IZGAZ Gas Distribution Company (DEBT)

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The EBRD is considering providing senior debt of up to €65 million to İzgaz İzmit Gaz Dağıtım Sanayi ve Ticaret A.Ş. (“Izgaz”), the natural gas distribution company in the Kocaeli region of Turkey. Izgaz was recently privatised by the Kocaeli Metropolitan Municipality, with GDF Suez the declared winner and taking a 90 per cent stake in Izgaz in January 2009 (closing achieved on the 20th). The proceeds of the loan will be used for grid expansion and refinancing of short term shareholder loans. The EBRD’s participation will support the first international strategic investor involved in a winning bid in Turkey’s natural gas distribution privatisations and follows a successful partnership with GDF Suez in the gas sector in Romania. The EBRD’s participation in the transaction will support the involvement of the first international strategic investor in the privatisations of Turkey’s gas distribution sector. The specific transition objectives include: The EBRD will provide debt financing directly to Izgaz, which is 90 per cent owned by GDF Suez and 10 per cent owned by the Kocaeli Municipality Debt – up to €65 million with potential to syndicate a portion depending on commercial bank appetite. IFC is considering a similar debt investment to Izgaz. Up to €100 million for grid expansion and short term debt refinancing. The project has been screened Category B. EBRD’s environmental and social due diligence included a visit to the company in March 2009, together with IFC, and an audit by an independent environmental consultant. The overall conclusion is that there are no significant environmental, social or health and safety issues associated with this project. The existing network is less than 15 years old and there are currently no plans for major construction or expansion. Izgaz’s Environmental, Health and Safety management is comprehensive and appropriate to the company’s issues and risks. It is certified to ISO9001, ISO14001 and OHSAS18001. The main environmental impacts are associated with potential gas leaks, emissions from heaters and pumps, noise and waste generation. The risk of major leaks is monitored using a SCADA system. This monitoring currently covers 65% of the network, and there are plans to extend it to 100% coverage over the next five years. Seismic activity is a risk as the network crosses the North Anatolian fault at three places, and has been factored into the network design and construction. Domestic use of gas is relatively new in this region of Turkey and the company has an education programme for schools and recently connected areas to raise awareness of safety issues. The gas is odourised to help the detection of leaks. Izgaz advertises an emergency number for people to report suspected leaks or loss of supply. The emergency response office is staffed 24 hours and has an IT system that tracks calls, and is linked to the customer database and the emergency response teams. It receives around 8000 calls per year. The company is committed to getting response team to an incident site within 15 minutes, and achieves 90% compliance with that target. The company’s Occupational Health and Safety management system is well developed. Hazards are identified and assessed, workers are provided with appropriate training and protective equipment, accident statistics are monitored and there is a “lesson learned” procedure in place Stakeholder engagement appears to be adequate. Customers can contact the company, by phone, email, or in writing, and Izgaz commits to respond to any issues raised. There are five customer service offices where customers can pay bills and raise issues about their supply. There is also a staff feedback mechanism for employees to make suggestions and raise concerns, and feedback forms and collection boxes were observed at several locations. An Environmental and Social Action Plan is being developed to address the small number of non-compliances that have been identified, mainly associated with waste management, and the timescale for implementation of this plan will be agreed with the client. None. Marie-Annabelle Quillon 23 rue Philibert Delorme 75017 Paris France Marc Leveugle GDF Suez 22 rue de Docteur Lancereaux 75392 Paris Cedex 08 France