Document of The World Bank Report No: ICR2926 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT IMPLEMENTATION COMPLETION AND RESULTS REPORT IBRD-77180; IBRD-79070; IBRD-81460 ON A SERIES OF THREE LOANS IN THE AMOUNT OF EURO 1,523.4 MILLION (US$ 2,100.0 MILLION EQUIVALENT) TO THE THE REPUBLIC OF TURKEY FOR FIRST PROGRAMMATIC ELECTRICITY SECTOR DEVELOPMENT POLICY LOAN (PEDPL1) AND SECOND AND THIRD PROGRAMMATIC ENVIRONMENTAL SUSTAINABILITY AND ENERGY SECTOR DEVELOPMENT POLICY LOANS (ESES DPL2 AND ESES DPL3) December 23, 2013 Sustainable Development Department Turkey Country Unit Europe and Central Asia Region TURKEY - GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of November 30, 2013) Currency Unit: Turkish Lira US$ 1.00 = TL 2.02 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities AFD Agence Francaise de Dévelopment AKP Justice and Development Party BOTAŞ Pipeline Corporation of Turkey CBCC Coordination Board on Climate Change CPS Country Partnership Strategy CTF Clean Technology Fund DPL Development Policy Loan EBRD European Bank for Reconstruction and Development EIB European Investment Bank EMRA Energy Market Regulatory Authority ESES Environmental Sustainability and Energy Sector EU European Union GDP Gross Domestic Product IBRD International Bank for Reconstruction and Development IFC International Finance Corporation IMF International Monetary Fund KfW Kreditanstalt für Wiederaufbau (KfW Development Bank) MENR Ministry of Energy and Natural Resources MfEU Ministry for EU Affairs MoD Ministry of Development MoEU Ministry of Environment and Urbanization MoFW Ministry of Forestry and Water Affairs PA Privatization Administration PEDPL Programmatic Electricity Sector Development Policy Loan PMR Partnership for Market Readiness PMUM Market Financial Settlement Center REGE Restoring Equitable Growth and Employment DPL TEIAŞ Turkish Electricity Transmission Corporation UNDP United Nations Development Program UNFCCC United Nations Framework Convention on Climate Change Vice President: Laura Tuck Country Director: Martin Raiser Sector Director: Laszlo Lovei Sector Manager: Ranjit Lamech Task Team Leader: Kari Nyman ICR Team Leader: Kari Nyman ICR Primary Author: James Moose THE REPUBLIC OF TURKEY FIRST PROGRAMMATIC ELECTRICITY SECTOR DEVELOPMENT POLICY LOAN (PEDPL1) AND SECOND AND THIRD PROGRAMMATIC ENVIRONMENTAL SUSTAINABILITY AND ENERGY SECTOR DEVELOPMENT POLICY LOANS (ESES DPL2 AND ESES DPL3) IMPLEMENTATION COMPLETION AND RESULTS REPORT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring 1. Program Context, Development Objectives and Design ............................................ 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 5 3. Assessment of Outcomes ............................................................................................ 8 4. Assessment of Risk to Development Outcome ......................................................... 15 5. Assessment of Bank and Borrower Performance ..................................................... 17 6. Lessons Learned........................................................................................................ 20 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 21 Annex 1: Bank Lending and Implementation Support/Supervision Processes ............ 23 Annex 2: Changes in Program Design .......................................................................... 27 Annex 3: Borrower’s ICR ............................................................................................. 32 Annex 4: List of Supporting Documents ...................................................................... 38 Annex 5: Prior Actions by Pillar and Development Objective ..................................... 39 MAP A. Basic Information Program 1 Programmatic Electricity Sector Country Turkey Program Name Development Policy Loan (PEDPL) DPL1 Program ID P110643 L/C/TF Number(s) IBRD-77180 ICR Date 09/19/2013 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower TURKEY Original Total USD 800.00M Disbursed Amount USD 773.79M Commitment Implementing Agencies Undersecretariat of Treasury Cofinanciers and Other External Partners Program 2 Second Programmatic Environmental Sustainability and Country Turkey Program Name Energy Sector Development Policy Loan (ESES) DPL2 Program ID P117651 L/C/TF Number(s) IBRD-79070 ICR Date 09/19/2013 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower TURKEY Original Total USD 700.00M Disbursed Amount USD 657.03M Commitment Implementing Agencies Undersecretariat of Treasury Cofinanciers and Other External Partners Program 3 Third Programmatic Environmental Country Turkey Program Name Sustainability and Energy Sector (ESES) Development Policy Loan (ESES) DPL3 Program ID P121651 L/C/TF Number(s) IBRD-81460 ICR Date 09/19/2013 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower TURKEY Original Total USD 600.00M Disbursed Amount USD 574.33M Commitment Implementing Agencies Undersecretariat of Treasury Cofinanciers and Other External Partners B. Key Dates Programmatic Electricity Sector Development Policy Loan – (PEDPL) DPL1 P110643 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/18/2008 Effectiveness: 07/10/2009 Appraisal: 07/02/2008 Restructuring(s): Approval: 06/11/2009 Mid-term Review: Closing: 12/31/2009 12/31/2009 Second Programmatic Environmental Sustainability and Energy Sector Development Policy Loan – (ESES) DPL 2 P117651 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 11/19/2009 Effectiveness: 08/12/2010 Appraisal: 03/01/2010 Restructuring(s): Approval: 06/15/2010 Mid-term Review: Closing: 12/31/2010 12/31/2010 Third Programmatic Environmental Sustainability and Energy Sector Development Policy Loan (ESES) DPL3 - P121651 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/13/2011 Effectiveness: 06/12/2012 Appraisal: 01/23/2012 Restructuring(s): Approval: 03/27/2012 Mid-term Review: Closing: 06/30/2013 06/30/2013 C. Ratings Summary C.1 Performance Rating by ICR Overall Program Rating Outcomes Satisfactory Risk to Development Outcome Substantial Bank Performance Satisfactory Borrower Performance Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance Performance C.3 Quality at Entry and Implementation Performance Indicators Programmatic Electricity Sector Development Policy Loan - P110643 (DPL1) Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Closing/Inactive status Second Environmental Sustainability and Energy Sector Development Policy Loan - P117651 (DPL2) Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Closing/Inactive status Third Environmental Sustainability and Energy Sector Development Policy Loan - P121651 (DPL3) Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status D. Sector and Theme Codes Programmatic Electricity Sector Development Policy Loan DPL1– P110643 (DPL1) Original Actual Sector Code (as % of total Bank financing) Central government administration 10 10 Energy efficiency in Heat and Power 10 10 Transmission and Distribution of Electricity 80 80 Theme Code (as % of total Bank financing) Climate change 5 5 Infrastructure services for private sector development 40 40 Macroeconomic management 20 20 Other public sector governance 15 15 Regulation and competition policy 20 20 Second Programmatic Environmental Sustainability and Energy Sector Development Policy Loan - P117651 (DPL2) Original Actual Sector Code (as % of total Bank financing) Energy efficiency in Heat and Power 10 10 Forestry 10 10 General water, sanitation and flood protection sector 30 30 Solid waste management 10 10 Transmission and Distribution of Electricity 40 40 Theme Code (as % of total Bank financing) Climate change 10 10 Environmental policies and institutions 50 50 Infrastructure services for private sector development 20 20 Regulation and competition policy 20 20 Third Programmatic Environmental Sustainability and Energy Sector Development Policy Loan - P121651 (DPL3) Original Actual Sector Code (as % of total Bank financing) General energy sector 38 38 General industry and trade sector 31 31 General water, sanitation and flood protection sector 6 6 Other Renewable Energy 12 12 Transmission and Distribution of Electricity 13 13 Theme Code (as % of total Bank financing) Climate change 20 20 Environmental policies and institutions 20 20 Infrastructure services for private sector development 20 20 Macroeconomic management 20 20 Regulation and competition policy 20 20 E. Bank Staff Programmatic Electricity Sector Development Policy Loan - P110643 (DPL1) Positions At ICR At Approval Vice President: Laura Tuck Shigeo Katsu Country Director: Martin Raiser Ulrich Zachau Sector Manager: Ranjit Lamech Ranjit Lamech Task Team Leader: Kari Nyman Kari Nyman ICR Team Leader: Kari Nyman ICR Primary Author: James Sayle Moose Second Environmental Sustainability and Energy Sector Development Policy Loan - P117651 (DPL2) Positions At ICR At Approval Vice President: Laura Tuck Philippe Le Houerou Country Director: Martin Raiser Ulrich Zachau Sector Manager: Ranjit Lamech Ranjit Lamech Task Team Leader: Kari Nyman Kari Nyman ICR Team Leader: Kari Nyman ICR Primary Author: James Sayle Moose Third Environmental Sustainability and Energy Sector Development Policy Loan - P121651 (DPL3) Positions At ICR At Approval Vice President: Laura Tuck Philippe Le Houerou Country Director: Martin Raiser Martin Raiser Sector Manager: Ranjit Lamech Ranjit Lamech Task Team Leader: Kari Nyman Kari Nyman ICR Team Leader: Kari Nyman ICR Primary Author: James Moose F. Results Framework Analysis Program Development Objectives (from Program Document) The original program development objective as reflected in DPL1 was to support the implementation of the Government’s program that aims to address the projected electricity supply-demand imbalance: (a) through energy efficiency measures to reduce the rate of growth of demand for electricity, and (b) by enhancing the efficient supply of electricity. Revised Program Development Objectives (as approved by original approving authority) The revised program development objective as reflected in DPL2 and DPL3 was to help: (a) enhance energy security by promoting private sector clean technology investments and operations; (b) integrate principles of environmental sustainability, including climate change considerations, in key sectoral policies and programs; and (c) improve the effectiveness and efficiency of environmental management processes. (a) PDO Indicator(s) Programmatic Electricity Sector Development Policy Loan –P110643 (DPL1) Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Indicator 1 : Improved management of electricity demand-supply imbalance. Monitoring to continue but indicator was dropped when the program Value Turkey was projected to Target of the was revised Imbalances have (quantitative or face an insufficient program was to for DPL2 and been avoided. Qualitative) supply of electricity. avoid imbalances. DPL3 and number of energy indicators was reduced. Date achieved 01/01/2008 12/30/2011 12/30/2011 06/30/2013 Comments (incl. % 100% achievement. achievement) Improved functioning of the wholesale market. Improved payment Indicator 2 : performance for transactions through the wholesale market. At least 90% by 2011 added Value Quantitative target in DPL2. At (quantitative or 37% payment record. Over 99% not formally set. least 95% by Qualitative) 2012 added in DPL3. Date achieved 01/01/2008 12/31/2011 12/31/2012 06/30/2013 Comments (incl. % Targets exceeded. achievement) Provision of budgetary allocations on a priority basis in line with approved Indicator 3 : transmission system investment plans. Monitoring to continue but PDO indicator was dropped when the Value program was TL 600 million in At least TL 600 (quantitative or TL 295 million in 2007. revised for 2011 and TL 650 million in 2011. Qualitative) DPL2 and million in 2012. DPL3 and the number of energy indicators was reduced. Date achieved 01/01/2008 12/31/2011 12/31/2011 06/30/2013 Comments (incl. % 100% achievement. achievement) Indicator 4 : Cost-reflective tariffs achieved. Cost-reflective tariffs achieved Cost-reflective and maintained Value No tariff adjustments tariffs achieved by through the (quantitative or since 2003. Tariff rates 2009 and implementation of Qualitative) below cost of service. maintained from the quarterly 2010. pricing mechanism. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments (incl. % Objective accomplished. achievement) Indicator 5 : Improved financial performance of the power companies. Main power utilities achieved profitability EUAS Main power companies Losses 2009, TEIAS 2010, Value making losses and reduced/eliminated and TEDAS 2011. (quantitative or accumulating receivables and Collection Qualitative) receivables and payables reduced. improved, payables payables. to private generators eliminated. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments (incl. % Objective achieved in 2011. achievement) Indicator 6 : Improved operational efficiency in privatized companies. Offer for sale all 18 Value Offer for sale 11 distribution 17 transferred by Privatization program (quantitative or distribution companies, June, all 18 by to start. Qualitative) companies. transfer at September 2013. least 15 by end-2011. Date achieved 01/01/2008 12/31/2011 12/31/2011 06/30/2013 Comments Targets exceeded, after a delay. Distribution privatization program completed. (incl. % Privatized companies have improved bill collection and eliminated payables to achievement) electricity suppliers. Indicator 7 : Attraction of private sector investments in new generation. 10,000 MW in the 2008-2011 Value 11,200 MW in 11,684 MW in the 11,684 MW in the period and (quantitative or 2008-2011. 15,000 2008-2012 period. 2008-2012 period. 12,500 in the Qualitative) MW in 2008-2012. 2008-2012 period. Date achieved 01/01/2008 12/31/2012 12/31/2012 06/30/2013 Comments (incl. % Original and higher revised targets exceeded. achievement) Enhanced public awareness of benefits of energy efficiency. Rate of electricity Indicator 8 : demand (GWh) growth contained. Value Less than Growth rate in 2005- No quantitative Less than 5% for (quantitative or 7%/annum for 2007 over 8%/annum. target set. 2008-2011. Qualitative) 2008-2011. Date achieved 01/01/2008 12/31/2011 12/31/2011 06/30/2013 Comments Higher than targeted reduction realized. (Impact of public awareness (incl. % campaigns could not be assessed.) achievement) Second Programmatic Environmental Sustainability and Energy Sector Development Policy Loan - P117651 (DPL2) Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Indicator 1 : Day-ahead electricity market launched and operates effectively. At least 90% 37% payment record. payment record by Value Over 99%. Day- Regulation for day- 2011. Regulation At least 95% (quantitative or ahead launched in ahead market to be issued. Day-ahead by 2012. Qualitative) December 2010. issued. market by January 2011. Date achieved 01/01/2008 12/31/2011 12/31/2012 06/30/2013 Comments Objective accomplished. Original and revised higher payment targets (incl. % exceeded. Day-ahead market established and operating. achievement) Indicator 2 : Cost–reflective tariffs maintained. Cost-reflective tariffs achieved Cost-reflective and maintained Value No tariff adjustments tariffs achieved by through the (quantitative or since 2003. Tariff rates 2009 and implementation of Qualitative) below cost of service. maintained from the quarterly 2010. pricing mechanism. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments (incl. % Objective accomplished. achievement) Improved financial performance of power companies, with loss for TEDAŞ Indicator 3 : and receivables for TEIAŞ and EÜAŞ reduce Main power utilities achieved profitability EUAS Main power companies Losses 2009, TEIAS 2010, Value making losses and reduced/eliminated and TEDAS 2011. (quantitative or accumulating receivables and Collection Qualitative) receivables and payables reduced. improved, payables payables. to private generators eliminated. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments (incl. % Objective achieved in 2011. achievement) Indicator 4 : Private investment in the power sector. Offer for sale all 18 distribution companies, 10 distribution transfer at least 15 companies by 2012, Distribution by end-2011. 17 at completion, privatization program to Offer for sale 7 of Distribution Value and all 18 were start. 11,684 MW the 18 companies target revised (quantitative or privatized by generation investment under DPL2. from 15 to 12 Qualitative) September 2013. target for the 2008- 10,000 MW by 2012. 11,200 MW in 2012 period. private generation 2008-2011. 15,000 investment in the MW in 2008-2012. 2008-2011 period and 12,500 in the 2008-2012 period. Date achieved 01/01/2008 12/31/2011 12/31/2012 06/30/2013 Comments Targets exceeded, ahead of schedule in generation investment, after a delay (incl. % distribution privatization. achievement) Indicator 5 : Rate of electricity demand growth contained. Value Less than Growth rate in 2005- Less than 5% for (quantitative or 7%/annum for 2007 over 8%/annum. 2008-2011. Qualitative) 2008-2011. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments (incl. % Higher than targeted reduction realized. achievement) Indicator 6 : A new gas import contract signed by BOTAŞ or a private gas importer. Value Contract to be Contract signed in (quantitative or Contract not yet signed. signed in 2011. 2011. Qualitative) Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments Contracts for the purchase of 6 bcm and transit of 10 bcm to Europe signed in (incl. % 2011.(bcm=billion cubic meters) achievement) An inter-ministerial Climate Change Coordination Board and a Climate Change Department at the Ministry of Environment are working to ensure Indicator 7 : complimentarity between sector specific climate actions; and ii) a framework for monitoring the implementation of the National Climate Change Strategy and Action Plan is agreed. Strategy and Strategy and Value Strategy, Plan and framework under framework May (quantitative or framework to be DPL2, Action Plan 2010, Action Plan Qualitative) established. under DPL3. May 2011. Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments (incl. % Targets achieved ahead of deadlines. Impact long-term. achievement) Program-based Sectoral Environmental Assessment used to identify Indicator 8 : environmental priorities in a key economic sector. Not achieved. The transposition Regulation of EU’s Strategic Value Sectoral environmental transposing the Environmental (quantitative or assessments not carried EU’s Strategic Assessment (SEA) Qualitative) out. Environmental Directive Assessment (SEA) 2001/42/EU Directive delayed. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments Not achieved. Action and indicator replaced in DPL3 - please see PDO (incl. % Indicator 8 in DPL3. achievement) Increased transparency, accountability and public participation in the Indicator 9 : environmental consent process. Transposition of EU Directive 85/337/EEC as Government's EU amended with Value Integrated 97/11/EC and Transposition (quantitative or Environmental 2003/35/EC on completed. Qualitative) Approximation Strategy Environmental calls for harmonization. Impact Assessment into law. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments Completed. EU Directive 85/337/EEC as amended with 97/11/EC and (incl. % 2003/35/EC on Environmental Impact Assessment transposed into law. achievement) Indicator 10 : Increased share of population served by sanitary landfills. Regulation on landfill Regulation Regulation 55% of Value of waste to be approved. 55% of approved. 55% of population (quantitative or approved. 47% of population served population served served by Qualitative) population served by by landfills by by landfills. landfills. sanitary landfills. 2012. Date achieved 01/01/2008 12/31/2011 12/31/2012 06/30/2013 Comments (incl. % Revised target achieved; original target achieved with one year delay. achievement) Clean Air Center in Marmara fully functioning and staffed to implement the Indicator 11 : Clean Air Action Plan. Clean Air Action Clean Air Action Value Plan approved Clean Air Action Plan Plan approved. (quantitative or April 2010. to be approved. Marmara Center Qualitative) Marmara Center functional. functional 2011. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments (incl. % Targets achieved. achievement) At least 15 of the 25 river basins have developed watershed protection action Indicator 12 : plans. Areas for improved Areas for improved Areas for improved management of management of Value management of water water resources water resources and (quantitative or resources and quality to and quality quality designated. Qualitative) be designated. designated. At 19 action plans least 17 action prepared by 2012. plans prepared. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments Areas designated. Target for action plans exceeded after a delay. (incl. % achievement) Third Programmatic Environmental Sustainability and Energy Sector Development Policy Loan - P121651 (DPL3) Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Indicator 1 : Day-ahead electricity market launched and operates effectively. 37% payment record. Value At least 95% Regulation for day- (quantitative or payment record by Over 99%. ahead market to be Qualitative) 2012. issued. Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments Objective accomplished. Payment target exceeded. Day ahead market (incl. % operating. achievement) Indicator 2 : Cost–reflective tariffs maintained. Cost-reflective tariffs achieved Cost-reflective and maintained Value No tariff adjustments tariffs achieved by through the (quantitative or since 2003. Tariff rates 2009 and implementation of Qualitative) below cost of service. maintained from the quarterly 2010. pricing mechanism. Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments (incl. % Objective accomplished. achievement) Improved financial performance of power companies, with loss for TEDAŞ Indicator 3 : and receivables for TEIAŞ and EÜAŞ reduce Main power utilities achieved profitability EUAS Main power companies Losses 2009, TEIAS 2010, Value making losses and reduced/eliminated and TEDAS 2011. (quantitative or accumulating receivables and Collection Qualitative) receivables and payables reduced. improved, payables payables. to private generators eliminated. Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments (incl. % Objective achieved in 2011. achievement) Indicator 4 : Private investment in the power sector. Offer for sale all 18 distribution companies, 10 distribution transfer at least 12 companies by 2012, Distribution by end-2012. 17 at completion, privatization program to Offer for sale 7 of Value and all 18 were start. 11,684 MW the 18 companies (quantitative or privatized by generation investment under DPL3. Qualitative) September 2013. target for the 2008- 10,000 MW of 11,200 MW in 2012 period. private electricity 2008-2011. 15,000 generation in the MW in 2008-2012. 2008-2011 period and 12,500 in the 2008-2012 period. Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments Targets exceeded, ahead of schedule in generation investment, after a delay (incl. % distribution privatization. achievement) Indicator 5 : Rate of electricity demand growth contained. Value Less than Growth rate in 2005- Less than 5% for (quantitative or 7%/annum for 2007 over 8%/annum. 2008-2011. Qualitative) 2008-2011. Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments (incl. % Higher than targeted reduction realized. achievement) Indicator 6 : A new gas import contract signed by BOTAŞ or a private gas importer. Value Contract to be Contract signed in (quantitative or Contract not yet signed. signed in 2011. 2011. Qualitative) Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments Contracts for the purchase of 6 bcm and transit of 10 bcm to Europe signed in (incl. % 2011. (bcm=billion cubic meters) achievement) An inter-ministerial Climate Change Coordination Board and a Climate Change Department at the Ministry of Environment are working to ensure Indicator 7 : complimentarity between sector specific climate actions; and ii) a framework for monitoring the implementation of the National Climate Change Strategy and Action Plan is agreed. Strategy and Strategy and Value Strategy, Plan and framework under framework May (quantitative or framework to be DPL2, Action Plan 2010, Action Plan Qualitative) established. under DPL3. May 2011. Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments (incl. % Targets achieved ahead of deadlines. Impact long-term. achievement) Indicator 8 : An integrated system for environmental “e-permits” is operational. Permitting, monitoring and inspection An integrated An integrated conducted by different system for system for Value units of the MoEU; environmental environmental (quantitative or provincial directorates permits and permits and Qualitative) lacking standard rules licensing in place licensing in place at for environment permits at MoEU. MoEU by 2011. and compliance checks. Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments Achieved. In addition, there is the establishment of permitting, monitoring and (incl. % inspection departments in MoEU’s provincial directorates and certification of achievement) more than 5,000 environmental officials by end-2012. Increased transparency, accountability and public participation in the Indicator 9 : environmental consent process. Transposition of EU Directive Government's EU 85/337/EEC as Value Integrated amended with Transposition (quantitative or Environmental 97/11/EC and completed. Qualitative) Approximation Strategy 2003/35/EC on calls for harmonization. Environmental Impact Assessment Date achieved 01/01/2008 12/31/2012 06/30/2013 Comments Completed. EU Directive 85/337/EEC as amended with 97/11/EC and (incl. % 2003/35/EC on Environmental Impact Assessment transposed into law. achievement) Indicator 10 : Increased share of population served by sanitary landfills. Regulation on landfill Regulation Regulation 55% of Value of waste to be approved. 55% of approved. 55% of population (quantitative or approved. 47% of population served population served served by Qualitative) population served by by landfills by by landfills. landfills. sanitary landfills. 2012. Date achieved 01/01/2008 12/31/2011 12/31/2012 06/30/2013 Comments Revised target achieved; original target achieved with one year delay. In 2003 (incl. % there were 15 sanitary landfills, whereas by 2013 this number has increased to achievement) 69 Clean Air Center in Marmara fully functioning and staffed to implement the Indicator 11 : Clean Air Action Plan. Clean Air Action Clean Air Action Value Plan approved Clean Air Action Plan Plan approved. (quantitative or April 2010. to be approved. Marmara Center Qualitative) Marmara Center functional. functional 2011. Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments Targets achieved. . The Marmara Clean Air Centre has been established with (incl. % 21 technical staff and a regional network of 39 air quality monitoring stations, achievement) Regional Calibration Laboratory, Regional Data Centre, and Analytical Laboratory. The center is structured to conduct air quality assessments, modeling of emission data and preparation of clean air plans At least 15 of the 25 river basins have developed watershed protection action Indicator 12 : plans. Areas for improved Areas for management of improved water resources and Areas for improved management of quality designated. Value management of water water resources 19 action plans (quantitative or resources and quality to and quality prepared by 2012. Qualitative) be designated. designated. At All 25 basin least 17 action protection plans to plans prepared. be completed by end-2013 Date achieved 01/01/2008 12/31/2011 06/30/2013 Comments (incl. % Areas designated. Target for action plans exceeded after a delay. achievement) (b) Intermediate Outcome Indicator(s) Programmatic Electricity Sector Development Policy Loan – P110643 (DPL1) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Offer for sale the first four distribution companies. The first four Value Privatizatio The first four companies were (quantitative or n program companies offered offered for sale on Qualitative) to start. for sale. schedule. Date achieved 01/01/2008 12/31/2009 06/30/2013 Comments Achieved. This first phase of the distribution privatization (incl. % achievement) program successfully completed. Second Programmatic Environmental Sustainability and Energy Sector Development Policy Loan –P117651 (DPL2) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Offer for sale the next seven distribution companies. The next seven Value Privatizatio The next seven companies were (quantitative or n program companies offered offered for sale on Qualitative) to start. for sale. schedule. Date achieved 01/01/2008 12/30/2010 06/30/2013 Comments Achieved. This second phase of the distribution privatization (incl. % achievement) program successfully completed. Third Programmatic Environmental Sustainability and Energy Sector Development Policy Loan - P121651 (DPL3) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Sell 12 distribution companies by end 2012? 10 sold, 2 All offered for sale Value in progress 10 privatized end of (quantitative or 12 by end of 2012 and 6 2012. Rest Qualitative) behind privatized in 2013 Date achieved Comments Mostly achieved by end of 2012 and all achieved before loan (incl. % achievement) closed in 2013. G. Ratings of Program Performance in ISRs Second Environmental Sustainability and Energy Sector Development Policy Loan - P117651 (DPL2) Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 01/11/2011 Satisfactory Satisfactory 657.03 Third Environmental Sustainability and Energy Sector Development Policy Loan - P121651 (DPL3) Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 08/14/2012 Satisfactory Satisfactory 574.33 2 07/04/2013 Satisfactory Satisfactory 574.33 H. Restructuring (if any) None 1. Program Context, Development Objectives and Design This ICR evaluates three predominantly energy and environment-oriented development policy loans (DPL). The first loan, entitled Programmatic Electricity Sector DPL (PEDPL1)1, was designed and approved in 2009 as an energy (primarily electricity) DPL under the Turkey Country Partnership Strategy (CPS) FY2008-11. The CPS was adjusted at mid-term to support the transition from weathering the global financial crisis to returning to sustainable growth. In that context it was agreed to deepen the engagement in the area of sustainability and inter alia agreed to broaden the energy DPL program to also support policies, strategies and specific measures related to climate change and environmental management in the re-named new Environmental Sustainability and Energy Sector (ESES) DPL program. This design provided an integrated approach to the energy security - energy efficiency - environment nexus and is consistent with the European Union’s (EU) energy, climate and environmental goals. The second and third of the operations, accordingly entitled ESES DPL22 and the ESES DPL33, were approved in 2010 and 2012, respectively. This ICR evaluates the series of three operations termed PEDPL1, ESES DPL2 and ESES DPL3. For ease, we refer to these operations throughout the report as DPL1, DPL2 and DPL3, respectively and the series is referred to as the ESES DPL series. The predominant energy and environment-orientation of the ESES DPL series was possible as the Bank was implementing in parallel a separate series of predominantly macro-oriented DPLs. The Second Programmatic Public Sector DPL4 was prepared in parallel with DPL1 and was approved in 2008. It was followed by two DPLs in the Restoring Equitable Growth and Employment (REGE) DPL series5. They were prepared in parallel with DPL2 and DPL3 and approved in 2010 and 2011, thereby supporting Turkey in managing the impact of the global financial crisis. An Implementation Completion and Results Report of these macro-oriented operations was prepared in 20126. While predominantly energy and environment-oriented, the ESES DPL series also supported the macro economy by helping to contain large energy-related import costs, supporting large-scale energy privatizations helping produce significant privatization proceeds and providing a complementary contribution to strengthening the public sector’s long-term sources of financing. 1 Programmatic Electricity Development Policy Loan (PEDPL1), Report No. 46050-TR, May 18, 2009. 2 Second Environmental Sustainability and Energy Sector Development Policy Loan (ESES DPL2), Report No. 54497-TR, May 14, 2010. 3 Third Environmental Sustainability and Energy Sector Development Policy Loan (ESES DPL3), Report No. 65996-TR, February 29, 2012. 4 Second Programmatic Public Sector Development Policy (PPDPL2), Report No. 43473–TR, May 17, 2008. 5 Restoring Equitable Growth and Employment DPL1, Report No. 51062-TR, February 23, 2010 and DPL2, Report No. 59629-TR, April 7, 2011. 6 Implementation Completion and Results Report, Report No. ICR2344, June 26, 2012. 1 1.1 Context at Appraisal The ESES DPL program was grounded in the development goals articulated in Turkey’s Ninth Development Plan (2007-2013). The top priorities of the Ninth Plan included: (a) sound macroeconomic and related structural fiscal policies to maintain stability and reduce short and medium term vulnerabilities; (b) investment climate, labor market, and skills reforms to increase competitiveness and create jobs, especially for women and youth; (c) fundamental education reforms and continuing health and social welfare reform to increase productivity and help share the gains from growth through equal opportunities; and (d) continuing energy and water sector reforms and investments to further increase energy efficiency, the use of renewable energy, and energy security and help reduce greenhouse gas emissions and mitigate and adapt to climate change. The Ninth Development Plan linked growth and sustainable development focusing inter alia on energy, mining, environment, water and natural resources. After a banking crisis in 2001, when GDP contracted by 5.7 percent, and an expensive recapitalization of its banks; Turkey had embarked on a path of concerted reform. Turkey’s macroeconomic policies and structural reforms over the past decade had yielded robust economic growth. However, in 2008 the global economic downturn hit Turkey’s economy through the export and financial channels. Growth decelerated and GDP actually fell in the 4th quarter of 2008 bringing the annual growth for the year down to 1.1 percent. The government forecast Turkish economic growth to be -3.6 percent in 2009 and the outlook for 2010 was uncertain. Actual decline in 2009 turned out to be even deeper at -4.8 percent, but the economy rebounded quickly and registered a growth of 9 percent for 2010. The Country Partnership Strategy (CPS) for FY08-11 was endorsed by the Board of Directors on February 28, 2008 and the Progress Report on January 7, 2010. The FY08- 11 CPS was shaped directly by Turkey’s Ninth Development Plan to contribute to three of the Plan’s development pillars: (a) improved competitiveness and employment, (b) equitable human and social development, and (c) efficient provision of high-quality public services. During the preparation of the CPS, the Government expressed strong interest in DPLs to accompany and support Turkey’s ongoing reform agenda, primarily because of the Bank’s comparative advantage in policy advice and support linked to flexible budget financing. In the CPS Progress Report in 2010, Turkey and the Bank adjusted the Partnership Strategy in light of the global crisis. The program for the remainder of the CPS period was focused sharply on areas crucial for renewed growth: stimulating private sector, especially small and medium enterprises, business and job creation; sustainable energy and infrastructure; and human capital. The Government and the Bank also agreed to broaden the Electricity DPL program launched in FY09, to include climate change and key environmental sustainability reforms in the re-named ESES DPL program (which is the subject of this ICR). It was triggered by Turkey’s signing of the Kyoto Protocol and the opening of the EU Environment Chapter for negotiations. 2 1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) The original program development objective as reflected in DPL1 was to support the implementation of the Government’s program that aims to address the projected electricity supply-demand imbalance: (a) through energy efficiency measures to reduce the rate of growth of demand for electricity, and (b) by enhancing the efficient supply of electricity. The original key indicators for the program were: (i) Improved management of electricity demand-supply imbalance; (ii) Improved functioning of the wholesale market; (iii) Improved payment performance for transactions through the wholesale market; (iv) Provision of budgetary allocations on a priority basis in line with approved transmission system investment plans; (v) Cost-reflective tariffs achieved; (vi) Improved financial performance of the power companies; (vii) Improved operational efficiency in privatized companies; (viii) Attraction of private sector investments in new generation; and (ix) Enhanced public awareness of benefits of energy efficiency (x) Rate of electricity demand (GWh) growth contained. 1.3 Revised PDO and Key Indicators, and Reasons/Justification In accordance with the request of the Government for the Bank to provide broader support to the Government’s sustainability agenda, the revised program development objectives as reflected in DPL2 and DPL3 were to help: (a) enhance energy security by promoting private sector clean technology investments and operations; (b) integrate principles of environmental sustainability, including climate change considerations, in key sectoral policies and programs; and (c) improve the effectiveness and efficiency of environmental management processes. The Government had concluded that energy efficiency, energy security and environmental issues are most effectively addressed in an integrated program. Furthermore, this energy security - energy efficiency - environment nexus is consistent with the EU’s energy, climate and environmental goals and effectively contributes to Turkey's EU accession process (the Environment Chapter had been opened for negotiations in 2009). Details are provided in Annex 2. The revised key indicators for the program’s main policy areas are.  Energy Sector: (i) day-ahead electricity market launched and operates effectively; (ii) cost–reflective tariffs maintained; (iii) improved financial performance of power companies, with losses for TEDAŞ and receivables for TEIAŞ and EÜAŞ reduced; (iv) attraction of private investment in the power sector; (v) rate of electricity demand growth contained; and (vi) a new gas import contract signed by BOTAŞ or a private gas importer;  Climate Change: (i) An inter-ministerial Climate Change Coordination Board and a Climate Change Department at the Ministry of Environment and Urbanization are working to coordinate and ensure complementarity between 3 sector specific climate actions; and (ii) a framework established for monitoring the implementation of the National Climate Change Strategy and Action Plan agreed; and  Sustainable Environmental Management: (i) An integrated system for environmental “e-permits” is operational; (ii) Increased transparency, accountability and public participation in the environmental consent process; (iii) increased share of population served by sanitary landfills; (iv) Clean Air Center in Marmara fully functioning and staffed to implement the Clean Air Action Plan; and (v) at least 15 of the 25 river basins have developed watershed protection action plans. 1.4 Original Policy Areas Supported by the Program (as approved): The program was originally focused exclusively on the energy sector. DPL1 included nine prior actions. They are discussed in section 2.1. The implementation of the energy program continued under the broadened ESES DPL series. Eight energy sector policy actions were originally (at the time of DPL1) envisioned as prior actions for the energy PEDPL2. Seven of these original eight energy sector actions were completed by the Government. Three of these completed actions were included as prior actions for ESES DPL2. The other completed energy actions originally envisaged for PEDPL2 were not included as prior actions for ESES DPL2, for reasons of program balance and focus i.e. too many energy actions. One of the original eight actions – a capacity mechanism for electricity generation - was removed from the Government’s agenda and was substituted in DPL2 with the electricity generation privatization strategy Thus, the prior energy actions for DPL2 were focused on the most important measures within the expanded ESES program For DPL3 some further energy actions were added. 1.5 Revised Policy Areas In accordance with the request of the Government for the Bank to provide broader support to the Government’s sustainability agenda, the program was expanded to support policies, strategies and specific measures related to climate change and environmental management. For that purpose the original Energy Sector Pillar was complemented by two additional pillars, one for Climate Change and one for Sustainable Environmental Management. The new prior actions are discussed in section 2.1. 1.6 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) The original program design, focused on the energy sector, envisioned a series of two DPLs: PEDPL1 in FY09 and PEDPL2 in FY10. The revised program design, expanded to included climate change and sustainable environmental management, consisted of a series of three DPLs; PEDPL1 ( DPL1), ESES DPL2 and ESES DPL3. PEDPL2 became ESES DPL2 and was approved in FY10. Fund allocations were determined in the 4 context of the Country Partnership Strategies FY08-11 (DPL1 and DPL2) and FY12-15 (DPL3). Therefore, notwithstanding the expanded scope of ESES DPL2, at Euro 519.6 million (US$ 700 million equivalent), the loan amount was less than the Euro 548.4 million (US$ 800 million equivalent) of PEDPL1. The loan amount of ESES DPL3 was the smallest in the series at Euro 455.4 million (US$600 million equivalent). The total program amounted to Euro 1,523.4 million (US$2,100 million equivalent). 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance DPL1 (=PEDPL1) May 2009 Prior actions from Legal Agreement/ Program Document Status 1. Approval of an Electricity Market and Security of Supply Strategy Approved May 2009. 2. Amendments of the Electricity Market Law to monitor, evaluate and Law No. 5784 of adopt measures to ensure security of electricity supply. July 2008. 3. Revision of retail electricity prices to offset the impact of increases in Adjustments in the cost of supply. January, July and October 2008. 4. Approval of a cost-based pricing mechanism that automatically covers Approved March future increases in justified costs incurred by the electricity sector State 2008, became Owned Enterprises. effective in July 2008. 5. Adoption of legislative amendments to improve the payment for street Law No. 5784 of lighting. July 2008. 6. The bidding process for the first two lots of distribution companies (for Accomplished July four companies) launched by the Privatization Administration, with and September winning bidders determined. 2008 respectively. 7. Issuance by the Energy Market Regulatory Authority EMRA of the Issued in April modified balancing and settlement regulations. 2009. 8. A decision to provide on a priority basis the necessary budgetary Approved May allocations in line with approved transmission system investment plans. 2009. 9. Issuance of the first set of secondary regulations related to energy Issued July- efficiency. October 2008. DPL2 (=ESES DPL2) May 2010 Prior actions from Legal Agreement/ Program Document Status 1. Implementation of the energy regulator EMRA’s wholesale electricity Milestones market regulation by the transmission system and electricity market accomplished operator TEIAŞ. December 2009. 2. Sustained implementation of the cost-based pricing mechanism by the Quarterly energy regulator EMRA. implementation as required. 3. Launching of the bidding process and determination of the winning Accomplished bidders for seven electricity distribution companies by the Privatization November 2009 Administration. (three companies) and February 2010 (four companies). 5 4. Determination of the strategy for electricity generation privatization by Published March the Privatization Administration, EMRA and the Ministry of Energy and 2010. Natural Resources. 5. Government approval of a National Climate Change Strategy and an Approved May assessment of clean technology options for the energy sector. 2010. 6. Government approval of an EU Integrated Environmental Approved February Approximation Strategy. 2007. 7. Transposition of EU Directive 85/337/EEC as amended with 97/11/EC Issued July 2008. and 2003/35/EC on Environmental Impact Assessment into law. 8. Issuance of a Regulation on Landfill of Waste by the Ministry of Issued March 2010. Environment and Forestry. 9. Approval of a Clean Air Action Plan by the Ministry of Environment Approved April and Forestry. 2010. 10. Designation and publication by the Government of sensitive and less Published June sensitive areas for the improved management of water resources and water 2009. quality. DPL3 (=ESES DPL3) February 2012 Prior actions from Legal Agreement/ Program Document 1. Launching of the day-ahead wholesale electricity market by the Launched transmission system and electricity market operator TEIAŞ. December 2011. 2. Enactment of an Amendment of the Renewable Energy Law. Enacted January 2011. 3. Government approval of an Energy Efficiency Strategy. Approved February 2012. 4. Government’s Climate Change Coordination Board approval of a Approved May National Climate Change Action Plan. 2011. 5. Issuance by the Ministry of Environment and Urbanization of a Issued June 2010. Regulation transposing Directive 2001/80/EC on Large Combustion Plants (for licensing of new installations. 6. Issuance by the Ministry of Environment and Urbanization of a Issued April 2009, Regulation, and amendments to the Regulation, on Permits and Licenses in amended February Accordance with the Environmental Law. 2010, April 2010 and August 2011. 7. Issuance by the Ministry of Environment and Urbanization of an October 2011. amendment to the Regulation on Industrial Air Pollution Control. 8. Issuance by the Ministry of Environment and Urbanization of a June 2010. Regulation on the Control of Soil Pollution and Contaminated Sites by Point Sources. The prior actions are summarized by pillar and policy objective supported in Annex 5. 2.2 Major Factors Affecting Implementation: Overall, the implementation of the program supported by the DPL series went as planned. One of the major factors underpinning such performance was Turkey’s stable political situation throughout the program period. Turkey has been governed by the Justice and Development (AK) Party, which has an overall majority in Parliament since 2002 and 6 was most recently reelected in June 2011. The program implementation reflected this political stability and benefited from continuity and strong Government ownership, as well as Government commitment and implementation capacity. While there were delays in some individual components including a major setback in the third phase of the electricity distribution privatization program (discussed below), overall the program implementation progressed steadily and adjustments/replacements were agreed within the overall framework. The macroeconomic situation varied in an unusually pronounced manner during the program period. After years of solid growth after the 2001 banking crisis, growth decelerated as the global crisis hit Turkey in 2008 and the economy contracted by almost 5 percent in 2009. A considerable change in the direction of government policy, tilting away from structural reforms and towards efforts to contain the impact of the crisis, was necessary. The crisis and the resulting shift in government policy did not affect the design of the program supported by the ESES DPL: the assessment was that energy reforms needed to continue and the Government even expanded the scope of the program to climate change and sustainable environmental management as important long-term priorities. There was, however, a significant reorientation in the Bank’s parallel primarily macro-oriented DPL operations resulting in the REGE DPL program which supported Turkey’s transition from crisis management to recovery and growth . The crisis affected the electricity distribution privatization program. The winning bidders in the third phase of the program could not fulfill their bid obligations, ultimately rebidding became necessary and the privatization program was finally completed in 2013 instead of the original 2011 schedule. This risk had been identified in the program design. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: The Undersecretariat of the Treasury was responsible for coordinating actions among other concerned ministries and agencies. A number of other agencies were involved in the implementation of the program supported by the ESES DPL series including: (1) the Ministry of Development (MoD); (2) the Ministry of Energy and Natural Resources (MENR); (3) the Ministry of Environment and its successor entities the Ministry of Environment and Urbanization (MoEU) and the Ministry of Forestry and Water Affairs (MoFW); (4) the energy regulator (EMRA), (5) the Privatization Administration (PA), and 6) the energy utilities. The Treasury played an effective role in monitoring progress on agreed policy areas and maintaining frequent contact with the Bank team. Treasury staff and the Bank team had joint meetings with line ministries. The Treasury also maintained separate lines of communication with the Ministry of Development and the participating line ministries and the Privatization Administration. The Bank reviewed the progress of the program and helped identify and participated in discussions on adjustments as the program evolved. Reviews focused on the impacts of the various prior actions. Monitoring indicators were tracked. A noteworthy feature in project design was the agreement to set the closing date of the March 2012 DPL3 loan as June 30, 2013, to allow for the monitoring to continue longer than usual after the approval of the final loan in the ESES DPL program. 7 2.4 Expected Next Phase/Follow-up Operation : The Government and the Bank are at the concept stage of formulating a new DPL program. The new DPL series will be an integral part of the new Country Partnership Strategy (CPS), which covers 2012-2015. A multi-sectoral programmatic series of two DPLs is envisioned. Energy has been tentatively selected as one of the pillars for the proposed new program. Envisioned prior actions for the first future DPL and indicative triggers for the second future DPL have been identified. They are key elements supporting the continued implementation of Turkey’s energy reforms. A multi-year energy sector technical assistance program is expected to be implemented in parallel with financing from the EU’s Instrument for Pre-Accession program for Turkey. Financing and Administration Agreements for the first Euro 11.8 million project have been finalized. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The completed program was grounded in Turkey’s Ninth Development Plan (2007-2013). The program supported policies and reforms included in the Ninth Plan and various national strategies including the Electricity Market and Security of Supply Strategy (2009), the Energy Efficiency Strategy (2012), and the National Climate Change Strategy (2010) and Action Plan (2011). As such the objectives, design and implementation of the program were directly relevant to Turkey’s priorities. Turkey’s 10th Development Plan (2014-2018) approved by the Parliament in July 2013 builds on these strategies and reforms. The goal of the CPS FY08-11 was for the Bank Group to be a partner with Turkey in realizing her development vision - to achieve fast and sustained growth with equity - through full integration into the Government’s formulated development strategy. Accordingly, the CPS was shaped directly by Turkey’s Ninth Development Plan and by the Government’s Program, and aimed at contributing to three main development pillars: (a) improved competitiveness and employment, (b) equitable human and social development, and (c) efficient provision of high-quality public services. The CPS envisaged substantial Bank Group financing in the electricity sector, with private sector development playing a central role and IFC actively engaged in this sector. The emphasis on the electricity sector reflected the importance of electricity supply security and energy efficiency for the economy, as well as the priority the Government places on the energy sector and on continued substantial Bank Group engagement in this sector. During preparation of the CPS, the Government expressed strong interest in DPLs to accompany and support Turkey’s ongoing reform agenda, primarily because of the Bank’s comparative advantage in policy advice and support linked to flexible budget financing. Turkey and the World Bank Group had originally agreed not to use the environment as a pillar in CPS FY08-11, reflecting limited advancement of the environmental agenda during 2004-2007. Discussions on possible engagement were started at Turkey’s 8 initiative during the 2008-2011 CPS period, in parallel with Turkey’s accession to the Kyoto protocol and the opening of the Environmental Chapter of the EU acquis in 20097. The long-standing Turkey-World Bank Group partnership on energy provided the opportunity and strategic entry point for a new engagement on this topic: (a) The energy DPL series was broadened into the ESES DPL series; (b) Turkey joined the Trust Fund Committee of the Clean Technology Fund (CTF) and in May 2009 Turkey became the first country to access the CTF with a project focused on renewable energy and energy efficiency; and (c) Turkey also joined the Bank-administered multi-donor Partnership for Market Readiness (PMR). IFC’s large energy program supports low carbon solutions to help Turkey meet its growing electricity demand. 3.2 Achievement of Program Development Objectives Rating: Satisfactory DPL1: Satisfactory DPL2: Satisfactory DPL3: Satisfactory Policies, strategies and reform actions undertaken as part of the program included:  Adoption by the High Planning Council in early 2008, and quarterly implementation by the energy sector regulator, EMRA, of a cost-based energy pricing mechanism;  Electricity Market and Security of Supply Strategy (2009), Clean Air Action Plan (2010), National Climate Change Strategy (2010) and Action Plan (2011), and Energy Efficiency Strategy (2012);  Electricity distribution privatization, 2008-2013;  The development of about 15,000 MW generation capacity in the 2008-2012 period;  Strategy for generation privatization, for implementation from 2012;  Hourly metering, balancing and settlement (2009) and a new Day-Ahead Market platform for the wholesale electricity market (launched by the electricity transmission system and market operator TEIAS on December 1, 2011) ;  Amendment of the Renewable Energy Law, December 2010, for (a) technology- based feed-in tariffs; and (b) firm off-take arrangements (launched by TEIAS in December 2011 as a complement to the new Day-Ahead Market platform);  Regulation on Permits and Licenses to be taken in Accordance with the Environmental Law and amendments to said regulation, which inter alia combine all environmental licenses and permits required for an industrial installation into a single “e-permit”;  Regulation on Control of Soil Pollution and Contaminated Sites; and 7 Turkey is a candidate country for EU membership. Accession negotiations started in October 2005. Turkey views the accession process as her own, fundamental “modernization project”. After the June 2011 elections, the Government upgraded the institution overseeing all EU accession matters into a new Ministry for EU Affairs. 9  Transposition into Turkish environmental regulation of EU directives on environmental impact assessment, landfills, and large combustion plants. The program has achieved in a satisfactory manner its development objectives as measured against the key indicators (listed in Section 1.3) for each of its three pillars. Pillar I: Energy. Included in DPL1, DPL2 and DPL3 Rating: Highly Satisfactory The program has achieved its development objectives in a highly satisfactory manner: (i) A day-ahead electricity market has been launched and operates effectively. Trading currently accounts for over one quarter of Turkey’s electricity supply. Earlier major collection and payment issues have been resolved and on-time payments exceed 99%. (ii-iii) Financial recovery has been achieved in the power sector. Up to 2008, prices often did not cover costs and collection was less than 100 percent, and large arrears were accumulated. With the implementation of the cost-based pricing mechanism, electricity tariffs have reflected costs since 2008. (Reasonable costs as accepted by EMRA). Collections started to improve through 2009. Collections reached 100 percent in 2010 (some privatized distribution companies collected more than 100 percent, i.e. also recovered past arrears). The main state-owned utilities achieved profitability – EUAŞ from 2009, TEIAŞ from 2010 and TEDAŞ from 2011 - and have paid their arrears to private sector generators. Cross-payables and receivables between public sector companies were cleaned-up through special legislation enacted by the Parliament. (iv) A large volume of private investment has been attracted, including the development of about 15,000 MW of new generation capacity in the 2008-2012 period and about US$12.7 billion in investment in the electricity distribution privatization program completed in 2013. (v) Turkey’s electricity and gas supply security have improved. The projected electricity supply imbalances in 2010 and 2011 were avoided. The rate of electricity demand growth in the 2008-2011 period was about 4.9 percent/annum well below the target 7 percent/annum. This result was in part facilitated by the economic slowdown in 2009 caused by the global crisis. (vi) Agreements for the purchase of gas for Turkey’s gas market and transit to Europe have been signed between the Governments of Azerbaijan and Turkey and their gas companies SOCAR and BOTAŞ. Pillar II: Climate Change. Included in DPL2 and DPL3 Rating: Satisfactory The program has achieved its development objectives in a satisfactory manner. A National Climate Change Strategy was approved in May 2010 and a National Climate Change Action Plan was approved in May and issued in July 2011. A framework has been established to monitor their implementation. An inter-ministerial Climate Change Coordination Board and a Climate Change Department at the Ministry of Environment and Urbanization (MoEU) have been established. They are active/operational and working to coordinate and ensure complementarity between sector specific climate actions. The progress and the change in Turkey’s approach and attention to climate issues during the program period has been significant, when compared to the preceding 10 long period of limited attention namely: (a) Turkey ratified and became a party to the Kyoto Protocol in 2009 (Annex I Party to UNFCC but Annex B Party to the Protocol without a specific target assigned) and stepped up its participation in international fora; and (b) as far as collaboration with the Bank is concerned, Turkey joined CTF and PMR and has received investment project financing for energy efficiency, renewable energy and related transmission system and electricity market development with CTF financing and four Bank investment loans approved in the 2009-2013 period. MoEU has prepared and issued a regulation on the monitoring, reporting and verification (MRV) of greenhouse gas emissions. The regulation is modeled on a similar regulation in place in the EU and initially covers over 1,000 installations. The Ministry is working with the Turkish accreditation and standards institutes to deliver training to auditors (part of which is funded by the PMR). Turkey’s international engagement and participation, collaboration with the Bank, as well as the National Climate Change Strategy and Action Plan, are grounded on studies and analyses carried out by the MoEU, the Ministry of Development and several line ministries including the Ministry of Energy and Natural Resources on renewable energy and energy efficiency. Turkey also made progress with voluntary carbon markets and decreasing energy intensity by focusing on renewable energy and energy efficiency. There are 218 voluntary carbon market projects in operation which reduce carbon emissions by an estimated 16.3 Million tons per year. Most of these projects are renewable energy projects, mainly hydropower projects and wind projects, and together these two categories account for 79% 0f the reduction in carbon dioxide emissions. Going forward this progress enables inter alia Turkey’s effective participation in the international effort, which aims to prepare and agree to a new climate change regime by 2015. Pillar III: Sustainable Environmental Management. Included in DPL2 and DPL3 Rating: Satisfactory The program has achieved its development objectives in a satisfactory manner: (a) institutional and policy framework in support of harmonization with EU Environmental Acquis and improved inter-sectoral coordination in environmental management has been strengthened; (b) increased public participation in environmental decision-making is facilitated by the new EIA process; (c) the institutional framework for environmental monitoring and regulation has been improved with the new e-environment system for permits and licensing; (d) waste management (including the management of hazardous substances and chemicals and associated risks) has improved through an improved regulatory framework and the proportion of the population served by sanitary landfills has increased from 47% to 55% (e) the management of air quality is improved with the Clean Air Center at Marmara fully functioning and staffed to implement the clean air action plan, and f) water resources are better managed with 19 watershed protection action plans by end-2012 and all of the 25 river basins having developed watershed protection action plans by end-2013. The Environmental Impact Assessment (EIA) Directive of the EU has been largely transposed into the Turkish legislation. Turkey strengthened the public consultation 11 practices with the recent amendments. However there has been minimal progress regarding the transboundary conditions and Turkey is not a signatory of the Espoo Convention. While the EIA procedures have matured, Turkey is in the process of transposing the Strategic Environmental Assessment Directive (SEA) of the EU. SEA is going to be implemented after the completion of capacity building studies in the coming years. A Regulation (and three amendments) on Permits and Licenses to be taken in Accordance with the Environmental Law was issued by the Ministry of Environment and Urbanization (MoEU). This regulation combined all the licenses and permits required by the industrial installations into a single “e-permit” to streamline the application process for the applicants and to make the licensing and permitting, monitoring/inspection and enforcement by the MoEU more effective. Moreover, the former separate environmental permits used to have different validity periods which made it difficult for both the companies and the governmental officials to monitor compliance. The MoEU has reportedly reduced the number of official documents from 199 to 16, by implementation of this regulation and enacted a related regulation on requirements for accreditation of “environmental official” and “environmental consultancy” companies involved in the process of applying for the e-permits. In part to align Turkey’s policies with the EU directives, several steps have been taken to improve the Water Sector regulatory framework. A new Water Law, calling for new practices (such as a catchment-based water management and allocation system, water management on the basis of quality and quantity factors, user pays and polluter pays principles, ownership of all water resources by the state, stakeholder participation in management, development of flood legislation, etc.) has been drafted and is being discussed at the national level. As of early 2013, Protection Action Plans have been completed for all 25 river basins in Turkey. In line with the Water Framework Directive, these protection plans are being converted to River basin management Plans. However, the institutional framework for water management is still not organized at the river basin level. Coordination and institutional strengthening is necessary for the management of basins with a multi stakeholder approach. The World Bank is working on a new project which will support the government in testing the multi stakeholder approach with an integrated basin management approach. Significant progress in terms of harmonization with the EU acquis has been achieved in solid waste management but implementation remains an issue in Turkey. Several regulations - including on Solid Waste Control, Medical Waste Control, Hazardous Waste Control, and Solid Pollution Control - were recently revised and the waste electrical electronic equipment directive has been adopted to be in harmony with the EU acquis. The effectiveness of implementation of these regulations is hampered by the limitations in number and capacity of waste management facilities. Good progress has been achieved regarding landfills. The number of sanitary landfills increased from 15 to 69 between years 2003 and 2013. 12 MoEU is also working on improving the air quality management scheme in Turkey. In addition to establishing the Marmara Clean Air Center, they are working on the preparation of an Air Quality Action Plan at the national level. This will be followed by detailed air quality plans at regional / local scale based on the results of preliminary assessment studies that will be finalized by 2014. Preparations are also continuing for the transposition and implementation of the EU National Emissions Ceilings Directive. 3.3 Justification of Overall Outcome Rating Rating: Satisfactory DPL1: Satisfactory DPL2: Satisfactory DPL3: Satisfactory The program was relevant to Turkey’s priorities and supported its Ninth Development Plan 2007-2012 and was one of the core deliveries in Bank CAS FY08-11 and FY12-15. Its development objectives have been achieved in a satisfactory manner for each of the three pillars as discussed above. Based purely on the achievements shown in 3.2 above, a good case could be made that this series of loans should be rated highly satisfactory. However, as also indicted above the Bank was engaged in investment lending and technical assistance which supported these reforms and the EU Candidacy of Turkey also provided emphasis to undertake them. It is therefore difficult to attribute all of these achievements to the energy/environment DPL Loan series although these loans clearly played a major role. The overall satisfactory outcome rating is considered fully justified. . 3.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The program strengthens the framework for long-term sustainable growth across the economy and in the energy sector in particular. As a result the overall social and poverty impact of the program is positive. The actions and reforms under the program help: (a) sustain economic growth, which in turn will increase employment generation and reduce poverty; (b) improve the environment, which in turn will improve the quality of life and health; and (c) improve the quality of electricity supply and service to consumers through privatization, infrastructure investment and increased competition The program did not contain gender-specific interventions. Direct impacts specific to women as a result of the program are not expected. However, while helping to ensure access and improve service delivery some of the energy reforms (pricing and privatization) are also expected to affect the affordability of energy services for the poor. The program’s initial poverty and social impact analysis predicted that the overall impact of pricing and privatization on households, including poorer households, would be limited. Available data also suggest that past electricity privatizations have not had a large adverse impact on the poor. Yet, evidence from other countries suggests that actions to increase payments for usage may affect poorer 13 households disproportionally. In addition, two privatizations in areas where payment rates are low (Van region with 50% and Dicle Region with 30%) have been completed very recently and in those areas the imperative to raise collection rates may generate more difficulties at the household level than previous privatizations. In response to these potential impacts, under the ESES DPL 3 program, it was agreed that a joint monitoring program by the Ministry of Development, UNDP and the World Bank would be implemented in 2012 – 2014 in order to understand the impacts of electricity distribution privatization on households in Turkey, and help inform and plan mitigation measures, if necessary, for low-income households. As part of the first phase in FY13, UNDP (in consultation with the Ministry of Energy and Natural Resources, the Ministry of Development, Privatization Administration, Energy Market Regulation Authority (EMRA), the Turkish Electricity Distribution Company (TEDAS), the Turkish Institute of Statistics (TURKSTAT), the Consumers Rights Association and the World Bank) developed and piloted a qualitative and quantitative poverty and social impact methodology. In 2014, this methodology will be used in all distribution regions in Turkey to comprehensively monitor the impacts of electricity privatization across the country and inform policy dialogue for possible social assistance measures. (b) Institutional Change/Strengthening A well-functioning electricity market has been developed, operated by a department within the electricity transmission system operator TEIAŞ. The next step will be its establishment as an independent company with private sector participation. A major transformation has been accomplished in electricity distribution, which has been privatized under the program. The concerned agencies, the Privatization Administration, EMRA and the Ministry of Energy and Natural Resources (MENR) have strong implementation capacity in this area. They have put into use in the electricity generation area. A strategy for generation privatization has been adopted and implementation begun once the distribution program had reached an advanced level of implementation. An inter-ministerial Climate Change Coordination Board and a Climate Change Department at the Ministry of Environment and Urbanization (MoEU) have been established. They are working to coordinate and ensure complementarity between sector specific climate actions. MoEU is also building up its capacity by creating departments for permitting, monitoring and inspection in provincial directorates, to strengthen the environmental monitoring and inspection practices. (c) Other Unintended Outcomes and Impacts The expansion of the program into climate change and sustainable environmental management provided positive outcomes and impacts. Turkey and the World Bank Group had originally agreed not to use the environment as a pillar in CPS FY08-11, reflecting limited advancement of the environmental agenda during 2004-07. Discussions on possible engagement were started at Turkey’s initiative during the 2008- 11 CPS period and the long-standing Turkey-World Bank Group partnership on energy provided the opportunity and strategic entry point for a new engagement on this topic. This was prominently reflected as one of the three main strategic objectives and pillars in 14 the new CPS FY12-15 approved together with DPL3 in March 2012: Strategic Objective 1 - enhanced competitiveness and employment; Strategic Objective 2 - improved equity and public services; and Strategic Objective 3 - deepened sustainable development. 3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Beneficiary surveys and stakeholder workshops were not carried out for this core ICR and related annexes are not included in the ICR. 4. Assessment of Risk to Development Outcome Rating: Significant DPL1: Significant DPL2: Significant DPL3: Significant There are four main risks to the program’s outcomes: (i) economic risks; (ii) political risks; (iii) implementation and social risks in the energy sector; and (iv) program and implementation risks in the climate change and environmental management areas. Notwithstanding low political risks, the overall risk rating is significant. Economic risks: The global financial crisis had begun to affect Turkey when DPL1 was being prepared, and resulted in a sharp reduction of credit availability, consumer and investor confidence, and exports. This hit domestic demand and caused a 4.8 percent reduction in economic output during 2009. A considerable change in the direction of government policy, tilting away from structural reforms and towards efforts to contain the impact of the crisis, was necessary. The crisis and the resulting shift in government policy did not, however, affect the design of the program supported by the ESES DPL- the assessment was that energy reforms need to continue and the Government even expanded the scope of the program to climate change and sustainable environmental management as important long-term priorities. The global economic environment was uncertain during the preparation of the DPL2 and events impacting Turkey lay largely outside of government’s control. Although the Turkish economy recovered impressively from the crisis by DPL3, it remains at considerable risk from sudden changes in the external environment, since it has a significant current account deficit which is financed by capital inflows. An additional economic risk stems from events in Syria. Increasing numbers of Syrian refugees are putting a strain on the budget. Finally Turkey is at risk of economic problems in its major export market of Europe. If one or more of these risks materializes and the Turkish Economy falters: it not likely that the program would be reversed. Rather what is more likely is that the program would be slowed- perhaps quite significantly. Political risks. Turkey has had a stable government since 2002 under the Justice and Development Party (AKP), facilitating the implementation of major reforms. Social consensus on the reform program and institutional capacity are needed for the implementation of the reform program. There is a risk that a prolonged focus on Turkey’s constitutional reform agenda could narrow the coverage and scope of the 15 program or lead to delays in its implementation. However, the EU accession anchor continues to mitigate political risks since the program is entirely consistent with and assists in meeting the requirements for EU Membership. If this incentive were to be removed, the risks would rise although again it is unlikely the program would be reversed since it has strong domestic support. Energy Sector risks. Turkey’s strategy to achieve and maintain energy security faced significant implementation risks. The strategy emphasizes private sector participation – both in the new areas of renewable energy and energy efficiency where substantial barriers have to be overcome, as well as in the mainstream energy production and distribution areas where the investment needs are very high. The envisioned privatization and implementation schedules for the electricity distribution companies could not be realized as global market conditions worsened. However, with the successful rebidding of the third phase of electricity distribution privatization the program has been completed. The generation privatization program has just started and significant volumes of investment in new generation capacity will also continue to be needed. Implementation risks were mitigated by the energy regulator, EMRA’s and the Privatization Administration’s strong track records and the Government’s continued commitment. Currently retail electricity tariffs in Turkey are fairly high by historical standards and there could have been a political back lash against these tariffs (which are market driven) however no significant back lash emerged. Available data suggest that past electricity privatizations have not had a large adverse impact on the poor, though the 2008-2009 recession increased the financial burden of electricity prices increases on the poorest households. Also, two privatizations in areas where payment rates are low have been completed very recently. In those areas, the imperative to raise collection rates may generate more difficulties at the household level than previous privatizations, and more attention may need to be paid to progress. The energy regulator, EMRA, already monitors the performance of the privatized companies on a quarterly basis, including collections and disconnections and should be able to observe and take action to mitigate such risks. EMRA took strong corrective action with a non-performing company by replacing its management. Climate change risks. Turkey’s climate action agenda is long term and its implementation has only recently started. The successful implementation of this action agenda requires the broadening and deepening of Government ownership and public support in Turkey and maintaining the momentum of the international negotiation process. This is made more difficult since the issues of emission reduction obligations and finance have not yet been resolved in the international process within the United Nations Framework Convention on Climate Change. Although the nationally approved Climate Change Action Plan offers major emission reductions in primary energy intensity and energy savings in the buildings, industry, transport, waste, agriculture and forestry sectors, no overall domestic target was adopted. Awareness-raising on opportunities and challenges of climate action is needed at all levels. The risks of declining support for climate change mitigation are decreased by a growing public awareness of the implications of climate change for Turkey and by the recognition that climate action is in 16 Turkey’s own national interest. Nevertheless if economic or political conditions change very significantly, the support for the climate action agenda could dissipate rapidly. Environmental management risks. Turkey’s environment agenda is long term and challenging, and implementation capacity risks are high. While there is Government ownership of environmental management reforms and the MoEU and the MoFW are progressing, Turkey’s experience and capacity in public environmental management and enforcement remains limited. This risk is mitigated by projects currently targeted toward the institutional strengthening of the MoEU and the MoFW, supported under the EU pre- accession financial and technical assistance programs. The European Union opened the negotiations on the Environment Chapter in December 2009. The mid-2011 merger of the environment and urban ministries into a single ministry has raised a concern that the urban construction agenda will prevail over the environment. As with the climate change risks, significant political or economic changes could slow or at worst stop the country’s environmental management agenda. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory DPL1: Satisfactory DPL2: Satisfactory DPL3: Satisfactory Policy lending in Turkey was a part of a long standing relationship between the Government and the Bank based on knowledge sharing, policy dialogue, and development financing. In knowledge sharing the Bank successfully channeled worldwide experience through sector analytical work customized to the country’s needs. Policy dialogue was shaped by the fact that Turkey is a large, sophisticated middle- income country with a broad-based policy agenda and complex political economy. In those circumstances, successful design and structuring of institutional reforms must be tailored to specific Turkey needs and agreed with a number of stakeholders through a complex consultation and buy-in process. The program was based on a longer-term policy dialogue (going back to the 1990s in case of energy reforms) and was selectively underpinned by strong analytical work and technical support. The preparatory work was well-coordinated within the Bank’s multi-sector team including experts and practitioners in the energy, environmental, social, and macro- economics areas. The program design was sufficiently flexible to accommodate changes in the implementation schedules of individual elements. The timing of individual operations in the DPL series was tailored to Turkey’s needs: the first operation was in sync with the approval of the Ninth Development Plan, the second supported the Bank’s timely response to the global crisis, and the third supported a smooth transition from short-term crisis response back to longer-term structural reforms. (b) Quality of Supervision 17 Rating: Satisfactory DPL1: Satisfactory DPL2: Satisfactory DPL3: Satisfactory The Bank reviewed the progress of the program and helped identify and obtain agreement on adjustments to the program as needed. In this programmatic series, there was no formal distinction between preparation and supervision; it was one continuous process. (In the Bank’s budget system, the work was financed under a succession of lending codes/budgets and parallel task codes/budgets). A noteworthy feature in project design was the setting of the closing date of the March 2012 ESES DPL3 loan as June 30, 2013, to allow for the formal monitoring phase to continue longer than usual after the approval of the final loan in the DPL programs. The monitoring effort was anchored in a strong field-based country team8 which maintained a continuous policy dialogue on reforms supported by the DPL series and monitored the agreed outcome indicators. Supervision effort was often closely related to ongoing ESW and investment project work (discussed below) which provided a broader reform context and enabled a greater depth of the monitoring work and related dialogue. In its supervision activities the Bank team engaged with the Treasury (formal policy counterpart), Ministry of Development, the concerned line ministries (MENR, MoEU and MoFW), agencies (EMRA and PA) and energy utilities responsible for the design and implementation of reforms supported under the program. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory DPL1: Satisfactory DPL2: Satisfactory DPL3: Satisfactory Bank performance during preparation/at entry and supervision benefitted from the long- term relationship and close dialogue with the Government on reforms, as well as ongoing analytical/advisory and investment project work. This improved the choice, content, and coherence of reforms and paved the way for good performance. New energy sector investment projects were approved in parallel with the ESES DPL program in 2009 (energy efficiency in large enterprises, renewable energy development), 2010 (electricity market and transmission system), 2011 (energy efficiency in large enterprises, and renewable energy development) and 2013 (energy efficiency in small and medium enterprises) and the implementation of earlier approved electricity and gas sector projects continued. The Bank has been providing analytical support through its advisory support program, including: 1) provision of expert advisory services on sustainable wind energy development; 2) report on the security of electricity supply; 3) studies related to a gas sector strategy and to green field gas distribution; 4) analytical work on demand-side energy efficiency potential and opportunities in Turkey – including a report “Turkey: Tapping Energy Savings Potential in Industry and Buildings”; 5) an assessment of 8 Field-based staff included energy, environmental and social experts as well as the team leaders of the parallel REGE DPL series and other macro-economics staff. 18 options for improving the operational effectiveness of TEIAŞ; and 6) Programmatic Non Lending Technical Assistance (NLTA), focusing on Government policies for balancing development, sector competitiveness, the challenges of complying with the EU Environmental Acquis, and work on preparation of the National Watershed Management Strategy. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory DPL1: Satisfactory DPL2: Satisfactory DPL3: Satisfactory Turkey greatly values long-term collaboration with the Bank in acquiring: 1) access to global knowledge on policy and institutional issues, 2) developing country specific diagnostics, 3) maintaining policy dialogue and shaping specific sector reforms, as well as 4) obtaining long-term budget support financing under favorable terms. The Deputy Prime Minister Economic and Financial Affairs has the leading role in the design of macroeconomic policy and institutional reforms coordinated within the Economic Council which additionally included core economic ministers and relevant line ministries. This institutional set-up strengthened the ownership and commitment of the government to the reform program, and facilitated policy dialogue on the choice of viable reforms in the context of Turkey. It helped to navigate the broad-based policy agenda and address complex political economy issues to arrive at institutional reforms tailored to the country’s circumstances. This energy/environmental DPL series was developed in this overall framework, as an extension of macro/multi-sector development policy loans started in the aftermath of the 2001 crisis. (b) Implementing Agency or Agencies Performance Rating: Satisfactory DPL1: Satisfactory DPL2: Satisfactory DPL3: Satisfactory As the coordinating and implementing agency, the Treasury played an effective role in monitoring progress on agreed policy areas and maintaining frequent contact with the Bank team. The Treasury also maintained separate lines of communication with the Ministry of Development and the participating line ministries and the Privatization Administration. Communications with EMRA and energy utilities were primarily through and by the MENR. The possibility of an energy sector DPL was first raised by the Energy Minister, then discussed with Treasury, conceptualized and incorporated in the CPS FY08-11. The initiative to extend the program to include climate change and sustainable environmental management came from Treasury and was then discussed with the Ministry of Environment, conceptualized and incorporated in the CPS FY08-11 at the mid-term review. The Treasury strongly supported the addition of DPL lending to the Bank’s menu of instruments including having Treasury staff join the Bank team to explain the functioning of the Bank’s DPL instrument to the concerned staff at: 1) MENR, 2) Ministry of Environment and its successor entities MoEU, MoWF; 3) EMRA, 4) PA 19 and 4) the energy companies. It also helped design and implement their respective components in a satisfactory manner as detailed in earlier sections of this ICR. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory DPL1: Satisfactory DPL2: Satisfactory DPL3: Satisfactory Throughout the program the Borrower worked closely with Bank in designing and implementing policy reforms aligned with the country’s medium-term development plan and immediate needs. The Deputy Prime Minister for Economic and Financial Affairs and the Treasury had the lead role in shaping the policy content of the operations, overseeing progress and adjusting the priorities in line with the evolving policy and reform agenda in the country. This helped maintain relevance and promote the achievement of results envisaged under individual operations and the series overall. 6. Lessons Learned The use of a DPL was a strategic choice of instrument after an extensive and substantial engagement of investment lending and AAA work in the energy sector. It allowed (a) for developing a programmatic DPL in a short period of time when the opportunity was there and the demand was formulated; (b) for responding to strong ownership at the level of the Deputy Prime Minister in charge of Economic and Financial Affairs; and (c) for building good coordination across key government institutions as Treasury was the implementing agency. Such a DPL would have not been possible to launch without such a context and on-going relationship. The Bank has a long relationship with Turkey, has been active in many sectors and has provided numerous analytical and advisory services. There is a great deal of experience and a number of lessons learned in this relationship. The design of the Bank program benefited from that experience and the lessons, perhaps even more than usual, given the timing of the program during a period of global crisis. The proactive use of the flexibility in the country partnership strategy process and the DPL instrument were very important in order to adapt to both external and internal political economy factors. This enabled the Bank to remain relevant and continue dialogue with the government as the global crisis unfolded and the Government’s reform agenda adapted. A considerable change in the direction of government policy, tilting away from structural reforms and towards efforts to contain the impact of the crisis, was necessary. The crisis and the resulting shift in government policy did not affect the design of the program supported by the ESES DPL: the assessment was that energy reforms need to continue and the Government even expanded the scope of the program to climate change and sustainable environmental management as important long-term priorities. The bulk of the adaptation by the Bank to the impact of the crisis was through the REGE DPL program which effectively consolidated macro and public sector reforms and financial and social sector reforms into a large multi-sector DPL program. This was the 20 Bank’s primary response to Turkey’s request for assistance with the global crisis (REGE DPL1) and Turkey’s transition from short-term crisis response back to longer-term structural reforms (REGE DPL2). While predominantly energy and environment- oriented, the ESES DPL series also supported the macro economy by helping to contain large energy-related import costs, supporting large-scale energy privatizations yielding significant privatization proceeds and providing a complementary contribution to strengthening the public sector’s long-term sources of financing. The flexibility of the DPL instrument was also utilized to maximum effect and longer term benefit when the scope of the original energy DPL program was extended to climate change and environmental management in response to the Government’s readiness to raise the dialogue on these important cross-cutting development themes to a significantly higher level with the international community including the Bank. Turkey and the WBG had agreed not to use environment as a pillar in CPS FY08-11, reflecting limited advancement of the environmental agenda during 2004-2007 and a decision to consider jointly a possible re-engagement, at Turkey’s initiative, later during the 2008-11 CPS period. Turkey’s accession to the Kyoto protocol and the opening of the Environmental Chapter of the EU Acquis in 2009 then provided the opportunity and strategic entry point for a new engagement on environment and climate change. The new engagement grew out of the long-standing Turkey-WBG partnership on energy. The electricity DPL series was broadened into the ESES DPL series, with three components: energy, climate change and environmental sustainability. This work led to collaboration in preparation for the 2012 UN Sustainable Development Conference (Rio+20). IFC used its support for Turkey’s liberalization program to secure low carbon solutions to meet growing electricity demand. Even with the strongest commitment, sometimes reforms cannot be implemented according to the original schedules. This was most visibly the case with the Government’s distribution privatization program, which stalled at phase 3 (DPL3) after two earlier successful phases (supported under DPL1 and DPL2). Agreement was reached with the Government that replacements were to be made in the scope of DPL3 and an unusually long supervision period was built into the loan agreement to provide for monitoring through much of 2013. The distribution privatization program was restarted, rebid and has now been successfully completed. The closing date of the March 2012 DPL3 loan was set as June 30, 2013, to allow for the monitoring to continue longer than usual after the approval of the final loan in the DPL program. A DPL that cuts across several themes brings considerable additional complexity in the design but at the same time high pay-off as it pursues a more holistic approach. It takes a Bank team that is fully committed to cross-sectoral working together. 21 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies The Borrower’s ICR, which includes input from concerned agencies, is attached as Annex 3. The Borrower highlights that the ESES DPL series “have built on our mutual understanding with the World Bank to address our Government’s programs for energy, climate change and environment with an integrated approach. In this sense, we agreed that our development policy cooperation with the World Bank in energy sector to be broadened to include climate change and sustainable environment management. The three pillars of the ESES DPL program (i) energy sector; (ii) climate change; and (iii) sustainable environmental management have complemented one another in many ways.” (b) Cofinanciers - There was no co-financing. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) Beneficiary surveys and stakeholder workshops were not carried out for this core ICR. 22 Annex 1: Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P110643 – DPL1 (First Programmatic Electricity Sector Development Policy Loan) Responsibility/ Names Title Unit Specialty Lending Tijen Arin Sr. Environmental Specialist EASER Environment Sr Financial Management Financial Seda Aroymak ECSO3 Specialist management Yolanda Gedse Team Assistant ECSEG Team support Richard Hamilton Consultant CEUPP Energy economics Salih Kemal Kalyoncu Sr. Procurement Specialist ECSO2 Procurement Selma Karaman Program Assistant ECCU6 Team support TTL until Iftikhar Khalil Lead Energy Specialist ECSEG November 2008 Irina Kichigina Lead Counsel LEGLE Legal Hannah Koilpillai Senior Finance Officer CTRFC Disbursement Kishore Nadkarni Consultant ECSEG Financial analysis Shinya Nishimura Sr. Energy Specialist ECSEG EE and RE TTL from Kari Nyman Lead Specialist ECSEG December 2008 Silvia Pariente-David Lead Energy Specialist MNSSD Peer review Energy sector Sameer Shukla Sr. Energy Specialist SEGES finances Radhika Srinivasan Sr. Social Scientist OPSFC Poverty and social Yukari Tsuchiya Team Assistant ECSEG Team support Rogier van den Brink Lead Economist EASPR Peer review Gurhan Özdora Sr. Operations Officer ECSEG Energy policy P117651 – DPL2 (Second Environmental Sustainability and Energy Sector DPL2) Responsibility/ Names Title Unit Specialty Lending Senior Rural Development Halil Agah ECSSD Environment Specialist Mediha Ağar Sr. Economist ECSP4 Macro Yesim Akcollu Sr. Energy Specialist ECSEG Energy Esra Arikan Environmental Specialist ECSEN Environment Angela Armstrong Sr. Operations Officer ECSEN Environment Adriana Jordanova Lead Environmental Specialist ECSEN Environment 23 Damianova Sergio Gonzales Sr. Power Engineer ECSEG Energy Salih Kemal Kalyoncu Sr. Procurement Specialist ECSO2 Procurement Selma Karaman Program Assistant ECCU6 Team support Ulker Karamullaoglu Program Assistant ECCU6 Team support Hannah Koilpillai Senior Finance Officer CTRFC Disbursement Muammer Komurcuoglu Sr. Economist ECSP2 Macro Kseniya Lvovsky Program Manager ENV Peer review Muthukumara Mani Sr. Environmental Economist SASDC Peer review Craig Meisner Environmental Economist ECSEN Environment Shinya Nishimura Sr. Energy Specialist ECSEG EE and RE Kari Nyman Lead Specialist ECSEG TTL Margaret Png Lead Counsel LEGLE Legal Carlos Pinerua Country Sector Coordinator ECSPF Private sector Cristobal Ridao-Cano Country Sector Coordinator ECSHD Poverty and social Jonathan Schwartz Lead Economist LCSSD Peer review Energy sector Sameer Shukla Sr. Energy Specialist SEGES finances Macro/REGE Mark Roland Thomas Lead Economist ECSP1 DPL1 TTL Yukari Tsuchiya Team Assistant ECSEG Team support Carolyn Turk Lead Social Scientist ECSSO Poverty and social Cihan Yalcin Economist ECSP4 Macro Katalin Zaim UNDP Programme Manager UNDP Peer review Fan Zhang Energy Economist ECSEG Poverty and social Kamer Karakurum Sr. Economist ECSP1 Macro Özdemir Gurhan Özdora Sr. Operations Officer ECSEG Energy policy P121651 – Third Environmental Sustainability and Energy Sector DPL3) Responsibility/ Names Title Unit Specialty Lending Mediha Ağar Sr. Economist ECSP4 Macro Yesim Akcollu Sr. Energy Specialist ECSEG Energy Esra Arikan Environmental Specialist ECSEN Environment Sr Financial Management Financial Seda Aroymak ECSO3 Specialist management Adriana Jordanova Lead Environmental Specialist ECSEN Environment Damianova Sergio Gonzales Sr. Power Engineer Energy 24 Ruxandra Floroiu Sr. Environmental Engineer ECSEN Environment Joseph Formoso Sr. Finance Officer CTRLA Disbursement Salih Kemal Kalyoncu Sr. Procurement Specialist ECSO2 Procurement Selma Karaman Program Assistant ECCU6 Team support Ulker Karamullaoglu Program Assistant ECCU6 Team support Kseniya Lvovsky Program Manager ENV Peer review Muthukumara Mani Sr. Environmental Economist SASDC Peer review Shinya Nishimura Sr. Energy Specialist ECSEG EE and RE Kari Nyman Lead Specialist ECSEG TTL Margaret Png Lead Counsel LEGLE Legal Carlos Pinerua Country Sector Coordinator ECSPF Private sector Cristobal Ridao-Cano Country Sector Coordinator ECSHD Poverty and social Jonathan Schwartz Lead Economist LCSSD Peer review Energy sector Sameer Shukla Sr. Energy Specialist SEGES finances Yukari Tsuchiya Team Assistant ECSEG Team support Carolyn Turk Lead Social Scientist ECSSO Poverty and social Cevdet Cagdas Unal Economist ECSP4 Macro Jari Vayrynen Sr. Environmental Specialist ECSEG Climate Change Mara Warwick Country Sector Coordinator ECSSD Environment Macro/REGE Marina Wes Lead Economist ECSP1 DPL2 TTL Katalin Zaim UNDP Programme Manager UNDP Peer review Fan Zhang Energy Economist ECSEG Poverty and social Kamer Karakurum Sr. Economist ECSP1 Macro Özdemir (b) Staff Time and Cost P110643 – DPL1 (First Programmatic Electricity Sector Development Policy Loan) Staff Time and Cost (Bank Budget Only) USD Thousands Stage No. of staff weeks (including travel and consultant costs) Lending 50.5 368,751.3 Supervision 0 0 P117651 – DPL2 (Second Environmental Sustainability and Energy Sector DPL2) Staff Time and Cost (Bank Budget Only) Stage No. of staff weeks USD Thousands 25 (including travel and consultant costs) Lending 50.5 365,239.8 Supervision 0 0 P121651 – Third Environmental Sustainability and Energy Sector DPL3) Staff Time and Cost (Bank Budget Only) USD Thousands Stage No. of staff weeks (including travel and consultant costs) Lending 48.9 342,744.28 Supervision 1.8 30,524.61 26 Annex 2: Changes in the Program Design A. Relationship between ESES DPL2 and DPL3 and the originally envisioned PEDPL2 (Box 8 in the ESES DPL2 Program Document) Expected Policy Actions ESES DPL2 Prior Actions ESES DPL3 Triggers for the Envisioned PEPDL2 (now ESES DPL2) as presented in the PEDPL1 1. Appropriate Met. Not Included. Not Included. implementation of the Mechanism is functioning. Continued implementation of mechanism foreseen in the [Results from the most recent the mechanism is expected. 2009 strategy to monitor and evaluation are discussed in this evaluate the anticipated PD.] electricity demand-supply balance. 2. Satisfactory Met. Included. Included. implementation of modified The most recent milestones, Launching of the day-ahead regulations for the hourly metering and settlement electricity market is the major wholesale market issued by were launched in December milestone (regulations set EMRA. 2009. Target date for the next January 2011 as the target milestone is January 2011. date). 3. Provisions in the Met. Not Included. Not Included. Government’s 2010 The Government has approved Adequate appropriations are investment plan taking into for TEIAª a three-year program expected also beyond 2010. account an approved multi- of TL 550 million for 2010, TL year transmission 600 million for 2011 and TL 650 investment plan. million for 2012. The Parliament approved the 2010 provision for the 2010 investment plan. 4. Sustained Met. Included. Not Included. implementation of pricing Quarterly adjustments have Continued implementation of mechanism for cost- continued to be made, in July and the mechanism is expected. reflective tariffs for the October 2009, and January and electricity sector through April 2010. periodic mandatory filings by the Turkish Lignite Company, TETAª, EÜAª, TEDAª and BOTAª. 5. Satisfactory Met. Not Included. Not Included. implementation of measures Mechanism is functioning. Continued implementation of to improve payment for the mechanism is expected. street lighting bills in line with legislative/regulatory 27 amendments. 6. Continuing Met. Included. Included. implementation of the Seven distribution companies privatization of electricity have been offered for sale and distribution and generation the winning bidders have been plants in line with the determined. government’s electricity sector strategy and market conditions. 7. Capacity mechanism Not Met. Replacements Not Applicable. introduced by the Included in ESES DPL2 and Government and measures DPL3. to attract investments in new [see nr. 9-12 below]. generation capacity initiated by MENR. 8. Second set of secondary Met. Not Included. Not Applicable. regulations issued pertaining Regulations were issued in to energy performance in December 2008. buildings. Prior actions in the ESES DPL2 and ESES DPL3 Energy Pillar not in the PEDPL2 ESES DPL2 Prior Actions ESES DPL3 Triggers 9. Determination of the Met. Included. Not Applicable. strategy for electricity The Privatization Administration generation privatization by announced the strategy in March the Privatization 2010. Administration, EMRA and the Ministry of Energy and Natural Resources. 10. Amendment of the Not Applicable. Included. Renewable Energy Law. Expected to be enacted by the Parliament in the course of 2010. 11. A study of options and a Not Applicable. Included. program of measures for increasing the operational capacity and financial strength of TEIAª. 28 12. Amendment of the Not Applicable. Included. Natural Gas Market Law. Prior actions in the ESES DPL2 and ESES DPL3 Climate Change and Sustainable Environmental Management Pillars ESES DPL2 Prior Actions ESES DPL3 Triggers Not Applicable. Government approval of a Government approval of a National Climate Change Climate Change Action Plan Strategy and an assessment of (including sectoral actions for clean technology options for the at least three key sectors). energy sector. Not Applicable. Government approval of an EU Transposition into regulation Integrated Environmental of Directive 2001/42/EC on Approximation Strategy. Strategic Environmental Assessment. Not Applicable. Transposition of Directive 85/337/EEC as amended with 97/11/EC and 2003/35/EC on Environmental Impact Assessment into law. Not Applicable. Issuance of regulation on landfill of waste by the Ministry of Environment and Forestry. Not Applicable. Approval of the Clean Air Action Transposition into law of Plan by the Ministry of Directive 2001/80/EC on Environment and Forestry. Large Combustion Plants (for licensing of new installations). Not Applicable. Designation and publication by Transposition into law of the Government of sensitive and Directive 2006/11/EC on the less sensitive areas for the Dangerous Substances in improved management of water Water. resources and water quality. 29 B. Summary of Developments between ESES DPL2 and ESES DPL3 (Box 5 in the ESES DPL3 Program Document) ESES DPL3 Trigger at ESES DPL3 Prior Action Explanation/Status the Time of ESES DPL2 (January 2012) [Status update at ICR added Approval where necessary] (June 2010) Policy Area I – Energy Sector: Implementation of the Included as a prior action. Completed. A clearer energy regulator EMRA’s formulation of the action adopted wholesale electricity as “Launching of the day-ahead market regulation by the wholesale electricity market by transmission system and the transmission system and electricity market operator electricity market operator TEIAª. TEIAª”. Study of options and a Not included as a prior action. Completed. program of measures for increasing the operational capacity and financial strength of TEIAª. Amendment of the Included as a prior action. Completed. Renewable Energy Law. Amendment of the Natural Not included as a prior action. Amendment expected in 2012. Gas Market Law. [Amendment expected in 2014] Privatization of electricity Not included as a prior action. Seven distribution companies distribution and generation offered for sale by the plants by the Privatization Privatization Administration and Administration in line with the winning bidders determined. the Government’s However, as many of the ranked electricity sector strategy bidders have not fulfilled the and market conditions. obligations of Tender Specifications, the process continues and most companies may have to rebid. [All seven companies had to be rebid. The privatization of all seven now completed; six by June 2013, one in September 2013]. Government approval of an New prior action. Approved in Energy Efficiency Strategy. February 2012. 30 Policy Area II – Climate Change: Government’s Climate Included as a prior action. Completed. Change Coordination Board approval of a Climate Change Action Plan (including sectoral actions for at least three key sectors. Policy Area III – Sustainable Environmental Management: Issuance by the Ministry of Included as a prior action. Completed. Environment and Urbanization of a Regulation transposing Directive 2001/80/EC on Large Combustion Plants (for licensing of new installations). Transposition of Directive Not included as a prior action. Draft regulation prepared. 2001/42/EC on Strategic Issuance and effectiveness Environmental Assessment expected in 2014. into regulation. Transposition of Directive Not included as a prior action. Draft regulation prepared but 2006/11/EC on Dangerous further processing discontinued; Substances into law. instead the measure is being merged into a much broader water regulation. Issuance expected in 2015. Issuance by the Ministry of New prior action. Completed. Environment and Urbanization of a Regulation, and amendments to the Regulation, on Permits and Licenses in Accordance with the Environmental Law. Issuance by the Ministry of New prior action. Completed. Environment and Urbanization of an amendment to the Regulation on Industrial Air Pollution Control. Issuance by the Ministry of New prior action. Completed. Environment and Urbanization of a Regulation on the Control of Soil Pollution and Contaminated Sites by Point Sources. 31 Annex 3: The Borrower’s ICR Introduction 1. Environmental Sustainability and Energy Sector Development Policy Loan (ESES DPL) series, which have comprised of three loans, have built on our mutual understanding with the World Bank to address our Government’s programs for energy, climate change and environment with an integrated approach. In this sense, we agreed that our development policy cooperation with the World Bank in energy sector to be broadened to include climate change and sustainable environment management. The three pillars of the ESES DPL program (i) energy sector; (ii) climate change; and (iii) sustainable environmental management have complemented one another in many ways. 2. Our comments about the implementation of the structural reform program supported by ESES DPL series are as follows: Energy Sector 3. Turkey has a dynamic energy agenda and accordingly has been implementing an ambitious energy sector program with a view to meeting the country’s growing energy demand in an efficient and sustainable manner in order to support economic and social development while taking environmental concerns into account. In this context, our energy policy aims; (i) to enhance energy supply security, (ii) to utilize both public and private means within the framework of free market practices, (iii) to decrease import dependency, (iv) to strengthen our country’s position in regional and global energy trade, (v) to achieve diversification in energy resources, routes and technologies, (vi) to ensure maximum use of renewable sources, (vii) to improve energy efficiency and (viii) to minimize negative environmental impacts. 4. In this vein, the reforms being undertaken broadly comprise; (i) unbundling of the electricity sector into its different business activities (transmission, generation, distribution, wholesale trading and retail supply), (ii) creating an independent energy market regulator and implementing a regulatory framework and a licensing regime; (iii) privatizing the state-owned electricity distribution and generation businesses; and (iv) creating a competitive market in electricity both at the wholesale and the retail levels, which are overall in line with the EU Acquis Communitaire. 32 5. In the context of these policies, our Government has developed two important strategy documents regarding energy sector. First one is the Electricity Market and Security of Supply Strategy, which was approved by High Planning Council on May 18, 2009, sets out a very ambitious goal to increase the share of renewable sources in electricity generation to at least 30 percent by 2023. Moreover, this strategy envisages the total 20.000 MW installed capacity of wind energy and 600 MW installed capacity of geothermal energy by 2023. 6. The other significant strategy is the Energy Efficiency Strategy which was approved by the High Planning Council in February 2012, sets out an overall target of reducing Turkey’s energy intensity by 20 percent by 2023 in comparison to 2011 level. Furthermore, the Energy Efficiency Strategy has some ambitious goals such as, decreasing the energy consumption in buildings, achieving market transformation for energy efficient appliances and products, promoting energy efficiency in transportation and improving the efficiency in electricity generation, transmission and distribution. 7. In achieving these goals, which are embedded in our main policy documents; our fundamental strategy is to encourage the participation of private investors through new investments and also through privatizations. Within this context and in line with our liberalization policy in the energy sector, the share of public investments in energy sector is being gradually decreased. We have successfully completed the distribution privatization program as of September 30, 2013 and hereby the sector has been wholly privatized. In the energy generation side, all the Government owned power plants, except the hydroelectric power plants of nearly 7,500 MW in capacity, are envisaged to be privatized with the coordination of Privatization Administration, giving priority to the coal-run plants. The Electricity Energy Sector Reform and Privatization Strategy Paper, which sets out the short and medium term road map for market reforms and privatizations, was approved in 2004 and significantly contributed to this process. 8. We have also taken important steps in restructuring the government institutions in energy sector. The former Integrated Generation and Transmission Corporation (TEAŞ) was closed and three new institution have been established, which are the Electricity Generation Corporation of Turkey (EÜAŞ), the Electricity Trading Corporation of Turkey (TETAŞ) and the Turkish Electricity Transmission Corporation (TEİAŞ). Besides, Electricity Distribution Corporation of Turkey (TEDAŞ), which has been already separated from TEAŞ earlier, was restructured into 33 separate regional distribution companies in preparation for their privatization. As of end-September 2013, all regional distribution companies were privatized each of which had been divided into two as wholesale and retail companies. Regulation on Measures Regarding Distribution and Supply Licenses in Electricity Market was issued on August 2, 2013 to protect the consumers and to avoid disruption in services. 9. With regard to the electricity sector reforms, one of our main principles is to create and maintain a market structure that would ensure supply security. In this vein, a bilateral contract market, which is integrated with a balancing and settlement system, has been put in operation. Consumers whose annual consumption exceeds 5 MWh are currently eligible to choose their own supplier. 10. Our Government, in parallel with the privatization process, is focused on creating an enabling legal and regulatory framework for private investments in the energy sector and ensuring the energy supply security through supervision and monitoring activities. With the Electricity Market Law (Law No. 4628), which was enacted in 2001, the liberalization process for electricity markets was initiated. The Electricity Market Law also envisaged the establishment of a regulatory authority, namely; Energy Market Regulatory Authority (EMRA). EMRA’s mandate covers licensing, approval of market rules and codes, tariff setting and customer service issues. 11. Regulation on Electricity Market Balancing and Settlement has been issued in compliance with the provisions of Electricity Market Law in 2004. With the effectiveness of this Regulation a new unit, the Market Financial Settlement Center (PMUM), has been established under the body of TEİAŞ that shall operate the settlement side of balancing and settlement system by calculating amounts payable or receivable by legal entities operating in the market. EMRA issued new balancing and settlement regulations in 2009 to improve the functioning of the electricity market. Accordingly, facilities for hourly balancing and hourly settlement have been implemented and PMUM moved to hourly settlement in December 2009. Moreover, the day-ahead market was launched on December 1, 2011, which made it possible for market participants to balance their own portfolios and hence to offer to the operator (TEİAŞ) a balanced system one day earlier. This aims to serve to reduce the real – time balancing during the day and to further develop the electricity market. 12. In order to monitor, evaluate and adopt measures for the security of electricity supply the Electricity Market Law was substantially amended in 2008. The name of Law No. 4628 has been changed as Law on the Structures and Duties of EMRA with the 34 enactment of the new Electricity Market Law (Law No. 6446), which was published in March 30, 2013. The new Electricity Market Law has ensured that the establishment of Energy Markets Operation Company (EPİAŞ), as a result of restructuring of PMUM, will enable to handle the spot transactions in the energy markets. 13. The Renewable Energy Law (Law No. 5346) was enacted in 2005 to promote private renewable energy investments. Furthermore, in order to engage the renewable energy sources to the economy by enhancing the utilization of these sources in electricity generation to the extent possible, the Parliament has approved an amendment to the Renewable Energy Law in December 2010, which was entered into force in January 2011. The Law provides technology-based feed-in tariffs and additional incentives for the use of domestically produced equipment. Certification of renewable energy sources is set out by Regulation on the Certification and Support of Renewable Energy Sources issued on October 1, 2013 by replacing the former regulation. 14. The Energy Efficiency Law (Law No. 5627) was enacted in 2007 and its secondary legislation has been put in place, which resulted with obligatory implementations regarding the use of energy and energy sources efficiently. 15. With the Gas Market Law (Law No. 4646), which was enacted in 2001, BOTAŞ lost its monopoly and the privatization process of natural gas distribution companies has been started. Now we are in the process of drafting an amendment to the Gas Market Law to ensure supplying the natural gas in a more sustainable manner, and also to establish a more stable and transparent gas market. 16. Regulation on the Unlicensed Electricity Generation was issued on October 2, 2013 to replace the previous regulation enacted on July 21, 2011. The main aim is to meet the electricity needs by the nearest generation facility to the consumption point which adds small-scale facilities to the system, decrease transmission loss and consequently improve security of supply. Climate Change 17. Turkey became a party to the United Nations Framework Convention on Climate Change (UNFCCC) on May 24, 2004 and to the Kyoto Protocol on August 26, 2009 in order to deal with challenges of the climate change in cooperation with 35 international community. In this vein, Turkey has embraced the framework of “common but differentiated responsibilities” regarding the contributions to the international efforts on climate change mitigation. In this context, our Government’s obligation is to develop national policies, compatible with sustainable development principles, in combating climate change and to take necessary measures in order to build resilience to climate change. 18. Turkey’s vision on climate change is to become a country using energy more efficiently, increasing the share of clean and renewable resources in energy generation, and hence providing its citizens a high quality of life with low – carbon intensity. In this regard, the National Climate Change Strategy was approved by the High Planning Council on May 3, 2010. The Climate Change Action Plan, which has been prepared within the context of the Strategy, was approved by the Coordination Board on Climate Change in May 2011. The Action Plan sets out the mitigation activities in relevant sectors and the urgent adaptation measures to increase our country’s resilience to climate change. Sustainable Environment Management 19. Our Government has put in place a number of legislative and institutional reforms to protect the environment with achieving harmonization with the environmental policies of EU being the main anchor. Our efforts on this front is built around the concepts of “pollution prevention” rather than “pollution control”, prevention of pollution at source, minimization of waste, utilization of best available techniques and technologies, the efficient use of energy, cleaner production, sound management of chemicals, effective application of the inspection system and application of the “polluter pays” principle. 20. In this vein, the transposition of 96 EU environment related directives to the national law has been completed in a considerable extent with the enactment of 2 laws, 47 Regulations, 19 Communiques and 55 Circulars, and still the process has been continuing on the preparation of 13 Regulations. Furthermore, to reach the targets mandated by these legislations and to improve the environment quality we have adopted action plans and strategies including EU Integrated Environmental Approximation Strategy (2007-2023), Waste Management Action Plan (2008-2012), Waste Water Treatment Action Plan (2008-2012), Environmental Noise Action Plan (2009-2020), Clean Air Action Plan (2010-2014), National Climate Change Strategy (2010-2020) and Climate Change Action Plan (2011-2023). 36 21. The measures we have taken for a sustainable and cleaner development path include the following Regulations; (i) Regulation on Large Combustion Plants aims to control emissions from energy generation facilities and to prevent their negative impacts on the environment and human health. (ii) Regulation on Industrial Air Pollution Control provides the framework conditions and limit values for the operation of industrial activities including energy production facilities. (iii)Regulation on the Control of Soil Pollution and Contaminated Sites by Point Sources covers principles and methods for prevention of soil contamination; identification, cleaning and monitoring of contaminated or potentially contaminated sites, has been put into force with the aim of achieving more efficient water and soil management. (iv) Regulation on Permits and Licenses and its amendments in accordance with the Environment Law establishes an integrated system that combines all environmental licenses and permits required by industrial installations into a single e-permit. (v) Regulation on Monitoring, Reporting and Verification of Greenhouse Gas Emissions aims the reporting of greenhouse gas emissions of the private sector plants which are operating in one of the sectors of electricity generation, petroleum refinery, petro chemistry, cement, iron-steel, aluminum, brick, ceramics, lime, paper and glass, starting from 2016. 37 Annex 4: List of Supporting Documents Program documents: Report No. 46050-TR (DPL1) Report No. 54497-TR (DPL2) Report No. 65996-TR (DPL3) Country Partnership documents: Turkey: Country Partnership Strategy 2008-11, Report No. 42026-TR Turkey: Country Partnership Strategy 2008-11 Progress Report, Report No. 51689-TR Turkey: Country Partnership Strategy 2012-15, Report No. 66656-TR 38 Annex 5: Prior Actions by Pillar and Development Objective The prior actions are summarized by pillar and policy objective supported in the table below. OBJECTIVES / DPL1 DPL2 DPL3 GOALS PRIOR ACTIONS PRIOR ACTIONS PRIOR ACTIONS Pillar I. Energy Sector (DPL1-DPL3) (a) Improving Electricity and Gas Supply Security Improving An updated electricity Electricity and sector strategy that Gas Supply addresses the crucial Security. challenge of meeting Turkey’s growing electricity demand in an efficient and sustainable manner has been approved by the High Planning Council on May 18, 2009. Amendments to the Electricity Market Law to monitor, evaluate and take measures to ensure security of electricity supply have been enacted - Law No. 5784 of July 26, 2008. Implementation of Launching of a day- energy regulator ahead wholesale EMRA’s wholesale electricity market by Modified balancing electricity market the transmission and settlement regulations by the system and electricity regulations to improve transmission system market operator the functioning of the and electricity market TEIAŞ. wholesale market operator TEIAŞ. publicly issued by EMRA - April 2009. A decision to provide on a priority basis the necessary budgetary allocations in line with approved transmission system investment 39 plans – covered by approval of the updated electricity sector strategy that contains relevant provisions (see above). (b) Promoting Financial Viability of the Electricity Sector and Improving Efficiency in the Consumption of Energy Promoting Revisions to retail Financial Viability electricity prices to of the Electricity offset the impact of Sector and increases in the cost of Improving supply approved in Efficiency in the January 2008, July Consumption of 2008 and October Energy. 2008. Sustained implementation of the A cost-based pricing cost-based pricing mechanism that mechanism by the automatically covers energy regulator future increases in EMRA. costs incurred by the Turkish Lignite Company, TETAŞ, EÜAŞ, TEDAŞ and BOTAŞ, including the costs of electricity obtained on the wholesale market, and provides for periodic mandatory filings approved by the High Planning Council in March 2008, and became effective from July 1, 2008. Legislative amendments to improve the payment Government approval for street lighting - of an Energy done in July 2008 Efficiency Strategy through Law No. 5784. The first (of two) set of secondary regulations covering 40 authorizations for provision of training and research and development services; support to companies to augment their energy efficiency efforts and implementation of projects under voluntary agreements; implementation covering supply side management; measures to increase efficiency in electricity generation, transmission and distribution systems; measures to increase energy efficiency in the public sector; and energy efficiency in the transport sector issued - July-October 2008. (c) Attracting Private Investment Attract private The bidding process Launching of the Enactment of an investments by: for the first two lots of bidding process and Amendment of the distribution companies determination of the Renewable Energy (a) implementing a launched by the winning bidders for Law No. 5346. program to Privatization seven distribution privatize Administration, with companies by the distribution winning bidders for Privatization companies; the first two Administration. (b) initiating steps distribution companies Determination of the for the determined in July strategy for electricity privatization of 2008 and for the next generation privatization selected two distribution by the Privatization generation plants; companies in Administration, EMRA and September 2008. and the Ministry of (c) promoting Energy and Natural renewable energy Resources. development more aggressively. 41 Pillar II. Climate Change (DPL2-DPL3) Put in place a Government approval Government’s Climate National Climate of a National Climate Change Coordination Change Strategy Change Strategy and an Board approval of and sector specific assessment of clean Climate Change action plans to technology options for Action Plan (including implement the energy sector. sectoral actions for at Turkey’s climate least three key change objectives sectors). as articulated in the Strategy. Pillar III. Sustainable Environmental Management (DPL2-DPL3) (a) Improving the effectiveness and efficiency of environmental management processes in support of the implementation of EU environmental acquis Strengthened Government approval institutional and of an EU Integrated policy framework, Environmental supporting Approximation harmonization Strategy. with EU Environmental Acquis and improved inter- sectoral coordination in environmental management. Increased public Transposition of Issuance by the participation in Directive 85/337/EEC Ministry of environmental as amended with Environment and decision-making. 97/11/EC and Urbanization of a 2003/35/EC on Regulation, and Improved Environmental Impact amendments to the environmental Assessments into law. Regulation, on Permits monitoring and and Licenses in regulation. Accordance with the Environmental Law. 42 (b) Mainstreaming sustainable development principles and reducing environmental degradation Improving waste Publication of Issuance by the management regulation on landfill of Ministry of including the waste. Environment and management of Urbanization of a hazardous Regulation on the substances and Control of Soil chemicals and Pollution and associated risks Contaminated Sites by through improved Point Sources. regulatory framework. Improving air Approval of a Clean Issuance by the quality Air Action Plan by the Ministry of management. Ministry of Environment and Environment and Urbanization of a Forestry. Regulation transposing Directive 2001/80/EC on Large Combustion Plants (for new installations). Issuance by the Ministry of Environment and Urbanization of an amendment on Regulation on Industrial Air Pollution Control. Improving Designation and management of publication by the water resources Government of and water quality. sensitive and less sensitive areas for the improved management of water resources and water quality. 43 TU R K E Y PROVINCE CAPITALS* NATIONAL CAPITAL RIVERS TURKEY MAIN ROADS RAILROADS PROVINCE BOUNDARIES* This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information INTERNATIONAL BOUNDARIES shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. *Province names are the same as their capitals. 26°E 28°E 30°E 32°E 34°E 36°E 38°E R US S I AN FE FEDDE I ON E R AT ION BU ULL G ARIA ULG A R IA Blac k Sea 0 50 100 150 200 Kilometers To To Burgas 42°N Kurdzhali 0 50 100 150 Miles GE G E OR GI A 42°N Edirne Sinop Kirklareli To Istanbul Strait Bartin Batumi (Bosphorus) Zonguldak Ku zey CE a Tekirdag Samsun Artvin Kur Istanbul Kastamonou Ana To EE To Komatini Sea of Kocaeli (Izmit) Düzce Karabük Devr ez dolu Dag Ordu Trabzon Ardahan Kirovakan AZER- GR lari Rize Marmara Yalova Sakarya Giresun BAIJAN Bolu il ruh Kars (Adapazari) Çankiri Kiz Amasya Ço AR MENIA ARMENIA Çorum Kelki 40°N Çanakkale Bilecik t Gümüshane 40°N Çanakkale Bursa Tokat Bayburt Ara s Agri Dagi Strait Sakar ya (5166 m) (Dardanelles) erek Igdir Balikesir Eskisehir Cek Agri ANKARA Erzincan Erzurum Kirikkale Yozgat Sivas t Kütahya Fira To Maku AZER. zil Ki Kirsehir Tunceli Afyon Bingöl Mus Izmir Manisa Usak Tuz Gölü Nevsehir Elazig Mu ra t Lake Van Van To Salmas ISLAMIC Aksehir 38°N Gölü Aksaray Kayseri Bitlis REP. OF Malatya Aydin Hoyran Gölü Nigde Diyarbakir Siirt IRAN Denizli Batman To Baysehir Konya Adiyaman Oroumieh Burdur Gölü Kahraman Tigris Hakkari Isparta Maras Sirnak an yh n Mugla Ce ates Mardin yha r Euph To Se Dahuk GR Gö Karaman Osmaniye Gaziantep Sanliurfa To Damir Antalya ks Kabu To ri EE u Adana E Gulf of g la Icel Kilis Al Hasakah C IBRD 33501R2 Antalya s Da (Mersin) I R AQ o To r 36°N To Hatay (Antakya) Aleppo SY RIA N A R AB JULY 2008 Mediterranean Sea 28°E 30°E 32°E 34°E To Ladhiqiyah REPUBL REPUB LIIC 42°E 44°E