2018 ANNUAL REPORT

HOW DID WE MOVE ENERGY ACROSS CONTINENTS? POWER BEYOND Aksa Energy’s global vision BORDERS We developed an extraordinary business model guided by our vision of becoming a global energy producer. We relocated some of our power plants abroad, piece by piece, and attained a perfect whole.

Ability to realize a dream Some believed it was impossible to swiftly dismantle power plants and commission them in African countries that have an urgent energy demand – and to accomplish this in as little as six to nine months. But we pulled it off.

Delivering targeted results Thanks to our expertise and experience, we not only generated foreign exchange flow for our country, but also managed to boost our revenues by 30%.

REVENUES (TRY MILLION)

21+ ‘18 4,669 Years of experience ‘17 3,599 1,946 MW Installed capacity CONTENTS

ABOUT KAZANCI HOLDING 10 Group Companies

FROM MANAGEMENT 14 Message from the Chairman 18 Board of Directors 20 Senior Management

AKSA ENERGY AT A GLANCE 22 Our Vision and Mission 24 Aksa Energy’s Shareholding Structure 26 Aksa Energy in Figures 28 Financial and Operational Indicators 30 Milestones 32 Aksa Energy’s Strategy 34 Macroeconomic and Sectoral Fundamentals 35 Future Outlook

ENERGY MARKET 38 Global Energy Market 42 Turkish Energy Market

OPERATIONS 48 Developments in 2018 50 Production Portfolio and Characteristics 56 Investments 57 Operational Performance 61 Asset Sales 62 Developments after the Reporting Period

SUSTAINABILITY 64 Sustainability Strategy 65 Sustainability Management Structure 66 Environmental Sustainability 70 Social Responsibility 72 Human Resources 75 Occupational Health and Safety

CORPORATE GOVERNANCE 78 Assessment of the Board of Directors 80 Committees 82 Corporate Governance Principles Compliance Report 108 Statement of Independence 110 Public Disclosure Policy 113 Donation and Charity Policy 113 Remuneration Policy for the Board of Directors and Senior Management 115 Code of Ethics 120 Combatting Bribery and Corruption 122 Dividend Distribution Policy 123 Amendments to Articles of Association in 2018

GENERAL ASSEMBLY 128 Ordinary General Assembly 126 Board of Directors’ Proposal Regarding Dividend Distribution 127 Dividend Distribution Table

FINANCIAL INFORMATION 128 Statement of Responsibility 129 Board of Directors’ Resolution Regarding Financial Tables 130 Annual Affiliation Report 137 Consolidated Financial Tables and Independent Auditor’s Report

GLOSSARY

2 ABOUT KAZANCI HOLDING HOW DO WE CAPITALIZE ON OUR INSTALLED POWER PLANTS?

Under the changing sector dynamics in Turkey, how can we continue to derive high profitability from our power plants with declining competitive advantages? AKSA ENERGY 2018 ANNUAL REPORT 3 Power plants with declining competitive advantages in Turkey, pre-2017

2x 5x Natural Gas Fuel Oil Power Plants Combined Cycle (Hakkari, Şırnak, Power Plants Mardin 1, Mardin 2, (Van, Samsun) Siirt) 4 ABOUT KAZANCI HOLDING LET’S RELOCATE OUR POWER PLANTS

Over a billion people in the world have yet to access electricity. There is an urgent need for energy, particularly in Africa. Therefore, an extraordinary move was required – one as humanitarian as it was economic. To this end, we started off by dismantling some of our power plants. It did not take much time. AKSA ENERGY 2018 ANNUAL REPORT 5

Disassembly 2 months on average 6 ABOUT KAZANCI HOLDING

Loading and arrival 55 days

WAIT FOR US, AFRICA!

We loaded our disassembled power plants on ships and bid them farewell as they set off to new horizons where our dreams powered beyond borders. After a long journey, the power plants arrived in Africa. AKSA ENERGY 2018 ANNUAL REPORT 7 8 ABOUT KAZANCI HOLDING POWER PLANT REINSTALLATION AT LIGHTNING SPEED

We completed the disassembly and installation processes with our in-house teams on a modular system. The power plants shipped to Africa were commissioned first in Ghana, then in Mali and Madagascar. In as little as six months, we commissioned these power plants on another continent. AKSA ENERGY 2018 ANNUAL REPORT 9

Africa

3x 476 MW Heavy Fuel Oil Total Installed Power Plants Capacity 10 ABOUT KAZANCI HOLDING

GROUP COMPANIES

Positioned ahead of the competition with its innovative and customer-oriented business model centered on efficiency and sustainability, Kazancı Holding contributes to the sustainable future of the geographies where it brings its deeply-rooted experience and expertise while also generating hard currency flow for Turkey. Kazancı Holding continually expands the added value it creates for the Turkish economy with investments in the agriculture and tourism sectors as well.

With its foundations dating back to for Turkey. Kazancı Holding continually the 1950s, Kazancı Holding shapes its increases the added value it creates operations with a commitment to the for the Turkish economy through mission of powering Turkey as a pioneer investments in the agriculture and of the energy industry. tourism sectors as well.

Commencing its journey in the Committed to the fundamental energy sector with power generator principles of customer satisfaction and Kazancı Holding is a manufacturing in the 1980s, the Group’s trust throughout its journey spanning global powerhouse integrated structure in the sector over half a century, Kazancı Holding’s has evolved over time: Kazancı Group companies figure among the top firms in that exports to more incorporated power plant construction their respective sectors, thanks to their than 160 countries. and electricity generation into its impressive achievements. Positioned ahead of value chain in the 1990s, natural gas distribution in the 2000s, and electricity Of the companies operating under the the competition with its distribution in 2010. The Group now brand Aksa: expertise in the energy occupies an unsurpassed position in business, the sector thanks to its competencies Aksa Natural Gas is among Turkey’s the Group aims in integrated service and its vertical and most specialized firms in the field of to focus on the energy horizontal structure. natural gas distribution. With 21 licensed industry with a long- distribution areas and operations Today, Kazancı Holding is a global covering 27 provinces and 180 districts, term perspective and powerhouse that engages in production the Company works diligently to maintain its leadership in on four continents, operates in 20 deliver a safe, ecologically friendly and the sector. countries and exports to more than 160 comfortable life to its subscribers, while countries, with more than 7 thousand also making continuous contributions to employees from 74 countries. the economy, environment and society.

Positioned ahead of the competition Aksa Energy is the largest publicly-listed with its innovative and customer- independent power producer in Turkey, oriented business model centered on constructing and operating power plants efficiency and sustainability, the Group both nationally and abroad. Taking firm contributes to the sustainable future steps towards globalization in recent of the geographies where it brings its years, Aksa Energy has transformed deeply-rooted experience and expertise, itself from a local energy company into while also generating hard currency flow a global energy corporation with power AKSA ENERGY 2018 ANNUAL REPORT 11

plants located in Northern Cyprus and Africa. As at end-2018, the Company’s total installed capacity is 2,061 MW, 1,946 MW of which is the active capacity.

Aksa Electricity, a leading company in the Turkish electricity sector with its customer-oriented and innovative approach, is a supply company in charge of providing energy to consumers in Çoruh and Fırat license regions and nationwide. Serving 3.7 million inhabitants and 2.3 million subscribers in 81 cities, Aksa Electricity sold 9 billion KWh of electricity across the country in 2018.

Continuously boosting customer satisfaction without compromising quality standards, Çoruh and Fırat electricity distribution companies meet the electricity demand of 3.7 million people in their service regions by realizing 6 billion KWh of electricity distribution annually.

Aksa Power Generation, the leader of Turkey’s power generator market and one of the largest exporters – shipping products to more than 160 countries – ranks among the top five manufacturers in its field with production facilities in Turkey, China, and the USA. Boasting a wide distribution network with 22 overseas sales offices in Asia, Africa, Europe and America, the Company exports over 50% of its production.

Established in 2004, Aksa Agriculture is distinguished by the corporate modus operandi it has introduced to the agricultural sector, which holds a strategic position in the sustainable development of Turkey. Aksa Agriculture engages in dairy farming, stockbreeding and gardening at EU standards in its two farms located in Samsun and Tekirdağ.

Aksa Tourism maintains a competitive edge in summer and congress tourism with its five-star Mirada Del Mar Hotel located in Göynük, Antalya, and serves tourism during the winter season with the four-star Mirada Del Lago Hotel Ali Metin Kazancı Antalya Natural Gas Combined Cycle Power Plant and three-star Mirada Del Monte Hotel located on Mount Erciyes. 12 ABOUT KAZANCI HOLDING

GROUP COMPANIES

AKSA NATURAL GAS AKSA POWER GENERATION

Field of Activity Field of Activity Natural Gas Distribution and Sales Power Generator Manufacturing and Sales

Participation Rate Participation Rate 99.96% 99.98%

Aksa Natural Gas is the private natural gas Exporting more than 50% of its production, Aksa distribution company serving the widest geographic Power Generation is the sector leader in Turkey, area in Turkey with 21 distribution licenses and a with three manufacturing facilities in Turkey, China market share of 19.3%, distributing 8.5 billion m3 and the USA, 23 domestic APCs and 22 overseas natural gas over a network length of 27,833 km. sales offices comprised of 18 sales offices and 4 Operating in 27 cities across 180 provinces, the representation offices. distribution region of Aksa Natural Gas provides services to a population of 15 million people and 4.7 million potential subscribers.

www.aksadogalgaz.com.tr http://www.aksa.com.tr/en-us/

Russia Zonguldak England

Ereğli Samsun Çarşamba Holland Kazakhstan Düzce Terme Rize USA Turkey Uzbekistan Gemlik Ordu Trabzon Bandırma Karacabey Bolu Amasya Giresun Çanakkale Mustafa China Kemal Bilecik Bayburt Paşa Tokat Algeria Iraq Bursa Gümüşhane Balıkesir İnönü Susurluk Eskişehir Ağrı Sivas UAE Vietnam Manisa Sudan Afyon Ghana Elazığ Malatya Van Singapore Siirt Kenya Indonesia Adana Batman Osmaniye Şanlıurfa Mersin Republic of South Africa Hatay

Aksa Power Generation Sales Offices Aksa Natural Gas Distribution Regions Aksa Power Generation Manufacturing Facilities Representation Offices AKSA ENERGY 2018 ANNUAL REPORT 13

AKSA ENERGY AKSA ELECTRICITY

Field of Activity Field of Activity Electricity Generation Electricity Distribution and Sales

Participation Rate Participation Rate 78.60% 100%

Established in 1997 as a subsidiary of Kazancı Holding, Established under Aksa Electricity, Aksa Electricity Aksa Energy is the largest publicly-listed independent Sales engages in discounted electricity sales to eligible power producer in Turkey. With a free float of 21.40%, consumers across Turkey, while also providing retail the Company’s active installed capacity as at sales and subscription services as the authorized end-2018 is 1,946 MW. Aksa Energy’s shares are supply company in Fırat and Çoruh regions. Aksa traded on the BIST 100, BIST 50 and Sustainability Electricity sold 9 billion KWh of electricity across indices of the Istanbul Stock Exchange under the ticker Turkey. AKSEN. Çoruh and Fırat electricity distribution companies realized 6 billion KWh of electricity distribution per year to meet the electricity demand of 3.7 million people in their service regions.

www.aksaelektrik.com.tr www.coruhedas.com.tr www.aksaenerji.com.tr/en www.coruhaksa.com www.firatedas.com.tr www.aksainvestorrelations.com www.firataksa.com

Kırklareli Turkey Bartın İstanbul Kocaeli Zonguldak Kastamonu Sinop Edirne Tekirdağ Northern Cyprus Karabük Samsun Artvin Ardahan Düzce Yalova Ordu Rize Sakarya Amasya Trabzon Bolu Çankırı Kars Çorum Giresun Çanakkale Bursa Tokat Bayburt Bilecik Gümüşhane Balıkesir Erzurum Iğdır Ankara Kırıkkale Yozgat Erzincan Mali Eskişehir Ağrı Kütahya Kırşehir Sivas Tunceli Manisa Muş Uşak Afyonkarahisar Kayseri Bingöl İzmir Elazığ Nevşehir Malatya Van Aksaray Bitlis Konya Batman Ghana Aydın Denizli Diyarbakır Isparta Niğde K. Maraş Siirt Burdur Adıyaman Hakkari Şırnak Muğla Karaman Adana Antalya Mardin Osmaniye Şanlıurfa Gaziantep Mersin Kilis

Hatay

Aksa Electricity Sales Regions Madagascar Çoruh Electricity Distribution Regions/Çoruh Electricity Retail Sales Regions Aksa Energy Power Plants Fırat Electricity Distribution Regions/Fırat Electricity Retail Sales Regions 14 FROM MANAGEMENT

MESSAGE FROM THE CHAIRMAN

As Aksa Energy, we not only reached all the financial and operational targets set for the 2018 fiscal year, but continued to realize investments and initiatives that will shape our future. The results we obtained throughout the year attest to the significant improvements achieved in our business model, our competencies and our capacity to create value.

2018 Revenues Political and geopolitical tensions, as global liquidity to deteriorate against well as apprehension fueled by the trade developing countries, and capital flows TRY dispute between the US and China, to decline. set the agenda for markets in 2018. Although developed economies seemed Turkish Economy Undergoes to maintain their growth trajectory, Difficult Stress Tests signs of an economic slowdown became The Turkish economy, which had posted evident worldwide. a 7.4% growth in 2017, maintained billion its impressive performance with a While the US economy maintained its 7.4% and 5.3% growth in the first and robust growth backed by impressive second quarters of 2018 respectively. macroeconomic indicators, the Federal In the second half of the year, however, Reserve (Fed) continued to hike growth declined to 1.8% on the back interest rates in line with forecasts. of increased volatility in markets – The Eurozone economy, plagued triggered by the election agenda, global Aksa Energy, which has by significant risks over volatility in uncertainties and a downgrade in credit a total installed capacity financial markets, as well as the budget ratings – closing the year at 2.6%. crisis in Italy and disputes over Brexit, of 2,061 MW with nine was unable to retain the momentum it While upward volatility in exchange power plants – 4 of had achieved in 2017. rates, sparked by political tensions with them located overseas the United States in mid-July, and high Developing countries were those inflation caused a severe contraction – achieved 15 billion most affected by market fluctuations in domestic demand, strong external KWh of energy sales, throughout the year. The dramatic hike demand limited the downtrend in in the US dollar, accompanied by an economic growth. generating TRY 4.7 upward trend in crude oil prices and billion in revenues. production costs, adversely impacted The sharp depreciation in the Turkish all developing economies, with the Lira and the rise in global commodity exception of oil exporters, leading to prices resulted in a hike in real interest deterioration in inflation dynamics rates and led inflation to its peak point and a slowdown in economic activity. – 20.3% – in recent years. Furthermore, the Fed’s interest rate hikes, the European Central Bank’s Avoiding interest rate hikes in its (ECB) suspension of asset purchases, Monetary Policy Committee Meetings and rising protectionism in trade caused in July and August, the Central Bank responded to the excessive deteriorationeterioration AKSAAKSA ENERENERGYGY 20182018 ANNUAL REPORTREPORT 1515 in the inflation outlook with a heftyhefty hike in its September meeting.

On the other hand, recovery inn tourism revenues emerged as one of thehe most positive developments of 2018.8. Increased tourism revenues on the back of exchexchangeange rate effect, coupled with a recoveryovery in foreign trade deficit, ushered inn a current account surplus for the first timeme in years.years.

The unveiling of the government’sent’s New Economic Program based on threethree fundamental pillars – stabilization,ation, discipline and transformation – served to control exchange rate and inflationinflation volatility, leading to a downtrendend in interest rates in the second halfalf of thethe year. At Aksa Energy, we believeve that there is no reason that Turkey shouldld not move into a recovery path in 2019, ggiveniven the fullfull implementation of the tight monetaryonetary and fiscal policies underlined by thehe Program.

Tough Year for Energy Sector,tor, Incentives on Domestic Energyergy in the Forefront In the energy sector, 2018 wass marked as a year of change at a rapidd pace. Market fluctuations throughoutut the year revealed the significance of thehe concepts of sustainability and efficiency.y.

The upward trend in oil and naturalatural gas prices heightened the vulnerabilitiesbilities ofof countries that import raw materialsterials for electricity production. However,er, the most significant challenge faced by players in the Turkish energy sector wasas tthehe exposure to high exchange ratete riskrisk on financial expenses; the sharp escalationescalation in exchange rates resulted in a seriousserious increase in debt for sector playersyers who had financed long-term investmentstments with hard currency-based loans.

In this conjuncture, Turkey continuedntinued to boost the share of renewablesbles in electricity production in a soundnd manner, while making great strides towardswards supporting the use of its domesticestic lignite resources. To this end, the implementationplementation of the Electricity Market Capacityacity Mechanism, which encouragess the use of domestic resources in electricityricity generation, was an important milestone achieved towards the county’ss domesdomestictic energy drive. 16 FROM MANAGEMENT

MESSAGE FROM THE CHAIRMAN

As a pioneer in our sector, we at Aksa Energy embrace sustainability as a business model. From the social and environmental impacts of our operations to climate change, we closely monitor all factors that may affect our potential development.

Sailing Towards New Horizons a robust performance, posting TRY 1.03 of our Ghana Heavy Fuel Oil Power Despite Global and Local Economic billion of Earnings Before Interest, Tax, Plant to 370 MW, thereby boosting our Fluctuations and Depreciation (EBITDA) and TRY installed capacity to 476 MW in Africa. As Aksa Energy, we not only reached 150 million of net profit. Most gratifying all the financial and operational targets is that, thanks to hard currency- At end-2018, we at Aksa Energy set for 2018, but also continued to denominated contracts with guaranteed submitted an application to the Energy realize the investments and initiatives sales, our power plants in Northern Market Regulatory Authority (EMRA) that will shape our future. The results we Cyprus and Africa accounted for 75% of to revoke the license of Manisa Natural obtained throughout the year attest to our EBITDA. Gas Combined Cycle Power Plant, the significant improvements achieved which does not have the opportunity in our business model, competencies The projects we have undertaken to generate electricity at a competitive and capacity to create value. and the services we provide in Africa price within Turkey. In addition to continue to pave the way for new employing the power plant in potential While our expansion in Africa – the business opportunities. In April 2018, projects abroad, other options include pillar of our strategic transformation we signed a five-year foreign currency- utilizing it to meet the equipment needs into a global company – significantly based purchase-guaranteed sales of our domestic and overseas power contributed to the increase in our agreement for the rehabilitation and plants. revenues, we also reduced our operation of a 24 MW power plant FX-based liability to reasonable levels owned by Jirama, the state authority Commissioned to maximize the share with the initiatives we have recently for power utility and water services of of domestic resources in electricity undertaken. At end-2018, we recorded the Republic of Madagascar. Having production as part of Turkey’s National commenced the commercial operation Energy and Mining Policy, Bolu Göynük with an initial capacity of 12 MW in a Thermal Power Plant continues to short period of time, we commissioned produce clean energy for our country by the 24 MW installed capacity of the bringing together the valuable resource power plant in January 2019. This of domestic lignite with cutting-edge agreement is of great importance technology. The power plant, which sold as an indicator of the high standard a significant portion of its production to of technical support we provide in EÜAŞ (Electricity Generation Company Africa, our speed in installation, and of Turkey) in 2018, will boost the our success in human resources foreign currency-based revenues of our management in the region. During the Company due to the revised purchase year, we continued contributing to the price, which was partially pegged to the sustainable development of this region US dollar in January 2019. Furthermore, and increased the installed capacity the inclusion of Bolu Göynük Thermal AKSA ENERGY 2018 ANNUAL REPORT 17

Power Plant and Ali Metin Kazancı Antalya Natural Gas Combined Cycle Power Plant within the capacity mechanism – which came into effect on January 1, 2018 – for both 2018 and 2019, will continue to positively impact the profitability of these two power plants in the 2019 fiscal year.

At the close of 2018, Turkrating, in its assessment of Aksa Energy, has once again confirmed our high loan quality and strong debt repayment capacity thanks to our successfully executed, profit-driven strategy. In 2018, Turkrating assigned Aksa Energy an ‘Investable’ grade in terms of domestic currency on the national level, and a Long Term National Credit Rating as TR A+ and Short Term National Credit Mali Heavy Fuel Oil Power Plant Rating as TR A2.

Taking Firm Actions Towards clean energy from domestic coal by which has become Turkey’s global Sustainability Goals with Robust bringing lignite, which has a large share energy company with the scale of its Corporate Governance among domestic resources in Turkey’s global investments, will maintain its As a pioneer in our sector, we embrace National Energy and Mining Policy, steady progress in the global arena sustainability at Aksa Energy as a together with cutting-edge technology. with new investments geared towards business model. From the social and sustainable profitability, including environmental impacts of our operations To ensure a healthy and safe work consolidating its presence in Africa. In to climate change, we closely monitor environment for the workforce we line with this approach, we will continue all factors that may affect our potential employ across all our operations, to expand our operational geography development. We back our sustainability we adopt a management approach with new regions in urgent need of approach, which we define as our that is committed to compliance with electricity and increase our foreign commitment to formulating a business national and international obligations, exchange-based revenues, while taking model that creates lasting value for as well as to continuous improvement key steps on behalf of Turkey’s export our stakeholders, with an effective with monthly monitoring and drive. organizational structure. Our continuous performance measurements. Among the inclusion in the BIST Sustainability improvements achieved on this front Our well-established corporate and Index since 2015 is one of the most was the 67% increase in Occupational financial structure, production strength, important indicators of the fundamental Health and Safety trainings productivity and profitability-centered role that our environmental, social and administered in 2018 compared to strategies, and, most important, our managerial commitments play in our the previous year. As of the end of human resources – the best of their growth model. December 2018, the Company reached kind in the field – will continue to its milestone of “two million man-hours be the key elements in our goal of Our efforts to embed the principle of without an accident” at Ghana Heavy becoming a global brand in the sector. respecting the environment with our Fuel Oil Power Plant, steadily and Hereby, I would like to extend my business processes and developing continuously inching closer to its target deepest gratitude to the employees of innovative solutions focused on of “five million man-hours without an Aksa Energy and to all our esteemed technology continue to be appreciated. accident.” stakeholders. Commissioned as one of the two private power plants running on domestic coal, Future Outlook… Bolu Göynük Thermal Power Plant Combining our competencies with the was granted the “Investment Award ability to foresee potentials, risks and in Energy” by the Association of Coal opportunities, we populate our future Producers (KÖMÜRDER) in 2018 as perspective with growth scenarios Cemil KAZANCI a result of the various practices we that are compatible with the dynamic Chairman implemented within the facility. As Aksa structure of the energy market as its Energy, we will continue to produce well-respected player. Our Company, 18 FROM MANAGEMENT

BOARD OF DIRECTORS

Cemil Kazancı Serdar Nişli Tülay Kazancı Mehmet Akif Şam Chairman Vice Chairman Board Member Board Member (1961) Cemil Kazancı (1954) Serdar Nişli (1959) Tülay Kazancı is a (1968) Mehmet Akif Şam began his professional graduated from Middle Member of the Board of received his Bachelor’s career working in Kazancı East Technical University, Directors at Kazancı Holding degree from Anadolu Group companies. His first Department of Mechanical as well as at ATK Sigorta University, Faculty of managerial position was in Engineering, earning Aracılık Hizmetleri and Aksa Communication Sciences, generator manufacturing Bachelor’s and Master’s Anadolu Yakası Makine Satış Department of Journalism. and sales. He subsequently degrees. Subsequently, he ve Servis. She has been After starting his career played an active role in the began his professional career serving as a Board Member as a Media Planner at formation of Aksa Energy, at TEK Çayırhan Thermal at Aksa Energy since April Pronto Public Relations which was set up to expand Power Plant and worked 2010. & Consultancy, he worked the Group’s operations in in various private sector as an Advisor at the the energy industry and to positions for 18 years prior Ministry of Environment generate electricity starting to joining Kazancı Holding in and Urbanization, Ministry from 1997. Mr. Kazancı is the 1996. Mr. Nişli, who previously of Transport, Ministry Chairman of the Board of served as the Company’s of Communications and Directors at Aksa Energy, General Manager, holds the Maritime Affairs, and and a Member of the Board Vice Chairman position on Ministry of Energy and of Directors at Kazancı the Board of Directors at Natural Resources. Mr. Şam Holding and a number of Aksa Energy. served as Board Member at other Group companies. EÜAŞ Kemerköy Electricity Generation Inc. and joined Kazancı Holding in 2011. Serving as a Board Member at various group companies of Kazancı Holding, Mr. Şam was also appointed as a Board Member at Aksa Energy in 2017. AKSA ENERGY 2018 ANNUAL REPORT 19

Cüneyt Uygun * Erkin Şahinöz Murat Yeşilyurt Energy Group Head, CEO and Board Independent Board Member Independent Board Member Member (1976) Erkin Şahinöz graduated from (1975) Murat Yeşilyurt received his (1970) A graduate of Saint Joseph Mechanical Engineering in Boğaziçi Bachelor’s degree from Istanbul French High School, Cüneyt Uygun University. He completed his MBA as a University, Faculty of Economics, obtained a Bachelor’s degree in scholarship student at the University and completed his MBA at Istanbul Mathematics and a Master’s degree of Nebraska in the United States, and Commerce University. He started his in Economics from Boğaziçi University. earned his Master’s degree in Economics career in the banking sector in Treasury After undertaking a variety of from the same university. He began departments and went on to work as management positions at Türkiye Sınai his professional career in 1999 as a a fund manager at finance companies. Kalkınma Bankası, Efes İçecek Group research assistant and worked as a His role as an educator has come to the and Turkcell, Mr. Uygun was appointed consultant at Business Development forefront, thanks to the experience he Chief Financial Officer (CFO) for Center, providing consulting services has gained in finance over the years. He Turkcell’s operations in Ukraine. After to companies in different sectors and works as strategic advisor and provides joining Kazancı Holding in 2010, he was business lines, including banks. In 2002, training to corporates and banks in appointed as CEO at Aksa Energy in he was transferred as an economist to Turkey. He has authored various articles 2013. Mr. Uygun had also served as a the US Federal Reserve and appointed published in finance magazines. Mr. Member of the Board of Directors at the as Director of the Economic Research Yeşilyurt is also the author of the book Company since 2015. Group. In 2007, Mr. Şahinöz established “Dünya ve Türkiye’de Altın ve Altın the Strategy Coordination and Business Bankacılığı (Gold Banking in Turkey & Development Department at Arıkanlı The World).” Holding. In 2009, he was appointed to the position of General Director of Turkey at Austrian Erste Bank, establishing the operations of the Bank from the ground up. He has served as a strategy, business development and economy advisor for many companies and institutions, including the İstanbul Chamber of Industry (ISO). Within Tim * Mr. Cüneyt Uygun, who had been serving as the Consultancy, Mr. Şahinöz also provides CEO and Board Member of Aksa Enerji Üretim A.Ş. training and consultancy services to and as the Energy Group Head of Kazancı Holding since 2013, resigned from his posts effective as of banks and real sector companies in a December 31, 2018. wide range of fields. 20 FROM MANAGEMENT

SENIOR MANAGEMENT

Cüneyt Uygun Murat Kirazlı Cem Nuri Tezel Energy Group Head, CEO and Board Vice President, CEO of Aksa Energy Vice President, Chief Financial Member Trading and Sales Officer (CFO) Please refer to page 19 for background Murat Kirazlı graduated from Middle After graduating from Marmara information. East Technical University, Department University, Cem Nuri Tezel earned of Electrical and Electronic Engineering, his Master’s degree in Management and earned his Master’s degree in from University of Leeds and started Finance at Bilkent University. He started his professional career in the Audit his professional career as Founding Department at Arthur Andersen Partner at CCM Ltd. Şti., and then İstanbul in 1996. He worked as a Senior worked as an Energy Industry Senior Manager at Ernst & Young in 2002 Consultant at Deloitte and as Energy and as Internal Audit Manager at Trade Director at Espe Enerji San. ve Tic. Sabancı Holding between 2004-2005. A.Ş. Subsequently, he served as Energy In October 2005, he was appointed Trade Director at Limak Energy Group. In as CFO of Enka Marketing. Between September 2014, Mr. Kirazlı joined Aksa 2008-2011, he served as the CFO Energy as Energy Trade Director and of Istanbul Sabiha Gökçen Airport. In was later appointed as Vice President in 2012, he worked as the CFO of Soyak charge of Energy Trade and Sales. Holding. Since May 2014, Mr. Tezel had been serving as the CFO at Assan Aluminyum A.Ş. He was appointed as the CFO of Aksa Energy in December 2018. Mr. Tezel is a member of the Istanbul Chamber of Certified Public Accountants (ISMMMO) and DEIK Bahrain Business Council, as well as the founding member of the Corporate Risk Management Association (KRYD). AKSA ENERGY 2018 ANNUAL REPORT 21

Soner Yıldız Özlem McCann Senlav Güner Vice President, Chief Operating Investor Relations and Corporate Operation and Maintenance Director in Officer (COO) Communications Director Charge of Domestic Power Plants Soner Yıldız graduated with a bachelor’s A graduate of Izmir American College, Senlav Güner graduated from Yıldız degree in Mechanical Engineering from Özlem McCann graduated from Middle Technical University, Mechanical Yıldız Technical University and earned East Technical University, Department Engineering Department and started his MBA from Yeditepe University. He of Economics. With 23 years of capital his professional career in 1997. Mr. started his professional career as a markets experience, Ms. McCann Güner worked for Enka İnşaat Sanayii Mechanical Engineer at Çolakoğlu initially worked as a senior analyst in A.Ş. as Piping Engineer and as Metalurji A.Ş. and served as Chief of various brokerage houses before taking Commissioning Engineer at the Bursa Maintenance in the same organization investment banking positions in Paris Natural Gas Power Plant; at Intergen- between 2000-2004. He then worked and London. She went on to serve in Enka Adapazarı Gebze Power Plant as as Chief Mechanical Engineer at Enka various managerial positions in the Piping Coordinator, Operations Engineer between 2004-2007; Senior Business International Sales (ICM) departments and Mechanical Maintenance Engineer; Development Engineer at E.ON Holding of HSBC Securities and Eczacıbaşı at ENKA Rijmond Holland Natural between 2007-2009; Operations Securities. Ms. McCann holds Capital Gas Power Plant as Commissioning and Maintenance Senior Manager at Market Activities Advanced Level Engineer; at Exxon Mobil on Russia’s RWE Turkey between 2009-2011; License, Corporate Governance Rating Sakhalin Island as Commissioning Thermal Power Plant Manager at Vito Specialist License and FCA (UK) license. Director; at Enka-Russia Nizhnevartovsk A.Ş. between 2011-2012, and Business Having joined Aksa Energy in December Natural Gas Power Plant as Development Director at Acwa Power 2013 as Investor Relations Manager, she Engineering Director; at Enka-Russia between 2012-2016. He had been became Head of Investor Relations and Berezniki Natural Gas Power Plant as serving as COO at Enda Enerji Holding Corporate Communications in 2015. She Commissioning Director; at Enka-Erbil since 2016. Yıldız was appointed as was appointed as Investor Relations and Natural Gas Plant as Deputy Project Chief Operating Officer (COO) of Aksa Corporate Communications Director of Manager; and on the Gama Zakho and Energy in October 2018. Aksa Enerji and Kazancı Holding in July Hartha projects as Project Manager. Mr. 2016. Güner started working for Aksa Energy in 2017 as Engineering and Turbine Power Plant Director, and continues to serve as Operation and Maintenance Director in charge of Domestic Power Plants. 22 AKSA ENERGY AT A GLANCE

Aksa Energy’s Vision To become the largest and the most reliable power in the region.

Aksa Energy’s Mission To capitalize on its deep experience and know-how in the energy industry in order to continue implementing high performance projects, with a focus on cutting- edge technologies and a well-educated, highly skilled workforce. AKSA ENERGY 2018 ANNUAL REPORT 23 24 AKSA ENERGY AT A GLANCE

AKSA ENERGY’S SHAREHOLDING STRUCTURE

Aksa Energy’s shares are classified in two groups: A and B. The Company’s issued capital as of December 31, 2018 comprised a total of 613,169,118 shares – 293,896,220 Group A registered shares and 319,272,898 Group B bearer shares. Each share has a nominal value of TRY 1.

Madagascar Heavy Fuel Oil Power Plant

Share Group Nominal Value (TRY)

Share Group A (Registered) 293,896,220

Share Group B (Bearer) 319,272,898

Total 613,169,118 AKSA ENERGY 2018 ANNUAL REPORT 25

21.39% 78.60% Free Float Kazancı Holding

AKSA ENERGY’S SHAREHOLDING STRUCTURE AND 0.01% VOTING RIGHTS Other

Shareholder Number of Shares Share Group Share (%) Vote (%) Kazancı Holding A.Ş. 293,861,845 A 47.92 47.92 Kazancı Holding A.Ş. 188,114,898 B 30.68 30.68 Total Kazancı Holding A.Ş.* 481,976,743 78.60 78.60 Ali Metin Kazancı 4,814 A 0.0008 0.0008 Mehmet Kazancı 4,812 A 0.0008 0.0008 Ş. Cemil Kazancı 4,812 A 0.0008 0.0008 Necati Baykal 4,811 A 0.0008 0.0008 Tülay Kazancı 1 A 0.0000 0.0000 Aksa Makine San. A.Ş. 15,125 A 0.0025 0.0025 Free Float 131,158,000 B 21.39 21.39 TOTAL 613,169,118 100.00 100.00

* Kazancı Holding A.Ş. purchased 4,958,962 shares in 2012, 2013 and 2018, which are shown in the table above in Free Float shares. With free-float share purchases included, Kazancı Holding holds 486,935,705 shares of Aksa Energy in total, which accounts for 79.4% of the Company’s capital. 26 AKSA ENERGY AT A GLANCE

AKSA ENERGY IN FIGURES

Aksa Energy swiftly commissioned new power plant investments in Africa. With the capacity increase undertaken in Ghana Heavy Fuel Oil Power Plant, the Company raised its installed capacity in Africa to 476 MW and total overseas capacity to 629 MW, including its power plant in Northern Cyprus.

Natural Gas Combined Heavy Fuel Oil Lignite Power Plant Cycle Power Plants Power Plants

MW Number of Operational Total Investments Commissioned Power Plants (TRY Million) Capacity in 2018

MW MW

Commissioned Capacity in Active Installed Capacity Madagascar in 2018 AKSA ENERGY 2018 ANNUAL REPORT 27

1,047 MW 629 MW (54%) (32%) Natural Gas Heavy Fuel Oil Combined Cycle Power Plant Power Plant

1,946 MW ACTIVE INSTALLED CAPACITY

270 MW (14%) Lignite Power Plant

In Madagascar, 12 MW of the 24 MW CTA-2 HFO Power Plant, owned by Jirama, was commissioned in 2018, and the power plants reached an installed capacity of 24 MW as at January 2019. As Aksa Energy assumes only the operation and maintenance of the power plant, it is not accounted in the total installed capacity or the number of operational power plants.

As an application was filed with the Energy Market Regulatory Authority to revoke the electricity generation license of Manisa Natural Gas Combined Cycle Power Plant, it is not accounted in the active portfolio as of November 2018. 28 AKSA ENERGY AT A GLANCE

FINANCIAL AND OPERATIONAL INDICATORS

Aksa Energy recorded a strong financial performance in 2018, increasing sales revenues by 30% to TRY 4.7 billion. The Company also saw a 24% increase in total assets to TRY 6.4 billion.

Key Financial Indicators

Consolidated (TRY Million) 2014 2015 2016 2017 2018

Revenues (Net) 1,957 2,307 3,178 3,599 4,669

Net Profit/(Loss) for the Period 39 (216) (363) 390 150

EBITDA 344 443 435 493 1,033

Total Assets 3,460 4,042 4,153 5,202 6,438

Shareholders’ Equity 1,022 771 387 1,661 1,818

EBITDA Margin (%) 18 19 14 14 22

TOTAL ASSETS (TRY MILLION) REVENUES (TRY MILLION) EBITDA (TRY MILLION) 6,438 4,669 1,033 5,202 3,599 3,178 4,153 4,042 3,460 2,307 493 443 435 1,957 344 ‘17 ‘17 ‘17 ‘15 ‘15 ‘15 ‘14 ‘14 ‘14 ‘16 ‘16 ‘16 ‘18 ‘18 ‘18 Net Profit AKSA ENERGY 2018 ANNUAL REPORT 29 TRY Million Aksa Energy recorded TRY 150 million of net profit as at year-end 2018, reflecting the positive contribution of the African operations and asset sales.

EBITDA (TRY Million) 2011 2012 2013 2014 2015 2016 2017 2018

159 181 312 344 443 435 493 1,033

EBITDA Distribution (%)

75% 25% FX-BASED TRY-BASED

Net Financial Debt/EBITDA 2011 2012 2013 2014 2015 2016 2017 2018

4.2 4.0 4.2 5.2 5.8 6.3 5.7 3.6

In 2018, 57% of Aksa Energy’s bank loans were denominated in Turkish Lira, 41% in US dollars and 2% in Euro.

Financial Liabilities by Currency (%)

57% 41% 2% TRY USD EUR 30 AKSA ENERGY AT A GLANCE

MILESTONES

A guaranteed sales agreement was signed with Societe Jiro Sy Rano Malagasy (Jirama) for the rehabilitationrehab and operation of 24 MW CTA-2 HFO Power PlantP in Madagascar.Madagascar. The power plant became operaoperationalt with the commissioning ofof 12 MW in December.December.

2009200 • Th The capacity of Karakurt WPP was increased.inc • TheTh duration of the contract with NorthernNo Cyprus Kalecik HFO Power PlantPl with KIB-TEK was extended by 15+315 years to 2027. • SamsunSa Power Plant was converted fromfro heavy fuel oil to natural gas.

19971997 2010201 • Aksa Energy was establishedl as a 2004 • Aksa Energy held its IPO. subsidiary of the Kazancı Group. • Hakkari HFO Power Plant was moved • The capacity of Karakurt WPP was • A biogas power plant was established to Northern Iraq. increased. in Bursa. • Van Natural Gas Combined Cycle 2005 Power Plant’s combined cycle 1999 • Northern Cyprus Kalecik HFO investment was completed and the • Hakkari Heavy Fuel Oil (HFO) Power Power Plant’s installed capacity was capacity was increased. Plant became operational. increased. 2011 2001 2006 • Bursa Biogas Power Plant’s license was • The second HFO power plant was • Mine operating rights were obtained cancelled. established in Hakkari. from the General Directorate of • Çorum İncesu HEPP became • Şırnak HFO Power Plant was Turkish Coal for Bolu Göynük Thermal operational. commissioned. Power Plant. • Northern Cyprus Kalecik HFO Power • Mardin HFO Power Plant became Plant’s capacity was increased. operational. 2007 • Şanlıurfa Natural Gas Combined Cycle • Mardin 2 HFO Power Plant was Power Plant became operational. 2003 commissioned. • Şamlı WPP’s capacity was increased. • A 20 MW mobile HFO power plant • Samsun Power Plant was converted was commissioned in the Turkish 2008 into a natural gas combined cycle Republic of Northern Cyprus and a • The Karakurt, Sebenoba and Şamlı power plant. five-year power purchase agreement Wind Power Plants (WPP) started • Kıyıköy WPP was acquired by Aksa was signed with KIB-TEK. commercial operations. Energy. • Samsun HFO Power Plant was • The first 200 MW of Ali Metin • An 11.7 MW steam engine and combined purchased from EÜAŞ. Kazancı Antalya Natural Gas cycle investment in Şanlıurfa Natural Combined Cycle Power Plant became Gas Power Plant was completed and operational. commissioned. • A 13 MW steam engine was • Aksa Energy joined the BIST AKSA ENERGY 2018 ANNUAL REPORT 31 commissioned at Northern Cyprus Sustainability Index. Kalecik Fuel Oil Power Plant. • The Company became a market • Ali Metin Kazancı Antalya Natural maker in Base-Load Electricity • Ghana HFO Power Plant began Gas Combined Cycle Power Plant was Futures Contracts on Borsa Istanbul’s commercial operations with an installed completed, reaching 1,150 MW installed Derivatives Market. capacity of 280 MW. capacity. • Aksa Energy issued its first corporate • Madagascar HFO Power Plant’s first • Ayvacık WPP started commercial bond. phase, with an installed capacity of operations. • Şanlıurfa Natural Gas Combined Cycle 66 MW, was completed and began • Şamlı WPP’s capacity was increased by Power Plant’s capacity was increased. commercial operations. 24 MW. • Van Natural Gas Combined Cycle • Mali HFO Power Plant was completed • The power plant in Northern Iraq was Power Plant’s production license was and began commercial operations. moved to Mardin, and Mardin 2 Power cancelled. • Turkrating affirmed that Aksa Energy Plant was established. • Northern Cyprus Kalecik HFO Power had a low credit risk in terms of its Plant’s capacity was increased. capacity to meet long-term financial 2012 liabilities. • Construction of Bolu Göynük Thermal 2016 Power Plant began. • Bolu Göynük Thermal Power Plant’s second phase commenced commercial 2013 operations with an installed capacity of • The Company acquired a 93% stake in 135 MW. Kapıdağ WPP. • Aksa Energy’s subsidiary Siirt Akköy • Hakkari Plant’s production license was Enerji Üretim A.Ş., which owns Akköy cancelled. Hydroelectric Power Plant, executed a share transfer. 2014 • Turkrating reiterated TR A+ and TR A2 • A 14 MW section of Belen/Atik WPP ratings for Aksa Energy due to its high • İncesu Hydroelectric Power became operational. loan quality and strong debt repayment Plant was sold. • Kapıdağ WPP’s capacity was increased. capacity. • Goldman Sachs International’s • A 24 MW section of the Kıyıköy WPP • The Company performed two bond equity stake in Aksa Energy project was completed and started issuances with maturity terms of two was transferred back to commercial operations. years and three years, with a total Kazancı Holding. • Aksa Energy took over Siirt Akköy HFO nominal value of TRY 200 million. • A guaranteed sales agreement Power Plant. • An agreement was executed with was signed with Societe • Sebenoba WPP’s capacity was the Republic of Madagascar for the Jiro Sy Rano Malagasy increased. installation of a 120 MW fuel oil power (Jirama) for the rehabilitation plant and sale of electricity generated. and operation of 24 MW 2015 • Kozbükü Hydroelectric Power Plant CTA-2 HFO Power Plant • Kıyıköy WPP’s capacity was increased. commenced commercial operations in Madagascar, which • Sebenoba WPP’s capacity was with an installed capacity of 81 MW. became operational with the increased. • An agreement was signed with the commissioning of 12 MW in • A contract was signed with the Republic of Mali for the installation of December. government of the Republic of Ghana a fuel oil power plant with an installed regarding the establishment of a heavy capacity of 40 MW and sale of • Ghana HFO Power Plant’s fuel oil power plant and the sale of electricity generated. installed capacity was electricity generated. • Kozbükü Hydroelectric Power Plant was increased to 370 MW from • Bolu Göynük Thermal Power Plant’s sold. 280 MW. first phase with 135 MW capacity • An agreement was executed concerning • The installed capacity of Ali started commercial operations. the sale of the Sebenoba, Karakurt, Metin Kazancı Antalya Natural • Samsun Natural Gas Combined Cycle Şamlı, Ayvacık, Kapıdağ and Belen/Atik Gas Combined Cycle Power Power Plant’s production license was WPPs. Plant was decreased to 900 cancelled. MW from 1,150 MW. • Siirt Akköy HFO Power Plant’s 2017 • An application was filed with production license was cancelled. • The licenses of Mardin 1, Mardin 2 and the Energy Market Regulatory • Turkrating assigned Aksa Energy İdil (Şırnak) HFO Power Plants were Authority to revoke the ratings of TR A+ and TR A2 in cancelled. electricity generation license recognition of its high loan quality and • The sales agreement for Kıyıköy WPP of Manisa Natural Gas strong debt repayment capacity. was signed. Combined Cycle Power Plant. • The license capacity of Kozbükü HEPP • Ayres Ayvacık, Hatay Sebenoba, was expanded. Manisa Karakurt, Belen Atik, Kapıdağ, Kıyıköy and Şamlı WPPs were sold. 32 AKSA ENERGY AT A GLANCE

AKSA ENERGY’S STRATEGY

Aksa Energy has successfully integrated effective change management and an innovative business model with the corporate values embedded in its DNA. These values play a key role in the Company’s ongoing success and support its transformation into a global powerhouse.

Total Revenues A Future-Oriented Corporate Culture with electricity generation and guaranteed Built on Established Company Values electricity sales. In 2016, the Company Aksa Energy is an independent power continued its expansion in Africa with the TRY producer established as a subsidiary execution of new deals with Madagascar of Kazancı Holding, a leading group of and Mali. For these new investments, Aksa companies in Turkey with long-standing Energy performed the entire construction experience across the entire power supply process in-house - from project chain from production to distribution and development, design and engineering, sales. The Company enjoys advantages to power plant construction, installation, billion such as cross-selling, higher brand operation and maintenance – utilizing recognition, and integrated service existing equipment from its inactive HFO alongside its horizontal and vertical power plants in its portfolio, to achieve a Aksa Energy recorded integration with other Group companies. significant cost advantage. a revenue of TRY 4.7 Aksa Energy has successfully integrated Aksa Energy swiftly commissioned new billion, increasing its effective change management and power plant investments in Africa. With Earnings Before Interest, an innovative business model with the capacity increase undertaken in the corporate values embedded in its Ghana Heavy Fuel Oil Power Plant, the Tax, Depreciation and DNA. These values play a key role in Company raised its installed capacity Amortization (EBITDA) the Company’s ongoing success and in Africa to 476 MW and total overseas support its transformation into a global capacity to 629 MW, including its power to TRY 1,033 million as powerhouse. plant in Northern Cyprus. at year-end 2018. Enormous Investments and Rapid Aksa Energy is focused on providing rapid Implementation solutions in countries with energy needs Believing in the importance of being in by consistently building trust via its vast the right place at the right time, Aksa experience and professionalism, which Energy recently shifted its focus to the also helps generate new investment and continent of Africa, where some countries collaboration opportunities in the region. have limited access to electricity, in order In 2018, the Company signed a five-year to more efficiently and rapidly leverage contract with Jirama, in the Republic potential opportunities. of Madagascar, for the rehabilitation and operation of Madagascar CTA-2 In 2015, Aksa Energy signed an Heavy Fuel Oil Power Plant, which has an agreement with the Republic of Ghana for installed capacity of 24 MW. That same the construction of a power plant, along year, 12 MW of the Plant’s capacity was AKSA ENERGY 2018 ANNUAL REPORT 33

Madagascar Heavy Fuel Oil Power Plant

commissioned; the remaining capacity was Aksa Energy offers a workplace local and global platforms. To make this commissioned in January 2019, bringing environment that respects employees’ effort permanent, the Company signed the total installed capacity to 24 MW. rights, supports training and development, the United Nations Global Compact, and allows the Company to create a committing to the creation of the Forward-Looking Perspective and competent, best-in-class team and environmental and social bases of a Strategies with Proven Financial continue its sustainable growth journey. sustainable global economy, and engaged Achievements in global investments across the world. Aksa Energy converted the power plants A Unified Goal for A Sustainable Aksa Energy believes that steps taken in its portfolio – those with declining Future Embraced by All Stakeholders together with its stakeholders in key competitive advantages – into heavy fuel Aksa Energy was first listed in İstanbul areas – such as human rights, working oil power plants, relocating them to the Stock Exchange in 2010 under the ticker conditions, environment and anti- high-potential African market with the AKSEN, and the Company’s shares corruption – will contribute to building lowest installation costs in the industry, are traded in the BIST 100 and BIST a sustainable future. Since 2015, the and delivering a driving force on hard- 50 Indices. Conducting its business Company has voluntarily prepared and currency revenues and profitability. As of operations to create long-term added published annual Sustainability Reports year-end 2018, the Company recorded value for stakeholders, Aksa Energy in accordance with Global Reporting revenues of TRY 4.7 billion and increased also qualified to join the Borsa Istanbul Initiative (GRI) principles. As another sign Earnings Before Interest, Tax, Depreciation Sustainability Index in 2015, which of its transformation into a sustainable and Amortization (EBITDA) to TRY 1,033 comprises publicly traded companies with and socially responsible company, million, 65% of which came from African high corporate sustainability performance. Aksa Energy signed The Trillion Tonne power plants. This ratio is expected to Included in the Sustainability Index for 3 Communiqué, a declaration to the world remain around 65-75% in 2019. years in a row since 2015, Aksa Energy from companies that are sensitive to strives to voluntarily support sustainable climate change and demand measures to Highly Competent Staff Assures development in every aspect across combat it. Success Aksa Energy has modern human resources systems and practices in place, aligned with the Company’s strategic objectives and its mission of being the employer of choice in the industry. To that end, the Company prioritizes advancing with a dynamic, experienced and highly-qualified workforce that embraces the corporate values, business priorities and professional spirit of Kazancı Group and adopts the common goals of the Company. 34 AKSA ENERGY AT A GLANCE

MACROECONOMIC AND SECTORAL FUNDAMENTALS

Lacking in abundant oil and natural gas reserves, Turkey has recently undertaken a strategic transformation, shifting its focus to domestic and renewable resources in the power production paradigm.

Installed Capacity in Turkey Energy – The Key Component of Sustainable Development Lacking in abundant oil and natural gas reserves, Turkey has undergone a strategic transformation, shifting its focus to domestic and renewable resources in the power production paradigm. As of year-end 2018, MW Turkey’s total installed capacity increased by 6.3% year-on-year to 88,525 MW; yet the share of domestic As of year-end 2018, Solid Foundations, Huge Economic resources in this capacity remains well Potential Turkey’s total installed below the country’s potential, indicating In 2018, the Turkish economy faced high room for substantial growth. capacity increased by volatility due to the pressure inflicted 6.3% year-on-year to by global financial uncertainties on risk Nevertheless, surrounded by energy-rich appetite for emerging economies, as 88,525 MW. neighbors, the county’s geostrategic well as the political and geopolitical position, along with the development tensions. Deterioration in key of new projects to bring this energy to macroeconomic indicators, particularly developed countries, have turned Turkey the sharp rise in inflation triggered by into a major energy corridor between FX rate volatility, resulted in a relative the East and the West. slowdown in economic activity in Turkey.

Since its very first day, Aksa Energy The year 2019 is projected to be a has deployed its resources to support period of stabilization during which Turkey’s development. To that end, Turkey’s growth rate is expected to dip the Company powers beyond borders below recently-achieved levels. The with a strategy of global expansion, Turkish economy, however, is built on steadily increasing its investments and solid foundations and, in the long term, supporting development in countries has the potential to weather this cycle with a high demand for energy. and put its strong growth policy back on track. AKSA ENERGY 2018 ANNUAL REPORT 35

FUTURE OUTLOOK

Having transformed from a local energy company into a global powerhouse, Aksa Energy supports the Turkish economy with its hard currency revenues, and actively pursues new investment opportunities in overseas markets via ongoing negotiations with countries that have an urgent demand for energy.

Minimizing Costs Investment Strategy In 2016, Aksa Energy reached an Aksa Energy builds its investment strategy agreement in the Republic of Madagascar In the construction of by closely monitoring global and local for the establishment of a power plant risks and opportunities. Most recently, and the guaranteed sale of the electricity African power plants, the Company canceled the licenses of generated. In July 2017, the power plant Aksa Energy utilized some of its natural gas and heavy fuel oil was commissioned with an installed equipment from the power plants with declining competitive capacity of 25 MW. Upon the completion advantages in Turkey, and undertook of the first phase in September, the plant’s existing plants in its significant investments overseas. installed capacity rose to 66 MW. In 2018, portfolio, reducing total Aksa Energy undertook the rehabilitation Positioning Africa, which has an urgent and operation of a 24 MW power plant in investment costs and demand for energy, as a primary focus, Madagascar, which became operational significantly shortening the Company has become one of the in December upon the commissioning of the construction period. major energy players on the continent 12 MW of the plant’s capacity. The power with new investments. By completing the plant continues its commercial operations construction of new power plants in Ghana, with an installed capacity of 24 MW as at Madagascar and Mali and commissioning January 2019. them in a very short time, Aksa Energy boosted its profitability and hard currency- Aksa Energy signed its third overseas denominated sales, reducing FX rate contract for the construction of a power exposure on its financials. plant in Bamako, the capital city of the Republic of Mali, and the guaranteed In accordance with this strategy, the sale of the electricity generated by the Company first signed a power purchase facility. First commissioned in August 2017, agreement with the Republic of Ghana the plant has been fully operational with in 2015 for the establishment of a an installed capacity of 40 MW since power plant, electricity generation, and September 2017. the guaranteed sale of the electricity generated by the facility. Ghana Heavy In the construction of African power plants, Fuel Oil Power Plant started commercial Aksa Energy utilized equipment from the operations with an installed capacity of existing plants in its portfolio, minimizing 192.5 MW in March 2017, and the facility’s total investment costs and significantly installed capacity expanded to 280 MW shortening the construction period. in August 2017. With the commissioning of 90 MW equipment in November 2018, the Having transformed from a local energy plant’s installed capacity rose to 370 MW. company into a global powerhouse, Aksa Energy supports the Turkish 36 AKSA ENERGY AT A GLANCE

FUTURE OUTLOOK

Aksa Energy’s financial transformation is centered on hard currency-denominated sales from Kalecik Heavy Fuel Oil Power Plant in the Turkish Republic of Northern Cyprus, as well as from the heavy fuel oil plants commissioned in Ghana, Madagascar and Mali in 2017.

Share of FX-based economy with its hard currency revenues, coal is to be calculated in line with the and actively pursues new investment price and supply formula specified in the Sales in EBITDA opportunities in overseas markets via decree. ongoing negotiations with countries that have an urgent demand for energy. The amount of domestic coal used in energy production is the determinant Sales Strategy factor in the calculation of the purchase Aksa Energy aims to increase the share of amount. Energy purchases from our its foreign currency-denominated sales in Bolu Göynük Thermal Power Plant, which total revenue to forestall potential effects runs on 100% domestic coal, are realized of exchange rate differences. pursuant to the decree. The purchase As at year-end 2018, price of TRY 185/MWh set for 2017 was Aksa Energy’s financial transformation is revised every quarter based on the CPI 75% of Aksa Energy’s centered on hard currency-denominated and PPI indices and in accordance with Earnings Before Interest, sales from Kalecik Heavy Fuel Oil Power the formula provided in the decree. The Tax, Depreciation and Plant in the Turkish Republic of Northern purchase price was set at TRY 201.35/ Cyprus, as well as from the heavy fuel MWh for the first quarter of 2018, Amortization (EBITDA) oil plants commissioned in Ghana, TRY 209.46/MWh for the second quarter, is denominated in hard Madagascar and Mali in 2017. As of year- and TRY 226.16/MWh for the third end 2018, 75% of Aksa Energy’s Earnings quarter, rising to TRY 259.68/MWh as of currency. Before Interest, Tax, Depreciation and the last quarter of 2018. In 2018, nearly Amortization (EBITDA) was generated in half of the plant’s production was sold to foreign currency. EÜAŞ in accordance with this decree.

In accordance with the Council of With the revision of the decree on January Ministers’ resolution issued in the Official 23, 2019, the purchase price has been Gazette dated December 2, 2017 and partially pegged to the US dollar. As it is numbered 30258, TETAŞ revised the a post-balance sheet event, it is provided “Decree on the Procedures and Principles in detail under the section “Developments Regarding the Procurement of Electricity after the Reporting Period” in the Report. from Private Companies Operating Domestic Coal-Fired Power Plants” Hard currency-denominated revenues modifying its procedures and principles from Northern Cyprus, Ghana, Mali and related to the procurement. Effective from Madagascar, coupled with the partially 2018 for seven years, the total amount FX-based revenue from Bolu Göynük of power purchases from electricity Thermal Power Plant, are expected to generation plants running on domestic positively affect the foreign currency- coal or a mix of domestic and imported based EBITDA of Aksa Energy in 2019. AKSA ENERGY 2018 ANNUAL REPORT 37

Ghana Heavy Fuel Oil Power Plant 38 ENERGY MARKET

GLOBAL ENERGY MARKET

The rise in energy consumption mainly stemmed from fast-growing emerging economies, led by China and India, which account for half the growth in global energy demand.

According to the 2018 Fast-growing emerging economies and share of electricity in end-use sectors, increasing prosperity around the world currently approaching 20%, will continue World Energy Outlook resulted in a surge in global energy to increase at an accelerating pace. The Report issued by the demand. According to the 2018 World IEA World Energy Outlook Report, too, International Energy Energy Outlook Report issued by the supports these theses. According to the International Energy Agency (IEA), Report, electricity demand is expected Agency (IEA), global global energy demand is projected to to increase in tandem with the growth energy demand is rise 25% by 2040, driven by increasing in oil demand in the last 25 years, with prosperity, higher living standards and electricity accounting for 40% of final projected to rise 25% urbanization. sector consumption by 2040. by 2040, driven by increasing prosperity The rise in energy consumption mainly According to the BP 2018 Energy stemmed from fast-growing emerging Outlook Report, carbon emissions are and urbanization. economies, led by China and India, projected to rise by 10% by 2040 as which account for half of the growth in energy demand grows and consumption global energy demand. rises. Therefore, renewable energy remains at the heart of all sustainable According to the BP 2018 Energy development paradigms due to policy Outlook Report, industrial demand for support for clean resources and a energy accounts for approximately half decline in production input costs. Digital of the increase in energy consumption, applications and the increasing role while growth in transport demand of electrification were the other topics slowed sharply relative to the past, marking the global energy agenda in mainly attributable to the increasing 2018. number and intensive use of vehicles powered by electricity. Oil According to OPEC’s “Oil Market According to the BP 2018 Energy Report,” issued in December 2018, the Outlook Report, demand for electricity global oil supply is projected to reach constitutes 70% of the increase in 100.8 million barrels, up 1.29 million energy demand. The considerable barrels over the previous year. Despite growth in electricity demand is expectations of an economic slowdown, attributed to the fact that light the International Energy Agency (IEA) industrial sectors, services and digital also estimates that the increase in oil technologies occupy an even greater demand in 2019 will surpass that of space in people’s lives. This shift 2018. strengthens the projections that the AKSA ENERGY 2018 ANNUAL REPORT 39

Şanlıurfa Natural Gas Combined Cycle Power Plant

Oil Demand Natural Gas According to IEA data, natural gas demand is expected to reach 3.72 million m3 in According to OPEC’s “Oil 2019 and 3.89 million m3 in 2020. The report also projects an annual 1.6% increase in natural gas demand, amounting to a 45% increase by 2020 compared to the Market Report,” issued current demand. in December 2018, the global oil supply is According to the report, natural gas – the fossil fuel with the fastest growing use – is estimated to become the second largest energy source of the world by 2030, projected to reach replacing coal. Efforts to reduce air pollution and an increase in the use of liquefied 100.8 million barrels natural gas (LNG) underpin this projection. in 2019, up 1.3 million barrels over the previous Change in Oil Prices 2015-2019 Brent West Texas Intermediate year. Price per barrel (USD) 100

80

60

40

20

0 January July January July January July January July January 2015 2015 2016 2016 2017 2017 2018 2018 2019

Source: U.S. Energy Information Administration 40 ENERGY MARKET

GLOBAL ENERGY MARKET

The prices of energy raw materials, which saw a hike in the 10-month period of 2018, sharply declined in the last quarter of the year. Brent oil, which closed 2017 at USD 55.00 per barrel, rose to USD 86.00 in October 2018.

GLOBAL DEMAND FOR COAL (MTCE) The “Market Report Series: Gas 2018” As per the IEA’s projections, although report issued by IEA anticipates three demand for coal is forecast to major transformations in the natural down-trend in the US and Europe,

5,588 gas markets. The first is the expectation the increase in demand from Asian 5,470

5,445 that China, the third largest natural countries, such as India and China, will 5,418 5,357 gas consumer in the world behind cause the demand for coal to maintain the United States and Russia, will its stable course over the next five be the world’s largest gas importer, years. generating 40% of global demand in the next five years. The Report also Renewable Energy projects that the US will, in due time, According to Bloomberg New Energy realize 75% of LNG exports. Third, Finance (BNEF) data, although that industrial production, rather than global renewable energy investments electricity generation, is expected to be decreased 8% year-on-year to USD ‘17 ‘15 ‘14 ‘16 ‘18 the determining factor in the upward 332.1 billion in 2018, the investment Source: https://www.carbonbrief.org/iea-china- trajectory of natural gas demand. expenditures have remained over USD and-india-to-fuel-further-rise-in-global-coal- demand-in-2018 300 billion five years in a row. Since Coal 2010, total investments in renewable According to “Market Report Series: energy have climbed to USD 2.8 trillion. Coal 2018” published by IEA, demand for coal expanded to 5,445 megaton China’s decision to phase out subsidies coal equivalent (mtce) by a slight during the year resulted in a 53% increase in 2018 due to its competitive decline in solar energy investments price and abundance, as well as the in the country, which has been the growing demand in Asian countries. key factor in the drop in clean energy Demand for coal is expected to remain investments worldwide. stable over the next five years. AKSA ENERGY 2018 ANNUAL REPORT 41

GLOBAL RENEWABLE ENERGY INVESTMENTS (USD BILLION) Nuclear Power Volatility in Raw Material Prices Some 454 nuclear power plants operate The prices of energy raw materials, in 31 countries around the world. To which saw a hike in the 10-month

360 meet the energy demand of various period of 2018, sharply declined in the 333 332 325

321 countries, 55 nuclear power plants are last quarter of the year. Brent oil, which under construction in 17 countries, in had closed 2017 at USD 55 per barrel, addition to 10 new nuclear reactors to rose to USD 86 in October 2018. Brent be installed and commissioned within oil prices fell below USD 55 at the end the next five years, amounting to a total of the year, due to concerns over trade of 113 facilities to be commissioned wars suppressing global growth and within 15-30 years. Nuclear power increased production in the US. The plants accounted for 11% of world annual average price was realized at electricity generation as of end-2018. USD 71. ‘17 ‘15 ‘14 ‘16 ‘18 The tendency of developed economies, In contrast to oil and natural gas, coal Source: https://about.bnef.com/blog/clean- such as the US and European countries, prices remained flat in the first half of energy-investment-exceeded-300-billion-2018/ to phase out their aging power plants 2018, but tilted upwards thereafter. and their reluctance to undertake new investments limits the increase As market volatility is expected to be in the production of nuclear energy. high due to geopolitical uncertainties, On the other hand, if China, having the prices of energy raw materials accelerated its investments in recent are likewise projected to experience a years, continues to increase the share volatile trajectory in 2019. of nuclear energy in its portfolio, global nuclear energy production is projected to grow by 46% until 2040. 42 ENERGY MARKET

TURKISH ENERGY MARKET

Turkey has covered significant ground with domestic energy policy incentives implemented with a view towards meeting the country’s ever-increasing demand and reducing dependency on foreign sources of energy.

Power Plants from producers to consuming countries due to its geographical proximity to oil and natural gas reserves, Turkey continues resolutely to develop into a regional energy trade center with the multi-faceted and proactive energy policies implemented in the recent period.

Share of Renewables on the Rise The number of power Embracing a shift from an agriculture- According to data disclosed by TEİAŞ based economy to the industry and (Turkish Electricity Transmission plants in Turkey rose to services sector, Turkey’s energy Company), the total installed capacity 7,442 in 2018, consumption expands in tandem with in Turkey rose by 5,251 MW in 2018, up 3,129 year-on-year. the nation’s economic growth. With reaching 88,526 MW. The largest a limited supply of oil and natural increase was realized in lignite and coal gas, Turkey has covered significant investments with 1,135 MW, followed ground through domestic energy by 1,079 MW in hydroelectric and 487 policy incentives implemented with a MW in wind capacities. As of year-end, view towards meeting the country’s hydroelectric power accounted for 33% ever-increasing demand and reducing and coal for 22% of the country’s total foreign-source dependency on energy. installed capacity. However, the share of The strides taken to increase the share natural gas capacity fell to 29%. of domestic and renewable resources in electricity generation contribute to the The number of power plants in Turkey downward trend in the country’s energy rose to 7,442 in 2018, up 3,129 year- import bill. on-year. Electricity generation grew from 291 TWh at end-2017 to 293 TWh By assuming a playmaker position in the at end-2018. Furthermore, in tandem regional trade, Turkey aims to mitigate with generation, Turkey’s electricity the adverse effects of increasing consumption expanded from 290 TWh volatility in oil and natural gas prices. at year-end 2017 to 292 TWh at year- As a safe corridor of transportation end 2018. AKSA ENERGY 2018 ANNUAL REPORT 43

DEVELOPMENT OF TURKISH POWER GENERATION AND CONSUMPTION (TWh)

Generation Consumption 293 292 291 290 275 270

Turkey’s electricity 263 259 255 250 consumption rose 245 239 from 291 TWh in 2017 to 293 TWh in 2018. ‘17 ‘17 ‘13 ‘13 ‘15 ‘15 ‘14 ‘14 ‘16 ‘16 ‘18 ‘18

ELECTRICITY GENERATION IN TURKEY – 2003 ELECTRICITY GENERATION IN TURKEY – 2018

16% 16% Electricity Generation BOO, BOT, TOR 2% 37% Company of Turkey Independent BOO, BOT, TOR (EÜAŞ) Power Producers

16% Auto Producers

45% Electricity Generation 68% Company of Independent Power Turkey (EÜAŞ) Producers 44 ENERGY MARKET

TURKISH ENERGY MARKET

TURKEY’S INSTALLED CAPACITY BY ENERGY SOURCE (2017-2018)

32% 33% ‘17 27,205 Hydroelectric ‘18 28,284

29% 32% ‘17 26,401 Natural Gas ‘18 25,732

22% 22% ‘17 18,017 Coal & Lignite ‘18 19,152

8% 8% ‘17 6,456 Wind ‘18 6,942

1% 1% ‘17 1,101 Fuel Oil ‘18 1,120

8% 5% ‘17 4,095 Other ‘18 7,297

Source: Turkish Electricity Transmission Company AKSA ENERGY 2018 ANNUAL REPORT 45

Number of Thermal The share of independent power Coal at the Heart of Domestic producers in Turkey’s total electricity Energy Drive Power Plants generation continues to increase with Incentives towards utilizing domestic each passing day. In 2003, independent coal reserves have once again come power producers accounted for only 2% to the forefront to reduce Turkey’s of Turkish energy generation; this figure foreign dependence on energy and end rose from 66% in 2017 to 68% at end- current account deficit. As part of New 2018. Aside from energy generation, Economic Program (YEP) announced in independent power producers increased 2018, special emphasis was placed on their share in installed capacity of increasing the share of domestic coal in Turkey as well, going up from 8% in electricity generation along with other In Turkey, 65 coal- and 2003 to 61% as of end-2018. renewable resources, and supporting the domestic energy drive of these lignite-fired thermal Share of Natural Gas in Electricity energy technologies with the Renewable power plants (domestic Generation Drops Energy Zone (YEKA) model. coal – lignite -imported Turkey’s dependence on foreign energy resources is approximately 76%, while Great steps were taken towards coal) account for 22% external dependence for natural gas is domestic energy output in 2018. Power of the country’s total as high as 99.2%. Russia meets 58% of plants running primarily on coal and Turkey’s natural gas import, followed by other domestic and renewable resources installed capacity. Iran with 16% and Azerbaijan with 13%. received considerable support as part of the Regulation of Electricity Market On the other hand, Turkey has emerged Capacity Mechanism prepared by the as a natural gas transfer center in Energy Market Regulatory Authority recent years. The TANAP 12, which will (EMRA). Early on in 2019, a resolution transport 10 billion m3 of natural gas came into force for the Electricity to Europe, and TurkStream natural Generation Company of Turkey (EÜAŞ) gas pipelines, as well as the Floating to purchase electricity from private LNG Storage and Re-Gasification Unit sector players generating electricity (FSRU) commissioned in İzmir, Aliağa, from domestic coal. In addition to the are the most important examples of commissioning of 5,000 MW additional the country’s emerging position as a capacity, the license transfer of idle coal transfer hub. mines from the public to the private sector was also on the agenda to boost As the share of natural gas in electricity the use of coal in electricity generation. generation drops year by year in the country, so does the import of Turkey’s 65 coal- and lignite-powered natural gas in tandem with decreasing thermal power plants (domestic coal, generation. Incentive programs lignite, imported coal) have a combined on renewable energy resources installed capacity of 19,152 MW, 22% implemented to reduce foreign of the country’s total installed capacity. dependence on natural gas have been The installed capacity running on the key factor underlying this downward domestic coal is 10,213 MW, 12% of trajectory. While the installed capacity the total, while the installed capacity in natural gas declined to 25,732 MW, employing imported coal is 8,939 MW, its share in electricity generation also 10% of the total. Electricity produced dropped from 38% to 31% by year-end from domestic coal accounts for 37% of 2018. total production. 46 ENERGY MARKET

TURKISH ENERGY MARKET

The year 2018 saw significant developments with respect to the targets of ensuring resource country and route diversity – central to Turkey’s energy policies – as well as complete utilization of domestic resources and increasing energy efficiency and share of renewables.

Share of Hydroelectric Turkey to Maximize Hydroelectric Turkey’s Solar Power Surpasses Potential 5,000 MW Hydroelectric power plants account According to the Turkish Solar Energy for 32% share in the installed capacity Society (GÜNDER), Turkey’s potential to and 20% of electricity generation in generate electricity from solar power is Turkey. Boasting the largest share approximately 500,000 MW. As such, among renewable energy resources, making efficient use of solar energy hydroelectric power plants carry is one of the most important efforts significant weight due to being domestic towards the country’s domestic energy and renewable. drive. Furthermore, cost reductions in Hydroelectric power solar panels and increased efficiency Hydroelectric power plants are now have boosted solar energy investments. plants account for 32% eligible to benefit from capacity of the total installed mechanism as per the Regulation The installed capacity of solar energy, capacity and 20% of on the Electricity Market Capacity including unlicensed power plants, Mechanism, implemented in 2018 and is over 5,000 MW, while its share in electricity generation in amended in November. Turkey’s total installed capacity rose Turkey. from 4% to 6% year-on-year in 2018. Turkey’s Wind Capacity Increased There are numerous investments at Geothermal Energy on the Rise increasing scale across Turkey, which The world’s top five countries has 48 GW of potential wind energy. generating power from geothermal The number of licensed wind power energy are the USA, Philippines, plants in operation rose from 162 to Indonesia, Turkey and New Zealand. 176 in 2018, while the installed capacity Turkey remains the fastest growing surpassed 7,000 MW. country in the production of electricity from geothermal energy. In 2018, the most important development in the field of wind energy The installed capacity of geothermal was the YEKA offshore wind power plant power plants increased to 1,260 MW, project. The facility, which is projected to up by 24% year-on-year. Investments start electricity generation in 2023, will in geothermal power plants were on the be the largest offshore wind power plant rise during the year, reaching a total of in the world with 1,200 MW installed 47 plants overall in 2018. capacity. AKSA ENERGY 2018 ANNUAL REPORT 47

2018 DEVELOPMENTS With the Amendment to the Regulation designed by Turkish engineers, in its The year 2018 saw significant on November 10, 2018, hydroelectric license areas off the coast of the Eastern developments with respect to the power plants that meet the criteria Mediterranean. Turkey’s drilling activities, targets of ensuring resource country defined in the regulation were added to launched with the deep-sea drillship, and route diversity – central to Turkey’s the list of power plants to benefit from Fatih, have expanded to include shallow energy policies – as well as complete the capacity mechanism in 2019. water drilling works with a platform utilization of domestic resources and located 19 miles from the coast. increasing energy efficiency and the Inauguration of TANAP share of renewables. The Trans Anatolian Natural Gas National Energy Efficiency Action Plan Pipeline Project (TANAP), which will (UEVEP) Groundbreaking Ceremony of Akkuyu transfer natural gas from Azerbaijan to Unveiled in January 2018, the National Nuclear Power Plant Europe via Turkey, was inaugurated and Energy Efficiency Action Plan (UEVEP) The groundbreaking ceremony for the the transportation of natural gas has promotes 55 actions to take under Akkuyu Nuclear Power Plant was held on commenced. six categories, including building April 3, 2018. The power plant is the first and services, energy, transportation, project undertaken as part of Turkey’s The distribution of natural gas to industry and technology, agriculture nuclear energy journey, which started in Europe through TANAP is expected to and horizontal issues. The measures 1955. start in the first quarter of 2020 with highlighted in the action plan are an initial capacity of 16 billion m3. The expected to cut Turkey’s rising energy The nuclear power plant is planned to first 10 billion m3 of natural gas will be demand by 14% by 2023. commence production in 2023 with distributed in Europe and 6 billion m3 4 nuclear reactors and an installed of gas will be distributed in Turkey. The PROJECTIONS FOR 2019 capacity of 4,000 MW. Paramount transportation capacity is projected to In 2019, investments geared towards to ensuring electricity supply security expand to 24 billion m3 in 2023 and 31 resource diversification and projects and diversity, the facility will meet billion m3 in 2026. developed in cooperation with approximately 8% of Turkey’s electricity neighboring countries are expected to demand once it is fully commissioned in Offshore Section of TurkStream resume without delay to both reduce 2026. Completed foreign source dependence on energy The offshore section of the TurkStream and to ensure energy supply security EÜAŞ and TETAŞ Merged under EÜAŞ Natural Gas Pipeline Project, one by utilizing the advantages yielded by As per Decree No. 703 published on of the world’s largest infrastructure Turkey’s geographical location. July 9, 2018, the Electricity Generation projects, was completed. The pipeline Company (EÜAŞ) and the Turkey will transport 31.5 billion m3 of natural Incentives for Electricity Generation Electricity Trading and Contracting gas from Russia to Turkey per annum. from Coal Company (TETAŞ) were merged under Natural gas flow will commence upon EÜAŞ has announced that it will EÜAŞ. As a result of this merger, all the completion of the Receiving Terminal purchase a total of 23.1 billion KWh activities carried out under TETAŞ are located near Kıyıköy, where the offshore of electricity from private companies under the responsibility of EÜAŞ, which pipeline ties in with the land. operating only domestic coal-fired power has started to execute energy purchase plants during the period February 1 - and sales agreements signed within the Inauguration of the STAR Refinery December 31, indicating a daily purchase scope of existing contracts to which Constructed by SOCAR Turkey, an of 2.9 million KWh of energy. During the TETAŞ is a party. affiliate of SOCAR (State Oil Company referenced period, a total of 865.8 million of the Azerbaijan Republic), the STAR KWh of electricity will also be procured Regulation on Capacity Mechanism Refinery was inaugurated in October from private companies operating power The Regulation on Electricity Market 2018. As the largest investment made plants running on a mixture of domestic Capacity Mechanism, prepared by the at a single point by the private sector and imported coal. Energy Market Regulatory Authority across Turkey and with an annual crude (EMRA), came into effect on April 1, oil processing capacity of 10 million tons, The purchase price for the electricity 2018. To establish a sufficient installed the refinery is projected to meet 25% of purchased from private companies is power capacity, including reserve Turkey’s demand for petroleum products set at TRY 285 per MWh for the first capacity, for the assurance of supply and reduce the current account deficit. quarter of the year. The purchase price security in the electricity market and/ of electricity produced from domestic or to protect the installed reliable Turkey Gears Up Natural Gas and Oil coal will be revised quarterly, according power capacity, the Turkish Electricity Exploration in the Mediterranean to a price formula based on PPI, CPI and Transmission Company (TEİAŞ) has Under the National Energy and the US dollar. started making capacity payments, Mining Policy, the Turkish Petroleum within the scope of the annualized Corporation (TPA) has taken action to budget, to the legal persons who drill two shallow sea exploration wells, possess the generation license. 48 OPERATIONS

DEVELOPMENTS IN 2018

Aksa Energy increased the installed capacity of Ghana Heavy Fuel Oil Power Plant to 370 MW in 2018 and commissioned CTA-2 Heavy Fuel Oil Power Plant after the completion of its rehabilitation on behalf of Madagascar.

Net Profit Capacity Increase in the Ghana Partial License Cancellation of Heavy Fuel Oil Power Plant Antalya Power Plant As of November 2018, the installed The installed capacity of Ali Metin TRY capacity of Ghana HFO Power Plant Kazancı Antalya Natural Gas Combined increased from 280 MW to 370 MW Cycle Power Plant was reduced from and the commissioning of 90 MW 1,150 MW to 900 upon the license has been approved by the Ministry revision application submitted to Energy delegates of Ghana. Market Regulatory Authority (EMRA). With the partial license cancellation The guaranteed capacity of Ghana HFO of the production unit, which did Power Plant rose from 223.5 MW to not contribute to the actual energy million 332 MW and, with that increase, Aksa generation in 2018, the power plant’s Continuing to accelerate Energy’s installed capacity in Africa production capacity was reduced from climbed to 476 MW. 9 billion KWh to 7 billion KWh. its sustainable growth, Aksa Energy posted New Agreement in Madagascar License Cancellation of Manisa TRY 150 million of net Aksa Energy signed a new agreement Power Plant for the rehabilitation and operation of a Aksa Energy submitted an application profit at end-2018. 24 MW power plant, owned by Jirama to the Energy Market Regulatory and located next to Aksa Energy’s fuel Authority (EMRA) to revoke the oil power plant running at 66 MW. As generation license of Manisa Natural per the agreement, Aksa Energy carried Gas Combined Cycle Power Plant with out the rehabilitation of the power plant an installed capacity of 115 MW, and the to operate it for a duration of five years. license was canceled as of April 2019. Commissioned with 12 MW installed The power plant, which has diminished capacity in December 2018, the power prospects of electricity generation at plant reached an installed capacity of a competitive price in the free market 24 MW as of January 2019. conditions within Turkey, is planned to be used in potential projects abroad on In accordance with the agreement, a US dollar-based contract with higher electricity generated by the power plant margins. The equipment may also be is being sold to Jirama via guaranteed utilized to meet the equipment needs sales (take-or-pay) in US dollars for a of both domestic and overseas power duration of five years. That the power plants. plant is located next to Aksa Energy’s existing plant provides logistical advantages and ensures the utilization of the Company’s existing workforce. AKSA ENERGY 2018 ANNUAL REPORT 49

Bolu Göynük Thermal Power Plant

Completion of Share Transfer from Market Regulatory Authority and the Aksa Energy established the Goldman Sachs to Kazancı Holding Competition Authority, the 15 MW power Sustainability Committee to formulate The possession of 16.62% of the shares plant was sold to Deniz Elektrik Üretim the strategies, policies and targets held by Goldman Sachs (GSI) in Aksa Ltd. Şti, a subsidiary of Fernas Group, required to manage environmental, Energy was transferred to Kazancı for a consideration of USD 15 million. social and managerial risks –including Holding under the authorization of the climate change – in line with the Energy Market Regulation Authority Credit Rating Corporate Governance Principles. The (EMRA). In accordance with the In 2018, the Company’s high loan Company plans to continue taking steps provisions of the agreement between quality and strong debt repayment to render its sustainability efforts more GSI and Kazancı Holding A.Ş., Kazancı capacity were once again confirmed by traceable and adaptable. Holding A.Ş. purchased 101,911,765 the credit assessment ratings given by shares back from GSI in April 2018 in Turkrating, Turkey’s leading credit rating Robust Financial Performance consideration of USD 2.9437229 per agency. In its latest report published on Aksa Energy achieved a robust share and USD 300,000,000 in total. October 12, 2018, Turkrating affirmed financial performance in 2018, due Aksa Energy’s Long Term National to its globalization strategy kicked Great Honor for Bolu Göynük Credit Rating as ‘TR A+’, its Short Term off in Africa, its superior production Thermal Power Plant National Credit Rating as ‘TR A2’ and capabilities and business model Bolu Göynük Thermal Power Plant, Aksa its outlook as ‘stable.’ centered on operational efficiency. Energy’s lignite investment, received Continuing to accelerate its sustainable an award from the Association for Aksa Energy in the Sustainability growth, the Company posted TRY 1,033 Coal Producers (KÖMÜRDER). The Index million of EBITDA and TRY 150 million power plant, which features a flue gas Since 2015, Aksa Energy has of net profit at end-2018. treatment system – the first of its kind been included in Borsa Istanbul’s in Turkey – was awarded the “Energy Sustainability Index, which is comprised Investment Award” at the Clean Coal of companies traded on the stock Technologies Summit held on April 10- exchange with a high corporate 11, 2018. sustainability performance. As one of the 14 companies listed in the Sale of İncesu Hydroelectric Power Sustainability Index in 2015, Aksa Plant Energy maintained its sustainability Aksa Energy completed the sale of performance and was listed in the İncesu Hydroelectric Power Plant Index through 2016, 2017 and 2018, to Fernas Group Companies. Under qualifying once again for the period the authorization of the Energy November 2018 – October 2019. 50 OPERATIONS

PRODUCTION PORTFOLIO AND CHARACTERISTICS

In 2018, Aksa Energy increased the installed capacity of Ghana Heavy Fuel Oil Power Plant to 370 MW, boosting its installed capacity in Africa to 476 MW.

Power Plants Aksa Energy’s active production disposal for future projects. Depending portfolio consists of 7 power plants: on developments in the Turkish energy 4 heavy fuel oil power plants, 2 natural market, the power plant might be re- gas power plants and 1 lignite-fired licensed for commercial operation or power plant. utilized to meet the equipment needs of domestic and overseas power plants. Aksa Energy canceled the licenses Therefore, the installed capacity of of some of its domestic power plants Manisa Natural Gas Combined Cycle with declining competitive advantages, Power Plant is not included in the table in order to use their equipment to presenting Aksa Energy’s installed Aksa Energy’s active construct power plants in African capacity of end-2018 in the production countries that have urgent energy portfolio. production portfolio demand. consists of 7 power Robust Growth in Africa plants as of end-2018: Changes in Domestic Production In 2018, Aksa Energy increased the Portfolio During the Year installed capacity of Ghana Heavy Fuel 4 heavy fuel oil power In 2018, Çorum İncesu Hydroelectric Oil Power Plant to 370 MW, thereby plants, 2 natural gas Power Plant, with an installed capacity boosting its installed capacity in Africa of 15 MW, was sold off and removed to 476 MW. power plants and 1 from the production portfolio of lignite-fired power plant. Aksa Energy. Furthermore, with the Aksa Energy signed a guaranteed license revision application submitted to purchase agreement with Jirama the Energy Market Regulatory Authority in April 2018 for the rehabilitation (EMRA), the installed capacity of and operation of a 24 MW power Ali Metin Kazancı Antalya Natural plant, owned by Societe Jiro Sy Rano Gas Combined Cycle Power Plant was Malagasy (Jirama) and located next to reduced from 1,150 MW to 900 MW. Aksa Energy’s heavy fuel oil power plant in Madagascar. The power plant, which The Company submitted an application was commissioned with 12 MW installed to the Energy Market Regulatory capacity in December 2018, reached Authority (EMRA) to revoke the 24 MW installed capacity in January generation license of Manisa Natural 2019. The electricity generated is Gas Combined Cycle Power Plant. The being sold to Jirama via guaranteed license of the power plant was cancelled sales (take-or-pay) in US dollars for a in April 2019, however, it is held at duration of five years. AKSA ENERGY 2018 ANNUAL REPORT 51

Çorum, İncesu 15 MW** Bolu Göynük 270 MW Mali 40 MW

Ghana Manisa 370 MW 115 MW**

Antalya Şanlıurfa 900 MW 147 MW Madagascar Northern Cyprus 66 MW 153 MW 12 MW*

Number of Operational Power Plants 7 Active Installed Capacity 1.946 MW Antalya 900 MW Bolu, Göynük 270 MW Şanlıurfa 147 MW Northern Cyprus 153 MW Mali 40 MW Ghana 370 MW Madagascar 66 MW Number of Plants Operated on Behalf of Madagascar 1 Installed Capacity Operated on Behalf of Madagascar 12 MW Madagascar CTA-2 12 MW*

* Commissioned with an installed capacity of 12 MW in December 2018, the power plant reached 24 MW in January 2019. ** Çorum İncesu Hydroelectric Power Plant was sold on January 17, 2018. Furthermore, an application was filed with EMRA (Energy Market Regulatory Authority) to revoke the electricity generation license of Manisa Natural Gas Combined Cycle Power Plant. As the power plant has ceased energy generation, it is not accounted in the active installed capacity and the number of operational Power Plants figures.

Thermal Natural Gas Heavy Fuel Oil Heavy Fuel Oil Power Plant Combined Cycle Power Plants Power Plant Power Plants Bolu Antalya Northern Cyprus Madagascar 270 MW 900 MW 153 MW 12 MW

Şanlıurfa Ghana 147 MW 370 MW

Madagascar 66 MW

Mali 40 MW 12 MW 270 MW 1,047 MW 629 MW Installed Capacity Operated on Behalf of the Installed Capacity Installed Capacity Installed Capacity Country 52 OPERATIONS

PRODUCTION PORTFOLIO AND CHARACTERISTICS

DOMESTIC POWER PLANTS

MW MW MW Ali Metin Kazancı Antalya Manisa Natural Gas Şanlıurfa Natural Gas Natural Gas Combined Combined Cycle Power Plant Combined Cycle Power Plant Cycle Power Plant

Ali Metin Kazancı Antalya Natural Manisa Natural Gas Combined Cycle Power Şanlıurfa Natural Gas Combined Cycle Gas Combined Cycle Power Plant was Plant was established in 2008 to meet Power Plant was established in 2011 with an established in 2008 to meet the energy the energy needs of Manisa, an industrial installed capacity of 120 MW. A Dresser- needs of the Western Mediterranean region, center in the Aegean region, and is the first Rand steam turbine with a capacity of which is notable for its tourism activity. The gas turbine-driven combined cycle power 11.5 MW was commissioned in 2012, and a Power Plant started electricity generation in plant in Turkey. The conversion of the plant capacity increase was undertaken in 2015. 2008, with the inauguration of its first gas turbine with an installed capacity of 43.7 from a simple cycle to a combined cycle was As a result, the facility’s total installed MW. The facility reached a total installed completed in 2009. capacity rose to 147 MW. capacity of 1,150 MW with the completion of more sections between September 2008 The plant employs 12 Wärtsilä 20V34SG The power plant also utilizes 12 Wärtsilä and October 2011. gas turbines, each with a capacity of 8.7 20V34SG gas engines, each with a capacity MW, 12 Aalborg boilers, and one Dresser- of 9.7 MW. The power plant features a The power plant, one of the largest natural Rand steam turbine with a capacity of 10.5 cutting-edge carbon monoxide oxidation gas power plants in Turkey, employs two MW. The facility’s total installed capacity is system. SIEMENS SGT5-4000F gas turbines, each 115 MW. The plant has a state-of-the-art with a generation capacity of 300 MW; one SIEMENS SST5-5000F steam turbine carbon monoxide oxidation system. with a generation capacity of 300 MW; four GE LM 6000 gas turbines, each with In November 2018, Aksa Energy submitted a generation capacity of 50 MW; and two an application to the Energy Market GE Thermodyne steam engines, each with a Regulatory Authority (EMRA) to revoke the generation capacity of 25 MW. generation license of Manisa Natural Gas Combined Cycle Power Plant. The license The combined cycle generation groups in was canceled in April 2019. the plant make it one of the most efficient power plants among independent power producers, boasting a thermal efficiency of 59%. The plant’s gas turbines have ultra- low NOx combustion systems. Due to ultra- low NOx levels and the close monitoring of the combustion temperature, carbon monoxide levels remain at single digits.

In October 2018, the license of the production unit, which did not contribute to actual energy generation in 2018, was canceled under the approval of the Energy Market Regulatory Authority (EMRA), thereby reducing the installed capacity from 1,150 MW to 900 MW and the production capacity from 9 billion KWh to 7 billion KWh. AKSA ENERGY 2018 ANNUAL REPORT 53

Bolu Göynük Thermal Power Plant is Aksa Bolu Göynük Thermal Power Plant employs Energy’s first lignite investment. With fluidized bed combustion technology, an construction started in 2012, the power plant alternative to the pulverized coal combustion became operational with 135 MW installed technology employed in most plants. In capacity in July 2015. The second phase of fluidized bed combustion technology, the power plant, 135 MW, was commissioned combustion is realized with solid fuel, in January 2016. The power plant generates consisting of coal and limestone, on the 2 billion KWh of energy per year. air cushion formed with the air under the combustion room due to the fluidized Aksa Energy added lignite to its fuel mix bed boiler. This process ensures that coal for the first time at Bolu Göynük Thermal remains in the boiler combustion room for Power Plant, which was established with longer, enabling combustion reaction at an investment of USD 390 million. Bolu lower temperatures. This technology reduces Göynük Thermal Power Plant, one of the environmentally harmful NOx emissions to a two privately owned power plants operating minimum. on domestic coal in Turkey, delivers added MW value to Turkey’s economy by reducing The desulphurization process is realized foreign dependence on energy, as it produces directly inside the boiler by using limestone Bolu Göynük Thermal electricity from a local resource. during combustion. This technology both Power Plant eliminates gases harmful to the environment Bolu Göynük Thermal Power Plant runs on and boosts the plant’s efficiency, thus lignite as a result of the very first royalty lowering the cost of power production. This agreement signed between the General technology has been implemented in over Directorate of Turkish Coal (TKİ), which allows 50,000 MW of installed capacity since 1985; the use of lignite mines by the private sector. as such, it is long past the trial phase and has proven its eco-friendly nature. Bolu Göynük Thermal Power Plant, which uses 1.8 million tons of domestic coal per Aksa Energy realized the necessary year for electricity generation, extracts lignite investments to prevent the possible from an open pit mine located 2 km from the hazardous effects of lignite on the plant. The field has lignite reserves of more environment and human health by than 31.2 million tons, with a calorific value of establishing a flue gas treatment system at 2,450 kcal/kg. Bolu Göynük Thermal Power Plant – the first of its kind in Turkey. The power plant met the Bolu Göynük Thermal Power Plant has made emissions standards legally required in the EU important contributions to the region’s for 2018 as early as 2015. economic and social development. Of the 1,200 persons employed during the project’s The same conscientious approach is construction phase, a large proportion are displayed in eliminating the ash created residents of Bolu Göynük and neighboring during the combustion of lignite. The villages. The power plant contributes to the resulting ash waste is kept not in temporary life and commercial cycle of the region by ash storage areas, but rather in the New creating its own ecosystem, and operates in Southern Regular Ash Storage Area, which close cooperation and dialogue with the local received an environmental permit from the population. Provincial Directorate of Environment and Urbanization. Furthermore, over 6,000 In line with its environment-friendly approach, saplings were planted on the grounds in order Aksa Energy has made the necessary to prevent erosion and contribute to the local investments to eliminate possible adverse environment. effects of its production activities on human health and the environment. Thanks to its advanced technology, Bolu Göynük Thermal Power Plant produces energy in a low-cost, efficient and environmentally friendly manner. 54 OPERATIONS

PRODUCTION PORTFOLIO AND CHARACTERISTICS

OVERSEAS POWER PLANTS

MW MW MW Northern Cyprus Kalecik Ghana Heavy Fuel Oil Madagascar Heavy Fuel Oil Heavy Fuel Oil Power Power Plant Power Plant Plant

Kalecik Heavy Fuel Oil Power Plant in In 2015, Aksa Energy signed a Madagascar HFO Power Plant, whose Northern Cyprus started production power purchase agreement with construction started in the fourth in 2003 with three units and a total the government of the Republic of quarter of 2016, was commissioned installed capacity of 35 MW. More Ghana for the guaranteed sales of with a very low investment expenditure units were commissioned over time electricity generated for a duration and in a very short time, due to the use to meet the rising energy demand in of 6.5 years. As per the agreement, of equipment from fuel oil plants in the a seamless fashion, thus bringing the Samsun Natural Gas Combined Cycle Company’s portfolio. The power plant total installed capacity up to 153 MW. Power Plant was converted into a became operational in 7 months. The fuel oil-fired plant has six Wärtsilä fuel oil power plant and some of its 18V46 diesel turbines each with a equipment was transferred to Ghana. The power plant’s first engines, with capacity of 17.8 MW. The construction of the power plant an installed capacity of 25 MW, were was completed in 9.5 months. commissioned on July 10, 2017 and The plant’s combined cycle conversion were increased to 36 MW on July was completed in the third quarter of Ghana HFO Power Plant started 27, 2017. Madagascar HFO Power 2011, and six Aalborg boilers and one operations in March 2017, with an Plant’s first phase, with a 66 MW Dresser-Rand turbine with a capacity installed capacity of 192.5 MW. The installed capacity, was completed in of 13.5 MW were commissioned. facility reached an installed capacity September 2017. A 54 MW section will The facility has a DeSOx flue gas of 280 MW in August. With the be completed and commissioned after cleaning system. commissioning of additional engines, the establishment of transmission lines the power plant’s installed capacity in the region. The five-year contract signed in 2003 increased to 370 MW. Therefore, the with KIB-TEK was extended in 2008 guaranteed capacity rose from The power plant, which will produce for 15+3 years until 2027. The power 223.5 MW to 332 MW; as of November energy as per the 20-year purchase plant has been engaging in USD- 2018, the capacity fees are charged guarantee agreement, sells electricity denominated purchase guaranteed over 332 MW. based on a US dollar-denominated sales since 2003. tariff.

Madagascar HFO Power Plant consists of a total of 11 Wärtsilä engines relocated from the Hakkari, Siirt Akköy and İdil 2 power plants, whose licenses had been canceled. AKSA ENERGY 2018 ANNUAL REPORT 55

MW MW Madagascar CTA-2 Mali Heavy Fuel Oil Heavy Fuel Oil Power Plant Power Plant

In 2018, Aksa Energy signed a In line with the agreement signed purchase guaranteed sales agreement with the government of Mali in 2016, with Societe Jiro Sy Rano Malagasy construction of the power plant was (Jirama) for the rehabilitation and completed and a 10 MW section was operation of a 24 MW power plant commissioned in August. located next to Madagascar Heavy The power plant reached a total Fuel Oil Power Plant. The 12 MW installed capacity of 40 MW in section of the plant was commissioned September 2017. in December 2018, and the power plant reached an installed capacity of The power plant, whose construction 24 MW in January 2019. According to was completed in just six months, the agreement, electricity generated produces energy as per the 3-year by the power plant is being sold to EUR-denominated guaranteed Jirama via guaranteed sales (take-or- sales agreement signed with the pay) in US dollars for a duration of five government of Mali. years. The equipment from Mardin Power Plant was utilized at Mali HFO Power Plant, which runs on 4 Wärtsilä engines with a total capacity of 40 MW. 56 OPERATIONS

INVESTMENTS

Aksa Energy carried out 50% of its CAPEX with its own capital and the remaining portion was financed by working capital loans. As of end-2018, the Company’s net financial debt is TRY 3,692 million, and the net financial debt-to-EBITDA ratio is 3.6.

Total Investments Taking enormous strides towards December 2018, and continues its becoming a global brand in line with its commercial operations with an installed sustainable strategy and globalization- capacity of 24 MW as of January TRY centered business model, Aksa Energy 2019. According to the agreement, continued its investments in Africa electricity generated by the power plant in 2018. The sound investments is being sold to Jirama via guaranteed undertaken by the Company in the sales (take-or-pay) in US dollars for a regions with high electricity demand duration of five years. paved the way for new business operations and partnerships. The Company invested TRY 498 million in 2018, bringing its total investments million In 2018, the Company completed the for the 2009-2018 period to more than 90 MW capacity increase of Ghana TRY 4.7 billion. Aksa Energy invested Heavy Fuel Oil Power Plant, which TRY 498 million in generates electricity with an installed Aksa Energy plans to commission capacity of 370 MW. As a result of this the second phase of 54 MW installed 2018, bringing its total development, Aksa Energy’s installed capacity of Madagascar Heavy Fuel investments for the capacity in Africa rose to 476 MW. Oil Power Plant, currently operating at 2009-2018 period 66 MW, following the completion of the Committed to maintaining its transmission lines in the region. to more than TRY 4.7 investments in the region, Aksa Energy billion. signed a significant contract in 2018: The Company carried out 50% of As part of the agreement signed its CAPEX with its capital and the with Societe Jiro Sy Rano Malagasy remaining portion was financed by (Jirama), the Company earned the working capital loans. As of end-2018, maintenance and operating rights the Company’s net financial debt is to a 24 MW power plant located TRY 3,692 million, and the net financial next to Madagascar Heavy Fuel Oil debt-to-EBITDA ratio is 3.6. Power Plant. Thanks to the swiftly undertaken rehabilitation, the power plant commenced electricity generation with the commissioning of 12 MW in AKSA ENERGY 2018 ANNUAL REPORT 57

OPERATIONAL PERFORMANCE

In 2018, Aksa Energy’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) rose by 110% to TRY 1,033 million and the Company closed the year with a net profit of TRY 150 million.

Sales Volume Operational Performance of 2018 effective management of the power In 2018, Aksa Energy’s sales volume plants in its portfolio and the increase in remained parallel to the sales volume of spot energy prices. the previous year. Despite the revenue loss due to the sale of HEPP and WPPs, In 2018, electricity prices in the spot the revenue of Aksa Energy increased market increased significantly, as the by 30% year-on-year in 2018 to TRY increase in natural gas prices due to the 4.7 billion, thanks to the increase in spot devaluation of Turkish Lira was reflected energy prices in the Turkish market and into the costs particularly as of August. the guaranteed sales of hard currency- Although Aksa Energy’s sales depended billion KWh denominated contracts in Northern heavily on bilateral agreements in In 2018, Aksa Energy Cyprus and African power plants. previous years due to the lower and fluctuating price environment in the recorded a sales volume The high profit margins of the Northern spot market, the Company reduced its of 15.1 billion KWh, a Cyprus and African power plants, which bilateral sales in 2018 to benefit from considerable portion of were in operation for the full 12 months, higher spot prices. had a positive impact on EBITDA which was sold on the and net profit, despite the negative The spot price increase has improved spot market. impact of increased natural gas prices the profitability of the local coal-fired on the profit margins of domestic Bolu Göynük Thermal Power Plant. In natural gas power plants. In 2018, 2018, nearly half of the production of Aksa Energy’s Earnings Before Interest, Bolu Göynük Thermal Power Plant was Taxes, Depreciation and Amortization sold on the spot market. The increase in (EBITDA) rose by 110% to TRY 1,033 natural gas costs due to the increase in million and the Company closed the FX rates in the second half of the year year with a net profit of TRY 150 million. caused a sharp increase in spot energy prices, leading to a positive impact Domestic Sales on the coal-fired power plant. Bolu In 2018, Aksa Energy’s total electricity Göynük Thermal Power Plant sold the sales volume in Turkey decreased by remaining portion of its generation to 17% year-on-year from 17 KWh to EÜAŞ (Electricity Generation Company 13.4 KWh, reflecting the changes in of Turkey) as part of the tender for the market dynamics and the effect of “Purchase of Electricity from Private HEPP and WPP sales. Nevertheless, the Companies Operating Only Domestic Company generated TRY 4.7 billion of Coal-Fired Power Plants.” revenues in 2018 thanks to agile and 58 OPERATIONS

OPERATIONAL PERFORMANCE

Having been commissioned gradually in 2017 and in operation for 12 months in 2018, Ghana, Madagascar and Mali Heavy Fuel Oil power plants have a positive effect on the Company’s profitability, which is also reflected in the year-end financial statements.

Generation Volume of 209.46 TRY/MWh for the second African Power Plants quarter, and at 226.16 TRY/MWh for the third quarter of the year, rising to 259.68 TRY/MWh as of the last quarter of 2018.

Furthermore, as part of the Regulation on the Electricity Market Capacity Mechanism issued by the Energy Market GWh Regulatory Authority (EMRA), EÜAŞ makes a capacity payment within the scope of its annual budget to the Having recorded a In 2017, Bolu Göynük Thermal Power licensed power plants that meet the Plant initiated its energy sales to generation volume determined efficiency and age criteria, EÜAŞ as part of the Cabinet resolution in order to establish a sufficient installed of 963.832 MWh on “Procedures and Principles power capacity, including the reserve in 2017, Regarding Purchase of Electricity from the African capacity, for the assurance of supply Private Companies Operating Only power plants generated security in the electricity market. In Domestic Coal-Fired Power Plants,” 2018, Ali Metin Kazancı Antalya Natural 1.011.412 MWh of and continued to sell the electricity Gas Combined Cycle Power Plant and generated to EÜAŞ in 2018 as well. electricity in 2018. Bolu Göynük Thermal Power Plant The procedures and principles of the were deemed eligible to benefit from aforementioned decree were amended the capacity mechanism and received in 2017, giving a 7-year power purchase capacity payments. guarantee starting from 2018 for domestic coal-fired power plants and Africa and Northern Cyprus for power plants operating on a mixture Aksa Energy boasts four power plants in of domestic and imported coal. Northern Cyprus, Ghana, Madagascar The purchase price for the first and Mali. Additionally, the rehabilitation quarter of 2017 was determined as of a 24 MW power plant (CTA-2), 185 TRY/MWh, which was revised every owned by Societe Jiro Sy Rano quarter in accordance with a price index Malagasy (Jirama) and located next to based on PPI and CPI throughout 2018. our existing power plant in Madagascar, The purchase price was set at 201.35 was carried out on behalf of the TRY/MWh for the first quarter of 2018, AKSA ENERGY 2018 ANNUAL REPORT 59

Northern Cyprus Kalecik HFO Power Plant

country; this plant became operational payments of CTA-2 Heavy Fuel Oil Having been commissioned gradually with the commissioning of 12 MW on Power Plant, which is operated by Aksa in 2017, and operational for 12 months December 6, 2018 and the remaining Energy for five years until January in 2018, Ghana, Madagascar and Mali 12 MW was commissioned on January 2024, are not collected on the basis HFO power plants have a positive 8, 2019. The electricity generated at of a guaranteed capacity but at a effect on the Company’s profitability, CTA-2 Heavy Fuel Oil Power Plant is fixed monthly amount set forth in the which is also reflected in the year-end being sold to Jirama via guaranteed contract. financial statements. Having recorded sales (take-or-pay) in US dollars for a a generation volume of 963,832 MWh duration of 5 years. The second component of the tariff is in 2017, the African power plants set up in the same way in all overseas generated 1,011,412 MWh of electricity The purchase tariffs of Aksa Energy’s power plants, including Northern in 2018. Moreover, the profitability overseas power plants, including the one Cyprus and CTA-2. This component created by take-or-pay sales – in Northern Cyprus, and CTA-2 Heavy encompasses the sale of electricity regardless of the electricity generated Fuel Oil Power Plant, which is operated generated at the hard currency- at the African power plants – increased, on behalf of Madagascar, consist of two denominated price set in the contracts as these power plants were operational components: signed with each country. Production for the whole year. Additionally, the dispatch sent to the power plants varies take-or-pay capacity of Ghana Heavy The first component is the guaranteed according to the energy needs of the Fuel Oil Power Plant rose from 223.5 purchase tariff (take-or-pay) that countries, seasonality or the electricity MW to 332 MW as of December 2018 yields a fixed income on the basis of a generation of their renewable power as a result of a 90 MW capacity guaranteed capacity held at disposal plants. Therefore, this component of the increase. Aksa Energy boosted its sales for electricity generation on behalf of tariff generates a variable income. volume in Africa and TRNC by 10% to the country. This component, called 1,715,725 MWh in 2018. capacity payment, yields a fixed income Despite potential negative impacts through guaranteed payments received of the countries’ changing energy based on the contracts of individual demands, seasonality and electricity power plants, regardless of their actual generation by renewable power plants, energy production or the country’s the contribution of the overseas power current energy needs. The guaranteed plants to Aksa Energy’s profitability (take-or-pay) capacity is 332 MW out continues to be high, as the guaranteed of 370 MW in Ghana, 60 MW out of (take-or-pay) purchases constitute the 66 MW in Madagascar and 30 MW of larger portion in Aksa Energy’s sales 40 MW in Mali. Guaranteed capacity tariffs. 60 OPERATIONS

OPERATIONAL PERFORMANCE

Bolu Göynük Thermal Power Plant and Ali Metin Kazancı Antalya Natural Gas Combined Cycle Power Plant are eligible for the capacity mechanism in 2019.

CONTRACTED SALES * 2019 Sales on the Public Disclosure Platform (GWh) Pursuant to the “Purchase of Electricity on January 25, 2019. Accordingly, a from Private Companies Operating Only revenue of USD 58.5 - 64.3 million is ‘18 6,062 Domestic Coal-Fired Power Plants” anticipated for 2019 and, if the sales agreement announced on January 23, volume and price range remain the ‘10 1,007 2019, Turkish Lira-denominated power same, the revenues of 2020 and the purchases are pegged to the US dollar, next five years are projected to be at including an additional 3% incentive for the same level. the power plants that have completed SALES ON THE SPOT MARKET their investments and acquired the In 2019, the Energy Market Regulatory (GWh) necessary permits in accordance with Authority (EMRA) amended the the environmental legislation. As per Regulation on the Electricity Market ‘18 9,081 the agreement, for the remaining 6 Capacity Mechanism and determined years of the 7-year power purchase to make capacity payments to the ‘10 3,220 guarantee given within the framework of power plants included in the capacity Cabinet Decree numbered 2017/11070, mechanism, independent of their the purchase price for the first quarter production volume or the spot energy of 2019 has been determined as 285 prices. The monthly capacity payments TOTAL SALES TRY/MWh, to be revised in accordance will be based on installed capacity and (GWh) with a price index based on PPI, CPI, energy generation resources instead and USD in the following months. of variable costs and regardless of ‘18 15,143 capacity utilization rates. The sales volume of Bolu Göynük ‘10 4,227 Thermal Power Plant has been Bolu Göynük Thermal Power Plant and determined as 1,135,521.704 MWh Ali Metin Kazancı Antalya Natural Gas within the scope of the tender for the Combined Cycle Power Plant are among “Purchase of Electricity from Private the eligible power plants that will benefit Companies Operating Only Domestic from the capacity mechanism in 2019. Coal-Fired Power Plants,” as announced

SALES 2018 (MWh) Turkey 13,427,368 Africa and TRNC 1,715,725 * All contracted sales, including the guaranteed sales by the Africa and Northern Cyprus power plants. AKSA ENERGY 2018 ANNUAL REPORT 61

ASSET SALES

Following the sales of its various power plants in 2017, Aksa Energy completed its asset sales with the sale of İncesu Hydroelectric Power Plant in January 2018.

Sale of Hydroelectric Located in Çekerek Creek in Çorum, The Company, which utilized the sale İncesu Hydroelectric Power Plant, with proceeds of İncesu Hydroelectric Power Power Plant an installed capacity of 15 MW, was Plant for debt repayment, completed its sold to the Fernas Group company, asset sales. USD Deniz Elektrik Üretim Ltd. Şti., for USD 15 million on January 17, 2018. Upon the execution of the transaction, the entirety of the power plant was handed over, including its production licenses, movable and immovable property, rights million and debt.

İncesu Hydroelectric Power Plant, with an installed capacity of 15 MW, was sold for USD 15 million on January 17, 2018. 62 OPERATIONS

DEVELOPMENTS AFTER THE REPORTING PERIOD

Pursuant to the “Purchase of Electricity from Private Companies Operating Only Domestic Coal-Fired Power Plants” agreement announced on January 23, 2019, Turkish Lira-denominated power purchases are partially pegged to the US dollar, including an additional 3% incentive for the power plants that have completed their investments and acquired the necessary permits in accordance with the environmental legislation.

Bolu Göynük Thermal Capacity Increase in Madagascar 263.99 in December 2018 and the CTA-2 Power Plant weighted average market clearing price Power Plant CTA-2 Power Plant, owned by Societe of 2018, which was TRY 233.09. Jiro Sy Rano Malagasy (Jirama), in In addition to the USD- Madagascar, was commissioned with a The lower limit of the price to be revised denominated energy 12 MW installed capacity on December is set at 51.5 USD/MWh, while the 6, 2018. The commissioning of the upper limit is 56.65 USD/MWh. The sales to EÜAŞ, Bolu remaining engines was approved by sales volume of Bolu Göynük Thermal Göynük Thermal Power Ministry officials on January 8, 2019, Power Plant has been determined as Plant will continue to sell bringing the total installed capacity to 1,135,521.704 MWh within the scope 24 MW. of the tender for the “Purchase of the remaining portion Electricity from Private Companies of its generated energy Energy Sales of Bolu Göynük Operating Only Domestic Coal-Fired in Turkish Lira via spot Thermal Power Plant Power Plants,” as announced via the Pursuant to the “Purchase of Electricity Public Disclosure Platform on January market operations and/ from Private Companies Operating Only 25, 2019. Accordingly, a revenue of or bilateral agreements, Domestic Coal-Fired Power Plants” USD 58.5-64.3 million is anticipated for agreement announced on January 23, 2019, and, if the sales volume and price while generating 2019, Turkish Lira-denominated power range remain the same, the revenues additional revenues purchases are pegged to the US dollar, of 2020 and the next five years are within the framework of including an additional 3% incentive for projected to be at the same level. In the power plants that have completed addition to the USD-denominated capacity mechanism at their investments and acquired the energy sales to EÜAŞ, Bolu Göynük the same time. necessary permits in accordance with Thermal Power Plant will continue to sell the environmental legislation. the remaining portion of its generated energy in Turkish Lira via spot market As per the agreement, for the remaining operations and/or bilateral agreements, 6 years of the 7-year power purchase while generating additional revenues guarantee given within the framework of within the framework of capacity Cabinet Decree numbered 2017/11070, mechanism at the same time. the purchase price for the first quarter of 2019 has been determined as 285 The hard currency-denominated TRY/MWh, to be revised in accordance revenues of Bolu Göynük Thermal Power with a price index based on PPI, CPI, Plant, coupled with those of Northern and USD in the following months. The Cyprus, Ghana, Mali and Madagascar, price of TRY 285 set for the first quarter are expected to positively affect the of 2019 is above both the weighted foreign currency-based EBITDA of Aksa average market clearing price of TRY Energy in 2019. AKSA ENERGY 2018 ANNUAL REPORT 63

Madagascar Heavy Fuel Oil Power Plant 64 SUSTAINABILITY

SUSTAINABILITY STRATEGY

Aksa Energy groups its sustainability initiatives under three main headings: “Environmental Sustainability,” “Our Employees” and “Social Responsibility.” In line with its new strategy, the Company updated its Environmental, Occupational Health and Safety, Quality, Energy, and Corporate Social Responsibility Policies in 2017.

As one of the leading power producers in Turkey, Aksa Energy recognizes the wide scope of the economic, social and environmental impact it creates in the regions where it operates.

The energy industry plays one of the the Company prioritizes sustainability largest roles in accomplishing the as much as its financial strategies, goal of shaping a secure future and embedding sustainability in every layer ensuring a more livable world. Given of the organization with the utmost the industry’s vast sphere of impact, care to ensure that all processes only those companies that formulate and operations support the national strategies and business models in line economy, social development and with a holistic vision integrating their environmental protection. economic, social and environmental aspects will become– and remain– Aksa Energy’s sustainability initiatives permanent players in the energy are grouped under three main headings: industry. “Environmental Sustainability;” “Our Employees;” and “Social Responsibility.” With this insight, Aksa Energy In line with its new strategy, the recognizes the wide scope of the Company updated its Environmental, economic, social and environmental Occupational Health and Safety, impact it creates in the regions where it Quality, Energy, and Corporate Social operates. In setting its business targets, Responsibility Policies in 2017. AKSA ENERGY 2018 ANNUAL REPORT 65

SUSTAINABILITY MANAGEMENT STRUCTURE

Aksa Energy successfully passed the assessment processes conducted by London-based EIRIS (Ethical Investment Research Services), qualifying for the Borsa Istanbul Sustainability Index for another year.

The strong organizational structure General Secretary. Members of senior Aksa Energy in the Sustainability and the effective governance model management from the Operation and Index created by Aksa Energy’s years of Management, Human Resources and Aksa Energy successfully passed the experience in the sector underpin the Supply Chain departments also serve assessment processes conducted Company’s financial achievements, as on the Committee. by London-based EIRIS (Ethical well as its superior social, environmental Investment Research Services), and economic performance. The When deemed necessary, Committee qualifying for the Sustainability Index of sustainability targets set by the senior meetings are also attended by senior Borsa Istanbul for another year. management in line with the Company’s managers from the Energy Trading, strategies are expanded into all ranks Sales and Marketing departments, As one of the 14 companies listed of Aksa Energy through effective chosen in the same manner. in the Sustainability Index in 2015, communication, and performance Aksa Energy maintained its towards these targets is continuously Members of the Sustainability sustainability performance and was monitored through multi-stakeholder Committee play a primary role in the listed in the Index through 2016, 2017 audit practices. management of key and prioritized and 2018, and again qualifying for the sustainability issues that fall within November 2018 - October 2019 period. Sustainability Committee their respective areas of expertise. To coordinate its sustainability Sustainability risks and opportunities Sustainability Report Issued initiatives, Aksa Energy established the related to key and prioritized issues Committed to making sustainability Sustainability Committee, which reports are evaluated by the relevant units, an integral part of its business directly to the Board Member and CEO. and the utmost care is taken to operations and long-term strategic The Committee contributes to the analyze the environmental, social and perspective, Aksa Energy issued its first reporting of sustainability performance, economic impacts of these actions in an GRI-approved Sustainability Report as well as to the management and integrated manner. at international standards in 2016. integration of sustainability-related The Company voluntarily issued a matters with the Company’s business The Sustainability Coordination Sustainability Report in 2017 and 2018, processes, with a more holistic Group was established with the aim of and plans to do so again in 2019 on a approach. assisting the Sustainability Committee voluntary basis. in fulfilling these tasks. The Coordination The Sustainability Committee is Group is chaired by the Environment chaired by the Investor Relations and and Energy Legislation Executive. The Corporate Communications Director; Corporate Finance, Business Processes, the Domestic Power Plants Operation Supply Chain and Human Resources and Maintenance Director serves as managers, as well as the Occupational Vice President, and the Environment Health and Safety Specialist, Quality and Energy Legislation Executive as and Social Responsibility Specialist, and Environmental and Energy Management Specialist, serve as members. 66 SUSTAINABILITY

ENVIRONMENTAL SUSTAINABILITY

Aksa Energy leads the sector through its exemplary efforts to minimize the environmental effects of energy generation operations, as well as through environmental management practices that cover every step of the value chain.

Environmental At the center of Aksa Energy’s business Gas Combined Cycle Power Plant and processes is the maxim, “Producing Bolu Göynük Thermal Power Plant. Investments maximum energy with minimum As of end-2018, the documentation resources.” The Company runs its was 80% complete; the Company plans TRY operations in an environmentally- to develop field practices and obtain conscious manner for a sustainable the certificate in 2019. future and aims to continuously improve its performance in the field. Aksa Energy Aksa Energy continues without respite leads the sector not only through to analyze the impact of its existing its exemplary efforts to minimize production units on the environment. the environmental effects of energy The Company regularly conducts generation operations, but also through environmental impact assessments for million environmental management practices new production facilities to be built. that cover every step of the value chain. Aksa Energy added Aksa Energy actively encourages impetus to its Aksa Energy has adopted an responsible environmental management environmental policy to ensure that processes among all stakeholders, environmentally-friendly this understanding is institutionalized especially employees. To this end, the investments in 2018 and embraced by all stakeholders. Company administers training programs as well. The Company The Company has established the to its employees and raises awareness Framework Environmental Management among suppliers. Regularly measuring continued to place System to determine the goals and its environmental performance and efficiency at the center targets related to environmental policy, reporting its results, Aksa Energy and to manage, monitor and audit its also publicly discloses its activities of its environmental operations in accordance with this in this area to all stakeholders via its investments, which policy. In October 2017, the Company Sustainability Reports and the website. surged to a noteworthy initiated efforts to extend the Integrated Management Systems practices (ISO Aksa Energy added impetus to its TRY 2 million. 9001 Quality Management System, environmentally-friendly investments in ISO 14001 Environmental Management 2018 as well. The Company continued System, ISO 50001 Energy to place efficiency at the center of Management System and OHSAS its environmental investments, which 18001 Occupational Health and Safety surged to a noteworthy figure of Management System), which are TRY 1,985,653. Aksa Energy will already in effect at the headquarters, to continue making these investments in the power plants. This initiative started the future to minimize its environmental with Ali Metin Kazancı Antalya Natural impact and increase its performance. AKSA ENERGY 2018 ANNUAL REPORT 67

The Environmental Policy of Aksa Energy The Company considers energy efficiency the boiler, eliminating harmful gases and is based on four main pillars: climate a crucial component of its environmental increasing the efficiency of the power change, natural resource management, policy to minimize the environmental plant. waste management and conservation of impact of its activities and reduce biodiversity. greenhouse gas emissions. Due to the shift in the business model, the inactive heavy fuel oil capacity Climate Change To this end, a key energy efficiency in Turkey was relocated to African Among today’s most prominent global project implemented by Aksa Energy countries for commercial sustainability challenges is climate change, which pertains to the generation of energy from purposes. This helped boost heavy fuel is primarily caused by emissions from waste heat. With the combined cycle oil capacity utilization rates from low energy consumption. Cognizant of power plant technology, the Company levels in previous years. As a result, the the energy sector’s impact on the utilizes the heat of waste gas emitted greenhouse gas emissions, which were environment and climate change during production to generate energy, trending downward in prior years, tilted and aware of its own responsibilities, thereby cutting its energy consumption upward from 2017 onwards. Likewise, Aksa Energy views the mitigation of by 10% per unit. Energy is generated the positive contribution from the seven greenhouse gases as one of its priorities from waste heat at all current natural wind power plants sold off in 2017 will no and minimizes its carbon footprint gas power plants and at Northern Cyprus longer be present for 2018 and beyond. through emission reduction initiatives. Kalecik Heavy Fuel Oil Power Plant. These developments, which boosted our As a demonstration of its transformation Another effort to curb greenhouse gas commercial sustainability, necessitated into a sustainable and environmentally- emissions is the use of Oxicat filters at the revision of greenhouse gas emission conscious company, Aksa Energy signed natural gas power plants. targets designated in earlier years. the Trillion Tonne Communiqué, a call to Before setting a new target, the action from businesses that are sensitive Having commenced operations in 2016, Company plans to take into consideration to climate change and demand efforts Bolu Göynük Thermal Power Plant has the annual working hours of its power to combat it. The Company prepared a flue gas treatment system – a first of plants that increase greenhouse gas Greenhouse Gas Emission Reports for its kind in Turkey. The system helped the emission levels, and evaluate new 2015, 2016 and 2017 to monitor its facility to reach the legal emission figures potential investments. However, in 2018, greenhouse gas emissions. After the mandated for 2018 by European Union the greenhouse gas emissions declined approval of the verification company, the legislation as early as 2015. by 9% compared to the previous year, reports were presented to the Ministry due to the decrease in energy generation of Environment and Urbanization. The The fluidized bed combustion technology of domestic natural gas power plants. preparations for the 2018 Greenhouse employed in the power plant reduces the Gas Emissions Report commenced at the NOx amount to a minimal level. At the beginning of the year; the report will be same time, the use of limestone during submitted to the Ministry of Environment combustion allows the desulphurization and Urbanization by April 2019. process to be carried out directly within 68 SUSTAINABILITY

ENVIRONMENTAL SUSTAINABILITY

Carrying out its operations together with environmental risk analyses starting from the investment decision, Aksa Energy embraces an approach that considers possible impacts on the species in its areas of operation.

The decarbonization Aksa Energy also monitors and Ali Metin Kazancı Antalya Natural strives to reduce emissions other than Gas Combined Cycle Power Plant’s projects executed at Ali greenhouse gases. By using emission decarbonization unit was commissioned Metin Kazancı Antalya measurement systems set up at power in 2012 with an investment of EUR 2.5 Natural Gas Combined plants, the Company monitors emissions million. This facility, which saves 500 in real-time. m3 of water per hour, reduced the power Cycle and Bolu Göynük plant’s water consumption per MWh, Thermal Power Plants Natural Resource Management first from 1.16 m3 to 0.71 m3, and then to At Aksa Energy, innovative initiatives 0.66 m3 in 2017. As such, 297 thousand help conserve water for efficient water use constitute the m3 of water in 2016 and 428 thousand used in production main practices for the conservation of m3 of water was recycled in 2017. processes. natural resources, which are declining at Only 235 thousand m3 of water was an alarming rate. The Company, which recycled in 2018, due to the decrease shapes its operations with an effective in electricity generation and water management system to minimize water consumption. consumption, uses water from various sources, including network, surface The Company implemented another and ground, depending on the region in decarbonization unit at Bolu Göynük which the Company’s power plants are Thermal Plant with a EUR 2.8 million located. investment: 270 m3 of water is saved per hour thanks to this facility. For The decarbonization projects executed sustainability purposes, reverse osmosis in Ali Metin Kazancı Antalya Natural wastewater is not discharged but stored Gas Combined Cycle and Bolu Göynük in a separate pool to be used in ash Thermal Power Plants help conserve moisturizing. water in production processes.

Greenhouse Gas Emissions (tons CO2-equivalent) 2016 2017 2018 Total 4,211,836 4,888,820 4,446,465 AKSA ENERGY 2018 ANNUAL REPORT 69

This project helps save 14.4 m3 of water per hour. Moreover, Çatak Pond was created through a TRY 17.5 million investment at Bolu Göynük Thermal Power Plant, although no request had been received to this end.

As a result of intensive efforts at the Manisa and Şanlıurfa Natural Gas Combined Cycle Power Plants in 2011, water treated by the reverse osmosis method started being used in the cooling towers. In 2012, the Company also started reducing the water used in the cooling towers, helping recycle Bolu Göynük Thermal Power Plant 12.13% of the total water consumed since 2013. At Bolu Göynük Thermal Power Plant, supported TTKD’s initiative to determine At the end of seven years, the project the resulting ash waste is kept, not in the current situation of striped hyenas has helped cut costs by TRY 70,000 temporary ash storage areas, but in (hyaena hyaena) living in the proximity of at Manisa Natural Gas Combined Cycle the New Southern Regular Ash Storage Kırıkhan Gölbaşı village in Hatay – where Power Plant and by TRY 100,000 at Area, which received an environmental the Belen/Atik and Sebenoba Wind Şanlıurfa Natural Gas Combined Cycle permit from the Provincial Directorate of Energy Power Plants are located – and Power Plant. In addition, 90 thousand Environment and Urbanization in 2017. to obtain information about the animals’ m3 of water were conserved in Manisa Before the facility became operational, habitats and ecology. Photo traps and 60 thousand m3 in Şanlıurfa. more than 6 thousand saplings were and traps were placed in the animals’ planted around the site to prevent habitats; as a result, scientists were able Waste Management erosion and enrich the local environment. to observe the striped hyenas and, also, All waste is disposed of in keeping with confirmed that the rock gerbil (gerbillus applicable laws, rules and regulations, Protection of Biodiversity dasyurus), which was thought to be and in line with the Company’s Carrying out its operations with extinct, still lived in Turkey. Environmental Policy. environmental risk analyses that start from the investment decision, In addition, birdwatching activities were The primary hazardous waste created Aksa Energy embraces an approach conducted at the Belen/Atik, Kapıdağ, by thermal power plants are waste oil, that takes into account its possible Sebenoba and Kıyıköy wind power plants contaminated packaging, contaminated impacts on species living in its areas of during wintering, spring migrations, cloth, absorption filters, sludge from operation. The Company’s biodiversity breeding and autumn migrations. oil-water separators and scrap strategy is based on collaborative materials. efforts to prevent the destruction of As part of the project undertaken in nature, minimize adverse effects on cooperation with TTKD in 2018, a Aksa Energy’s activities to recycle biodiversity, and preserve and enhance study was carried out to determine the hazardous and non-hazardous local biodiversity. To these ends, the presence (the current condition) and waste from production processes are effects of operations on biodiversity are ecology of red deer (cervus ephalus) considered to be among the leading monitored, evaluated and reported. in the vicinity of Yedigöller National waste management practices in the Park. The project helped identify the sector. Hazardous waste released by Aksa Energy is not content with simply species’ population size and density, the operation processes is stored in measuring the environmental impact distribution, habitat, nutrition and food temporary waste storage areas on of its operations; the Company also resources, social behavior, relationship the plant sites, where its contact with actively undertakes efforts to protect with humans, and the elements that the external environment is cut off to nature. In 2015, the Company joined pose a threat to the species, as well as prevent jeopardizing human health and forces with the Association for the the measures to be taken to protect the environment. Later, these materials Protection of Turkey’s Nature (TTKD) to them. The study also presented notes to are transported in licensed vehicles to carry out the Hatay Mountain Gazelle raise awareness among the public, and recycling or disposal facilities, at times Protection Project, which aims to to preserve and sustain the population specified in the Waste Management protect the mountain gazelle species of red deer, the symbol of the region’s Regulation. Packaging waste is sent and its habitat in Turkey. Aksa Energy biological diversity. to recycling companies contracted by continued to cooperate with TTKD in municipalities in the regions where the 2016, 2017 and 2018. The Company facilities are located. 70 SUSTAINABILITY

SOCIAL RESPONSIBILITY

Aksa Energy contributes to the development of young people through technical trips and trainings organized as part of the Company’s social responsibility efforts. Ali Metin Kazancı Antalya Natural Gas Combined Cycle Power Plant welcomed many visitors from various schools and institutions during the year.

Local Employment With a strong sense of social to contribute to the expansion of the responsibility arising from its position local labor market, thus creating an as an energy company, Aksa Energy alternative source of income for the defines its stakeholders as all persons local population. who benefit from the electricity it generates, and who are directly or Furthermore, Aksa Energy creates indirectly affected by its business lasting value through infrastructure operations. operations and maintenance projects that bolster the development of Employees With this perspective, Aksa Energy the local economy in these regions. considers creating value for every Complaints and requests are evaluated component in its wide stakeholder through feedback mechanisms that network as its ultimate goal, and are customized for the unique needs As of end-2018, the carries out activities that contribute and demands of stakeholders and Company employs 308 to the economic, cultural and social local populations. To help meet a development of the local residents variety of local needs, the Company personnel from the local in the regions where the Company donated TRY 160,320 in Gazimağusa population in Africa: 134 operates. and Bolu, where its Northern Cyprus in Ghana, 82 in Mali and Kalecik Heavy Fuel Oil Power Plant and The human resources required in Bolu Göynük Thermal Power Plant are 92 in Madagascar. the Company’s regions of operation located, and a total of TRY 201,068 are recruited locally, creating job to various associations, including opportunities in those communities and the Association for the Protection of regions. As of end-2018, the Company Turkey’s Nature (TTKD), sports clubs employs 308 personnel from the local and schools. population in Africa: 134 in Ghana, 82 in Mali and 92 in Madagascar, in Aksa Energy also contributes to the addition to a total of 72 sub-contracted development of young people though employees in these countries. technical trips and trainings organized as part of the Company’s social Bolu Göynük Thermal Power Plant’s responsibility efforts. Ali Metin Kazancı staff was recruited from the villages Antalya Natural Gas Combined Cycle of Bölükcekova, Himmetoğlu and Power Plant welcomed many visitors Karaardıç, in the vicinity of the facility. from various schools and institutions. When additional services are needed The following trips to the power plant at the power plants, sub-contracting were organized during the year: companies are selected from the region AKSA ENERGY 2018 ANNUAL REPORT 71

Date School/Department/Institution Participants 18.01.2018 Antalya Provincial Directorate of Youth and Sports 14 06-29.03.2018 Kuyupınar Ovaboyu Primary and Secondary 182 16.05.2018 Akdeniz University – Department of Mechanical Engineering 79 17.05.2018 Harran University - Birecik Vocational School Electrical Department 22 26.07.2018 Turkish Electricity Transmission Company (TEİAŞ) 17 10.12.2018 Afyon Kocatepe University Electrical Society 41 20.12.2018 Türk Telekom Anatolian High School 27 Total Participants 382

Committed to Committed to establishing transparent projects, powered by the sense of social and effective communication channels responsibility that lies at the center of establishing transparent with all its stakeholders, Aksa Energy the Company’s corporate culture. and effective conducts its relations with the communication channels companies and suppliers with which it Energy Workshop has business relations on the basis of Adding value to society with its with all its stakeholders, sustainability. responsible corporate citizenship Aksa Energy conducts approach, Aksa Energy has been As of end-2018, Aksa Energy carrying out the “Energy Workshop” its relations with collaborates with 2,656 suppliers project since 2016. Within the scope companies and in 14 countries across 3 continents, of the project, the Company organized suppliers on the basis of including sub-contractors, brokerage a workshop at Kuyupınar Ovaboyu houses and consulting firms operating Primary School in Göynük, Bolu in 2018. sustainability. in energy generation and mining. In The Company raised awareness among 2018, the Company’s purchases from students for matters related to energy, these suppliers in 9 main and 95 energy resources and the operations of sub-merchandise groups amounted power plants, providing the opportunity to a total of TRY 597 million. The for students to learn about different Company indirectly contributed to the energy resources through various employment of nearly 1,250 persons via activities. The students were granted its suppliers as well. an Energy Workshop Participation Certificate at the end of the workshop. Aksa Energy also supports the education and development of children through developing or supporting 72 SUSTAINABILITY

HUMAN RESOURCES

In line with its vision of becoming the employer of choice among energy companies, Aksa Energy shapes its human resources approach around the core values of right person for the right job, management of diversity, equal opportunities for all, and personal and professional development.

Company Headcount Aksa Energy formulates its human 78% are blue-collar employees; 5% of resources policies and practices under the Company’s personnel work at the the guidance of Kazancı Group’s principle headquarters while 95% are stationed at “Our workforce is our most precious asset” the power plants and enterprises. and with the awareness that qualified and dedicated employees are the foundation Aksa Energy has 446 employees in of business success. Fostering dignity at Turkey, 76 in TRNC, 216 in Ghana, work, the Company prioritizes providing 101 in Mali and 138 in Madagascar. In staff with a fair and safe work environment addition to 72 sub-contractor personnel, that is open to employee participation the Company employs 308 of its 455 As of end-2018, Aksa and supportive of development. Aksa employees in the African countries from Energy offers communication mechanisms the local communities. At all the domestic Energy employs 977 which encourage the participation of all and overseas power plants, utmost care personnel in 5 countries internal stakeholders in decision making, is taken to recruit local residents in order across 2 continents, and strives to implement career planning to contribute to the development of local practices to boost the professional and communities. 22% of whom are white personal development of its employees at collar and 78% blue all levels. In line with its vision of becoming the employer of choice among energy collar. Aksa Energy’s Human Resources companies, Aksa Energy shapes its Policy human resources approach around the The Company’s main objectives in human core values of right person for the right resources include: job, management of diversity, equal • Setting a “best practice” paradigm in opportunities for all, and personal and human resources for the sector, professional development. • Managing all processes related to human resources in an effective manner Aksa Energy’s firm target is to recruit to maintain a competitive edge, well-educated, talented, tech-savvy and • Enhancing performance by establishing innovative individuals who can add value coordination. to the Company and possess a strong sense of business ethics; who keep a close 2 Continents, 5 Countries, 977 watch on the global marketplace; and who Employees embrace the Company vision and work As of December 31, 2018, Aksa Energy diligently with an open mind to achieve employs 977 personnel in 5 countries on this vision. 2 continents. Of these personnel, 22% percent of the staff are white-collar and AKSA ENERGY 2018 ANNUAL REPORT 73

When the need for a new position in the Company arises, internal and external resources are evaluated by considering the characteristics required by the job definition and the job itself.

Aksa Energy is aware that the success of its employees translates into the satisfaction of its stakeholders. Employee satisfaction and engagement are the unwavering principles of the Company’s human resources vision. To this end, Aksa Energy develops and implements policies that foster the commitment of its workforce. Ali Metin Kazancı Antalya Natural Gas Combined Cycle Power Plant

Aksa Energy employees are dynamic, open to innovation and change, and monitors general macroeconomic Aksa Energy provided its workforce with a aware of their potential to develop conditions, the current inflation rate in total 25,817 man-hours of technical and themselves and their work. From the day Turkey and industrial trends to guarantee vocational training in 2018. In addition of recruitment onwards, they are members an appropriate and fair remuneration to in-house and external trainings, 768 of a team that cultivates development and policy for its employees. Aksa Energy’s employees working for subcontractors were creativity, rewards efforts and appreciates Remuneration Policy is continually reviewed offered Occupational Health and Safety achievements. in line with the following principles of: Training. Aksa Energy provided 409 hours • Fairness, of training to 3,699 participants, including Aksa Energy believes that diversity and • Transparency, subcontractors’ staff. respect for different beliefs and opinions • Measurable and balanced performance enrich the corporate culture while targets, Occupational Health and Safety achieving business objectives, and provides • Sustainable success, and Policies employees with frequent opportunities • Compliance with the Company’s risk Aksa Energy implements various to strengthen their competencies. Aksa management principles. practices in the area of Occupational Energy and its subsidiaries are firmly Health and Safety (OHS), in line with against discrimination based on race, Trainings for Personal and Company policies that ensure a healthy, religion, language, gender or sexual Professional Development safe work environment to achieve orientation, in any stage of its business Aksa Energy recruits its current and employee satisfaction and a sustainable operations including the nomination, potential human capital via talent performance. In all the power plants across recruitment and promotion processes. management efforts. Career paths are Turkey and sub-contractor companies, the Committed to universally accepted human created on a common ground that benefits Company develops integrated projects that rights principles, the Company is strongly both employees and the Company, encompass both visitors and enterprises opposed to child labor and forced labor. enabling staff members to improve their with whom there is a business relationship. skills and help the Company achieve its Remuneration and Side Benefits corporate goals. OHS efforts are handled from a risk Aksa Energy is focused on providing management perspective in accordance optimum conditions that are meaningful As a sector leader, Aksa Energy places with applicable laws, rules and regulations for employees and sustainable for the special importance on the personal and and modern practices. Aksa Energy defines Company. professional development of its workforce. all risks that stand out in its operational For this purpose, the Company supports areas and takes necessary measures In parallel with the Company’s objective its employees with training programs to minimize these risks. Precautionary of being the employer of choice within organized at regular intervals. These measures implemented against workplace the industry, Aksa Energy implements a training programs aim to help staff accidents are shared with the entire remuneration policy that is competitive, members gain new skills and develop workforce through training programs, and sensitive to the market, and which aims to their performance and competencies, as employees are informed of the Company’s improve the quality of life of its staff. well as to stay abreast of developments emergency plans. Occupational Health and in the energy sector where continuously Safety practices are reinforced through the Remuneration at Aksa Energy is primarily developing technology is at the forefront. quality management system adopted by based on performance. In addition to employees. performance, the Company closely 74 SUSTAINABILITY

HUMAN RESOURCES

Aksa Energy recruits its current and potential human capital via talent management efforts. Career paths are created on common ground that benefits both employees and the Company, enabling staff members to improve their skills and help the Company achieve its corporate goals.

Key Demographic 2012 2013 2014 2015 2016 2017 2018 Indicators Male 533 596 748 746 745 935 890 Female 25 31 29 33 37 84 87 Total 558 627 777 779 782 1,019 977

Breakdown by 2012 2013 2014 2015 2016 2017 2018 Education Bachelor’s, Master’s, 135 146 166 169 168 221 217 Doctorate Vocational College 89 112 137 144 159 184 172 Vocational High School, 334 369 474 466 455 614 588 General High School or Below Total 558 627 777 779 782 1,019 977 22% 78% White-collar Blue-collar Average Age of 2012 2013 2014 2015 2016 2017 2018 Employees 34.69 34.95 35.11 35.47 34.84 35.06 36.41

HEADCOUNT BY COUNTRY Total Training Total Number of In House Training Hours Attendees Total Man-Hours ISO 140001 2 5 10 ISO 27001 1 143 143 OHSAS 18001 2 98 196 446 OHS 16 1.745* 19,978 Technical Training 8 318 2,398 Anti-Bribery and Anti-Corruption Policy Training 1 977 977 General Total 30 3,286 23,702

216 * Sub-contractor workers are included 138 Total Number of 101

76 External Training Total Training Hours Attendees Total Man-Hours ISO 9001 18 191 405 ISO 1400 6 78 138 ISO 5000 7 95 151 Technical Training 348 49 1.421 Turkey TRNC GhanaMadagascar Mali General Total 379 413 2,115 AKSA ENERGY 2018 ANNUAL REPORT 75

OCCUPATIONAL HEALTH AND SAFETY

In 2018, Aksa Energy continued its efforts to improve the health and safety conditions of its employees and reduce occupational accidents and diseases in its domestic and overseas power plants. Maintaining a downward trend in its accident frequency rates since 2015, the Company has reduced this rate by 23% since last year.

While conducting its business Ghana Heavy Fuel Oil Power Plant in Aksa Energy continued its efforts operations at home and abroad, Aksa December 2018. This achievement to improve the health and safety Energy adopts an occupational health reinforced Aksa Energy’s position as conditions of its employees and reduce and safety management approach an exemplar in terms of domestic and occupational accidents and diseases in that is committed to complying with international work accident data. its domestic and overseas power plants applicable local and international laws, in 2018. Maintaining a downward trend rules and regulations in order to provide In 2018, the Company recorded 10 work in its accident frequency rates since a healthy and safe work environment accidents with minor injuries (injuries 2015, the Company has reduced this for its human capital. To this end, requiring outpatient care or first aid rate by 23% since last year. the Company implements pioneering only), 1 accident with severe injuries, and occupational health and safety 1 fatal work accident at the domestic practices and ensures the continuous power plants. There were no accidents improvement of its performance in this at the overseas power plants. area.

In order to create these conditions, Aksa Energy maintains its efforts in Aksa Energy Accident Frequency Rates (All Power Plants) the area of Occupational Health and Safety (OHS). The Company carries 6.00 out all OHS activities with the goal of 5.40 “zero work accidents,” puts in place all necessary safety precautions, and 5.00 takes actions to prevent occupational 3.92 diseases. In 2018, the Company carried 4.00 out a total of 2,888,260 man-hours of work and administered a total of 19,978 3.00 man-hours of Occupational Health 2.00 and Safety training in its domestic and overseas power plants. 1.00

Taking monumental steps towards 0.54 0.54 0.00 0.42 achieving international Occupational Health and Safety standards, Aksa 2014 2015 2016 2017 2018 Energy reached the 2-million milestone of its “5-million man-hours without accident” target, set in May 2017, at 76 SUSTAINABILITY

OCCUPATIONAL HEALTH AND SAFETY

As with all strategic issues within the Company, all OHS hazards and risks are identified, assessed, and classified by analyzing the issue from a risk perspective; comprehensive measures are then taken to reduce risks to a minimum.

Aksa Energy has The Company fully complies with OHS implemented in recording all data on embraced effective laws, rules and regulations. It also employee health and safety; the data goes beyond its legal obligations and collected is compared with statistics management processes implements the latest OHS practices from Turkey and Europe to conduct related to occupational and international standards. assessment and development activities. health and safety, Aksa Energy has internalized effective As of 2018, Kazancı Holding’s thanks to the OHSAS management processes related to Occupational Health and Safety Council 18001 Occupational occupational health and safety, thanks is charged with improving employees’ Health and Safety to the OHSAS 18001 Occupational health and safety conditions in Health and Safety Management System addition to preventing work accidents Management System certification. and occupational diseases. All Aksa certification. Energy employees are represented in The Company is committed to the Council. The Chairman of the OHS implementing OHS measures at all Council reports directly to the COO. its facilities throughout Turkey, its subcontractors’ facilities, and all related Aksa Energy has ensured the continuity organizations. of the following certifications, which were obtained and successfully As with all strategic issues within the internalized in the corporate culture. Company, all OHS hazards and risks • ISO 9001 Quality Management are identified, assessed, and classified System by analyzing the issue from a risk • ISO 14001 Environmental perspective. Through such an approach, Management System comprehensive measures are taken • OHSAS 18001 Occupational Health to reduce risks to a minimum. The and Safety Management System OHSAS 18001 notification directive is • ISO 50001 Energy Efficiency Management System

AKSA ENERGY 2018 ANNUAL REPORT 77

Madagascar Heavy Fuel Oil Power Plant – Practical Fire Extinguishing Training 78 CORPORATE GOVERNANCE

ASSESSMENT OF THE BOARD OF DIRECTORS

Risks and Assessments of the Therefore, liquidity, currency and The low level of profit margins due to Board of Directors interest rate risk positions and market rising costs in the Turkish energy market Aksa Energy pursues an effective risk developments are monitored regularly. is another factor with a negative impact management policy to prevent and on the Company’s operations. mitigate all risks. Aksa Energy’s risk The Company aims to further improve management philosophy is based on its high service quality in customer In 2018, the Company continued to core principles such as the protection relationship management, technology, boost its foreign currency-denominated of asset value, operational safety and information management and service sales in order to reduce the effect sustainability. delivery. The Company continues of the exchange rate difference. In analyzing and prioritizing market risks, addition to the USD-based revenues The risks faced by the Company are using methodologies in compliance with of Northern Cyprus Kalecik Fuel Oil managed in a centralized fashion. its strategic objectives, in order to reach Power Plant, the energy generated Financial risks and opportunities are its operational and financial profitability by the Ghana, Madagascar and Mali efficiently managed through policy targets. power plants in Africa was sold via revisions, where deemed necessary. guaranteed contracts denominated in Hedging instruments are purchased Operationally, the Company carries foreign currency. Furthermore, a foreign when appropriate, in line with policies no foreign exchange risk. However, exchange-based guaranteed purchase determined by the upper management the project financing loans used for agreement was signed in April for the to minimize risk exposure. investments are in foreign currency, rehabilitation and operation of a 24 which can lead to foreign exchange MW power plant owned by Jirama, The Early Risk Assessment Committee, difference expenses and affect the governmental body in charge of which convenes six times a year under profitability adversely. To reduce foreign the electricity and water works of the the chairmanship of the Independent currency-denominated project finance Republic of Madagascar. The power Board Member, also carries out efforts loans, and create financing for projects plant, which was commissioned with to identify risks and take due measures. with higher profit margins that will 12 MW in December 2018, reached The Committee executes activities to generate EBITDA in foreign currency, an installed capacity of 24 MW as of identify and implement the necessary the Company sold an 81 MW installed January 2019. measures regarding potential risks, to capacity hydroelectric power plant and manage these within the framework seven wind power plants with a total In November 2018, the installed of the risk management system, and installed capacity of 259 MW between capacity of Ghana Heavy Fuel Oil Power to report the results to the Board of the fourth quarter in 2016 to end- plant rose from 280 MW to 370 MW. Directors. The Finance Department also 2017. In January 2018, a hydroelectric Therefore, the guaranteed capacity assists the management in this regard. power plant with an installed capacity within the scope of the agreement also of 15 MW– the last power plant in the increased from 223.5 MW to 332 MW. Operating in an investment-intensive Company’s renewables portfolio– was The capacity fees are charged over sector, the Company finances its sold. As a result, the entirety of the 332 MW. investments through bank loans. Company’s renewables portfolio with a total installed capacity of 355 MW was As these power plants were fully sold for USD 411.6 million, reducing the operational during the year, their Company’s financial debt burden. positive effect on the Company’s financial performance was better reflected in 2018. AKSA ENERGY 2018 ANNUAL REPORT 79

The additional capacities commissioned Assessment of the Board of All these power plants were sold for in Africa during 2018 increased the Directors on Financial and a total of USD 411.6 million. After Company’s foreign currency revenue. Operational Results their loans were closed/transferred, As well, the use of equipment from the As of end-2018, Aksa Energy recorded the remaining amount was utilized Turkish power plants that had become a 30% increase in revenues year-on- in financing the Company’s African less competitive, in the construction year. investments and reducing Aksa Energy’s of the African power plants, kept the short-term liabilities. total investment amount very low and A comparison of the Company’s end- shortened the construction process 2018 and end-2017 financial results The USD 21.6 million figure, for the considerably. shows the positive effect of the African extendable portion of Kıyıköy Wind power plants even more clearly. Aksa Power Plant, will be collected on the Assessment of the Board of Energy’s revenues increased 30% year- date the buyer starts the investment. Directors on the Internal Control on-year, while gross profitability rose System and Internal Audit Practices 133%, operational profit went up by Assessment of the Board of Aksa Energy has an Internal Audit 136%, and EBITDA increased by 110%. Directors on the Committees Unit that performs risk-based The Committees reporting to the Board assessments in order to evaluate and Aksa Energy recorded TRY 150 million of Directors convene at least four times develop the control and governance in net profit and TRY 1,033 million in every year, in quarterly periods at the processes of the Company. Internal EBITDA, as all of the Company’s African Company’s Head Office. Audit reports its activities to the Board power plants were fully operational and Member responsible for Internal Audit. the asset sales were completed during The Committees closely examined Audits are conducted relating to the the year. and discussed key issues such as reliability of the financial reporting audit, corporate governance, risks system; compliance of the Company’s The net financial debt amounted to TRY and strategies, and presented investments and operations with 3.69 billion in 2018. The Net Financial recommendations on these to the legal requirements and in-house Debt/EBITDA ratio declined from 8.6 in Board of Directors. regulations; effectiveness and efficiency the first quarter of 2017 to 5.7 at end- of its operations; and the security and 2017 due to the EBITDA increase and Board Members were reappointed reliability of IT systems. To this end, the completion of some WPP assets for a period of three years at the centralized internal audits as well as sales, decreasing further to 3.57 in General Assembly held on April 27, on-site power plant audits were carried 2018 year-end. 2017. Subsequently, the Committees out in 2018. were reorganized to benefit from the The Company’s debt was reduced by members’ experience in an optimal As a result of these audits, the selling Kozbükü Hydroelectric Power manner, and the necessary statutory effectiveness of the risk management, Plant in the fourth quarter of 2016, the notifications were made. internal control and governance wind power plants within 2017, and the processes were deemed satisfactory. İncesu Hydroelectric Power Plant in Detailed information pertaining to the In addition, the managerial units in January 2018. committees and their working principles charge of these areas were presented are available on the Company website with proposals that included a number at www.aksainvestorrelations.com. of actions they could take to overcome various issues identified during the audit. Furthermore, it was meticulously monitored whether these actions were implemented in a timely fashion or not. 80 CORPORATE GOVERNANCE

COMMITTEES

Audit Committee The Audit Committee consists of at Corporate Governance Committee The Audit Committee was established least two members who are elected from The Corporate Governance Committee to oversee the operation of the among Independent Board Members. aims Company’s accounting and reporting Members of the Audit Committee are • To ensure the independence and systems in line with applicable laws, the Independent Board Members Erkin effectiveness of the Board of rules and regulations, the public Şahinöz and Murat Yeşilyurt; Mr. Şahinöz Directors within the framework of the disclosure of financial information, is also the Chairman of the Committee. Corporate Governance Principles, and the effective functioning of the • To ensure that the Corporate independent audit and internal control The Audit Committee convenes at Governance Principles are embraced systems. least once every three months upon and applied by the Company’s Board the invitation of the Chairman of the of Directors, and across the Company, The Committee notifies the Board of Committee. When deemed necessary, • To enhance the Corporate Directors in writing of its evaluations the managers, internal and independent Governance Principles within the on the factuality and accuracy of auditors are also invited to the meeting Company, the annual and interim financial to provide information. The Committee • To ensure compliance with the statements and their compliance with may also decide to receive consultancy Company’s code of ethics and to the Company’s accounting principles, services from third parties outside control behavior and conduct in this taking into account the opinions of of the Company. The Committee respect, the Company’s management and expenses are covered by the Board of • To make recommendations on independent auditors. The Committee’s Directors. The Audit Committee may the functioning, structure and responsibilities include: notify specific issues to the Company’s effectiveness of the Board of General Assembly, if deemed necessary. Directors and affiliated committees. • Conducting assessments for the selection of the independent audit In meetings held during the year, the To fulfill these tasks, in 2018, the company, making a recommendation Audit Committee receives information Committee oversaw the Company’s and presentation to the Board of about periodically conducted audit compliance with the Corporate Directors; activities, decides whether to expand Governance Principles set forth in the • Evaluating compliance of financial or narrow the scope of audit activities Communiqué on the Determination statements and their footnotes to and makes resolutions on amendments and Implementation of the Corporate be disclosed to the public with legal to the annual plan. The Committee Governance Principles; investigated the and regulatory requirements and also provides support to the Board of reasons for non-compliance with certain international reporting standards; Directors during the selection of the principles; identified the incompatibilities • Surveilling the operation and independent audit firm. resulting from incomplete compliance; effectiveness of the Company’s took remedial measures; and provided accounting system, public information to investors and the general announcement of financial public. information, independent audit, and the internal control system; • Examining and finalizing complaints related to the Company’s accounting, internal control system, and independent audit. AKSA ENERGY 2018 ANNUAL REPORT 81

At Aksa Energy, the duties of Early Risk Assessment Committee the Nomination Committee and The Committee, which reports to the the Compensation Committee Board of Directors, is responsible for are performed by the Corporate determining at an early stage all the Governance Committee. The Committee operational, strategic, financial and supports the Board of Directors compliance risks that may jeopardize with respect to the determination the Company’s existence, development and evaluation of the appropriate and continuity; taking the necessary candidates for Board membership measures concerning the risks thus and managerial positions with identified; developing the necessary executive function. The Committee policies to execute the risk management also makes periodic evaluations on the processes; managing and reporting risks Board’s structure and efficiency and in accordance with the Company’s risk recommends to the Board any possible taking profile. changes regarding these issues. The Committee is established and The Corporate Governance Committee authorized by the Board of Directors consisted of Mehmet Akif Şam in accordance with the Company’s (Board Member) and Özlem McCann Articles of Association and applicable (Investor Relations and Corporate legislation. The Committee, which Communications Director) with the convenes six times a year, evaluates the resignation of Mr. Kayhan Yararbaş situation in its reports to the Board of (former Independent Board Member, Directors, points out any threats and Committee Chairman) on November 23, recommends solutions. 2018, due to the workload of his private businesses. On February 20, 2019, Erkin Şahinöz, Independent Member of Murat Yeşilyurt, Independent Member of the Board of Directors, and Mehmet the Board of Directors, was appointed Akif Şam, Member of the Board of as the Chairman of the Committee. Directors, serve as the members of the Committee, whereby Mr. Şahinöz acts as the Chairman. 82 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

1. Statement of Compliance with Corporate to ensure compliance with matters of To this end, the contact details of the Governance Principles those Corporate Governance Principles Investor Relations Department are Within the framework of the Corporate that have not yet been adopted by shared with the public through the Governance Principles publicly issued by the Company. The principles that have Company’s website, Annual Reports and the Capital Markets Board (CMB), the not yet been implemented have not the Public Disclosure Platform (KAP) Compliance Report of Aksa Enerji Üretim resulted in any conflicts of interest in order to allow stakeholders to obtain A.Ş. (referred to as the “Company” or among stakeholders to date. Information information concerning the Company in “Aksa Energy” hereinafter) concerning concerning the Corporate Governance related matters. For information requests the minimum elements requested by the Principles, compliance with the principles from stakeholders, the Department has Capital Markets Board to be included and justifications for the principles that established telephone, e-mail and fax in annual reports on compliance for the have not yet been implemented are set out communication channels. reporting period ending on December 31, below. 2018 is presented below. Developments concerning the Company’s SHAREHOLDERS strategy and business activities, as well as Acting upon the conviction that good the industry that the Company operates corporate governance is fundamental 2. Investor Relations Department in and the laws, rules and regulations that to the sustainability of companies, Aksa The Investor Relations Department at the Company is subject to, are presented Energy takes the necessary actions in Aksa Energy performs duties concerning to analysts and investors in meetings the area of corporate governance. The relations with stakeholders. The organized as prescribed by applicable law. Company has always worked to abide Department started up operations on May Company representatives participate in by the four principles of corporate 21, 2010, the Company’s first transaction investor conferences held by intermediaries governance: (i) transparency, (ii) fairness, date on Borsa Istanbul. The Investor both in Turkey and abroad. Moreover, the (iii) responsibility, and (iv) accountability. Relations Department directly reports to Company holds teleconferences and/or the Executive Member of the Board of meetings on a quarterly basis following the The Company embraces compliance Directors. announcement of the Company’s financial with the requirements of the Corporate statements in order to inform investors Governance Principles as a strategic goal In 2018, the Investor Relations and analysts of operational and financial and has achieved complete compliance Department undertook a number of developments. with the obligatory principles in line with activities; these included informing the Capital Market Law. shareholders, facilitating the exercise of In order to ensure an accurate, clear shareholders’ rights, organizing the Annual and reliable flow of information, the In addition, among the non-obligatory General Assembly Meeting, and issuing Investor Relations Department prepares corporate governance principles, the statements in accordance with the Public presentations regarding quarterly Company has adopted regulations that Disclosure Policy. The Company made a announced financial statements; publishes would not have a negative impact on total of 52 material event disclosures in these presentations on the Company’s the Company’s competitive strength and 2018. corporate website; sends them to investors business confidentiality, and which would and analysts by e-mail; and shares ensure a flow information in order to In accordance with the Company’s them with the financial community by prevent inequalities between shareholders. Information Policy, the Investor Relations organizing teleconferences. Oral and Efforts to apply the requirements of Department is responsible for providing written questions directed to the Investor the stated principles in compliance with accurate and complete information in a Relations Department are answered orally the Company’s own dynamics and to timely manner on financial and other (non- and/or in written form as soon as possible, improve the current management systems financial) matters (except for confidential within the limits of publicly disclosable against the backdrop of the principles data and trade secrets) as required by information. The disclosure of material still continue. Although the Company applicable laws and regulations, without events is conducted in coordination with may comply with some of these changes affecting the value of the capital market the Investor Relations Department in immediately, the execution of the required instruments issued by the Company, or compliance with applicable laws and infrastructure and organizational work compromising the equality of opportunity regulations and as required by the for compliance with the rest of the among shareholders in accordance Company’s Public Disclosure Policy. changes will require a longer process. In with the CMB’s Corporate Governance the periods to follow, efforts will continue, Principles. to the best ability of the energy industry, AKSA ENERGY 2018 ANNUAL REPORT 83

During 2018, the Company held a total Nurdan Cengizek Assembly in order to clarify certain events of 139 face-to-face meetings and Investor Relations and Corporate even if the issue is not on the agenda. This 7 teleconferences with analysts and Communications Specialist request can be made if it is necessary for investors as part of domestic and overseas Phone : +90 216 681 00 00 every shareholder to be able to exercise conferences. In the same period, the Fax : +90 216 681 57 99 their shareholder rights, and if the right Investor Relations Department received E-mail : [email protected] to receive and evaluate information around 520 inquiries for information; these Web : www.aksainvestorrelations.com concerning the events in question has inquiries were answered via phone and been previously exercised. To date, no e-mail with information disclosed to the Tolga Köseoğlu shareholder has submitted such a request. public. Investor Relations and Corporate The Company’s activities are audited Communications Assistant Specialist by an Independent Auditor and Legal 4 teleconferences were held during the Phone : +90 216 681 00 00 Auditors elected at the General Assembly. year to share the quarterly financial Fax : +90 216 681 57 99 statements with the general public and E-mail : [email protected] 4. Annual General Assembly Meetings inform investors and analysts. Web : www.aksainvestorrelations.com The Ordinary General Assembly for the business operations of 2017 was held With respect to the 2018 Annual General 3. Exercise of Shareholders’ Right to simultaneously both physically and online Assembly Meeting, all necessary steps Obtain Information on 15.05.2018. were taken to ensure that the meeting was Utmost care is exercised to present equal held in compliance with relevant laws, rules information and to allow shareholders the As required by applicable law, the Ministry and regulations. The Ordinary General opportunity to review and evaluate this of Customs and Trade, Energy Market Assembly Meeting of the Company for information, during the process of sharing Regulatory Authority, Capital Markets fiscal year 2017 was duly held on May information (except that containing trade Board and Borsa Istanbul (Istanbul Stock 15, 2018 in compliance with applicable secrets) with shareholders. Exchange) are all notified of the Annual legislation, the Company’s Articles of General Meeting. Association, and the General Assembly During the reporting period, the Investor Directive. Relations Department received and The meeting announcements were responded to around 520 inquiries published in Turkish Trade Registry All Type-B shares of the Company are for information, mainly relating to the Gazette No. 9565 and dated April 25, bearer shares. Hence, shareholding Company’s strategy, operations and 2018 for the Ordinary General Assembly registrations are recorded at the Central financial performance, ongoing and as well as on the Company’s website at Registry Agency (MKK). planned investments, developments in the www.aksainvestorrelations.com/tr, pursuant sector, Africa projects, power plant sales to Article 414 of Turkish Commercial Code The Investor Relations Department has and stock performance. In accordance with No. 6102; Article 10 of the Communique informed the shareholders of their rights Capital Markets Board requirements, such on the Rules and Standards of General as per Capital Markets Board’s regulations. requests cannot be answered when the Assembly Meeting of Corporations and Similarly, shareholders were informed of relevant information has yet to be made the Representatives of the Ministry the exercise of their rights (e.g. dividend, public. Information disclosed to the public, of Customs and Trade Attending attendance at the Annual General on the other hand, is made accessible to these Meetings; Article 29 of Turkish Assembly Meeting, and the like). No shareholders. Capital Market Law No. 6362; Capital dividend was distributed in 2017; related Markets Board’s Corporate Governance actions were undertaken pursuant to the All information publicly revealed is Communique No. II-17.1; and the Company’s Company’s Articles of Associations as presented for the use of stakeholders Articles of Association. At the same well as CMB and Central Registry Agency in the Investor Relations section time, invitations were submitted within regulations. The required declarations and of the Company’s website (www. the legally prescribed period through the statements on the matter were completed aksainvestorrelations.com) in order announcement of the meeting date and within the legally prescribed time limit. to provide easy and equal access to agenda on the Public Disclosure Platform information related to the Company for (KAP) and Central Registry Agency’s Özlem McCann stakeholders. Electronic General Assembly System Investor Relations and Corporate (EGKS). Communications Director Although the Articles of Association do not Phone : +90 216 681 00 00 govern the right of individual shareholders Fax : +90 216 681 57 99 to demand a special auditor, under Article E-mail : [email protected] 438 of the Turkish Commercial Code, Web : www.aksainvestorrelations.com one may be requested from the General 84 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

For the shares which are not within the of the Board of Directors related to the ensuring participation of the shareholders context of exception mentioned in Article amendment of the Articles of Association with a minimum cost in order to increase 29 Paragraph 2 of the Capital Market included in the agenda as well as the old the level of participation by shareholders; Law, written notifications regarding and new versions of the amendments; thus, as stated in the Articles of the Ordinary General Assembly held background information on the individuals Association, the meeting is organized on May 5, 2018, were made on April nominated to the Board of Directors, the at the Company’s headquarters or at a 17, 2018 via registered and reply-paid positions they have held in the last ten suitable location in the city the Company correspondence for those who posted years and the reasons for leaving these is headquartered in. As per Article 1527 of their mailing addresses. Since there is no positions, the nature and material level Turkish Commercial Code, the shareholders Group B registered share certificate of the of their relationship with the Company can attend the Annual General Assembly Company, no other type of invitation was and its related parties, and whether they Meetings electronically. The Company made. meet the criteria for independent Board acquires services from Electronic General Members and information on other related Assembly systems that allow shareholders The announcements of the Annual General matters that could potentially affect the to participate in electronic meetings, Assembly Meeting included the meeting Company operations if they were elected announce their opinions, make suggestions date and time; meeting location; agenda; Board Members. The above referenced and vote electronically in accordance a statement that the invitation was information was disclosed to the general with the provisions of the Regulation on extended by the Board of Directors; and public on the date the General Assembly General Meetings to be held in Electronic the procedures to follow for shareholders announcement was placed. Environment in Joint Stock Companies. to attend the Annual General Assembly In all General Assembly meetings, it Meeting. Furthermore, the Information No request was made by shareholders, is ensured that the shareholders and Document, including all relevant the Capital Markets Board (CMB) and/or their representatives can exercise their information about the General Assembly, other public institutions or organizations, rights stated in the provisions of the said was made available to all stakeholders with which the Company is concerned, Regulation. together with invitations to the assembly. to include any item on the agenda of The Information Document features the General Assembly Meeting. Financial Pursuant to the Turkish Commercial Code, information on the total number of shares statements and reports and agenda items applicable law, rules and regulations, the and voting rights reflecting the Company’s for the Annual General Assembly Meeting Meeting Chair undertakes preparations shareholding structure; the number of were made available to shareholders, and obtains the necessary information shares and voting rights representing beginning from the date of announcement related to holding a general meeting. each class of preferred shares if there are of the invitation to the Annual General preferred shares in the Company’s capital; Assembly Meeting, on the Public At the Annual General Assembly Meeting, changes in the management or activities Disclosure Platform, at the Company’s issues on the agenda are communicated of the Company or its major subsidiaries headquarters, and on a corporate website to shareholders in an impartial, thorough, or affiliates that transpired in the previous in such a way that these materials may be clear and understandable manner such reporting period or that are planned accessed easily. that they may express their views under for the coming period which may have the same conditions and are offered an a significant impact on the Company’s While preparing an agenda for the opportunity to ask questions. If a question operations as well as the justifications for Annual General Assembly Meeting, each asked is not related to the meeting these changes; annual reports and annual agenda item is added under a different agenda, or if it is a very detailed question financial statements for the last two title; expressions that are suggestive that cannot be answered right away, the fiscal years of all entities that are party and open-ended are actively avoided in question posed is responded to by the to such changes; the justification for any drawing up agenda items. Terms such as Investors Relations Department in writing discharge or change as well as information “other” and “miscellaneous” are actively within a maximum period of 15 days. on the persons who will be nominated avoided in agenda items; the information All questions asked during the Annual for a seat on the Board of Directors if to be provided prior to an Annual General General Assembly Meetings and answers the General Assembly meeting agenda Assembly Meeting is stated by referring to provided are disclosed to the public on includes the release, replacement or the related agenda items. the Company’s website within a maximum election of Board Members as well as the period of 30 days following the date of the justifications for release and replacement; The Annual General Assembly Meetings Annual General Assembly Meeting. information on individuals nominated to are held in a manner that avoids any the Board of Directors; the resolution inequalities between shareholders while AKSA ENERGY 2018 ANNUAL REPORT 85

No proposals were made to include any new No request was made by shareholders to At General Assembly Meetings, item on the agenda and no questions were assign a special auditor during the period. shareholders may have themselves posed on matters not related to the agenda represented by other shareholders or an of the Annual General Assembly Meeting A list of attendees and the minutes of externally appointed deputy. Shareholder held on May 15, 2018. The questions posed the Annual General Assembly Meeting deputies are authorized to exercise by shareholders, audience and meeting are made available at the Company’s the votes held by the shareholder they attendees during the course of the General headquarters, posted on the Company’s represent in addition to their own votes. Assembly Meeting were responded to via website and published on the Public The Board of Directors appoints and appropriate explanations by the Chief Disclosure Platform (KAP) for the review announces the form of authorization Executive Officer and senior management. and consideration of shareholders. documents in consideration of relevant CMB regulations. Furthermore, the rules The participation of the members of the 5. Voting Rights and Minority Rights set forth in the capital markets legislation Board of Directors, other related parties, The Company’s shares are divided with respect to proxy voting are abided by. officers responsible for preparing the into Group A and Group B shares. The financial statements and auditors at the number of Board Members elected by The cumulative voting method is not Annual General Assembly Meeting was Group A-registered shareholders cannot included in the Articles of Association. ensured in order to provide information exceed the half of total Board Members. concerning agenda items as prioritized and Accordingly, four members of the eight The Company’s share capital does not to answer questions. Board of Directors are chosen from among involve any cross-shareholdings. the candidates nominated by Group A According to Article 1527 of Turkish shareholders. There is no regulation set out in the Commercial Code, Law No. 6102, the Company’s Articles of Association preparations for the General Assembly At Annual General Meetings, the Company concerning the exercise of minority rights. of the Company have been carried out in avoids practices that inhibit the exercise Matters not covered by the Articles of accordance with legal requirements. On of voting rights. As a result, there is no Association are regulated according to May 15, 2018, out of a total of 613,169,118 share that is deprived of voting rights. As the relevant provisions of the Turkish shares, 592,600 shares corresponding to required by the Articles of Association, Commercial Code and the Capital Market TRY 592,600 in capital were represented each TRY 1 nominally valued share carries Law. The Company accepts that the in person, 31,181,391 shares corresponding one vote. related regulations concerning the exercise to TRY 31,181,391 in capital were of minority rights are sufficient. represented by appointed proxies and There are no privileged shares in the 496,750,574 shares corresponding to TRY Company’s shareholder structure. 6. Right to Dividends 496,750,574 in capital were represented The dividend policy approved by the by other representatives at the Ordinary Kazancı Holding A.Ş. has 78.60% of equity General Assembly can be found in the General Assembly Meeting, which was held stake and is the largest shareholder of the Annual Report and on the investor simultaneously physically and online. As Company. relations website. The Company reaches a result, the General Assembly Meeting its dividend distribution decisions by taking took place with a participation rate of All shareholders including those outside into account the Turkish Commercial 85% in both the physical and electronic Turkey are given the opportunity to Code, Capital Market Law, Capital Markets environments. No representatives from the exercise their voting rights in the easiest Board Communiqués and Resolutions, media attended the meetings. and most convenient manner possible. The the Tax Laws and provisions of other Company’s Articles of Association do not related laws and regulations, as well as the Information was presented to shareholders contain any provision that complicates Company’s Articles of Association. at the Annual General Assembly Meeting the use of voting rights or restricts the as a separate agenda item regarding the exercise of shareholders’ voting rights The profit distribution policy contains amount of all donations and charitable for a certain time period following the the minimum information that will allow contributions provided by the Company acquisition date of the shares. shareholders to anticipate the procedures during the year. Pursuant to capital markets and principles of the distribution of the law, upper limits were designated by the There are no provisions set out in the profit the Company will earn in the years Annual General Assembly Meeting regarding Articles of Association that prevent ahead. donations and charitable contributions to individuals who are not shareholders from be made in 2018. voting as representatives by proxy. 86 CORPORATE GOVERNANCE

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Principles concerning dividend payments At the Board of Directors meeting dated to share necessary information and are regulated in Article 17 of Company’s April 5, 2018, it was unanimously decided explanations (provided they do not include Articles of Association. Accordingly, to prose at the 2018 Ordinary General trade secrets) with local and foreign 50% of the distributable net profit for Assembly Meeting not to distribute stakeholders, investors, securities and the relevant period – which is calculated dividends to the shareholders on the exchange market specialists, all related after deducting losses of previous years grounds that no distributable profit was parties and financial intermediaries in a from the Company’s net profit for the generated from 2017 operations as per simultaneous, fair, complete, clear, correct, period which was determined according legal records in the consolidated financial understandable and easily reachable to the provisions set forth in the Turkish statements for the period 01.01.2017 – manner. Commercial Code and the Capital Market 31.12.2017 according to CMB regulations. Law and in conformity with generally The proposal was unanimously approved For public information, the Capital Market accepted accounting principles – shall by the General Assembly. The minutes of Law, Turkish Commercial Code, Borsa be distributed in cash or as gratis shares the Ordinary General Assembly Meeting Istanbul regulations, and the other related which shall be issued by means of adding that include the approval for the proposal laws, rules and regulations are all taken such an amount to the share capital of no dividend distribution are shared with into account, targeting effective, active, subject to a resolution to be rendered by the shareholders on the Public Disclosure and transparent communication with the the General Assembly or through the use Platform (https://www.kap.org.tr/tr/ investment community. of both methods at specific rates. The Bildirim/684285). General Assembly is authorized to decide The Public Disclosure Policy includes on the completion of the distribution 7. Transfer of Shares all kinds of information, documentation, processes within the legally prescribed The transfer of Company shares is electronic records and data related to the time periods. unrestricted in accordance with the rules Company’s activities (provided they do and regulations of the Turkish Commercial not include insider information or trade The resolution on dividend distribution Code, Capital Markets Law and electricity secrets) as known by members of the shall be evaluated and prepared by market legislation. The Company’s Board of Directors, senior management, the Board of Directors based on the Articles of Association do not contain any and employees, the disclosure of which is Company’s long-term strategies, financing provisions that would inhibit shareholders’ not legally dubious. needs, short-term financial liabilities, ability to freely transfer their shares. conditions set forth in the contracts The Company’s Public Disclosure Policy is made with creditors and the Company’s The acquisition of shares representing formulated and approved in decisions by profitability; and it shall be presented for 5% or more of the Company capital by an the Board of Directors in the context of the the approval of the General Assembly. The individual or a corporate entity directly Capital Markets Board’s Communiqué on procedures and principles set forth in the or indirectly and share transfers that Material Events No. II-15.1. The composition, Company’s Articles of Association shall be result in any change of the control in the follow up, review, update and improvement applied during dividend distribution. cooperation structure of the legal entity of the Public Disclosure Policy is under the independently of any above mentioned responsibility of the Board of Directors. The annual profit shall be distributed capital share transfers, each and every The Board of Directors works with the equally to all existing shares as of the such transfers are subject to the approval cooperation of the Corporate Governance accounting period of the dividend, of the Energy Market Regulatory Authority Committee and the Investor Relations irrespective of issuing and acquiring dates prior to the transactions. Department and solicits their opinion. The of shares. There is no privilege authorized Corporate Governance Committee informs in the Company’s Articles of Association PUBLIC DISCLOSURE AND and makes suggestions to the Board of with respect to dividend rights. In the event TRANSPARENCY Directors about the matters related to the that the Board of Directors proposes to Public Disclosure Policy, and assists the the General Assembly that the profit not 8. Public Disclosure Policy Board of Directors in the implementation of be distributed to shareholders, information Respecting the points in the context of the Public Disclosure Policy. Amendments on the reasons for such a recommendation the Capital Markets Board’s Communiqué to the Public Disclosure Policy are and how the retained earnings will be used on Material Events No. II-15.1, the Public published on the Company’s website are provided in the agenda item pertaining Disclosure Policy of Aksa Energy is following the approval of the Board of to profit. formulated within the framework of Directors and are presented for the the provisions of applicable capital information of shareholders at the first markets laws and regulations in order General Assembly Meeting to be held. AKSA ENERGY 2018 ANNUAL REPORT 87

The Public Disclosure Policy was revised to be sufficient. The Company’s website The Company pays maximum attention upon a Board of Directors resolution completely includes all the documents to ensure that activity reports contain dated April 11, 2014. The revised version and announcements as required by the detailed information pertaining to the was submitted to the shareholders at the Capital Markets Board. The website is Company’s operations. In addition, the General Assembly in 2014 and disclosed regularly updated in order to reflect the Company takes every effort to ensure that to the public. latest status of the shareholding and the information provided is consistent with management structure. The Company the Company’s financial statements and 9. Company Website and Its Contents promptly answers any request for operational results. In 2015, Aksa Energy’s website was information corresponded through the upgraded, and a new Investor Relations internet site and all explanations publicly The “Corporate Governance” section of website was set up to ensure that announced by the Company may be the company’s annual report contains all stakeholders can access detailed reached on the website. the shareholder structure, the date and information in a single location easily and number of the trade registry gazette, the in an ongoing fashion. The Company’s Material event explanations that need latest version of the company’s articles website, www.aksainvestorrelations.com, is to be publicly disclosed, IFRS financial of association including the date and used effectively in order to ensure access statements including footnotes, the number of the trade registry gazette to announced current and historical Company’s trade registry information, the in which the amendments were made information, and public disclosures. The latest status of shareholding structure, public, the number of material disclosures, website is prepared with the content information related to the Board and consolidated financial statements and required by the CMB’s Corporate prospectuses and public offering circulars, independent auditor’s report, the agenda Governance Principles, in both Turkish and as well as the Company’s profit distribution of the General Assembly meetings, English. In 2018, necessary updates about policy are disclosed in English as well as dividend policy, information policy, ethical the operations were made in the web sites; in Turkish under the Investor Relations principles, anti-bribery and anti-corruption PDP announcements, financial statements section of the Company’s website. policy. and annual reports were announced on the web site simultaneously with the Public The list of real and legal persons with The annual reports prepared by the Disclosure Platform. shares representing 5% or more of the Company provide information on the Company’s capital is shared with the activities of Board members or managers In addition to information whose shareholders under the “Shareholder outside the Company and statements disclosure is prescribed by legal and Structure” page of the Company website of Board members concerning their regulatory requirements, the Investor and in the same section of the annual independence. Relations website also features pertinent report. information, such as trade registry Information on the structure and data; current shareholding structure 10. Annual Report membership of committees formed among and management; detailed information Each year, a detailed annual report is Board members is presented in the on preferred shares; the final version of prepared and presented by the Board activity reports. These reports also include the Company’s Articles of Association; of Directors of the Company in printed information on the number of Board material event disclosures; financial form to ensure that stakeholders of the of Directors meetings held within each reports; annual reports; registration Company are kept informed prior to the year and the list of participants at said statements and public offering circulars; Annual General Assembly Meetings. The meetings. agendas of the Annual General Assembly annual report is also available on the meetings; their lists of participants and corporate website. Furthermore, such According to the Company’s Articles of minutes; documents for voting by proxy; reports are also prepared and announced Association, regulations of the Turkish documents required in case of stock and to the public on a quarterly basis in Commercial Code and of other related proxy collection by tender calling and accordance with Communiqué No. II-17.1 laws are abided by with respect to the other such forms; the Company’s Dividend (Communiqué Series: XI No. 29 for reports Board’s meeting and decision quorums. Distribution Policy; Public Disclosure Policy; of previous periods). Remuneration Policy; Code of Ethics; Since the founding of the Company, Anti-Bribery and Anti-Corruption Policy; The Board of Directors prepares the none of the Board members have been and sustainability approach. The current annual report in a manner that ensures sentenced to any penal procedure or information and documents featured on the public has access to accurate, precise sanctions at a material level. In the event the Company’s website are considered information about Company’s operations. of such a situation in the future, the 88 CORPORATE GOVERNANCE

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Company acknowledges that it (within Footnotes to the financial statements Necessary measures are taken on the the framework of its importance) should of the Company include information website to inform interested parties and be announced publicly as a matter of concerning the Company, its affiliates and every type of information related to the principle. subsidiaries. Furthermore, these footnotes Company is presented to interested are also provided in the Company’s annual parties in line with Corporate Governance It is accepted as a principle that reports. Principles. information will be disclosed to the public in the event of any change in legislation The “Human Resources” section of In the event of requests from investors (within the framework of its importance) the Company’s annual reports provide and financial intermediaries, the Company that would affect the Company’s information pertaining to employee and organizes face to face or group meetings operations to a significant extent. social benefits and vocational training. The with these institutions; participates in Company’s Corporate Social Responsibility investor conferences held by intermediaries Information concerning any significant Approach is presented in the “Social both in Turkey and abroad; and shares legal action filed against the Company Responsibility” section of the annual developments concerning the sector and and possible outcomes are expressed in report. Aksa Energy with investors. Additionally, the footnotes of the financial statements the Company holds teleconferences and/ prepared by the Company. These Each year, information is provided at the or meetings on a quarterly basis following footnotes are also included in the annual Ordinary General Assembly Meeting with the announcement of the Company’s reports. regards to the issues regulated by the financial statements in order to inform Corporate Governance Principles, Articles investors and analysts of operational Since the Company’s founding, there have 1.3.6 and 1.3.7, which are also explained in and financial developments. In order to been no instances of conflicts of interest the annual reports. ensure accurate, clear and reliable flow between the Company and any institutions of information, the Investor Relations that have provided investment advisory STAKEHOLDERS Department prepares presentations or rating services to the Company. The regarding quarterly announced financial Company’s Code of Ethics, formulated 11. Informing Stakeholders statements; sends these to investors and in 2014, sets the guidelines for relations The Company continues to serve as analysts by email and website; posts the with commercially related individuals; an institution of trust for its partners, information on the website; and shares the entities and corporate bodies; media; employees, clients, suppliers, and the results with the financial community by public authorities; and stakeholders. The community, always creating and conveying organizing teleconferences. All questions Ethics Board was formed in order to value. The Company has established a and requests related to the Company’s resolve potential conflicts in this regard. special department charged with energy activities and sector developments The Ethics Board is responsible for sales to Free Consumers and reachable by (excluding trade secrets) are directed to investigating and solving the complaints clients at any time. The Company works to the Investor Relations Department and are and notifications if Aksa Energy Code ensure the compliance of contractors and answered by telephone or email. of Ethics are violated. Reporting to the suppliers with quality commitments insofar Aksa Energy Chairman of the Board of as it may affect quality. Informational Protecting stakeholder rights with respect Directors, the Ethics Board consists of the meetings are organized to raise the quality to the Company’s activities and informing Internal Audit Manager, Legal Director and awareness of contractors and suppliers; stakeholders concerning the Company’s the Human Resources Director. There were in addition, maximum care is taken to policies and procedures are fundamental no complaints or notifications in 2018 foster effective communications between principles embraced by the Company. concerning the violation of the Code of the parties. The Company’s efforts to For this purpose, providing information Ethics. develop client satisfaction are ongoing in for shareholders, employees, suppliers, tandem with the importance it places on customers and the public is effectively Despite this procedural framework, it is production, service and quality. Moreover, carried out as stipulated by the Company’s accepted as a principle that in the event important events and developments of Public Disclosure Policy. of such a situation arising in the future, interest to clients and suppliers, together public disclosures will be issued, provided with legal and regulatory changes, are The Company’s internal communication that such disclosures do not affect the shared with these key stakeholders channels are accessible for all competitiveness of the Company or through the most rapid communication stakeholders; contact details are also include any trade secrets of the Company channels. available on the Company’s website. (within the framework of its importance). Stakeholders are entitled to communicate AKSA ENERGY 2018 ANNUAL REPORT 89

with the Corporate Governance Company and the shareholders – in the for career development. Different training Committee or the Audit Committee Company’s management. The Company opportunities are provided to all staff without any interference from the heeds the opinions and suggestions of members in order to meet their career Company. Stakeholders are also entitled its employees, suppliers, various non- and personal development needs; fulfill to reach these committees through all governmental organizations and all other occupational requirements occurring communication channels. stakeholders as well as participants of over time; and achieve the Company’s customer satisfaction surveys. While not targets and strategies. Training sessions The Company aims to protect the rights of stipulated in the Articles of Association, are carried out to develop the technical, each and every stakeholder independently the Company’s Chairman of the Board of occupational knowledge and personal by pursuing a well-balanced policy in Directors has never been the same person skills required for individuals to perform the event of possible conflicts of interest as its Chief Executive Officer since the day efficiently and effectively in their respective between stakeholders or the participation the Company was founded. No one at the roles and departments. of any stakeholder in more than one Company has unlimited decision-making interest group. The Company’s Code authority. The Company prioritizes the employment of Ethics, formulated in 2014, sets the of well educated, talented and successful guidelines for relations with commercially In order to ensure that personnel at individuals, understanding that it will related individuals; entities and corporate different levels of the organization reach its ambitious targets by employing bodies; media; public authorities; and participate in the management, Executive the most qualified human capital. In stakeholders. The Ethics Board was Committee meetings are held in various terms of employment, the Company formed in order to resolve potential departments, with the participation of the evaluates not only its current needs for conflicts in this regard. The Ethics Board relevant department executives as well personnel vacancies, but also its long term is responsible for investigating and solving as the senior management. A variety of objectives. the complaints and notifications if Aksa issues are discussed at these meetings. In Energy Code of Ethics are violated. The addition, the requests and expectations As a rule, personnel needs are met email address [email protected] was of personnel, customers and suppliers primarily from within the Company’s created and shared with stakeholders are collected during these meeting and current workforce. In order to fill vacancies to receive any complaints and reports. delivered to senior management. The that cannot be met internally via Reporting to the Aksa Energy Chairman of departments implement the decisions promotion or transfer, external resources the Board of Directors, the Ethics Board thus made. Personnel are informed of all are used to facilitate new staff recruitment. consists of the Internal Audit Manager, activities and processes of the Company The Human Resources Policy, which Legal Director and the Human Resources linked to procedures that are established includes the Company’s recruitment Director. according to the ISO 9001 Quality criteria, has been publicly disclosed on Management Systems. The Articles of the corporate website under the heading The Company’s Compensation Policy Association contains no stipulations “Human Resources Policy”. is regulated in accordance with the regarding the participation of employees. provisions of the labor law and related Fairness is embraced and implemented legislation. The policy is presented to the 13. Human Resources Policy by the Company as a principle in all rights stakeholders within the Remuneration The approach best summed up as provided to employees. Department Policy under the Corporate Governance “Our most valuable asset is our human managers are responsible for informing section of the Investor Relations website. resources” is embraced by the Company staff members of all decisions or and serves as the cornerstone of the developments that concern them via email. There are 10 judicial decisions the Human Resources Policy. Company due to violations of Employee Job definitions of the Company’s Rights. The mission of human resources is to employees are detailed in written form in support all the Company’s management compliance with the ISO 9001 standard 12. Stakeholders’ Participation in the staff and personnel; to ensure the on Quality Management Systems. Staff Management continuity of a creative, dynamic, salaries and other benefits are determined The Company does not have a formal motivated, effective, and efficient on the basis of performance and efficiency. model or mechanism for stakeholders corporate team; and to establish human The Company has no plans to have its to participate in management. However, resources systems in coordination with the personnel become shareholders in the the Independent Board Members related units. The Company provides its Company. represent all stakeholders – as well as the employees with every kind of opportunity 90 CORPORATE GOVERNANCE

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There is no representative appointed As part of its social responsibility efforts, optimal balance between risk, growth exclusively to conduct employee relations. the Company engages in various activities and return; pursuing a rational and The Company manages personnel under the coordination of Kazancı Holding prudent risk management approach; relationships through the Human Resources and provides scholarships to students. and placing a priority on the Company’s Department, which is staffed by human long-term plans. The Board of Directors resources professionals who have specific The Code of Ethics for the Company and defines the strategic objectives of the responsibilities in this department. In employees went into effect in 2014, and Company; determines the workforce and addition, the Human Resources Department was revised by the Board of Directors on financial resources to be required by the is the designated department to be January 7, 2016. The Code of Ethics is Company; and monitors the management consulted by employees in case of a conflict available on the website and have been performance. with the management. Staff members shared with Company employees. are duly informed of the Department’s The Company’s Articles of Association role in this regard. The Company takes all The Aksa Energy Ethics Committee is was amended in 2014 and approved by precautions to prevent any discrimination responsible for investigating and resolving the General Assembly on August 5, 2014. on the basis of race, religion, language or complaints and notices regarding the With these amendments, the number of gender as well as any attitudes towards violation of the code of ethics. In 2018, all members of the Board of Directors was employees that could physically, mentally or business units in the Company ensured increased from seven to eight. Half of the emotionally affect employees. No complaint full compliance with the Anti-Bribery and members are selected among candidates was submitted by employees with respect to Anti-Corruption Policy and Program, nominated by a capital majority of Group discrimination on the basis of race, religion, and no non-compliance was reported A stakeholders with registered shares. language or gender either in 2018 or prior. to the Ethics Committee or the senior No lawsuits were filed against the Company management. Likewise, no complaints The Board of Directors includes executive for work accidents. regarding bribery or corruption were and non-executive members. The majority received from the employees or those of the Board members are non-executive The Board of Directors takes an active acting on behalf of the Company. For the members who do not serve any managerial role in developing a succession plan for key notification of violations of the Policy duty other than board membership and management positions. and Program, a system is established who are not involved in the Company’s whereby the identity of the informed day-to-day business flow and operations. 14. Code of Ethics and Social Responsibility is kept confidential. The email address The independent members among the As an institution well aware of its obligations [email protected] has been brought into non-executive members of Board of to uphold the law as well as environmental force, communicated to all employees Directors are appointed by the General values, Aksa Energy has undertaken various and publicly disclosed on the Company’s Assembly; independent Board members efforts in the area of social responsibility. website under the heading “Ethical are qualified and quantified in line with The Company also firmly believes in the Principles”. Compliance with the Policy and the Capital Markets Board’s Corporate necessity of leaving a sustainable planet the Program was internally audited in 2018 Governance Principles regulations. to future generations. Aksa Energy takes and their effectiveness was also reviewed. this approach into account at every step The Corporate Governance Committee At its meeting after each Ordinary General of its operations and applies it accordingly. also presented a report on compliance to Assembly or each General Assembly in The Company strives to take every kind the Board of Directors in addition to the which members are selected, the Board of measure to support the protection of internal audit. Within the framework of our of Directors selects a chairman and vice the environment and human health. In Human Resources Policy, our employees chairman among members participating line with this objective, the Company has were administered a training on Anti- by proxy for Group A stakeholders with been granted the following certifications Bribery and Anti-Corruption Policy in 2018 registered shares. by complying with their requirements and to raise awareness for the issue. ensuring their continuity: 9001:20115 The CMB’s Corporate Governance Quality Management System; 14001:2015 BOARD OF DIRECTORS Principles are applied in procedures related Environmental Management System; to the nomination and appointment of OHSAS 18001-2007 Occupational Health 15. Structure and Formation of Board of independent Board members. Members and Safety Management System; and the Directors of the Board of Directors are appointed ISO 50001:2011 Energy Management Aksa Energy’s Board of Directors governs for a maximum term of three years. The System Standard. and represents the Company by making members whose term of office has ended strategic decisions; maintaining an can be reappointed. AKSA ENERGY 2018 ANNUAL REPORT 91

The Board of Directors is composed of time position at another organization. The to cumulative voting; the Company believes members who possess all the qualifications resignation of Mr. Alperat was accepted and that the cumulative voting method would indicated in the Corporate Governance under the recommendation of the Corporate compromise the Company’s harmonious Principles published by the Capital Markets Governance Committee, Mr. Murat Yeşilyurt management structure. Moreover, there Board. The functions of Chairman and CEO was appointed to serve as Independent were no incidences that would compromise are performed by different individuals. Member of the Board of Directors on the independence of any independent 12.11.2018, to be submitted to the approval Board member during the reporting period. Independent Board members have of the shareholders at the first General submitted their statements of independence Assembly Meeting to be held. His curriculum The duties of members of the Board to the Board of Directors; their vitae is also disclosed in this report. of Directors outside the Company are independence was not compromised by any regulated by the Turkish Commercial Code circumstances during the accounting period. Mr. Kayhan Yararbaş, Independent Member and other applicable legislation. Currently, Independent members fulfill the criteria of of the Board of Directors, resigned from Board members dedicate sufficient time independence listed in CMB’s Communiqué his posts as of 23.11.2018 since may to the affairs of the Company. In the event on Corporate Governance Principles. not have spared sufficient time for his they are appointed to other companies commitments due to personal matters. The as executives or Board members, or start In fiscal year 2018, Mr. Derya Uztürk, who resignation of Mr. Yararbaş was accepted to offer consultancy services to other had been serving as the Independent and the necessary procedure commenced companies, the Company makes sure Member of the Board of Directors, notified to reattain the minimum number of that this does not lead to any conflicts the Board that he has taken up a full- Independent Members of the Board of of interest and that the Board Members time position at another organization Directors set out in Clause F, Article 4.3.2. of continue to fulfill their duty as before. As which may not allow him to dedicate time CMB’s Corporate Governance Principles. such, Board members’ duties outside the to his commitments at the Company. Company were not limited in accordance Thus, Mr. Uztürk resigned from his post Mr. Cüneyt Uygun, who had been serving as with the provisions of the Turkish effective as of September 5, 2018. The the CEO and Board Member of Aksa Enerji Commercial Code and other applicable resignation of Mr. Uztürk was accepted Üretim A.Ş. and as the Energy Group Head legislation. and under the recommendation of the of Kazancı Holding since 2013, resigned Corporate Governance Committee, Yaşar from his posts effective as of 31.12.2018. The Board of Directors strives to Erkin Şahinöz was appointed to serve The resignation of Mr. Uygun was accepted conduct its activities and fulfill its duties as Independent Member of the Board of and the necessary procedure commenced in a transparent, accountable, fair and Directors on 05.09.2018, to be submitted to reattain the minimum number of Board responsible manner. to the approval of the shareholders at Members set out in Clause F, Article 4.3.2. the first General Assembly Meeting to be of CMB’s Corporate Governance Principles. The Company’s Board members are listed held. His curriculum vitae is also included below. Pursuant to the CMB’s Corporate in this report. Mr. Haldun Alperat, former For the assurance of sending of Governance Principles, most of the Board Independent Member of the Board of representatives to the Board of Directors members do not serve in any executive Directors, resigned from his post as of by minority stakeholders, the Articles of function. 31.10.2018 due to the workload of his full- Association contains no provision related

Executive Name - Surname Title Start of Term Position End of Term Şaban Cemil Kazancı Chairman 27.04.2017 No 27.04.2020 Ahmet Serdar Nişli Vice Chairman 27.04.2017 No 27.04.2020 Tülay Kazancı Board Member 27.04.2017 No 27.04.2020 Mehmet Akif Şam Board Member 27.04.2017 No 20.04.2020 Energy Group Head, CEO & Board Cüneyt Uygun * 27.04.2017 Yes 31.12.2018 Member Board Member – Independent Board TBD upon AGM Erkin Şahinöz ** 28.09.2018 No Member approval Board Member – Independent Board TBD upon AGM Murat Yeşilyurt *** 12.11.2018 No Member approval

* The resignation of Mr. Uygun was accepted and the necessary procedure commenced to reattain the minimum number of Board Members set out in Clause F, Article 4.3.2. of CMB’s Corporate Governance Principles. ** Upon the resignation of Mr. Derya Uztürk, Independent Board Member, on 06.09.2018, Mr. Erkin Şahinöz was appointed to serve as Independent Board Member on 28.09.2018. His membership will be submitted to the approval of the shareholders at the first General Assembly Meeting to be held. *** Upon the resignation of Mr. Haldun Alperat, Independent Board Member, on 31.10.2018, Mr. Murat Yeşilyurt was appointed to serve as Independent Board Member on 12.11.2018. His membership will be submitted to the approval of the shareholders at the first General Assembly to be held. 92 CORPORATE GOVERNANCE

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The distribution of tasks within the Board of Directors, their duties, authority and CVs are presented on Page 16 and 17 of the Annual Report.

Positions Held Outside the Group by Board Members

Board Member - Kazancı Holding A.Ş., Rasa Enerji Üretim A.Ş., , İdil İki Enerji San. ve Tic. A.Ş.,, Aksa Elektrik Satış A.Ş., Aksa Elek. Per. Satış A.Ş., Çoruh Elek. Per. Satış A.Ş., Fırat Elek. Per. Satış A.Ş., Fırat Aksa Elek. Hiz. A.Ş., Çoruh Aksa Elek. Hiz. A.Ş., Aksa Jeneratör Sanayi A.Ş., Aksa Makina Sanayi Şaban Cemil Kazancı A.Ş., Aksa Ankara Mak. Sat. Ve Ser. A.Ş., Aksa Servis Ve Kiralama A.Ş., Aksa Satış ve Pazarlama A.Ş. Aksa Anadolu Yakası Mak. Satış ve Servis A.Ş., ATK Sigorta Aracılık Hizm. A.Ş., Aksa Turizm İşletmeleri A.Ş., Aksa Havacılık A.Ş. Board Member - Rasa Enerji Üretim A.Ş.,, İdil İki Enerji San. Ve Tic. A.Ş., Aksa Elektrik Satış A.Ş.,Aksa Ahmet Serdar Nişli Elek. Per. Satış A.Ş., Fırat Aksa Elek. Hiz. A.Ş., Çoruh Aksa Elek. Hiz. A.Ş. Board Member - Kazancı Holding A.Ş., Rasa Enerji Üretim A.Ş., , İdil İki Enerji San. ve Tic. A.Ş., Aksa Tülay Kazancı Göynük Ener. Ürt. A.Ş. Board Member - Deriş İnş. Müh. Müş Ltd. Şti (representing Kazancı Holding) Aksa Teknoloji ve Müşteri Hizmetleri A.Ş., Çoruh Aksa Elektrik Hizm. A.Ş., Fırat Aksa Elektrik Hizm. A.Ş., Fırat Elektrik Cüneyt Uygun Perakende Satış A.Ş., Çoruh Elektrik Perakende Satış A.Ş., Aksa Elektrik Perakende Satış A.Ş., Aksa Göynük Enerji Üretim A.Ş., Rasa Enerji Üretim A.Ş., Aksa Göynük Enerji Üretim A.Ş., Aksa Elektrik Satış A.Ş. Vice Chairman - Aksa Göynük Enerji Üretim A.Ş. Board Member – Aksa Doğalgaz Dağıtım A.Ş., Aksa Doğalgaz Toptan Dağıtım A.Ş., Aksa Ağrı Doğalgaz Dağıtım A.Ş, Aksa Gümüşhane Bayburt Doğalgaz Dağıtım A.Ş., Aksa Çanakkale Doğalgaz Dağıtım A.Ş., Aksa Balıkesir Doğalgaz Dağıtım A.Ş., Aksa Elazığ Doğalgaz Dağıtım A.Ş., Aksa Bilecik Bolu Dağıtım A.Ş., Aksa Manisa Doğalgaz Mehmet Akif Şam Dağıtım A.Ş., Aksa Tokat Amasya Doğalgaz Dağıtım A.Ş., Aksa Afyon Doğalgaz Dağıtım A.Ş., Aksa Şanlıurfa Doğalgaz Dağıtım A.Ş., Aksa Malatya Doğalgaz Dağıtım A.Ş., Aksa Sivas Doğalgaz Dağıtım A.Ş., Aksa Düzce Ereğli Doğalgaz Dağıtım A.Ş., Aksa Gemlik Doğalgaz Dağıtım A.Ş., Aksa Karadeniz Doğalgaz Dağıtım A.Ş., Aksa Ordu Giresun Doğalgaz Dağıtım A.Ş., Aksa Van Doğalgaz Dağıtım A.Ş., NAMKON Gıda Besicilik ve Hayvancılık A.Ş. Erkin Şahinöz Consultant – İstanbul Sanayi Odası / TİM Danışmanlık Murat Yeşilyurt TİM Danışmanlık

16. Operating Principles of the Board of With the development of the Company’s the Company is headquartered, or another Directors business and activities, the Board of city which is subject to the decision of the The Board of Directors is responsible Directors determines the distribution, Board of Directors. The Board members for the Company’s management and form and principles of its administrative decide whether to make a division of representation externally. The Board of tasks and duties from among its own duties among themselves. Directors is appointed to and authorized members, on an as needed basis. The in the Company’s management and in Board of Directors may form committees Meeting invitations must be submitted at undertaking all the operations assigned to or commissions to execute business least seven days ahead of the meeting of it by the Turkish Commercial Code, Capital depending on the requirements of the the Board of Directors; a meeting agenda Market Law, the Company’s Articles of business. and documents related to the agenda Association and the General Assembly. should be attached to the invitation. In For the validation of all certificates and Members of the Board of Directors the event that all members of the Board agreements executed by the Company, hold a meeting as Company activities of Directors are present at the meeting, these must be put under the corporate necessitate, generally not less than once an invitation is not necessary. In the name and signed by the authorized a month. Furthermore, separate meetings case of a matter requiring urgency, an persons that can bind the Company. of the Board of Directors may be called if invitation to a meeting of the Board of deemed necessary by the chairman or five Directors may also be undertaken in good of the members. Board meetings can be will, without a seven-day notice period. held at Company headquarters or at an Under this circumstance, members of the appropriate locale in the same city where AKSA ENERGY 2018 ANNUAL REPORT 93

Board of Directors will be given sufficient No breakdown of duties among members independent members, the principle that “A time to prepare for the meeting and be of the Board of Directors is available. board member cannot be appointed to more readily present at the meeting. Presence However, information concerning the Board than one committee” could not be fulfilled. of a member at a meeting serves as proof committees appears in the activity reports that this member is relinquished from the and on the Company’s website. Committees convened at the Company’s requirement of invitation to the meeting. headquarters with the frequency indicated in The Board of Directors held 23 meetings their operating principles. Committee details Board members who have the right to between January 1, 2018 and December 31, are available below, under the sections for participate in the Board meetings can 2018, with a participation rate of 98.37%. specific committees. attend via an electronic environment as The Company’s Board of Directors made per Article 1527 of the Turkish Commercial all its resolutions unanimously in 2018, and Following the appointment of the Board Code. no dissenting opinions were written in the members at the General Assembly Meeting, resolution reports. committees were re-established and their The Board of Directors meets with the duties and working principles were reviewed participation of an absolute majority of the 17. Numbers, Structures, and Independence and updated in accordance with the members. The Board of Directors makes of Committees within the Board of Directors Capital Markets Board’s II-17.1 Corporate decisions by an absolute majority of the Pursuant to CMB laws and regulations, Governance Principles Communiqué. participants who attend the meeting. In the the Company has established the following Detailed information on committees and event of a tie vote, the matter is included committees: Audit Committee, Corporate their working principles is available on on the agenda of the next meeting; and in Governance Committee and Early Risk Investor Relations website at the case that no majority is provided for Assessment Committee. A principle was www.aksainvestorrelations.com. in that meeting as well, the proposal is in adopted that the Corporate Governance effect deemed rejected. In the case that Committee also fulfills the duties of The Board of Directors’ assessment of none of the members call for a meeting, the the Nomination Committee and the the effectiveness of the Audit, Corporate Board may make decisions upon the written Remuneration Committee. Committee chairs Governance and Early Risk Assessment proposal of one of the members which must were elected from among the Independent committees has been positive and the receive written approval of the majority of Board Members. All members of the Audit evaluation is included in the annual report the total number of Board members. The Committee are Independent Board Members. under the heading of Assessment of the condition of validation is that the proposal Board of Directors. has to be made to all of the Board members. The committees that are formed among Board members are required to record all Audit Committee Related regulations of the Capital Markets of their activities in written form; in doing Audit Committee is composed of at Board are followed in important transactions so, they comply with the written rules of the least two members who are elected that are specified by the CMB’s Corporate procedures. In accordance with the rules of among independent Board members. The Governance Principles, in all related party the procedures, all of the committees are Committee is charged with monitoring transactions of the Company and in permitted to call the Company’s managers the financial and operational activities of providing guarantee and pledge in favor of to a meeting and seek their opinions when the Company in an appropriate manner third parties. deemed necessary to fulfill their duties. The in compliance with the principles set forth required financial resources for the activities in capital markets legislation and the Each member of the Board of Directors of the committees are provided by the Board committee duty and working principles. holds one voting and one veto right without of Directors. Audit Committee, which reports to the Board consideration of their position or scope of of Directors, aims to provide the public duty. The Company’s chief executive officer/ declaration attesting to the compliance general manager is not a member of any of the Company’s accounting system and For any negative vote related to the committee. financial information in accordance with decisions of the Board of Directors, an the Articles of Association in addition appendix to the decision record and In accordance with the structure of the to the operation and efficiency of the correspondence of justifications to the Company’s Board of Directors, three independent audit and internal control auditors in writing is considered beneficial in independent Board members serve on the system. The Committee is also responsible such circumstances. Board. Since, at the very least, the chairs of for taking all necessary measures to carry these formed committees and all members out the execution of all types of internal of the Audit Committee are required to be and independent audits in an adequate, transparent manner. 94 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

Accordingly, the Committee is mainly Corporate Governance Committee Early Risk Assessment Committee meets responsible for the following Corporate Governance Committee six times a year. The Committee was • Conducting assessments to select the aims to ensure compliance with the established upon Board of Directors independent audit company, making a corporate governance principles set by Resolution No. 190 and dated April 4, presentation to the Board of Directors the Communiqué on the Determination 2011. Information regarding the structure following prior approval and Implementation of Corporate and members of the Committee is • Evaluating compliance of financial Governance Principles. The Committee presented under the heading “Committees” statements and disclosure to be publicly evaluates whether there are any instances of the Annual Report. announced with legal and regulatory where these principles were not applied requirements and international reporting in the Company; checks to see if there 18. Risk Management and Internal Control standards were any cases of noncompliance; and Mechanism • Surveilling the operation and takes remedial measures as needed. It The Risk Management and Internal Control effectiveness of the Company’s also supports and assists the Board of Mechanism are under the responsibility accounting system, public Directors by carrying out research studies and control of the Company management. announcement of financial information, related to investor relations and public The management reviews the Company’s independent audit, and the internal disclosure. Additionally, the duties of the risk management and internal control control system Nomination Committee and Compensation system regularly in order to achieve the • Examining and finalizing complaints Committee are performed by Corporate following objectives: related to the Company’s accounting, Governance Committee. • Protecting company assets; internal control system, and independent • Ensuring compliance with laws, rules, audit. Corporate Governance Committee meets regulations and agreements; four times a year. The Committee was • Attaining efficiency in operations and Audit Committee meets at minimum every established upon Board of Directors effectiveness of operations; three months upon the invitation of the Resolution No. 190 and dated April 4, • Ensuring accuracy and reliability of head of the Committee. The Committee 2011. Information regarding the structure financial and operational information; can collect information by inviting and members of the Committee is • Controlling or preventing of any reported managers, internal and independent presented under the heading “Committees” activities and operations that have a auditors, as required, to meetings; and of the Annual Report. significant risk factor, in the context of receive consultancy from outside the proposals accepted by the management. Company. The Committee expenses are Early Risk Assessment Committee covered by the Board of Directors. The Early Risk Assessment Committee is The results of the Company’s activities, Audit Committee may notify specific responsible for determining the risks the extent to which targets are met, and issues to the Company’s General Assembly that might jeopardize the existence, identification and reporting of associated if deemed necessary. development and continuity of the risks faced by the Company are evaluated Company and taking the necessary at Board of Directors meetings, which are Audit Committee was established upon measures against identified risks and periodically held with the participation of Board of Directors Resolution No. 189 and managing them. The Committee reviews the relevant managers. dated April 4, 2011. Information regarding the risk management systems at least the structure and members of the once a year. Early Risk Assessment Committee within Committee is presented under the heading the Company’s organization operates in “Committees” of the Annual Report. line with the working principles announced on the Company’s website. It provides support to the Board of Directors for the management of possible risks by informing the Board about them. AKSA ENERGY 2018 ANNUAL REPORT 95

Risk management and internal control short period of time. As these investments For the remuneration of the independent mechanisms have been set up at the began to bear fruit in 2018, Aksa Energy Board members, stock options or Company. Information regarding the continued talks with other countries Company performance-based payment structure and members of the Committee experiencing an urgent energy demand, plans were not taken into account. The is presented under the heading without respite. To this end, the Company Company sought to provide a level of “Committees” of the Annual Report. signed a contract for the operation and remuneration to independent Board maintenance of a 24 MW power plant members that would not compromise 19. Strategic Goals of the Company in Madagascar after undertaking its their independence. It was decided at The Board of Directors sets the strategic rehabilitation. The Company aims to the Annual General Assembly Meeting objectives of the Company for the year increase its profitability by investing in that monthly salaries would be paid to ahead, and determines the human and African countries that need energy and independent Board members. financial resources needed to meet these infrastructure investment, and to increase objectives. In addition, the Board of its foreign currency denominated sales The Company does not have any practice Directors periodically decides whether or to reduce the effect of foreign exchange of lending or supplying credit, provide not these targets have been achieved. rate differences. The Company has built assurance or guarantee in countenance power plants in Ghana, Madagascar and of the Board members or senior The Board of Directors strives to Mali, and plans to invest in other countries management. The prohibition of such conduct its activities and fulfill its duties with high energy demand in Africa and transactions is embraced as a principle by in a transparent, accountable, fair and elsewhere. the Board of Directors. responsible manner. To this end, the Company plans to transfer Information on the remuneration and The Company’s Board of Directors ensures to Africa some of its power plants that compensation provided to Board members that all of its activities and transactions can no longer generate electricity at and senior management staff is made comply with applicable laws, rules and competitive prices under free market available in the annual reports and on the regulations; the Company’s Articles of conditions in Turkey, for use in potential Company’s website. Association; and internal regulations and projects with high levels of foreign currency policies. denominated returns. Members of the Board of Directors receive no financial benefits other than the OUR MISSION 20. Financial Remuneration monthly honorarium that is paid to them. Aksa Energy’s mission is to capitalize As part of the structuring of the Board on its deep experience and know-how in of Directors of the Company, the The total amount of financial benefits paid the energy industry in order to continue Board of Directors decided against the such as bonuses, dividends or wages to implementing high performance projects, establishment of a separate Remuneration the members of the Board and the senior with a focus on cutting edge technologies Committee. Instead, the Board decided management was TRY 2,194,157 for the and a well-educated, highly skilled that the obligatory duties defined for accounting period 01.01.2018 – 31.12.2018 workforce. this committee in line with the Corporate (01.01.2017 – 31.12.2017: TRY 2,283,354). Governance Principles would be fulfilled by OUR VISION the Corporate Governance Committee. As per Article 4.6.5 of the Corporate Our vision is to become the largest and Governance Principles, information on the most reliable power in the region. The remuneration principles of Board remuneration and compensation provided members and senior management are to the members of the Board and the STRATEGY AND TARGETS set out in written form. This is treated senior management is made available in In line with its globalization target as a separate agenda item at the the footnotes of the quarterly financial first announced in 2015, Aksa Energy General Assembly Meeting in order to tables and in the annual reports. No continued its investments at full speed inform shareholders and offer them the explanation is provided on an individual in 2017. The Company completed and opportunity to share their opinions on the basis; in addition, it only covers members operationalized its African plants in a matter. This policy is also announced on of the Board and the senior management. the Company’s website. 96 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

21. Disclosure of Non-Corporate Ultimate Shareholder(s) Who Have a Controlling Interest The Company’s shareholding structure as of December 31, 2018 is presented below.

Title of Shareholder Nominal Amount (TL) Share (%) Kazancı Holding A.Ş.(*) 481,976,473 78.60 Publicly Traded 131,158,000 21.39 Other 34,375 0.01 Total 613,169,118 100.00

(*) As of December 31, 2018, Kazancı Holding A.Ş. owned a total of 4,958,962 publicly traded shares of Company stock. These shares are shown in the Publicly Traded row in the above table.

22. Public Disclosure of Those Who Have • Şenol İnan - Power Plant The list of individuals having access to Access to Insider Information Manager/Northern Cyprus insider information is updated regularly The Company composed the List of • Mesut Dalbay – Power Plant by the Company in accordance with the Individuals Having Access to Insider Manager/Mali scope of changing projects and subjects. Information as required by the Notification • Aylin Kırhan – Corporate Finance Employees of the Company who are party for Guidelines Related to the Public Manager to insider information and other parties Disclosure of Material Events set out by • Cumhur İpektel – Power Plant who are communicated this information the Capital Markets Board (CMB). Updates Manager/Madagascar are informed of their obligation to protect on the list are made following changes • Taner Melih Başaran - Group Manager/ the confidentiality of this confidential in position assignments. In addition to Şanlıurfa-Manisa information during the formation of the the Chairman and members of Board of • Şener Şentürk - Power Plant Manager/ material event and throughout the period Directors, individuals on the list are as Şanlıurfa from the time of the material event to its follows. • Özcan Hafızoğlu - Power Plant disclosure to Borsa Istanbul. Manager/Bolu Göynük • Şaban Cemil Kazancı – Chairman • Hüseyin Kuyubaşı - Power Plant The Company may delay the disclosure • Ahmet Serdar Nişli – Vice Chairman Manager/Antalya of insider information in order to prevent • Tülay Kazancı – Board Member • Salih Aymak - Mine Manager/Bolu damage to its legal rights and interests • Mehmet Akif Şam – Board Member Göynük in accordance with the provisions of the • Erkin Şahinöz – Independent Board • Canan Cacur - Accounting Manager (D) related Communiqué. Member • Hasan Akpınar - Finance Manager • Murat Yeşilyurt – Independent Board • Ebru Koç - Finance Manager Member • Sadık Murat Ateş - Finance Manager • Murat Kirazlı – Vice President, Aksa • Ayla Akdemir - Accounting Executive Energy Trade • Cemil Çamoğlu – Finance Executive • Cem Nuri Tezel – Vice President, CFO • Ozan Güney – Budget and Reporting • Soner Yıldız – Vice President, COO Executive (Kazancı Holding) • Ceyhan Baştürk – CFO (Kazancı • Mine Algan - Finance Specialist Holding) • Pervin Menekşe - Finance Specialist • Senlav Güner - Domestic Power Plants • Nurdan Cengizek - Investor Relations Operations and Maintenance Director and Corporate Communications • Özlem McCann - Investor Relations and Specialist Corporate Communications Director • Tolga Köseoğlu – Investor Relations and • Cevdet Yalçın – Financial Affairs Director Corporate Communications Assistant • Murat Çaptuğ - Western Africa Power Specialist Plants Operations and Maintenance • Alper Özkırım – Finance Assistant Coordinator Specialist

AKSA ENERGY 2018 ANNUAL REPORT 97

Corporate Governance Compliance Report

Company Compliance Status Not Yes Partial No Exempted Applicable Explanation 1.1. FACILITATING THE EXERCISE OF SHAREHOLDER RIGHTS 1.1.2 - Up-to-date information and disclosures which may affect the exercise of shareholder rights are available to investors at the corporate website. X 1.2. RIGHT TO OBTAIN AND REVIEW INFORMATION 1.2.1 - Management did not enter into any transaction that would complicate the conduct of special audit. X 1.3. GENERAL ASSEMBLY 1.3.2 - The company ensures the clarity of the General Assembly agenda, and that an item on the agenda does not cover multiple topics. X 1.3.7 - Insiders with privileged information have informed the board of directors about transactions The persons who have privileged conducted on their behalf within the scope of the access to company information company's activities in order for these transactions were not engaged in any activities to be presented at the General Shareholders' required to be notified to the Meeting. X General Assembly in 2018. 1.3.8 - Members of the board of directors who are concerned with specific agenda items, auditors, and other related persons, as well as the officers who are responsible for the preparation of the financial statements were present at the General Shareholders' Meeting. X 1.3.10 - The agenda of the General Shareholders' Meeting included a separate item detailing the amounts and beneficiaries of all donations and contributions. X 1.3.11 - The General Shareholders' Meeting was held open to the public, including the stakeholders, without having the right to speak. X 1.4. VOTING RIGHTS 1.4.1 - There is no restriction preventing shareholders from exercising their shareholder rights. X 1.4.2 - The company does not have shares that carry privileged voting rights. X 1.4.3 - The company withholds from exercising its voting rights at the General Shareholders' Meeting of any company with which it has cross-ownership, The Company does not have any in case such cross-ownership provides management cross ownership subsidiaries that control. X result in controlling ownership. 1.5. MINORITY RIGHTS 1.5.1 - The company pays maximum diligence to the exercise of minority rights. X Although minority rights are not defined in the Articles of Association for shareholders’ holding less than one twentieth 1.5.2 - The Articles of Association extend the use of the company’s capital; as of minority rights to those who own less than one per Article 18 of the Articles of twentieth of the outstanding shares, and expand the Association, the provisions of the scope of the minority rights. Turkish Commercial Code and Capital Markets Law apply to any matters regarding minority rights X that are not governed therein. 98 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

Company Compliance Status Not Yes Partial No Exempted Applicable Explanation 1.6. DIVIDEND RIGHT 1.6.1 - The Dividend Distribution Policy approved by the General Shareholders' Meeting is posted on the company website. X 1.6.2 - The Dividend Distribution Policy comprises the minimum information to ensure that the shareholders can have an opinion on the procedure and principles of dividend distributions in the future. X 1.6.3 - The reasons for retaining earnings, and their allocations, are stated in the relevant agenda item. X 1.6.4 - The Board reviewed whether the dividend policy balances the benefits of the shareholders and those of the company. X 1.7. TRANSFER OF SHARES 1.7.1 - There are no restrictions preventing shares from being transferred. X 2.1. CORPORATE WEBSITE 2.1.1. - The Company website includes all elements listed in Corporate Governance Principle 2.1.1. X 2.1.2 - The shareholding structure (names, privileges, number and ratio of shares, and beneficial owners of more than 5% of the issued share capital) is updated on the website at least every 6 months. X 2.1.4 - The Company website is prepared in other selected foreign languages, in a way to present exactly the same information with the Turkish content. X 2.2. ANNUAL REPORT 2.2.1 - The Board of Directors ensures that the annual report represents a true and complete view of the company's activities. X 2.2.2 - The annual report includes all elements listed in Corporate Governance Principle 2.2.2. X 3.1. CORPORATION'S POLICY ON STAKEHOLDERS 3.1.1 - The rights of the stakeholders are protected pursuant to the relevant regulations, contracts and within the framework of bona fides principles. X 3.1.3 - Policies or procedures addressing stakeholders' rights are published on the company's website. X 3.1.4 - A whistleblowing programme is in place for reporting legal and ethical issues. X 3.1.5 - The Company addresses conflicts of interest among stakeholders in a balanced manner. X AKSA ENERGY 2018 ANNUAL REPORT 99

Company Compliance Status Not Yes Partial No Exempted Applicable Explanation 3.2. SUPPORTING THE PARTICIPATION OF THE STAKEHOLDERS IN THE CORPORATION'S MANAGEMENT 3.2.1 - The Articles of Association, or the internal regulations (terms of reference/manuals), regulate the participation of employees in management. X 3.2.2 - Surveys/other research techniques, consultation, interviews, observation method etc. were conducted to obtain opinions from stakeholders on decisions that significantly affect them. X 3.3. HUMAN RESOURCES POLICY 3.3.1 - The Company has adopted an employment policy ensuring equal opportunities, and a succession plan for all key managerial positions. X 3.3.2 - Recruitment criteria are documented. X Although the Company does not have a specific Human 3.3.3 - The Company has a policy on human Resources Development Policy, resources development, and organizes trainings for training sessions are organized for employees. employees by Aksa Academy. In total, 61 people participated in 37 X training sessions in 2018. Besides the meetings for compensation and career planning 3.3.4 - Meetings have been organised to inform purposes, other meetings were employees on the financial status of the company, organized to inform the employees remuneration, career planning, education and health. of the financial status of the company and train them in relation X to health and safety measures. Employees are informed of the decisions regarding internal 3.3.5 - Employees, or their representatives, were communication processes that notified of decisions impacting them. The opinion of may affect them. However, since the related trade unions was also taken. employees are not affiliated with any unions, their opinions are not X solicited. Job descriptions and performance 3.3.6 - Job descriptions and performance criteria criterias are in place for employees have been prepared for all employees, announced to holding manager or higher level them and taken into account to determine employee positions, and it is underway for remuneration. X lower level positions. 3.3.7 - Measures (procedures, trainings, raising awareness, goals, monitoring, complaint mechanisms) have been taken to prevent discrimination, and to protect employees against any physical, mental, and emotional mistreatment. X The company does not have a specific policy on this 3.3.8 - The Company ensures freedom of association matter; however there are no and supports the right for collective bargaining. arrangements or practices X preventing or hindering it. 100 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

Company Compliance Status Not Yes Partial No Exempted Applicable Explanation 3.3.9 - A safe working environment for employees is maintained. X 3.4. RELATIONS WITH CUSTOMERS AND SUPPLIERS 3.4.1 - The Company measured its customer The company does not sell energy satisfaction, and operated to ensure full customer to end users. Hence, it does not satisfaction. X measure customer satisfaction. 3.4.2 - Customers are notified of any delays in handling their requests. X 3.4.3 - The Company complied with the quality standards with respect to its products and services. X 3.4.4 - The Company has in place adequate controls to protect the confidentiality of sensitive information and business secrets of its customers and suppliers. X 3.5. ETHICAL RULES AND SOCIAL RESPONSIBILITY 3.5.1 - The Board of the corporation has adopted a code of ethics, disclosed on the corporate website. X 3.5.2 - The Company has been mindful of its social responsibility and has adopted measures to prevent corruption and bribery. X 4.1. ROLE OF THE BOARD OF DIRECTORS 4.1.1 - The Board of Directors has ensured strategy and risks do not threaten the long-term interests of the company, and that effective risk management is in place. X 4.1.2 - The agenda and minutes of board meetings indicate that the board of directors discussed and approved strategy, ensured resources were adequately allocated, and monitored company and management performance. X 4.2. ACTIVITIES OF THE BOARD OF DIRECTORS 4.2.1 - The Board of Directors documented its meetings and reported its activities to the shareholders. X 4.2.2 - Duties and authorities of the members of the board of directors are disclosed in the annual report. X 4.2.3 - The Board has ensured the Company has an internal control framework adequate for its activities, size and complexity. X 4.2.4 - Information on the functioning and effectiveness of the internal control system is provided in the annual report. X 4.2.5 - The roles of the Chairman and Chief Executive Officer are separated and defined. X AKSA ENERGY 2018 ANNUAL REPORT 101

Company Compliance Status Not Yes Partial No Exempted Applicable Explanation 4.2.7 - The board of directors ensures that the Investor Relations department and the corporate governance committee work effectively. The board works closely with them when communicating and settling disputes with shareholders. X 4.2.8 - The company has subscribed to a Directors and Officers liability insurance covering more than Since this principal is not 25% of the capital. X mandatory, it is not implemented. 4.3. STRUCTURE OF THE BOARD OF DIRECTORS 4.3.9 - The board of directors has approved the policy on its own composition, setting a minimal target of 25% for female directors. The board annually evaluates its composition and nominates directors so as to be compliant with the policy. X We do not have such a policy. 4.3.10 - At least one member of the audit committee has 5 years of experience in audit/accounting and finance. X 4.4. BOARD MEETING PROCEDURES 4.4.1 - Each board member attended the majority of the board meetings in person. X 4.4.2 - The board has formally approved a minimum time by which information and documents relevant to the agenda items should be supplied to all board members. X 4.4.3 - The opinions of board members that could not attend the meeting, but did submit their opinion in written format, were presented to other members. X 4.4.4 - Each member of the board has one vote. X 4.4.5 - The board has a charter/written internal rules defining the meeting procedures of the board. X 4.4.6 - Board minutes document that all items on the agenda are discussed, and board resolutions include director's dissenting opinions if any. X 102 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

Company Compliance Status Not Yes Partial No Exempted Applicable Explanation There are no limitations on the external duties held by the directors. However it is ensured that they spare sufficient time for 4.4.7 - There are limits to external commitments of their internal duties. Shareholders board members. Shareholders are informed of board are informed of any external members' external commitments at the General duties held by the directors at the Shareholders' Meeting. X General Shareholders' Meeting. 4.5. BOARD COMMITTEES This criterion cannot be satisfied as the Board has three independent members as per 4.5.5 - Board members serve in only one of the the Articles of Association of the Board's committees. X Company. 4.5.6 - Committees have invited persons to the meetings as deemed necessary to obtain their views. X 4.5.7 - If external consultancy services are used, the independence of the provider is stated in the annual report. X 4.5.8 - Minutes of all committee meetings are kept and reported to board members. X 4.6. FINANCIAL RIGHTS 4.6.1 - The board of directors has conducted a board performance evaluation to review whether it has discharged all its responsibilities effectively. X 4.6.4 - The company did not extend any loans to its board directors or executives, nor extended their lending period or enhanced the amount of those loans, or improve conditions thereon, and did not extend loans under a personal credit title by third parties or provided guarantees such as surety in favour of them. X Information on the remuneration and compensation provided 4.6.5 - The individual remuneration of board to Board members and senior members and executives is disclosed in the annual management staff is made report. X available in the annual report. AKSA ENERGY 2018 ANNUAL REPORT 103

Corporate Governance Information Form

1. SHAREHOLDERS 1.1. Facilitating the Exercise of Shareholders Rights The number of investor meetings (conference, seminar/etc.) organised by the company during the year 146 1.2. Right to Obtain and Examine Information The number of special audit request(s) There has not been any special audit requests. The number of special audit requests that were accepted at the General Shareholders' Meeting There has not been any special audit requests. 1.3. General Assembly Link to the PDP announcement that demonstrates the information requested by Principle 1.3.1. (a-d) https://www.kap.org.tr/tr/Bildirim/677465 Whether the company provides materials for the General Shareholders' Meeting in English and Turkish at the same time General Assembly documents have been presented only in Turkish. The links to the PDP announcements associated with the transactions that are not approved by the majority of independent directors or by unanimous votes of present board members in the context of Principle 1.3.9 Not applicable. Related party disclosures are announced in the Information document The links to the PDP announcements associated with related party provided with the invitation for General Shareholders' Meeting as well transactions in the context of Article 9 of the Communique on as in financial statements and annual report. https://www.kap.org.tr/ Corporate Governance (II-17.1) tr/Bildirim/677465 Common and continuous transactions are announced in the The links to the PDP announcements associated with common and information document provided with the invitation for General continuous transactions in the context of Article 10 of the Communique Shareholders' Meeting as well as in financial statements and annual on Corporate Governance (II-17.1) report. The name of the section on the corporate website that demonstrates It is provided under the section "Corporate Governance" on Aksa the donation policy of the company Energy Investor Relations website (www.aksainvestorrelations.com). The relevant link to the PDP with minute of the General Shareholders' Meeting where the donation policy has been approved https://www.kap.org.tr/tr/Bildirim/684285 The number of the provisions of the articles of association that discuss The participation of stakeholders to the General Shareholders' the participation of stakeholders to the General Shareholders' Meeting Meeting is discussed in Article 14 of the Articles of Association. In 2017, no identified stakeholder groups participated in the General Identified stakeholder groups that participated in the General Shareholders' Meeting. However, there are no restrictions on Shareholders' Meeting, if any participation of stakeholders in the General Shareholders' Meeting. 1.4. Voting Rights Whether the shares of the company have differential voting rights No In case that there are voting privileges, indicate the owner and percentage of the voting majority of shares. There are no voting privileges. The percentage of ownership of the largest shareholder 78.59% 1.5. Minority Rights Whether the scope of minority rights enlarged (in terms of content or the ratio) in the articles of the association No If yes, specify the relevant provision of the articles of association. Not expanded. 1.6. Dividend Right The name of the section on the corporate website that describes the It is provided under the section "Corporate Governance" on Aksa dividend distribution policy Energy Investor Relations website (www.aksainvestorrelations.com). The proposal not to distribute dividends was unanimously accepted as the consolidated financial statements of the Company, prepared Minutes of the relevant agenda item in case the board of directors on the basis of legal records in accordance with the Communique No. proposed to the general assembly not to distribute dividends, the II-14.1 of the Capital Markets Board, show no distributable profit for reason for such proposal and information as to use of the dividend. 2017. PDP link to the related general shareholder meeting minutes in case the board of directors proposed to the general assembly not to distribute dividends https://www.kap.org.tr/tr/Bildirim/684285 104 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

General Assembly Meetings

The number The number of of information the relevant requests Specify the name item or received by of the page of the paragraph the company corporate website of General regarding the Shareholder that contains the Shareholders' clarification participation Percentage General Shareholders' Specify the name of the page Meeting The number of of the agenda rate to the of shares Percentage Meeting minutes, and of the corporate website that minutes in declarations by of the General General directly of shares also indicates for each contains all questions asked in relation to insiders received The link to the related PDP General Shareholders' Shareholders' present at represented resolution the voting the general assembly meeting related party by the board of general shareholder meeting Meeting Date Meeting Meeting the GSM by proxy levels for or against and all responses to them transactions directors notification It is provided under the section "General It is provided under the https://www.kap.org.tr/tr/ Assembly" on Aksa section "General Assembly" Bildirim/677465, https://www. Energy Investor on Aksa Energy Investor kap.org.tr/tr/Bildirim/684285, Relations website (www. Relations website (www. https://www.kap.org.tr/tr/ 15.05.2018 0 84.52% 0.97% 84.42% aksainvestorrelations.com) aksainvestorrelations.com) Item 10 37 Bildirim/686130

2. DISCLOSURE AND TRANSPARENCY 2.1. Corporate Website The information requested by the Principle 2.1.1 is provided under the Specify the name of the sections of the website providing the section "Corporate Governance" on Aksa Energy Investor Relations information requested by the Principle 2.1.1. website (www.aksainvestorrelations.com). If applicable, specify the name of the sections of the website providing the list of shareholders (ultimate beneficiaries) who directly or indirectly It is available under About Aksa Energy>Shareholder Structure, on Aksa own more than 5% of the shares. Energy Investor Relations web site (www.aksainvestorrelations.com). List of languages for which the website is available English and Turkish 2.2. Annual Report The page numbers and/or name of the sections in the Annual Report that demonstrate the information requested by principle 2.2.2. a) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on the duties of the members of the board of directors and executives conducted out of the company and It is available under the section "Corporate Governance" in the Annual declarations on independence of board members Report. b) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on committees formed within the It is available under the section "Corporate Governance" in the Annual board structure Report. c) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on the number of board meetings in a It is available under the section "Corporate Governance" in the Annual year and the attendance of the members to these meetings Report. ç) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on amendments in the legislation It is available under the section "Corporate Governance" in the Annual which may significantly affect the activities of the corporation Report. It is available under the section "Financial Information", subsection d) The page numbers and/or name of the sections in the Annual Report "Consolidated Financial Statements and Independent Auditor's that demonstrate the information on significant lawsuits filed against Report", paragraphs "Provisions" and "Contingent Assets and the corporation and the possible results thereof Liabilities", in the Annual Report. e) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on the conflicts of interest of the corporation among the institutions that it purchases services on matters such as investment consulting and rating and the measures It is available under the section "Corporate Governance", subsection taken by the corporation in order to avoid from these conflicts of "Corporate Governance Principles Compliance Report", in the Annual interest Report. f) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on the cross ownership subsidiaries There is no cross ownership among subsidiaries in the Company's that the direct contribution to the capital exceeds 5% capital structure. g) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on social rights and professional training of the employees and activities of corporate social responsibility in respect of the corporate activities that arises social and environmental results It is available under the section "Sustainability" in the Annual Report.

3. STAKEHOLDERS 3.1. Corporation’s Policy on Stakeholders The name of the section on the corporate website that demonstrates It is available in the Remuneration Policy under "Corporate Governance" on the employee remedy or severance policy Aksa Energy Investor Relations website (www.aksainvestorrelations.com). AKSA ENERGY 2018 ANNUAL REPORT 105

The number of definitive convictions the company was subject to in relation to breach of employee rights 10 An Ethics Committee has been formed within the Company. The Ethics Committee consists of one Aksa Energy Board Member, Group The position of the person responsible for the alert mechanism (i.e. President/Group Vice President, Human Resources Director, Legal whistleblowing mechanism) Affairs Director and Audit Director. The alert mechanism is accessible via [email protected] or the Ethics Hotline at 0 850 511 11 12. Complaint/Report Boxes are also available The contact detail of the company alert mechanism on the floors. 3.2. Supporting the Participation of the Stakeholders in the Corporation’s Management Name of the section on the corporate website that demonstrates It is available under "Articles of Association" and "Corporate Governance the internal regulation addressing the participation of employees on Principles Compliance Report" tabs under "Corporate Governance" on management bodies Aksa Energy Investor Relations website (www.aksainvestorrelations.com). Our principle is to keep all kinds of communication channels open and remove any obstacles in respect of employee participation in management. To that end, an Occupational Health and Safety Council, Ethics Hotline and e-mail, "Write to Us" platform on the corporate website, a Sustainability Committee and Coordination Group are in Corporate bodies where employees are actually represented place across the Group. 3.3. Human Resources Policy The role of the board on developing and ensuring that the company has The Board of Directors develops necessary succession plans for key a succession plan for the key management positions management positions. The name of the section on the corporate website that demonstrates the human resource policy covering equal opportunities and hiring principles. Also provide a summary of relevant parts of the human It is available under Corporate Governance>Human Rights Policy, on resource policy. Aksa Energy Investor Relations website (www.aksainvestorrelations.com). Whether the company provides an employee stock ownership programme There isn't an employee stock ownership programme The name of the section on the corporate website that demonstrates the human resource policy covering discrimination and mistreatments and the measures to prevent them. Also provide a summary of relevant It is available under Corporate Governance>Human Rights Policy, on parts of the human resource policy. Aksa Energy Investor Relations website (www.aksainvestorrelations.com). The number of definitive convictions the company is subject to in No lawsuits were filed against the Company in relation to occupational relation to health and safety measures health and safety. 3.5. Ethical Rules and Social Responsibility The name of the section on the corporate website that demonstrates It is available under Corporate Governance>Ethical Principles, on Aksa the code of ethics Energy Investor Relations website (www.aksainvestorrelations.com). The name of the section on the company website that demonstrates It is available under Sustainability>Environmental Sustainability, on Aksa the corporate social responsibility report. If such a report does not exist, Energy Investor Relations website (www.aksainvestorrelations.com); our provide the information about any measures taken on environmental, Sustainability reports are also available under Sustainability>Report social and corporate governance issues. tab.

It is available under Corporate Governance>Anti-Bribery and Anti- Any measures combating any kind of corruption including embezzlement Corruption Policy, on Aksa Energy Investor Relations website (www. and bribery aksainvestorrelations.com).

4. BOARD OF DIRECTORS-I 4.2. Activity of the Board of Directors Date of the last board evaluation conducted None Whether the board evaluation was externally facilitated No Whether all board members released from their duties at the GSM Yes Name(s) of the board member(s) with specific delegated duties and authorities, and descriptions of such duties None Number of reports presented by internal auditors to the audit committee or any relevant committee to the board 3 reports were submitted to the Board of Directors. Specify the name of the section or page number of the annual report It is provided under the section "Corporate Governance", sub-section that provides the summary of the review of the effectiveness of internal "Corporate Governance Principles Compliance Report" in the Annual controls Report. Name of the Chairman Şaban Cemil Kazancı Cüneyt Uygun (He resigned on 31.12.2018 and his successor has not Name of the CEO been appointed yet.) If the CEO and Chair functions are combined: provide the link to the relevant PDP announcement providing the rationale for such combined The Chairman of the Board of Directors and the CEO are different roles people. Link to the PDP notification stating that any damage that may be caused by the members of the board of directors during the discharge of their duties is insured for an amount exceeding 25% of the company's capital Not insured. The name of the section on the corporate website that demonstrates current diversity policy targeting women directors No target has been set. The number and ratio of female directors within the Board of Directors 1 out of 8 members of the Board of Directors is female. 106 CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

Composition of Board of Directors Link To PDP Whether the Whether She/He is Whether The Director Notification That Independent the Director Who Has At Least 5 Years’ Whether Includes The Director Considered Ceased to Satisfy Experience On Audit, Name, Surname of Whether Executive Independent The First Election Independency By The Nomination The Independence Accounting And/Or Board Member Director Or Not Director Or Not Date To Board Declaration Committee or Not Finance Or Not Şaban Cemil Not independent Not an Independent Kazancı Non-executive director 27.04.2017 Member. - No Yes Not independent Not an Independent Ahmet Serdar Nişli Non-executive director 27.04.2017 Member. - No Yes Not independent Not an Independent Tülay Kazancı Non-executive director 27.04.2017 Member. - No Yes Not independent Not an Independent Mehmet Akif Şam Non-executive director 27.04.2017 Member. - No Yes https://www. Independent kap.org.tr/tr/ Yaşar Erkin Şahinöz Non-executive director 28.09.2018 Bildirim/709817 Considered No Yes https://www. Independent kap.org.tr/tr/ Murat Yeşilyurt Non-executive director 12.11.2018 Bildirim/719524 Considered No Yes

4. BOARD OF DIRECTORS-II 4.4. Meeting Procedures of the Board of Directors Number of physical board meetings in the reporting period (meetings in 23 person) Director average attendance rate at board meetings 98.37% Whether the board uses an electronic portal to support its work or not No Number of minimum days ahead of the board meeting to provide The meeting agenda and relevant materials are provided in the call for a information to directors, as per the board charter meeting, minimum 7 days ahead of the meeting. The name of the section on the corporate website that demonstrates It is available under Corporate Governance>Articles of Associations, on information about the board charter Aksa Energy Investor Relations website (www.aksainvestorrelations.com). There are no limitations on the number of external duties held by the Number of maximum external commitments for board members as per directors. However it is ensured that they spare sufficient time for their the policy covering the number of external duties held by directors internal duties. Shareholders are informed of any external duties held by the directors at the General Shareholders' Meeting. 4.5. Board Committees Page numbers or section names of the annual report where information It is presented under the section "Corporate Governance", sub-section about the board committees are presented "Committees" of the Annual Report. Link(s) to the PDP announcement(s) with the board committee charters https://www.kap.org.tr/tr/Bildirim/191392 AKSA ENERGY 2018 ANNUAL REPORT 107

Composition of Board Committees-I Name Of Committees Defined As "Other" In The Name-Surname of Whether Committee Whether Board Member Or Names Of The Board Committees First Column Committee Members Chair Or Not Not Audit Committee Yaşar Erkin Şahinöz Yes Board member Audit Committee Murat Yeşilyurt No Board member Corporate Governance Committee Murat Yeşilyurt Yes Board member Corporate Governance Committee Mehmet Akif Şam No Board member Corporate Governance Committee Özlem McCann No Not board member Committee of Early Detection of Risk Yaşar Erkin Şahinöz Yes Board member Committee of Early Detection of Risk Mehmet Akif Şam No Board member

4. BOARD OF DIRECTORS-III 4.5. Board Committees-II This information is available under the section "Corporate Governance", Specify where the activities of the audit committee are presented in sub-section "Committees" in the Annual report; and under Corporate your annual report or website (Page number or section name in the Governance>Corporate Governance Principles Compliance Report on annual report/website) our website. This information is available under the section "Corporate Governance", Specify where the activities of the corporate governance committee sub-section "Committees" in the Annual report; and under Corporate are presented in your annual report or website (Page number or section Governance>Corporate Governance Principles Compliance Report on name in the annual report/website) our website. The Corporate Governance Committee also fulfils the duties of the Nomination Committee. This information is available under the section Specify where the activities of the nomination committee are presented "Corporate Governance", sub-section "Committees" in the Annual report; in your annual report or website (Page number or section name in the and under Corporate Governance>Corporate Governance Principles annual report/website) Compliance Report on our website. This information is available under the section "Corporate Governance", Specify where the activities of the early detection of risk committee sub-section "Committees" in the Annual report; and under Corporate are presented in your annual report or website (Page number or section Governance>Corporate Governance Principles Compliance Report on name in the annual report/website) our website. The Corporate Governance Committee also fulfils the duties of the Compensation Committee. This information is available under the Specify where the activities of the remuneration committee are section "Corporate Governance", sub-section "Committees" in the presented in your annual report or website (Page number or section Annual report; and under Corporate Governance>Corporate Governance name in the annual report/website) Principles Compliance Report on our website. 4.6. Financial Rights Specify where the operational and financial targets and their achievement are presented in your annual report (Page number or Available under the sections "Aksa Energy at a Glance" and "Operations" section name in the annual report) in the Annual Report. Specify the section of website where remuneration policy for executive Available under "Corporate Governance" section on Aksa Energy and non-executive directors are presented. Investor Relations website (www.aksainvestorrelations.com). Available under the section "Corporate Governance" sub-section Specify where the individual remuneration for board members and senior "Corporate Governance Principles Compliance Report", and section executives are presented in your annual report (Page number or section "Financial Information", sub-section "Related Party Disclosures", in the name in the annual report) Annual Report.

Composition of Board Committees-II

The Number Of Reports Name of Committees The Percentage The Percentage Of The Number Of On Its Activities Names Of The Board Defined as "Other" in the Of Non-executive Independent Directors Meetings Held In Submitted To The Committees First Column Directors In The Committee Person Board Audit Committee 100% 100% 4 4 Corporate Governance Committee 100% 33.33% 12 12 Committee of Early Detection of Risk 100% 50% 6 6 108 CORPORATE GOVERNANCE

STATEMENT OF INDEPENDENCE

I declare myself as a candidate to serve as an “Independent Member” as per the criteria set forth in the Corporate Governance Principles announced by the Capital Markets Board, and thereby state that: a) Between the company, partnerships where the company has managerial control or significant influence, partners or legal entities that hold managerial control or significant influence over the company; and myself, my spouse, and blood or in-law relatives to the second degree, there was no relationship of employment as a manager with major duties and responsibilities; I did not hold 5% or above of their shares, voting rights or preferred shares either singlehandedly or collectively; I did not establish significant commercial relations with them, b) In the last five years, I did not serve as a partner (with a stake of 5% and above), a manager with major duties and responsibilities, or a board member, particularly in the audit (including tax audit, statutory audit, internal audit), rating and consultancy functions, at any company with which the company has traded significant amounts of products or services, in periods when such products and services were sold or purchased in line with business agreements, c) I have the vocational training, knowledge and experience to duly fulfill my tasks as an Independent Board Member, d) I do not hold a full time position in any public company or institution, e) I am a resident of Turkey, in accordance with Income Tax Act No. 193, dated December 31, 1960, f) As can be seen in my CV, I have strong ethical standards, professional reputation and experience to contribute positively to the company’s activities, to maintain my objectivity on conflicts of interest between the company and shareholders, to make decisions freely in due consideration of stakeholders’ rights, g) I will make sufficient time for keeping track of the company’s activities and for fully performing my duties on behalf of the company, h) Over the last ten years, I did not sit on the board of directors of the company for more than six years, i) I did not serve as an independent board member in more than three of the companies where the company or its ultimate controlling partners have managerial control, nor in more than five companies traded in the stock exchange,

Respectfully yours,

Yaşar Erkin Şahinöz AKSA ENERGY 2018 ANNUAL REPORT 109

I declare myself as a candidate to serve as an “Independent Member” as per the criteria set forth in the Corporate Governance Principles announced by the Capital Markets Board, and thereby state that: a) Between the company, partnerships where the company has managerial control or significant influence, partners or legal entities that hold managerial control or significant influence over the company; and myself, my spouse, and blood or in-law relatives to the second degree, there was no relationship of employment as a manager with major duties and responsibilities; I did not hold 5% or above of their shares, voting rights or preferred shares either singlehandedly or collectively; I did not establish significant commercial relations with them, b) In the last five years, I did not serve as a partner (with a stake of 5% and above), a manager with major duties and responsibilities, or a board member, particularly in the audit (including tax audit, statutory audit, internal audit), rating and consultancy functions, at any company with which the company has traded significant amounts of products or services, in periods when such products and services were sold or purchased in line with business agreements, c) I have the vocational training, knowledge and experience to duly fulfill my tasks as an Independent Board Member, d) I do not hold a full time position in any public company or institution, e) I am a resident of Turkey, in accordance with Income Tax Act No. 193, dated December 31, 1960, f) As can be seen in my CV, I have strong ethical standards, professional reputation and experience to contribute positively to the company’s activities, to maintain my objectivity on conflicts of interest between the company and shareholders, to make decisions freely in due consideration of stakeholders’ rights, g) I will make sufficient time for keeping track of the company’s activities and for fully performing my duties on behalf of the company, h) Over the last ten years, I did not sit on the board of directors of the company for more than six years, i) I did not serve as an independent board member in more than three of the companies where the company or its ultimate controlling partners have managerial control, nor in more than five companies traded in the stock exchange,

Respectfully yours,

Murat Yeşilyurt 110 CORPORATE GOVERNANCE

PUBLIC DISCLOSURE POLICY

1. Purpose and Scope regarding the Public Disclosure Policy. The 4. Public Disclosure of Financial Aksa Enerji Üretim A.Ş. (“Aksa Energy” or Corporate Governance Committee provides Statements the “Company”)’s Public Disclosure Policy information and suggestions to the Board Aksa Energy’s interim period and annual was formulated in accordance with the of Directors regarding the Public Disclosure financial statements and related footnotes provisions of capital markets legislation Policy and supports the Board of Directors are prepared in accordance with the Turkish and in consideration of the matters with regard to the implementation of the Commercial Code, Capital Markets Board covered by the Exceptions Communiqué Public Disclosure Policy. Amendments to regulations and International Financial No. II-15.1. The Policy sets out guidelines be made to the Public Disclosure Policy Reporting Standards (IFRS) issued by the for sharing necessary information and are published on the Company’s website International Accounting Standards Board. explanations about the Company – following approval of the Board of Directors The reports are audited in accordance with excluding trade secrets – with local and and are presented to shareholders for their independent auditing standards issued by foreign shareholders, investors, capital information at the first General Assembly the Capital Markets Board, approved by market experts, financial intermediaries and Meeting to be held thereafter. the Board of Directors and disclosed to the all related parties and stakeholders in a public via the PDP within the respective simultaneous, fair, complete, clear, correct, 3. Public Disclosure Means and time frame specified in capital markets understandable and easily accessible Methods legislation. Financial statements and manner. As prescribed by the Turkish Commercial related footnotes within the next business Code, Capital Market Law and other day after the latest statement made are In matters of public disclosure, regulations applicable legal and regulatory provisions, published under a separate heading on of the Capital Market Law, Turkish the disclosure means and methods used by Aksa Energy’s Investor Relations website. Commercial Code, Borsa Istanbul as well Aksa Energy include the following: The referenced financial statements and as other applicable legislative/regulatory related footnotes are posted and remain provisions are all taken into account and Material disclosures communicated via the on the Investor Relations website for five in effect, with active and transparent Public Disclosure Platform (“PDP”), which years. communication with the investor community has been created to inform the general targeted. public, financial statements and footnotes Necessary information that may be periodically submitted via PDP, independent required by the shareholders in relation The Company’s Public Disclosure audit report, responsibility declarations to the financial statements and related Policy covers all kinds of information, and annual reports, announcements and footnotes are located on the Investor documentation, electronic records and data notifications published in the Turkish Trade Relations website and are regularly related to business activities – provided Registry Gazette, press statements and updated. All the applications made and they do not include insider information or press conferences via written and visual questions asked by the shareholders are trade secrets known to members of the media, statements made to Reuters, Forex responded to through telephone, email Board of Directors, senior management and and other data distribution companies, or face-to-face meetings without any employees – and all other information the Informational interviews and meetings discrimination. disclosure of which is not legally dubious. made through electronic communications means or face to face with capital market 5. Public Disclosure of Annual Reports 2. Authority and Responsibility participations and prepared information Aksa Energy’s annual and interim period The Company’s Public Disclosure Policy and promotional presentations; Corporate operational reports are prepared in was formulated in keeping with the website (www.aksaenerji.com.tr/en); Aksa accordance with the Turkish Commercial Capital Markets Board’s Exceptions Energy investor relations website (www. Code, Capital Market Law, the Capital Communiqué No. II-15.1 and subsequently aksainvestorrelations.com) and information Markets Board’s Corporate Governance approved by the Board of Directors. The society services website; Statements made Principles and other applicable regulations formulation, monitoring, review, update and through various communication means and and in keeping with the time periods improvement of the Public Disclosure Policy methods, including telephone, electronic and procedures specified in the relevant are under the responsibility of the Board mail, fax, and the like; Other documents regulations. These reports are disclosed of Directors. The Board of Directors works that are required to be announced to the public via the PDP following the in collaboration with and seeks the opinion pursuant to relevant legal and regulatory approval of the Board of Directors. of the Corporate Governance Committee requirements other than those documents and Investor Relations Department mentioned above. AKSA ENERGY 2018 ANNUAL REPORT 111

Publicly disclosed annual reports are the process starting from the formation pertaining to the Company’s operations published within the next business day of the material event until its disclosure and financial matters from analysts and/or after the latest statement made under a to Borsa Istanbul. Those who work for investors, they direct these to the Investor separate heading on Aksa Energy’s Investor and on behalf of the Company shall not Relations Department. Relations website. The referenced annual in any circumstances share any kinds of reports are published and remain on the information that can be deemed to be a The Investor Relations Department Investor Relations website for five years. material event with third parties. In case promotes Aksa Energy to existing The annual report can be in print form and/ it is revealed that insider information was and potential investors and financial or printed in CD format in Turkish and/ disclosed to the third parties by those organizations domestic and abroad; meets or English to be given to the concerned persons inadvertently and it is understood the information requests of analysts and persons. The prepared copies can be that it is not possible to keep the research specialists who work in these obtained from the Investor Relations confidentiality of the information, a material institutions; communicates on behalf of Department. event statement shall be made immediately Aksa Energy by coordinating according by the Company in accordance with capital to the demand’s content when necessary 6. Public Disclosure of Material Events markets regulations. with the relevant units regarding answering a. Procedure for the Disclosure of Material the questions directed to themselves as Events The Company has prepared a list of part of the investor relations function. Statements that should be made in persons who have access to insider Company authorities can participate in accordance with the relevant Communiqué information pursuant to the relevant investor conferences or meetings organized and without being limited to these, all kinds Communiqué’s provisions. The list of domestically and abroad from time to of significant information that have not persons who have access to insider time in order to share information with been publicly disclosed yet and that may information will be kept continually updated investors and analysts and to communicate affect stakeholders’ decisions, the value in accordance with the scope of changing information related to the Company and of subsidiaries’ stock (and other capital projects and subjects. The referenced energy market. In addition, the Investor market instruments), investment decisions list shall be submitted to the relevant Relations Department evaluates the and assessments of investors and analysts official institutions and organizations for meeting demands from analysts and regarding these instruments, are prepared information on demand. investors and coordinates these requests. in coordination with the Investor Relations The Company presentations prepared Department’s in-house relevant managers Those persons who have access to insider with current data that are used in investor and members of the Board of Directors information cannot use the information and analyst meetings can be emailed pursuant to the Capital Markets Board’s that is secret and/or is of a trade secret to investors and analysts and published relevant regulations and disclosed via nature about the Company and the on the corporate website. Meetings can the PDP. The statement is posted on the information that is not open to the public be organized and press releases can be corporate website at latest within the next in a manner that will benefit themselves or prepared by the Company to inform about business day. Material event statements others. They cannot disclose incorrect and the matters that directly concern the are published and remain on Aksa Energy misleading information about the Company Company’s operations, such as ongoing Investor Relations website for five years. and cannot spread rumors. The Company projects, mid- and long-term strategies, shall take and implement necessary by adhering to the content of material b. Delay of Insider Information’s Public precautionary measures to prevent sharing event statements. The equality principle is Disclosure and Protection of Confidentiality this information outside the Company. adhered to when inviting members of the Aksa Energy can delay the public disclosure media to the meetings. Only the Chairman of insider information so as not to c. Informing Investors and Analysts, of the Board of Directors, Board members, mislead the public and provided that this Written-Verbal Statements, Press Releases, CEO and other persons assigned by the information can be held as confidential Conferences and Statements Made to News referenced senior managers are authorized to prevent damage to its legal rights and Agencies to make written and verbal statements to legitimate interests within the provisions The Investor Relations Department has the print and visual media, news agencies of the applicable Communiqué. As soon the duty and responsibility to inform and data distribution channels such as as the reasons for the delay of public investors and analysts, and ensure two way Reuters, Bloomberg, Foreks, and the like. disclosure of insider information are information flow between the concerned removed, the referenced insider information parties and the Company. The written d. Website (www.aksaenerji.com.tr/en) is publicly disclosed as prescribed by the or verbal information demands made by Aksa Energy’s website – accessible at www. Communiqué. investors and analysts are responded aksaenerji.com.tr/en – is used effectively by to as publicly disclosed information by the Company to keep the public informed Other parties who communicate with the the Investor Relations Department in and to ensure easy access to announced Company’s employees who possess insider coordination with the relevant unit’s current and historic information about information will be informed that they managers and after the approval of the Company. The website was prepared are liable to protect the confidentiality relevant senior managers, written and/ in Turkish and English in a manner and of this information during the process of or verbally. If other units at the Company including content required by capital formation of the material event and during receive questions and information demands 112 CORPORATE GOVERNANCE

PUBLIC DISCLOSURE POLICY

markets legislation. The latest version As a rule, Aksa Energy does not give quiet period practices until the working of the Company’s main charter, periodic opinion about news, rumors and/or day following the disclosure – two weeks financial statements and reports, offering speculations that are in print and verbal before the Company publicly discloses the circular, public offering circular and agendas media and/or on the internet which do quarterly interim period results and three of General Assembly Meetings are posted not originate from Aksa Energy. However, weeks before it discloses annual financial on the website. in the event that news and rumors about results. Aksa Energy exist, which are different from The website will be continually updated to the information publicly disclosed through The Company can conduct informational reflect the latest status of the Company documents such as an offering circular, meetings with the participation of those and management structure. The Company circular, financial reports and the like and persons who are authorized to make public will respond immediately to all kinds of material event statements made previously disclosures during the quiet period; these information requests received via the and do not directly originate from Company persons can participate in conferences, website. In addition, all the statements authorities and are published in the panels and similar activities and can make made to the public by the Company can be media or appear in the public realm and written and verbal disclosures. However, accessed via the Company’s website. can influence the price of capital market information to be disclosed within this instruments or the investment decisions framework is limited to pre-interim period e. Analyst Reports of investors, a statement is made by the results and information previously publicly Analyst reports prepared about Aksa Company in keeping with capital markets disclosed by Aksa Energy. Energy by various intermediary company legislation. analysts are accepted as the responsibility “Blackout period” practices are put into of the preparing company. These reports or g. Forward Looking Statements effect by Aksa Energy separately from the revenue models are not verified, approved, Aksa Energy can publicly disclose the quiet period during certain periods of the taken responsibility of published on the evaluations pertaining to the Company’s calendar year; during the blackout period, Company website. forward looking targets and expectations Aksa Energy’s shares cannot be bought or that are of a nature of insider information in sold by persons who have access to insider In certain limited circumstances and upon cases that the Company deems necessary information. The blackout period begins one request, analyst reports can be reviewed in accordance with capital markets month before the date on which relevant provided that only publicly known and legislation. interim financial report is publicly disclosed retrospective information is used and is via the PDP and ends when the results are limited to a specific subject to prevent Forward looking statements are based on publicly disclosed on the PDP. misinforming the public. The Company reasonable assumptions and estimations. It can disclose the analysts who prepare a is clearly stated that in the statement that i. Persons with Administrative report about it and their contact details on the results to be realized may significantly Responsibility and Determination of the corporate website. Even though it can deviate from expectations due to potential Persons who are Closely Associated influence the capital market instrument’s risks, uncertainties and other factors. In with Them price or the investors’ investment decisions, case of a deviation due to unforeseen For all the transactions conducted by analysis and evaluations made on publicly developments, forecasts can be revised and persons with administrative responsibility disclosed information are not deemed to be this situation is immediately disclosed to regarding the shares representing the insider information. the public as prescribed by the procedures Company’s capital and other capital spelled out in the Public Disclosure Policy. market instruments that are based on f. Follow-up of the News and Rumors in the these shares and other persons who are Media and Communication Channels h. Quiet Period and Blackout Period closely related with them, in accordance Aksa Energy monitors news reports about Aksa Energy avoids sharing the Company’s with the provisions of the relevant the Company and the Group of companies financial results and other related matters Communiqué, Aksa Energy notifies persons made in major national broadcasting with capital market participants in certain with administrative responsibility in writing media organizations through a contracted periods of the calendar year in order to for the transactions carried out to be media monitoring agency. Every morning prevent statements that are contrary to notified to the relevant stock exchange by broadcasted news about the Company is the procedures specified in the Public whomever carried out the transactions. sent to senior managers and the Investor Disclosure Policy regarding the operational Definitions set forth in the Communiqué are Relations Department. results and to prevent unequal information taken into account when determining the distribution. This period is called the persons with administrative responsibility “quiet period.” Aksa Energy will conduct and persons closely associated with them. AKSA ENERGY 2018 ANNUAL REPORT 113

DONATION AND CHARITY POLICY

Aksa Energy is allowed to provide donations and charities to individuals, NGOs, associations, foundations, public agencies and institutions active in the areas of education, arts and culture, the environment, sports, among others, in line with Capital Markets Board regulations and the Company’s Code of Ethics.

At the annual General Assembly, under a special agenda item, Aksa Energy informs shareholders about the donations and charities provided in the relevant accounting period and discloses this information to the general public in the annual report. In the accounting period 01.01.2018 – 31.12.2018, the Company’s donations totaled TRY 201,068.

REMUNERATION POLICY FOR THE BOARD OF DIRECTORS AND SENIOR MANAGEMENT

1. Purpose 3. Basic Principles 4. Remuneration Policies Formulated in accordance with 3.1. The remuneration principles for the 4.1. The Company’s remuneration applicable regulations, obligations and members of Board of Directors and policies encompass all policies related principles laid out in the Capital Market senior management should be put down to the remuneration of senior managers Law and the Capital Markets Board’s in writing. The Company’s shareholders and employees. These policies are Corporate Governance Principles, the are allowed the opportunity to express designed in a manner that it will prevent Remuneration Policy was developed their opinions by presenting the the Company from taking excessive risk to put into writing, implement and principles to the shareholders for their and have a healthy financial structure in facilitate the audit of the remunerations information as a separate item at the line with the Company’s long term goals principles and guidelines that will General Assembly Meeting. and risk management. be determined for the members of the Board of Directors and senior 3.2. The prepared Remuneration Policy 4.2. The fundamental purpose of the managers. This will help ensure that is published on the Company’s website. Company’s remuneration policies is that the Company complies with CMB’s they will not include incentive systems Corporate Governance Principles and 3.3. When remunerating the that can harm the Company and that the Board of Directors continues Independent Board Members, stock employees’ interests; the remunerations its activities in an environment of trust options or payment plans based on will not total a proportion that may pose and transparency. the Company’s performance are not a risk in the equity and annual financial used. Care is taken to ensure that the statement; and the remunerations 2. Responsibility fees paid to the Independent Board should be made in accordance with fair, Aksa Enerji Üretim A.Ş.’s Corporate Members are at a level that will protect moderate and comparable criteria. Governance Committee is responsible their independence. for the Remuneration Policy and its 4.3. When making proposals regarding implementation on behalf of the Board 3.4. The Company cannot lend money the remuneration principles for the of Directors. or allow using credit, extend the members of the Board and senior duration of previously extended loans managers, in addition to adhering to Kazancı Holding’s Human Resources or credits, improve the conditions, legal and regulatory requirements, the Department is responsible for carrying allow using credit under a personal Company’s current financial status, out day-to-day practices under the loan through a third party or cannot goals and revenues planned to be Company’s remuneration policies. guarantee favorable bailment for obtained in the future are taken into any members of the Board or senior account. management in its Remuneration Policy content. 114 CORPORATE GOVERNANCE

REMUNERATION POLICY FOR THE BOARD OF DIRECTORS AND SENIOR MANAGEMENT

4.4. Traditionally, equal remuneration 5. Remunerations The remuneration that will be given to for the equal performance principle is Remuneration at the Company consists the members of the Board and senior adopted at the Company. The aim is of two kinds: fixed and variable. managers are not associated only with to reach a balance among the paid the Company’s short term performance remuneration by taking into account the 5.1. Fixed Remunerations: It should such as profit or revenue. The members importance, difficulty and responsibility be ensured for the remunerations of the committees that are composed of and risk of the job position. that will be given to the members of Board members can be remunerated by the Board and senior managers to taking into account the responsibilities 4.5. It is aimed to give remuneration be in compliance with the Company’s that they undertake. Care is taken for objectively to everyone to the extent internal balances, strategic targets such remunerations to be in compliance that they deserve, without giving favor and ethical values. Fixed remuneration with the Company’s ethical values, and causing unrest. is determined in accordance with the internal balances and strategic targets. scope of duty and responsibilities. This 4.6. When making proposals regarding remuneration is calculated by taking It is possible to remunerate members the remuneration principles for the into account the required conditions of the Board and senior management members of the Board and senior and experience for each position. who have executive duty, according to managers, the Company’s long term These are cash payments made in fixed the Company’s performance; however, goals are taken into account. amounts in certain periods of the year care is taken that these incentive regularly and continually regardless payments are structured in a way that 4.7. The criteria that will be used for of Company’s performance, such as they will affect positively the Company’s remuneration are determined in a profit or revenue. These remunerations corporate values. way that connects the Company’s are defined at the appropriate level performance and the individual’s in accordance with the principle of It is not possible to guarantee the performance. complying with their counterparts variable remuneration made by the or market conventions. However, Company’s management. 4.8. Proposals regarding the when determining remunerations, the remuneration principles for members Company’s current financial status is 6. Policy Change of the Board and senior managers are taken into account. The Remuneration Policy is updated submitted to the Board of Directors at least once in a year after being by taking into account the degree of 5.2. Variable Remunerations: These reviewed by the Corporate Governance attainment of the criteria. are performance-based premiums, Committee in order to increase bonuses, all kinds of cash such as motivation and loyalty if deemed 4.9. The Corporate Governance commission and non-cash payments necessary in accordance with the Committee is obliged to take into that are outside the scope of fixed changes in the Company’s business account the Company’s current remunerations. Variable remunerations processes and the increased risks financial status, goals and revenues are determined in a way that they will within the sector in a manner that planned to be obtained in the future as not weaken the Company’s equity and supports the Company’s target and well as applicable legal and regulatory by taking into account current potential strategies. The policy is submitted to requirements. risks, capital and liquidity status and the shareholders for their information the possibility of realization of revenues during the General Assembly. Also, it is planned to be obtained in the future published on the Company’s website. and their timing. AKSA ENERGY 2018 ANNUAL REPORT 115

CODE OF ETHICS

1. Purpose are obliged to comply with. They provide Code of Ethics that the Company’s Aksa Enerji A.Ş. defines “Code of Ethics” an environment in which personnel can employees are obliged to comply with as those principles, guidelines and rules communicate openly regarding both the are classified under four main categories that should be complied with by all operation of the Company and ethical and presented in following items below. managers and employees, which were problems. They always display an honest • General Rules identified as adding financial value to and consistent manner in their behavior • Use of Company Resources shareholders and increasing corporate and decisions including existing or • Relationships value. The Company’s Code of Ethics potential conflicts of interest between • Liabilities against the Company aim to ensure that Aksa Energy their personal relations or financial managers and employees demonstrate and commercial interests and their 4.1. General Rules behavior and conduct at high standards; responsibilities to the Company. They to raise awareness among the staff notify the Ethics Committee without 4.1.1. Honesty that their behaviors and attitudes delay in case that there is a known or Integrity and honesty are our core have a corporate impact; to make sure suspected violation of the Company’s values in our all business processes that employees and shareholders use Code of Ethics. and relations. We act with integrity and the most appropriate methods and honesty in our dealings with employees demonstrate the highest quality attitude and all stakeholders. and conduct. All of the members of the All Aksa Energy employees are Board, managers and employees are responsible for the implementation of 4.1.2. Respect for the Law expected to comply with Aksa Energy these principles that are within the In our operations, we act in accordance Code of Ethics as detailed below. scope of this document. Managers at all with all rules of law. Employees are levels are responsible for accompanying not allowed to conduct activities that 2. Scope the implementation, identifying any breach the law by thinking that they The Code of Ethics for all employees non-conformities and taking corrective are serving the Company’s or their own working at Aksa Energy and its actions. personal interests. companies. It is important and obligatory that every Aksa Energy In addition, Aksa Energy members of Accuracy and compliance with the law employee complies with these principles. the Board, Group Head and human in the financial and business records are The implementation of these principles resources managers/employees essential. is guarantee of perfection that Aksa are charged with supporting the Energy strives to achieve. The principles implementation of the Code of Ethics. If there was a doubt regarding the job have broad, general content and ensure These positions have the authority done in terms of legality, the matter is the minimum standard sought by the and competency to provide support in consulted with the Ethics Committee, Company. individual cases. the Company’s Group Head and Legal Affairs Director. 3. Responsibility In case of doubt about how to apply The Company’s managers are the principles in a particular case, the 4.1.3. Confidentiality responsible for creating a suitable problem will be forwarded to a relevant Confidential information can be environment for ethical principles in senior manager. defined as information that belongs the Company. Therefore, members to the Company and unknown by third of the Board and management staff Regarding the principles, Aksa Energy parties; if known, this information may above all accept the importance of employees who have questions or cause harm to the Company and/ ethical principles and compliance with comments that may be valid for today or its shareholders or may benefit them. They set an example with their or other cases in the future and not others. Confidential information is behavior, conduct and attitude toward limited to a certain case are obliged to related to financial, strategic, technical, other employees; they also implement communicate internally across Aksa commercial, employee personal rights, and keep alive these principles firstly Energy. subjects that are in the scope of a in the departments that are under confidentiality agreement made with their responsibility. They work for the 4. Code of Ethics third parties and similar information. placement of the Company’s culture Ethical principles are an important and for the employees to adopt the factor in terms of the Company’s norms, values and principles that they success as well as the individual success of staff members. 116 CORPORATE GOVERNANCE

CODE OF ETHICS

Employees are expected to protect The persons who have access to insider Employees leaving the job are required the referenced confidential information information are the chairman of the to transfer any securities, documents and to use it only for the Company’s board and members of the board of and equipment assigned to them in the operations. a publicly traded company, managers line of duty with a report. such as the general manager and The Company’s employees care about those who are in more senior positions, 4.2.2. Communication Tools protecting the information that belongs auditors, other than these those Email is used only as a communication to Aksa Energy and all its stakeholders. persons who can gain this information tool in business; care is taken not to use Our employees share this information during carrying out their professions email for non-business reasons. only with the relevant persons within and duties, those persons who can gain specified authorities. The employees this information directly or indirectly by Email is used rather than the telephone cannot use confidential information in means of being in touch with referenced whenever possible. a way to provide them any commercial persons. interests, including buying and selling Fax, copier, Internet, and similar tools shares on the stock exchange by means These persons can buy and sell shares are not to be used for private matters. of sharing confidential information from that belong to Aksa Energy companies inside the Company. only by using publicly disclosed 4.2.3. Company Vehicles information and for the purpose of Employees who are allocated motor Employees cannot share confidential investment. (Holding the shares more vehicles by the Company are to show information with third parties when than three months is considered as the necessary attention and care in the leaving the Company. investment purpose.) use of these vehicles.

The employees are obliged to deliver Aksa Energy employees other than Any traffic fines must be paid from the back all kinds of confidential documents these referenced persons can freely employee’s own budget; the Company or electronic copy documents that buy and sell shares that belong to Aksa cannot be asked to pay for damages they received during their tenure at the Energy companies only by using publicly caused due to the employee’s personal Company. disclosed information without time faults. restrictions. All official statements are announced 4.2.4. Working Spaces to investors, shareholders and the The practices mentioned above are In the Company’s buildings, goods and public in a complete, simultaneous valid for employees, spouses and services other than the area of activity and understandable manner in line children; transactions made by the cannot be bought and sold. Outside with the quality principle through the spouse and children are considered to of working hours, any documents, departments specified by Aksa Energy. be done by the employee. paperwork, and the like that may be of a private nature cannot be left on 4.1.4. Personal Securities Investments 4.2. Use of Company Resources desks, tables or in the open. Our employees cannot make personal investments with Aksa Energy Utmost care is taken in the use of The following rules shall be followed companies’ shares or other investment the Company’s monetary and non- regarding the use of our Company’s instruments which may cause conflict monetary resources. These resources office premises. of interest with their duties and cannot be used for things like personal responsibilities in the Company, when use, spending, making gifts, donations • Posters, hand-written notes may not managing their personal investments. and political aid. be posted. • Political and social campaigns are not It is forbidden for those who are in a job 4.2.1. Office Equipment and Stationery conducted; funds cannot be collected position to be able to know information Stationery, printed material and all kinds for these campaigns. that is not publicly disclosed to carry of company equipment, used only for • Publications contrary to law and out insider trading to provide interest company business, cannot be taken out Company policy are not distributed. for themselves and/or third parties by of the Company. Care is taken to abide • Harmful substances such as alcohol, using this kind of information. by economy principles for items used drugs, and weapons cannot be kept. within the Company. AKSA ENERGY 2018 ANNUAL REPORT 117

• All kinds of documents containing 4.3. Relationships procedures. Information requested by confidential and critical information authorities from the Company must be is the responsibility of our employees; 4.3.1. Commercial Relations with provided accurately and on time. these items are not to be left on Persons, Institutions and Organizations the desk, cabinet or table during or All of our employees are careful 4.3.4. Stakeholders outside working hours. to be appropriate, consistent, At Aksa Energy, our main goal is to • Office premises will not be scattered. trustworthy, helpful and punctual in create sustainable economic value for • Games of chance, cannot be played, their relationships with our customers all our stakeholders. To this end, our distributed, nor sold. and those in commercial business objective is to consider the interests of relationships with our Company. all our stakeholders. 4.2.5. Representation Expenses Representation costs are used for Product/service agreements with Partnerships and business relationships clients and business meetings. parties in a business relationship are configured for long-term and are with the Company are carried out in based on the principle of trust. Representation expenditures are only accordance with relevant laws, rules used in relevant areas; the areas of and regulations in addition to Company The Company safeguards stakeholders’ expenditure cannot be switched. policies and procedures. When rights and benefits equally and justly executing these contracts, the following while organizing the business activities 4.2.6. Gift-giving on Behalf of the points are taken into consideration: of the Company. Company, Making a Donation Gifts that are in line with the Those who are in a business relationship The aim is to create value for all principles set forth by the Company’s with the Company are bound by the stakeholders. management, compatible with corporate regulations of the Company; business business objectives, appropriate under operations and processes are carried The Company operates within a current law and that will not leave Aksa out in accordance with ethical business framework of financial discipline and Energy in a difficult situation in case of principles. accountability in all its activities. it becoming public knowledge, can be given on behalf of the Company. The opinion of the Legal Department Statements made to stakeholders and and other relevant departments are the public about financial tables, the The content of the gift and promotional taken for the contracts, agreements Company’s strategy and investments materials to be given to third persons and protocols to be made between are accurate, timely, complete and clear in business dealings are approved by the Company and those in a business in informational content. senior management; there is no need relationship with the Company. The for additional permission for their selection of the firm is based on 4.4. Liabilities against the Company distribution. objective criteria such as cost/benefit, without undue influence of anyone. 4.4.1. Gifts, Invitation, Aid and Donations 4.2.7. Time Management Acceptance of Gift: Customers, Time is one of the important resources 4.3.2. Media Relations subcontractors and suppliers cannot be of the Company. Our Company To give an interview to any media asked for gifts; absolutely no mention employees make good use of time and organization, to conduct interviews, or hint can be made about it. Any do not take time for personal business to participate as a speaker at gift, money, checks, properties, free during business hours. Managers will seminars, conferences, and the like, holidays, special discounts, and the like not appoint employees to conduct all must receive prior approval from that put the Company and the person their personal business. Ensuring the the Company’s senior management. who accepts a gift under obligation is effectiveness of time spent on meetings Personal gain cannot be obtained from unacceptable. Gifts that are valued over is the responsibility of the organizer; these activities. TRY 50 and that are predicted to not it is essential that all participants affect the decisions to be made may be come prepared to the meeting. All 4.3.3. Relations with Public Authorities accepted upon prior notification made participants of the meeting comply with Relations with public authorities are to a senior manager. In this manner, the time allotted for the start and end carried out in keeping with applicable the total value of gifts that can be time. law and Company policies and accepted may not exceed the amount of TRY 500. 118 CORPORATE GOVERNANCE

CODE OF ETHICS

Acceptance of Invitation: Participation Customers/suppliers are treated 4.4.4. Health, Safety and Environmental in business meetings that does not equally and fairly when it comes to a Protection affect the decisions of the employees conflict of interest between all parties. Managers and employees show the participating in the invitation and that Our employees perform their duties necessary attention and care for the does not contradict Company policies impartially, and make every effort to do continuation of the Company’s activities and interests may be carried out with so. and the healthiest, most reliable and the written or verbal approval of a minimal impacts to the environment for senior manager. To avoid conflicts of interest, our employees. employees comply with the following Aid and Donations: Any aid and rules: 4.4.5. Discrimination donations from any individuals and • Not to enter into a debtor-creditor Managers and employees treat organizations that have business relationship with customers/suppliers, everyone unbiased, fairly and equally; relationships with the Company cannot and not to agree to vouch for them or they do not in any way allow abuse to be accepted. Information of offered for their bail. occur. No one shall be subjected to donations and aid is shared with the • Not to engage in domestic or non- discriminatory treatment for reasons senior management in any and all domestic travel, go on vacation or such as age, language, race, nationality, situations. accept invitations with customers/ health status, gender, marital status, suppliers of which the costs are fully religion, political opinion, or philosophical 4.4.2. Not to Engage in Activities That or partially covered by the Company, belief. For those who fail to comply with Create a Conflict of Interest without the knowledge and permission these rules, the Company may impose Conflict of interest is an inverse of a senior manager. sanctions or exercise the rights of relationship between Company interests • Not to accept a gift from customers/ termination of the employment contract. and personal interests and the interests suppliers that might have the content Any complaint in this regard will not of customers or suppliers. It is essential and value of a liability for themselves be hampered. Employees may report for Aksa Energy’s employees to avoid and not to provide benefits from the their complaints as any complaint in activities that may create a conflict customer’s/supplier’s business area this regard to the Human Resources of interest. The name and power of in excess of the normal practice (e.g. Department, bypassing 1st and 2nd the Company’s resources cannot be make special discounted purchases) senior managers. used for personal benefit. To actively by using the authority. avoid situations that could negatively • Not to enter into a business 4.4.6. Personal Assistance and affect the reputation and image of the relationship with spouses, relatives Donations organization is the most important and friends. (If an interest in favor of Employees of the Company can help responsibility of all employees. the Company is involved a working third parties outside the Company relationship can be established, prior personally, materially and morally; can Our employees, managers and Board approval of a senior manager is make donations; and can take part in members shall refrain from any required.) charities. interference that may be construed • Not to be influential in the promotion as providing for themselves personally or reward decisions of the employee’s 5. Resolving Incompatibilities of or their relatives. A position within the spouse or close relatives within the Code of Ethics Company, the Company’s goods and Company or its affiliates. Violators of the Code of Ethics services and Company information or the Company’s policies and cannot be used for personal interests 4.4.3. Doing Business outside the procedures, shall be subject to and gain. Company disciplinary sanctions that might lead Employees cannot accept permanent to separation from work if necessary. Special interests from customers/ or temporary, paid or unpaid, official or Disciplinary sanctions also apply to suppliers cannot be provided; transfer of private duties without permission by the persons who approve and direct the benefits cannot be performed through Company, and cannot engage in trade. acts of misconduct and violates the establishing the relationship between rules, or knows these issues but does the customers/suppliers. not make the necessary notification as appropriate. AKSA ENERGY 2018 ANNUAL REPORT 119

5.1. Ethics Committees The rapporteur of the Committee is After the resolution is reached, within appointed by the Company Senior six business days, it is communicated to 5.1.1. Aksa Energy Ethics Committee Manager. the employee and any necessary action The Ethics Committee consists of an is taken. Until the Ethics Committee Aksa Energy Board Member, Group 5.2. Functions of the Ethics Committee clarifies the issue, it is assumed that the President/Group Vice President, Human The Ethics Committee is responsible for issue is unbeknownst to the employer Resources Director, Legal Affairs investigating and resolving complaints and that the employee is innocent of Director and Audit Director. The Human and notifications concerning violations the matter at hand. Resources Department serves as the of the Aksa Energy Code of Ethics. rapporteur of the Committee. Members 5.4. Ethics Committee’s Authorities can be added to or released from the 5.3. Principles Governing Ethics The Ethics Committee is authorized to Committee upon the approval of the Committee Meetings and Decisions take the following actions in order to Chair, who presides over the Committee, When a violation of Code of Ethics make a full assessment of the files and or of the Vice Chair. Decisions reached takes place or is heard of in any documents concerning the investigation, are put into practice upon the approval department of the Group/Company, and reach a resolution: of the Chair or Vice Chair. this must be reported to the Human a) To analyze the record files of Resources Department with the individuals concerned; When Aksa Energy Ethics Committee is intermediation of the next level b) To demand and receive information to convene to discuss issues regarding manager, in writing or via email. These from the authorities in question; employees under the level of Manager, reports must be addressed to the email c) To meet with witnesses and experts; the Committee must comprise the address at [email protected]. d) To take the testimony of the Department Manager of the employee employee under investigation; in question, as well as the Human Reports of violations from outside the e) To carry out other kinds of research Resources Director, Legal Affairs Company should also be addressed to and investigation as needed. Director and the Audit Director. Other the address [email protected]. members could be added upon the The Board, if necessary, may seek approval of the Chair of the Committee. Within six business days following expert opinion and can benefit the report of the incident, the Human from experts taking measures to 5.1.2. Company Ethics Committee Resources Department must send avoid breaching the principles of The Company Ethics Committee must a written letter inviting the Ethics confidentiality during the investigation. be chaired by the relevant Group Committee to convene. President or the Power Plant Manager 6. Date of Effect appointed by the Group President, The Committee convenes within six The revised Code of Ethics shall and comprise Human Resources business days to discuss an incident become effective as of January 7, 2016. Manager, an Auditor appointed by the that constitutes a disciplinary In all matters not mentioned here, one Audit Director, and a Lawyer (a staff transgression and initiates an is to act in accordance with the opinion lawyer where available, otherwise a investigation if necessary. Upon of the senior management of the contracted lawyer). Upon the approval completion of the investigation, the Company. of the Company Senior Manager, Ethics Committee is once again invited new members could be added to the to convene to reach a resolution. The 7. Public Disclosure Committee. These new members are Committee reaches a resolution, puts Aksa Energy Code of Ethics must preferably chosen according to the it into practice and registers it in the be explained to the public and to all issue at hand, or the department in resolutions ledger. The Committee can employees. In case of any change in the question. reach a resolution with a majority of Code of Ethics, the same obligations votes. In case of a tie, the Committee apply. The Company Ethics Committee Chair’s vote will count as two votes. convenes to discuss issues concerning employees below Manager level. 120 CORPORATE GOVERNANCE

COMBATTING BRIBERY AND CORRUPTION

Aksa Energy Ethics Committee is ANTI-BRIBERY AND ANTI- - to make political donations under responsible for investigating and CORRUPTION POLICY any condition or in any form; resolving any complaint or report as - to make any travel and to the violation of the Code of Ethics. 1. Purpose and Scope accommodation expenses, except In 2015, the managers of all business 1.1. The Anti-Bribery and Anti- in cases specified by the Board of departments in the Company monitored Corruption Policy and its annexes Directors; compliance with the Anti-Bribery and (hereinafter: the “Policy”) are created as to give or accept gifts. Anti-Corruption Policy and Program; an annex to the Code of Ethics in order no instance of non-compliance was to promote and increase the Company’s The actions listed in this Article and reported to the Ethics Committee nor corporate value and reputation and other similar actions are considered as to the senior management. Neither to protect Aksa Energy (hereinafter: corruption by the Policy. did employees nor individuals acting the “Company”) and its stakeholders on behalf of the Company file any against all risk; these contain the basic 2.2. The executives, employees and complaints of bribery or corruption. To norms about principles, practices, audit other individuals acting on behalf or receive any allegations of violations of and reporting standards with regard account of the Company shall show the Policy and Program, a system which to bribery, corruption, job facilitating zero tolerance to corruption in any protects the anonymity of the alleger payments, compliance with applicable transaction or business carried out with has been set up; the email account laws and regulations, political donations, or on behalf of the Company. [email protected] has been created travel and accommodation expenses, to receive such allegations and has and gifts. 2.3. The Company is committed to been shared with all employees. The not imposing any sanctions on its mail address has also been included 1.2. The Policy has been approved by employees for not offering bribes. in the Code of Ethics accessible on the Board of Directors, which is also the website and thus is disclosed to charged with implementing the Policy. 2.4. The Company is committed to the general public. As part of internal not retaliating against employees who audit efforts, one audit was performed 1.3. The Company’s Board Members, report a case of corruption. in 2015 to check for compliance with executives, employees and other the Policy and Program; during the individuals working on behalf of the 2.5. Breach of the anti-bribery principle referenced audit, the effectiveness Company (including intermediaries, could result in termination of the of the Policy and Program was also consultants and representatives), employment contract. reviewed. Independently of the Internal business associates (subcontractors, Audit Department, the Corporate suppliers, agencies) fall under the 2.6. Donations or sponsorships provided Governance Committee also presented scope of the Policy, and are obliged to to any organization will be decided upon its report on compliance with the Policy act according to the Policy and other by the Board of Directors, and disclosed and Program to the Board of Directors. applicable laws or regulations. on the corporate website. In line with the Human Resources Policy, employees were given an online 2. Principles, Commitments and seminar on the Anti-Bribery and Anti- Other Relevant Practices Corruption Policy in 2018 so as to draw 2.1. It is forbidden for executives, further attention to this issue. employees and other individuals or agencies under the scope of the Policy: - to extend bribes; - to resort to any kind of job facilitating payment in order to facilitate and speed up the Company’s businesses; AKSA ENERGY 2018 ANNUAL REPORT 121

3. Communication of the Policy and 4. Policy and Program Compliance, individuals who endorse or guide the Anti-Corruption Program Monitoring, Audit and Reporting inappropriate behavior or transgressive 3.1. A copy of the Policy is provided 4.1. All department managers are actions, and to individuals who refrain to each employee or other individuals under the obligation of continuously from properly reporting such behavior acting on behalf of the Company at the monitoring compliance with the Policy despite having prior knowledge thereof. time of recruitment or at the beginning and Program and reporting any of the business affair; employee receipts possible non-compliance to the senior 5.2. The Ethics Committee is attesting to their having read the Policy management. responsible for investigating and are collected. resolving any complaints and reports 4.2. A system which does not disclose concerning breach of the Policy or 3.2. The Policy is communicated to the alleger’s identity is created in violation of the Program. real persons and legal entities (e.g. order to report any allegations of contractors, sub-contractors and non-compliance with the Policy and 5.3. The Ethics Committee may seek suppliers) who supply goods and Program. expert opinion when necessary and services to the Company according to a may ask for help from experts during contract, and over whom the Company 4.3. Necessary actions are taken to the investigation after taking the does not have control. identify bribers and to create a blacklist necessary action so as not to violate of bribers. the principles of confidentiality. During 3.3. The training program for employees the investigation, the Ethics Committee and individuals acting on behalf of the 4.4. Compliance with the Policy and is provided with all the documents Company and the staff is designed Program is audited whenever necessary, and information that it demands. All to cover the fight against bribery and and not less than once a year, by taking employees are obliged to assist the corruption. into account the areas of risk and Ethics Committee in this regard. weights of risks identified by internal 3.4. The Company has established an audit efforts; during this audit, the 6. Date of Effect Anti-Corruption Program (hereinafter: efficiency of the Policy and Program are The Policy has come into effect as the “Program”) to identify the areas of also reviewed. of May 29, 2015. On any issue not risk and the weights of these risks in the addressed hereby, action is taken Company’s businesses and processes, 4.5. The Corporate Governance according to the opinions to be and the methods and instruments to Committee is in charge of reporting presented by the senior management of fight against corruption effectively. The on compliance with the Policy and the Company. Program comes into effect upon the Program. This reporting must cover a approval of the Executive Board. review of the Policy and Program as 7. Public Disclosure well. The Policy must be disclosed to the 3.5. The Board of Directors appoints a public and Company staff. Similarly, Chair and an Anti-Corruption Program 5. Actions Against Non-Compliance any amendments to the Policy must be Officer to create the Program, and with the Policy disclosed to the public and Company to monitor the implementation of the 5.1. Individuals who breach the Policy or staff. Policy and Program. violate the Program shall be subject to various disciplinary sanctions including termination of the employment contract if deemed necessary. Disciplinary sanctions will also be applied to 122 CORPORATE GOVERNANCE

DIVIDEND DISTRIBUTION POLICY

The basis of the Company’s profit distribution appears in detail in Article 17 of the Articles of Association of the Company.

Accordingly, 50% of the distributable net profit for the relevant period – which is calculated after deducting losses of previous years from the Company’s net profit for the period, which was determined according to the provisions set forth in the Turkish Commercial Code and the Capital Market Law, and in conformity with generally accepted accounting principles – shall be distributed in cash or as gratis shares which shall be issued by means of adding such an amount to the share capital subject to the resolution to be rendered by the General Assembly or through the use of both methods at specified rates. The General Assembly is authorized to decide on the completion of the distribution processes within legally defined periods of time.

The resolution on dividend distribution shall be evaluated and prepared by the Board of Directors based on the Company’s long-term strategies, financing needs, short-term financial liabilities, conditions set forth in contracts made with creditors and the Company’s profitability; and it shall be presented for the approval of the General Assembly. The procedures and principles set forth in the Company’s Articles of Association shall be applied during dividend distribution.

As of the accounting period of the dividend, irrespective of its issuing and acquiring dates, the annual profit shall be distributed equally to all existing shares. There is no privilege in the Company’s Articles of Association with respect to dividend rights.

Dividend distribution can be carried out in equal or unequal installments provided that it is authorized by the General Assembly. The number of installments is determined by the General Assembly or the Board of Directors provided that the Board has been clearly authorized. Requirements of the respective capital markets legislation shall be abided by if dividend distribution will be made in installments.

With respect to announcements on dividend rights and dividend distribution, respective provisions of the Turkish Commercial Code No. 6102, Capital Market Law No. 6362, and Regulation of Dividend Distribution No. II-19.1 and other related capital markets legislation.

The profit distribution policy was approved by the Board of Directors resolution dated May 23, 2014 and numbered 303, and was submitted to shareholders at the General Assembly on August 5, 2014. Changes to the profit distribution policy were also disclosed to the public in accordance with the stipulations of applicable legislation. AKSA ENERGY 2018 ANNUAL REPORT 123

AMENDMENTS TO ARTICLES OF ASSOCIATION IN 2018

There were no amendments to the Articles of Association in 2018. 124 GENERAL ASSEMBLY

ORDINARY GENERAL ASSEMBLY

ORDINARY GENERAL ASSEMBLY FOR 2017 HELD ON MAY 15, 2018 AGENDA OF THE ORDINARY GENERAL ASSEMBLY FOR 2017

1. Inauguration of the meeting, election of the Presidential Board of the General Assembly; 2. Authorization of the Presidential Board of the General Assembly to sign the minutes of the meeting; 3. Presentation, discussion and approval of the Board of Directors’ Annual Report and Independent Audit Firm Report for fiscal year 2017; 4. Presentation, discussion and approval of the accounts in the financial statements for fiscal year 2017; 5. Release of each Board Member for their activities in fiscal year 2017; 6. Approval of the choice of independent audit firm made by the Board of Directors within the framework of the Turkish Commercial Code and capital markets legislation; 7. Discussion and approval of the Board of Directors’ proposal on the profit distribution method, amount, form and calendar for the operating profit for 2017; 8. Determination of the remuneration, attendance fee, bonus and premiums for Board Members; 9. Authorization of the Board Members to perform the transactions set forth in Articles 395 and 396 of the Turkish Commercial Code; 10. Provision of information to the General Assembly about the transactions specified in Article 1.3.6 of the Capital Markets Board’s Corporate Governance Principles in 2017; 11. Provision of information to shareholders about the donations and grants made by the Company in 2017, and determination of an upper limit for the donations and grants that can be made by the Company in 2018; 12. Provision of information on the guarantees, pledges, mortgages and income or benefits presented in favor of third parties in 2017, as per capital markets legislation; 13. Opinions and closing Exercise of Rights on the Agenda.

The Company conducted the Ordinary General Assembly on the activities of fiscal year 2017 simultaneously physically and online on May 15, 2018.

As required by law, General Assembly Meetings were announced to the Ministry of Customs and Trade, Energy Market Regulatory Authority, Capital Markets Board and Borsa Istanbul (Stock Exchange).

The meeting date and agenda were announced within the necessary deadline, on page 1014 of Turkish Trade Registry Gazette No. 9565 and dated April 25, 2018; on the Company’s Investor Relations website at www.aksainvestorrelations.com/tr; on the Public Disclosure Platform; and on Central Registry Agency’s Electronic General Assembly System (EGKS), pursuant to Article 414 of Turkish Commercial Code No. 6102; Article 10 of the Communique on the Rules and Standards of General Assembly Meeting of Corporations and the Representatives of the Ministry of Customs and Trade Attending these Meetings; Article 29 of Turkish Capital Market Law No. 6362; Capital Markets Board’s Corporate Governance Communique No. II-17.1; and the Company’s Articles of Association. As regards the shares that are not within the context of exception mentioned in Article 29 Paragraph 2 of the Capital Market Law, written notifications were made on April 17, 2018 via registered and reply-paid correspondence for those who posted their mailing addresses.

The announcements of the Annual General Assembly Meeting included the meeting location, date and time; the agenda; a statement that the invitation was extended by the Board of Directors; and the procedures to follow for shareholders to attend the Annual General Assembly Meeting. Furthermore, the Information Document, including all relevant information about the General Assembly, was made available to all stakeholders together with invitations to the assembly. The Information Document includes information on the total number of shares and voting rights reflecting the Company’s shareholding structure; the number of shares and voting rights representing each class of preferred shares if there are preferred shares in the Company’s capital; changes in the management or activities of the Company or its major subsidiaries or affiliates that transpired in the previous reporting period or that are planned for the coming period which may have a significant impact on the Company’s operations in addition to the justifications for these changes; annual reports and annual financial statements for the last two fiscal years of all entities that are party to such changes; the justification for any discharge or change as well as information on the persons who will be nominated for a seat on the Board of Directors if the General Assembly Meeting agenda includes the release, replacement or election of Board Members in addition to the justifications for release and replacement; information on individuals nominated to the Board AKSA ENERGY 2018 ANNUAL REPORT 125

of Directors; the resolution of the Board of Directors related to the amendment, if any, of the Articles of Association included in the agenda as well as the old and new versions of the amendments; background information on the individuals nominated to the Board of Directors, the positions they have held over the last ten years and the reasons for leaving these positions, the nature and material level of their relationship with the Company and its related parties, and whether they meet the criteria for Independent Board Members and information on other related matters that could potentially affect the Company operations if they were elected Board Members. The above referenced information was disclosed to the general public on the date the General Assembly announcement was placed.

No request was made by shareholders, the Capital Markets Board (CMB) and/or other public institutions or organizations with which the Company is concerned, to include any item on the agenda of the General Assembly Meeting. Financial statements and reports and agenda items for the Annual General Assembly Meeting were made available to shareholders, beginning from the date of announcement of the invitation to the Annual General Assembly Meeting, on the Public Disclosure Platform, at the Company’s headquarters, and on a corporate website in such a way that these materials may be accessed easily.

While preparing an agenda for the Annual General Assembly Meeting, each agenda item is added under a different title; expressions that are suggestive and open-ended are actively avoided in drawing up agenda items. Terms such as “other” and “miscellaneous” are actively avoided in agenda items; the information to be provided prior to an Annual General Assembly Meeting is stated by referring to the related agenda items.

The Annual General Assembly Meetings are held in a manner that avoids any inequalities between shareholders while ensuring participation of the shareholders with a minimum cost to increase the level of participation by shareholders. Thus, as stated in the Articles of Association, the meeting is organized at the Company’s headquarters or at a suitable location in the city the Company is headquartered in.

Pursuant to the Turkish Commercial Code, and applicable laws, rules and regulations, the Meeting Chair undertakes preparations and obtains the necessary information related to holding a general meeting.

At the Annual General Assembly Meeting, issues on the agenda are communicated to shareholders in an impartial, thorough, clear and understandable manner such that they may express their views under the same conditions and are offered an opportunity to ask questions. If a question asked is not related to the meeting agenda, or if it is a very detailed question that cannot be answered right away, the question posed is responded to by the Investors Relations Department in writing within a maximum period of 15 days. All questions asked during the Annual General Assembly Meetings and answers provided are disclosed to the public on the Company’s website within a maximum period of 30 days following the date of the Annual General Assembly Meeting. No proposals were made to include any new item on the agenda and no questions were posed on matters not related to the agenda of the 2017 Annual General Assembly Meeting, which was held on May 15, 2018. The questions posed by shareholders, audience members and meeting attendees during the General Assembly Meeting were responded to via appropriate explanations by the Chief Executive Officer and senior management.

Members of the Board of Directors, other related parties, officers responsible for preparing the financial statements and auditors attend the Annual General Assembly Meeting to provide information concerning agenda items as prioritized and to answer questions.

According to Article 1527 of Turkish Commercial Code, Law No. 6102, the preparations for the Electronic General Assembly of the Company have been carried out in accordance with legal and regulatory requirements. On May 15, 2018, out of a total of 613,169,118 shares, 592,600 shares corresponding to TRY 592,600 in capital were represented in person, 31,181,391 shares corresponding to TRY 31,181,391 in capital were represented by appointed proxies and 496,750,574 shares corresponding to TRY 496,750,574 in capital were represented by other representatives. As such, the meeting quorum required by the applicable legislation and the Articles of Association were met. No media representatives attended the meeting.

Information was presented to shareholders at the Annual General Assembly Meeting as a separate agenda item regarding the amount of all donations and charitable contributions provided by the Company during the year. Pursuant to capital markets law, upper limits were designated by the Annual General Assembly Meeting regarding donations and charitable contributions to be made in 2018.

No request was made by shareholders to assign a special auditor during the period.

A list of attendees and the minutes of the Annual General Assembly Meeting are made available at the Company’s headquarters, posted on the Company’s website and published on the Public Disclosure Platform for the review and consideration of shareholders. 126 GENERAL ASSEMBLY

BOARD OF DIRECTORS’ PROPOSAL REGARDING DIVIDEND DISTRIBUTION

BOARD OF DIRECTORS’ PROPOSAL REGARDING DIVIDEND DISTRIBUTION

Resolution No. : 428 Meeting Date : 08.05.2019 Agenda : Proposal to Ordinary General Assembly Not to Distribute Dividends

The profit distribution proposal, prepared at the Board of Directors meeting held at the Head Office by taking into consideration the capital requirements, investment and financing policies, profitability and cash position of our Company and its subsidiaries, is presented below.

As per the 01.01.2018-31.12.2018 consolidated financial statements prepared in line with Capital Markets Legislation, the “(Consolidated) Net Profit” is TRY 150,478,434, while the profit attributable to the main company is TRY 26,094,071. It was unanimously resolved to propose to the Ordinary General Assembly that the net profit recorded in fiscal year 2018 be reserved as extraordinary legal reserve and no dividend be distributed for fiscal year 2018.

The purpose of the proposal not to distribute dividends is to strengthen the current balance sheet further and to ensure a sound cash flow management in the near future. To this end, the net profit for the period is planned to be used in meeting the working capital requirements of the upcoming periods and financing the Company’s investments.

Şaban Cemil Kazancı Ahmet Serdar Nişli Tülay Kazancı Chairman Vice Chairman Board Member

Mehmet Akif Şam Yaşar Erkin Şahinöz Murat Yeşilyurt Board Member Independent Board Member Independent Board Member AKSA ENERGY 2018 ANNUAL REPORT 127

DIVIDEND DISTRIBUTION TABLE

DIVIDEND DISTRIBUTION STATEMENT – 2018

1. Paid-in/Issued Capital 613,169,118 2. Total Legal Reserves (According to Legal Records) 12,752,093 Information on Privileges in Distribution, if any, in the Articles of Association

According to the According to the CMB Legal Records 3. Current Period Profit 179,777,248 334,260,549 4. Taxes and Legal Duties Payable (-) 29,298,814 - 5. Net Profit for the Period (=) 26,094,071 334,260,549 6. Losses in Previous Periods (-) - - 7. Primary Legal Reserves (-) 16,713,027 16,713,027 8. NET DISTRIBUTABLE PROFIT FOR THE PERIOD (=) 9,381,044 317,748,589 9. Endowments During the Year (+) 201,068 10. Endowment Added Distributable Net Period Profit on which First Dividend is Calculated 9,582,112 317,748,589 11. Primary Dividend to Shareholders - Cash - - Bonus - - Total - 12. Dividend Distributed to Owners of Privileged Shares - 13. Dividend Distributed to Members of the Board of Directors, Employees, et al. - 14. Dividend Distributed to Owners of Redeemed Shares - 15. Interim Dividend to Shareholders - - Cash - - Bonus - - Total - 16. Interim Legal Reserves - 17. Statutory Reserves -- 18. Special Reserves -- 19. EXTRAORDINARY RESERVES - 20. Other Distributable Items - Retained Earnings - Extraordinary Reserves - Other Distributable Reserves as per the Law and Articles of Association

*Since TRY 150.478.434 is attributable to non-controlling interests, TRY 26,094,071 is the base amount for the net profit of the main company.

INFORMATION ON DIVIDEND TO BE PAID – 2018 DIVIDEND PER SHARE TOTAL AMOUNT OF GROUP DIVIDEND (TRY) AMOUNT (TRY) SHARE (%) GROSS A0.00- - B0.00- - TOTAL 0.00

NET A0.00- - B0.00- - TOTAL 0.00 RATIO OF THE DIVIDEND DISTRIBUTED TO THE ENDOWMENT ADDED NET DISTRIBUTABLE PROFIT

RATIO OF THE DIVIDEND DISTRIBUTED TO SHAREHOLDERS TO THE DIVIDEND DISTRIBUTED TO SHAREHOLDERS (TRY) ENDOWMENT ADDED NET DISTRIBUTABLE PROFIT (%) 0,00 0% 128 FINANCIAL INFORMATION

STATEMENT OF RESPONSIBILITY

STATEMENT OF RESPONSIBILITY AS PER ARTICLE 9 OF THE CAPITAL MARKETS BOARD’S COMMUNIQUE II- 14.1. ON FINANCIAL REPORTING STANDARDS IN CAPITAL MARKETS

BOARD OF DIRECTORS’ RESOLUTION FOR THE APPROVAL OF FINANCIAL TABLES, ANNUAL REPORTS, CORPORATE GOVERNANCE INFORMATION FORM (KYBF) AND CORPORATE GOVERNANCE COMPLIANCE REPORT (URF)

Date: 18.03.2018 Number: 424

We present, for your information, the accompanying 01.01.2018 – 31.12.2018 accounting period Consolidated Statement of Financial Position, Statement of Comprehensive Income, Cash Flow Statement, Statement of Changes in Equity, and interim Annual Report, Corporate Governance Information Form (KYBF) and Corporate Governance Compliance Report (URF) (“Financial Reports”), all of which, together with their footnotes, have been prepared by our company, have been subjected to a limited-scope audit by the independent auditing firm of KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (a member firm of KPMG International), and conform to Turkish Accounting Standards/Turkish Financial Reporting Standards (TAS/TFRS) and to CMB-specified formats as required by Capital Markets Board Communique II-14.1 concerning Financial Reporting in Capital Markets (“Communique”). We hereby declare, in accordance with CMB regulations, that these Financial Reports:

- have been examined by us,

- within the framework of information available to us by virtue of our duties and responsibilities at the Company, that they contain no inaccurate statement insofar as material issues are concerned nor any omissions that might result in their being misleading as of the date on which such statements are made;

- within the framework of information available to us by virtue of our duties and responsibilities at the Company, that they honestly reflect the true picture of the Company’s assets, liabilities, financial position, and profits & losses, including those of entities whose financial reports conforming to the Communique are subject to consolidation and that the annual report honestly reflects the conduct and performance of business as well as the financial position of and the material risks and uncertainties confronting the Company along with any entities subject to consolidation with it.

We hereby acknowledge our responsibility for the foregoing statements.

Very truly yours,

Şaban Cemil Kazancı Yaşar Erkin Şahinöz Murat Yeşilyurt Chairman Independent Board Member Independent Board Member Chairman of Audit Committee Member of Audit Committee AKSA ENERGY 2018 ANNUAL REPORT 129

BOARD OF DIRECTORS’ RESOLUTION REGARDING FINANCIAL TABLES

Date: 18.03.2018 Number: 425 Meeting Place: Head Office Agenda: Resolution of the Board of Directors on the Approval of the Financial Statements, Annual Report, Corporate Governance Information Form (KYBF) and Corporate Governance Compliance Form for the period 01.01.2018-31.12.2018

The Company’s Board Members convened to discuss the agenda item.

After discussions, the following decisions were reached unanimously: We have analyzed the Consolidated Financial Statements, Annual Report, Corporate Governance Information Form (KYBF) and Corporate Governance Compliance Form concerning the activities of Aksa Energy and its subsidiaries (the “Group”) issued on 31 December 2018 as per the Capital Markets Board’s Communique II-14.1. on Financial Reporting Standards in Capital Markets as well as International Accounting/Financial Reporting Standards, and presented by the Audit Committee to the Board of Directors,

In light of information falling within the scope of Group’s duties and responsibilities, the consolidated financial statements do not include any untruthful statements concerning major issues nor any deficiency that could be misleading as of the date of the statement,

In light of information falling within the scope of the Group’s duties and responsibilities, the consolidated financial statements in compliance with the financial reporting standards in effect truthfully reflect the reality of the Group’s assets, liabilities, financial position, and profit and loss; while the annual report presents the development and performance of the business, and truthfully reflects the Group’s financial position, complete with the major risks and uncertainties that the Group faces,

The consolidated financial statements and annual report have been approved and will be sent to Borsa Istanbul.

Şaban Cemil Kazancı Ahmet Serdar Nişli Tülay Kazancı Chairman Vice Chairman Board Member

Mehmet Akif Şam Yaşar Erkin Şahinöz Murat Yeşilyurt Board Member Independent Board Member Independent Board Member 130 FINANCIAL INFORMATION

ANNUAL AFFILIATION REPORT

AKSA ENERJİ ÜRETİM A.Ş. SUBSIDIARIES’ ANNUAL AFFILIATION REPORT

1. GENERAL INFORMATION Term: 01.01.2018 – 31.12.2018 Commercial Title: Aksa Enerji Üretim A.Ş. and Subsidiaries Trade Registry No: 366771 Headquarters Address: Rüzgarlıbahçe Mahallesi Özalp Çıkmazı, No: 10, Kavacık, Beykoz, Istanbul/Turkey

Branch Addresses of Aksa Energy and Affiliates include:

Branch/Plant Company Address Cyprus Aksa Energy Kalecik Köyü, Yeni İskele, G. Magusa, KKTC Bolu-Göynük Aksa Göynük Himmetoğlu Köyü Göynük/Bolu Ali Metin Kazancı Enerji San. Antalya Burdur Karayolu 30. km Antalya Aksa Energy Selimiye (Karadon) Köyü Antalya Manisa Aksa Energy Gürle Köyü Yolu Üzeri, Emlakdere Mevkii 45000 Manisa Organize Sanayi 2 Bölge Koçören Köyü Muhtarlığı bitişiği Urfa- Şanlıurfa Rasa Enerji Antep Karayolu 16. km Şalıurfa Ghana Aksa Energy Company Ghana Limited Heavy Industrial Area Plot No.2/8/9 Tema Ghana Kati (Mali) Centrale Thermique de Sirakoro Meguetana Boite Mali Aksa Mali S.A. Postale 1597/Mali Madagascar Aksaf Power Limited Madagascar Ambohimangakely District Antananarivo Avadrano Madagascar

Contact Information Telephone: +90 216 681 00 00 Fax: +90 216 681 57 84 Website: www.aksaenerji.com.tr/en a. Organization, Capital and Shareholder Structure of the Company

• Registered Capital: The Company’s registered capital is TL 613,169,118 as of 31.12.2018. • Shareholder Structure: The Company’s Shareholder Structure as of 31.12.2018 is as follows:

Title of Shareholder Share (%) Kazancı Holding A.Ş. 78.60 Publicly traded 21.39 Other 0.01 AKSA ENERGY 2018 ANNUAL REPORT 131

b. The Governing Body of the Company, Executives and Staff Information

Company’s Governing Body: The Company’s Board of Directors consists of 8 members; details of the members are as follows:

Board of Directors Name – Last Name Chairman Şaban Cemil Kazancı Vice Chairman Ahmet Serdar Nişli Board Member Tülay Kazancı Board Member Mehmet Akif Şam Energy Group Head, CEO and Board Member Cüneyt Uygun * Independent Board Member Erkin Şahinöz Independent Board Member Murat Yeşilyurt Independent Board Member Kayhan Yararbaş (Mr. Yararbaş resigned as of 23.11.2018. The seat remains vacant as of 31.12.2018.)

Executives

Title Name – Last Name Energy Group Head, CEO and Board Member Cüneyt Uygun * Vice President, CEO of Aksa Energy Trade and Sales Murat Kirazlı Vice President, Chief Operating Officer (COO) Soner Yıldız Vice President, Chief Financial Officer (CFO) Cem Nuri Tezel Domestic Power Plants Operation and Maintenance Director Senlav Güner Investor Relations and Corporate Communications Director Özlem McCann Finance Manager Sadık Murat Ateş Corporate Finance Manager Aylin Kırhan

*Resigned on December 31, 2018

Number of Personnel: The Company employed 977 personnel in fiscal year 2018. c. The Company’s Summary Financial Statements for 2018

The Company posted after-tax profit of TRY 150,478,434 in the period 01.01.-31.12.2018, and as of 31.12.2018, its total assets amounted to TRY 6,438,141,992 and shareholders’ equity amounted to TRY 1,817,952,136.

2. INFORMATION ON THE PARENT COMPANY AND ITS OTHER SUBSIDIARIES a. Information on the Parent Company Term of Report: 01.01.2018 – 31.12.2018 Commercial Title: Kazancı Holding A.Ş. Rüzgarlıbahçe Mahallesi Özalp Çıkmazı, No: 10, Kavacık, Office Address: Beykoz, Istanbul/Turkey b. Information on the Subsidiaries of Parent Company

Transactions with other companies of the parent company in the 01.01.2018 – 31.12.2018 accounting period, are described in section 3.b. 132 FINANCIAL INFORMATION

ANNUAL AFFILIATION REPORT

3. INFORMATION ON TRANSACTIONS WITH THE PARENT COMPANY AND ITS OTHER SUBSIDIARIES a. Transactions with the Parent Company

In the accounting period 01.01.-31.12.2018, the Company received an SAP system maintenance expense amounting to TRY 614,057, other expenses amounting to TRY 5,714,870 and a maturity term difference amounting to TRY 16,282,374 from Kazancı Holding A.Ş. i. Products Sold to or Purchased from the Parent Company

In the accounting period from 01.01.2018 to 31.12.2018, no products were sold to or purchased from the parent company. ii. Services Sold to or Purchased from the Parent Company

In the accounting period 01.01.-31.12.2018, the Company received an SAP system maintenance expense amounting to TRY 614,057, other expenses amounting to TRY 5,714,870 and a maturity term difference amounting to TRY 16,282,374 from Kazancı Holding A.Ş.

i. Methods Used in Transactions with the Parent Company In the 01.01.2018 – 31.12.2018 accounting period, the comparable price method is used for transactions with the parent company.

ii. Calculations Used to Determine the Price and Profit Margin and Assumptions Made in Transactions with the Parent Company In the 01.01.2018 – 31.12.2018 accounting period, transactions carried out with the parent company consisted of SAP system maintenance, the purchase and sale of fixed assets, income and expenses of maturity term difference. b. Transactions with the Affiliated Companies of the Parent Company

In the 01.01.2018 – 31.12.2018 accounting period, the transactions with the other subsidiaries of Kazancı Holding A.Ş are summarized below: i. Sales to Related Parties:

Related parties that are subsidiaries or affiliates of the parent company Kazancı Holding 01.01.201 – 31.12.2018

Goods/Services Other Aksa Elektrik Satış A.Ş. 120,535,007 - Other 100,355 203,428 Total 120,635,362 203,428

Related Parties that are Indirect Subsidiaries or Affiliates of the Parent Company Kazancı Holding

Goods/Services Other Çoruh Elektrik Perakende Satış A.Ş. 15,171,959 72,990 Aksa Power Generation (Dubai) 7,433,416 - Other 1,345 606 Total 37,269,097 73,596 AKSA ENERGY 2018 ANNUAL REPORT 133

Related Parties that Do Not Have a Direct Capital Relationship but Have Common Senior Executives with the Group:

Goods/Services Other

Koni İnşaat Sanayi A.Ş. 30,492,251 767,074

Other - 11,768

Total 30,492,251 778,84

Total 188,396,710 1,055,866 ii. Purchases from/to Related Parties:

Related parties that are subsidiaries or affiliates of the parent company Kazancı Holding 01.01.2018 – 31.12.2018

Goods/Services Other Aksa Şanlıurfa Doğalgaz Dağıtım Ltd. Şti. 36,633,933 - Aksa Elektrik Satış A.Ş. 21,362,610 108,733 Aksa Manisa Doğalgaz Dağıtım A.Ş. 15,284,747 - Aksa Doğal Gaz Toptan Satış A.Ş. 4,098,024 - Kazancı Holding A.Ş. 340,458 6,532,053 ATK Sigorta Aracılık Hizmetleri A.Ş 238,265 6,619,805 Aksa Jeneratör Sanayi A.Ş. 11,612 496,155 Other -831 Total 77,969,649 13,757,577

Related Parties that are Indirect Subsidiaries or Affiliates of the Parent Company Kazancı Holding

Goods/Services Other Fırat Elektrik Perakende Satış A.Ş. 6,901,292 - - Çoruh Elektrik Perakende Satış A.Ş. 2,321,778 - Other 10,195 22,407 Total 9,233,265 22,407

Related Parties that Do Not Have a Direct Capital Relationship but Have Common Senior Executives with the Group

Goods/Services Other Koni İnşaat Sanayi A.Ş. 542,820 2,548,340 Other 231,453 921,118 Total 774,273 3,469,458 Total Purchases from Related Parties 87,977,187 17,249,442 134 FINANCIAL INFORMATION

ANNUAL AFFILIATION REPORT

iii. Financing income to related parties

Related Parties that are Subsidiaries or Affiliates of the Parent Company Kazancı Holding 01.01.2018 – 31.12.2018

Interest Rate and Exchange Rate Difference Aksa Elektrik Satış A.Ş. 36,655,886 Kazancı Holding A.Ş. 16,282,374 Aksa Jeneratör Sanayi A.Ş. 1,214,986 Other 912,080 Total 55,065,326

Related Parties that are Indirect Subsidiaries or Affiliates of the Parent Company Kazancı Holding

Çoruh Elektrik Perakende Satış A.Ş. 172,917 Fırat Elektrik Perakende Satış A.Ş. 26,477 Other 36,352 Total 235,746

Related Parties that Do Not Have a Direct Capital Relationship but Have Common Senior Executives with the Group

Koni İnşaat Sanayi A.Ş. 5,927,426 Flamingo Enerji Üretim ve Satış A.Ş. 80,190 Other -- Total 6,007,616

Total Financing Income to Related Parties 61,308,688 iv. Financing expenses to related parties 01.01.2018 – 31.12.2018

Related Parties that are Subsidiaries or Affiliates of the Parent Company Kazancı Holding

Aksa Elektrik Satış A.Ş. 830,593 Aksa Jeneratör Sanayi A.Ş. 30,685 Aksa Havacılık A.Ş. 17,607 Aksa Manisa Doğalgaz Dağıtım A.Ş 6,453 Other 7,265 Total 892,603

Çoruh Elektrik Perakende Satış A.Ş. 15,760,154 Fırat Elektrik Perakende Satış A.Ş. 14,115,900 Other 53,881 Total 29,929,935

AKSA ENERGY 2018 ANNUAL REPORT 135

Flamingo Enerji Üretim ve Satış A.Ş. 495,781 Koni İnşaat Sanayi A.Ş. 27,962 Elektrik Altyapı Hizmetleri Ltd. Şti. -- Other 58,731 Total 582,474

Total Financing Expenses to Related Parties 31,405,012

4. LEGAL TRANSACTIONS WITH THE PARENT COMPANY AND ITS OTHER SUBSIDIARIES a. Legal Proceedings to which the Parent Company is a Party

Legal proceedings to which the parent company is a party are listed below:

• About the invalidity of the brand in the categories of 01/02/03/04/05/06/08/09/10/11/13/14/15/17/18/19/21/22/23/24/2 5/26/27/28/32/33/34/35/36/37/38/39/41/42/43/44/45 where the “Kazancı” brand is registered • About the Cancellation of the Kazancı Group brand and the request of leaving the registry • About the return to work case b. Legal Proceedings to which Another Subsidiary of the Parent Company is a Party

In the 01.01.2018 – 31.12.2018 accounting period, there are no legal proceedings that another subsidiary of the parent company is a party. c. Legal Proceedings with the Parent Company’s Routing

In the 01.01.2018 – 31.12.2018 accounting period, there were no legal proceedings with the parent company’s routing. d. Legal Transactions Carried Out for the Benefit of the Parent Company or Its Affiliated Companies

In the 01.01.2018 – 31.12.2018 accounting period, there were no legal transactions carried out for the benefit of the parent company or its affiliated companies.

5. MEASURES TAKEN REGARDING TRANSACTIONS WITH THE PARENT COMPANY AND ITS AFFILIATED COMPANIES a. Measures Taken for the Benefit of the Parent Company

In the 01.01.2018 – 31.12.2018 accounting period, there were no transactions made for the benefit of the parent company. b. Measures Avoided to be Taken for the Benefit of the Parent Company

In the 01.01.2018 – 31.12.2018 accounting period, there were no measures avoided to be taken for the benefit of another subsidiary of the parent company. c. Measures Taken for the Benefit of Another Subsidiary of the Parent Company

In the 01.01.2018 – 31.12.2018 accounting period, there were no transactions made with another subsidiary of the parent company. 136 FINANCIAL INFORMATION

ANNUAL AFFILIATION REPORT

d. Measures Avoided to be Taken for the Benefit of Another Subsidiary of the Parent Company

In the 01.01.2018 – 31.12.2018 accounting period, there were no transactions made with another subsidiary of the parent company. e. Has the Company suffered a loss as a result of transactions made with the parent company and other affiliated companies?

In the 01.01.2018 – 31.12.2018 accounting period, the Company received SAP system maintenance revenue of TRY 614,057, other expenditures worth TRY 5,714,870 and maturity term difference revenues of TRY 16,282,374 from Kazancı Holding. f. If the Company has suffered a loss, whether the loss was balanced, and if it was, what are the methods used in the realization of equalization and balancing activities during the year?

In the 01.01.2018 – 31.12.2018 accounting period, there was no loss as a result of transactions made with parent company Kazancı Holding A.Ş.

6. OTHER ISSUES There is no other issue to be added.

7. RESULT It was concluded that in each and every transaction that Aksa Energy executed with its controlling shareholders and the subsidiaries of its controlling shareholders in 2018, based on the situation and conditions known to us at the time the transaction was executed or the measure was taken or the measure was refrained from being taken, the Company had a commensurate gain in return and there was no measure taken or refrained from being taken that will lead to losses for the Company and, accordingly, there were no transactions or measures that require compensation.

This report was prepared in compliance with true and fair accounting principles pursuant to Article 199 of the Turkish Commercial Code, Law No. 6102, and signed and approved by the Board of Directors.

18.03.2019

Şaban Cemil Kazancı Ahmet Serdar Nişli Tülay Kazancı Chairman Vice Chairman Board Member

Mehmet Akif Şam Yaşar Erkin Şahinöz Murat Yeşilyurt Board Member Independent Board Member Independent Board Member AKSA ENERJİ ÜRETİM A.Ş. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 WITH INDEPENDENT AUDITOR’S REPORT THEREON

18 March 2019 This report includes 3 pages of independent auditor’s report and 75 pages of consolidated financial statements together with their explanatory notes. 138 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES

Table of Content Independent Auditors’ Report Consolidated Statement of Financial Position Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements AKSA ENERJİ ANNUAL REPORT 2018 139

Independent Auditors’ Report

To the Shareholders of Aksa Enerji Üretim A.Ş.

Opinion

We have audited the consolidated financial statements of Aksa Enerji Üretim A.Ş. (“the Company”) and its subsidiaries (“the Group”), which comprise the consolidated statements of financial position as at 31 December 2018, and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2018, and its consolidated financial performance and its consolidated cash flows for the year ended in accordance with International Financial Reporting Standards (IFRS).

Basis for opinion

We concluded our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics for Auditors issued by POA (“POA’s Code of Ethics”) and the ethical requirements in the regulations issued by POA that are relevant to our audit of the consolidated financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Recoverability of trade and other receivables from third parties and initial application of IFRS 9

The key audit matter How the matter was addressed in our audit As at 31 December 2018, trade and other receivables Audit procedures that are applied in this matter involves below: from third parties have formed major part of Group’s consolidated total assets. - Understanding of the process of Group’s collection of trade and other receivables from third parties, evaluation of the design and operating effectiveness of internal controls As at 1 January 2018, Group initially adopted IFRS 9 in the process. Financial Instruments. IFRS 9 is a new and complex - Analytical review of ageing of trade receivables and comparison of collection turnover accounting standard which requires significant rate with previous year, judgment for the provision of impairment. Provisions - Inquire about the management of any disputes or proceedings related to collections of impairment for trade and other receivables and obtain information about the proceedings from legal counsel, from third parties, are recognized for as a result - Testing of trade receivable balances from third parties by sending external of assumptions made considering guarantees confirmations with sampling method, received from customers, customer’s past payment - Testing the accuracy of the maturity information in the receivable ageing through performance and credibility information with the invoices and other related documents and testing the subsequent collections for the maturity analysis of trade and other receivables. recoverability of the amounts that cannot be collected in the long term and testing the These estimates are very sensitive to future market value of the received guarantees in cash, conditions. Therefore, the recoverability of trade - Testing collections after reporting period with sampling method, and other receivables from third parties and initial - Evaluation of the assumptions used in model for the expected credit loss calculation, adoption of IFRS 9 are determined as a key audit - Assessment of the appropriateness and adequacy of the disclosures given in the matter. consolidated financial statements regarding to recoverability of trade and other receivables from third parties. 140 FINANCIAL INFORMATION

Depreciation and impairment of Property, plant and equipment

The key audit matter How the matter was addressed in our audit As at 31 December 2018, the net book value of property, plant and Audit procedures that are applied in this matter involves below: equipment is TL 3.774.056.402 have formed major part of Group’s consolidated total assets. - Understanding the depreciation calculation and accounting process property, plant and equipment and evaluation of the design and The Group present its land and buildings and land improvements and operating effectiveness of internal controls. machinery and equipment at its fair value at the revaluation date, less - Evaluation of the consistency of estimates such as useful life and accumulated depreciation and subsequent accumulated impairment residual value used in depreciation calculations property, plant and losses. The Group assess at each reporting date to determine whether equipment with previous period and property, plant and equipment, there is objective evidence that it is impaired. - Providing the Group’s depreciation calculations, and re-calculating the depreciation and accumulated depreciation amounts of the The Group calculates the depreciation of property, plant and period, equipment by using the straight-line method and using some estimates - Recalculating and testing the depreciation amounts of the Group, such as useful life that determine the depreciation amounts to be including the conversion of the related amount to the functional calculated. currency, in the calculation of the depreciation of the property, plant and equipment of the foreign operations The depreciation calculations are complex and the indicators used in - Evaluating and examining the impairment analysis of property, plant the assessment at each reporting date to determine whether there and equipment made by Group management, is objective evidence of impairment are the significant accounting - Assessment of the appropriateness and adequacy of the disclosures estimates. Therefore, the depreciation and impairment of property, given in the consolidated financial statements. plant and equipment are determined as the key audit matter.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. AKSA ENERJİ ANNUAL REPORT 2018 141

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 142 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Audited Audited Restated (*) ASSETS Notes 31 December 2018 31 December 2017 Current assets Cash and cash equivalents 22 53,026,362 59,577,791 Trade and other receivables 21 1,403,203,217 759,563,092 Due from related parties 33 406,262,617 41,374,904 Derivative financial assets 30 413,737 2,576,770 Inventories 18 369,140,605 426,867,338 Prepayments 20 15,312,166 9,355,506 Current tax assets 12 31,363,575 3,292,537 Other current assets 19 152,049,712 124,924,838 Subtotal 2,430,771,991 1,427,532,776 Assets held for sale 35 -- 46,013,293 Total current assets 2,430,771,991 1,473,546,069

Non-current assets Financial investments 16 412,408 412,408 Trade receivables and other receivables 21 1,545,269 15,662,583 Property, plant and equipment 13 3,774,056,402 3,635,797,549 Intangible assets 14 91,845,092 72,616,102 Goodwill 15 3,349,356 3,349,356 Prepayments 20 14,234,496 4,135,958 Deferred tax asset 17 125,276,334 -- Total non-current assets 4,010,719,357 3,731,973,956

TOTAL ASSETS 6,441,491,348 5,205,520,025

* Please refer to Note 2.

The accompanying notes from an integral part of those consolidated financial statements AKSA ENERJİ ANNUAL REPORT 2018 143

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Audited Audited Restated (*) LIABILITIES Notes 31 December 2018 31 December 2017 Current liabilities Loans and borrowings 25 1,898,442,337 1,281,784,265 Other financial liabilities 26 246,368,464 259,814,613 Trade payables and other payables 21 336,331,469 428,163,954 Due to related parties 33 239,348,509 85,276,884 Derivative financial liabilities 30 8,293,208 3,052,466 Taxation payable on income 12 71,354,527 2,732,752 Provisions 29 2,158,292 2,371,672 Other current liabilities 28 25,218,808 79,570,413 Deferred revenue -- 1,050,813 Total current liabilities 2,827,515,614 2,143,817,832

Non-current liabilities Loans and borrowings 25 1,586,768,204 1,158,627,222 Other financial liabilities 26 13,919,586 136,278,110 Reserve for employee severance indemnity 27 4,350,528 3,000,204 Deferred tax liabilities 17 184,734,615 96,618,904 Total non-current liabilities 1,789,772,933 1,394,524,440 -- -- Total liabilities 4,617,288,547 3,538,342,272

EQUITY Share capital 23 615,157,050 615,157,050 Legal reserve 23 48,267,560 48,267,560 Cash flow hedge reserves 23 (3,518,526) 2,060,997 Actuarial gain/loss 23 898,193 1,566,073 Translation reserves 23 43,037,685 25,486,345 Share premium 23 247,403,635 247,403,635 Gains on revaluation of property, plant and equipment 23 821,844,347 882,386,856 Accumulated losses 23 (156,832,331) (470,564,802) Net profit for the year 26,094,071 257,947,268 Total equity attributable to equity holders of the Company 1,642,351,684 1,609,710,982 Non-controlling interests 23 181,851,117 57,466,771 Total equity 1,824,202,801 1,667,177,753

TOTAL EQUITY AND LIABILITIES 6,441,491,348 5,205,520,025

* Please refer to Note 2.

The accompanying notes from an integral part of those consolidated financial statements 144 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Audited Audited 1 January- 1 January- INCOME STATEMENT Notes 31 December 2018 31 December 2017 Revenues 6 4,669,249,102 3,599,311,868 Cost of sales 6 (3,933,709,353) (3,283,982,668) Gross profit 735,539,749 315,329,200

Administrative expenses 9 (68,239,611) (55,047,968) Marketing and selling expenses 10 (1,370,976) (1,258,384) Other operating income 7 18,257,699 24,725,041 Other operating expenses 7 (33,862,938) (8,570,535) Operating profit 650,323,923 275,177,354

Impairment losses accordance with IFRS 9 (11,218,447) (7,424,552) Gain from investing activities 8 2,640,864 525,275,061 Loss from investing activities 8 -- (36,858,228) Operating profit before finance costs 641,746,340 756,169,635

Financial income 11 424,894,229 88,925,423 Financial expenses 11 (886,863,321) (598,027,562) Net financial costs (461,969,092) (509,102,139)

Profit before tax for the year 179,777,248 247,067,496

Tax benefit/(expense) (29,298,814) 43,143,042

Current tax expense 12 (67,892,244) (4,532,705) Deferred tax benefit 12 38,593,430 47,675,747

Profit for the year 150,478,434 290,210,538

Non-controlling interest 124,384,363 32,263,270 Attributable to equity holders of the parent 26,094,071 257,947,268

Total profit/(loss) for the year from continuing operations 150,478,434 290,210,538

Other Comprehensive Income Items that will not be reclassified to profit or loss: Gains on revaluation of property, plant and equipment 13 -- 1,148,789,260 Remeasurements of the defined benefit liability 27 (834,850) 436,614 Tax on items that will not be reclassified to profit or loss 17 166,970 (237,844,003) Items that are or may be reclassified subsequently to profit or loss: Effective portion of changes in fair value of cash flow hedges (6,974,425) 1,237,143 Foreign currency translation differences from foreign operations 17,551,340 (3,987,316) Tax on items that are or may be reclassified subsequently to profit or loss 17 1,394,885 (247,429) Other comprehensive income for the period, net of tax 11,303,920 908,384,269

Total comprehensive loss for the period 161,782,354 1,198,594,807 Non-controlling interests 124,384,346 59,886,575 Attributable to equity holders of the parent 37,398,008 1,138,708,232

The accompanying notes from an integral part of those consolidated financial statements AKSA ENERJİ ANNUAL REPORT 2018 145 -- 989,714 349,291 (3,987,315) 917,670,020 (21,681,964) (21,681,964) 290,210,538 290,210,538 Non- 37,947) 490,264,909 interests Equity Total controlling controlling 5,110,571 58,704,622 1,673,815,193 Net (Loss) Total Profit / Profit 40) 368,010,433 -- -- Losses Retained Retained earnings/ Accumulated Accumulated differences Translation Translation Gains on revaluation of of revaluation and equipment property, plant plant property, Cash Cash reserve flow hedge flow Actuarial Actuarial gain/ (loss) those consolidated financial statements consolidated those Legal Legal reserves ,924,807 ------(371,935,2 Share Share premium ------3,924,807 ------(393,535,346) 368,010,433 (81,858) (21,600,106) (21,600,106) (21,681,964) -- (21,600,106) (81,858) Share Share capital The accompanying notes from an integral part of an integral from notes The accompanying AKSA ENERJİ ÜRETIM ANONİM ŞIRKETİ AND ITS SUBSIDIARIES SUBSIDIARIES ÜRETIM ANONİM ŞIRKETİ AND ITS ENERJİ AKSA OF CHANGES IN EQUITY STATEMENT CONSOLIDATED 2018 DECEMBER THE YEAR ENDED 31 FOR STATED.) OTHERWISE IN TURKISH LIRA UNLESS EXPRESSED (AMOUNTS Translation differenceTranslation cash hedgesof value fair of changes in portion Effective income comprehensive other Total earnings retained to Transfer ------989,724 -- -- 3 -- 351,785 989,724 887,786,445 -- (2,967,401) ------257,947,268 1,144,107,821 61,124,427 -- 1,205,232,248 -- (2,967,401) --989,724 -- (10) -- -- (2,967,401)(1,019,914) Acquisition of non-controlling interest without a change in interest non-controlling of Acquisition control directly recognised the Company, of with owners Transaction in equity 2017 December at 31 Balance 615,157,050 247,403,635 48,267,560 1,566,073 2,060,997 887,786,445 25,486,345 (470,564,802) 257,947,268 1,61 SHAREHOLDERS' EQUITY SHAREHOLDERS' 2017 at 1 January Balance the period for Net profit gain / (loss)Actuarial PPE of Revaluation 615,157,050 247,403,635 44,342,753 1,214,288 1,071,273 ------28,453,746 -- -- (77,029,456) (368,010,433) 492,602,856 (2,3 ------351,785 ------887,786,445 ------257,947,268 257,947,268 32,263,270 -- -- 887,786,445 29,883,575 351,785 (2,494) 146 FINANCIAL INFORMATION -- -- (667,880) 17,551,340 (4,757,306) (6,637,440) (5,579,540) 150,478,434 Non- interests Equity Total 384,346 161,782,354 controlling controlling 110,571 58,704,622 1,673,815,193 351,684 181,851,117 1,824,202,801 Net 7,268 1,604,953,676 57,466,771 1,662,420,447 Profit /(Loss)Profit Total Losses Retained Retained earnings/ Accumulated Accumulated differences Translation Translation Gains on revaluation of of revaluation (60,542,509) -- 60,542,509 -- -- and equipment property, plant plant property,

those consolidated financial statements consolidated those Cash flow Cash hedge reserve Actuarial Actuarial gain/ (loss) Legal Legal reserves Share premium Share Share capital The accompanying notes from an integral part of an integral from notes The accompanying Translation differenceTranslation of value fair of changes in portion Effective hedgescash the period for loss comprehensive other Total earnings retained to Transfer the Company, of with owners Transaction in equity directly recognised 2018 December at 31 Balance -- -- 615,157,050 -- 247,403,635 48,267,560 ------898,193 -- (667,880) (3,518,526) (5,579,523) -- -- 821,844,347 -- (60,542,509) -- 43,037,685 17,551,340 (156,832,331) -- -- 60,542,509 -- 26,094,071 1,642, 26,094,071 -- 37,398,008 124, ------(5,579,523) ------17,551,340 ------257,947,268 -- (257,947,268) 257,947,268 (257,947,268) -- -- 17,551,340 ------(5,579,523) ------(17) -- SHAREHOLDERS’ EQUITY SHAREHOLDERS’ 2018 at 1 January Balance with IAS accordance restatement of Effect policyof change in accounting Effect as restated 2018 at 1 January Balance the period for Net profit 8 -- gain / (loss)Actuarial 615,157,050 615,157,050 PPE of Revaluation 247,403,635 247,403,635 48,267,560 48,267,560 -- -- 1,566,073 1,566,073 2,060,997 2,060,997 882,386,856 -- 887,786,445 -- 25,486,345 25,486,345 -- (470,564,802) (475,322,108) -- 257,947,268 257,94 -- 1,615, ------(5,399,589) -- -- (667,880) ------(4,757,306) -- (5,399,589) ------(1,237,851) (4,757,306)------26,094,071 26,094,071 -- 124,384,363 (667,880) -- AKSA ENERJİ ÜRETIM ANONİM ŞIRKETİ AND ITS SUBSIDIARIES SUBSIDIARIES ÜRETIM ANONİM ŞIRKETİ AND ITS ENERJİ AKSA OF CHANGES IN EQUITY STATEMENT CONSOLIDATED 2018 DECEMBER THE YEAR ENDED 31 FOR STATED.) OTHERWISE IN TURKISH LIRA UNLESS EXPRESSED (AMOUNTS AKSA ENERJİ ANNUAL REPORT 2018 147

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Audited Audited 1 January- 1 January- CASH FLOWS FROM OPERATING ACTIVITIES Notes 31 December 2018 31 December 2017 Net income/(loss) for the period 150,478,434 290,210,538 Depreciation and amortization 13,14 394,018,340 225,000,265 Provision for employee severance indemnity 27 1,068,442 1,737,030 Interest expense 11 584,888,056 412,724,369 Interest income 11 (84,677,833) (37,687,380) Tax benefit 12 29,298,814 (43,143,042) Expense from derivative transactions, net 11 (68,098,736) 2,274,964 Loss/(gain) on disposal of subsidiary -- (433,408,505) Gain on sale of asset-held-for-sale 8 -- (57,182,866) Gain on sale of tangible assets 8 (2,640,864) (1,985,683) Unrealized foreign currency income/loss 131,237,229 270,468,189

Operating profit before working capital changes 1,135,571,882 629,007,879

Change in inventories 15,548,019 (35,814,326) Change in trade and other receivables (684,718,723) (388,258,275) Change in due from related parties (364,887,713) 18,562,848 Change in trade and other payables (144,285,791) 208,405,433 Change in due to related parties 158,713,274 12,191,663 Change in other current liabilities (46,409) (510,615) Change in assets and liabilities held for sale 46,013,293 110,700,360 Change in other current assets (10,774,672) 20,599,668

151,133,160 574,884,635

Taxes paid (5,428,423) (5,092,490) Employee termination indemnity paid 27 (552,968) (1,199,311) Interest paid (474,668,262) (377,907,056) Interest received 84,677,833 37,687,380

Net cash provided from operating activities (244,838,660) 228,373,158

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of subsidiary 34 -- 494,676,970 Proceeds from sale of asset-held-for-sale -- 72,066,016 Proceeds from sale of property, plant and equipment and intangible assets 44,813,488 5,674,087 Purchases of property, plant and equipment 13 (185,524,607) (317,600,343) Purchases of intangible assets 14 (802,055) (12,433,648) Net cash provided from/(used in) investing activities (141,513,174) 242,383,082

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issued bank borrowings 37 2,898,822,734 2,693,723,417 Repayments from banks borrowings 37 (2,579,670,969) (3,016,247,536) Change in issued derivatives 37 -- (135,000,000) Net cash outflow from derivatives 60,648,640 4,705,922

Net cash (used in)/provided from financing activities 379,800,405 (452,818,197)

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (6,551,429) 17,938,043 CASH AND CASH EQUIVALENTS AT 1 JANUARY 22 59,546,471 41,608,428 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 22 52,995,042 59,546,471

The accompanying notes from an integral part of those consolidated financial statements 148 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Note Description Page No

1. REPORTING ENTITY 149 2. BASIS OF PREPARATION 152 3. SIGNIFICANT ACCOUNTING POLICIES 157 4. DETERMINATION OF FAIR VALUES 172 5. FINANCIAL RISK MANAGEMENT 172 6. REVENUE 174 7. OTHER OPERATING INCOME AND EXPENSES 174 8. GAIN AND LOSS FROM INVESTING ACTIVITIES 175 9. ADMINISTRATIVE EXPENSES 176 10. MARKETING AND SELLING EXPENSES 176 11. FINANCIAL INCOME AND FINANCIAL EXPENSES 176 12. TAXATION 177 13. PROPERTY,PLANT AND EQUIPMENT 179 14. INTANGIBLE ASSETS 183 15. GOODWILL 183 16. FINANCIAL INVESTMENTS 184 17. DEFERRED TAX ASSETS AND LIABILITIES 184 18. INVENTORIES 185 19. OTHER CURRENT ASSETS 185 20. LONG AND SHORT TERM PREPAYMENTS 185 21. TRADE AND OTHER RECEIVABLES AND PAYABLES 186 22. CASH AND CASH EQUIVALENTS 187 23. CAPITAL AND RESERVES 187 24. EARNINGS PER SHARE 189 25. LOANS AND BORROWINGS 189 26. OTHER FINANCIAL LIABILITIES 191 27. EMPLOYEE BENEFITS 193 28. OTHER CURRENT LIABILITIES 193 29. PROVISIONS 194 30. DERIVATIVE FINANCIAL INSTRUMENTS 194 31. COMMITMENTS, CONTINGENCIES AND CONTRACTUAL OBLIGATIONS 194 32. FINANCIAL INSTRUMENTS 196 33. RELATED PARTIES 203 34. DISPOSAL OF SUBSIDIARY 209 35. ASSETS AND LIABILITIES HELD FOR SALE 215 36. OPERATING SEGMENTS 215 37. SUPPLEMENTARY CASH FLOW INFORMATION 216 38. SUBSEQUENT EVENTS 216 AKSA ENERJİ ANNUAL REPORT 2018 149

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

1. REPORTING ENTITY

Aksa Enerji Üretim A.Ş. (“Aksa Enerji” or “the Company”) was established on 12 March 1997 to engage in constructing, lending and operating of electricity power plant, production and sale of electricity or energy production capacity to the customers. The Company’s registered office address is Rüzgarlıbahçe Mahallesi, Özalp Çıkmazı, No:10, Kavacık-Beykoz, Istanbul / Turkey.

The shares of Company have been registered in the Borsa İstanbul A.Ş. (“BIST”) on 21 May 2010 under the name “AKSEN” and the shares are now publicly traded on the Istanbul Stock Exchange. As of 31 December 2018, 21,39% of the Group’s shares are listed on BIST.

The main shareholder of the Company is Kazancı Holding A.Ş. (“Kazancı Holding”).

Aksa Enerji and its subsidiaries are collectively referred to as “the Group” in this report. The details of the subsidiaries included in the consolidation are as follows:

Voting power held (%) Name of Subsidiary – Foreign Branch Principal Activity Place of Operation 31 December 2018 31 December 2017 Aksa Aksen Enerji Ticareti A.Ş. (“Aksa Aksen Enerji”) Electricity trade Turkey 100.00 100.00 Aksa Energy Company Ghana Limited (“Aksa Enerji Ghana”) Electricity production Ghana 75.00 75.00 Aksa Enerji Üretim A.Ş.-Y.Ş. (“Aksa Enerji – Y.Ş.”) Electricity production TRNC 100.00 100.00 Aksa Ghana B.V. (Aksa Ghana B.V) Holding company Netherlands 100.00 100.00 Aksa Global Investment B.V. (“Aksa Global B.V.”) Holding company Netherlands 100.00 100.00 Aksa Göynük Enerji Üretim A.Ş. (“Aksa Göynük Enerji”) Electricity production Turkey 99.99 99.99 Aksa Madagascar B.V. Holding company Netherlands 100.00 100.00 Aksa Mali S.A. Electricity production Mali 100.00 100.00 Aksaf Power Ltd.(“Aksaf Power”) Electricity production Mauritius 58.35 58.35 İdil İki Enerji Sanayi ve Ticaret A.Ş. (“İdil İki Enerji”) Electricity production Turkey 99.99 99.99 Overseas Power Ltd. (“Overseas Power”) Good and supply trade Mauritius 100.00 100.00 Rasa Enerji Üretim A.Ş. (“Rasa Enerji”) Electricity production Turkey 99.99 99.99

At 31 December 2018, the number of employees of the Group is 977 (31 December 2017: 1,019).

Aksa Aksen Enerji

Aksa Aksen Enerji was founded on 8 July 2015 by the Aksa Enerji with an ownership percent of 100,00% for the purpose of selling the electricity produced by the Group companies.

Aksa Energy Ghana

Aksa Energy Ghana was founded on 15 July 2015 by the Aksa Enerji in accordance with the electricity production and sale agreement signed with the Government of Ghana Republic. Unit of power plant with a capacity 192.5 MW started its operations on 10 April 2017. The installed power of the power plant has increased from 192.5 MW to 35 MW with a reserve capacity of total 280 MW as of 1 August 2017. As of 19 November 2018, the installed capacity of Ghana Fuel Oil Power Plant has increased from 2018 MW to 370 MW and thus the guaranteed capacity has been increased from 235,5 MW to 332 MW. Aksa Energy Ghana, sells all of the electricity generated during the agreement to the Ghana Electricity Authority (ECG) on a tariff basis determined in terms of US Dollars.

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Aksa Enerji - Y.Ş.

On 10 March 2009, Aksa Enerji- Y.Ş. made an electricity sale agreement with Electricity Distribution Company of Turkish Northern Cyprus (“KIB-TEK”) by providing service through lending the power plant constituting of diesel generator groups established in Kalecik-TRNC. The contract period is 15+3 years starting from 1 April 2009 and KIB-TEK commits to purchase all of the electricity produced during the contract period.

In accordance with the capacity increase investments of Kalecik Power Plant in TRNC, the installed capacity has been increased by 33 MW by the instalment of two units with the same engine specifications from the power plants whose licenses were cancelled. The installed capacity of our TRCN Kalecik Power Plant has increased to 153 MW, thus its percentage of availability has also grown by the increase in spare units capacity. Aksa Enerji-Y.Ş.’s factory land was leased from a third party in TRNC for 10 years on 12 February 2010 by Kazancı Holding. Aksa Enerji-Y.Ş. subleases from Kazancı Holding for 10 years.

Aksa Ghana B.V

On 24 November 2016, Aksa Ghana B.V. was established in Holland as a holding Company of Aksa Energy Ghana.

Aksa Global B.V

On 24 November 2016, Aksa Global was established in Holland to coordinate the foreign investments as a holding Company. Aksa Ghana B.V and Aksa Madagascar B.V are affiliated companies of Aksa Global B.V.

Aksa Göynük Enerji

Aksa Göynük Enerji has an royalty agreement with General Directorate of Turkish Coal for the use of coal in Bolu-Göynük reservoir and Aksa Enerji has a licence for the utilisation of this coal in its power plant with 270 MW capacity.

On 28 October 2011, Aksa Enerji acquired 99,99% of all shares of Aksa Göynük Enerji from Kazancı Holding, the ultimate parent company. The main operations of Aksa Göynük Enerji are constructing, lending and operating of electricity power plant, production and sale of electricity and all kind of exploration and production of natural gas and petroleum resources and mining.

First unit of the power plant with 135 MW has started its operations as of 30 September 2015 and second unit of the power plant with 135 MW has started its operations as of 29 January 2016.

Aksa Madagascar B.V.

On 19 October 2016, Aksa Madagascar B.V. was established as a holding company of Aksaf Power.

Aksa Mali S.A

On 6 February 2017, Aksa Mali SA was established for operating and maintenance coordination of Mali plant. On 4 August 2017, 10 MW powered portion from the first phase has been put in use. On 28 September 2017, the remaining 30 MW portion of 40 MW installed powered plant in total has been put in use.

Aksaf Power

Aksa Enerji established Aksaf Power with participation by Aksa Enerji and a local partner with an ownership interest of 58,35% and 41,65%, respectively, in Mauritius for the purpose of constructing a Heavy Fuel Oil (“HFO”) power plant with a capacity of 120 MW in Republic of Madagascar and guarantee sale of the electricity produced for 20 years. Aksaf Power started to construction of power plant upon receipt of the advances and guarantees in accordance with the agreement with Jiro Sy Rano Malagasy (“Jirama”), a public company in Republic of Madagascar providing water and electricity services in this country.

In the electricity sale agreement, tariff has been defined as US Dollar denominated and approximately 700.000 MW guaranteed sale from the power plant has been projected. The field, fuel oil supply, all license and permissions related to the project will be provided by Jırama. At the last quarter of the year 2016 construction has been started. On 4 August 2017, Installed power of power plant has increased to 50 MW and the remaining 16 MW powered portion from the first phase of 66 MW installed powered in total, has been put in use on 7 September 2017. Second phase of 54 MW installed power will be planned to put in use subsequent to the completion of transmission lines in the area. AKSA ENERJİ ANNUAL REPORT 2018 151

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

İdil İki Enerji

In 2001, İdil İki Enerji was acquired by Koni İnşaat Sanayi A.Ş. (“Koni İnşaat”), a related party, from Bilkent Group. Idil İki Enerji has a fuel oil fired power plant located in Şırnak with a capacity of 24 MW. The power plant started its operations in 2001. On 5 March 2010, Aksa Enerji acquired 99,99% of all shares of İdil İki İnşaat from Koni İnşaat. Licence of power plant has been cancelled on 7 February 2017.

Overseas Power

Overseas Power was established on 18 November 2016 in Mauritius in order to carry out the procurement of raw materials and goods mainly related to the activities of Aksaf Power. Overseas Power is dormant as of the reporting date.

Rasa Elektrik

Rasa Elektrik was established in İstanbul on 30 January 1996 with the named “Rasa Radyator Sanayi A.Ş.” in order to produce oil and water cooler for vehicles, agricultural machinery and generators. Rasa Radyator changed its name to “Rasa Elektrik Üretim A.Ş.” with the decision taken in the extraordinary general assembly meeting dated 12 November 2018. Rasa Elektrik completed the construction of the mobile plant in Mardin in 2001. The license of the power plant was canceled on 26 January 2017.

The land over which the power plant is located in Mardin, has been leased from Koni İnşaat A.Ş. (“Koni İnşaat”) in 2002, to be renewed annually. In November 2013, part of the manufacturing of radiators was split and received the title which was the Rasa Endüstriyel Radyatörler Sanayi ve Ticaret A.Ş. On 21 May 2018, shares of Rasa Elektrik were taken over by Aksa Göynük Enerji.

Rasa Enerji

Rasa Enerji was established on 12 September 2000 for production and distribution of electricity. Rasa Enerji’s 99,99% shares have been acquired by Aksa Enerji on 05 March 2010 from one of the related parties of Koni İnşaat.

Urfa plant started to generate electricity in August 2011 with an installed capacity of 129 MW and the investment to transform the plant into a combined cycle engine driven technology was completed in 2012.

In accordance with the capacity increase works of Şanlıurfa Natural Gas Power Plant, 18 MW capacity has been accepted by the Ministry of Energy and Natural Resources and commissioned on 18 November 2015. Thus, the installed capacity of Şanlıurfa Natural Gas Power Plant is increased to 147 MW.

As of 31 December 2018, electricity production licenses held by the Group are as follows:

Date of The Capacity of The Capacity Licence Owner Location Type of Facility Licence Started Licence Duration the Plant (MWhe) in Use (MWhe) Aksa Enerji TRNC Fuel oil 10 March 2009 15+3 153 153 Aksa Enerji Antalya (*) Natural Gas 13 November 2007 30 years 900 900 Aksa Enerji Manisa (**) Natural Gas 21 February 2008 30 years 115 115 Aksa Göynük Bolu Thermal 25 March 2008 30 years 270 270 Aksa Enerji Gana Gana Fuel Oil 1 August 2017 6,5 years 370 370 Aksa Mali S.A Mali Fuel Oil 28 September 2017 3 years 40 40 Aksaf Power Madagaskar Fuel Oil 5 September 2017 20 years 120 66 Rasa Enerji Şanlıurfa Natural Gas 12 May 2011 49 years 147 147 Total 2,115 2,061

(*)On 26 October 2018, the installed capacity of Antalya natural gas power plant was reduced from 1.150 MW to 900 MW with the application for license amendment to EMRA. Since the production part whose license has been canceled has not contributed to the actual production in 2018, the revised section has no effect in production or operation income on 2018. (**)The Group applied to Energy Market Regulatory License (EPDK) to cancel the production license of Manisa Natural Gas Combined Cycle Power Plant with an installed capacity of 115 MW. 152 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

2. BASIS OF PREPARATION a) Statement of Compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”).

The consolidated financial statements as at and for the year ended 31 December 2018 were approved by the Board of Directors on 18 March 2019. b) Basis of Measurement

The consolidated financial statements have been prepared on the historical cost basis and for the Group’s Turkish entities as adjusted for the effects of inflation that lasted by 31 December 2004, except for the followings:

• derivative financial instruments • financial assets • land and building and land improvements and machinery and equipment in property, plants and equipment

The methods used to measure the fair values are discussed further in Note 4. c) Functional and Presentation Currency

The Company and its subsidiaries operating in Turkey maintain their books of account and prepare their statutory financial statements in Turkish Lira (“TL”) in accordance with the accounting principles as promulgated by the Turkish Commercial Code and Tax Procedure Law. The foreign subsidiaries maintain their books of account in accordance with the laws and regulations in force in the countries in which they are registered.

The accompanying consolidated financial statements expressed in TL. All financial information presented in TL has been rounded to the nearest TL amounts, except when otherwise indicated.

The table below summarizes functional currencies of the Group entities.

Company Functional Currency Aksa Enerji A.Ş.– Y.Ş. US Dollars (“USD”) Rasa Enerji TL İdil İki Enerji TL Aksa Göynük Enerji TL Aksa Aksen Enerji TL Aksa Energy Ghana USD Aksa Ghana B.V EUR Aksa Global B.V. EUR Aksa Madagascar B.V. EUR Aksa Mali S.A. EUR Aksaf Power USD Overseas Power USD

Functional currencies are used to a significant extent in, or have a significant impact on the operations of the related Group entities and reflect the economic substance of the underlying events and circumstances relevant to these entities. All currencies other than the currencies selected for measuring items in the consolidated financial statements are treated as foreign currencies. Accordingly, transactions and balances not already measured in the functional currencies have been re-measured to the related functional currencies in accordance with the relevant provisions of IAS 21, “The Effects of Changes in Foreign Exchange Rates”. AKSA ENERJİ ANNUAL REPORT 2018 153

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

d) Basis of Consolidation i) Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from involvement with the entity and has the ability to affect those returns through it power over the entity. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.

The Group measures goodwill at the acquisition date as:

• the fair value of the consideration transferred; plus • the recognised amount of any non-controlling interests in the acquiree; plus • if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less • the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts generally are recognised in profit or loss. ii) Acquisitions from entities under common control

Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group controlling shareholder’s consolidated financial statements. The components of equity of the acquired entities are added to the same components within the Group equity and any gain/loss arising is recognised directly in equity. iii) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls a business when exposure, or rights, to variable returns due to its involvement with the investee and the ability to use its power over the investee to affect the amount of the investor’s returns. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. iv) Non-controlling interests

The Group measures any non-controlling interests in the acquiree at their proportionate share of the acquiree’s identifiable net assets, which are generally at fair value.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owners. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognised in profit or loss. v) Loss of control

When the Group loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any NCI and other components of equity related to the subsidiary. Any resulting gain or loss arising on the loss of control is recognized in profit or loss. Any interest retained in the former subsidiary, then such interest is measured at fair value at the date when control is lost. 154 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

vi) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated interim financial statements.

Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. Carrying value of shares owned by the Group and dividends arising from these shares has been eliminated in equity and profit or loss accounts. e) Foreign Currency i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments (except on impairment in which case foreign currency differences that have been recognized in other comprehensive income are reclassified to profit or loss), a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or qualifying cash flow hedges to the extent the hedge is effective. ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to TL at exchange rates at the reporting date. The income and expenses of foreign operations are translated to TL at average exchange rates at the dates of the transactions.

Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity. However, if the foreign operation is a non-wholly-owned subsidiary, then the relevant proportion of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.

When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

When the settlement of a monetary item receivable from or payable to a foreign operations is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income, and presented within equity in the translation reserve.

The EUR/TL, USD/TL, GHS/USD and TL/USD as at 31 December 2018 and 2017 are as follows:

31 December 2018 31 December 2017 EUR/TL 6.0280 4.5155 USD/TL 5.2609 3.7719 GHS/USD 0.2076 0.2265 TL/USD 0.1900 0.2651 AKSA ENERJİ ANNUAL REPORT 2018 155

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

f) Use of Judgements and Estimates

In preparing these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Group’s accounting policies and the eportedr amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

Information about significant areas at estimation uncertainty and critical judgment in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are described in the following notes:

Note 4 – Determination of fair value: Some estimates are made for using observable and non-observable market data in determination of fair values.

Note 13 and Note 14 – Useful lives of property and equipment and other intangible assets: The Group estimates its useful lives of property and equipment and intangible assets through the experience of the technical team. Management strategies and future marketing plans are also considered especially for estimating useful lives of leasehold improvements.

Note 13– Land and building and land improvements and machinery and equipment in property, plants and equipment are measured at their fair value, assumptions are disclosed on Note 13. Fair value of property, plants and equipment determined by an independent professional valuation expert.

Note 17 – Deferred tax assets and liabilities: Deferred tax assets arising from taxable temporary differences and accumulated losses are recognized when it is probable that future taxable profits will be available. Important estimations and evaluations are required regarding future taxable profits to determine deferred tax assets.

Note 18 – Inventory provisions: Aging of inventories is analyzed and obsolete inventories are detected to determine impairment of inventories.

Note 27 – Provision for employee benefits: Actuarial computations are made using estimations for discount rates, salary increase rates and turnover rates to determine severance pay liability. These estimations contain uncertainties due to long term nature of the liabilities. g) Changes in Accounting Policies

Significant changes in the accounting principles and significant accounting errors should de applied retrospectively and prior period financial statements should be restated. There are no changes in the accounting policies of the Group in the current period. i) IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.

The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (1 January 2018). Accordingly, the information presented for 2017 has not been restated – in other words it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations. Additionally, the disclosure requirements in IFRS 15 are not applied for the comprative periods. Detail of significant accounting policy regarding to revenue recognition was explained in Note 3.

IFRS 15 did not have a significant effect on the recognition of the Group’s revenue. 156 FINANCIAL INFORMATION

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ii) IFRS 9 Financial instruments

The Group has initially adopted IFRS 9 Financial Instruments was published in 2014 with a date of initial application of 1 January 2018. IFRS 9 sets out requirements for recognizing and measuring of financial assets and financial liabilities.

As of 1 January 2018, the effect of adopting IFRS 9 on retaining earnings after deferred tax is summarized as follows:

1 January 2018- Effect of Adopting IFRS 9 Previous year gain /(losses) Recognizing expected credit loss related to IFRS 9 5,946,633 Deferred tax effect (1,189,327) Opening balance at 1 January 2018 related to IFRS 9 4,757,306

The following table and the accompanying notes below explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group’s financial assets as at 1 January 2018.

Original classification New classification Original carrying New carrying amount under IAS 39 under IFRS 9 amount under IAS 39 under IFRS 9 Financial assets Cash and cash equivalents Loans and receivables Amortised cost 59,577,791 59,577,791 Trade receivables Loans and receivables Amortised cost 706,750,072 700,803,439 Other receivables Loans and receivables Amortised cost 94,187,924 94,187,924 Available for sale Fair value through other Financial investments financial assets comprehensive income 412,408 412,408 Fair value through other Fair value through other Derivatives comprehensive income comprehensive income 2,576,770 2,576,770 Financial liabilities Fair value through other Bank borrowings Other financial liabilities comprehensive income 2,440,411,487 2,440,411,487 Fair value through other Other financial liabilities Other financial liabilities comprehensive income 396,092,723 396,092,723 Fair value through Fair value through Derivatives profit or loss profit or loss 3,052,466 3,052,466

Impact of the new impairment model

The details of new accounting policy that the Group need to apply in the context of the new model according to IFRS 9 are disclosed in Note 3 under “Financial instruments, Impairment” section. In this context, the Group has reclassified to Impairment losses determined in accordance with IFRS 9 from other income amounting to TL 7,424,552 has been recognized impairment losses related to trade and other receivables for in accordance with IAS 39 in the profit and loss statement for the year ended 31 December 2017.

i. Impairment of financial assets

IFRS 9 replaces the “resulting loss” model in IAS 39 with “expected credit loss” model. The new impairment model applies to financial assets measured at amortized cost but is not applied to investments in equity instruments.

As at 1 January, the impact of IFRS 9 on impairment provision is as follows;

As 31 December 2017, impairment loss accordance with IAS 39 18,514,130 As at 1 January 2018, recognizing additional impairment loss accordance with IFRS 9 - Trade receivables 5,946,633 As at 1 January 2018, impairment loss accordance with IFRS 9 24,460,763

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3. SIGNIFICANT ACCOUNTING POLICIES a) Financial Instruments i) Recognition and measurement

Trade receivables and debt securities are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Group becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. ii) Classification and subsequent measurement

Financial assets – Policy applicable from 1 January 2018

On initial recognition, a financial asset is classified as measured at: amortized cost, FVOCI – equity investment, or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows and selling assets; and • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets and equity investments measured at FVTPL. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

• the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets; • how the performance of the portfolio is evaluated and reported to the Group’s management; • the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; • how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and • the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales. Financial assets that are managed and whose performance is evaluated on a fair value basis are measured at FVTPL. 158 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Financial assets- Assessment whether contractual cash flows are solely payments of principal and interest – Policy applicable from 1 January 2018

Principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:

• contingent events that would change the amount or timing of cash flows; • terms that may adjust the contractual coupon rate, including variable rate features; • prepayment and extension features; and • terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features).

A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract.

Additionally, for a financial asset acquired at a significant discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.

Since the principal is the present value of expected cash flows, trade receivables and other receivables meets the solely payments of principal and interest criteria. It is managed in accordance with the business model based on collection of these receivables.

Financial assets- Subsequent measurement and gains and losses – Policy applicable from 1 January 2018

These assets are subsequently measured at fair value. Net gains and losses, including any Financial assets at FVTPL interest or dividend income, are recognized in profit or loss. These assets are measured at fair value in subsequent periods. Dividends are recognized in profit or loss unless it is expressly intended to recover part of the investment cost. Other net Equity instruments at FVOCI gains and losses are recognized in other comprehensive income and cannot be reclassified to profit or loss. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Financial assets at amortized cost Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on de-recognition is recognized in profit or loss.

Financial assets: Policy applicable before 1 January 2018

Non-derivative financial assets

The Group initially recognizes loans and receivables on the date that they are originated. All other financial assets are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group classifies non-derivative financial assets into the following categories: loans and receivables. AKSA ENERJİ ANNUAL REPORT 2018 159

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables comprise trade receivables including service concession receivables and due from customers for contract work, receivables related to finance sector operations (including banking loans and advances to banks and customers and finance lease receivables) and other receivables.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, bank deposits and other liquid assets with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value.

Others

Other non-derivative financial instruments are measured by deducting impairmet cost from amortized cost with using the effective interest method.

Non-derivative financial liabilities

The Group initially recognizes all financial liabilities on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group classifies non-derivative financial liabilities into other financial liabilities which mainly are comprises of loans and borrowings, trade payables and other payables.

Such financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method. iii) Derecognition

Derecognition – Policy applicable from 1 January 2018

Financial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group continues to recognize the financial asset in the statement of financial position if it retains substantially all the risks and benefits arising from the ownership of a financial asset.

Financial liabilities

The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss. 160 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

iv) Offsetting

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously. v) Derivative financial instrument and hedge accounting

Derivative financial instrument and hedge accounting – Policy applicable after 1 January 2018

The Group uses derivative financial insturements for the purpose of hedging foreign currency and interest risk rate. Embedded derivative instruments are separated from the host contract and recognized separately when the underlying contract is not a financial asset and mets certain criteria.

Derivatives are initially recognized at fair value. Subsequent to initial recognition of derivative instruments, changes in fair value are recognized in profit or loss.

The Group defines certain derivatives as hedging instruments in order to maintain the variability in the cash flows related to the high probability of realization arising from the changes in exchange rates and interest rates. The Group defines certain derivatives and non-derivative financial liabilities as hedging instruments for net investment in foreign operations.

At the beginning of the hedge relationship, the Group makes a certification regarding the risk management purpose and strategy that causes the hedging relationship and the operation of the enterprise.

The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in the cash flows of the hedged item and the hedging means are expected to offset each other.

Hedge accounting

If a derivative instrument is designed as a cash flow hedge hedging instrument, the effective portion of the change in the fair value of the derivative instrument is recognized in other comprehensive income and presented under equity in the hedging reserve. The ineffective portion of the change in the fair value of the derivative is recognized directly in profit or loss. The effective portion of the change in the fair value of the derivative instrument determined on the present value basis from the beginning of the hedging relationship recognized in other comprehensive income is limited to the cumulative effect of the change in the fair value of the hedging instrument. In the cash flow hedge relationship, the group defines only the change in the spot item of the forward contract as a means of hedging.

The change in the fair value of forward value of forward foreign exchange purchase contracts is recognized as hedging reserve as a hedging cost in equity as a hedging cost.

In the event that a non-financial asset or liability is subsequently recognized in the financial statements, the amount accumulated in the hedging fund and the cost of hedging are included directly in the initial cost of the non-financial asset or liability.

For all other hedge transactions, the hedging reserve and the hedging cost are classified in profit or loss in the hedging reserve in the period or periods when the estimated future cash flows are affected by profit or loss.

The hedge accounting is discontinued in case the hedging relationship (or part of it) no longer meets the required criteria, the hedging instrument is expired or sold, terminated or used. In case of discontinuation of cash flow hedge accounting, the retained amount in the hedging fund shall continue to be classified under equity until the hedged estimate of the non-financial item is recorded; hedging cost is classified as profit or loss in the period or periods in which the estimated future cash flows are affected by profit or loss. AKSA ENERJİ ANNUAL REPORT 2018 161

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

If the expected future cash flows are no longer expected to materialize, the amount accumulated in the hedge fund and the cost of that fund are immediately classified in profit or loss.

Derivative financial insturement and hedge accounting – Policy applicable before 1 January 2018

The accounting policy applied for the comparative information presented for 2017 is similar to the accounting policy applied in the 2018 financial statements. b) Impairment i. Non-derivative financial assets

Policy applicable from 1 January 2018

Financial instruments and contract assets

The Group recognizes loss allowances for ECLs on:

- financial assets measured at amortized cost

The Group measures loss allowances at an amount equal to lifetime ECL, except for the following, which are measured as 12-month ECL:

- bank balances for which credit risk has not increased significantly since initial recognition.

The Group applied lifetime ECL for calculation of loss allowances for trade receivables.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 90 days past due.

Measurement of ECL

ECLs are a probability-weighted estimate of credit losses. In other words, it is the credit losses that are measured on the present value of all the cash deficits (for example, the difference between the cash inflows to the entity and the cash flows expected by the entity to be collected based on the contract).

The cash deficit is the difference between the ashc flows to be incurred and the cash flows expected to be received by the entity. As the amount and timing of payments are considered in anticipated credit losses, a credit loss occurs even if the entity expects to receive the full payment in the contract with the maturity specified in the contract. Expected credit loss are discounted over the effective interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

- significant financial difficulty of the borrower or issuer; - a breach of contract such as a default or being more than 90 days past due; - the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; - it is probable that the borrower will enter bankruptcy or other financial re-organization; or - the disappearance of an active market for a security because of financial difficulties. 162 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Presentation of impairment in the statement of financial position

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.

The loss provision for the debt instruments measured at fair value through profit or loss is reflected in the other comprehensive income instead of decreasing the carrying amount of the financial asset in the statement of financial position. i. Non-derivative financial assets

Policy applicable from 1 January 2018

Write-off

The gross carrying amount of a financial asset is written off either( partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Group. Where trade receivables, other receivables, other assets and contract assets have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized in profit or loss.

The Group considers evidence of impairment for these assets at both an individual asset level. All individually significant assets are individually assessed for impairment.

An impairment loss on a financial asset is the difference between the carrying amount of the financial asset and its expected future cash flows, discounted to its present value at the original effective interest rate. Losses are recorded in profit or loss and are presented using the accrual account.

If a subsequent event after impairment recognition causes decrease of impairment amount, the impairment loss is net off with impairment loss previously accounted in profit or loss.

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognized if the carrying amount of an asset or its related cash- generating unit (“CGU”) exceeds its recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to an operating segment ceiling test, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. AKSA ENERJİ ANNUAL REPORT 2018 163

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

c) Inventories

Inventories are measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale.

The cost of inventories includes expenditure incurred in acquiring the inventories and other costs incurred in bringing them to their existing location and condition. The cost of inventories is calculated using the weighted average method. d) Related parties

Parties are considered related to the Group if;

(a) A person or a close member of that person’s family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

(b) An entity is related to a reporting entity if any of the following conditions applies: (i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). e) Property and equipment i) Recognition and measurement

Property, plant and equipment except for land and buildings and land improvements and machinery and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The Company has opted for the option of measuring the land and buildings and land improvements and machinery and equipment in the tangible fixed assets by revaluation method.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

Gains and losses on disposal of an item of property and equipment are determined by comparing the net proceeds from disposal with the carrying amount of property and equipment, and are recognised net within “Gain/(loss) from investing activities” in profit or loss.

During the production phase of the mine, the material removed when stripping in the production phase, often it will be a combination of ore and waste. Removal of material with a low ratio of ore to waste may produce some usable material, which can be used to produce inventory. This removal might also provide access to deeper levels of material that have a higher ratio of ore to waste that will be mined in future periods. The Group, recognize stripping activity asset when it is probable that the future economic benefit associated with the stripping activity will flow to the Group, identify the component of the ore body for which access has been improved; and the costs relating to the stripping activity associated with that component can be measured reliably. The Group shall allocate the production stripping costs between the inventory produced and the stripping activity asset by using an allocation basis that is based on mineral content of the ore extracted compared with expected mineral content to be extracted, for a given quantity of ore produced. 164 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Since some incidental operations may take place at the same time as the production stripping activity, but which are not necessary for the production stripping activity to continue as planned, these incidental operations are not be included in the cost of the stripping activity asset. ii) Subsequent costs

The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred. iii) Depreciation

Items of property, plant and equipment are depreciated from the date that they are available for use, or in respect of self- constructed assets, from the date that the asset is completed and ready for use.

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

The revalued amount is the fair value at the revaluation date, less accumulated depreciation and subsequent accumulated impairment losses. Gain on fair value of land and buildings and land improvements and machinery and equipment are recognised in revaluation of property, plant and equipment after net off tax. The cost of certain items of property and equipment at 1 January 2005, the Group’s date of transition to IFRS, was determined with reference to its fair value at that date.

After initial recognition, the stripping activity asset is initially measured at its cost less depreciation and less impairment losses. Stripping activity asset is depreciated on a systematic basis, over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity.

The estimated useful lives for the current and comparative periods are as follows:

Buildings 10 - 50 years Machinery and equipment 3 - 40 years Furniture and fixtures 5 - 15 years Vehicles 5 - 8 years Land improvements 5 years Leasehold improvements 5 years

Power generation plants depreciated over shorter of licence term and their useful lives. The Group depreciates its power generation plants in different useful lives in accordance to their different useful lives.

Fuel oil power plants 3-40 years Natural gas power plants 20 years Hydroelectric power plants 40 years Coal plants 40 years

Overhaul costs related to power generation plants have different useful lives, then they are accounted as separate items (major components) of power generation plants. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. AKSA ENERJİ ANNUAL REPORT 2018 165

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

f) Intangible assets

Other intangible assets

Other intangible assets that are acquired by the Group which have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses.

Goodwill

Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. i) Subsequent measurement

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. Impairment losses are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred. ii) Amortization

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives of licenses for the current and comparative periods are between 2 and 49 years. Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Current year amortization expense of revalued land, land improvements, building and machinery and equipment recognizes in profit or loss. When revalued land, land improvements, building and machinery and equipment are sold or withdraw from the service, the remaining balance in the revaluation reserve in transferred directly to the previous years’ losses. g) Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money where appropriate, and the risks specific to the liability. h) Employee benefits i) Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. According to the current Labor Law in Turkey is obliged to pay for any reason claimed by the employee if the ending, but unused annual leave belonging fee gross salary at the date when the contract expires and contractual other interests him or rights to their owners over the total. The unused vacation liability is the undiscounted total liability amount that all employees deserve but which are not yet used as of the reporting date. Liabilities arising from unused vacation rights are accrued in the period in which they are entitled. ii) Other long-term employee benefits

In accordance with the existing labor law in Turkey, the Group entities in Turkey are required to make lump-sum payments to employees who have completed one year of service and whose employment is terminated without cause or who retire, are called up for military service or die. Such payments are calculated on the basis of 30 days’ pay maximum TL 5,434 as at 31 December 2018 (31 December 2017: TL 4,732 ) per year of employment at the of pay applicable at the date of retirement or termination. Reserve for retirement pay is computed and reflected in the financial statements on a current basis. The management of the Group used some assumptions (detailed in Note 27) in the calculation of the retirement pay provision. The calculation was based upon the retirement pay ceiling announced by the Government.

Remeasurements arising from retirement pay comprise actuarial gains and losses. The Group recognizes actuarial differences in other comprehensive income. 166 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

i) Contingent assets and liabilities

Possible assets or obligations that arise from past events and for which their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not entirely within the control of the Group are treated as contingent assets or liabilities.

A contingent liability is disclosed, unless the possibility of an outflow of resources embodying economic benefits is remote. If the possibility of transfer of assets is probable, contingent liability is recognized in the consolidated financial statements.

A contingent asset is disclosed, when the possibility of an inflow of economic benefits to the entity is probable. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognized in the financial statements of the period in which the change occurs. j) Revenue

General model for accounting of revenue

The Group transferred revenue to a customer and recognizes the revenue in its consolidated financial statements as it fulfills or fulfills the performance obligation. When an assets is checked (or passed) by the customer, the assets is transferred.

The Group recognizes the revenue in the financial statements in accordance with the following basic principles:

- Identify the contracts with customer - Identify the performance obligations in contracts - Determine the transaction price in contracts - Transaction price allocation to performance obligations - Revenue recognition when each performance obligations are met.

A contract with a customer is in the scope of the new standard when the contract is legally enforceable and certain criteria are met. If the criteria are not met, then the contract does not exist for purposes of applying the general model of the new standard, and any consideration received from the customer is generally recognized as a deposit (liability).

At the beginning of the contract, the Group evaluates the goods or services it commits on the contract with the customer and defines each commitment to transfer it to the customer as a separate performance obligation. The Group also determines at the start of the contract whether or not it fulfills each performance obligation over time or at a certain time of time.

The Group considers the contractual terms and trade practices to determine the transaction price. The transaction price is the amount that the Group expects to pay in return for the transfer of goods or services to the customer, excluding the amounts collected on behalf of third parties (eg certain sales taxes). When evaluating, it is taken into account whether the contract contains elements of variable amounts and an important financing component.

In accordance with IFRS 15, has Revenue from contracts with customers dair, replacing IAS 18, the Group’s performance obligations consist of ancillary services related to electricity sales and electricity sales. The electricity sold is transmitted to the customer via the transmission lines and the customer consumes the benefit of the operation simultaneously. Revenue from the sales of electricity and ancillary services for electricity sales is recognized at the time of delivery. IFRS 15 did not have a significant impact on the financial position or performance of the Group due to the Group’s operations. k) Leases i) Determining whether an agreement contains a lease

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.

At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognized at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognized using the Group’s incremental borrowing rate. AKSA ENERJİ ANNUAL REPORT 2018 167

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

ii) Leased assets

Leases of property and equipment that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.

Assets held under other leases are classified as operating leases and are not recognized in the Group’s statement of financial position. iii) Lease payments

Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. l) Finance income and finance costs

The Group’s finance income and finance costs include interest income, interest expense, the foreign currency gain or loss on financial assets and financial liabilities, bank commission expense and discount expense the net gain or loss on hedging instruments that are recognized in profit or loss and interest and late charge fees obtained from related parties. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method. m) Tax

Tax expense comprises current and deferred tax. Tax expense is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. i) Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

It is calculated by taking into consideration the tax rates which are in effect as of the end of the reporting period or which are close to the registration date. ii) Deferred tax

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. 168 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

The Turkish tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return. Therefore, provisions for taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate- entity basis. iii) Tax exposures

In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. n) Borrowing costs

In the case of assets requiring significant time-consuming (qualifying assets) to be ready for use and sale, borrowing costs that are directly attributable to the acquisition, construction or production are included in the cost of the asset until the asset is ready for use or sale. All other borrowing costs are recognized in profit or loss in the period in which they are incurred. o) Earnings per share

Earnings per share disclosed in profit or loss and other comprehensive income statement as calculated by dividing the net profit for the period by the weighted average number of shares in the market during the relevant period. p) Segment reporting

The Operating segment is the unit in which the Group is able to generating revenue and making spend. Furthermore, in order to determine the results of the activities, the department is regularly monitored by a unit authorized to take decisions on the activities of the Group in order to make decisions on the resources to be allocated and to evaluate the performance of the department.

For the year ended 31 December 2018 sales of industrial part, consist of electricity sales by 99 % ( 1 January-31 December 2017: 99 %) remaining part of sales consist of lignite, natural gas equipment’s and spare parts. For this reason, the Group management makes decisions regarding of the resources to be allocated and performance evaluations as a single operating department instead of separate departments.

For the year ended 31 December 2018, the Group commenced to generate considerable revenue from its operations other than Turkey which constituted a material portion of the Group’s operating results. Accordingly, segment information regarding to year ended 31 December 2017 and 31 December 2018 is disclosed in Note 36. q) Assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale or distribution rather than through continuing use.

Immediately before classification as held for sale, the assets, or components of a disposal group, are remeasured in accordance with the Group’s accounting policies. Thereafter generally the assets, or disposal group, are measured at the lower of their carrying amount and fair value less costs to sell.

Once classified as held for sale, intangible assets and property, plant and equipment are not amortized or depreciated, and equity accounted investee is no longer equity accounted. r) Share capital

Ordinary share

Ordinary share is classified as capital paid. The additional costs directly attributable to ordinary shares are recognized as a decrease in equity after deducting the tax effect, if any. AKSA ENERJİ ANNUAL REPORT 2018 169

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

s) Standards issued but not yet effective and not early adopted

A number of new standards, interpretations of and amendments to existing standards are not effective at reporting date and earlier application is permitted; however the Group has not early adopted are as follows.

IFRS 16 Leases

On 13 January 2016, IASB issued the new leasing standard which will replace IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC 15 Operating Leases – Incentives, and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease and consequently changes to IAS 40 Investment Properties. IFRS 16 Leases eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Lessor accounting remains similar to current practice. IFRS 16 is effective for annual periods beginning on or after 1 January 2019, with early adoption permitted provided that an entity also adopts IFRS 15 Revenue from Contracts with Customers.

The Group is assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 16.

IFRIC 23 –Uncertainty Over Income Tax Treatments

On 17 June 2017, IASB issued IFRIC 23 Uncertainty over Income Tax Treatments to specify how to reflect uncertainty in accounting for income taxes. It may be unclear how tax law applies to a particular transaction or circumstance, or whether a taxation authority will accept a company’s tax treatment. IAS 12 Income Taxes specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. IFRIC 23 provides requirements that add to the requirements in IAS 12 by specifying how to reflect the effects of uncertainty in accounting for income taxes. IFRIC 23 is effective from 1 January 2019, with earlier application is permitted.

The Group is assessing the potential impact on its consolidated financial statements resulting from the application of IFRS Interpretation 23.

The revised Conceptual Framework

The revised Conceptual Framework issued on 28 March 2018 by the IASB. The Conceptual Framework sets out the fundamental concepts for financial reporting that guide the Board in developing IFRS Standards. It helps to ensure that the Standards are conceptually consistent and that similar transactions are treated the same way, so as to provide useful information for investors, lenders and other creditors. The Conceptual Framework also assists companies in developing accounting policies when no IFRS Standard applies to a particular transaction, and more broadly, helps stakeholders to understand and interpret the Standards. The revised Framework is more comprehensive than the old one – its aim is to provide the Board with the full set of tools for standard setting. It covers all aspects of standard setting from the objective of financial reporting, to presentation and disclosures. For companies that use the Conceptual Framework to develop accounting policies when no IFRS Standard applies to a particular transaction, the revised Conceptual Framework is effective for annual reporting periods beginning on or after 1 January 2020, with earlier application permitted.

Annual Improvements to IFRSs 2015-2017 Cycle

Improvements to IFRSs

IASB issued Annual Improvements to IFRSs - 2015–2017 Cycle for applicable standards. The amendments are effective as of 1 January 2019. Earlier application is permitted. The Group does not expect that application of these improvements to IFRSs will have significant impact on its consolidated financial statements.

IFRS 3 Business Combinations and IFRS 11 Joint Arrangements

IFRS 3 and IFRS 11 are amended to clarify how a company accounts for increasing its interest in a joint operation that meets the definition of a business. If a party obtains control, then the transaction is a business combination achieved in stages and the acquiring party remeasures the previously held interest at fair value. If a party maintains (or obtains) joint control, then the previously held interest is not remeasured.

170 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

IAS 12 Income Taxes

IAS 12 is amended to clarify that all income tax consequences of dividends (including payments on financial instruments classified as equity) are recognised consistently with the transactions that generated the distributable profits – i.e. in profit or loss, other comprehensive income (OCI) or equity.

IAS 23 Borrowing Costs

IAS 23 is amended to clarify that the general borrowings pool used to calculate eligible borrowing costs excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Borrowings that were intended to specifically finance qualifying assets that are now ready for their intended use or sale – or any non-qualifying assets – are included in that general pool.

Amendments to IAS 28- Long-term Interests in Associates and Joint Ventures

On 12 October 2017, IASB has issued amendments to IAS 28 to clarify that entities also apply IFRS 9 to other financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. An entity applies IFRS 9 to such long- term interests before it applies related paragraphs of IAS 28. In applying IFRS 9, the entity does not take account of any adjustments to the carrying amount of long-term interests that arise from applying IAS 28. The amendments are effective for periods beginning on or after 1 January 2019, with earlier application permitted.

The Group does not expect that application of these amendments to IAS 28 will have significant impact on its consolidated financial statements.

Amendments to IFRS 9 - Prepayment Features With Negative Compensation

On 12 October 2017, IASB has issued amendments to IFRS 9 to clarify that financial assets containing prepayment features with negative compensation can now be measured at amortised cost or at fair value through other comprehensive income (FVOCI) if they meet the other relevant requirements of IFRS 9. Under IFRS 9, a prepayment option in a financial asset meets this criterion if the prepayment amount substantially represents unpaid amounts of principal and interest, which may include ‘reasonable additional compensation’ for early termination of the contract. The amendments are effective for periods beginning on or after 1 January 2019, with earlier application permitted.

The Group does not expect that application of these amendments to IAS 28 will have significant impact on its consolidated financial statements.

Amendments to IAS 19 - Plan Amendment, Curtailment or Settlement

On 7 February 2018, IASB issued Plan Amendment, Curtailment or Settlement (Amendments to IAS 19). The amendments clarify the accounting when a plan amendment, curtailment or settlement occurs. A company now uses updated actuarial assumptions to determine its current service cost and net interest for the period; and the effect of the asset ceiling is disregarded when calculating the gain or loss on any settlement of the plan and is dealt with separately in other comprehensive income (OCI). The amendments are effective for periods beginning on or after 1 January 2019, with earlier application permitted.

The Group does not expect that application of these amendments to IAS 19 will have significant impact on its consolidated financial statements.

Amendments to IAS 1 and IAS 8 - Definition of Material

In October 2018 the IASB issued Definition of Material (Amendments to IAS 1 and IAS 8). The amendments clarify and align the definition of ‘material’ and provide guidance to help improve consistency in the application of that concept whenever it is used in IFRS Standards. Those amendments are prospectively effective for annual periods beginning on or after 1 January 2020 with earlier application permitted.

The Group does not expect that application of these amendments to IAS 1 and IAS 8 will have significant impact on its consolidated financial statements. AKSA ENERJİ ANNUAL REPORT 2018 171

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Amendments to IFRS 3 - Definition of a Business

Determining whether a transaction results in an asset or a business acquisition has long been a challenging but important area of judgement. The IASB has issued amendments to IFRS 3 Business Combinations that seek to clarify this matter. The amendments include an election to use a concentration test. This is a simplified assessment that results in an asset acquisition if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. If a preparer chooses not to apply the concentration test, or the test is failed, then the assessment focuses on the existence of a substantive process. The amendment applies to businesses acquired in annual reporting periods beginning on or after 1 January 2020. Earlier application is permitted.

The Group does not expect that application of these amendments to IFRS 3 will have significant impact on its consolidated financial statements. t) Comparative information and restatements of prior period consolidated financial statements

In the consolidated financial statements for the year ended 31 December 2017, the land, buildings and land improvements and machinery and equipment included in the tangible fixed assets have ceased to use the cost method and have preferred the cost of revaluation method in accordance with IAS 16 Property, Plant and Equipment. In order to determine the revalued amounts of the tangible fixed assets of the foreign operations in which the functional currency is US Dollars and EUR subject to consolidation, the machine and real estate values taken as the base of the functional currency included in the valuation report dated 28 December 2017 are shown on the basis of the exchange rate at 29 December 2017 in the consolidated financial statements in which the functional currency is TL In accordance with IAS 21, these amounts are required to be translated into TL, which is the functional currency of the Group, using the foreign exchange rate dated 31 December 2017. The effects of these corrections are reflected to the related period in accordance with IAS 8 “Changes in Accounting Estimates and Errors. The effect of errors to the previous period is presented in the table below in each financial statement item:

Consolidated Statements of Financial Position

Previously Reported Restated 31 December 2017 Error Effect 31 December 2017 Property, Plant and Equipment 3,644,861,330 (9,063,781) 3,635,797,549 Fixed Assets Revaluation Fund 887,786,445 (5,399,589) 882,386,856 Deferred Tax Liabilities 99,045,245 (2,426,341) 96,618,904 Minority Interest 58,704,622 (1,237,851) 57,466,771

Consolidated Statement of Profit or Loss and Other Comprehensive Income

Previously Reported Restated 31 31 December 2017 Error Effect December 2017 Fixed Assets Revaluation Fund –Other Comprehensive Income 1,157,853,041 (9,063,781) 1,148,789,260 Deferred tax expense-Other Comprehensive Income 240,270,344 (2,426,341) 237,844,003 172 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

4. DETERMINATION OF FAIR VALUES

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non- financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. i) Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows discounted at the market rate of interest at the reporting date. Short-term receivables with no stated interest rate are measured at the original invoice amount if the effect of discounting is immaterial. These fair values are determined for disclosure purposes. ii) Derivatives

The fair value of interest rate swaps are based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date.

Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group when appropriate. iii) Non-derivative financial liabilities

Other non-derivative financial liabilities are measured at fair value, at initial recognition and for disclosure purposes, at each annual reporting date. Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the measurement date. iv) Property, plant and equipment

Land and land improvements and building and machinery and equipment are measured at their fair values at the revaluation date. Measurement of land and building and land improvements and machinery and equipment has been made by an independent valuation expert, as at 31 December 2017.

5. FINANCIAL RISK MANAGEMENT

Overview The Group has exposure to the following risks from its use of financial instruments:

• Credit risk • Liquidity risk • Market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.

The Group aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group considers its risks in respect of financial risks (credit, market, geographical, foreign exchange, liquidity and interest rate), operational and legal risks. The Group’s risk management policies are established to identify and analyze the risk faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

Internal audit plans are based on risk assessments as well as the issues highlighted by the Audit Committee of Aksa Enerji management. Risk assessment is conducted on a continuous basis so as to identify not only existing risks but also emerging risks. Formally, risk assessment is made annually but more often if necessary.

AKSA ENERJİ ANNUAL REPORT 2018 173

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and bank balances.

The Group has procedures in place to ensure that services are provided to customers with an appropriate credit history. The carrying amount of trade or other receivables, net of provision for impairment of receivables, and the total of cash and cash equivalents, and restricted bank balances represent the maximum amount exposed to credit risk. The main customer is TEİAŞ. Based on past history with these customers, the Group management believes there is no significant credit risk.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Group buys derivatives, and also incur financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by lenders and executives of the Group. The Group applies hedge accounting in order to manage volatility in interest rates. i) Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Group has exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. As at 31 December 2017, the Group had balances that are denominated in a currency other than the respective functional currencies of Group entities, primarily TL, but also GHS which are disclosed within the relevant notes to these consolidated for the year ended financial statements. The currencies in which these transactions primarily denominated are USD and EUR. The Group manages this currency risk by maintaining foreign currency cash balances and using some financial instruments as mentioned in Note 32. ii) Interest rate risk

Group, exposes interest rate risk due to reprising of variable interest rate borrowing risk of bank loans and financial lease liabilities. The aim of risk management is to optimize net interest gains and market interest rate in accordance with company policies The Group signed interest rate swap related with some variable rate borrowings.

Capital management

The main objective of the Company’s capital management is to maintain a strong capital ratio in order to support its future development of the business and maintain an optimal capital structure to reduce cost of capital.

The Company manages its capital structure and makes adjustments on it according to its growth and economic conditions and competition at the market. In order to maintain or adjust the capital structure, the shareholders may make a direct cash contribution of the needed working capital to the Company.

There were no changes in the Group’s approach to capital management during the period.

174 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

6. REVENUE

The details of the Group’s revenue, for the years ended on 31 December is as follows:

1 January- 1 January- 31 December 2018 31 December 2017 Domestic sales 2,962,561,755 2,645,177,899 Foreign sales 1,706,687,347 954,133,969

Net sales 4,669,249,102 3,599,311,868 Cost of sales (-) (3,933,709,353) (3,283,982,668)

Gross profit 735,539,749 315,329,200

1 January- 1 January- 31 December 2018 31 December 2017 Revenue – amount Electricity 4,617,251,531 3,558,062,684 Other 51,997,571 41,249,184

Total 4,669,249,102 3,599,311,868

Gross margin - amount

Electricity 732,939,870 290,547,859 Other 2,599,879 24,781,341

Total 735,539,749 315,329,200

7. OTHER OPERATING INCOME AND EXPENSES

The details of the Group’s other operating income, for the years ended on 31 December is as follows:

1 January- 1 January- Other operating income 31 December 2018 31 December 2017 Foreign exchange gain related commercial activities 8,341,610 1,286,454 Interest and discount income 5,777,998 3,097,924 Provisions no longer required 743,769 18,065,441 Insurance income 441,160 162,623 Other 2,953,162 2,112,599

Total 18,257,699 24,725,041

AKSA ENERJİ ANNUAL REPORT 2018 175

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

The details of the Group’s other operating expenses, for the years ended on 31 December is as follows:

1 January- 1 January- Other operating expenses 31 December 2018 31 December 2017 Foreign exchange loss related to commercial activities 18,067,302 3,930,800 Contractual penalties 8,057,115 -- Litigation provision expenses 345,409 435,306 Donations 201,068 89,633 Financial expenses from credit sales -- 668,339 Other 7,192,044 3,446,457 Total 33,862,938 8,570,535

8. GAIN AND LOSS FROM INVESTING ACTIVITIES

The details of the Group’s gain from investing activities, for the years ended on 31 December is as follows:

1 January- 1 January- Gain from investing activities 31 December 2018 31 December 2017 Gain on disposal of property, plant and equipment 2,640,864 1,985,685 Gain on disposal of subsidiaries -- 466,106,510 Gain on sale of assets held for sale (*) -- 57,182,866

Total 2,640,864 525,275,061

(*) Gain on sale of assets held for sale is comprised of sale of Belen-Atik power plant.

The details of the Group’s loss from investing activities, for the years ended on 31 December is as follows:

1 January- 1 January- Loss from investing activities 31 December 2018 31 December 2017 Loss on disposal of subsidiaries (Note 34) -- 32,698,007 Unrealized tender specification and other expenses -- 4,160,221

Total -- 36,858,228

176 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

9. ADMINISTRATIVE EXPENSES

The details of the Group’s administrative expenses, for the year ended on 31 December is as follows:

1 January- 1 January- General administrative expenses 31 December 2018 31 December 2017 Personnel expenses 21,064,254 22,291,121 Consultancy expenses 14,838,118 13,048,418 Travelling, vehicle and transportation expenses 14,210,240 8,286,374 Management support expenses 5,400,000 -- Rent expenses 2,657,421 4,790,610 Tax and duties 902,378 1,508,855 Depreciation and amortization expenses 470,853 507,364 Representation expenses 580,995 350,813 Electricity, gas and water expenses 142,349 202,525 Communication expenses 135,223 187,175 Other 7,837,780 3,874,713 Total 68,239,611 55,047,968

10. MARKETING AND SELLING EXPENSES

The details of the Group’s marketing and selling expenses, for the years ended on 31 December is as follows:

1 January- 1 January- Marketing and selling expenses 31 December 2018 31 December 2017 Freight and export expenses 400,583 234,677 Other 970,393 1,023,707 Total 1,370,976 1,258,384

11. FINANCIAL INCOME AND FINANCIAL EXPENSES

The details of the Group’s financial income and expenses, for the years ended on 31 December is as follows:

1 January- 1 January- Financial income 31 December 2018 31 December 2017 Foreign exchange gain, net 271,064,288 44,147,874 Income from derivative transactions 69,152,108 7,090,169 Interest and discount income from related parties (Note 33) 61,308,268 9,723,586 Interest and discount income 23,369,565 27,963,794 Total 424,894,229 88,925,423

1 January- 1 January- Financial expenses 31 December 2018 31 December 2017 Interest and discount expenses 523,341,825 401,089,452 Foreign exchange loss from borrowings, net 292,923,595 171,157,060 Interest expense on financial liabilities and loans to related parties (Note 33) 61,546,231 11,634,917 Guarantee letters and bank commission expenses 7,998,298 4,781,000 Expenses from derivative transactions 1,053,372 9,365,133 Total 886,863,321 598,027,562 AKSA ENERJİ ANNUAL REPORT 2018 177

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

12. TAXATION

Turkey

Corporate income tax is levied on the statutory corporate income tax base, which is determined by modifying income for certain tax exclusions and allowances.

Corporate income tax is levied at the rate of 22% (2017: 20%) and advance tax returns are filed on a quarterly basis. However, according to the Article 91 of the Law numbered 7061 “Legislation on Amendment of Certain Tax Legislation and Other Certain Legislation” which was published on the Official Gazette numbered 30261 on 5 December 2017 and according to the provisional clause 10 added to the Corporate Tax Law numbered 5520; corporate tax rate for the taxation periods of 2018, 2019 and 2020 is amended to 22%, which would later be applied as 20% at the end of these periods. During these periods, Council of Ministers is entitled to decrease the corporate tax rate of 22% to 20%.

According to the new Corporate Tax Law, 75% (2017: 75%) of the capital gains arising from the sale of properties and investments owned for at least two years are exempted from corporate tax on the condition that such gains are kept under equity as restricted funds within five years from the date of the sale. The remaining 25% of such capital gains are subject to corporate tax.

The tax legislation provides for a temporary tax of 20% (2017: 20%) to be calculated and paid based on earnings generated for each quarter for the nine month period ended 30 September 2018. The amounts thus calculated and paid are offset against the final corporate tax liability for the year. With the amendment to the Law, corporate rate is set to 22% for the years 2018, 2019 and 2020. 75% of the income derived by entities from the sale of participation shares, immovable property, preferential rights, founders’ shares and redeemed shares which are carried in assets at least for two years is exempt from corporate tax as of 30 September 2018. However, according to the amendments by Law numbered 7061, this rate is reduced from 75% to 50% and tax declarations starting from 2018 will be calculated using 50%.

There is also a withholding tax on the dividends paid and is accrued only at the time of such payments. According to the amendments in the tax legislations, which became effective from 24 April 2003, dividends that are paid to the shareholders from the profits of the years between 1999 and 2002 are immune from the withholding tax, if such profits are exempted from corporation tax bases of the companies. As per the decision no.2006/10731 of the Council of Ministers published in the Official Gazette no.26237 dated 23 July 2006, certain duty rates included in the articles no.15 and 30 of the new Corporate Tax Law no:5520 revised. Accordingly, the withholding tax rate on the dividend payments other than the ones paid to the non-resident institutions generating income in Turkey through their operations or permanent representatives and the resident institutions, was increased from 10% to 15%. In applying the withholding tax rates on dividend payments to the non-resident institutions and the individuals the withholding tax rates covered in the related Double Tax Treaty Agreements are taken into account.

In Turkey, the tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return. Therefore, provision for taxes shown in the condensed consolidated financial statements reflects the total amount of taxes calculated on each entity that are included in the consolidation.

Under the Turkish taxation system, tax losses can be carried forward to be offset against future taxable income for up to five years. Tax losses cannot be carried back.

In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns within four months following the close of the accounting year to which they relate. Tax returns are open for five years from the beginning of the year that follows the date of filing during which time the tax authorities have the right to audit tax returns, and the related accounting records on which they are based, and may issue reassessments based on their findings.

Transfer pricing regulations

In Turkey, the transfer pricing provisions have been stated under the Article 13 of Corporate Tax Law with the heading of “disguised profit distribution via transfer pricing”. The General Communiqué on disguised profit distribution via Transfer Pricing, dated 18 November 2007 sets details about implementation.

If a tax payer enters into transactions regarding sale or purchase of goods and services with related parties, where the prices are not set in accordance with arm’s length principle, then related profits are considered to be distributed in a disguised manner through transfer pricing. Such disguised profit distributions through transfer pricing are not accepted as tax deductible for corporate income tax purposes. 178 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Tax applications for foreign subsidiaries of the Group

Republic of Ghana

The applicable corporate tax rate in Republic of Ghana is 25% (31 December 2017: 25%).

Turkish Republic Of Northern Cyprus (“KKTC”)

The applicable corporate tax rate in KKTC is 23,5% (31 December 2017: 23,5%).

Netherlands

Corporate income tax is levied at the rate of 20% (31 December 2017: 20%) on the worldwide income of resident companies, which is determined by modifying accounting income for certain exclusions and allowances for tax purposes for the year 2017. A unilateral decree for the avoidance of double taxation provides relief for resident companies from Dutch tax on income, such as foreign business profits derived through a permanent establishment abroad, if no tax treaty applies. There is an additional dividend tax of 5% computed only on the amounts of dividend distribution at the time of such payments

Under the Dutch taxation system, tax losses can be carried forward to be offset against future taxable income for nine years. Tax losses can be carried back to offset profits up to one year. Entities must file their tax returns within nine months following the close of the tax year to which they relate, unless the company applies for an extension (normally an additional nine months). Tax returns are open for five years from the date of final assessment of the tax return during which time the tax authorities have the right to audit tax returns, and the related accounting records on which they are based, and may issue re-assessments based on their findings.

Republic Of Mauritius

The applicable corporate tax rate in Mauritius 0% (31 December 2017: 0%).

Republic Of Mali

The applicable corporate tax rate in Mali 25% (31 December 2017: 30%).

Madagascar

The applicable corporate tax rate in Madagascar 20% (31 December 2017: 20%).

Tax recognized in profit or loss

Income tax income for the years ended 31 December comprised the following items:

1 January- 1 January- 31 December 2018 31 December 2017 Current tax expense Current period tax expense (67,892,244) (4,532,705)

Deferred tax expense Origination and reversal of temporary differences 38,593,430 47,675,747

Total tax income (29,298,814) 43,143,042 AKSA ENERJİ ANNUAL REPORT 2018 179

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Corporate tax:

Corporate tax liabilities as at 31 December 2018 and 2017 as follows:

31 December 2018 31 December 2017 Corporate tax provision as restated Add / (Less): prepaid corporation tax from previous period 67,892,244 4,532,705 Less: corporation taxes paid in advance during the period (27,901,292) (5,092,490) Current tax liabilities, net 39,990,952 (559,785)

As at 31 December 2018, current tax liabilities on income amounting to TL 71,354,527 (31 December 2017: TL 2,732,752 ) is not offset with prepaid taxes amounting to TL 31,363,575 (31 December 2017: TL 3,292,537) since they are related to different tax jurisdictions.

The reported income tax expense for the years ended 31 December are different than the amounts computed by applying statutory tax rate to profit before tax as shown in the following reconciliation:

2018 2017 Amount % Amount % Reported loss before taxation 179,777,248 247,067,496 Taxes on reported profit per statutory tax rate of the Company (39,550,995) (22.00) (49,413,499) (20.00) Permanent differences: Disallowable expenses (37,268,463) (20.73) (16,150,596) (6.54) Tax exempt income 59,810,800 33.27 14,434,955 5.84 Carry forward tax losses used (26,981,827) (15.01) -- Effect of different tax rates in foreign jurisdictions 1,703,936 0.95 982,613 0.40 Temporary differences which no deferred tax asset is recognized 8,212,579 4.57 8,577,938 3.47 Change in tax rate -- -- 4,598,213 1.86 Tax exempt income resulting from sale of associates -- -- 78,353,997 31.71 Others, net 4,775,156 2.66 1,759,421 0.71 Tax income (29,298,814) 16.30 43,143,042 17.46

13. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as at 31 December 2018 and 2017 as follows:

31 December 2018 31 December 2017 Property, plant and equipment 3,714,470,557 3,565,794,115 Mining assets 59,585,845 70,003,434

Total 3,774,056,402 3,635,797,549

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES 180

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL INFORMATION AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

The movements of property and equipment comprise fixed asset and mining assets and related accumulated depreciation for the year ended 31 December were as follows:

Land and buildings and land Machinery Furniture Leasehold Construction Cost improvements and equipment Vehicles and fixtures improvements in progress Total Balance at 1 January 2018 128,098,665 4,294,400,424 3,519,590 12,529,180 26,792,310 111,719,413 4,577,059,582 Effect of movements in exchange rates 21,702,985 455,680,186 769,640 867,849 -- 13,277,716 492,298,376 Additions 713,113 52,507,278 23,063 840,295 18,836 131,422,022 185,524,607 Disposals (108,810) (41,513,490) -- (3,845) (635) (727,333) (42,354,113) Transfers 57,972 214,311,073 ------(177,470,857) 36,898,188 Balance at 31 December 2018 150,463,925 4,975,385,471 4,312,293 14,233,479 26,810,511 78,220,961 5,249,426,640

Accumulated depreciation Balance at 1 January 2017 6,363,919 990,927,731 795,296 9,314,568 3,863,953 -- 1,011,265,467 Depreciation for the period 7,221,298 377,084,098 206,183 962,521 22,910 -- 385,497,010 Disposals (61,055) (116,793) -- (3,006) (636) -- (181,490) Effect of movements in exchange rates 3,003,155 134,849,724 230,163 292,054 -- -- 138,375,096 Balance at 31 December 2018 16,527,317 1,502,744,760 1,231,642 10,566,137 3,886,227 -- 1,534,956,083 Carrying amount as of 31 December 2018 133,936,608 3,472,640,711 3,080,651 3,667,342 22,924,284 78,220,961 3,714,470,557

AKSA ENERJİ 2018 FAALİYET RAPORU 181 ,399,942 of the Ghana power plant the Ghana power of ,399,942 progress Total Construction in Construction ,509,495 369,786,001 3,181,543,152 Leasehold Leasehold improvements valuation expert, as of 31 December 2017. Fair value of land and building of value Fair 2017. 31 December as of expert, valuation r accumulated depreciation has been reduced from fair value on the date of of on the date value fair from has been reduced depreciation r accumulated fixtures anagement building. The amount of TL 355 of anagement building. The amount have been identified as TL 1,148,789,260. Net book value has brought to their to has brought Net book value been identified as TL 1,148,789,260. have tax to revaluation gain fund in equity. revaluation to tax Furniture and Furniture en made by an independent en made by their fair value amount which thei value their fair Machinery 8,818,600 3,144,551 12,403,165 26 to cost method. Gain in value for tangible assets assets tangible for method. Gain in value cost to and equipment Vehicles 214,479,239 185,626 753,558 1,759,141 -- 218,497,154 achinery and equipment has be -- (54,125,933) ------(8,772,710) -- (636) (54,126,569) ------(8,772,710) equipment are measured the measured equipment are 5,035 233,435,0135,035 366,908 921,671 -- 82,871,716 317,600,343 and land buildings ount of TL 7,796,217 in Aksa Göynük is related to the capitalized m the capitalized to is related Göynük in Aksa TL 7,796,217 ount of Land and Land 13,856,411 355,399,94213,856,411 ------(369,256,353) -- (1,231,430) (3,724,371) -- (790,806) -- (7,348,854) (1,602,247) improvements s and machinery d land improvements and m d land improvements Ghana and the am al value has recorded with the amount of 882,386,856 TL by netting effect of deferred deferred of netting effect TL by 882,386,856 of with the amount has recorded al value (***) (***) ed to machinery and equipment. ed to achinery and equipment have been determined according according been determined achinery and equipment have (**) (*) (*****) Group’s land and building improvement Group’s Sale of Alenka Enerji. Alenka Sale of The amount of TL 6,060,194 in Aksa Energy Energy in Aksa TL 6,060,194 of The amount İncesu power plant is classified as Assets held for sale. held for as Assets is classified plant power İncesu has been capitalized and transferr has been capitalized land improvements and m land improvements increment and as a result amounts revalued revaluation. Measurement of land and building an of Measurement revaluation. AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES SUBSIDIARIES ÜRETİM ANONİM ŞİRKETİ AND ITS ENERJİ AKSA FINANCIAL STATEMENTS THE CONSOLIDATED TO NOTES 2018 DECEMBER THE YEAR ENDED 31 AND FOR AS AT STATED.) OTHERWISE IN TURKISH LIRA UNLESS EXPRESSED (AMOUNTS Cost (*) (**) (***) (****) Balance at 1 January 2017 at 1 January Balance 70,881,340 2,69 Additions Additions Revaluation 43,341,657Revaluation rates exchange in of movements Effect 1,105,447,603 sale held for asset to Transfer subsidiaries of Disposal 1,372,757 2017 December at 31 Balance -- 37,064,015 depreciation Accumulated 2017 at 1 January Balance the period for Depreciation 8,131 128,098,665 4,294,400,424 -- 3,519,590 (127,105) 76,371 12,529,180 (77,914,445) 26,792,310 6,941,456 -- 284,798 1,319,590 780,438,257 111,719,413 29,920,296 4,577,059,582 -- 68,726,368 574,175 -- 9,148,228 1,148,789,260 (81,221) 372,351 (1,347) -- 797,474,467 -- (78,124,118) Disposals Disposals Transfers Disposalsrates exchange in movements of Effect sale held for asset to Transfer subsidiaries of Disposal 2017 December at 31 Balance 414,262 2017 December 31 as of amount Carrying 16,305,719 112,527,414 3,320,009,999 2,724,294 35,495 8,097,727 3,214,612 990,927,730 24,662,165 (45,169) 87,984 111,719,412 795,296 (532,412) (9,035,045) 3,565,794,115 -- 9,314,569 (2,487,730) (640,308) 2,130,145 -- (34,893) ------1,011,265,467 (1,347) 16,843,460 -- -- (3,660,450) -- (9,116,454) 182 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Construction in progress

At 31 December 2018 and 2017, construction in progress represents, stationary export and import warehouse.

Technical Technical completion completion Project 31 December 2018 rate (%) 31 December 2017 rate (%) Ghana investment 38,981,159 99% 97,120,827 99% Bolu Göynük power plant investment 4,693,286 99% 2,711,502 99% Kıbrıs Kalecik – Mobile power plant investment 13,708,334 99% 7,134,808 99% Other (*) 20,838,182 4,752,276

Total 78,220,961 111,719,413

(*) This balance comprises of ongoing investments project in Africa region

Mining assets

At 31 December 2018 and 2017, mining assets comprise mining development assets and stripping cost.

Cost: 31 December 2018 31 December 2017 Stripping costs 69,415,348 73,578,865 Mining development assets 5,477,772 5,477,772 Total 74,893,120 79,056,637

Amortization: Stripping costs 15,074,942 8,820,870 Mining development assets 232,333 232,333 Total 15,307,275 9,053,203

Carrying amount 59,585,845 70,003,434

AKSA ENERJİ ANNUAL REPORT 2018 183

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

14. INTANGIBLE ASSETS

The movements in intangible assets and related accumulated amortisation during twelve month period ended 31 December were as follows:

Cost Rights Other Total Balance at 1 January 2018 77,124,020 626,510 77,750,530 Additions 802,055 -- 802,055 Effect of movements in exchange rates 21,935,999 -- 21,935,999 Disposal (126,396) -- (126,396) Balance at 31 December 2018 99,735,678 626,510 100,362,188

Amortization

Balance at 1 January 2018 4,569,268 565,159 5,134,427 Amortization for the period 2,224,658 42,600 2,267,258 Effect of movements in exchange rates 1,148,331 -- 1,148,331 Disposal (32,920) -- (32,920) Balance at 31 December 2018 7,909,337 607,759 8,517,096 Carrying amount as of 31 December 2018 91,826,341 18,751 91,845,092

Cost Rights Other Total Balance at 1 January 2017 62,155,254 916,655 63,071,909 Additions 12,425,253 8,395 12,433,648 Effect of movements in exchange rates 3,687,119 -- 3,687,119 Transfer to assets held for sale (827,000) (9,806) (836,806) Disposal of subsidiary (158,950) (10,000) (168,950) Disposal (147,655) (7,914) (155,569)

Balance at 31 December 2017 77,134,021 897,330 78,031,351

Amortization Balance at 1 January 2017 1,585,211 508,104 2,093,315 Amortization for the period 3,209,847 114,228 3,324,075 Effect of movements in exchange rates 302,366 -- 302,366 Transfer to assets held for sale (167,566) (9,806) (177,372) Disposal (79,045) (2,891) (81,936) Disposal of subsidiary (35,199) (10,000) (45,199) Balance at 31 December 2017 4,815,614 599,635 5,415,249 Carrying amount as of 31 December 2017 72,318,407 297,695 72,616,102

15. GOODWILL

At 31 December 2018 and 2017, goodwill comprised the following:

31 December 2018 31 December 2017 Goodwill 3,349,356 3,349,356 -İdil İki Enerji 3,349,356 3,349,356

Total 3,349,356 3,349,356 184 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

16. FINANCIAL INVESTMENTS

Financial investments

At 31 December 2018 and 2017, financial investments comprised the following:

Rate % 31 December 2018 31 December 2017 Enerji Piyasaları İşletme A.Ş. (*) 0.67 412,408 412,408 412,408 412,408

(*) The Group invest to Enerji Piyasaları İşletme A.Ş. (EXIST) and obtained 412,408 number of Group C share on 20 November 2014.

According to IFRS 9, since cost is a reflection of the fair value estimation, financial investments are presented at their cost value.

17. DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax is provided in respect of taxable temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except for the differences relating to goodwill not deductible for tax purposes and the initial recognition of assets and liabilities which affect neither accounting nor taxable profit.

Recognized deferred tax assets and liabilities

Deferred tax assets and deferred tax liabilities at 31 December are attributable to the items detailed in the table below:

31 December 2018 31 December 2017 Asset / (Liability) Asset / (Liability) Property and equipment and intangible assets (145,202,981) (200,581,137) Provision to doubtful receivables 2,514,943 3,063,900 Inventory impairment loss 356,531 2,775,698 Derivatives (39,336) 671,543 Loans and borrowings (2,523,404) (795,447) Reserve for employee severance indemnity 701,912 600,041 Bonds issued 1,460,050 701,603 Litigation provisions 57,394 152,323 Vacation pay liability 298,282 369,445 Other asset (1,470,797) 471,771 Losses carried forward 85,005,083 70,943,563 Consolidation adjustments -- 30,477,706 Other (615,958) (5,469,913) Net deferred tax liabilities (59,458,281) (96,618,904) Deferred tax asset 125,276,334 -- Deferred tax liability (184,734,615) (96,618,904) Net deferred tax liabilities (59,458,281) (96,618,904) AKSA ENERJİ ANNUAL REPORT 2018 185

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Recognized deferred tax assets and liabilities

Movements in deferred tax balances during the years 2018 and 2017 are as follows:

Recognized in other Effects of Recognized in Effect of sale comprehensive 1 January 2018 translation profit or loss of subsidiary income 31 December 2018 Total deferred tax assets/ (liabilities) (96,618,904) (2,994,662) 38,593,430 -- 1,561,855 (59,458,281)

Recognized in other Effects of Recognized in Effect of sale comprehensive 1 January 2017 translation profit or loss of subsidiary income 31 December 2017 Total deferred tax assets/ (liabilities) 90,946,111 (1,777,053) 47,675,747 4,627,723 (238,091,432) (96,618,904)

18. INVENTORIES

At 31 December 2018 and 2017, inventories comprised the following:

31 December 2018 31 December 2017 Other spare parts and operating supplies inventory 105,150,435 242,385,416 Raw materials 198,333,132 144,859,756 Work-in-progress 50,328,991 29,232,348 Advances given for raw materials and supplies 17,726,102 23,006,628 Provision for impairment on inventories (-) (2,398,055) (12,616,810)

Total 369,140,605 426,867,338

19. OTHER CURRENT ASSETS

At 31 December 2018 and 2017, other current assets comprised the following:

31 December 2018 31 December 2017 Deferred value added tax (“VAT”) 151,121,750 124,527,070 Other 927,962 397,768

Total 152,049,712 124,924,838

20. LONG AND SHORT TERM PREPAYMENTS

At 31 December 2018 and 2017 short term prepayments comprised the following:

31 December 2018 31 December 2017 Prepaid insurance expenses 7,324,938 5,109,497 Prepaid guarantee letter commissions 1,101,402 -- Other 6,885,826 4,246,009

Total 15,312,166 9,355,506 186 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

At 31 December 2018 and 2017, long term prepayments comprised the following:

31 December 2018 31 December 2017 Advances given for tangible assets 6,940,708 4,099,226 Prepaid guarantee letter commissions 7,290,821 -- Other prepaid expenses 2,967 36,732

Total 14,234,496 4,135,958

21. TRADE AND OTHER RECEIVABLES AND PAYABLES

At 31 December 2018 and 2017, trade receivables to third parties comprised the following:

31 December 2018 31 December 2017 Trade receivables 1,283,737,084 677,158,715 Receivables from sale of subsidiary (*) 116,591,259 81,434,843 Doubtful receivables 33,700,863 22,995,513 Allowance for doubtful receivables (-) (33,700,863) (22,995,513) Unearned credit finance charges (-) -- (2,549,317) Other receivables 2,874,874 3,518,851 Total 1,403,203,217 759,563,092

(*) Receivables from Borusan EnBW Enerji Yatırımlar ve Üretim A.Ş. in relation to sale of Alenka Enerji.

The exposure to credit and market risks and impairment losses related to trade and other receivables are disclosed in Note 32. As of 31 December 2018 movement of doubtful receivables is shown below:

2018 2017 Balance at 1 January 22,995,513 25,744,460 Current year charge 11,289,993 12,181,858 Collections (584,643) (14,930,805) Balance of 31 December 33,700,863 22,995,513

At 31 December 2018 and 2017, trade and other payables to third parties comprised the following:

31 December 2018 31 December 2017 Trade and other payables to third parties 343,322,873 427,941,600 Expense accruals -- 3,610,907 Unearned credit finance charges (-) (6,991,404) (3,388,553) Total 336,331,469 428,163,954

The exposure to credit and liquidity related to trade and other payables are disclosed in Note 32.

At 31 December 2018 and 2017, long term trade and other receivables comprised the following:

Trade and other receivables 31 December 2018 31 December 2017 Deposits given 1,545,269 15,662,583 Total 1,545,269 15,662,583

AKSA ENERJİ ANNUAL REPORT 2018 187

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

22. CASH AND CASH EQUIVALENTS

At 31 December 2018 and 2017, cash and cash equivalents comprised the following:

31 December 2018 31 December 2017 Cash on hand 422,744 230,436 Cash at banks 52,603,618 59,347,355 - Demand deposits 4,211,398 7,502,655 - Time deposits (*) 48,360,900 51,813,380 - Blocked cash 31,320 31,320 Total 53,026,362 59,577,791 Restricted cash amount (31,320) (31,320) Cash and cash equivalents on cash flows 52,995,042 59,546,471

(*) Group have time deposits US Dollar equivalent TL 5,260,900 which in maturity date is 8 February 2019 and interest rate is 3% and amounting to TL 43,100,00 which in maturity date is 2 January 2019 and interest rate is 23% (31 December 2017: Group have time deposits US Dollar equivalent TL 27,912,060 which in maturity date is 2 January 2018 and interest rate is 1% and amounting to TL 23,900,00 which in maturity date is 2 January 2018 and interest rate is 12-14%).

The exposure to credit and liquidity related to cash and cash equivalents are disclosed in Note 32.

23. CAPITAL AND RESERVES

Paid in capital

The registered authorized capital of the Company is 4,750,000,000 (31 December 2017: 4,750,000) Turkish Lira with the permission of the CMB dated 16.04.2010 and numbered by 10/330. This is valid for the years between 2014 and 2018. The Company should get permission of CMB to increase capital.

At 31 December 2018, the Group’s statutory nominal value of authorized and paid-in share capital is TL 613,169,118 (31 December 2017: TL 613,169,118) (comprising of 613,169,118 registered shares (31 December 2017: 613,169,118) having par value of TL 1 (31 December 2017: TL 1) each).

At 31 December 2018 and 2017, the shareholding structure of the Company was as follows:

31 December 2018 31 December 2017 Shareholders (%) Amount (%) Amount Kazancı Holding 78.60 481,976,743 61.98 380,064,978 Public share (*) 21.39 131,158,000 21.39 131,158,000 Other 0.01 34,375 0.01 34,375 Goldman Sachs International(**) -- -- 16.62 101,911,765 Inflation adjustment to share capital -- 1,987,932 -- 1,987,932 Paid in capital in TL (nominal) 100.00 615,157,050 100.00 615,157,050

TL 131,158,000 of bearer B group share are traded in Borsa İstanbul A.Ş.

* Kazancı Holding’s purchases from the shares which is under the part of public shares that Kazancı holding obtained them in 2012 and 2013, are shown in the table above into the part of public shares. These shares are the number of 4.958.962 (31 December 2017: 4.458.962) as the date of 31 December 2018. ** The possession of 16,62% of the shares held by Goldman Sachs International (GSI) in Aksa Enerji was transferred to Kazancı Holding under the authorization of Energy Market Regulation Authority dated 20 April 2018 and numbered 19793. By the provisions of the relevant agreement between GSI and Kazancı Holding 101.911.765 shares has been purchased back from Goldman Sachs International (GSI) by Kazancı Holding on April 20, 2018. 188 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

On the date of 2 August 2016, a new loan agreement with a total of US $ 800 million was signed between Kazancı Holding A.Ş. And Aksa partnership Co. and with the Bank’s consortium under the leadership of Türkiye Garanti Bankası A.Ş. And Türkiye İş Bankası, with the participation of T.C. Ziraat Bankası A.Ş., Türkiye Halk Bankası A.Ş., Türkiye Vakıflar Bankası T.A.O., Odea Bank A.Ş. and Türkiye Sınai Kalkınma Bankası A.Ş. With this created financing, all of the old loan mentioned above was repaid and the shares of Aksa Enerji in the property owned by Kazancı Holding liberalized. In addition to these liberalized shares belonging to the Kazancı Holding, representing %61.98 capital shares of Aksa Energy which is owned by Kazancı Holding and is 9.74% shares of Kazancı Holding, was pledged to be a guarantee for the new loan, to the Guarantee Representative Türkiye İş Bankası AŞ by Kazancı Holding.

Legal reserves

According to the Turkish Commercial Code (“TCC”), legal reserves are comprised of first and second legal reserves.

The first legal reserves are generated by annual appropriations amounting to 5 percent of income disclosed in the Company’s statutory accounts until it reaches 20% of paid-in share capital. If the dividend distribution is made in accordance with Dividend Distribution Communiqué II-19.1, a further 1/10 of dividend distributions, in excess of 5% of paid-in capital is to be appropriated to increase second legal reserves. If the dividend distribution is made in accordance with statutory records, a further 1/11 of dividend distributions, in excess of 5% of paid-in capitals are to be appropriated to increase second legal reserves. Under the TCC, the legal reserves can be used only to offset losses and are not available for any other usage unless they exceed 50 percent of paid-in capital. At 31 December 2018, legal reserves of the Group amounted to TL 48,267,560 (31 December 2017: TL 48,267,560).

Share premium

Share premium represents differences resulting from the sale of the Company’s subsidiaries’ and associates’ shares at a price exceeding the face value of those shares or differences between the face value and the fair value of shares issued for acquired companies. As of 31 December 2018, TL 96,523,266 of share premium amounting to TL 247, 403,635 (31 December 2017: 247,403,635) have occurred as a result of first public offering in 2010 and TL 150,880,369 have occurred as a result of allocated capital increase in 2012.

Actuarial gain/loss:

Actuarial gain/loss reserves comprises actuarial gains and losses recognized in other comprehensive income based on IAS (2011). As of 31 December 2018, the Group’s actuarial gain/loss is TL 898,193 (31 December 2017: TL 1,566,073).

Gain on revaluation of property, plant end equipment:

Gain on revaluation of property, plant end equipment comprise of fair value gain of land and land improvements and buildings and machinery and equipment in property, plant and equipment. As of 31 December 2018, Group’s gain on revaluation of property, plant and equipment is TL 821,844,347 (31 December 2017: TL 882,386,856)

Cash flow hedge reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred, net of tax. As of 31 December 2018, Group’s cash flow hedge reserve liabilities is TL 3,518,526 (31 December 2017: TL 2,060,997)

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign and domestic operations from their functional currencies to presentation currency of TL. . As of 31 December 2018, Group’s translation reserve is TL 43,037,685 (31 December 2017: TL 25,486,345) AKSA ENERJİ ANNUAL REPORT 2018 189

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Dividend distribution

Publicly held companies distribute dividends based on the Capital Market Board (“CMB”) Dividend Communique numbered II-19.1 effective from 1 February 2014.

Companies distribute their profits in accordance with their dividend policy determined by the General Assembly and with General Assembly resolution in accordance with provisions of the relevant legislation.

Non-controlling interests

Equity in a subsidiary that is not attributable, directly or indirectly, to a parent is classified under the “Non-controlling interests” in the consolidated financial statements.

As at 31 December 2018 and 2017 the related amounts in the “Non-controlling interests” in the consolidated statement of financial position are respectively TL 181,851,117 liability and TL 57,466,771 liability. In addition, net profit or loss in a subsidiary that is not attributable, directly or indirectly, to a parent is also classified under the “Non-controlling interests” in the consolidated financial statements.

Accumulated losses

Accumulated gain and loss is shown in retaining earnings as net-off except net income for the period. Extraordinary reserves that are accumulated as profit/loss by their nature are also recognized as retaining earnings shown. As of 31 December 2018, Group’s accumulated losses are 156,832,331 (31 December 2017: 470,564,802)

24. EARNINGS PER SHARE

The calculation of basic and diluted EPS at 31 December 2018 and 2017 is as follows:

1 January- 1 January- 31 December 2018 31 December 2017 Numerator: Profit/(loss) for the period attributable to equity holders 26,094,071 257,947,268 Weighted average number of shares 613,169,118 613,169,118 Basic and diluted loss per share (full TL) 0.043 0.421

25. LOANS AND BORROWINGS

This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risks, see Note 32.

31 December 2018 31 December 2017 Current liabilities Current portion of bank loans 1,394,427,238 840,155,894 Short term bank loans 504,015,099 440,990,351 Finance lease liabilities -- 638,020

Total 1,898,442,337 1,281,784,265

Non-current liabilities Long term bank loans 1,586,768,204 1,158,627,222 Total 1,586,768,204 1,158,627,222

Total loans and borrowings 3,485,210,541 2,440,411,487 190 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

The Group’s total bank loans and finance lease liabilities as at 31 December 2018 and 2017 are as follows:

31 December 2018 31 December 2017 Bank loans 3,485,210,541 2,439,773,467 Finance lease liabilities -- 638,020 3,485,210,541 2,440,411,487

Commitment and contingies of loans and borrowings are disclosed in Note 31.

Redemption schedules of the Group’s bank loans according to original maturities as at 31 December 2018 are as follows:

31 December 2018 Maturity Currency Amount TL Amount 0-12 months USD 101,235,841 532,591,758 EUR 10,315,736 62,183,257 TL 1,303,667,322 1,303,667,322 1-2 year USD 64,226,784 337,890,687 EUR 3,624,196 21,846,651 TL 443,490,761 443,490,761 2-3 year USD 51,017,861 268,399,865 EUR 1,105,311 6,662,812 TL 100,188,816 100,188,816 3-4 year USD 25,356,714 133,399,139 TL 20,960,029 20,960,029 4-5 year USD 21,685,581 114,085,674 5 year and more USD 26,581,720 139,843,770 Total 3,485,210,541

Redemption schedules of the Group’s bank loans according to original maturities as at 31 December 2017 are as follows:

31 December 2017 Maturity Currency Amount TL Amount 0-12 months USD 144,022,552 541,282,499 EUR 13,213,331 59,664,798 TL 680,198,948 680,198,948 1-2 year USD 45,376,992 171,157,476 EUR 10,361,626 46,787,921 TL 258,454,686 258,454,686 2-3 year USD 33,667,403 126,990,076 EUR 2,999,060 13,542,255 TL 119,621,836 119,621,836 3-4 year USD 25,701,580 96,943,790 EUR 1,589,367 7,176,785 TL 33,505,833 33,505,833 4-5 year USD 22,818,684 86,069,793 TL 17,729,119 17,729,119 5 year and more USD 47,893,012 180,647,652 Total 2,439,773,467 AKSA ENERJİ ANNUAL REPORT 2018 191

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Terms and debt repayment schedule

The breakdown of bank loans as at 31 December 2018 is as follows:

Original Currency Nominal Interest rate % Face Value Carrying Amount TL 14.40% – 39.00% 1,835,607,653 1,868,307,049 USD 6MLibor +0,15%-6MLibor +6,35% 1,453,606,906 1,526,210,772 EUR Euribor6M+1,60% - 3,84% 97,668,843 90,692,720 Total 3,386,883,402 3,485,210,541

The breakdown of bank loans as at 31 December 2017 is as follows:

Original Currency Nominal Interest rate % Face Value Carrying Amount TL % 12.25 -% 18.50 1,085,499,166 1,109,510,423 USD 6MLibor +%0.15-6MLibor+%6.35 1,191,195,863 1,203,091,285 EUR Euribor6M +% 1.60 - % 3.84 136,291,496 127,171,759 Total 2,412,986,525 2,439,773,467

The breakdown of finance lease as at 31 December 2018 is as follows:

31 December 2018 Maturity Currency Amount TL Amount 0-12 Months EUR -- -- Total --

The breakdown of financial lease as at 31 December 2017 is as follows:

31 December 2017 Maturity Currency Amount TL Amount 0-12 Months EUR 141,295 638,020 Total 638,020

26. OTHER FINANCIAL LIABILITIES

Other short term financial liabilities

At 31 December 2018 and 2017, other short term financial liabilities comprised the following:

Other short term financial liabilities 31 December 2018 31 December 2017 Factoring liabilities 99,727,020 175,783,689 Bond issued 146,636,592 84,023,074 Other financial liabilities 4,852 7,850 Total 246,368,464 259,814,613 192 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Other long term financial liabilities

At 31 December 2018 and 2017, other long term financial liabilities comprised the following:

Other long term financial liabilities 31 December 2018 31 December 2017 Bond issued -- 119,166,031 Factoring liabilities 13,919,586 17,112,079 Total 13,919,586 136,278,110

The Company has bond issuance at a nominal amount of TL 60,000,000, to be quarterly paid within 2 years maturity bond based on 3.3763 % coupon rate on 24 June 2016. Restated bonds matured on 28 June 2018.

The Company has bond issuance at a nominal amount of TL 140,000,000, to be quarterly paid within 3 years maturity bond based on 3.6795% coupon rate on 28 June 2016. The maturity date of restated bonds is on 26 June 2019.

The breakdown of factoring liabilities as at 31 December 2018 and 2017 is as follows:

31 December 2018 Maturity Currency TL Amount Less than 1 year TL 99,727,020 1-2 years TL 13,919,586 Total 113,646,606

31 December 2017 Maturity Currency TL Amount Less than 1 year TL 175,783,689 1-2 years TL 17,112,079 2-3 years TL -- Total 192,895,768

The breakdown of bond issues as at 31 December 2018 and 2017 is as follows:

31 December 2018 Maturity Currency TL Amount Less than 1 year TL 146,636,592 Total 146,636,592

31 December 2017 Maturity Currency TL Amount Less than 1 year TL 84,023,074 1-2 Year TL 119,166,031 2-3 Year TL -- Total 203,189,105

AKSA ENERJİ ANNUAL REPORT 2018 193

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

27. EMPLOYEE BENEFITS

Under the Turkish Labour Law, Aksa Enerji and its subsidiaries in Turkey are required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires after completing 25 years of service (20 years for women) and reaches the retirement age (58 for women and 60 for men). Since the legislation was changed on 8 September 1999, there are certain transitional provisions relating to the length of service prior to retirement.

International Accounting Standard No. 19 (“IAS 19”) “Employee Benefits” requires actuarial valuation methods to be developed to estimate the enterprise’s obligation under defined benefit plans. Accordingly, the following actuarial assumptions are used in the calculation of the total liability:

The principal assumption is that the maximum liability for each year of service will increase in line with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Consequently, in the accompanying consolidated financial statements as at 31 December 2018, the provision has been calculated by estimating the present value of the future probable obligation of the Group arising from the retirement of the employees. The provision at 31 December 2018 has been calculated assuming an annual inflation rate of 9.50% and a discount rate of 14.00% resulting in a real discount rate of approximately 4.11% (31 December 2017: annual inflation rate of 6,50% and a discount rate of 10,50% resulting in a real discount rate of approximately 3,76%). It is planned that retirement rights will be paid to employees at the end of concession periods. Accordingly, present value of the future probable obligation has been calculated based on the concession periods.

The amount of the reserve for employee severance indemnity during the as at and for the year ended 31 December was as follows:

2018 2017 Balance at 1 January 3,000,204 2,899,099 Interest cost 268,395 287,075 Service cost 800,047 1,449,955 Payment made during the period (552,968) (1,199,311) Actuarial difference 834,850 (436,614) Balance at 31 December 4,350,528 3,000,204

28. OTHER CURRENT LIABILITIES

At 31 December 2018 and 2017, other current liabilities comprised the following:

31 December 2018 31 December 2017 Advances received(*) 17,955,012 70,694,151 Due to personnel 5,283,626 6,112,080 Social security withholdings payable 1,980,170 2,764,182 Total 25,218,808 79,570,413

(*)As of December 31 2017, TL 56,340,906 of the advance payment, is due to sale of İncesu power plant which is held by Aksa Enerji is taken from Deniz Elektrik within Fernas Group of Companies. The related transaction was completed on 17 January 2018 194 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

29. PROVISIONS

At 31 December 2018 and 2017, provisions comprised the following:

Vacation Lawsuits pay liability Other provisions Total Balance as of 1 January 2018 692,377 1,679,295 -- 2,371,672 Provision set during the period 345,409 (558,789) -- (213,380) Balance as of 31 December 2018 1,037,786 1,120,506 -- 2,158,292

Balance as of 1 January 2017 257,071 1,777,690 -- 2,034,761 Provision set during the period 435,306 (98,395) -- 336,911 Provision used ------Balance as of 31 December 2017 692,377 1,679,295 -- 2,371,672

30. DERIVATIVE FINANCIAL INSTRUMENTS

At 31 December 2018 and 2017, derivative financial instruments comprised the following:

31 December 2018 31 December 2017 Derivative financial instruments Carrying Value Carrying Value Asset Liability Asset Liability Cash flow hedges 413,737 (3,895,565) 2,576,770 -- Held for trading -- (4,397,643) -- (3,052,466) Total 413,737 (8,293,208) 2,576,770 (3,052,466)

All derivatives in a net receivable position (positive fair value) are reported as derivative assets. All derivatives in a net payable position (negative fair value) are reported as derivative liabilities.

Further disclosure regarding the derivative contracts of the Group are explained at Note 32.

31. COMMITMENTS, CONTINGENCIES AND CONTRACTUAL OBLIGATIONS

Collateral / Pledge / Mortgage (“CPM”)

As of 31 December 2018 and 2017, the Group’s collateral, pledge and mortgage (CPM) position is disclosed as follows:

31 December 2018 31 December 2017 A. CPM given for companies own legal personality 4,450,910,793 2,519,454,202 B. CPM given in behalf of fully consolidated companies 1,915,362,150 1,428,109,100 C. CPM given for continuation of its economic activities on behalf of third parties -- -- D. Total amount of other CPM’s -- -- i. Total amount of CPM’s given on behalf of majority shareholder -- -- ii. Total amount of CPM’s given on behalf of other Group companies which are not in scope of B and C -- -- iii. Total amount of CPM’s given on behalf of third parties which are not in scope of C -- -- Total CPM 6,366,272,943 3,947,563,302

AKSA ENERJİ ANNUAL REPORT 2018 195

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Letters of guarantees given to:

31 December 2018 TL USD EUR CHF TL Equivalent Banks -- -- 1,457,143 -- 8,783,657 Botaş–Petroleum Pipeline Corporation 665,042 ------665,042 Electricity distribution companies 26,862 ------26,862 Republic of Turkey Energy Market Regulatory Authority 44,398,000 ------44,398,000 Ministry of Custom and Trade ------Enforcement offices 700,192 ------700,192 Turkey Electricity Transmission Company (TEIAS) 12,419,674 2,062,080 100,000 -- 23,870,871 Turkish Coal Enterprises Institution(TKI) 5,225,526 ------5,225,526 Other 22,777,183 5,021,001 1,250,000 800,000 60,995,327 Total 86,212,479 7,083,081 2,807,143 800,000 144,665,477

31 December 2017 TL USD EUR CHF TL Equivalent Banks -- -- 1,457,143 -- 6,579,728 Botaş–Petroleum Pipeline Corporation 665,042 ------665,042 Electricity distribution companies 19,264,093 ------19,264,093 Republic of Turkey Energy Market Regulatory Authority 21,758,000 ------21,758,000 Ministry of Custom and Trade ------Enforcement offices 196,444 ------196,444 Turkish Coal Enterprises Institution(TKI) 4,525,476 ------4,525,476 Turkey Electricity Transmission Company (TEIAS) 7,776,984 2,062,080 100,000 -- 16,006,493 Other 38,973,171 41,715,000 1,250,000 800,000 205,046,194 Total 93,159,210 43,777,080 2,807,143 800,000 274,041,470

Guarantees received

At 31 December 2018 and 2017, the details of guarantees received is as follows:

31 December 2018 Type of guarantees TL USD EUR TL Equivalent Letter of guarantee 121,697,977 75,000,000 1,582,600 525,805,390 Notes taken for colleterals 26,327,053 1,050,574 1,205,112 39,118,433 Cheques taken for colleterals 26,327,053 28,000 3,456,000 32,367,606 Mortgage 700,000 -- -- 700,000 Total 175,052,083 76,078,574 6,243,712 597,991,429

196 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

31 December 2017 Type of guarantees TL USD EUR TL Equivalent Letter of guarantee 190,849,018 76,080,250 2,345,500 488,407,218 Notes taken for colleterals 26,326,505 1,034,174 1,184,169 35,574,419 Cheques taken for colleterals 11,387,533 28,000 3,456,000 27,098,714 Mortgage 700,000 -- -- 700,000 Total 229,263,056 77,142,424 6,985,669 551,780,351

32. FINANCIAL INSTRUMENTS

Credit Risk

Impairment losses

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 December 2018 and 2017 is:

Receivables Trade receivables Other receivables Deposits 31 December 2018 Related Parties Other Related Parties Other at banks Maximum credit risk exposed to as at 31 December 2018 (A+B+C+D+E) 398,189,737 1,283,737,084 8,072,880 121,011,402 52,603,618 A. Carrying amount of financial assets not overdue or not impaired 398,189,737 1,283,737,084 8,072,880 121,011,402 52,603,618 B. Carrying amount of financial assets with rediscussed conditions that are considered overdue or impaired if not rediscussed ------C. Carrying amount of financial assets overdue but not impaired ------D. Carrying amount of assets impaired ------Overdue (gross book value) ------Impairment (-) 10,620 24,961,521 -- 8,739,342 -- E. Off balance sheet items with credit risk (10,620) (24,961,521) -- (8,739,342) --

Receivables Trade receivables Other receivables Deposits 31 December 2017 Related Parties Other Related Parties Other at banks Maximum credit risk exposed to as at 31 December 2017 (A+B+C+D+E) 32,140,674 674,609,398 9,234,230 84,953,694 59,347,355 A. Carrying amount of financial assets not overdue or not impaired 32,140,674 674,609,398 9,234,230 84,953,694 59,347,355 B. Carrying amount of financial assets with rediscussed conditions that are considered overdue or impaired if not rediscussed ------C. Carrying amount of financial assets overdue but not impaired ------D. Carrying amount of assets impaired ------Overdue (gross book value) ------Impairment (-) 275,922 9,233,263 -- 9,004,945 -- E. Off balance sheet items with credit risk (275,922) (9,233,263) -- (9,004,945) --

AKSA ENERJİ ANNUAL REPORT 2018 197

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Liquidity risk

The followings are the contractual maturities of financial liabilities, including estimated interest payments:

Contractual Carrying cash flows 3 months 3-12 1-5 More than 31 December 2018 amount (=I+II+III +IV) or less (I) months (II) years (III) 5 years (IV) Non-derivative financial liabilities 3,745,498,591 4,441,298,675 103,982,767 896,951,861 2,307,207,071 1,133,156,976 Financial liabilities 3,485,210,541 4,162,765,621 91,638,289 692,709,873 2,245,260,483 1,133,156,976 Financial lease liabilities -- 7 7 ------Other financial liabilities 260,288,050 278,533,047 12,344,471 204,241,988 61,946,588 -- Derivative financial liabilities 7,879,471 60,648,640 43,578,640 16,475,300 594,700 -- Cash inflow -- (242,594,560) (174,314,560) (65,901,200) (2,378,800) -- Cash outflow -- 303,243,200 217,893,200 82,376,500 2,973,500 --

Contractual Carrying cash flows 3 months 3-12 1-5 More than amount (=I+II+III +IV) or less (I) months (II) years (III) 5 years (IV) Non derivative financial liabilities 582,008,905 562,359,647 562,359,647 ------Trade payables to related parties 239,348,509 233,019,582 233,019,582 ------Trade and other payables to third parties 336,331,469 329,340,065 329,340,065 ------

Contractual cash flows Carrying (=I+II+III 3 months 3-12 1-5 More than 31 December 2017 amount +IV+V) or less (I) months (II) years (III) 5 years (IV) Non-derivative financial liabilities 2,836,504,210 3,381,297,556 476,778,516 1,187,987,892 1,452,538,649 263,992,499 Financial liabilities 2,439,773,467 2,925,181,025 395,369,546 988,979,191 1,276,839,789 263,992,499 Financial lease liabilities 638,020 744,957 220,519 524,438 -- -- Other financial liabilities 396,092,723 455,371,574 81,188,451 198,484,263 175,698,860 -- Derivative financial liabilities 475,697 139,223,054 50,412,540 88,810,514 -- -- Cash inflow (2,576,770) (50,746,864) (40,330,032) (10,416,832) -- -- Cash outflow 3,052,467 189,969,918 90,742,572 99,227,346 -- --

Contractual Carrying cash flows 3 months 3-12 1-5 More than amount (=I+II+III +IV) or less (I) months (II) years (III) 5 years (IV) Non derivative financial liabilities 513,440,838 507,809,075 507,809,075 ------Trade and other payables to related parties 85,276,884 76,256,568 76,256,568 ------Trade and other payables to third parties 428,163,954 431,552,507 431,552,507 ------

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES 198

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL INFORMATION AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Currency risk

The summary of quantitative data about the Group entities’ exposure to foreign currency risk as follows:

FOREIGN CURRENCY RISK 31 December 2017 TL Equivalent USD EUR GBP CHF Other (*) 1. Trade receivables 64,625,015 8,247,606 7,422,405 ------2a. Monetary financial assets 28,397,766 7,447,143 64,222 3,522 -- -- 2b. Non-monetary financial assets 3,881,748 456,282 478,507 ------3. Other ------4. CURRENT ASSETS 96,904,529 16,151,031 7,965,134 3,522 -- -- 5. Trade receivables ------6a. Monetary financial assets ------6b. Non-monetary financial assets ------7. Other ------8. NON-CURRENT ASSETS ------9. TOTAL ASSETS 96,904,529 16,151,031 7,965,134 3,522 -- -- 10. Trade payables 197,403,257 17,041,239 29,194,301 72,656 241,109 -- 11. Financial liabilities 601,585,316 144,022,552 13,354,626 ------12a. Other financial liabilities ------12b. Other non-monetary liabilities ------13. SHORT TERM LIABILITIES 798,988,573 161,063,791 42,548,927 72,656 241,109 -- 14. Trade payables ------15. Financial liabilities 729,315,747 175,457,670 14,950,052 ------16a. Other financial liabilities ------16b. Other non-monetary liabilities ------17. LONG TERM LIABILITIES 729,315,747 175,457,670 14,950,052 ------18. TOTAL LIABILITIES 1,528,304,320 336,521,461 57,498,979 72,656 241,109 -- 19. Off statement of financial position derivatives net asset/ liability position ------20. Net foreign currency asset liability position (1,431,399,791) (320,370,430) (49,533,845) (69,134) (241,109) -- 21. Net foreign currency asset / (liability) (position of (1,435,281,539) (320,826,712) (50,012,352) (69,134) (241,109) -- monetary items (1+2a+5+6a-10-11-12a-14-15-16a) 22. Fair value of derivative instruments used in foreign currency hedge (2,576,770) (683,149) ------23. Hedged portion of foreign currency assets ------24. Hedged portion of foreign currency liabilities 285,870,320 75,789,475 ------AKSA ENERJİ 2018 FAALİYET RAPORU 199 (*) 31 December 2018 December 31 ------FOREIGN CURRENCY RISK CURRENCY FOREIGN TL Equivalent USD EUR GBP CHF Other

23. Hedged portion of foreign currency assets currency foreign Hedged portion of 23. liabilities currency foreign Hedge portion of 24. -- -- monetary items (1+2a+5+6a-10-11-12a-14-15-16a) items monetary used in foreign instruments derivative of value 22. Fair hedge currency 21. Net foreign currency asset / (liability) (position of (position / (liability) asset currency 21. Net foreign (1,535,222,859) (279,194,677) (10,854,735) (97,005) (61,832) -- 20. Net foreign currency asset liability position liability asset currency Net foreign 20. (1,409,073,213) (256,044,119) (10,131,962) (97,005) (61,832) -- 19. Off statement of financial position derivatives net asset/ derivatives financial position of statement Off 19. position liability 18. TOTAL LIABILITIES TOTAL 18. 1,708,128,720 295,866,473 24,625,102 100,352 468,034 -- 17. LONG TERM LIABILITIES LONG 17. 1,022,128,632 188,868,660 4,729,512 ------16b. Other non-monetary liabilities Other non-monetary 16b. ------16a. Other financial liabilities ------15. Financial liabilities15. 1,022,128,632 188,868,660 4,729,512 ------14. Trade payables Trade 14. ------13. SHORT TERM LIABILITIES SHORT 13. 686,000,088 106,997,813 19,895,590 100,352 468,034 -- 12b. Other non-monetary liabilities Other non-monetary 12b. ------12a. Other financial liabilities12a. 12,378,643 800,000 1,355,329 ------11. Financial liabilities 598,142,408 101,495,329 10,647,915 ------10. Trade payables Trade 10. 75,479,037 4,702,484 7,892,346 100,352 468,034 -- 9. TOTAL ASSETS TOTAL 9. 299,055,507 39,822,354 14,493,140 3,347 406,202 -- 8. NON-CURRENT ASSETS NON-CURRENT 8. 2,610,577 105,000 341,437 ------7. Other 7. 6b. Non-monetary financial assets Non-monetary 6b. 36 -- 6 ------6a. Monetary financial assets6a. Monetary 2,610,541 105,000 341,431 ------5. Trade receivables Trade 5. ------4. CURRENT ASSETS4. CURRENT 296,444,930 39,717,354 14,151,703 3,347 406,202 -- 3. Other3. 113,163,043 21,510,206 ------2b. Non-monetary financial assets Non-monetary 2b. 12,986,567 1,640,352 722,767 ------2a. Monetary financial assets Monetary 2a. 7,981,922 1,413,260 86,740 3,347 331 --

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES SUBSIDIARIES ÜRETİM ANONİM ŞİRKETİ AND ITS ENERJİ AKSA FINANCIAL STATEMENTS THE CONSOLIDATED TO NOTES 2018 DECEMBER THE YEAR ENDED 31 AND FOR AS AT STATED.) OTHERWISE IN TURKISH LIRA UNLESS EXPRESSED (AMOUNTS receivables1. Trade 162,313,398 15,153,536 13,342,196 -- 405,871 --

200 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Sensitivity analysis

Foreign currency risk sensitivity analysis

The Group is mainly exposed to foreign currency risks in USD and Euro.

The following table shows the Group’s sensitivity to a 10% increase and decrease in USD and Euro. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis only includes outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number indicates an increase in profit / loss and other equity.

Sensitivity Analysis 31 December 2018 Profit/Loss Equity The appreciation The depreciation The appreciation The depreciation of foreign currency of foreign currency of foreign currency of foreign currency 10% appreciation / depreciation of TL against the USD 1 - USD net asset / liability (146,881,528) 146,881,528 (146,881,528) 146,881,528 2- Portion secured from USD(-) 7,578,947 (7,578,947) 7,578,947 (7,578,947) 3- USD net effect (1 +2) (139,302,581) 139,302,581 (139,302,581) 139,302,581 10% appreciation / depreciation of TL against EUR 4 - Euro net asset / liability (6,543,234) 6,543,234 (6,543,234) 6,543,234 5 - Portion secured from Euro (-) ------6 - Euro net effect (4+5) (6,543,234) 6,543,234 (6,543,234) 6,543,234 10% appreciation / depreciation of TL against other currencies 7- Other foreign currency net asset/liability (97,524) 97,524 (97,524) 97,524 8- Portion secured from other currency (-) 9- Other currency net effect (7+8) (97,524) 97,524 (97,524) 97,524 Total (3+6+9) (145,943,339) 145,943,339 (145,943,339) 145,943,339

Sensitivity Analysis 31 December 2017 Profit/Loss Equity The appreciation The depreciation The appreciation The depreciation of foreign currency of foreign currency of foreign currency of foreign currency 10% appreciation / depreciation of TL against the USD 1 - USD net asset / liability (120,644,906) 120,644,906 (120,644,906) 120,644,906 2- Portion secured from USD(-) 28,587,032 (28,587,032) 28,587,032 (28,587,032) 3- USD net effect (1 +2) (92,057,874) 92,057,874 (92,057,874) 92,057,874 10% appreciation / depreciation of TL against EUR 4 - Euro net asset / liability (22,367,008) 22,367,008 (22,367,008) 22,367,008 5 - Portion secured from Euro (-) ------6 - Euro net effect (4+5) (22,367,008) 22,367,008 (22,367,008) 22,367,008 10% appreciation / depreciation of TL against other currencies 7- Other foreign currency net asset/liability (128,065) 128,065 (128,065) 128,065 8- Portion secured from other currency (-) ------9- Other currency net effect (7+8) (128,065) 128,065 (128,065) 128,065 Total (3+6+9) (114,552,947) 114,552,947 (114,552,947) 114,552,947

AKSA ENERJİ ANNUAL REPORT 2018 201

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Interest rate risk

Profile

At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was as follows:

Interest rate position 31 December 2018 31 December 2017 Fixed rate instruments Financial assets 48,360,900 51,813,380 Financial liabilities 2,477,695,637 1,550,925,460 Other financial liabilities 260,288,050 396,092,723 Variable rate instruments Financial liabilities 1,007,514,904 889,486,027

Fair value sensitivity analysis for fixed rate instruments

The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss and the Group does not designate derivatives (interest rate swaps) as hedging instruments under fair value hedge accounting model. Therefore, a change in interest rate as of the reporting date would not affect profit or loss and equity.

Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates as at 31 December 2018 would have increased / (decreased) profit or loss by amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis as at 31 December 2017.

Profit or loss Equity 1% increase 1% decrease 1% increase 1% decrease 31 December 2018 Variable rate instruments 22,550,524 (21,580,795) 22,550,524 (21,580,795) Cash flow sensitivity (net) (969,729) -- (969,729) -- 31 December 2017 Variable rate instruments 22,067,871 (21,559,136) 22,067,871 (21,559,136) Cash flow sensitivity (net) (508,736) -- (508,736) --

Capital risk management

The risk related with each of the capital class and group capital cost is considered by the top management of the Group.

The primary objective of the Group’s capital management objectives is to ensure that it maintains a healthy capital structure in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions.

To maintain or adjust the capital structure, the Group may obtain new loans, repay existing loans; make dividend payments to shareholders, issue new shares based on Management’s evaluation. The Group manages the capital structure so as to ensure the Group’s ability to continue as a going concern; and maximize its profitability by maintaining an adequate capital to overall financing structure ratio. 202 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

The Group monitors capital using a gearing ratio, which is net debt divided by total financing used. The Group includes within net financial debt, borrowings, less cash and cash equivalents. Financing used is the sum of total equity and net financial debt.

The following table sets out the gearing ratios as of 31 December 2018 and 2017:

31 December 2018 31 December 2017 Total financial liabilities 3,745,498,591 2,836,504,210 Less: cash and cash equivalents (53,026,362) (59,577,791) Net financial debt 3,692,472,229 2,776,926,419 Total equity 1,824,202,801 1,667,177,753 Gearing ratio (net financial debt to overall financing used ratio) 202% 166%

Fair values The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:

31 December 2018 31 December 2017 Carrying Amount Fair Value Carrying Amount Fair Value Financial assets Cash and cash equivalents 53,026,362 53,026,362 59,577,791 59,577,791 Financial investment 412,408 412,408 412,408 412,408 Trade receivables 1,515,930,391 1,515,930,391 706,750,072 706,750,072 Other receivables (*) 293,003,421 293,003,421 93,832,711 93,832,711 Derivative assets 413,737 413,737 2,576,770 2,576,770

Financial liabilities Financial liabilities 3,485,210,541 3,485,210,541 2,440,411,487 2,440,411,487 Trade payables 551,532,389 551,532,389 485,992,026 485,992,026 Other financial liabilities 260,288,050 260,288,050 396,092,723 396,092,723 Derivative liabilities 8,293,208 8,293,208 3,052,466 3,052,466 Other payables (**) 2,547,395 2,547,395 2,311,943 2,311,943

(*)Non-financial instruments such as deposits given, VAT, prepayment and advances given are excluded from receivables and other current asset. (**) Non-financial instruments such as VAT payables, withholding tax payable and social security premiums payable are excluded from trade and other receivables.

The basis for determining fair values is discussed in Note 4. AKSA ENERJİ ANNUAL REPORT 2018 203

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. Fair value hierarchy table as at 31 December 2018 is as follows:

Fair value measurement 31 December 2018 Level 1 Level 2 Level 3 Total Financial assets measured at fair value: Derivative assets -- 413,737 -- 413,737 -- 413,737 -- 413,737 Financial liabilities measured at fair value: Derivative liabilities -- (8,293,208) -- (8,293,208) -- (8,293,208) -- (8,293,208)

31 December 2017 Financial assets measured at fair value: Derivative assets -- 2,576,770 -- 2,576,770 -- 2,576,770 -- 2,576,770 Financial liabilities measured at fair value: Derivative liabilities -- (3,052,466) -- (3,052,466) -- (3,052,466) -- (3,052,466)

33. RELATED PARTIES

The Company has a number of operating and financial relationships with its shareholders and other entities owned by its shareholders. There are no set payment terms for any of the related party transactions. The related party receivables and payables resulting from operating activities are generally settled in the normal course of business.

Parent and ultimate controlling party

The controlling party of the Company is Kazancı Holding, holding 61.98% of the Company’s shares.

Key management personnel compensation

The remuneration of directors and other members of key management during year comprised the following:

1 January- 1 January- 31 December 2018 31 December 2017 Short-term and long-term employee benefits (salaries, bonuses, employee termination benefits etc.) 2,194,158 2,283,354 2,194,158 2,283,354

As at 31 December 2018 and 2017, none of the Group’s directors and executive officers has outstanding personnel loans from the Company. As at 31 December 2018 and 2017, the Company did not issue any loans to the directors and executive officers. 204 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

As at 31 December 2018 and 2017, current trade and other receivables are as follows:

31 December 2018 31 December 2017 Current trade and other receivables Trade Other Trade Other Trade receivables due to related parties 232,193,307 174,069,310 32,140,674 9,234,230 Doubtful trade receivables 10,620 -- 275,922 -- Provisions for doubtful trade receivables (-) (10,620) -- (275,922) -- Total 232,193,307 174,069,310 32,140,674 9,234,230

As of 31 December 2018 movement of doubtful receivables from related parties is shown below:

2018 2017 Balance at 1 January 275,922 3,410,559 Current Year Charge 10,620 -- Collections (275,922) (3,134,637) Balance of 31 December 10,620 275,922

Other related party balances

31 December 2018 31 December 2017 Due from Kazancı Holding’s associates and subsidiaries: Trade Other Trade Other Aksa Elektrik Satış A.Ş. 147,360,015 165,996,430 29,919,413 -- Aksa Jeneratör Sanayi A.Ş. 16,718,701 ------Datça Rüzgar Enerjisi Elektrik Üretimi A.Ş. -- 7,357,874 -- 8,584,875 Other 5,551 -- 78,393 -- 164,084,267 173,354,304 29,997,806 8,584,875

Due from Kazancı Holding’s indirect investments and subsidiaries: Trade Other Trade Other Aksa Teknoloji A.Ş. -- 180,516 -- 176,482 Aksa Power Generation (Dubai) 7,637,914 ------Other ------271,949 7,637,914 180,516 -- 448,431

Due from related parties: Trade Other Trade Other Koni İnşaat Sanayi A.Ş. 60,363,742 -- 2,142,868 -- Flamingo Enerji Üretim ve Satış A.Ş. 97,331 -- -- 200,924 Other 10,053 534,490 -- -- 60,471,126 534,490 2,142,868 200,924 Total 232,193,307 174,069,310 32,140,674 9,234,230

AKSA ENERJİ ANNUAL REPORT 2018 205

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

31 December 2018 31 December 2017 Short term due to related parties Trade Other Trade Other Trade payables due to related parties 233,019,582 6,328,927 76,256,568 9,020,316 Total 233,019,582 6,328,927 76,256,568 9,020,316

31 December 2018 31 December 2017 Due to Kazancı Holding’s associates and subsidiaries: Trade Other Trade Other ATK Sigorta Aracılık Hiz. A.Ş. 8,318,008 -- 9,185,129 -- Aksa Şanlıurfa Doğalgaz Dağıtım Ltd. Şti. 1,947 -- 3,873,273 -- Aksa Manisa Doğalgaz Dağıtım A.Ş. -- -- 2,610,581 -- Aksa Jeneratör Sanayi A.Ş. 13,949 -- 388,027 -- Aksa Havacılık A.Ş. -- -- 101,368 -- Aksa Elektrik Satış A.Ş. 1,676 -- 9,925 -- Kazancı Holding -- 6,328,927 -- 5,971,956 Other 176,738 ------8,512,318 6,328,927 16,168,303 5,971,956

Due to Kazancı Holding’s indirect investments and subsidiaries: Trade Other Trade Other Çoruh Elektrik Perakende Satış A.Ş. 107,304,553 -- 36,183,950 -- Fırat Elektrik Perakende Satış A.Ş. 113,847,982 -- 16,816,838 -- Aksa Far East PTE Ltd. 2,671,812 -- 1,915,605 -- Aksa Power Generation Fze -- -- 1,294,416 -- Other 258,450 -- 400,658 -- 224,082,797 -- 56,611,467 --

Due to related parties Trade Other Trade Other Elektrik Altyapı Hizmetleri Ltd. Şti. 306,195 -- 674,375 -- Koni İnşaat Sanayi A.Ş. 114,540 -- 260,721 -- Flamingo Enerji Üretim A.Ş ------3,048,360 Other 3,732 -- 2,541,702 -- 424,467 -- 3,476,798 3,048,360 Total 233,019,582 6,328,927 76,256,568 9,020,316

206 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Related party transactions

1 January - 1 January - 31 December 2018 31 December 2017 Sales to Kazancı Holding’s associates and subsidiaries: Goods services Other Goods services Other Aksa Elektrik Satış A.Ş. 120,535,007 -- 298,684,410 71,779 Other 100,355 203,428 487,995 71,309 120,635,362 203,428 299,172,405 143,088

Sales to Kazancı Holding’s indirect investments and subsidiaries: Goods services Other Goods services Other Çoruh Elektrik Perakende Satış A.Ş. 15,171,959 72,990 127,665,030 -- Fırat Aksa Elektrik Perakende Satış A.Ş. 14,662,377 -- 72,101,998 -- Aksa Power Generation (Dubai) 7,433,416 -- Other 1,345 606 50,000 2,511 37,269,097 73,596 199,817,028 2,511

Goods services Other Goods services Other Sales to Related Parties: Koni İnşaat Sanayi A.Ş. 30,492,251 767,074 16,953,366 555,664 Other -- 11,768 -- 15,691 30,492,251 778,842 16,953,366 571,355 Total 188,396,710 1,055,866 515,942,799 716,954 AKSA ENERJİ ANNUAL REPORT 2018 207

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

1 January - 1 January – 31 December 2018 31 December 2017 Purchases from Kazancı Holding’s associates and Goods & Goods & subsidiaries Services Other Services Other Aksa Şanlıurfa Doğalgaz Dağıtım Ltd. Şti. 36,633,933 -- 47,505,153 -- Aksa Manisa Doğalgaz Dağıtım A.Ş. 15,284,747 -- 41,266,323 3,663 Aksa Elektrik Satış A.Ş. 21,362,610 108,733 21,448,834 447,330 Aksa Doğal Gaz Toptan Satış A.Ş. 4,098,024 -- 14,722,842 -- Kazancı Holding A.Ş. 340,458 6,532,053 3,705,583 540,091 ATK Sigortacılık Hizmetler A.Ş 238,265 6,619,805 2,680,717 3,680,880 Aksa Jeneratör Sanayi A.Ş. 11,612 496,155 25,821 12,126 Other -- 831 65,661 1,945,256 Total 77,969,649 13,757,577 131,420,934 6,629,346

Purchases from Kazancı Holding’s indirect Goods & Goods & investments and subsidiaries Services Other Services Other Fırat Elektrik Perakende Satış A.Ş. 6,901,292 -- 4,680,246 -- Çoruh Elektrik Perakende Satış A.Ş. 2,321,778 -- 6,789,291 -- Other 10,195 22,407 455,527 156,353 Total 9,233,265 22,407 11,925,064 156,353

Goods & Goods & Purchases from related parties Services Other Services Other Koni İnşaat Sanayi A.Ş. 542,820 2,548,340 132,550 2,292,341 Other 231,453 921,118 300,169 1,312,061 774,273 3,469,458 432,719 3,604,402 Total 87,977,187 17,249,442 143,778,717 10,390,101

208 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Financial Income from Related Parties

1 January - 1 January - 31 December 2018 31 December 2017 Interest and Interest and Kazancı Holding’s associates and subsidiaries: exchange difference exchange difference Aksa Elektrik Satış A.Ş. 36,655,886 5,369,015 Kazancı Holding A.Ş. 16,282,374 1,367,971 Aksa Jeneratör Sanayi A.Ş. 1,214,986 1,345,541 Other 912,080 628,928 55,065,326 8,711,455

Kazancı Holding’s indirect investments and subsidiaries: Çoruh Elektrik Parakende Satış A.Ş. 172,917 177,471 Fırat Elektrik Perakende Satış A.Ş. 26,477 422,095 Other 36,352 3,596 235,746 603,162 Related parties Koni İnşaat Sanayi A.Ş. 5,927,426 359,270 Flamingo Enerji Üretim ve Satış A.Ş. 80,190 28,300 Other -- 21,398 6,007,616 408,968 Total 61,308,688 9,723,585 AKSA ENERJİ ANNUAL REPORT 2018 209

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Financial Expense to Related Parties

1 January - 1 January - 31 December 2018 31 December 2017 Interest and Interest and Kazancı Holding’s associates and subsidiaries: exchange difference exchange difference Aksa Elektrik Satış A.Ş. 830,593 7,414,233 Aksa Jeneratör Sanayi A.Ş. 30,685 45,706 Aksa Havacılık A.Ş. 17,607 107,076 Aksa Manisa Doğalgaz Dağıtım A.Ş. 6,453 73,530 Kazancı Holding A.Ş. -- 1,067,432 Aksa Doğalgaz Toptan Satış A.Ş -- 135,282 Aksa Şanlıurfa Doğalgaz Dağıtım Ltd. Şti. -- 77,958 Other 7,265 1,925 892,603 8,923,142

Kazancı Holding’s indirect investments and subsidiaries: Çoruh Elektrik Perakende Satış A.Ş. 15,760,154 2,077,160 Fırat Elektrik Perakende Satış A.Ş. 14,115,900 311,812 Other 53,881 11,553 29,929,935 2,400,525

Related Parties: Flamingo Enerji Üretim Ve Satiş A.Ş 495,781 -- Koni İnşaat Sanayi A.Ş. 27,962 58,398 Elektrik Altyapı Hizmetleri Ltd. Şti. -- 25,881 Other 58,731 226,972 582,474 311,251 Total 31,405,012 11,634,918 210 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

34. DISPOSAL OF SUBSIDIARY

Disposal of Siirt Akköy Enerji

On 13 May 2016, the shares of Siirt Akköy Enerji held by the Group have been sold to DC Elektrik Üretim A.Ş., for a consideration of USD 7,963,183 (equivalent to TL 23,631,541 at the time of sale) adjusted for deduction of net debt of Siirt Akköy Enerji at the transaction date in accordance with share transfer agreement signed on 21 April 2016. The contract price determined in the share transfer agreement was 19 million USD.

The following table summarizes the major classes of consideration transferred and the recognized amounts of assets and liabilities disposed at the acquisition date:

Identifiable assets sold and liabilities transferred Recognised values on sale Cash and cash equivalents 13,550 Due from related parties - trade 2,118,758 Inventories 1,603,723 Prepayments - short term 101,943 Other current assets 32,942 Current tax assets 601 Trade other receivables - long term 43,105 Property and equipment 63,726,811 Prepayments - long term 32,657 Intangible assets 26,660 Trade payables (347,180) Trade other payables (40,678,112) Employee benefits (34,450) Deferred tax liabilities (2,166,168) Total net identifiable assets 24,474,840 Consideration received 23,631,541 Net loss on sale of Siirt Akköy Enerji (843,299) Cash flow from sale of Siirt Akköy Enerji Cash and cash equivalents disposed (13,550) Consideration received 23,631,541 Net cash received 23,617,991

The difference arising between consideration transferred and the recognized amounts of identifiable assets and liabilities disposed at the acquisition date is recognized under gain from investing activities in profit or loss (see Note 8). AKSA ENERJİ ANNUAL REPORT 2018 211

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Disposal of Ayvacık Rüzgar Elektrik

On 15 March 2017, the shares of Ayres Ayvacık Rüzgar held by the Group have been sold to Notos Elektrik Üretim for a consideration of USD 8,500,000 (equivalent to TL 33,545,784 as of the date of sale) adjusted for deduction of net debt of Ayres Ayvacık Rüzgar at the transaction date in accordance with share transfer agreement signed on 15 March 2017.

The following table summarizes the major classes of consideration transferred and the recognized amounts of assets and liabilities disposed at the acquisition date:

Identifiable assets sold and liabilities transferred Recognised values on sale Cash and cash equivalents 1 Trade and other receivables 14,610,719 Inventories 366,359 Other assets 78,995 Current tax assets 52 Property, plant and equipment 9,934,170 Intangible assets 63,981 Loans and borrowings (13,134,530) Trade and other payables (564,790) Employee benefits (28,937) Deferred tax liabilities (99,728) Goodwill 3,498,840 Total net identifiable assets disposed of 14,725,132 Consideration received 33,545,784 Net gain on sale of Ayres Ayvacık Rüzgar 18,820,652 Cash flow from sale of Ayres Ayvacık Rüzgar Cash and cash equivalents disposed (1) Consideration received 33,545,784 Net cash received 33,545,783

The difference arising between consideration transferred and the recognized amounts of identifiable assets and liabilities disposed at the acquisition date is recognized under gain from investing activities in profit or loss (see Note 8). 212 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Disposal of Kapıdağ Rüzgar Enerjisi

On 8 September 2017, the shares of Kapıdağ Rüzgar enerjisi held by the Group have been sold to Fernas Şirketler Grubu for a consideration of USD 40,000,000 adjusted for deduction of net debt of Kapıdağ Rüzgar enerjisi at the transaction date in accordance with share transfer agreement signed on 15 March 2017.

The following table summarizes the major classes of consideration transferred and the recognized amounts of assets and liabilities disposed at the acquisition date:

Identifiable assets sold and liabilities transferred Recognised values on sale Cash and cash equivalents 5,791,777 Trade and other receivables (29,230,131) Inventories 48,408 Prepaid expenses 688,174 Current tax assets 49,522 Other assets 95,981 Property, plant and equipment 162,733,633 Intangible assets 242,095 Trade and other payables (997,355) Loans and borrowings (63,512,216) Employee benefits (175,108) Deferred tax assets 4,465,485 Total net identifiable assets 80,200,265 Consideration received 47,502,258 Net loss on sale of Kapıdağ Rüzgar Enerjisi (32,698,007) Cash flow from sale of Kapıdağ Rüzgar Enerjisi Cash and cash equivalents disposed (5,791,777) Consideration received 47,502,258 Net cash received 41,710,481

The difference arising between consideration transferred and the recognized amounts of identifiable assets and liabilities disposed at the acquisition date is recognized under gain from investing activities in profit or loss (see Note 8).

AKSA ENERJİ ANNUAL REPORT 2018 213

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Disposal of Deniz Elektrik

On 8 September 2017, the shares of Deniz Elektrik held by the Group have been sold to Fernas Şirketler Grubu for a consideration of USD 60,500,000 adjusted for deduction of net debt of Deniz Elektrik the transaction date in accordance with share transfer agreement signed on 8 September 2017.

The following table summarizes the major classes of consideration transferred and the recognized amounts of assets and liabilities disposed at the acquisition date:

Identifiable assets sold and liabilities transferred Recognized values on sale Cash and cash equivalents 29,254 Trade and other receivables 2,662,610 Inventories 1,858,795 Prepaid expenses 949,737 Current tax assets 112 Other assets 620 Property, plant and equipment 139,379,460 Intangible assets 161,888 Trade and other payables (62,345,577) Loans and borrowings (85,946,960) Employee benefits (470,583) Deferred tax liabilities (3,547,169) Total net identifiable assets (7,267,813) Consideration received 66,708,418 Net gain on sale of Deniz Elektrik 73,976,231 Cash flow from sale of Deniz Elektrik Cash and cash equivalents disposed (29,254) Consideration received 66,708,418 Net cash received 66,679,164

The difference arising between consideration transferred and the recognized amounts of identifiable assets and liabilities disposed at the acquisition date is recognized under gain from investing activities in profit or loss (see Note 8).

214 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Disposal of Alenka Enerji

On 1st December 2017, the shares of Alenka Enerji held by the Group have been sold to Borusan EnBW Enerji Yatırımları ve Üretim A.Ş. ve Borusan Danışmanlık ve Ortak Hizmetler A.Ş. for a consideration of USD 60,1 million adjusted for deduction of net debt of Alenka Enerji at the transaction date in accordance with share transfer agreement.

The following table summarizes the major classes of consideration transferred and the recognized amounts of assets and liabilities disposed at the acquisition date:

Identifiable assets sold and liabilities transferred Recognised values on sale Cash and cash equivalents 1,848 Trade receivables to third parties 1,470,647 Due from related parties - trade 2,898,053 Inventories 102,574 Prepaid expenses 460,461 Other assets 101,277 Current tax assets 430,211 Property, plant and equipment 69,219,517 Intangible assets 123,751 Trade payables to third parties (547,415) Trade payables to third parties (891,306) Current portion of the long term borrowings (10,927,488) Employee benefits (381,059) Short term provisions (10,191) Long term borrowings (47,104,024) Deferred tax assets 2,274,033 Long term provisions (357,569) Total net identifiable assets 16,863,320 Consideration received 173,989,821 Net gain on sale of Alenka Enerji 157,126,501 Cash flow from sale of Alenka Enerji Cash and cash equivalents disposed (1,848) Consideration received 173,989,821 Net cash received 173,987,973

The difference arising between consideration transferred and the recognized amounts of identifiable assets and liabilities disposed at the acquisition date is recognized under gain from investing activities in profit or loss (see Note 8).

AKSA ENERJİ ANNUAL REPORT 2018 215

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

Disposal of Baki Elektrik

On 27th December 2017, the shares of Baki Elektrik held by the Group have been sold to Fernas Şirketler Grubu for a consideration of USD 111,000,000 adjusted for deduction of net debt of Baki Elektrik at the transaction date in accordance with share transfer agreement.

The following table summarizes the major classes of consideration transferred and the recognized amounts of assets and liabilities disposed at the acquisition date:

Identifiable assets sold and liabilities transferred Recognized values on sale Cash and cash equivalents 11,302,503 Trade receivables to third parties 1,507,318 Due from related parties - trade 3,619,693 Inventories 1,019,476 Prepaid expenses 425,402 Current tax assets 160,222 Property, plant and equipment 159,808,126 Intangible assets 52,235 Other trade payables to third parties (28,416,796) Trade payables to third parties (2,365,814) Current portion of the long term borrowings (35,830,929) Employee benefits (1,976,605) Due to related parties - trade (1,068,313) Long term borrowings (129,340,898) Short term provisions (278,377) Deferred tax assets (4,553,754) Long term provisions (190,544) Total net identifiable assets (26,127,055) Consideration received 190,056,072 Net gain on sale of Baki Elektrik 216,183,127 Cash flow from sale of Baki Elektrik Cash and cash equivalents disposed (11,302,503) Consideration received 190,056,072 Net cash received 178,753,569

The difference arising between consideration transferred and the recognized amounts of identifiable assets and liabilities disposed at the acquisition date is recognized under gain from investing activities in profit or loss (see Note 8) 216 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

35. ASSETS AND LIABILITIES HELD FOR SALE

As of 31 December 2017, asset held for sale was comprised of İncesu power plant affiliated of Aksa Enerji.

Asset held for sale 31 December 2018 31 December 2017 Property, plant and equipment -- 45,353,859 Intangible assets -- 659,434 -- 46,013,293

On 21 September 2017, it was decided to evaluate the proposals for the sale of the İncesu power plant affiliated company of Aksa Energy. On 17 January 2018, İncesu Hydroelectric Power Plant, one of Fernas Group Companies, sale to Deniz Elektrik Üretim Ltd. Şti. has been completed.

36. OPERATING SEGMENTS

The geographic information analyses the Group’s revenue, EBITDA, assets and liabilities by the Group’s country of domicile and other countries. In presenting the geographic information, segment revenue and EBITDA has been based on the geographic location of customers and segment assets and liabilities were based on the geographic location of the assets and liabilities

1 January – 31 December 2018 Turkey (*) Africa Total Total segment income 3,493,073,875 1,176,175,227 4,669,249,102 Profit before interest, tax, depreciation and amortisation (EBITDA) 359,474,015 673,649,801 1,033,123,816

1 January – 31 December 2017 Turkey (*) Africa Total Total segment income 2,925,226,856 674,085,012 3,599,311,868 Profit before interest, tax, depreciation and amortisation (EBITDA) 125,776,323 366,976,745 492,753,068 AKSA ENERJİ ANNUAL REPORT 2018 217

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

1 January – 31 December 2018 Turkey (*) Africa Total Reconciliation of EBITDA with profit before taxes: 359,474,015 673,649,801 1,033,123,816 Depreciation and amortisation expenses (244,750,598) (149,267,742) (394,018,340) Finance income/(expenses), net (446,569,949) (15,399,143) (461,969,092) Income/(expenses) from investing activities 2,640,864 -- 2,640,864 Profit/(loss) before tax (329,205,668) 508,982,916 179,777,248

1 January – 31 December 2017 Turkey (*) Africa Total Reconciliation of EBITDA with profit before taxes: 125,776,323 366,976,745 492,753,068 Depreciation and amortisation expenses (161,089,699) (63,910,567) (225,000,266) Finance income/(expenses), net (443,502,147) (65,599,992) (509,102,139) Income/(expenses) from investing activities 587,780,329 -- 587,780,329 Profit/(loss) before tax 108,964,806 237,466,186 346,430,992

31 December 2018 Turkey (*) Africa Total Total segment assets 4,565,312,207 1,876,179,141 6,441,491,348 Total segment liabilities 4,042,934,022 574,354,525 4,617,288,547

31 December 2017 Turkey (*) Africa Total Total segment assets 4,074,318,375 1,131,201,650 5,205,520,025 Total segment liabilities 3,247,664,597 290,677,675 3,538,342,272

(*) Includes KKTC. 218 FINANCIAL INFORMATION

AKSA ENERJİ ÜRETİM ANONİM ŞİRKETİ AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2018 (AMOUNTS EXPRESSED IN TURKISH LIRA UNLESS OTHERWISE STATED.)

37. SUPPLEMENTARY CASH FLOW INFORMATION

Change of Group’s liabilities from financing activities between 1 January – 31 December 2018 are presented below:

Non-cash 1 January 2018 Cash inflows Cash outflows transactions 31 December 2018 Financial borrowings 2,836,504,211 2,898,822,734 (2,579,670,969) 589,842,615 3,745,498,591 Total financial liabilities 2,836,504,211 2,898,822,734 (2,579,670,969) 589,842,615 3,745,498,591

Change in “Proceeds from issued bank borrowings” and “Repayments from banks borrowings” which is presented in cash flows from financing activities.

Effect of subsidiaries that was classified to liabilities Effect of sales Non-cash 1 January 2017 Cash inflows Cash outflows for sale of subsidiaries transactions 31 December 2017 Financial borrowings 2,963,380,597 2,685,199,300 (3,080,458,617) (58,031,467) -- 326,414,398 2,836,504,211 Subsidiaries that were classified to liabilities for sale 357,470,411 8,524,118 (70,788,919) 58,031,467 (385,665,750) 32,428,673 -- Total financial liabilities 3,320,851,008 2,693,723,418 (3,151,247,536) -- (385,665,750) 358,843,071 2,836,504,211

38. SUBSEQUENT EVENTS

None. AKSA ENERJİ ANNUAL REPORT 2018 219

GLOSSARY

Bilateral contracts: Commercial HEPP: Hydroelectric Power Plant Shale gas: Found in the small pores of agreements related to electrical sedimentary rock composed of clay energy and/or capacity trading signed Independent consumer: A real person rich in organic materials, as well as between real persons or legal entities or legal entity that consumes more quartz and calcite. To tap into this non- and license-holder entities, or among electricity than the limit specified by conventional resource of energy and license-holder entities. These contracts EMRA or that is directly connected to bring it up the surface, horizontal drilling are subject to private law and do not the transmission grid, and thus has and hydraulic fracturing methods are require EMRA approval. been granted the freedom to choose its employed. electricity provider BOO: Build-Own-Operate Supplier: Power companies, auto KIB-TEK: Cyprus Turkish Electricity producers, auto producer groups, BOT: Build-Operate-Transfer Authority wholesale companies, retail sales companies and distribution companies Consumer: Independent and non- Kyoto Protocol: As the only with retail sales license that provide independent consumers who purchase international framework designed to electrical energy and/or capacity to electricity to meet their own needs. coordinate the fight against global their customers. warming and climate change, this treaty Distribution Company: A legal entity was adopted on December 11, 1997, Sustainable energy: Type of energy that distributes electricity to a specific within the scope of United Nations that meets today’s needs without region Framework Convention on Climate jeopardizing the natural resources and Change. capabilities that future generations will Distribution region: Geographic require to meet their energy needs. region delineated in the license of a Market and Financial Settlement Center distribution company (PMUM): Active under the umbrella of TOR: Transfer of Operation Rights the Turkish Electricity Transmission EBITDA: Earnings before interest, taxes, Company (TEİAŞ), the Market and WPP: Wind Power Plant depreciation and amortization Financial Settlement Center operates the financial settlement system by W: Watt: Power Unit EMRA: Energy Market Regulatory calculating the sums that legal entities KW: Kilowatt Authority owe to each other through the real time MW: Megawatt physical balancing of electrical power GW: Gigawatt EURELECTRIC (Union of the Electricity supply and demand at the National TW: Terawatt Industry): Industry association that Load Dispatch Center. includes the electricity industry Wh: Watt/hour: Energy unit representatives of European nations. MTCE: Million Tons of Coal Equivalent KWh: Kilowatt/hour Turkey is represented in the union by MWh: Megawatt/hour TESAB. MTPE: Million Tons of Petroleum GWh: Gigawatt/hour Equivalent TWh: Terawatt/hour EÜAŞ: Electricity Generation Company of Turkey NGCC: Natural Gas Combined Cycle YEK: Renewable energy resources Power Plant FOPP: Fuel Oil Power Plants YEKDEM: Renewable energy resources OECD (Organization for Economic support scheme Fossil fuel: Natural resources of energy Cooperation and Development): An that include hydrocarbons and coal, international economic structure 1 TW=1,000 GW=1 million MW=1 billion oil and natural gas which consist of established by the 1960 Paris Treaty. KW=1 trillion W vast amounts of carbon. Created by Turkey is among its 34 members. the decay of dead organisms under 1 TWh=1,000 GWh=1 million MWh=1 conditions devoid of oxygen for millions Renewable energy: Type of energy billion KWh=1 trillion Wh of years. supplied from everlasting natural processes. These resources include the sun, wind, rivers, biological processes and geothermal power. 220 FINANCIAL INFORMATION Proudly produced by )ø1$5 www.finarkurumsal.com Aksa Energy Rüzgarlıbahçe Mahallesi, Özalp Çıkmazı No:10 34805 Kavacık Beykoz - ISTANBUL/TURKEY Tel: +90 216 681 00 00 Fax: +90 216 681 57 83 www.aksaenerji.com.tr/en www.aksainvestorrelations.com