SEDAS ELECTRICITY DISTRIBUTION LOAN

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Translated version of this PSD: Turkish The EBRD is considering providing an A/B $190 million (€148 million) senior secured loan to Sakarya Elektrik Dagitim A.Ş. (“SEDAS”, or the “Borrower”) to complete the acquisition of SEDAS by Akcez Enerji Yatirimlari Sanayi ve Ticaret A.Ş. (“Akcez”) and to finance part of its 2011-2013 capex programme (the “Transaction”). SEDAS was privatised by Akcez in February 2009. Akcez is 45 percent owned by Akenerji Elektrik Üretim A.Ş. (“Akenerji”), 27.5 percent by CEZ a.s. (“CEZ”) and 27.5 percent by Akkök Sanayi Yatırım Ve Gelistirme A.Ş. (“Akkök”) (collectively, the “Sponsors”). Total Transaction cost is $355 million. The funds will be used to complete the acquisition of SEDAS and for the fulfilment of part of its capital investment programme, which is currently being considered by the Turkish energy regulator, EMRA. SEDAS will have an undertaking to invest at least the equivalent of the EBRD A Loan (not to exceed $100 million) in its capex programme. The proposed Transaction will support the investments necessary to improve energy efficiency and to expand the network coverage, to facilitate the first limited recourse project financing for an electricity distribution network in Turkey, and to promote the entry of an experienced foreign strategic player into the Turkish power sector. The Project’s transition impact stems from three factors: (i) support for more widespread private ownership through a successful privatisation and involvement of an experienced foreign sponsor; (ii) setting standards of business conduct and corporate governance through imposing more stringent corporate governance requirements by the Sponsors; and (iii) demonstration effect of a successful restructuring through increases in sales, reductions in operating costs and improvements in systems. SEDAS is the electricity distributor operating in the provinces of Sakarya, Bolu, Düzce and Kocaeli in northwest Turkey. The Borrower’s region houses 4 percent of Turkey’s population and is characterised by a high degree of industrialisation. Due to specific customer base of Sedas being industrial, growth potential is significantly higher than Turkish average. SEDAS was among the first electricity discos to be privatised in Turkey (in February 2009). Senior secured A/B loan of up to $190 million (€148 million). With the total Transaction cost of $355 million, the IFC and international/Turkish commercial banks are expected to provide the balance of the financing. $620 million acquisition and related costs plus 2011-2013 capex figure to be approved by EMRA. Environmental classification and rationale The project is categorised B. The proposed capital investment programme includes mainly investments in network expansion/renewal as well as IT systems. The details of the capital investment programme are currently not available, however SEDAS does not have any high voltage lines and therefore, implementation of the program is likely to have limited adverse environmental and social impacts, which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. Impacts and Mitigation Measures Prior to the privatisation, SEDAS did not have any formal EHS management system. The new SEDAS management appointed an Environmental Officer, and retained an international environmental consulting firm to carry out a comprehensive EHS audit. Based on the audit conducted in July 2009, a detailed Environmental, Health and Safety Action Plan (EHSAP) was prepared to correct the areas of potential concern. A site visit was carried by EBRD and IFC environmental specialists in June 2010. The implementation status of the EHSAP was reviewed by independent consultants in August 2010. Based on the observations during the EBRD/IFC site visit and the consultants review, it can be concluded that SEDAS has already fulfilled some of the major requirements of the EHSAP resulting in considerable improvement in SEDAS's EHS performance. However, not all actions in the EHSAP have been implemented yet. There are still actions to be taken on several important issues including permitting; hazardous materials management; soil and groundwater contamination; EHS management systems; and occupational health and safety. The EHSAP covered only environmental and health and safety aspects of the project. Therefore, a project Environmental and Social Action Plan (ESAP) has been prepared including the requirements of the updated EHSAP and some additional actions including EBRD requirements for the appraisal of the investment programme, Human Resources policy and procedures, labour and working conditions, and stakeholder engagement to ensure that SEDAS operations would be in compliance with the EBRD Performance Requirements. The main implementation requirements in the ESAP relates to: The ESAP has been agreed with the Client. Implementation of the actions proposed in the ESAP will help bring the SEDAS EHS performance to good international industry standard. Monitoring and reporting The Company will: Review and Implementation of Tariff Methodology for Power Distribution” (TC 29116) provides assistance to the regulator on the next regulatory tariff period and is directly relevant to the Transaction. Özge Özen Aksoy Finance Group Manager Akenerji Elektrik Üretim A.Ş. Miralay Şefik Bey Sk. Akhan No:15 Kat:3 34437 Gümüşsuyu/İstanbul Tel : +90 212 249 8282; Fax: +90 212 249 7355 Email: oozen@akenerji.com.tr