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Implementation Completion Report (ICR) Review - Energy Community Of South East Europe Apl 3 Project


  
1. Project Data:   
ICR Review Date Posted:
09/27/2013   
Country:
Turkey
PROJ ID:
P096400
Appraisal
Actual
Project Name:
Energy Community Of South East Europe Apl 3 Project
Project Costs(US $M)
 181.6  217.0
L/C Number:
L4817
Loan/Credit (US $M)
 151.3  181.2
Sector Board:
Energy and Mining
Cofinancing (US $M)
 0  0
Cofinanciers:
Board Approval Date
  03/24/2006
 
 
Closing Date
06/30/2011 06/30/2006
Sector(s):
Power (100%)
Theme(s):
Other urban development (40% - P) Regional integration (40% - P) Injuries and non-communicable diseases (20% - 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 third 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 development objectives are stated identically in the PAD (page 7) and the Loan Agreement (Schedule 1, page 4): “to increase the safety, reliability, efficiency and capacity of the bulk power transmission system in Turkey and to improve market access for consumers and suppliers of electricity. This objective would be achieved by: (a) strengthening and expanding the transmission network to reliably meet the growing electricity demand; and (b)
upgrading the transmission network in dense urban areas to minimize the risk to public safety posed by urban encroachment on existing overhead lines.”

b. Were the project objectives/key associated outcome targets revised during implementation?
No

c. Components:
There were two components:
1. Transmission Network Strengthening (US$53.6 million at appraisal, US$110.6 million at closure). This component entailed construction of new Gas Insulate Switchgear (GIS) substations and a new 380 kV underground cable to strengthen the transmission networks in Istanbul and Izmir. The new GIS substations and underground cable would increase the capacity of the transmission networks in the cities and are necessary to meet the new and growing electricity demand in their local areas. The construction of the GIS substations and the 380 kV underground cable was necessary to strengthen the reliability and capacity of the transmission networks in Istanbul and Izmir and would as a result provide the distribution companies, eligible customers and competing energy producers with adequate and reliable access to the local transmission grid and the future ECSEE regional wholesale power markets.
2. Urban Transmission Network Upgrading (S$115.0 million at appraisal, US$106.4 million at closure). This component involved construction of underground cables to replace existing 154 kV overhead transmission lines in densely populated areas of Istanbul and Izmir. The 154 kV overhead transmission lines proposed for replacement with underground cables had been enveloped in rapid urban expansion. The underground cable projects in the two cities included in Component 2 would have positive impact on the operation of the transmission networks and would ensure reliability of the energy supply to existing and future consumers.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project Cost: Total project cost at closure was €150 million (US$217 million equivalent), the same amount (in euros) estimated at appraisal. The project financed a "time slice" of Turkey's power sector investment program, and the composition was expected to change according to needs. Specific sub-project investments were not identified in the Loan Agreement. The components of APL3 were not revised, but the sub-projects financed differed significantly from those in the PAD: five of the eight underground cables specified were not financed and were replaced by those with a higher priority (an underground cable at a different location, an overhead transmission line, and eight new transformers). Also, two relatively large substations were built instead of one that had been originally included in the PAD.

Financing: Total planned and actual Bank financing for APL3 took the form of an IBRD Loan of €125 million (equivalent to US$151.33 million at appraisal and US$181.19 million at closure). This was fully disbursed. There were no other external financing sources. The Loan amount was about twice as large as for the two earlier APLs to Turkey.
Borrower Contribution: According to the ICR, (Annex 1, Table b), the Borrower contributed €25 million as planned (equivalent to US$30.27 million at appraisal and US$36.24 million at closure).
Dates: The project closed on schedule at the end of June, 2011.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:
High.
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:
High.
The development objectives were clear and measurable. The results framework (PAD, page 37) was simple and presented a logical causal chain between the project’s activities and attainment of the objectives. The upgrading of the urban transmission network, involving the completion of eight underground cable sub-projects, would eliminate public safety risks associated with the 154 kV overhead networks in the urban areas of Istanbul and Izmir. The investments in network strengthening and upgrading could be expected to increase efficiency as measured by lower operating costs and reduced technical losses. They could also be expected to result in greater reliability, allowing load growth to be serviced, with line outages not forcing load shedding, fewer major blackouts and significant adverse incidents. Satisfactory completion of the substation investments would be expected to lead directly to enhanced supply capacity, while the project investments as a whole would contribute to increased transmission access and power trade possibilities as the regional market is liberalized.


4. Achievement of Objectives (Efficacy) :

The project’s development objectives can be broken down into the following sub-objectives: (i) increased safety of the bulk power transmission system in Turkey; (ii) increased reliability of the bulk power transmission system in Turkey; (iii) increased efficiency of the bulk power transmission system in Turkey; (iv) increased capacity of the bulk power transmission system in Turkey; and (v) improved market access for consumers and suppliers of electricity. While the degree of achievement of the outcomes associated with each sub-objective is evaluated separately, outputs are common to all sub-objectives.
Outputs
  • Four gas insulated switchgear substations were financed: Alsancak, Yenikapi, Mancarlik and Küçükbakkalköy. Three substations were planned at appraisal; one of them (Ayrilikcesme) was not financed, but two others not planned at appraisal were (Mancarlik and Küçükbakkalkoy). Yenikapi was not fully completed at project closure.
  • One 380 kV underground transmission cable between Yildiztepe and Davutpasa was installed, in accordance with appraisal targets.
  • Two 154kV underground urban transmission cables (between Davutpasa and Bagcilar and between Bagcilar and Atislani) were installed as foreseen at appraisal.
  • One 380 kV underground urban transmission cable (between Ümraniye and Küçükbakkalköy) was installed as per target.
  • Five underground cables planned at appraisal were not financed. Instead, the project supported one 380 kV underground cable (between Davutpasa and Yenisbosna), one over-head transmission line (between Karabiga and Can and Soma), five new 154/33kV transformers and three new 380/154kV auto-transformers.
Outcomes
(i) Increased safety of the bulk power transmission system in Turkey. Substantial.
  • The construction of a total of 33.6 kilometers of underground transmission cable in rapidly growing urban areas, such as the Istanbul region, “eliminated the public safety risks associated with urban encroachment on overhead transmission lines."
(ii) Increased reliability of the bulk power transmission system in Turkey. Substantial.
  • The ICR (page 30) reports that the investments in Gas Insulated Switchgear (GIS) substations, monitoring equipment, cables, and the overhead transmission line made a significant contribution to the reliability of the system. They were targeted at geographic and power system areas experiencing rapid growth in load and demand, and where the analysis of TEIAS (the Turkish Electricity Transmission Corporation) showed that the system was or could be most at risk precisely because of these factors. The introduction of the electricity market, enabling a closer matching of demand and supply by power system area at times of peak load, has also increased the stability of the system.
  • The 380kV system faults have varied from year to year and were 44% above target in 2010, while the fault index on the 154 kV system fell from 10 at the end of 2004 to 8.8 at the end of 2010, just short of the target of 8.5. Major blackouts have not occurred in the last few years, and most recent data shows progress due to measures to improve insulation on critical lines, in order, for example, to avoid faults caused by birds.
(iii) Increased efficiency of the bulk power transmission system in Turkey. Modest.
  • The ICR provides little information on the efficiency of the transmission system. There is a statement in the Borrower’s ICR (ICR, page 46) that the Ümraniye-Küçükbakkalköy underground cable reduced transmission losses, but no figures are given, and there is little indication elsewhere of the impact of the project’s investments on losses.
  • The operating cost of transmission, rather than falling as targeted from US$2,030 per GWH to US$1,910, actually rose to US$2,057 per GWH at the end of 2010. The ICR explains this through “increased staff and ancillary service costs as TEIAS has grown” (ICR Data Sheet, page iii).
  • 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.
(iv) Increased capacity of the bulk power transmission system in Turkey. High.
  • Project supported investments increased transmission capacity at the substations by 1,150 Megavolt amperes (MVA), 180% of the target value set at appraisal. Together with the 1,450 MVA added by the APL2 investments, and a further 1,300 MVA capacity from the eight new transformers procured to serve as reserve equipment, the total increased capacity from APL2 and APL3 amounts to 3,900 MVA at “critically important, highly prioritized substations” (ICR, page 30).
  • 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.
  • The incremental load serviced by the transmission network was 347 MW, just slightly less than the target of 350MW.
  • When the Yenikapi substation (delayed by archeological findings) is completed, the target will be achieved with one year delay.
  • 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.
(v) Improved market access for consumers and suppliers of electricity. Substantial
  • The investments in strengthening and expanding the transmission network to reliably meet the growing electricity demand supported and encouraged the implementation of the internal market and regional integration.
  • The project supported the continued development of a management system (initiated under APL2) to ensure the efficient operation of the electricity market.
  • 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%.

5. Efficiency:

  • The base case Economic Rate of Return (ERR) of 18% 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. Assuming a lower case growth in demand for electricity yields an ERR of 12%.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
    Coverage/Scope*
    Appraisal:
    Yes
    15%
    100%
    ICR estimate:
    Yes
    18%
    100%

    * 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. Four out of the five sub-objectives were attained to a high or substantial extent in a timely and cost effective manner; the sub-objective of increased efficiency of bulk power transmission is rated modest because of lack of evidence. Efficiency in the use of project resources was 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 of APL3 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 20), 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.
  • There were, however, 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 two 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 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 regional level, the ECSEE APL program is included in the established mechanism for ECSEE coordination - Ministerial Council, Permanent High-level Group, Task Forces, and the Forum (Annex 1, Section 1). The project will benefit from this elaborate, active and well-functioning mechanism for coordination, monitoring and evaluation” (PAD, page 10).

    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 absolute 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 Category B, even though not all subprojects were identified. According to the PAD (page 20), three safeguards policies were expected to be triggered: Environmental Assessment (OP 4.01) Involuntary Resettlement (OP 4.12), and Cultural Property (OP 4.11).
    Environment

    • The PAD (page 19) reports that “under the APL2 project, TEIAS had prepared an Environmental Management Framework (EMF) acceptable to the World Bank indicating how i t will review and address the environmental impacts of its investments. The Task Team revisited this framework document and considered it to be appropriate to utilize for the APL3 project as well….New substations and transmission lines financed under APL3 would have a minor impact, which will be adequately addressed through environmental management plans. Primary environmental issues are associated with project construction and include: noise, dust, interruption of traffic and management of waste and excavated materials.”
    • 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. It further reports (pages 12-13) that TEIAS implemented the requirements of the sub-project Environmental Management Plans (EMPs) in a satisfactory manner. 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.”
    Cultural Property
    • 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 biannual 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 (page 13) 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 had identified “many deficiencies” in TEIAS's financial management system and controls and agreed on steps to improve them (page 52), including extra staff in the financial operations department (contingent on government concurrence). The ICR reports that by the start of implementation, TEIAS had an acceptable financial management system for projects and control procedures in place, and that staffing of the financial department is "largely adequate" (page 13). Some covenants, however, were not met because a contractor went bankrupt. TEIAS still has a qualified audit report because the valuation of assets transferred from some of its predecessor municipalities is inadequate. A later project (APL6) includes technical assistance to improve the reliability of TEIAS's financial statements.
  • The ICR reports (page 10) that “TEIAS’ financial situation was noted by both the APL3 mid-term review and the 2009 QAG review as an area of serious concern. TEIAS’ cash flow position deteriorated rapidly in 2008 as a result of inadequate bill payment by its consumers, TETAS [the Electricity Trading Corporation] and EUAS [the Electricity Generation Corporation]. This lead to a situation where TEIAS was no longer in compliance with the APL2 and APL3 self-financing ratio covenant and where the cash flow situation was beginning to impact TEIAS’ ability to finance its investment program and make debt servicing payments. Consequently, the Undersecretariat of Treasury had to step in during early 2009 to enable TEIAS to pay its repayment and interest obligations to the Bank.” Procurement
    • The ICR reports that TEIAS complied with the Bank's procurement policies (page 14). The procurement of some complex services took longer than expected, and TEIAS finally accepted the Bank's advice to remove the restriction that only substation manufacturers could bid on contracts, and this will reduce delay in subsequent Bank-supported projects.

  • c. Unintended Impacts (positive or negative):

    d. Other:



    12. Ratings:

    ICR
    IEG Review
    Reason for Disagreement/Comments
    Outcome:
    Satisfactory
    Satisfactory
     
    Risk to Development Outcome:
    Negligible to Low
    Negligible to Low
     
    Bank Performance:
    Satisfactory
    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:
    Satisfactory
    Satisfactory
     
    Quality of ICR:
     
    Satisfactory
     
    NOTES:
    - 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?

    Yes
    Why?
    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 encompasses 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

    (ICRR-Rev6INV-Jun-2011)
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