for big load points such as İstanbul, İzmit, İzmir, and Adana is over 10 percent. These regions are overpopulated and require a new substation and overhead lines.

10. Considering the peak summer load for 2010, consumption is reaching up to approximately 2,500 MVA. This demand is supplied by the four substations mentioned (2,050 MVA), including the existing Yenibosna substation, which has power transformer capacity of 4x100 MVA and six 154 kV line feeders. To complete the 380 kV ring starting from Ambarlı, Ambarlı NGCCPP-Yenibosna cable and Yenibosna-Davutpaşa cable projects were included in the official investment program. To complete the ring, the Yeni Ambarlı-Yenibosna underground cable project is being financed under the REIP.

11. 380 kV Hatay substation. The 380 kV Hatay substation is mainly serving the Hatay province consumption and the secure grid integration of ~350 MW WPP in the region. The region where the Hatay 380 substation supplies power includes Reyhanlı, the border town, and Iskenderun, where very highly centralized steel and iron industry plants are located. Apart from the Hatay 380 substation, the nearest 380 kV substation in the region is Erzin substation located ~100 km far from the 380 kV Hatay substation. Supplying such amount of power from or carrying the 350 MW of wind power generation to the grid is not feasible by a 154 kV network, which makes the Hatay 380 substation essential for that area.

12. 380 kV Van substation. The 380 kV Van substation with an installed capacity of 700 MVA, is located in Van near the Iran border. This substation is supplying power to a wide range of areas including the Van, Hakakri, and Muş provinces. Additionally, power trade between Turkey and Iran is performed through the Khoy-Başkale-Van substations. This trade capacity is reaching 350–400 MW depending on the regional consumption and market conditions. To increase import capacity in compliance with ENTSO-E regulations, a 600 MW HVDC back-to-back station will be constructed in the Van 380 substation and this back-to-back project is recently tendered and contracted.

13. 380 kV Lapseki-Sütlüce I submarine cable. To expand and strengthen our transmission infrastructure in parallel with the growth of our country, this project is our first submarine cable with the characteristics of 2 x 1,600 mm2 XLPE, 4.5 km cable, and together with its interface fields,

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it takes place in our investment program. It is constructed as the first joint less submarine cable, which links Europe and Asia. In particular, it is constructed to provide access for the generation of natural gas power plants and WPPs in southern Marmara to İstanbul through the overhead lines completed at the end of the Dardanelles ring.

14. This submarine cable with the length of 4.5 km is the most important part of the energy transmission loop, which is desired to be created in our country and provide the transmission of 6,300 MW power in south Marmara to north Marmara through a 400 kV overhead line, which is a part of the facility.

15. 380 kV Lapseki-Sütlüce II submarine cable. According to the system surveys carried out in Çanakkale region, it has been identified that the generation in the region cannot be transmitted through submarine cable I; therefore, the construction of submarine cable II was required. The south Marmara region has a number of ongoing construction of natural gas power plants and WPPs. It is a very important project for the region’s/country’s security of supply. The construction is expected to be completed in the first quarter of 2017.

16. 380 kV Yeni Ambarlı-Yenibosna underground cable. This underground cable will connect a substation at the Yeni Ambarlı NGCCPP to the Yenibosna 380/154/33 kV GIS substation near Atatürk Airport in Istanbul. The route length is about 16.7 km, and this cable is a Cross-linked Polyethylene insulated cable) with 2,000 mm2 that can carry 990 MVA power. This project is being financed and implemented under the REIP, which will ensure security of supply by providing N-1 criteria to the Yenibosna GIS and also will help to transmit the additional power generated in the Ambarlı NGCCPP that is planned by EÜAŞ to have additional generation capacity.

17. Upgrade of TEİAŞ’ SCADA system and addition of operator desk for Wind Energy TEİAŞ’ National Control Center and Emergency Control Center were established in the 1980s and were renewed in 2004. Since 2004, our transmission system has grown significantly and collecting data from these substations in energy transmission system was proceeding. However, to meet the future growth, the SCADA/EMS hardware and software in the existing load dispatch control centers is to be upgraded. Within the scope of this project, a wind desk is being installed to keep under control the variable WPP generations and provide the healthy integration to the system of TEİAŞ especially in the rural areas. This project is being completed under the REIP.

18. Market Management System. Between our organization and the Consortium of Abrogated Areva T&D SA, Alstom Grid SAS, and Havelsan Air Electronic Industry and Trade Co., the Operation Acceptance Certificate of the contract, which was signed on January 28, 2009 and became effective on March 6, 2009, was signed on August 20, 2010. Day-Ahead Planning process was launched on December 1, 2009. The DAM was opened on December 1, 2011, and the guarantee mechanism became effective.

19. As a result of the closing of the (Abrogated) Electricity Market Operation Department and the establishment of EPİAŞ, by means of the protocol that was signed between our organization and EPİAŞ on September 1, 2015, the operation of the electricity market was delegated to EPİAŞ.

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20. Automatic Meter Reader. The AMR project has started with the installation works following the conclusion of an international tender, which was signed between Görlitz, a German company, and our organization on January 8, 2008. Since 2009, automatic reading of the data included in the system is started with installation works. With the system of provisional acceptance held in 2012, the successful reading activities of the data of sales basis readers in the transmission system within the responsibility of TEİAŞ are ongoing. By means of this project, it is provided to send the energy data automatically in a faster, more secure environment to EPİAŞ. The energy data is acquired by the regional directorates going to the substation sites each month and sending to our department the essential data on transmission system operation and system usage bills. Thus, man-made reading errors have been eliminated more efficient use of manpower has been ensured as teams are not required to take to the field, and an economic benefit has been provided with regard to labor and the allocation of vehicles.

21. Mobile cranes. For 25 truck-mounted hydraulic mobile cranes, the contract price in the aggregate of US$2.404.630 was signed with Uygunlar Dış Ticaret A.Ş./TÜRKİYE. All of the 25 purchased mobile cranes have been delivered to our regional directorates on November 5, 2012 and training was provided on during November 5–9, 2012. They are being actively used in our regional directorates.

Component 2: Institutional Strengthening

22. Consultants’ services - Extension of BSS. In the electricity market, which has been operated by TEİAŞ until January 9, 2015, to ensure full competition, utilize in the best way their existing and new interconnected capacities, contribute to security of supply, create the necessary infrastructure, and ensure compliance with EU legislation, the BSS Project Agreement was signed between our organization and Deloitte Consulting Inc. on January 5, 2004.

23. Primarily, legislation work was done under the project and consultancy has been taken from Deloitte Consulting Inc. during the preparation of the ‘Electricity Market Balancing and Settlement Regulation’ published in the Official Gazette No. 25632 dated November 3, 2004.

24. Within the scope of the existing contract of the Electricity Market Balancing and Settlement Project, as the permanence of consultancy services is required, the second and third extensions in the consultancy are made in agreement with the World Bank under the scope of ALP 2 and APL 6. With the second extension of the Balancing and Settlement Project, the following are provided:

(a) Implementation of the transition period balancing power market

(b) Implementation of the DAM

(c) Implementation of the warrantee mechanism

(d) Supply and implementation of ancillary services

(e) TA related to the market operation and development

25. With the third extension of the Balancing and Settlement Project, the following are provided:

(a) TA for system tests

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(b) Application support for the DAM in a way to include the steps of monitoring the implementation of the DAM system and settlement system

(c) Coordination with banks and selection of settlement bank (or banks) and the preparation of the necessary agreements

(d) The implementation of data and information exchange with settlement bank (or banks)

(e) Support for TEİAŞ related to the supply and implementation of ancillary services

(f) Technical support in the adoption of the new roles under the market model

26. During supply of these consultancy services, with the MMS project, which is carried out simultaneously, the formation of the electricity market has been ensured.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable.

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Annex 9. List of Supporting Documents

1. Energy Community

ECSEE Treaty, October 25, 2005

Energy Community Secretariat website:

http://www.energy-community.org

2. TEİAŞ/APL 6 Project

TEİAŞ, annual reports, up to 2014

TEİAŞ, audited financial statements, up to 2014 (unaudited for 2015)

Other TEİAŞ information at: http://www.TEİAŞ.gov.tr

World Bank aide memoires, energy sector policy notes

Project Appraisal Document No. 55038-TR

Loan Agreement

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MAP