The World Bank Turkey Geothermal Development Project (P151739) REPORT NO.: RES33635 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE TURKEY GEOTHERMAL DEVELOPMENT PROJECT APPROVED ON NOVEMBER 1, 2016 TO TURKIYE SINAI KALKINMA BANKASI A.S. (TSKB),TURKIYE KALKINMA BANKASI A.S. (TKB) ENERGY & EXTRACTIVES GLOBAL PRACTICE EUROPE AND CENTRAL ASIA REGION Regional Vice President: Cyril E Muller Country Director: Johannes C.M. Zutt Senior Global Practice Director: Riccardo Puliti Practice Manager: Sameer Shukla Task Team Leader: Almudena Mateos Merino, Ayse Yasemin Orucu The World Bank Turkey Geothermal Development Project (P151739) ABBREVIATIONS AND ACRONYMS CTF Clean Technology Fund GPP Geothermal Power Project TKB Development Bank of Turkey TSKB Industrial Development Bank of Turkey RSM Risk Sharing Mechanism The World Bank Turkey Geothermal Development Project (P151739) BASIC DATA Product Information Project ID Financing Instrument P151739 Investment Project Financing Original EA Category Current EA Category Financial Intermediary Assessment (F) Financial Intermediary Assessment (F) Approval Date Current Closing Date 01-Nov-2016 31-Dec-2022 Organizations Borrower Responsible Agency Turkiye Sinai Kalkinma Bankasi A.S. (TSKB),Turkiye Turkiye Sinai Kalkinma Bankasi A.S. (TSKB),Turkiye Kalkinma Bankasi A.S. (TKB) Kalkinma Bankasi A.S. (TKB) Project Development Objective (PDO) Original PDO The Project Development Objective is to scale up private sector investment in geothermal energy development in Turkey. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-86520 01-Nov-2016 30-Nov-2016 16-Feb-2017 31-Dec-2022 100.00 45.41 54.59 IBRD-86530 01-Nov-2016 30-Nov-2016 16-Feb-2017 31-Dec-2022 150.00 117.88 32.13 TF-A1532 30-Nov-2016 30-Nov-2016 04-Apr-2017 31-Dec-2022 39.80 .53 39.27 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Turkey Geothermal Development Project (P151739) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The project is financed with original US$39.8 million Clean Technology Fund (CTF) Grant (No. TF0A1532), US$ 100 million IBRD loan (No. 8652-TR) and US$150 million IBRD loan (No. 8653-TR). 2. Project Status: The progress towards achievement of the Project Development Objective (PDO) is rated Satisfactory and Implementation Progress is rated Moderately Satisfactory. The Recipient (Development Bank of Turkey, TKB) and the Borrowers (TKB and Industrial Development Bank of Turkey, TSKB) are on track to meet the development objectives. The detailed progress is described below. 3. Part A: Risk Sharing Mechanism for Resource Validation (RSM). This component, financed by the CTF Grant to TKB, establishes a mechanism to promote private sector development of renewable geothermal energy investments in the early stages of geothermal exploratory and confirmation drilling by sharing the risk with geothermal explorers of failing to validate a geothermal energy resource through said RSM. It also provides technical assistance to TKB to strengthen its capacity to supervise implementation of the RSM. 4. In March 5, 2018, TKB hired a technical consultant (RSM consultant) to assist with preparation and implementation of the RSM. The RSM consultant has finalized preparation of the RSM, including Beneficiary Manual, sample Beneficiary Agreement, RSM Operations Manual, RSM website, RSM database, and RSM launch workshop. The workshop to launch the first application round of the RSM, which was held in Izmir on July 5, 2018, opened an eight-week application period that will close on August 31, 2018. TKB, with support of the RSM consultant, will then evaluate the applications received, select RSM Beneficiaries (up to nine), and sign Beneficiary Agreements. Exploration drilling projects are expected to be implemented and completed during 2019. 5. Part B: Loan Facility for Resource Development. This component, financed by two IBRD credit lines to TKB and TSKB, provides financing to geothermal developers to support license holders and financiers investing in geothermal project development at: (i) the capacity drilling stage; and (ii) the steam gathering, power plant, or direct use facility construction stage. 6. TKB has provided financing to two geothermal projects under its credit line, namely the Özmen 3 Geothermal Power Plant (19 MW) and the Sanko I GPP (15 MW). TKB is currently finalizing due diligence on a third project, the Bestepeler GPP (24 MW). As of July 31, 2018, disbursements are US$ 43 million, or 43 percent of the loan. 7. TSKB has provided financing to three geothermal projects under its credit line, namely the Kizildere III – Unit 1 GPP (95 MW), the Kizildere III - Unit 2 GPP (70 MW), and the Turcas GPP (18 MW). As of July 31, 2018, disbursements are US$118 million, or 79 percent of the loan. 8. Rationale for Restructuring: This would be the first restructuring of the project, which was requested by TKB to be able to cover its incremental operating costs associated to the implementation of the RSM from the CTF grant proceeds. Schedule 2, Section IV. Withdrawal of Grant Proceeds in the CTF Grant Agreement does not include a Category for Operational Costs. The World Bank Turkey Geothermal Development Project (P151739) 9. Salaries for the RSM Project Implementation Unit in TKB (RSM Unit) will be covered from an administrative fee levied on the RSM beneficiaries. However, the RSM Unit also needs to cover other incremental expenditures associated with project implementation, such as office supplies, office rental, publication of procurement notices, vehicle rental, office and equipment maintenance and repair, communication, travel and supervision costs, subscription to publications and databases, publication fees, ownership of intellectual property rights, and other miscellaneous expenses. 10. As of July 31, 2018, the RSM Unit has incurred US$17,100 in incremental operating costs, mostly associated with the RSM Unit staff travel and accommodation costs to attend the Iceland Geothermal Conference in April 2018, at the invitation of the World Bank and as part of the RSM Unit’s capacity building activities. II. DESCRIPTION OF PROPOSED CHANGES 11. Addition of a new disbursement category (Category 3) “Operating Costs” to CTF Grant No. TF0A1532. 12. Reduction in the amount of Category 2 for Grant No. TF0A1532 from US$1,800,000 to US$1,670,000. 13. Allocation of US$ 130,000 to the new Category 3 for Grant No. TF0A1532. 14. Include the following definition of Operating Costs: “necessary and reasonable incremental expenses directly incurred by the PIU in Project implementation, management and monitoring, including office supplies, office rental, publication of procurement notices, vehicle rental, office and equipment maintenance and repair, communication, travel and supervision costs, subscription to publications and databases, publication fees, ownership of intellectual property rights, and other miscellaneous expenses, all within a budget and work plan satisfactory to the World Bank.” 15. Include the following definition of Training: “reasonable expenditures (excluding costs of consultants’ services) incurred for Project-related study tours, training courses, seminars, workshops and other training activities, including costs associated with securing the services of trainers, preparation and reproduction of training materials, space and equipment rental, travel, accommodation and per diem costs of trainees and trainers, and other training related miscellaneous costs.” III. SUMMARY OF CHANGES Changed Not Changed Reallocation between Disbursement Categories ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ The World Bank Turkey Geothermal Development Project (P151739) Loan Closing Date(s) ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed TF-A1532-001 | Currency: USD iLap Category Sequence No: (1) Current Expenditure Category: Payments Risk Sharing Mechanism P.A 38,000,000.00 0.00 38,000,000.00 100.00 100.00 iLap Category Sequence No: (2) Current Expenditure Category: Consultants' Services Part A The World Bank Turkey Geothermal Development Project (P151739) 1,800,000.00 33,040.00 1,670,000.00 100.00 100.00 iLap Category Sequence No: (3) Current Expenditure Category: Operating Costs 0.00 0.00 130,000.00 100 Total 39,800,000.00 33,040.00 39,800,000.00 .