The World Bank Turkey Geothermal Development Project (P151739) REPORT NO.: RES56492 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF TURKEY GEOTHERMAL DEVELOPMENT PROJECT APPROVED ON NOVEMBER 1, 2016 TO TURKIYE KALKINMA VE YATIRIM BANKASI A.S. (TKYB),TURKIYE SINAI KALKINMA BANKASI A.S. (TSKB) ENERGY & EXTRACTIVES EUROPE AND CENTRAL ASIA Regional Vice President: Antonella Bassani Country Director: J. Humberto Lopez Regional Director: Charles Joseph Cormier Practice Manager/Manager: Sudeshna Ghosh Banerjee Task Team Leader(s): Almudena Mateos Merino, Aditya Alexander Lukas The World Bank Turkey Geothermal Development Project (P151739) I. 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-2027 Organizations Borrower Responsible Agency Turkiye Kalkinma ve Yatirim Bankasi A.S. (TKYB),Turkiye Turkiye Kalkinma ve Yatirim Bankasi A.S. (TKYB),Turkiye Sinai Kalkinma Bankasi A.S. (TSKB) Sinai Kalkinma Bankasi A.S. (TSKB) Project Development Objective (PDO) Original PDO The Project Development Objective is to scale up private sector investment in geothermal energy development in Turkey. Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-93190 16-Dec-2021 21-Dec-2021 17-Jun-2022 31-Dec-2027 150.00 .38 149.63 IBRD-93200 16-Dec-2021 21-Dec-2021 17-Jun-2022 31-Dec-2027 150.00 .38 149.63 IBRD-86520 01-Nov-2016 30-Nov-2016 16-Feb-2017 31-Dec-2022 100.00 100.00 0 IBRD-86530 01-Nov-2016 30-Nov-2016 16-Feb-2017 31-Dec-2023 150.00 150.00 0 TF-B7276 16-Dec-2021 21-Dec-2021 17-Jun-2022 30-Jun-2027 .35 0 .35 TF-A1532 30-Nov-2016 30-Nov-2016 04-Apr-2017 30-Dec-2024 39.80 11.03 28.77 The World Bank Turkey Geothermal Development Project (P151739) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES PROJECT STATUS The Project is financed with a US$39.8 million Clean Technology Fund (CTF) grant, US$250 million IBRD loans, and US$300 million Additional Financing (AF) IBRD loans. The Project also includes an AF of US$350,000 grant from the Energy Sector Management Assistance Program (ESMAP) for Technical Assistance (TA). The progress towards achievement of the Project Development Objective (PDO) and Implementation Progress (IP) are both rated Satisfactory in the last ISR and over the past 12 months. The grant Recipient (Development and Investment Bank of Turkey, TKYB) and the Borrowers (TKYB and Industrial Development Bank of Turkey, TSKB) are on track to meet the development objectives. Procurement and financial management ratings have been Satisfactory throughout Project implementation, and the Project does not have any overdue audit reports. All actions noted in the ISR from January 20, 2023 have been completed by TKYB and TSKB. The progress by Project component is summarized below. Component 1: Risk Sharing Mechanism (RSM) for Resource Validation. This component, financed by a CTF grant to TKYB, 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 of failing to validate a geothermal energy resource with geothermal explorers through the RSM. It also provides TA to TKYB to strengthen its capacity to supervise the implementation of the RSM. The RSM has been implemented in three rounds: Under Round 1, which was launched on July 5, 2018, seven subprojects were shortlisted; three withdrew and four RSM Beneficiary Agreements (BAs) were signed, out of which two are completed, and two were moved to Round 2 due to pending permitting issues. Round 1 was therefore completed with two subprojects, with about US$5.1 million paid out for unsuccessful wells. Under Round 2, which was launched on January 26, 2021, 14 additional subprojects were shortlisted; seven withdrew, three are on hold mostly due to pending licensing and permitting issues, and four are ongoing, with drilling expected between June and September 2023. Round 2 has an expected maximum RSM pay-out amount of US$14 million. Round 3, which was launched with a consultation workshop on April 11, 2023, incorporates the experience and lessons learned from the previous rounds and will be the largest round so that the remaining funds can be fully allocated (about US$16 million). Component 2: Loan Facility for Resource Development. This component, financed by two IBRD loans and two AF loans to TKYB and TSKB, provides funding to geothermal developers to support license holders and financiers investing in geothermal subproject development at: (i) the capacity drilling stage; and (ii) the steam gathering, power plant, or direct use facility construction stage. To date, about 91% of the original loans have been disbursed. TKYB has disbursed the full amount of its original US$100 million loan and provided financing to three geothermal power plants (GPPs) under its credit line, namely the Özmen 3 GPP (19 MW), Sanko I GPP (15 MW), and Sanko II GPP (25 MW). TSKB has withdrawn US$128 million (or 85%) of its original US$150 million loan and provided financing to four GPPs under its credit line, namely the Kizildere III – Unit 1 GPP (95 MW), Kizildere III - Unit 2 GPP (70 MW), Turcas GPP (18 MW), and Ida GPP (11.75 MW). The World Bank Turkey Geothermal Development Project (P151739) The Project has been restructured five times: (i) Amendment to the CTF Grant Agreement to add a category (Category 3 “Operating Costs and Training”) and reallocate funds between categories to allow TKYB to cover its incremental operating costs associated with the implementation of the RSM; (ii) amendment of the CTF Grant Agreement to reallocate US$1 million from Category 1 “Payments out of the RSM under Part A of the Project” to Category 2 “Consultant’s services under Part A of the Project”, and revision of the end-targets for the intermediate results indicators for Components 1 and 2; (iii) amendment to the CTF Grant Agreement to lower the success fee to be paid by RSM beneficiaries for successful wells from 10% to 5% of eligible incurred drilling expenditures for the first three wells and from 25% to 10% for up to two additional wells that can be added to a specific BA; (iv) amendment to the IBRD Loan Agreement with TSKB to change the provisions on CO2 emission limits (replace the cap on the share of the TSKB credit line that can be allocated to subprojects with initial CO2 emissions above 583 g/kWh in the Menderes and Gediz grabens systems by a new eligibility criterion requiring subprojects in the Menderes and Gediz grabens systems to have estimated average annual net CO2 emissions below the 2018 Grid Emission Factor of 540g/kWh calculated using the predictive model developed in the World Bank Study “Characterizing the Declining CO2 emissions from Turkish Geothermal Power Plants”); and (v) a first extension of the CTF Grant’s Closing Date by two years, from December 31, 2022 to December 30, 2024. AF in the amount of IBRD US$150 million each to TKYB and TSKB to provide further debt financing to geothermal license holders under Component 2 was approved on December 16, 2021, and has been effective since June 17, 2022. No new subprojects have been confirmed yet by TKYB and TSKB since the effectiveness of the two AF loans. This is due to the macroeconomic situation and global supply-chain restrictions and the new feed-in tariff (FiT) regime enacted in 2021, with a lower FiT denominated in Turkish Lira, which has contributed to making some prospective projects financially unfeasible. However, a new, more attractive FiT has been established on May 1, 2023, which is expected to increase the demand under Component 2 of the Project. PROPOSED CHANGES The proposed change is a reallocation of US$220,000 from the disbursement Category 1 “Payments out of the Risk Mechanism under Part A of the Project” to Category 3 “Operating Costs and Training under Part A of the Project”. The main purpose of this reallocation is to cover the cost of increased stamp duties charged on the Beneficiary Agreements signed for the subprojects in addition to other operating costs. III. DETAILED CHANGES REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Current Actuals + Proposed Disbursement % Ln/Cr/TF Expenditure Allocation Committed Allocation (Type Total) Category Current Proposed TF-A1532- Payments Risk 001 Sharing 37,000,000.00 2,161,308.00 36,780,000.00 100.00 100.00 Currency: Mechanism P.A The World Bank Turkey Geothermal Development Project (P151739) USD Consultants' 2,670,000.00 848,244.40 2,670,000.00 100.00 100.00 Services Part A Operating Costs and Training 130,000.00 23,401.29 350,000.00 100.00 100.00 Part A Total 39,800,000.00 3,032,953.69 39,800,000.00