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World Bank and Turkey Sign Electricity Generation Rehabilitation and Restructuring Project Loan Agreement

September 12, 2006

Ankara, September 12, 2006—The World Bank, the Republic of Turkey and EUAS signed today the Agreements of a EURO 280 Million (approximately US$350 million) Electricity Generation Rehabilitation and Restructuring Project for Turkey.  The loan will be to Elektrik Uretim AS (EUAS), the government-owned electricity generation company, who owns and operates about 25,000 MW of thermal and hydro generation capacity in Turkey.  The loan to EUAS will be guaranteed by the Republic of Turkey. Country Director Andrew Vorkink signed the Loan Agreement on behalf of the Bank together with the, Mr. Sefer Butun, General Manager and Mr. Muzaffer Basaran, Deputy General Manager from EUAS and the Guarantee Agreement with the, Mr. Memduh  Aslan  Akçay from Undersecretariat of Treasury.

The development objective of the project loan is two-fold.  First, to mitigate the risk of electricity supply shortages during the period of energy reform transition until around 2010.  Second, to support the restructuring of the state-owned generation sector operated by EUAS into corporate entities and prepare them for operation in the electricity market and for subsequent privatization.

To support the achievement of these goals the project will finance:

(a) The rehabilitation of the Afşin-Elbistan A Power Plant.  Afşin Elbistan A has a design capacity of 1,355 MW with four generating units that were commissioned between 1984 and 1987.   Presently, the plant cannot operate at more that about 75% of its design capacity and its efficiency has declined by about 25%.  The project will repair and upgrade the power plant systems to restore reliability, availability, power output and to improve plant efficiency.   In addition, new environmental protection systems, specifically electrostatic precipitators (ESPs) will be installed to reduce dust and particulate emissions, which is the major environmental impact of the Afsin-Elbistan A power plant.  EUAS’ plant maintenance and operations staff will also be trained  in modern maintenance practices to ensure high operational availability of the plant after rehabilitation.  New systems for frequency control will also be installed that would allow the power plant to meet the standards established by the Union for the Coordination of Transmission of Electricity in Europe (UCTE).  Meeting these standards would help Turkey in being certified to operate synchronously with the South East European Electricity network.
(b) Support for the financial and operational restructuring of the state-owned generation business. This will focus on strengthening the portfolio generation companies that will be created by the reorganization of EUAS generation assets, and enabling these companies to function effectively in the competitive electricity market.  This will also focus on the design and implementation of mechanisms to attract private investment in generation to ensure adequate electricity supply.

On the occasion of the loan signing, Andrew Vorkink, Country Director for Turkey stated: “Turkey faces a risk of potential short-fall of electricity between 2008-2010 depending on prospective economic and demand growth.  To mitigate these risks and reduce the possibility for adverse economic impact resulting from power shortages, it is important that two steps are taken. First, the competitive electricity market under implementation needs to establish an operating track-record to remove the uncertainties that investors perceive.  Second, cost-effective generation sources and underperforming assets need to be developed and rehabilitated to provide capacity and energy to fuel Turkey’s private enterprise and household needs.  This project loan will complement the on-going program of World Bank support to Turkey’s energy sector by addressing these two priorities. I am very pleased that this project will also bring significant environmental benefits by reducing air pollution coming from the Afsin-Elbistan A plant."

The World Bank loan to EÜAŞ, for the Electricity Generation Rehabilitation and Restructuring Project has a 15-year maturity, including a 5-year grace period. This will be a variable spread loan with level repayments of principal.

Media Contacts
In Ankara
Tunya Celasin
Tel : (90-312) 459 83 43
In Washington
Miriam Van Dyck
Tel : 1-202- 458 2931