TASK Water Venture - Dilovasi Debt

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The EBRD is considering restructuring loans it provided in 2010 to TASK Güllük (EUR 2.5 million fully disbursed), now renamed Akfen Water Güllük (“Güllük”), and TASK Dilovasi (EUR 13.5 million out of which EUR 10.5 million was disbursed), now renamed Akfen Water Arbiogaz Dilovasi (“Dilovasi”). The loans were provided for capital expenditures under concessions in Dilovasi and Güllük with a view to upgrading and extending water and wastewater infrastructure in project cities/zones. Both operations are owned by Akfen Water, a joint venture between the Akfen Group (Turkey) and the water company Kardan (Netherlands). The EBRD has been assisting in increasing private sector participation in the water market in Turkey by supporting Güllük and Dilovasi’s ongoing investment plans. The restructuring of the Güllük and Dilovasi loans would take place through extending the tenor by an additional two years as well as providing a two year repayment holiday for Güllük. The restructuring will provide both operations financial flexibility to implement capex required for environment, health and safety. The transition impact of the project will continue as originally envisaged: (i) Increased Private Sector Participation. By supporting Güllük and Dilovasi, the Bank will be supporting one of the few domestic private water operators in Turkey to develop a business and portfolio of water concessions and expand private sector participation in the water and wastewater sector and also expand market interactions through the expansion of water and wastewater services to users that are currently not sufficiently served. The project will help to demonstrate how private sector financing and operational expertise can be mobilised to deliver investment in water infrastructure and delivery services of high standards; ii) Demonstration effects of good corporate governance, transparency and business standards. Akfen Water Güllük and Akfen Water Arbiogaz Dilovasi. Both Güllük and Dilovasi’s majority shareholder is Akfen Water, a joint venture between Akfen Group (Turkey) and water company Kardan (Netherlands), who is involved in managing and constructing facilities for production of drinking and potable water from surface and surface springs, collecting domestic and industrial water and providing wastewater treatment services. Akfen Water has been awarded concessions for the Güllük Water Supply and Wastewater Treatment systems as well as the Dilovasi Industrial Zone Wastewater Treatment and Main Collector Line BOT. Debt: EUR 13.5 million long term senior debt for Dilovasi (only EUR 10.5 million was disbursed) and EUR 2.5 million long term senior debt to Güllük. No additional debt will be provided by the EBRD under the restructuring and the companies will use cash flows from operations to fund their capex programmes. Up to EUR 16 million. This project is categorised B. The environmental and social due diligence (“ESDD”) carried out in 2010 included a review of the Dilovasi and Güllük corporate environmental, health and safety and social (“EHSS”) management systems; site visits to Dilovasi and Güllük; and a review of the concession and service level agreements to assess the performance against EBRD's Performance Requirements (“PRs”). The ESDD showed that the Dilovasi and Güllük projects would result in significant environmental benefits and improve the quality of the local environment and mitigate public health risks by extending the drinking water supply and wastewater collection networks, improving drinking water treatment and quality, improve sewage collection and wastewater treatment systems. The ESDD confirmed that both Dilovasi and Güllük were generally in compliance with the applicable Turkish environmental, health and safety and labour requirements. The ESDD concluded that the implementation of the project would ensure compliance with national and EU requirements of Directive No. 98/83/EC on drinking water quality and Directive 91/271/EC on urban wastewater. The few areas of improvement identified during the due diligence were addressed in the Environmental and Social Action Plans (“ESAPs”) developed for Dilovasi and Güllük. The ESAPs include measures for improvement of the Dilovasi and Güllük corporate management systems in such areas as EHSS due diligence for new investments, grievance mechanisms, land acquisition, cultural heritage and stakeholder engagement; improvements to operational control procedures at project sites for such issues as: implementation of environmental, health and safety management systems, EHSS training, human resources issues, waste management, health and safety procedures, emergency response, stakeholder engagement and contractor management, etc.; measures for mitigating any adverse impacts caused by any tariff increases, so as to enable vulnerable people to continue to have an adequate supply of water; and implementation of a Stakeholder Engagement Plan, including a grievance mechanism. EBRD has been monitoring the environmental and social performance of Dilovasi and Güllük through the regular reports provided by Akfen Water and site visits carried out by EBRD specialists. The requirements of the ESAPs have been implemented with no major delays. On 17 June 2013 EBRD was informed of a tragic incident at a pumping station in Güllük, which resulted in seven worker fatalities. The legal process concerning this accident is continuing. Following the accident, risk assessments were carried out and health and safety measures in the work areas were reviewed for improving the health and safety standards. All new and former staff was trained on the health and safety measures. With the lessons learned from Güllük, Akfen Water is committed to improve their health and safety practices in all their operations beyond Güllük. At Dilovasi, there is currently one non-compliance issue, which is related to the high nitrogen concentration in the effluent of the Dilovasi WWTP. The issue is beyond the control of Dilovasi since the problem is caused by the very high nitrogen content of the discharges by certain facilities in the OIZ, which results in nitrogen loads much higher than the design limits of the WWTP None. Emre Sezgin Levent Loft, Büyükdere Cad. no:201 Daire: 4 Levent 34394 Istanbul Tel: +90 212 283 09 29 Fax: +90 212 283 2663 E-mail: emre.sezgin@akfensu.com.tr As part of EBRD’s strategy to assist in increasing private sector participation in the water market in Turkey, the proceeds of this facility were channelled for the refinancing of capital expenditures made under the water & wastewater treatment plant concessions in Dilovasi (in Marmara Region) and Gulluk (in Bodrum). The Bank collaborated with Akfen Holding, a pioneer and leader of the PPP business in Turkey, and Tahal, a water operator and engineering firm with broad-based geographic experience. As part of the Transition Impact, the Bank supported one of the few domestic private water operators in Turkey to develop a business and portfolio of water concessions and expand private sector participation in the water and wastewater sector and also expand market interactions through the expansion of water and wastewater services to users that were not sufficiently served. The project helped to demonstrate how private sector financing and operational expertise can be mobilised to deliver investment in water infrastructure and delivery services of high standards. The project also ensured adherence to strict environmental and social standards and the implementation of Environmental and Social Action Plan on time.