TURKEY: WORLD BANK LOAN WOULD ADVANCE US CASPIAN

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000214 SIPDIS TREASURY FOR FRANCISCO PARODI AND JASON WEISS EUR FOR DAS MATT BRYZA TDA FOR DAN STEIN E.O. 12958: DECL: 02/10/2019 TAGS: ECON EFIN ENRG TU SUBJECT: TURKEY: WORLD BANK LOAN WOULD ADVANCE US CASPIAN STRATEGY REF: 08 ISTANBUL 0553 Classified By: Economic Counselor Dale Eppler for reasons 1.4 (B) and ( D) ¶1. (C) Summary and comment. In a January 28 meeting with the Ambassador, Energy Minister Guler said Turkey needs USD 125 billion in energy sector investments by 2020 to keep pace with rising energy demand. The World Bank plans to be a part of the solution through a second energy sector program. The Bank Board will review the USD 500 million loan on renewable energy and energy efficiency in late March. Turkey World Bank Country Director Ulrich Zachau expressed concern to Ambassador about potential USG objections to this loan. Post believes this program coincides with our regional energy strategy to encourage increase Turkey to consume less natural gas (and Caspian gas, in particular) and diversify its energy mix with renewable sources. If approved, it could be the vehicle to test run our "Turkey Energy Financing Framework" concept, a deliverable of the Oct 2008 visit of DOE Deputy Secretary Kupfer. End summary and comment. ¶2. (SBU) The World Bank (WB) Board has approved approximately USD 28 billion in loans to Turkey, of which USD 4 billion is still to be disbursed, 1.5 billion in the energy sector. The WB's Country Strategy Partnership for Turkey highlights the importance of ensuring a reliable and efficient energy supply though supply side measures to increase electricity generation as well as through demand side energy efficiency improvement. The WB also supports the GOT goal to increase private sector investment in Turkey's energy sector. With Turkey's passage of the Renewable Energy Law in 2005 and the Energy Efficiency Law in 2007, the GOT is trying to diversify its energy mix and encourage new, green energy development. In particular, the GOT is seeking to raise the share of electricity generated from renewable energy sources from 19% in 2007 to 25% in 2020. Both the WB Country Strategy and Turkey's policy to further develop it renewable energy sector dovetail with our strategy to help Turkey meet its growing energy demand, increase the diversity of its energy mix and reduce its dependence on natural gas, especially for electricity generation. ¶3. The World Bank Board of Directors will consider a proposal on March 26 to add an additional USD 500 million to fund private sector initiatives in renewable energy and energy efficiency. If approved, this loan could provide an opportunity for the Export-Import Bank, OPIC and European export credit agencies to work directly with Bank to see how this money could be leveraged, as described in our Turkey Energy Financing Framework (reftel). Below is summary of the proposed new loan and other loan programs currently active in Turkey's energy sector. ¶4. Begin summary of active and proposed World Bank loans in Turkey's energy sector. More information is available at www.worldbank.org.tr Renewable Energy -------------- -- (U) The objective of this loan is to increase privately owned and operated power generation from renewable sources. The WB estimates that since 2004, this loan has licensed or brought on line an additional 567 MW of power. With projects in the pipeline and USD 37 million of the USD 202 million total loan amount still to be disbursed, this loan aims to bring a total of 848 MW on line. Second Renewable Energy and Energy Efficiency -------------- -- (U) The loan proposes to follow the project design of Renewable Energy loan to finance renewable energy and energy efficiency investments and will be supported by a parallel technical assistance program financed by other donors focused on capacity building for energy efficiency. The WB estimates that Turkey's renewable potential for small hydro projects (5,000 MW),for wind 40,000 MW, for geothermal 500 MW. ANKARA 00000214 002 OF 002 Energy efficiency gains of 15-20% could be made in the industrial sector and up to 15% in the textile sector. This loan is scheduled to come before the Board on March 26, 2009. -- (U) WB also plans to include funding from the Clean Technology Fund (CTF),which supports countries in adopting low-carbon strategies. The Bank plans to provide an additional USD 100 million from CTF, which would bring the total loan amount to USD 600 million. Electricity Generation Rehabilitation and Reconstruction -------------- -------------- -- (U) The WBaims to improve energy supply security during the reform, transition and restructuring of state-owned generation into private entities. A major component of this loan is support to Afsin Elbistan A has been stalled. Almost all of the original USD 377 million is yet to be dispersed for energy generation rehabilitation. Gas Sector Development -------------- -- (U) This part of the loan aims to increase the reliability and stability of gas supply in Turkey by implementing critically needed gas storage and network infrastructure. Corruption allegations regarding the first tendering process for a gas storage facility under Tuz Golu led to the cancellation of this project. The WB plans to tender the project again soon. USD 322 million is yet to be disbursed. Privatization Support -------------- -- (U) This part of the loan mitigates the negative social and economic impact of privatization of state-owned enterprises. According to the WB, more than 8,000 workers displaced during privatization received temporary income support. In 2009, the GOT plans to privatize at least two more electricity distribution companies, the national lottery, etc. USD 295 million remains to be disbursed. Electricity Market -------------- -- (U) This loan assists the Turkish Electric Transmission Corporation (TEIAS) in the creation of an electricity market management system, in strengthening the supervisory control and management of the system. It also provides funds to strengthen and expand the electricity transmission grid. USD 47 million is yet to be disbursed. Electricity Grid Rehabilitation -------------- -- (U) The aim of this part of the loan is to increase the safety, reliability, efficiency and capacity of the bulk, high-voltage transmission system in Turkey and to increase market access for consumers and suppliers of electricity. USD 114 still to be disbursed. Electricity Distribution Rehabilitation -------------- -- (U) This part of the loan aims to improve the reliability of power supply to consumers in Turkey by investing in the rehabilitation and expansion of the electricity distribution network. Given that Turkey has a national strategy to privatize its electricity distribution companies, as more companies become private, the need to financing will be greater. The total cost of this project is USD 324 million of which USD 323 million is yet to be disbursed. Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey Jeffrey