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