Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 36341-TR PROJECT APPRAISAL DOCUMENT ON A Public Disclosure Authorized PROPOSED LOAN IN THE AMOUNT OF EURO 205 MILLION (US$269.4 MILLION EQUIVALENT) TO THE TURKIYE ELEKTRIK DAGITIM A.S. (TEDAS) WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY Public Disclosure Authorized FOR AN ELECTRICITY DISTRIBUTION REHABILITATION PROJECT March 26, 2007 Sustainable Development Unit Europe and Central Asia Region Public Disclosure Authorized (EC S S D) 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 28,2007) Currency Unit = New Turkish Lira (YTL) YTL 1.4 = US$1 US$ 1.31 = €1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan BOOS Build Own and Operate Power Plants BOTAS BORU HATLARI ILE PETROL TASIMA A.S. (Turkish Pipeline nd Petroleum Tran mission Company) BOTS Build Operate and Transfer Power Plants CAS Country Assistance Strategy CFAA Country Financial Accountability Assessment DISCO(s) Distribution company(ies) formed by restructuring TEDAS DSI Devlet Su Ivleri (State Hydraulic Works) EA Environmental Assessment EC European Commission ECSEE Energy Community of South Eastern Europe EIA Environmental Impact Assessment EIB European Investment Bank EML Electricity Market Law, No. 4628, 2001 EMP Environmental Management Plan EMRA Energy Market Regulatory Authority EPDK Enerji Piyasasi Duzenleme Kurumu (EMRA in Turkish) ERP Enterprise Resource Planning program EU European Union EUAS Elektrik Uretim A,$. (Electricity Generation Corporation, Turkey) GENCO(s) Portfolio generating companies to be created from the restructuring of EUAS IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation LNG Liquefied Natural Gas MENR Ministry of Energy and Natural Resources MOEF Ministry of Environment & Forestry MOF Ministry of Finance PA Privatization Administration PPA Power Purchase Agreement PPIAF Public-Private Infrastructure Advisory Facility SEE State Economic Enterprise SIL Specific Investment Loan SPO State Planning Organization TEAS Turkiye Elektrik A,$. (Turkish Electricity Corporation, Predecessor of EUAS and TEIAS) TEDAS Turkiye Elektrik Dagitim A.S. (Turkish Electricity Distribution Corporation) TEK Turkiye Elektrik Kurumu (Turkish Electricity Corporation, Predecessor of existing Corporations) TEIAS Turkiye Elektrik Iletim A.S. (Turkish Electricity Transmission Corporation) UCTE Union for the Coordination ofTransmission of Electricity in Europe Vice President: Shigeo Katsu Country Director: Ulrich Zachau Sector Manager: Charles Feinstein Task Team Leader: Sameer Shukla FOR OFFICIAL USE ONLY TURKEY Electricity Distribution Rehabilitation Project CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE .................................................................. 5 1. Country and sector issues .................................................................................................... 5 2 . Rationale for Bank involvement .......................................................................................... 9 3 . Higher level objectives to which the project contributes .................................................. 10 B . PROJECT DESCRIPTION................................................................................................ 10 1. Lending instrument ........................................................................................................... -10 2 . Project development objective and key indicators ............................................................ 10 3 . Project components ............................................................................................................ 10 4 . Lessons learned and reflected in the project design .......................................................... 11 5 . Alternatives considered and reasons for rejection ............................................................. 12 C . IMPLEMENTATION ........................................................................................................ -13 1. Partnership arrangements (if applicable) ........................................................................... 13 2 . Institutional and implementation arrangements ................................................................ 13 3 . Monitoring and evaluation of outcomes/results ................................................................ 14 4 . Sustainability ..................................................................................................................... 14 5 . Critical risks and possible controversial aspects ............................................................... 14 6 . Loadcredit conditions and covenants ............................................................................... 16 D . APPRAISAL SUMMARY .................................................................................................. 17 1. Economic and financial analysis ....................................................................................... 17 2 . Technical ........................................................................................................................... 19 3 . Fiduciary ............................................................................................................................ 20 4 . Social ................................................................................................................................. 20 5 . Environment ...................................................................................................................... 21 6 . Safeguard policies .............................................................................................................. 21 7 . Policy Exceptions and Readiness ...................................................................................... 21 This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not be otherwise disclosed without World Bank authorization . Annex 1: Country and Sector or Program Background.......................................................... 22 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ..................29 Annex 3: Results Framework and Monitoring......................................................................... 32 Annex 4: Detailed Project Description ...................................................................................... 35 Annex 5: Project Costs ................................................................................................................ 46 Annex 6: Implementation Arrangements .................................................................................. 47 Annex 7: Financial Management and Disbursement Arrangements ..................................... 50 Annex 8: Procurement Arrangements ....................................................................................... 57 Annex 9: Economic and Financial Analysis .............................................................................. 62 Annex 10: Safeguard Policy Issues............................................................................................. 78 Annex 11: Project Preparation and Supervision ...................................................................... 81 Annex 12: Documents in the Project File .................................................................................. 82 Annex 13: Statement of Loans and Credits............................................................................... 83 Annex 14: Country at a Glance .................................................................................................. 86 Annex 15: Map IBRD 34858 ...................................................................................................... 88 TURKEY ELECTRICITY DISTRIBUTION REHABILITATION PROJECT PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSSD Date: March 26, 2007 Team Leader: Sameer Shukla Country Director: Ulrich Zachau Sectors: Power (100%) Sector ManagerDirector: Charles Feinstein Themes: Other urban development; Infrastructure services for private sector development Project ID: PO96801 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan Project Financing Data [XI Loan [ ] Credit [ 3 Grant [ ] Guarantee [ 3 Other: Source Local Foreign Total Borrower 75.00 0.00 75.00 International Bank for Reconstruction and 126.90 142.50 269.40 Development Total: 20 1.90 142.50 344.40 Borrower: TURKIYE ELEKTRIK DAGITIM A.S. (TEDAS) Inonu Blv. No: 27, Bahqelievler Ankara Turkey Tel: (90-3 12) 2 13-7804 Fax: (90-3 12) 2 15-7275 Responsible Agency: TURKIYE ELEKTRIK DAGITIM A.S. (TEDAS) Inonu Blv. No: 27, Bahqelievler Ankara Turkey FY 2007 2008 2009 2010 2011 2012 2013 0 0 Annual 0.00 20.00 50.00 60.00 70.00 40.00 29.40 0.00 0.00 Cumulative 0.00 20.00 70.00 130.00 200.00 240.00 269.40 269.40 269.40 Project implementation period: Start September 3,2007 End: June 29,2012 Expected effectiveness date: April 30, 2007 Expected closing date: December 3 1, 20 12 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Ref: PAD A.3 Does the project