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Implementation Completion Report (ICR) Review - Energy Community Of South East Europe (apl #2) (turkey)

1. Project Data:   
ICR Review Date Posted:
Project Name:
Energy Community Of South East Europe (apl #2) (turkey)
Project Costs(US $M)
 85.89  88.77
L/C Number:
Loan/Credit (US $M)
 65.63  67.75
Sector Board:
Energy and Mining
Cofinancing (US $M)
 0  0
Board Approval Date
Closing Date
12/21/2010 12/31/2010
Power (100%)
Regulation and competition policy (67% - P) Regional integration (33% - S)
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Ramachandra Jammi
Robert Mark Lacey Soniya Carvalho IEGPS1

2. Project Objectives and Components:

a. Objectives:
This is the second of a three-project Adaptable Program Loan (APL) series. The program objective as stated in the Project Appraisal Document (PAD, page 4) was: “the development of a functioning regional electricity market in South East Europe and its integration into the internal electricity market of the European Union, through the implementation of priority investments supporting electricity market and power system operations in electricity generation, transmission and distribution and technical assistance for institutional/systems development and project preparation and implementation.” Turkey joined eight other countries with the aim of having "access to stable and continuous energy supply which they regard as essential for economic development and social stability. The creation of an area without internal frontiers for energy contributes to economic and social progress and a high level of employment as well as balanced and sustainable development." (PAD, page 3) The Bank has supported several of the nine countries in their efforts to rehabilitate and restructure their power sectors through policy discussions, technical assistance and financing.

The project's development objective is identically stated in the Project Appraisal Document (PAD, page 4) and in the Loan Agreement (page 14): "to support the implementation of the investment program of TEIAS" (the Turkish Electricity Transmission Corporation) including (a) creation of a market management system for the management of the electricity market; (b) strengthening supervisory control and data acquisition/energy management system (SCADA/EMS) to enable TEIAS to operate more efficiently; and (c) provision of transmission grid strengthening and expansion for overall stability."

b. Were the project objectives/key associated outcome targets revised during implementation?

c. Components:
There were three components:
1. Creation of a market management system for the electricity market in Turkey (US$17.9 million at appraisal, US$6.0 million at closure). Investments included Automatic Meter Reading Systems and a Balancing and Settlement System. In November 2007, a technical assistance contract for the electricity market balancing and settlement system was added to this component.
2. Strengthening of the supervisory control and data acquisition/energy management system (SCADA/EMS) (US$23.30 at appraisal, US$1.34 million at closure), so that TEIAS would be in a position to operate its system more efficiently and to coordinate with other South East European system operators in order to meet overall stability and control requirements. Investments included three Remote Control Centers, 75 Remote Terminal Units, and Tele-control Interface Equipment and Services.
3. Provision of grid strengthening and expansion for overall stability (US$24.20 at appraisal, US$60.55 million at closure). The principal investments consisted of strengthening and renovation of four existing sub-stations, the laying of an underground cable between Davutpas and Yenibosna, and procurement of materials and equipment for operation and maintenance.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project Cost: The investments financed by the project varied a great deal from those foreseen at appraisal. This is because the project supported a time slice of TEIAS’s large, ongoing investment program. This meant that the investments identified in the PAD were indicative and were expected to change with needs.

The component costs reported in the ICR cover only those activities financed by the IBRD Loan. They do not include activities financed by the Borrower. There is, therefore, a discrepancy between the total project costs in Section 1 above (US$85.89 million at appraisal and US$88.77 million at closure), which are equal to total financing requirements, and the total of the component costs (US$65.4 million at appraisal and US$67.89 million at closure).

Financing: The IBRD Loan, denominated in euros, of €50.6 million was fully disbursed. This was equivalent to US$65.53 million at appraisal and US$67.75 million at closure. There were no other external financing sources.

Borrower Contribution: According to the ICR (Annex 1, page 26), the Borrower contribution was €15.70 million, the same as estimated at appraisal. The US dollar equivalents were US$20.36 million at appraisal and US$21.02 million at closure.

Dates: The project closed on schedule at the end of 2010.

3. Relevance of Objectives & Design:

a. Relevance of Objectives:

  • The project’s development objective is relevant to the Bank’s 2008-2011 Country Partnership Strategy (CPS) for Turkey. The first of the Strategy’s three pillars is to improve competitiveness and employment opportunities through (i) sound macro-policies leading to sound public debt and external position, (ii) increased private investment through improved export competitiveness and deeper and broader financial markets, (iii) increased employment, and (iv) a reliable and efficient energy supply.
  • The objective is also relevant to Turkey’s 9th Development Plan, contemporaneous with the 2008-2011 CPS, a key part of which is to develop a reliable and efficient energy supply to underpin sustainable macroeconomic stability and growth.
  • The objective is relevant to Turkey’s strategy of integrating its electricity grid with those of its neighbors in order to utilize investments in generation more efficiently. The project was part of the Bank's larger program to support an interconnected electric power system in the countries of South East Europe that were seeking membership in the European Union. Several countries, including Turkey, subscribed to the "Athens Memorandum" in 2003 that was to lead to the Energy Community of South East Europe Treaty. This envisioned trading electricity through an interconnected grid so that each country did not have to invest as much in expensive generating capacity, especially for peak demands. In order for this goal to be realized, Turkey had to increase generation and transmission capacity and develop a system that would permit energy trading.

b. Relevance of Design:
Substantial. The development objectives were clear and measurable. The results framework (PAD, pages 25-26) was simple and presented a logical causal chain between the project’s activities and attainment of the objectives. For example, the goal of Turkey operating in a regional power market would be facilitated by the development of the project-supported market management system. This would enable TEIAS to operate a functioning market in Turkey itself, in which an increasing number of electricity consumers would be free to choose their supplier. This, in turn, would be a foundation for adopting an increasingly regional approach to power marketing and would enable Turkey to be a full participant in a regional power market. As the project was to finance a time slice of TEIAS’s investment program, and since the Bank finances less than 7 percent of TEIAS's total investments (PAD page 27), careful choice of Bank interventions based on flexibility to changing needs would be critically important, and this was built into the design. However, the complexity of procuring and implementing the strengthening of the national load dispatch system and market management system components was underestimated and its investment cost overestimated.

4. Achievement of Objectives (Efficacy) :

The degree of achievement of the project’s development objective -- to support the implementation of the investment programs of TEIAS" (the Turkey Electricity Transmission Corporation) including (a) creation of a market management system for the management of the electricity market; (b) strengthening supervisory control and data acquisition/energy management system to enable TEIAS to operate more efficiently; and (c) provision of transmission grid strengthening and expansion for overall stability – is rated substantial.
(a) Creation of a Market Management System for the management of the electricity market.
  • According to the ICR Data Sheet (page iv), contract implementation progress for the market management system was 100% by 2009. The relevant component 1 (Component 1) was amended to include technical assistance, and the installed automatic meter reading system is being tested. However, on page 15, the ICR states that the implementation of the investments related to the market management system “took longer than anticipated and were still being completed at the time of this ICR. Further strengthening and upgrades of those systems are expected to be partly financed under [the following operation in the APL series].”
(b) Strengthening of the SCADA/EMS to enable TEIAS to operate more efficiently
  • There is similar language in the ICR as with output (a). The Data Sheet (page v) reports 100% contract implementation by 2008. The three regional control centers and 75 remote terminal units were completed (the latter were being tested at project closure), and the contract was extended to integrate the new data management system with TEIAS's existing SCADA database. The main text (page 15) reports that these investments also took longer than expected and were still to be completed at the time of ICR preparation (September, 2011).
(c) Provision of transmission grid strengthening and expansion for overall stability
  • Lower spending than foreseen on outputs (a) and (b) enabled higher spending on grid strengthening and expansion (US$60.55 million as against US$24.2 million at appraisal). The main outputs were:
  • Strengthening and renovation of four existing gas insulated switch gear sub-stations (Yenibosna, Beykzo, Altintepe, and Van).
  • An underground transmission cable was laid between Davutpas and Yenibosna and a 160 km overhead transmission line was built to connect South Marmara with Western Anatolia.
  • Procurement of materials and equipment (including thermal cameras, mobile transformers and monitoring systems) for operation and maintenance.
  • The peak demand carried by the transmission system rose to 33.4 GW in 2010 from 23.5 GW at the end of 2004; the target was 31 GW. The ICR reports that the peak demand carrying capacity has been maintained since 2010. Project investments increased the transmission capacity at the substations by 1,450 Megavolt amperes (MVA).
  • The volume of electricity transmitted rose from 121 terawatt hours (TWh) on December 31, 2004, to 192.37 TWh on December 31, 2010; the target was 176 TWh.
  • The proportion of electricity sold on the market rose from 0% of total electricity transmitted at the end of 2005 to 26.5% at the end of 2010; the target was 20%.
  • Some 33.6 km of underground transmission cable replaced less reliable overhead lines in rapidly growing urban areas.
  • However, the operating costs of transmission rose from US$2,030 per GWh in December, 2004 to US$2,057 per GWh in December, 2010, whereas the target was a reduction to US$1,190 per GWh. According to the ICR (Data Sheet, page iii), this was “mainly due to increased staff and ancillary service costs as TEIAS has grown.”
  • It would have been useful if the ICR had provided information on transmission costs as a percentage of generation and of total power supply costs, both in Turkey itself and in comparison to transmission costs in the other countries participating in the Energy Community of South East Europe. Transmission often remains a monopoly even after competition has been introduced elsewhere in the power sector so that the cost burden it imposes is a useful gauge of its efficiency.
  • The number of system accidents rose from 21 as of December 2004, to 22 as of December 2010, rather than falling to 18 in accordance with the revised target (the original target was 15). However, the ICR (pages 16-17) states that “the indicator does not differentiate between serious and less serious accidents or, as an absolute target number, take into account the growth in the size of the transmission system. Better reporting may also be a contributing factor to the indicator value remaining above the target value."
  • The system fault index for 380 KV transmission lines rose from 6.8 in December, 2004, to 8.36 in December, instead of falling to 5.8 in accordance with the target. However, according to the ICR (page 17), “major blackouts have not occurred in the last few years, and most recent data shows progress due to measures to add insulation on critical lines to e.g. avoid faults caused by birds.”
  • The system fault index for 154 KV transmission lines fell from 10.1 at the end of 2004 to 8.8 at the end of 2010, falling slightly short of the target of 8.5. The ICR states (page 17) that further measures have been taken (for example, replacing ceramic insulation with silicone insulation), which should enable the target to be “achieved relatively soon.”
  • As the ICR (page 16) acknowledges, “the size of [project-supported] investments in the transmission infrastructure are … relatively small compared to the overall investment program of TEIAS, making it difficult to assess exactly the quantitative contribution of [project-supported] transmission infrastructure investments to meeting the target values of the outcome indicators.”

5. Efficiency:

  • The Economic Rate of Return (ERR) of 14% calculated at appraisal reflects a general return on TEIAS’s total investment program in transmission, because the specific investments that the project would finance were not known at the time. Transmission tariffs (which are sufficient to cover costs) were used as a proxy for benefits.
  • The ICR (page 18 and Annex 3) calculates the ERR of the completed project as 40%. It used a different approach from that adopted at appraisal in order to reflect the concept that the economic benefits from expanding and upgrading the transmission system are considerably higher than the tariff revenues. The high return reflects the significant improvement in transmission efficiency from the investments in underground cables in urban areas and the overhead regional connection. Instead of the transmission tariff, the additional transmission service is valued as the difference between the incremental cost of building small, single cycle, gas fired generating plants to serve local demand, and supplying this demand through the grid using a new coal fired power plant with flue gas desulfurization – currently the least cost large new fossil plant type in Turkey. This difference is €0.09 per KWh.
  • Owing to the difference in methodology, it is not possible to compare the ERR at closure with that at appraisal. It would have been helpful had the ICR also calculated the rate of return at closure using the appraisal methodology, particularly in view of the fact that there are few indicators that point to greater operational efficiency of the transmission network, and one or two (for example, higher TIEAS operating costs) that could suggest a deterioration in that efficiency.
  • There were no significant administrative or operational sources of inefficiency. There were no cost overruns and the project closed on schedule.
  • Efficiency is assessed as substantial.

    a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:

  • Rate Available?
    Point Value
    ICR estimate:

    * Refers to percent of total project cost for which ERR/FRR was calculated

    6. Outcome:

    The project's objectives were highly relevant and relevance of design was also high. The objectives were attained to a substantial extent in a timely and cost effective manner. Efficiency was also substantial. Outcome is assessed as satisfactory.

    a. Outcome Rating: Satisfactory

    7. Rationale for Risk to Development Outcome Rating:

  • Political. The risk to the contributions made by Turkey to meeting the objectives of the overall Energy Community of South East Europe (ECSEE) Program is low. While Turkey has not signed the Energy Community Treaty, it remains committed to its objectives, and the Government has implemented many energy sector reforms that are directly relevant to the Energy Community objectives. “A review of Turkey’s progress relative to the requirements of the Treaty conducted by the Bank concluded that (a) if Turkey were to sign the Treaty, it would be in compliance at least at the same level, if not above, other signatories and (b) in practical terms the key elements of the Treaty required for the development of the electricity market have been substantially met by Turkey” (ICR, pages 36-37).
  • Technical. The sub-projects financed by the project are being operated and maintained by TEIAS’s relevant operational departments, and the risk that the outcomes would not be maintained is low. TEIAS is implementing an extensive investment program, largely financed from its budget appropriations, which will further support both the ECSEE Program as well as the project’s development objectives and those of the Energy Community.
  • Financial. An October 2009 Quality Assurance Group (QAG) assessment made the following comment on the overall risk to the development objectives: “While bill collection and issuance of an audit opinion remain project issues which need to be addressed, the risks of this project not achieving its Regional Program or Project [development objectives] concerning the evolution of the power market in Turkey are considered moderate.” According to the ICR (page 37), TEIAS’s ability to collect its bills, and its overall financial condition, have improved considerably) since the QAG review, although the issues related to the audit opinion remain.
  • Institutional. The main longer term challenges faced by TEIAS relate to the need to operate more like a commercial entity, retain qualified staff, and continue investing appropriately in order to meet the rapidly growing electricity demand. TEIAS will also need to meet the expectations and needs of electricity distributors and generators, both of which are being or are planned to be largely privatized.

    a. Risk to Development Outcome Rating: Negligible to Low

  • 8. Assessment of Bank Performance:

    a. Quality at entry:

  • The Bank identified, prepared and appraised the project in the broader policy context of the Energy Community, Turkey’s Electricity Sector Reform and Privatization Strategy Paper and the Country Assistance Strategy. It built on the background analysis and criteria of the Energy Community of South East Europe APL Program. The Bank’s analytical work and the Panel of Experts provided valuable policy advice to the Government, including on electricity market reform, during both appraisal and implementation. The Bank’s country knowledge and extensive engagement with Turkey in the energy sector as well as the Bank’s participation in the development of the Energy Community provided a good basis for cooperation with Turkey through lending, policy advice and technical assistance.
  • Two specific relevant lessons that emerged from the analytical work were: (i) regional markets require strong national market operational capabilities and close attention to the design and operation of component national electricity markets; and (ii) political commitment and adequate financial support are key ingredients of successful reform programs.
  • The Bank also mobilized a team including specialists in electricity markets, utilities, engineering, procurement, environment, and finance. The team included several staff with long experience in the energy, finance and environment sectors in Turkey. A good working relationship was developed with TEIAS, other energy sector agencies and government officials.
  • However, the Bank underestimated the complexity (and overestimated the investment cost) of procuring and implementing the strengthening of the national load dispatch system and market management system components.
  • There were weaknesses in M&E design – some of the original outcome indicators proved later to be inadequate (see Section 10a below).

  • Quality-at-Entry Rating: Moderately Satisfactory

    b. Quality of supervision:

  • The Bank was actively involved during the projects’ implementation period through policy dialogue, development policy lending and implementation support for other ongoing energy operations. The Bank was particularly effective in integrating the implementation support for this project with that for other operations in Turkey, enabling frequent dialogue with TEIAS and ability to respond to events in a timely fashion.
  • All supervision missions and some follow-up visits were jointly conducted with TEIAS and other relevant counterparts, and included both Bank country office and headquarters staff. Country office staff interacted with TEIAS and other Government counterparts on a regular basis, allowing a constant dialogue to be maintained as well as facilitating the swift resolution of daily operational issues. This continuous support helped to ensure timely and pro-active identification and solution of potential problems jointly with the Borrower.
  • There was good continuity. The ICR (page 21) states that “the Task Team Leader at preparation is now the Sector Manager for the Sector Management Unit, the current Task Team Leader was part of the preparation team, and much of the core team remained largely unchanged throughout the implementation phase.”
  • There were three minor shortcomings. First, the institutional financial issues with TEIAS (see Section 7 above), which led to non-compliance with covenants, was only reflected in the fifth Implementation Status Report (of July, 2009), when the Implementation Progress rating was downgraded to Moderately Satisfactory. Prior to that, it had been consistently Satisfactory, although the issues had been ongoing for some time. Second, the Board was informed of the addition of technical assistance activities to Component 2 only ex-post in 2009, along with several other projects in a similar situation. Third, the agreement with the Borrower to modify the key performance indicators was not formalized through an amendment to the legal documents.

  • Quality of Supervision Rating: Satisfactory

    Overall Bank Performance Rating: Moderately Satisfactory

    9. Assessment of Borrower Performance:

    a. Government Performance:

  • Turkey remains committed to the goals, principles and key provisions of the process that started with the “Athens Memorandum” (see Section 3a above).
  • The Government is continuing with the implementation of a comprehensive reform of the electricity sector that includes vertical unbundling, establishment of an independent regulatory framework, introduction of retail competition, and of the electricity market, and privatization. Generating plants were put out to tender in 2011, and three of the 21 regional distribution companies were successfully privatized in 2012. The ICR (page 22) reports that there are active plans to separate the market operator from TEIAS to create an independent entity.
  • The budgets provisioned for TEIAS for its operating and investment costs, while an issue earlier, have in recent years been adequate. The three year budget planning process is an improvement on the earlier annual budgeting.
  • However, some of the market regulations could have been implemented faster, and the Government was slow in addressing the bill payment issues contributing to TEIAS's financial problems in 2008 and 2009.

  • Government Performance Rating: Satisfactory

    b. Implementing Agency Performance:

  • TEIAS was the implementing agency. It has responded well to the challenges of the rapidly evolving electricity sector and related regulations, although it still suffers from limitations on its ability to recruit and retain high quality staff.
  • The ICR (page 23) reports that TEIAS implemented all requirements related to Bank safeguard and fiduciary policies in a satisfactory manner, and that the implementation and monitoring of Environmental Management Plans “can be deemed a good practice example.”
  • Quarterly progress reporting on implementation from TEIAS is described in the ICR as timely and comprehensive.
  • TEIAS resolved delays in procurement by promptly taking the Bank's advice to allow qualified contractors (not just manufacturers) to bid on equipment.
  • The entity performed M&E functions satisfactorily, although methodological problems persisted (see Section 10b below)..
  • When non-payment by municipalities led to violations of the financial covenants, TEIAS was pro-active in resolving the issue together with the Bank and the Treasury.
  • The main performance drawbacks concern the failure to meet the financial covenant on the installation of Enterprise Resource Planning (a business software application) and the entity’s continued inability to obtain unqualified audit opinions on its accounts (see Section 11b below). As the ICR points out, however, these shortcomings did not have a direct impact on the implementation of the project or achievement of its development objectives.
  • A Project Coordination Unit within TEIAS, that was originally established under the National Transmission Grid Project continued its operations under this project, and fostered coordination and cooperation within TEIAS and between the entity and other stakeholders (ICR, page 22).

  • Implementing Agency Performance Rating: Satisfactory

    Overall Borrower Performance Rating: Satisfactory

    10. M&E Design, Implementation, & Utilization:

    a. M&E Design:
    Original outcome indicators were almost entirely output-oriented, being defined as the completion and successful implementation of the financed sub-projects (ICR, page 4, PAD, page 25). TEIAS was the organization responsible for monitoring and evaluation, operating through the Project Coordination Unit (PCU). At the multi-country level, the Secretariat of the Energy Community of South Eastern Europe was to provide an institutional mechanism for the regular monitoring of the countries’ performance against agreed benchmarks (PAD, page 7).

    b. M&E Implementation:

  • In 2008, new indicators were agreed, which would better measure the impact of the project’s activities: (i) peak demand carried by the system; (ii) volume of electricity transmitted; (iii) operating costs of transmission; (iv) electricity sold on the market as a percentage of electricity transmitted; (v) duration of all faults on the system (number of hours); and (vi) total accidents. There were baseline data (from 2004) and targets for each indicator.
  • The ICR (page 11) reports that data related to the indicators were collected by TEIAS in a reasonably timely manner and were monitored by the entity’s relevant departments, before being consolidated by the PCU.
  • However, methodological issues with the 2008 indicators limit their usefulness in monitoring and evaluating project progress and achievements. First, a problem of attribution is inherent in the indicators, since they are system-wide gauges, while the project is financing only small slices of TEIAS’s investment program. Second, due to the formula used to calculate the fault indices, the indicator values on faults go down if the transmission network length increases, making it somewhat difficult to observe trends in faults over time. Because of different definitions, the fault indicators may also be misleading if they are compared with other countries. Third, the accidents indicator does not differentiate between serious and less serious incidents. As an absolutely number target (rather than a relative value), it does not account for the growth in the size of the TEIAS transmission system, and may also be influenced by how well staff is trained and encouraged to monitor and report accidents. The ICR (page 12) reports that TEIAS is working to resolve these issues.

  • a. M&E Utilization:
    The monitored data continues to be collected by TEIAS as part of its normal day to day operations and is of relevance for TEIAS’ own evaluation of progress made (ICR, page 12).

    M&E Quality Rating: Modest

    11. Other Issues:

    a. Safeguards:
    The environmental assessment category of the project was classified as "F" (financial intermediary, the same as the earlier APL1), because the investments and sub-projects were not identified at appraisal. The sequel APL3 was classified as Category B. According to the PAD (page 11), two safeguards policies were expected to be triggered: Environmental Assessment (OP 4.01) and Involuntary Resettlement (OP 4.12). Environment

    • The PAD (page 11) reports that an Environmental Management Framework (EMF) was developed by TEIAS during preparation. The ICR (page 12) states that the EMF gave guidance on the requirements of both the Turkish Environmental Impact Regulation and relevant Bank policies and was utilized during project implementation.
    • The ICR further reports (pages 12-13) that TEIAS implemented the requirements of the sub-project Environmental Management Plans (EMPs) in a satisfactory manner. The EMPs prepared by TEIAS were sent for prior review to the Bank. The approved EMPs were added to the Bidding Documents and TEIAS provided the awarded contractors supplementary information on the practical implementation of the EMP. Compliance with the EMPs was continuously monitored by an independent environmental firm and the reports were shared with the Bank on a quarterly basis. Moreover, TEIAS Group Directorates are responsible for supervision of construction works, including the EMP implementation at the site. “As a result, it can be said that EMPs were strictly followed and monitored.”
    • Archeologically significant artifacts were found during the construction of the Yenikapi substation in 2008. The ICR (page 13) reports that “the mitigation measures defined for ‘chance finds’ were strictly followed. After the necessary archaeological works were completed, permission for continuing the construction works was given.”
    Involuntary Resettlement
    • Although the PAD did not anticipate that any persons would be displaced, Safeguards Policy OP 4.12 was triggered because of possible land acquisitions. The ICR (page 13) reports that “ [acquisitions] were limited to transmission tower footprints, agreements on rights-of-way for distribution line alignments, and land for sub-stations. Sub-stations were typically sited on government land, although in some cases private land was acquired for sub-station expansions. Management and mitigation of land acquisition impacts was undertaken in line with Turkish law and the Land Acquisition Management Framework (LAMF) prepared for the projects. The LAMF provided for a ‘Summary Report of Land Acquisition Activities’ to be submitted as part of the bi-annual project progress reporting to the World Bank. However, the LAMF did not specify the content or information requirements needed to meet OP4.12 resettlement plan criteria, and did not require prior Bank review and approval of resettlement plans. During project implementation, the Bank provided [TEIAS] with written recommendations for follow-up, including the use of a Social Audit Reporting format for those projects where land acquisition was carried out using Turkish expropriation law, to verify if all land acquisition-related issues were resolved in a manner satisfactory to the World Bank’s resettlement policy. The Social Audit reports have been prepared, reviewed by the Bank and disclosed publically. Bank supervision visits undertaken to clarify the situation indicated that no one was significantly impacted by land acquisition as a result of the project.”
    • The ICR further reports that “TEIAS has demonstrated its willingness to improve implementation performance and has hired additional safeguard staff for land acquisition activities. Capacity building of these staff will be important to enhance implementation performance.”

    b. Fiduciary Compliance:
    Financial management The PAD (page 10) had identified shortcomings in TEIAS's financial management system and controls and agreed on steps to improve them, including extra staff in the financial operations department (contingent on Government concurrence). The ICR (page 13) reports that TEIAS has an acceptable financial management system for projects and control procedures in place, and that staffing of the financial department is "largely adequate." Some covenants on Enterprise Resource Planning were not met because a contractor went bankrupt and plans could not be finalized. TEIAS still has a qualified audit report because assets transferred from some of its predecessor municipalities may be improperly valued. A later project (APL6) includes technical assistance to improve the reliability of TEIAS's financial statements. The ICR contains no explicit statement that fiduciary policies were complied with.
    The ICR (page 14) reports that TEIAS complied with the Bank's procurement policies. The procurement of some complex services took longer than expected, and TEIAS accepted the Bank's advice to remove the restriction that only substation manufacturers could bid on contracts. There were no reported cases of misprocurement.

    c. Unintended Impacts (positive or negative):

    d. Other:

    12. Ratings:

    IEG Review
    Reason for Disagreement/Comments
    Risk to Development Outcome:
    Negligible to Low
    Negligible to Low
    Bank Performance:
    Moderately Satisfactory
    Both the ICR and IEG rate Quality at Entry as moderately satisfactory and Quality of Supervision as satisfactory. According to the Joint OPCS/IEG Harmonization Criteria, the overall rating in these circumstances is the lower of the two. 
    Borrower Performance:
    Quality of ICR:
    - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
    - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

    13. Lessons:
    The following three lessons are taken from the ICR with some adaptation of language:
    • The project’s experience shows the importance of sustained political commitment and policy dialogue over time for effective electricity sector reform. In this regard, a long term instrument, such as the APL, was useful.
    • Regional markets require strong national market operational capabilities and close attention to the design and operation of component national electricity markets.
    • When, as in this case, reform implies unbundling, commercialization, and privatization, it is important that the system and market operator (here, TEIAS) has the capacity to react rapidly to an evolving operating environment in a pro-active and timely manner. There were indications during implementation that TEIAS capacity could be reinforced in these respects (particularly in terms of being able to attract and retain high quality staff).

    14. Assessment Recommended?

    A cluster Project Performance Assessment Report of the Energy Community of South East Europe projects would be useful in determining whether a regional approach to the sector in other parts of the world may be appropriate.

    15. Comments on Quality of ICR:

    The ICR is comprehensive and clearly written. The evidence and analysis are of good quality. The ICR focuses on results and draws appropriate lessons. The economic analysis is sound and described in sufficient detail in an annex. However, because different methodologies were used, it is not possible to compare efficiency at appraisal with that at closure. While the ICR is project related, it would have been helpful to know more about progress in the broader program that encompass other countries, so that one could judge if Turkey's satisfactory progress towards regional power integration was consistent with the pace of others. It would have been useful if the ICR had provided information on transmission costs as a percentage of generation and of total power supply costs, both in Turkey itself and in comparison to transmission costs in the other countries participating in the Energy Community of South East Europe. There is no explicit statement that Bank fiduciary policies were complied with.

    a. Quality of ICR Rating: Satisfactory

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