The World Bank Partnership for Market Readiness II Project (P168730) Document of The World Bank FOR OFFICIAL USE ONLY Report No: PP3123 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT PAPER ON A PROPOSED GRANT IN THE AMOUNT OF US$2.00 MILLION TO THE REPUBLIC OF TURKEY FOR A PARTNERSHIP FOR MARKET READINESS II PROJECT January 29, 2019 Energy & Extractives Global Practice Europe And Central Asia Region The World Bank Partnership for Market Readiness II Project (P168730) CURRENCY EQUIVALENTS (Exchange Rate Effective November 7, 2018) Currency Unit = Turkish Lira (TRY) US$ 1 = TRY 5.37 FISCAL YEAR January 1 - December 31 Regional Vice President: Cyril E Muller Acting Country Director: Mariam J. Sherman Senior Global Practice Director: Riccardo Puliti Practice Manager: Sameer Shukla Task Team Leader(s): Ayse Yasemin Orucu ABBREVIATIONS AND ACRONYMS BAU Business-as-usual CA Competent Authority CCAMCB Climate Change and Air Management Coordination Board CCD Climate Change Department CMTWG Carbon Market Technical Working Group CPF Country Partnership Framework DFIL Disbursement and Financial Information Letter DP Development Plan DPL Development Policy Loan ECA Europe and Central Asia ESES DPL Environmental Sustainability and Energy Sector Development Loan Program ETS Emission Trading Scheme EU European Union EU IPA European Union Instrument for Pre-Accession Assistance FM Financial Management GCT Green Certificate Trading GDP Gross Domestic Product GEF Global Environment Facility GHG Greenhouse Gas(es) GIZ German Agency for International Cooperation IBRD International Bank for Reconstruction and Development IDA International Development Association INDC Intended Nationally Determined Contributions ISR Implementation Status Report LULUCF Land-use, Land-use Change, and Forestry M&E Monitoring & Evaluation MBI Market-based Instrument MoEU Ministry of Environment and Urbanization MRP Market Readiness Proposal MRV Monitoring, Reporting, Verification MW Mega-watt NCCAP National Climate Change Action Plan NCCS National Climate Change Strategy NDC Nationally Determined Contributions NEP National Economic Plan PA Partnership Assembly PDO Project Development Objective PIU Project Implementation Unit PMR Partnership for Market Readiness PP Procurement Plan PPSD Project Procurement Strategy for Development TRY Turkish Lira UNFCCC United Nations Framework Convention on Climate Change UNIDO United Nations Industrial Development Organization USD United States Dollar The World Bank Partnership for Market Readiness II Project (P168730) BASIC INFORMATION Is this a regionally tagged project? Country (ies) No Financing Instrument Classification Investment Project Financing Small Grants [ ] Situations of Urgent Need or Assistance/or Capacity Constraints [ ] Financial Intermediaries (FI) [ ] Series of Projects (SOP) OPS_BASI CINFO_TABLE _3 Approval Date Closing Date Environmental Assessment Category 20-Dec-2018 30-Jun-2020 C-Not Required Approval Authority Bank/IFC Collaboration CD Decision No Please Explain Proposed Development Objective(s) The development objective(DO) is to support Turkey in developing the legal, institutional and technical framework for piloting an emissions trading scheme (ETS). Components Component Name Cost (USD Million) Technical assistance to develop the legislative and institutional foundations for piloting 0.35 an ETS Establishing the technical foundations for piloting an ETS 1.10 Stakeholder Training, Consultation/Engagement and Public Awareness Activities 0.22 Page 1 of 29 The World Bank Partnership for Market Readiness II Project (P168730) Coordination and Expert Support 0.33 Organizations Borrower : Republic of Turkey Implementing Agency : Ministry of Environment and Urbanization PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 2.00 Total Financing 2.00 Financing Gap 0.00 DETAILS -NewFinEnh1 Non-World Bank Group Financing Trust Funds 2.00 Partnership for Market Readiness 2.00 Expected Disbursements (in USD Million) Fiscal Year 2019 2020 2021 Annual 0.40 0.80 0.80 Cumulative 0.40 1.20 2.00 INSTITUTIONAL DATA Practice Area (Lead) Energy & Extractives Contributing Practice Areas Climate Change Page 2 of 29 The World Bank Partnership for Market Readiness II Project (P168730) Private Capital Mobilized No Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF No b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment No c. Include Indicators in results framework to monitor outcomes from actions identified in (b) No OVERALL RISK RATING Risk Category Rating Overall ⚫ Moderate COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✔] No Does the project require any waivers of Bank policies? [ ] Yes [✔] No Safeguard Policies Triggered by the Project Yes No Legal Covenants Page 3 of 29 The World Bank Partnership for Market Readiness II Project (P168730) Conditions Type Description Effectiveness the execution and delivery of this Agreement on behalf of the Recipient has been duly authorized or ratified by all necessary governmental action; Type Description Effectiveness the Recipient, through MEU, has established, as part of the financial management and accounting system for the Project, the required spreadsheets for Project accounting and reporting, in form and substance satisfactory to the World Bank; Type Description Effectiveness the Recipient, through MEU, shall have appointed a financial management specialist, with terms of reference and qualifications satisfactory to the World Bank. PROJECT TEAM Bank Staff Name Role Specialization Unit Team Leader(ADM Ayse Yasemin Orucu Energy Specialist GEE03 Responsible) Procurement Specialist(ADM Salih Bugra Erdurmus Fiduciary GGOPC Responsible) Financial Management Zeynep Lalik Fiduciary GGOEW Specialist(ADM Responsible) Social Specialist(ADM Arzu Uraz Yavas Safeguards GSU03 Responsible) Environmental Specialist(ADM Esra Arikan Safeguards GENEC Responsible) Jasna Mestnik Team Member WFACS FO WFACS Lisa Lui Counsel Legal LEGLE Ma Dessirie Kalinski Team Member Finance WFACS Mohammad Nadeem Team Member Legal LEGLE Selcuk Ruscuklu Team Member Quality ECCTR Timila Dhakhwa Team Member Quality GCCMI Page 4 of 29 The World Bank Partnership for Market Readiness II Project (P168730) Extended Team Name Title Organization Location Burcu Polat Consultant United States Page 5 of 29 The World Bank Partnership for Market Readiness II Project (P168730) TURKEY PARTNERSHIP FOR MARKET READINESS II PROJECT TABLE OF CONTENTS I. STRATEGIC CONTEXT ...................................................................................................... 7 A. Country Context ................................................................................................................. 7 B. Sectoral and Institutional Context ..................................................................................... 7 C. Higher Level Objectives to which the Project Contributes ............................................. 12 II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................ 13 A. PDO ................................................................................................................................... 13 B. Project Beneficiaries ......................................................................................................... 14 C. PDO-Level Results Indicators ........................................................................................... 14 III. PROJECT DESCRIPTION.................................................................................................. 14 A. Project Components ......................................................................................................... 15 B. Project Cost and Financing ............................................................................................... 16 IV. IMPLEMENTATION........................................................................................................ 17 A. Institutional and Implementation Arrangements ........................................................... 17 B. Results Monitoring and Evaluation ................................................................................. 18 C. Sustainability .................................................................................................................... 18 V. KEY RISKS ..................................................................................................................... 19 A. Overall Risk Rating and Explanation of Key Risks ........................................................... 19 VI. APPRAISAL SUMMARY .................................................................................................. 20 A. Other Safeguard Policies (if applicable) .......................................................................... 26 B. World Bank Grievance Redress ........................................................................................ 26 VII. RESULTS FRAMEWORK AND MONITORING ................................................................... 27 Page 6 of 29 The World Bank Partnership for Market Readiness II Project (P168730) I. STRATEGIC CONTEXT A. Country Context 1. Turkey achieved commendable economic and social development results starting in the early 2000s, raising it to the world’s 17th largest economy and establishing it as a global presence. Macroeconomic stability, broad social and economic reforms, and a transformation of a significant part of the economy away from agriculture into manufacturing and services were core contributors to Turkey’s growth. Turkey also weathered the global economic crisis of 2008/09 well: real GDP growth averaged 7.3 percent per year between 2010 and 2015 driven by favorable external financial conditions and strong domestic demand. However, Turkey’s development achievements have been challenged in recent years by the continued difficult geopolitical environment in the region, stemming from the Syrian crisis amongst other issues. While the economy remained resilient in 2015- 2017, persistent imbalances driven by dependence on energy imports and insufficient domestic savings contributed to increased economic stress and uncertainty. The following year, 2018, was marred by high inflation, a sizeable current account deficit, intense exchange rate volatility and sharp currency depreciation. In the near-term, the economy is projected to significantly slow down but recover gradually over the medium term, whilst the Government expects inflation to progressively decline to lower levels. 2. Turkey’s current Government was formed in July 2018, following national elections held in June 2018. In September 2018, the Government launched the National Economic Program (NEP) which sets out Turkey’s macro-fiscal and structural reform strategy and is a comprehensive statement of the Government’s policy intent for the near-term. The NEP is being implemented while the Government prepares Turkey’s 11th Development Plan (for the 2019-2023 period) which will set out the longer term structural reforms to be pursued in order to address Turkey’s development challenges such as improving productivity, tackling a low female labor force participation rate that hampers sustained growth, and building the skills of its population to reap the benefits of greater global integration. B. Sectoral and Institutional Context 3. Priorities related to sustainability have been elaborated on in various strategy documents. These include the Electricity Market and Security of Supply Strategy (2009), the National Climate Change Strategy Document (NCCS, 2010-2020), the National Climate Change Action Plan (NCCAP, 2011- 2023), the Energy Efficiency Strategy (2012)1 and the successive Energy Efficiency Action Plan (2016). Building on these strategies and successful fundamental energy sector reforms over the last decade, Turkey is moving decisively to develop an increasingly reliable and efficient energy supply while mitigating climate change impacts. 4. Since 2009 Turkey has stepped up its international engagement on climate change. Although GHG emissions per capita in Turkey are still low, its growth rate has been the highest among Annex 1 countries in the United Nations Framework Convention on Climate Change (UNFCCC). The national 1 The Bank supported these strategies under the Environmental Sustainability and Energy Sector Development Loan Program series. Page 7 of 29 The World Bank Partnership for Market Readiness II Project (P168730) GHG inventory submitted to the UNFCCC Secretariat in April 2017 reports the total GHG emissions in 2015 were 475.1 million tons of CO2 equivalent, excluding LULUCF (Land Use, Land Use Change and Forestry). Turkey’s per capita GHG emission for 2015 amounted to 6.07 tons of CO2 equivalent. The energy sector had the largest share with 71.6%, followed by the industrial processes and product use with 12.8%, agriculture with 12.1% and the waste sector with 3.5%. Turkey ratified the UNFCCC in 2004 and its Kyoto Protocol in 2009. Turkey put forward its Intended Nationally Determined Contributions (INDC) target to the UNFCCC Secretariat in September 2015, committing to achieve emission limitations of up to 21% from the business-as-usual (BAU) by 2030, which means a pledge of reducing GHG emissions up to 246 million tons by the target year. Below is a figure showing Turkey’s BAU and INDC emissions path. Figure 1: Turkey’s BAU and INDC Emissions Path 5. Turkey’s Climate Change Strategy and Action Plan provide the framework for increased domestic efforts on climate change in key sectors. They identify national priorities for mitigating GHG emissions and building resilience through managing impacts and encouraging mitigation and adaptation to climate change. The Plan covers key sectors in line with national development priorities: energy, transport, industry, waste, land use, agriculture, and forestry. While incorporating existing plans to develop medium and long-term targets in these sectors, it does not include cost and resource requirement estimates or establish specific emission reduction targets. The broad Strategy and Action Plan gains further significance when considered in combination with the concrete implementation actions in, among others, the energy sector, with strong climate change co-benefits. Turkey has requested the World Bank’s development policy and investment lending support for its climate change program. 6. In April 2012, Turkey adopted legislation to design and implement a robust, installation level greenhouse gas emission Monitoring, Reporting, and Verification (MRV) in the energy and industrial sectors. The Ministry of Environment and Urbanization (MoEU) issued the “Regulation on Monitoring of GHG Emissions� in April 2012. This regulation was supported with the “Communiqué on Monitoring and Reporting of GHG Emissions� (July 2014) and the “Communiqué on Verification of GHG Reports and Accreditation of Verifying Bodies� (April 2015). The MRV regulation mandates Page 8 of 29 The World Bank Partnership for Market Readiness II Project (P168730) all installations with over 20 MW combustion capacity and certain production levels to monitor their own GHG emissions and have them verified by third parties and submitted to the MoEU. Obligated installations submitted their first monitoring plans to the MoEU by October 2014 and their first verified emission reports by October 2017 (both for 2015 and 2016). As of today, a total of about 700 installations registered in the online GHG registry system. 7. Starting 2014, Turkey has been engaged in a number of projects to fully implement its MRV system. The Partnership for Market Readiness (PMR) Project (“PMR Project� or “PMR Turkey�) Phase I in Turkey has been instrumental in piloting and enhancing the implementation of the MRV regulation, a key foundation to any effort towards development of carbon pricing instruments. Support from the German Government-funded (GIZ) Project, has complemented the PMR Project Phase I activities. The MoEU will continue to manage the coordination among complementary projects to create synergies and avoid overlaps. The Project activities started in September 2018. 8. The Climate Change Action Plan includes a range of actions necessary for establishing a carbon market in Turkey, including, inter alia, monitoring and reporting of GHG emissions in key sectors, identifying GHG reduction potentials and cost curves, and making the necessary legal and institutional arrangements to establish a carbon market. The establishment of a carbon market is one of the main pillars of the Istanbul Financial Center Strategy and Action Plan. Carbon Market Technical Working Group (CMTWG) with representatives from the MoEU, the Capital Markets Board of Turkey, Borsa Istanbul, Istanbul Gold Exchange, Turkish Derivatives Exchange, and Istanbul Stock Exchange Clearing and Settlement Bank has been formed to work on the technical issues and submit recommendations to the Government regarding the establishment of a carbon market. While Turkey has not made a final decision on the specific use and scope of carbon pricing or market-based mechanisms to address GHG emissions, the MRV Regulation and the supporting online GHG registry comprise the most important underpinning towards the implementation of any carbon pricing and market-based instrument (MBI). 9. The Climate Change Department under MoEU has been executing various projects on different climate topics complementing the PMR activities in Turkey as summarized in the table below. With increasing capacity over the last few years of executing a number of projects related to climate change, the MoEU is experienced to coordinate and build on synergies across complementary donor- funded activities. The PMR Project has been especially carefully coordinated with the GIZ project since the preparation of the Phase I activities through meetings with respective project teams and the MoEU to avoid overlaps and facilitate a collaborative climate on the topic in Turkey. Table 1: Projects executed by the Climate Change Department of the MoEU Project Name Budget Durat Funding Explanation (million) ion Source Support provided for 38 projects on greenhouse Enhancing Required 2017- gas emission reduction schemes proposed by Joint Efforts on €5.5 EU-IPA 2019 local governments, universities and non- Climate Action Project governmental organizations. Support provided for MRV legislation and system Capacity Building on development, including training, capacity Monitoring, Reporting 2014- €5 GIZ building, preparation of sectoral guidelines, and Verification of 2020 establishment and development of internet- GHG Gases based data system activities. Technical Assistance €4 2017- EU-IPA Support provided for investigating new business Page 9 of 29 The World Bank Partnership for Market Readiness II Project (P168730) for Developing 2020 areas, research and development and innovative Analytical Basis for approaches that enable low carbon growth in the Formulating Strategies waste, agriculture, buildings and transportation and Actions towards sectors. Low Carbon Development Support for Turkey’s reporting obligations under Preparation of the UNFCCC, compilation and establishment of a Turkey's 7th National 2017- database for climate change research and Communication and US$0.85 GEF 2021 publications, and national capacity building for 3rd Biannual Report to sectoral evaluation and international UNFCCC negotiations. Management Plan for Technical and technological support in the cooling 2013- Terminating US$14.3 UNIDO and foam sectors regarding the transfer of 2018 Hydrofluorocarbons alternative gases and technologies. Support for strengthening the administrative and Institutional Capacity technical capacity of the National Ozone Unit to Enhancement for 2018- US$0.33 UNIDO implement the Montreal Protocol and build National Ozone 2020 relevant national and international legislation for Department the protection of the ozone layer. Support to increase capacity for transposition and Capacity Building for 2017- capacity-building of fluorinated greenhouse gases the Transition to US$2 EU-IPA 2020 and establish a national monitoring system, as Fluorinated GHG required by EU regulations. Gases «Capacity Building on Climate Change in Turkey" project as one of the four pillars of the IPA II; Enhancing the activities are being carried out within the scope of 2017- Analytical Foundations €2 EU-IPA determining the necessary information about the 2019 for LULUCF land for the calculation of emissions and removals of the carbon sinks and AKAKO-linked greenhouse gases. Support for detailed cost analysis of sectoral policy within the scope of the GHG emission Capacity Building and projections in the national contribution, creation 2017- National Monitoring to Achieve TRY5.47 of a data pool that forms the basis of sectoral 2020 Budget Turkish INDC projections, and implementation of sectoral projections. The project is being conducted with the Istanbul Medipol University. 10. The PMR is a grant-based, capacity building multi-donor trust fund that provides funding and technical assistance for the collective innovation and piloting of market-based instruments for GHG emissions reduction. The trust fund has received donor pledges totaling about US$127 million, of which US$71.5 million having been allocated to governments to implement readiness activities. The PMR brings together a diverse group of countries critical to curbing global GHG emissions. The 19 Implementing Country Participants are middle-income countries that receive funding and technical support from the PMR. The 13 Contributing Participants contribute funding and share relevant experience. Together, these groups make up the Partnership Assembly (PA), the PMR’s decision-making body. The PMR also includes the Technical Partners, Observers, and a growing group of technical experts. The World Bank acts as a Delivery Partner, overseeing the implementation of Page 10 of 29 The World Bank Partnership for Market Readiness II Project (P168730) PMR funding to Implementing Country Participants, and as Secretariat, managing day-to-day operations. 11. The PMR is country-led. It provides systemic support to enhance the Implementing Country participants’ technical and institutional capacities in order to implement market-based and carbon pricing instruments, such as a domestic ETS, a scaled-up crediting mechanism or a carbon tax. 12. Turkey joined the PMR in 2011 and was the first country to sign a Grant Agreement with the World Bank. Turkey was awarded a preparation grant of US$0.35 million in May 2011. The MoEU has been designated as the implementing agency. With the help of the preparation grant funding, Turkey prepared its Market Readiness Proposal (MRP), outlining the activities that it intended to undertake during the implementation phase of the PMR. Turkey submitted its final MRP and was granted an Implementation Phase funding of US$3 million by the PA in May 2013. The implementation phase (PMR Turkey Project or Phase I) started in February 2014 and will end in December 2018. The Phase I components were based on Turkey’s MRP and included activities necessary to implement the MRV system and those that aim at informing policy decisions on the use of market-based instruments. Main project activities have been completed as summarized below and dissemination of project outputs will be ongoing until the closing date, December 31, 2018. (a) MRV Pilots were carried out in the electricity, cement and refinery sectors with the aim of road-testing of the MRV regulation in the electricity and other emission intensive sectors. (b) Analytical Report 1- Roadmap for the Consideration of Establishment of an ETS in Turkey was carried out to develop a country-specific, tailor-made roadmap for ETS in Turkey covering all MRV sectors. (c) Analytical Report 2- Assessment of Market-based Emission Reduction Policy Options for Turkey was completed with the objective of analyzing the suitability of different Market- based Instruments (MBI) options for Turkey. (d) Analytical Report 3- Modeling Fiscal, Economic and Sectoral Impacts of Carbon Pricing in Turkey was undertaken to understand the implications of different carbon pricing mechanisms in Turkey, leading in turn to recommendations on the most suitable and cost- effective options. (e) Analytical Report 4- Development of Sectoral Marginal Abatement Cost Curves for Turkey was undertaken through the Policy Work Program of PMR to support the MoEU in building capacity for effective INDC implementation, in particular through the development of power sector emissions mitigation marginal abatement cost curves. (f) Analytical Report 5- Assessment of Carbon Leakage Risk for Turkey Under Carbon Pricing Policies was undertaken to help further comprehend the potential impacts of carbon pricing on the emission intensive sectors in Turkey and how those policies might impact their international competitiveness. (g) Capacity Building and Stakeholder Engagement: About 20 intensive capacity building workshops, 7 conferences and more than 25 meetings have been carried out within the framework of PMR Turkey to enable capacity building and information-based discussions with stakeholders and to mobilize support for carbon pricing. Page 11 of 29 The World Bank Partnership for Market Readiness II Project (P168730) (h) Synthesis Report- Carbon Pricing Policy Recommendations for Turkey was developed taking the results of the analysis of all components into account and formulate recommendation on suitable carbon pricing policies and/or MBIs with applicable design elements. This report will be presented to the Climate Change and Air Management Coordination Board (CCAMCB) and high-level policy makers to inform the decision- makers in other ministries about carbon pricing and facilitate informed discussions and decisions. 13. The MRV Pilots and the analytical reports under the PMR Phase I have provided important policy and regulatory developments. The MRV Regulation entered into force in 2014, over the course of Phase I and its implementation was supported by an online registry for regulated installations’ submission of emissions reports. Developed by the MoEU as part of the harmonization process with the EU ETS Directive, the workability of the Regulation and the registry was first tested with the PMR support through the MRV pilots. The experience gained through the pilots has been useful to the MoEU for understanding practical issues facing the private sector in complying with a new regulation. Findings and recommendations from Phase I are provided below. Findings and recommendations from PMR Turkey Project (Phase I) The result of the modeling component, which sets the technical foundation of the Synthesis Report developed in the first phase of PMR Turkey Project, emphasizes that both an ETS and carbon tax result in similar economic and sectoral implications. Hence, the decision lies with the Government to choose between controlling the emissions via an ETS, or a carbon tax at a cost to obliged sectors. The criteria to guide a decision are as follows: cost efficiency, government revenue, energy security, actual cost, emission reduction, implementation costs and stakeholder concern. The Synthesis Report prioritizes ETS over a carbon tax and renewable energy support, to steer the economy to undertake the most cost-efficient emission reduction opportunities, provide government revenue in case of auctioning of allowances, secure the volume of emission reductions, and bears manageable stakeholder concerns as opposed to a carbon tax. In addition, an ETS would potentially enable Turkey to integrate with international markets in the future in line with the objectives announced in its INDC. 14. Following a successful first implementation phase, Turkey’s Proposal for additional funding for complementary activities related to MRP was endorsed by the PA on October 26, 2017 with a grant of US$2 million. Implementation of Phase II of the PMR is expected to build on the activities conducted under Phase I. With regard to the implementation of one or more market-based mechanisms, Turkey – like most PMR Implementing Countries – is at a “pre-decision� phase when it comes to policy choices on the possible use of market-based mechanisms. The final output, namely the Synthesis Report, has suggested an ETS as a feasible carbon pricing policy for Turkey in consideration of the economic and sectoral implications. C. Higher Level Objectives to which the Project Contributes 15. The PMR project is included in the World Bank’s current FY18-FY21 Country Partnership Framework (CPF) for Turkey. The project will support the strategic objective of “increased sustainability of infrastructure assets and natural capital.� 16. The PMR Phase II Project complements and has important synergies with other Bank operations in Turkey. PMR Turkey Phase II Project will complement the activities that have been successfully undertaken by the PMR Phase I Project, the core objective of which is to increase the level of Page 12 of 29 The World Bank Partnership for Market Readiness II Project (P168730) readiness towards implementing carbon policies and MBIs in Turkey through MRV pilots and analytical studies. Approval of the Climate Change Strategy and Action Plan, upon which the Phase I activities were built, was part of the Development Policy Loan (DPL) series. The proposed Project is also in synergy with the ongoing energy sector EU Instrument for Pre-Accession Assistance (EU-IPA) Technical Assistance Project’s review of alignment of Turkey's legal and institutional framewo rk for electricity, natural gas, energy efficiency, and renewable energy with the EU's energy acquis. The EU’s environmental acquis (Chapter 27) references legal arrangements on climate change within the EU, including those on monitoring of GHG emissions and emissions trading system (2003/87/EC).2 17. The PMR Phase II Project is in line with Turkey’s development goals, the objectives of important policy and strategy documents, as well as key legislation on energy efficiency and renewable energy. The Project accord with several policy and strategy documents, including the 9 th, 10th and the upcoming 11th DPs, the NCCS, and the NCCAP. The Project will directly contribute to meeting the two milestones listed in the NCCAP, namely the “implementation of the Climate Change Action Plan with the help of technical assistance� and “adoption of market-based mechanism for GHG emissions.� They also fit well with some of the recent, key legislation on energy efficiency and renewable energy, including the Renewable Energy Law of 2005, the Energy Efficiency Law of 2007, and the updated Electricity Market and Supply Strategy, approved in 2009, all incorporating the objective of climate change mitigation. There are several references to the establishment of carbon markets and/or an emissions trading scheme (ETS) in Turkey among the legal and strategic documents, including the Environmental Law (1983, amended in 2006) and the NCCAP. The Annual Budget of the Ministry of Energy and Natural Resources for 2012-2017 includes assessment of local and sectoral ETS options and appropriate actions to harmonize the Ministry’s policy with the domestic and international climate change policies.3 The Strategy published by the Energy Exchange Istanbul for 2016-2023 highlights the need for establishing an ETS market. 18. The Turkish Government has mobilized national funding (TRY 5.5 million) to undertake the project “Capacity Building and Monitoring to Succeed Turkey’s NDC Targets,� which started in 2017 and runs for 3 years. The aim of the project is to refine the NDC projections for Turkey to develop a robust data collection and modeling framework for NDC targets to be implemented from 2020 onwards. Funding will be used to analyze and understand sub-sectoral emission projections in Turkey and to improve the technical capacity of institutions in collecting and analyzing data. This project will help create a strong policy basis (e.g. NDC targets, sectoral objectives etc.) and collect key data for PMR Turkey to rely on, in particular for the design elements of the carbon pricing policy (Component 2). Additionally, some of the capacity building activities carried out under the INDC project will also be leveraged in the context of the Phase II of PMR Turkey. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 19. The Project Development Objective (PDO) is to support Turkey in developing the legal, institutional 2 For more information on EU environmental acquis, see the link to the Directorate for EU Affairs of the Ministry of Foreign Affairs of the Republic of Turkey at https://www.ab.gov.tr/92_en.html 3 http://www.enerji.gov.tr/tr-TR/Butce-Konusmalari/Sn-Bakanin-Butce-Sunus-Konusmalari Page 13 of 29 The World Bank Partnership for Market Readiness II Project (P168730) and technical framework for piloting an emissions trading scheme (ETS). B. Project Beneficiaries 20. The main project beneficiary is the MoEU as the lead Ministry for Turkey’s climate change policy and the designated implementing agency for PMR. The project will also benefit the relevant Ministries and other Government institutions as they relate to the legal, institutional or technical framework developed for piloting an ETS. Other direct beneficiaries include private sector that will take part in preparations and piloting after 2020 and would be impacted by an ETS. The public will gain increased awareness on climate change and carbon pricing practices. C. PDO-Level Results Indicators 21. The PDO level results indicator: Necessary framework for implementation of an ETS pilot in Turkey ready, as a result of the development the technical, legal, and institutional underpinnings, through engaging key stakeholders. III. PROJECT DESCRIPTION 22. Over the course of PMR Phase I, a number of legal, institutional and technical gaps with respect to the implementation of carbon pricing policies and MBIs were identified. Piloting an ETS requires significant capacity at every level in order to define and operationalize its design elements, including not only technical skills and knowledge but also legal and institutional requirements. These readiness gaps identified under Phase I provide the basis for Phase II work packages and are summarized in Table 2 below: Table 2: Examples for legal, institutional and technical gaps for ETS Legal Gaps Institutional Gaps Technical Gaps The ETS Roadmap lists • Identification of a competent • Development of the required legislative authority (CA) for ETS sectoral benchmarks pieces that should be • Alignment of the CA with the • Identification of developed to establish Energy Market Regulatory carbon leakage an ETS in Turkey: Authority and the Energy Markets measures and high-risk • Climate change Management Corporation which sectors legislation are established by the Electricity • Market oversight Market Law4 • ETS Regulation to • Transition of the identify the cap and • Identification/Establishment of a MRV registry into a allocation method, trading platform transaction registry scope and technical • Capacity building among the regulations • Analysis of the public sector bodies and financial technical aspects of • Legal alignment of institutions carbon offsets the ETS with the legislation on the functioning of the energy market 4 Electricity Markets Law explicitly refers to these institutions in relation to emissions trading activities. Page 14 of 29 The World Bank Partnership for Market Readiness II Project (P168730) A. Project Components 23. The PMR Phase II Project has four components. Component 1 (US$0.35 million) will support technical assistance to develop a legislative and institutional foundation for an ETS pilot; Component 2 (US$1.10 million) will improve the technical foundations for piloting an ETS; Component 3 (US$0.22 million) will support stakeholder training, consultation and public awareness activities; and Component 4 (US$0.33 million) will be allocated for coordination and expert support. Component 1: Technical assistance to develop the legislative and institutional foundations for piloting an ETS (US$0.35 million) 24. This component aims to provide technical assistance and input to the MoEU to draft the policy and administrative documents, which will establish the legal and institutional framework for an ETS pilot. Recommendations will include the roles and responsibilities of institutions that will be involved in the pilot scheme and, if necessary, a proposal for a new institutional structure. The major output of this component will be a package including the legislative review, analysis, key elements and recommendations for a “Draft Climate Change Law,�5 as primary legislation, in addition to secondary legislation such as the “Draft Carbon pricing/ETS Regulation� and other regulations (e.g., market oversight legislation, auctioning regulation, etc.) that will be determined as a result of the legal review and analysis conducted. Component 2: Establishing the technical foundations for piloting an ETS in Turkey (US$1.10 million) 25. Establishment of an ETS requires a robust technical infrastructure and capacity, as well as sound policy choices. Phase I of the PMR Turkey Project prepared an implementation roadmap for an ETS pilot in Turkey. The Phase II will implement this roadmap, by carrying out the aspects that are necessary to initiate an ETS pilot, including: (a) Identification of an ETS cap and a national allocation plan: Determining the cap and development of a national allocation plan are the most important steps to launch an ETS pilot at the national level. The current MRV data will be utilized to decide on the scope, allocation methodology, and sector contributions to the cap for the ETS pilot. (b) Creating an ETS registry: Since 2015, the MoEU has been running an online MRV registry, which will be the basis of an ETS registry system to support ETS transactions in a digitally secure environment under the Project. (c) Running an ETS simulation: Utilization of an ETS simulation tool is planned under this sub- component, which would provide crucial support to increase the capacity and comprehension of the public and private sector on how an ETS could work, train stakeholder on the principles of emissions trading and simulate the market. The activity will include joint trainings in how to use the simulation tool and develop carbon portfolio management strategies. (d) Development of complementary technical foundations: This sub-component will support analytical studies that will be identified through the course of the consultation and expert feedback meetings during project implementation. 5 The “Draft Legislation� does not refer to a legislation approved by the Parliament. Rather, it refers to a version of a draft legislation the Ministry will prepare based on the technical support received under the PMR project. Page 15 of 29 The World Bank Partnership for Market Readiness II Project (P168730) Component 3: Stakeholder Training, Consultation/Engagement and Public Awareness Activities (US$0.22 million) 26. This component will include: (i) conferences, workshops, and training to support the activities under Components 1 and 2; (ii) consultation meetings with stakeholders; and (iii) public awareness activities (media, decisionmaker-level public/private meetings, etc.) and development of strategic communication materials. Component 4: Coordination and Expert Support (US$0.33 million) 27. The MoEU will implement the second phase of the PMR Project through the project implementation unit (PIU), which was established under the previous phase. The PIU consists of a project coordinator, a project assistant, a procurement specialist, a financial management specialist and other technical experts, as necessary. 28. Expected timeline for Phase II activities is provided in Table 3 below: Table 3: Expected Timeline for Activities Activity Start of Start and completion of implementation Procurement Component 1: Formulation of the December 2019 March 2019- May 2020 necessary legal and institutional foundations for piloting ETS Component 2: Establishing the December 2019 March 2019- May 2020 technical infrastructure for piloting an ETS Component 3: Capacity building, January 2019 April 2019- June 2020 stakeholder engagement and outreach activities B. Project Cost and Financing Lending Instrument 29. The Project funds will be channeled through a recipient-executed trust fund (RETF) under the PMR global multi-donor trust fund.6 For Phase II, a new Grant Agreement between the IBRD and the Ministry of Finance and Treasury of the Republic of Turkey will be negotiated and executed.7 Project Cost and Financing 30. The cost of the project is estimated at US$2.00 million. Financing will be provided by the PMR additional financing (US$2.00 million). Breakdown is provided in Table 2. In-kind contributions by 6 The project is classified as Investment Project Financing within the World Bank system (for more information, see the World Bank OP/BP 10.00). 7 A US$350,000 preparation grant was awarded to Turkey to formulate its MRP. A Grant Agreement for the preparation grant was signed in December 2011 between IBRD and the Undersecretariat of Treasury of the Republic of Turkey. Turkey’s MRP was endorsed by the PA and an implementation grant of US$3 million was granted to Turkey on May 28, 2013. A Grant Agreement between IBRD and the Undersecretariat of Treasury of the Republic of Turkey was signed on December 17, 2013 before the start of the PMR Implementation Phase I. Page 16 of 29 The World Bank Partnership for Market Readiness II Project (P168730) the Turkish Government are expected in the amount of USD 45.000. Table 4: Project Cost and Trust Fund Financing (US$) Project Components Cost Component 1: Technical assistance to develop the legislative and 350,000 institutional foundations for piloting an ETS Component 2: Improving the technical foundations for piloting 1,100,000 an ETS in Turkey Component 3: Stakeholder Training, Consultation / 220,000 Engagement and Public Awareness Activities Component 4: Coordination and Expert Support, including 330,000 Operating Costs Total Costs 2,000,000 Total Financing from Trust Fund 2,000,000 IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 31. The Ministry of Environment and Urbanization is the lead implementing agency and the PIU will undertake the procurement and financial management tasks of the Project. The MoEU is the lead Ministry for Turkey’s climate change policy and UNFCCC negotiations, the environmental chapter of the EU acquis, and the implementation of the MRV regulation. It is also tasked with the coordination and implementation of the Climate Change Strategy and Action Plan and has a dedicated Climate Change Department. The CCAMCB is consulted for feedback regarding the PMR project. The analytical studies provided by the MoEU will be brought to the CCAMCB for review. The Climate Change Department within the MoEU maintains the PIU, consisting of a project coordinator, a project assistant and a financial management specialist. 32. The World Bank team will continue providing implementation support for the execution of the PMR grants and implementation of the PMR activities under the Phase II. The Carbon Finance Group of the Bank provides secretariat services, technical support, and carbon markets and mechanisms expertise. During the first phase of the PMR Project, the Bank team has supervised the execution of the PMR grants and provided technical support to the preparation of the MRP. While the decision on the allocation of the Implementation Phase grant is made by the PA, the Bank team several times provided recommendations on the Additional Funding Proposal. Page 17 of 29 The World Bank Partnership for Market Readiness II Project (P168730) B. Results Monitoring and Evaluation 33. Project monitoring and evaluation will include the following: (a) Project Results Framework: PDO and Intermediate Results Indicators as contained in Section VII below. (b) Status Reports: PMR Implementing Country Participants are required to provide status reports on the implementation of project activities as part of the terms of the Implementation Grant Agreement. The quarterly status reports are aimed to ensure timely support and feedback from the Bank on the activities that are outlined in the Grant Agreement. (c) Completion Report: PMR Implementing Country Participants are required to prepare a completion report to ensure the objectives which are outlined in the Grant Agreement are met and there is a plan for their sustainable continuation. (d) Interim Un-Audited Financial Statements (IFRs): PMR Implementing Country Participants are required to prepare IFRs that reflect the operations, resources, and expenditures related to the activities detailed in the Grant Agreement. The project IFRs will be audited by the Treasury Controllers based on terms of reference (TOR) acceptable to the Bank. The Project will submit a single audit report covering the life of the Project. The audit report, including a Management Letter providing recommendations for improving the systems and processes for the future, will be provided to the Bank within six months of the project closing. The audit report excluding the Management Letter will be publicly disclosed by the MoEU and the World Bank in a manner acceptable to the Bank. (e) PMR Country Updates: PMR Implementing Country Participants are expected to update the Partnership Assembly shortly before or after the PA meetings on the progress of their implementation phase activities. PMR PA meetings occur at a minimum of two times per year. The purpose of these updates is to inform the PA and seek feedback from the PA. C. Sustainability 34. The Project provides funds to Turkey’s public sector to help with developing legal, institutional and technical framework for piloting an ETS. The nature of the Project, which primarily involves technical assistance, does not allow for a cost-benefit analysis to be conducted. However, benefits resulting from the Project, although difficult to quantify, are expected. Besides the benefits of helping Turkey in its efforts to achieve sustainable development through green growth, the Project is expected to have positive impact on climate-informed decision making, substantial capacity building and awareness of carbon portfolio management for the private sector. The value added of the World Bank’s involvement is expected to involve expertise in facilitating public-private dialogue, as well as technical expertise provided to the analytical studies to be conducted. 35. Sustainability of the project is anchored in Turkey’s overall development agenda, its Climate Change Strategy and Action Plan, the EU environment acquis, and the continued implementation of the MRV system. Given these commitments, it is likely that the Project results will be sustained beyond its lifetime. Turkey has a well-functioning and stringent MRV system in place, mandated by law, and has conducted a number of analytical studies on carbon pricing policies and instruments, including modelling works, that would allow for an informed policy decision on suitable carbon pricing mechanisms. The Project will help Turkey in achieving a smooth transition to piloting an ETS. Page 18 of 29 The World Bank Partnership for Market Readiness II Project (P168730) As such, in continuation of the first phase, the outputs of Phase II are expected to make a sustained contribution to the climate agenda and decision making. The technical and legal recommendations developed within the framework of Phase II will be used by the MoEU for primary and secondary climate change legislation, which are then to be discussed in the CCAMCB. The technical work to be undertaken during Phase II will improve climate mitigation-related data availability. The synergies of the Project with the World Bank’s ongoing deep engagement in the energy and other sectors will help sustain the results achieved. 36. Close and extensive implementation support by the Bank team will continue for a successful implementation and building sustainable capacity in the country. There will be continuous technical and fiduciary support from the Bank throughout Phase II, including technical expertise from the PMR Secretariat. The well-functioning MRV system, analytical studies on carbon pricing mechanisms and the modeling tools that have been developed under the Phase I Project provide the groundwork for the activities under Phase II. V. KEY RISKS A. Overall Risk Rating and Explanation of Key Risks 37. Political and governance risks are Moderate. Ongoing economic challenges create downside risk to the climate agenda. However, the PMR activities are anchored in Turkey's Climate Change Strategy and Action Plan. The MRV law was adopted in 2012 and the MRV system is fully functional and enjoys broad stakeholder support. Government's commitment to climate change as one of the policy priorities continues to be notable and use of market-based instruments are considered in the medium term. There is a moderate risk that stakeholder commitment to climate change may weaken. To mitigate this risk, public stakeholder engagement will continue to be an important pillar of the PMR work to ensure continuity in terms of capacity and commitment. 38. Macroeconomic risk is high. While the economy remained resilient in 2015-2017, persistent macro imbalances contributed to increased economic stress and uncertainty. The following year, 2018, was marred by high inflation, a sizeable current account deficit, intense exchange rate volatility and sharp currency depreciation. In the near-term, the economy is projected to significantly slow down but recover gradually over the medium term, whilst the Government expects inflation to progressively decline to lower levels. Mitigating factors include tight monetary policy, a sound corporate debt restructuring framework, private sector deleveraging, and countercyclical fiscal policies to support households tide over a potentially challenging period ahead. Worsening macroeconomic situation could risk implementation of an ETS pilot. 39. Sector strategies and policies risk is Moderate. There is a clear, shared vision on climate change in Turkey, captured in the Climate Change Strategy and Action Plan. Climate Change is a part of Turkey’s EU accession strategy as well and an important part of the EU acquis communitaire environment chapter. The sector governance is robust with clear delineation of the policy making and regulatory functions, with MoEU as the lead government body and the Coordination Board on Climate Change providing the forum for inter-ministerial and stakeholder coordination. However, the inherent uncertainties in the timeline for the policy making process for which the Project seeks to prepare could be a risk to sustainability. Meanwhile, there is a risk that support for an ETS or even an ETS pilot could evaporate. Given the economic challenges and the stance of the potentially impacted sectors, as well as those of the MoEU and the Ministry of Energy and Natural Resources, the risk is Page 19 of 29 The World Bank Partnership for Market Readiness II Project (P168730) rated as Moderate. 40. Technical design and output risk is low. The proposed activities are based on the recommendations of the final output of Phase I of the PMR Project. While the project timeline is short, the proposed activities are designed and can be implemented immediately, without pending any further policy or legislative action by the Government of Turkey on carbon pricing. The risks regarding sustainability of stakeholder engagement will be mitigated by intensive stakeholder consultations and engagement in decision making. The Bank team of experts will review and comment on the TORs and analytical reports to ensure quality of Project outputs. 41. Fiduciary risk is Moderate. The MoEU PIU is experienced in World Bank financed operations and the PMR Phase I Project had satisfactory financial management arrangements throughout the implementation. The MoEU is in compliance with the financial management provisions of the Phase I implementation Grant Agreement and has no overdue reports or audits. The MoEU shall sustain these financial management arrangements for the PMR Phase II Project to maintain the systems and accounts necessary to implement, monitor, and report on the project activities. The procurement risk associated with the MoEU is Substantial. Procurement related risks and mitigation measures are discussed in paragraphs 60-62 below. Given the size of the financing allocated and MoEU’s commitment to maintain a procurement specialist in the PIU, the overall residual risk is assessed as Moderate. 42. Overall, the project risk rating is Moderate. The proposed activities are anchored in Turkey’s Climate Change Strategy and Action Plan, as well as the EU accession strategy. The Ministry has a clear mandate and structure. The activities are likely to be complemented by other donor and Government funded activities and, as such, need to be closely coordinated. The Ministry and more broadly the entities involved have increased implementation capacity in piloting and analytical studies related to carbon pricing. VI. APPRAISAL SUMMARY A. Fiduciary Financial Management 43. The MoEU will be responsible for establishing and maintaining FM systems throughout the project life. The general requirements for the MoEU throughout the implementation are summarized as follows: (a) The MoEU will maintain a financial management system acceptable to the Bank; (b) The MoEU will maintain at least a part-time financial management staff throughout the implementation period of the Project; (c) The MoEU will prepare interim un-audited financial reports for the project on a quarterly basis and submit these to the Bank no later than 45 days after the end of each quarter; (d) The project financial statements will be audited by the Treasury Controllers at the closing on terms of reference acceptable to the Bank; (e) The audited statements of the Project will be provided to the Bank within six months of Page 20 of 29 The World Bank Partnership for Market Readiness II Project (P168730) the project closing; and (f) The audit report will be publicly disclosed by the MoEU and the World Bank. 44. MoEU is a general budget institution. Accordingly, its accounting is maintained in the Public Information Management System in Turkish Lira, in line with the chart of accounts predetermined by the Ministry of Treasury and Finance. However, as the Project is financed through a grant, it will not be included in the annual budget of the MoEU and there won’t be any allocations in the MoEU budget for project expenditures as per the regulations. The MoEU will still process the project transactions and documents to the Ministry of Treasury and Finance accountant (sayman) at the MoEU for state accounting in line with the Grant Accounting Communique as mandated in the Official Gazette no. 26713. The MoEU will maintain a separate accounting system to follow up the fund flows on a cash basis in USD and to produce data necessary to prepare regular project reports requested from the stakeholders. 45. The MoEU will be responsible for project reporting. Financial statements of the Project, the interim un-audited financial reports (IFR), will be prepared on a quarterly basis and will be submitted to the Bank no later than 45 days after the end of the quarter. The IFR templates will be agreed upon between the MoEU and the World Bank by effectiveness and include at a minimum the following basic tables: (a) Expenditure Tables per activities, including explanation of significant variances between budgeted and actual figures; (b) Expenditure Tables per categories, including explanation of significant variances between budgeted and actual figures; (c) Designated Account Statement. 46. The project financial statements will be audited by the Treasury Controllers based on TOR acceptable to the Bank. This is a small-grant technical assistance project. Furthermore, the life of the Project is expected to be relatively short, i.e. less than 36 months. Therefore, the Project will submit a single audit report covering the life of the Project. The audit report, including a Management Letter providing recommendations for improving the systems and processes for the future, will be provided to the Bank within six months of project closing. The audit report excluding the Management Letter will be publicly disclosed by the MoEU and the World Bank in a manner acceptable to the Bank. 47. The MoEU will adapt the financial management manual (FM Manual) for the PMR Phase I Project for the needs of the Phase II. The FM Manual will cover: (a) the financial and accounting policies and procedures for the Project; (b) organization of the PIU, functions, staffing and relevant job descriptions with special emphasis on the segregation of duties; (c) the necessary templates for various transactions; (d) disbursements; (e) project budgeting, planning procedures and financial forecasting; and (f) project reporting. 48. The MoEU will open a Designated Account at the Central Bank of Turkey in the currency of the grant. Payments to the contractors, suppliers and consultants will be made from this account (except when direct payment is used). The MoEU will specify the authorized signatories. Payments from the designated account will be made with the approval of the authorized staff. 49. Disbursements from the grant account will follow the transaction-based disbursements approach, i.e., the following traditional disbursement methods: Advance, Direct Payments and Page 21 of 29 The World Bank Partnership for Market Readiness II Project (P168730) Reimbursements (with full documentation and against Statements of Expenditures). The withdrawal applications will be prepared and authorized by the MoEU; no withdrawal shall be made for payments made prior to effectiveness, except that withdrawals up to an aggregate amount not to exceed $15,000 may be made for payments made for Eligible Expenditures related to Operating Costs under the Project. 50. A Disbursement Letter (DL) will be made an integral part of the Grant Agreement and will provide explanations on the disbursement procedures. Disbursements from the Designated Account will be made based on the Statements of Expenditure. Full documentation in support of the Statements of Expenditures would be retained by the MoEU for at least seven years after the World Bank has received the audit report for the Project. This information will be made available for review during supervision by the Bank staff and for the closing audit. 51. The MoEU will complete the following actions to bring the financial management arrangements to a satisfactory level for implementation: Table 5: Financial management arrangements and timeline Action Due Date 1. Tailor the existing accounting software used for Phase I in Effectiveness accordance with the accounting and reporting needs of Phase II 2. Appoint one MoEU staff responsible for financial Effectiveness management and ensure that the PIU has sufficient FM capacity throughout the life of the project. 3. Tailor the current Financial Management Manual, providing Within two months of effectiveness information on the project workflows, minimum controls for documentation, payments, disbursements, accounting and reporting in line with the Project’s needs. Procurement 52. The Project will be carried out in accordance with "World Bank Procurement Regulations for IPF Borrowers" (dated July 2016, revised November 2017 and August 2018) ("Procurement Regulations"). In accordance with the paragraph 5.9 of the Procurement Regulations, the World Bank's STEP system will be used to prepare, clear, and update the Procurement Plan and conduct all procurement transactions for the Project together with the provisions stipulated in the Grant Agreement. The World Bank's “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants�, (revised as of July 01, 2016) (“Anticorruption Guidelines�), will apply to the Project. A General Procurement Notice will be published on the World Bank's external website and United Nations Development Business online. 53. Consulting services are required by the MoEU to: (i) formulate the necessary legal and institutional underpinnings for piloting an ETS; (ii) improve the technical knowledge and capacity of institutions for piloting; (iii) conduct training and workshop activities; (v) raise public awareness; and (vi) carry out project management and other technical assistance. 54. Selection of Consultants. The methods defined in the Procurement Plan will be followed for the selection of the consultants such as Selection Based on Consultants’ Qualification (CQS) in line with section 7.12 of the Procurement Regulations, Direct Selection (DS) in accordance with the provisions Page 22 of 29 The World Bank Partnership for Market Readiness II Project (P168730) of section 7.14 of the Procurement Regulations and other methods as agreed in the Procurement Plan. For the employment of experts, Selection of Individual Consultants may be used. Subject to justification in terms of economy, efficiency, and equal opportunity to all qualified eligible consultants or to respond to emergency situations, the DS method for consultant firms and individuals may be used. The Terms of References for FM, audit, procurement, or legal contracts financed by the project, even those that are below the prior review threshold, shall be subject to World Bank's prior review. 55. Component 3 of the Project requires non-consulting services related to: (i) conferences, workshops, and training to support the activities under Components 1 and 2; (ii) consultation meetings with stakeholders; and (iii) public awareness activities (media, high-level public/private meetings, etc.) and development of strategic communication materials. 56. Procurement methods. The methods defined in the Procurement Plan will be followed for the procurement of goods and non-consulting services (including logistic and organization services for trainings and workshops) such as: (a) Request for Quotations (RFQ) procedures in accordance with the provisions of section 6.7 of the Procurement Regulations where appropriate; and (b) Direct Selection (DS) in accordance with the provisions of section 6.9 (d) of the Procurement Regulations and other methods as agreed in the Procurement Plan. 57. Special Procurement Arrangements. The following IC contracts from P126101 will continue to be financed from the project where the consultants were initially selected on a competitive basis: (i) PIU-2b-2018ext, Project Assistant, (ii) PIU-3a-2018, Procurement Expert, (iii) PIU-4a-2018, Financial Management Expert. 58. Project’s Procurement Strategy for Development (PPSD) and the Procurement Plan of the Project have been prepared and shared with the Bank according to paragraphs 4.3 and 4.4 of the World Bank's Procurement Regulations applicable for the Project. The activities in the Procurement Plan are summarized in the following table. Table 6: Procurement Method and Prior Review Thresholds Expected Expected Bid / Contract Package Procuremen Review Contract Contract Description Type Proposal t Method Method Completion Opening Date Date Formulation of the necessary legal and 1 institutional CS CQS Post February 2019 June 2020 fundamentals for piloting an ETS Identification of an ETS 2 cap and a national CS CQS Post February 2019 June 2020 allocation plan Developing an ETS 3 CS CQS Post April 2019 June 2020 registry Page 23 of 29 The World Bank Partnership for Market Readiness II Project (P168730) Expected Expected Bid / Contract Package Procuremen Review Contract Contract Description Type Proposal t Method Method Completion Opening Date Date 4 Development of an ETS CS CQS Post April 2019 June 2020 simulation Development of 5 complementary CS CQS Post May 2019 June 2020 technical foundations Public Awareness Activities (Media activities, high level public/private meetings 6 CS IND Post April 2019 June 2020 etc.) (Stakeholder Consultation/Engageme nt and Public Awareness Activities) Employed under 7 Project Coordinator (s) CS IND Post Implementation June 2020 Grant Employed under 8 Project Assistant CS IND Post Implementation June 2020 Grant TOR Employed under Prior, Implementation 9 Procurement Specialist CS IND June 2020 Process Grant Post TOR Employed under Financing Management Prior, Implementation 10 CS IND June 2020 Specialist Process Grant Post Expert Support and 11 CS IND Post July 2019 June 2020 Advisory Services 12 Expert on Legal and CS IND Post January 2020 June 2020 Institutional Infrastructure for Piloting an ETS 13 Logistical services for NCS RFQ Post March 2020 June 2020 Conferences 14 Logistical services for NCS RFQ Post June 2019 June 2020 Workshops 15 Logistical services for NCS RFQ Post November 2019 June 2020 Trainings Page 24 of 29 The World Bank Partnership for Market Readiness II Project (P168730) Expected Expected Bid / Contract Package Procuremen Review Contract Contract Description Type Proposal t Method Method Completion Opening Date Date 16 Logistical services for NCS RFQ Post May-19 June 2020 consultation and engaging stakeholders CS: Consultant Services; NCS: Non-consulting Services; RFQ: Request for Quotations 59. Standard bidding documents. The World Bank's Standard Procurement Documents shall be used for the contracts as specified in the Procurement Plan tables under STEP. Templates for the RFQ, CQS and individual consultant selection documents used under PMR Phase I will be tailored for the small- scale contracts for consulting services, goods and non-consulting services contracts that will be needed for the project. 60. Project risks regarding procurement arrangements and relevant implementation risks have been assessed. Although the PIU has recent implementation experience in World Bank-financed projects and conducting procurement transactions, there is a need to hire an individual consultant for the smooth transition to Phase II. Accordingly, procurement-related project risks can be summarized as follows: (a) unfamiliarity of the MoEU with the implementation of the new procurement framework and the STEP system of the World Bank; (b) limited staffing and capacity to carry out the procurement transactions; (c) high number of transactions at early stages of the Project; and (d) short implementation period. 61. Proposed mitigation measures are: (a) procurement staff capacity is maintained/improved for the PIU; (b) the preparation of request for proposals documents together with the technical specifications and Terms of References are initiated for the first set of consulting services; (c) regular supervision and implementation support missions are conducted together with Bank's close hands- on support to the PIU; (d) contract management tools are effectively used by the PIU to avoid potential time overruns. 62. Procurement supervision frequency. The World Bank will review the procurement arrangements performed by the PIU, including contract packaging, applicable procedures, and the scheduling of the procurement processes, for their conformity with the World Bank’s Procurement Regulations, the proposed implementation program, and the disbursement schedule. All procurements will normally be subject to post review of the Bank. This will be done on a sampling basis in accordance with the procedures set forth in paragraph 4 of the Procurement Regulations. A post review of the procurement documents will normally be undertaken during the World Bank’s supervision mission, or the World Bank may request review of any contracts at any time. In such cases, the PIU shall provide the World Bank the relevant documentation for its review. 63. Procurement activities will be implemented by the existing the PIU of the MoEU. PMR Phase II will build on existing implementation arrangements of the Phase I. Phase II Project will be carried out in accordance with "World Bank Procurement Regulations for IPF Borrowers" (dated July 2016, revised November 2017 and August 2018) ("Procurement Regulations"). In accordance with the paragraph 5.9 of the Procurement Regulations, the World Bank's STEP system will be used to prepare, clear, and update the Procurement Plan (PP) and conduct all procurement transactions for the Project together with the provisions stipulated in the Grant Agreement. The World Bank's “Guidelines on Page 25 of 29 The World Bank Partnership for Market Readiness II Project (P168730) Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants� (revised as of July 01, 2016) (“Anticorruption Guidelines�) will apply to the Project. A General Procurement Notice will be published on the World Bank's external website and the United Nations Development Business online. 64. The procurement risk associated with the MoEU is substantial. However, given the size of the financing allocated and MoEU’s commitment to maintain a procurement specialist in the PIU, the overall residual risk is assessed as moderate. Environmental and Social (including safeguards) 65. The proposed project does not raise social (including safeguards) issues. The Project does not include any gender specific actions and is not expected to have impacts differentiated by gender. Therefore, no gender sensitive analysis will be conducted. However, there will be a monitoring of gender specific participation in the project activities and trainings. Additionally, as part of the awareness activities, civil society and private sector will be kept informed. Furthermore, the civil society, academia and private sector will be actively engaged in order to mobilize public support for carbon pricing in Turkey. 66. The environmental category of the project is C. Environmental assessment is not required as the Project does not finance any physical activity on the ground, but rather consists solely of technical assistance activities, such as piloting, training, background analyses and reports, etc. A. Other Safeguard Policies (if applicable) N/A B. World Bank Grievance Redress Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. . Page 26 of 29 The World Bank Partnership for Market Readiness II Project (P168730) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY : Turkey Partnership for Market Readiness 2 Project Project Development Objectives The development objective(DO) is to support Turkey in developing the legal, institutional and technical framework for piloting an emissions trading scheme (ETS). Project Development Objective Indicators Unit of Data Source / Responsibility for Indicator Name Corporate Baseline End Target Frequency Measure Methodology Data Collection Name: Necessary Text Framework Necessary Quarterly Status Reports MoEU/PIU framework for for technical, implementation of an ETS implement legal, and pilot in Turkey is ready, as ation of an institutiona a result of the ETS not l development the available framework technical, legal, and for institutional implement underpinnings, through ation of an engaging key ETS is stakeholders drafted and submitted to CC and Air Quality Coordinatio Page 27 of 31 The World Bank Partnership for Market Readiness II Project (P168730) Unit of Data Source / Responsibility for Indicator Name Corporate Baseline End Target Frequency Measure Methodology Data Collection n Board Description: Intermediate Results Indicators Unit of Data Source / Responsibility for Indicator Name Corporate Measur Baseline End Target Frequency Methodology Data Collection e Name: Necessary legal Text Such legal Legal Quarterly Status Reports MoEU/PIU studies for initiating and studies do studies are operating a pilot not exist prepared emissions trading scheme and are developed in discussed collaboration with the by CCAMCB member stakeholde institutions. rs. Main elements of a Text CC draft Main Quarterly Status Reports MoEU/PIU Climate Change Law is Law does elements drafted not exist of a climate change law is drafted and submitted to CC and Air Quality Coordinatio n Board Page 28 of 31 The World Bank Partnership for Market Readiness II Project (P168730) Unit of Data Source / Responsibility for Indicator Name Corporate Measur Baseline End Target Frequency Methodology Data Collection e Carbon pricing/ETS Text Such Draft Quarterly Status Reports MoEU/PIU Regulations are drafted regulation Carbon through a consultative drafts are pricing/ETS process. not ready Regulations are drafted and submitted to CC and Air Quality Coordinatio n Board Description: Name: Identification of Text Such ETS cap Quarterly Status Reports MoEU/PIU an ETS cap and a national studies do and a allocation plan is not exist national completed. allocation plan preparatio n are completed and submitted to CC and Air Quality Coordinatio n Board. Description: Page 29 of 31 The World Bank Partnership for Market Readiness II Project (P168730) Unit of Data Source / Responsibility for Indicator Name Corporate Measur Baseline End Target Frequency Methodology Data Collection e Name: An ETS registry is Text There is no ETS registry Quarterly Status Reports MoEU/PIU created. ETS registry is created. Description: Name: Number of Number 0.00 150.00 stakeholders participated in trainings. Number of Number 0.00 25.00 stakeholders participated in ETS simulation Number of female Number 0.00 75.00 Quarterly Status Reports MoEU/PIU stakeholders participated in trainings Description: Name: Number of Amount( 0.00 250.00 participants attended to USD) events and workshops. Number of female Amount(U 0.00 100.00 Quarterly Status Reports MoEU/PIU participants attended SD) to events and workshops. Page 30 of 31 The World Bank Partnership for Market Readiness II Project (P168730) Unit of Data Source / Responsibility for Indicator Name Corporate Measur Baseline End Target Frequency Methodology Data Collection e Description: Name: Number of public Amount( 0.00 10.00 Quarterly Status Reports MoEU/PIU awareness activities and USD) communication materials produced. Description: Page 31 of 31 The World Bank Partnership for Market Readiness II Project (P168730) Target Values Project Development Objective Indicators FY Indicator Name Baseline End Target Necessary technical, legal, and Necessary framework for implementation of an ETS pilot in Turkey is ready, as a result of the institutional framework for Framework for implementation of development the technical, legal, and institutional underpinnings, through engaging key implementation of an ETS is an ETS not available stakeholders drafted and submitted to CC and Air Quality Coordination Board Intermediate Results Indicators FY Indicator Name Baseline End Target Necessary legal studies for initiating and operating a pilot emissions trading scheme are Legal studies are prepared and Such legal studies do not exist developed in collaboration with the CCAMCB member institutions. discussed by stakeholders. ETS cap and a national allocation plan preparation are completed Identification of an ETS cap and a national allocation plan is completed. Such studies do not exist and submitted to CC and Air Quality Coordination Board. An ETS registry is created. There is no ETS registry ETS registry is created. Number of stakeholders participated in trainings. 0.00 150.00 Number of participants attended to events and workshops. 0.00 250.00 Number of public awareness activities and communication materials produced. 0.00 10.00 Page 32 of 31 The World Bank Partnership for Market Readiness II Project (P168730) Indicator Name Baseline End Target Main elements of a climate change Main elements of a Climate Change Law is drafted CC draft Law does not exist law is drafted and submitted to CC and Air Quality Coordination Board Draft Carbon pricing/ETS Regulations are drafted and Carbon pricing/ETS Regulations are drafted through a consultative process. Such regulation drafts are not ready submitted to CC and Air Quality Coordination Board Number of stakeholders participated in ETS simulation 0.00 25.00 Number of female stakeholders participated in trainings 0.00 75.00 Number of female participants attended to events and workshops. 0.00 100.00 Page 33 of 31