Document of The World Bank FOR OFFICIAL USE ONLY Report No: 73647-TU Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON PROPOSED LOANS IN THE AMOUNT OF US$201 MILLION TO TURKIYE CUMHURIYETI ZIRAAT BANKASI A.$. (US$67 MILLION) TURKIYE VAKIFLAR BANKASI T.A.O. (US$67 MILLION) TfRKiYE HALK BANKASI A.$. (US$67 MILLION) Public Disclosure Authorized WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY AND PROPOSED GRANTS FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$3.64 MILLION TO TURKIYE CUMHURIYETI ZIRAAT BANKASI A.$. (US$ 0.9 MILLION) Public Disclosure Authorized TURKIYE VAKIFLAR BANKASI T.A.O. (US$0.9 MILLION) TfRKiYE HALK BANKASI A.$. (US$0.9 MILLION) THE REPUBLIC OF TURKEY (US$0.94 MILLION) FOR THE SMALL AND MEDIUM ENTERPRISES ENERGY EFFICIENCY PROJECT February 28, 2013 Sustainable Development Department Turkey Country Management Unit Public Disclosure Authorized Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective: February 14, 2013) Currency Unit = Turkish Lira US$1 = TL 1.7695 US$0.5651 = TL 1 FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS BRSA Banking Regulation and Supervision IFI International financial institution Authority CAD Current Account Deficit IFR Interim unaudited financial report CAR Capital Adequacy Ratio IPA Instrument of Pre-Accession Assistance CBRT Central Bank of Republic of Turkey KOSGEB Small & Medium Enterprises Development Organization CO 2 Carbon Dioxide M&V Measurement and verification CTF Clean Technology Fund MENR Ministry of Energy and Natural Resources EE Energy Efficiency NGO Nongovernmental organization EIE Electric Power Resources Survey and NPL Nonperforming loan Development Administration EIRR Economic Internal Rate of Return NPV Net present value ESCO Energy Service Company OECD Organization for Economic Cooperation and Development ESMAP Energy Sector Management Assistance PIU Project Implementation Unit Program EU European Union PMU Project Management Unit FI Financial Intermediary ROA Return on Assets FIRR Financial Rate of Return ROE Return on Equity GDEU General Directorate for EU Affairs and SDIF Savings Deposit Insurance Fund of Foreign Relations Turkey GDP Gross Domestic Product SME Small and Medium enterprise GDRE General Directorate of Renewable SSI Social Security Institution Energy GEF Global Environment Facility TA Technical assistance GHG Greenhouse Gas TL Turkish lira GWh Gigawatt-hour Toe Tons of oil equivalent HVAC Heating, ventilation and air USD United States Dollars conditioning Regional Vice President: Philippe H. Le Hou6rou Country Director: Martin Raiser Sector Director: Laszlo Lovei Sector Manager: Ranjit J. Lamech Task Team Leader: Shinya Nishimura TURKEY Small and Medium Enterprises Energy Efficiency Project TABLE OF CONTENTS Page I. STRATEGIC CONTEXT ................................................................................................. 1 A. Country Context ...................... 1.......................... B. Sectoral and Institutional Context......................................... 2 C. Higher Level Objectives to which the Project Contributes ........... ........ 8 II. PROJECT DEVELOPMENT OBJECTIVES ........................................................... 8 A. Project Development Objectives..................8..... .............. 8 B. Project Beneficiaries ................................................. 9 C. PDO Level Results Indicators......................9.... ............ 9 III. PROJECT DESCRIPTION ......................................................................................... 9 A. Project Components ..................................... ........ 9 B. Project Financing ..................................... ......... 13 C. Lessons Learned and Reflected in the Project Design..................... 14 IV. IM PLEM ENTATION .................................................................................................. 15 A. Institutional and Implementation Arrangements ................ ......... 15 B. Results Monitoring and Evaluation .................................... 17 C. Sustainability......... ........ ............................... 18 V. KEY RISKS AND MITIGATION MEASURES......................................................19 A. Risk Ratings Summary Table ...................................... 19 B. Overall Risk Rating Explanation .............................. ...... 19 VI. APPRAISAL SUM M ARY ......................................................................................... 20 A. Economic and Financial Analyses .......................... ......... 20 B. Technical .................................................... 20 C. Financial Management........................................... 20 D. Procurement ......................................... ......... 21 E. Social (including Safeguards) ...................................... 22 F. Environment (including Safeguards) ................................. 22 G. Other Safeguards Policies Triggered ................................. 23 Annex 1: Results Framework and Monitoring. .................................. 24 Annex 2: Detailed Project Description ............................... ......... 27 Annex 3: Implementation Arrangements ...................................... 35 Annex 4: Operational Risk Assessment Framework (ORAF) ........................... 51 Annex 5: Implementation Support Plan.......................................54 Annex 6: Team Composition ......................................... ..... 56 Annex 7: Economic and Financial Analysis ............................... ..... 57 Annex 8: Financial Intermediary Assessment of Borrowers .................... ..... 59 Annex 9: Incremental Cost Analysis ............................ ...... ....... 69 Annex 10: GEF Data Sheet................... ...................... ..... 78 MAP: IBRD 33501R2 PAD DATA SHEET Turkey SME ENERGY EFFICIENCY (P122178) PROJECT APPRAISAL DOCUMENT EUROPEAND CENTRAL ASIA ECSEG Report No.: 73647-TU Basic Information Project ID Lending Instrument EA Category Team Leader P122178 Specific Investment F - Financial Shinya Nishimura Loan Intermediary Assessment Project Implementation Start Date Project Implementation End Date 28-Mar-2013 28-Mar-2018 Expected Effectiveness Date Expected Closing Date 29-Apr-2013 28-Sep-2018 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Ranjit J. Lamech Laszlo Lovei Martin Raiser Philippe H. Le Houerou Borrower: Vakif Bank, Ziraat Bank, Halk Bank Responsible Agency: Ministry of Energy and Natural Resources (MENR) Contact: Mr. Ali Murat Becerikli Title: Head, EU and IFI Dept. Telephone (90-312) 213-1124 Email: [email protected] No.: Project Financing Data(US$M) [X] Loan [X] Grant [ ] Other ] Credit [ ] Guarantee For Loans/Credits/Others Total Project Cost (US$M): 305.89 Total Bank Financing 201.00 (US$M): 1 Financing Source Amount(US$M) BORROWER/RECIPIENT 61.25 International Bank for Reconstruction and 201.00 Development Global Environment Facility (GEF) 3.64 Sub-borrower(s) 40.00 Total 305.89 Expected Disbursements (in USD Million) Fiscal 2013 2014 2015 2016 2017 2018 2019 0000 0000 Year Annual 8.00 25.00 37.00 44.00 45.00 44.00 1.64 0.00 0.00 Cumulati 8.00 33.00 70.00 114.00 159.00 203.00 204.64 0.00 0.00 ve Project Development Objective(s) The Project Development Objective (PDO) is to improve the efficiency of energy use in small and medium enterprises, by scaling-up commercial bank lending for energy efficiency investments. The global environmental objective is to reduce Greenhouse Gas (GHG) emissions through the removal of barriers to energy efficiency financing in the small and medium enterprises (SMEs) sector. Components Component Name Cost (USD Millions) Component 1: Energy efficiency investments in SMEs 294.95 Component 2: Policy support and TA to GDRE 10.94 Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [X] respects? Does the project require any waivers of Bank policies? Yes [ ] No [X] Have these been approved by Bank management? Yes [ ] No [X] Is approval for any policy waiver sought from the Board? Yes [ ] No [X] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ] Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X 11 Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X Legal Covenants Name Recurrent Due Date Frequency Eligibility of Sub-borrowers X Yearly Description of Covenant A Sub-loan shall be made only to a sub-borrower that satisfies criteria including that the sub-borrower is: (i) an SME; (ii) a Mid-Cap Company; (iii) a Leasing Company; or (iv) an ESCO. Other criteria are listed in Loan Agreement Schedule 2 Section I B-7. Name Recurrent Due Date Frequency Eligibility of Sub-projects X Yearly Description of Covenant A Sub-loan shall be given for a Sub-project which is determined, on the basis of an appraisal carried out in accordance with procedures acceptable to the Bank and in accordance with the provisions of Loan Agreement Schedule 2, Section I B-8 Name Recurrent Due Date