Enerjisa Enerji Uretim A.S.

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26016
Company name	Enerjisa Enerji Uretim A.S.
Country	Turkey
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Pending Disbursement

Date SPI disclosed	February 1, 2008
Projected board date	March 6, 2008
Previous Events	Signed: June 13, 2008 Approved: March 13, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed IFC investment will extend corporate loans to EnerjiSA Enerji Üretim A.S. (EnerjiSA or the company), secured with its underlying portfolio of energy assets and contracts, to finance the first phase of EnerjiSA’s capital investment program for the 2008 to 2012 period. IFC’s proposed investment will be in parallel with financing arranged by the Turkish commercial bank Akbank and the European commercial bank WestLB headquartered in Germany.

The project consists of the construction of a portfolio of one natural gas-fired thermal plant (TPP) and – according to current planning – ten hydroelectric power plants (HPP) in various locations throughout Western and Southern Turkey with total capacity of approximately 1.9 GW with an estimated cost of $2.0 billion (EUR1.4 billion) (Phase I), representing the initial phase of Enerjisa’s overall capital investment aimed at developing 5.0 GW in generation capacity by 2015.

Project sponsor and major shareholders of project company

Enerjisa Enerji Üretim A.S. (Enerjisa or the company) is a 50:50 joint venture formed by H.O. Sabanci Holding A.S. (Sabanci) from Turkey and Österreichische Elektrizitätswirtschafts-Aktiengesellschaft (Verbund) from Austria.

Haci Omer Sabanci Holding (Sabanci Group, Sabanci Holding, Sabanci, the “Group”): Sabanci Holding is the parent company of the Sabanci Group, which is one of the top industrial and financial conglomerates in Turkey. The Sabanci family owns 78 % of the share capital of Sabanci while the remaining portion is a public float listed on the Istanbul Stock Exchange and depositary receipts are quoted on SEAQ International and PORTAL. Sabanci has a current market capitalization of approximately US$9.6 billion as of January 15, 2008. 13 Sabanci companies are listed on the Istanbul Stock Exchange representing approximately (14%) of the total Istanbul Stock Exchange market capitalization with Sabanci Holding, on a stand-alone basis, accounting for about (4%).

While operating in a diversified set of sectors mainly in financial services, cement, automotive, tire & tire reinforcement materials, retail and energy, the Group has built joint ventures with global players such as Toyota, Bridgestone, Philip Morris, Carrefour, Heidelberg Cement, International Paper, Citibank, and recently Aviva and Verbund. The Group comprises 70 companies, many of which are market leaders in their respective sectors, operating in 18 foreign countries. The Sabancı Group had $48 billion consolidated assets as of end-December 2006, and reported $12.1 billion in consolidated revenues, $1.9 billion in consolidated EBITDA and US$351 million consolidated net income in 2006.

Österreichische Elektrizitätswirtschafts-Aktiengesellschaft (“Verbund”):
Verbund is Austria’s leading vertically integrated electricity utility group covering the entire value chain from generation and transmission to trading and supply with the exception of distribution. Verbund operates a portfolio of 116 power plants with a total installed capacity of 9,300 MW and annual electricity generation of 27,000 GWh. With a generation mix comprising 85% of hydropower and 15% of thermal power, Verbund is considered one of the most environment friendly electricity generators in Europe. Verbund had EUR6.4 billion of consolidated assets at December 31, 2006 and reported EUR2.9 billion in consolidated revenues, EUR978 million in consolidated EBITDA and EUR501.1 million in consolidated net income for the fiscal year 2006. Electricity generation constitutes 88% of consolidated sales, followed by 9% grid operation, 1% emission and 1% other activities. Following its partial privatization in December 1988, 51% of the share capital of Verbund has remained under the ownership of the Republic of Austria. About 25% of the share capital is held by the provincial energy suppliers TIWAG (about 5%), Wiener Stadtwerke Holding (about 10%) and EVN (about 10%) while the remaining shares (about 24%) are free float. Verbund is the fifth largest company listed in the Vienna Stock Exchange, with a market capitalization of approximately €14.0 billion as of January 15, 2008.

For further information on the Sponsors please see their websites: www.sabanci.com and www.verbund.at.

Total project cost and amount and nature of IFC's investment

The total project cost is estimated at $2.0 billion (EUR1.4 billion) of which IFC is expected to contribute $825 million through a combination of:

- IFC A Loan up to $200 million equivalent in Euros for IFC’s own account,
- IFC C Loan of $25 million equivalent in Euros for IFC’s own account, and
- IFC B Loan up to US$600 million equivalent in Euros for the account of participants.

Location of project and description of site

The project envisions the construction of the Bandirma natural gas fired thermal power plant in western Turkey adjacent to the Marmara Sea, and – according to current planning – ten hydroelectric power plants, including Cambasi in the Solakli River basin in northern Turkey; Kusakli, Kavsakbendi, Yamanli II, Kopru, and Menge, located in the Seyhan River basin in the south of Turkey; and Dagdelen, Kandil, Hacininoglu, and Sariguzel, located in the Ceyhan River basin in the south-east of Turkey. A technical and economic optimization of the individual projects is going on.

Anticipated development impact of the project

Turkey is facing a serious electricity shortage, expected as early as 2009, due to a combination of sustained economic growth and lack of adequate investments in the energy sector in recent years. To address the critical situation, the Government of Turkey (GOT) has embarked on implementing an on-going liberalization program of the Turkish electricity sector, including the preparation for the privatization of state-owned electricity distribution and generation assets. Consequently, several of the local private groups, many of which are already auto generators for their own industries, have begun expanding their power generating capacity, either independently or by the means of partnerships with experienced international power operators.

Despite the growing risk appetite from commercial lenders to finance power generation assets, the sector exhibits significant commercial risks and regulatory uncertainties during the transition period, impeding the availability of long-term financing for the merchant power projects, in the absence of long-term power purchase agreements (PPA).

The project will have a high development impact as it will:

- contribute to the development of a merchant power operator in Turkey where ongoing structural and regulatory changes have introduced additional uncertainty for prospective investors;

- finance the construction of power generation capacity of approximately 1.9 GW and meet incremental power demand in Turkey given the expected supply shortage in 2009;

- support the power sector reforms in Turkey as the plants built within the scope of the project will not benefit from any government guarantees contrary to the existing independent power producers. Moreover, the project is expected to demonstrate the viability of a liberalized power sector to other potential private entrants to the sector. Due to its reliance on hydro and natural gas as energy sources, the project will contribute to reducing Turkey’s reliance on coal, thereby reducing carbon intensity and improving security of supply.

IFC's expected development contribution

IFC’s role in this project includes:

- providing long-term financing and
- mobilizing additional financing from international commercial banks under IFC’s B-loan umbrella in the first major merchant power financing deal in Turkey; and
- implementation of adequate environmental and social standards in line with the WBG requirements.

Furthermore, IFC’s additionality in this project includes:

- creating a new corporate finance - project finance hybrid structure to accommodate Enerjisa’s growth strategy as well as its financing needs;
- sharing IFC’s extensive know-how of deregulated power markets;
- advice on contractual and financial structuring issues considering the merchant risk embedded in the project; and
- IFC’s stamp of approval and comfort to participants under its B-loan umbrella in one of the first major energy financing with merchant risk in the transitioning electricity market in Turkey.

Environmental and social issues - Category B

The proposed project is a corporate loan to EnerjiSA, for which the funds will be used for construction of specific power plants. The key issue reviewed during appraisal involved the effectiveness of EnerjiSA’s corporate environmental and social management system and the ability of the organization to ensure compliance with the GOT regulatory requirements and IFC’s Social and Environmental Performance Standards in the various power infrastructure construction and operation activities in which the Company participates. The company’s activities primarily involve natural gas fired and relatively small hydroelectric power plants, and this corporate investment is a Category B project because a limited number of specific environmental and social impacts may result, which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

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