Türkiye: Uludağ Electricity Distribution Network Upgrade and Modernization Project

OBJECTIVE

To support the upgrade, modernization, and expansion of the medium- and low-voltage electricity distribution network of the Uludağ region.

DESCRIPTION

The Project involves the provision of a senior secured loan of up to USD 28 million in Turkish lira (TRY) to support the regulatory capex program of Uludağ Elektrik Dağitim A.Ş. (UEDAŞ), the incumbent distribution network operator of the Uludağ region. The capex program is approved by the Energy Market Regulatory Authority (EMRA) under the Fourth Tariff Implementation Period 2021-2025 (TIP-4).

UEDAŞ is one of the 21 electricity distribution companies of Türkiye created in 2010 following the privatization of the sector. Its network supplies electricity to over 3.5 million users within a 35,501 km² service area that encompasses four provinces bordering the Marmara Sea: Bursa, Balikesir, Canakkale and Yalova. In 2022, the region had a population of 5.1 million and consumed 19.6TWh, representing approximately 6% of Turkey's electricity demand. The UEDAŞ network has approx. 53,600km of distribution lines and 11,177 transformers.

Since April 2022, the Borrower and its affiliates, Ulug Elektrik Dağıtım ve Perakende Hizmetleri Satis A.Ş. (Ulug) and Uludağ Elektrik Perakende Satis A.Ş. (UEPSAŞ) are wholly owned subsidiaries of Actis Long Life Infrastructure Fund (Actis).

The Project will contribute to the expansion, rehabilitation, and efficiency of the Uludağ electricity distribution network through multiple investments, including the procurement, installation, and operation of medium- and low-voltage overhead lines, underground lines, transmission connection lines and transformers. Through these investments, the Project will help reduce power outages, control theft and losses, enhance the operation’s environmental and safety standards, and improve the network’s efficiency and reliability. The Project will expand the digitalization of the network through technology investments and improve the average age of equipment.

ENVIRONMENTAL AND SOCIAL INFORMATION

The proposed financing will be co-financed with the European Bank for Reconstruction and Development (EBRD) and Netherlands Development Finance Company (FMO). The Project's environmental and social (E&S) risks and impacts have been assessed in accordance with EBRD’s Environmental and Social Policy 2019 (EBRD's ESP) and relevant Performance Requirements (PRs). To ensure a harmonized approach to addressing E&S aspects of the Project, and as permitted by AIIB’s Environmental and Social Policy (AIIB’s ESP), EBRD’s ESP (2019) and relevant PRs will apply to this Project in lieu of AIIB’s ESP. The Bank has reviewed EBRD’s ESP and PRs and is satisfied that (i) the EBRD ESP and PRs are consistent with the Bank’s Articles of Agreement and materially consistent with the provisions of AIIB’s ESP and the relevant E&S Standards (ESS), and (ii) the monitoring procedures that are in place are appropriate for the Project.

The environmental and social due diligence (ESDD) undertaken by an independent consultant confirmed that UEDAŞ has established an integrated management system. It includes procedures for quality assurance, environmental monitoring, occupational health and safety (OHS), customer satisfaction, information security, and business continuity. Contractor management arrangements within UEDAŞ include standard OHS and environmental clauses in contracts, although these arrangements would benefit from further development to ensure improved monitoring of contractors’ performance. A land acquisition policy framework (LAPF) has been developed and UEDAŞ confirmed there has been no physical displacement. Expropriation is associated with electrical network poles and confirmed to be a small area. No issues or concerns were raised by the project-affected community representatives during consultations held. No legacy issues were stated. The areas identified during ESDD requiring further development include OHS, biodiversity and hazardous substance management, traffic management, access to information and stakeholder engagement.

A comprehensive Environmental and Social Action Plan (ESAP) has been developed and agreed with UEDAS. The ESAP has been structured to bring UEDAS into compliance with the EBRD’s PRs. The ESAP includes commitments to develop/update and implement relevant E&S management plans/policies/procedures related to OHS, community health and safety, biodiversity and hazardous substance management, traffic management, GBVH, equal opportunities, and further cascading these to contractors. An independent E&S monitoring consultant will be appointed by the lenders to monitor project progress and report to Lenders periodically in addition to the requirement to report to the lenders annually on Company’s E&S performance.

A Stakeholder Engagement Plan (SEP) has been prepared and will be implemented by UEDAŞ. The Company will promote youth inclusion and enhance the role of women in this traditionally male dominated sector. It will introduce a new, accredited and gender-responsive skills development program and develop partnerships with education providers to promote STEM careers for young women as part of the Equal Opportunity Action Plan to be prepared. In addition, the Key Performance Indicators (KPIs) for monitoring of E&S performance of contractors will also be developed.

The Company’s existing Grievance Redress Mechanism (GRM) will be updated to make it more effective and accessible. A GRM leaflet will be prepared in the local language and widely disseminated at the project sites. Prior to project appraisal, the Non-technical Summary (NTS) and the SEP have been disclosed both in English and Turkish languages on the websites of UEDAŞ and EBRD . The links to these websites are also provided on AIIB’s website including the Summary of ESAP.