PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB7175 Project Name Gas Sector Development Additional Financing Region EUROPE AND CENTRAL ASIA Country Turkey Sector Oil and gas (100%) Project ID P133565 Parent Project ID P093765 Borrower(s) BOTAŞ Implementing Agency BOTAŞ Environment Category [X] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared March 11, 2013 Date of Appraisal March 12, 2013 Authorization Date of Board Approval May 30, 2013 1. Country and Sector Background Natural gas accounts for almost 1/3 of Turkey’s primary energy supply and fuels almost 50% of electricity generation. Current storage capacity is low (less than 5% of Turkey’s annual gas consumption) and slow (primarily seasonal storage with only a low daily withdrawal rate). The project will substantially increase storage capacity (to a still low 7%) and will introduce to Turkey its first fast storage (storage with high daily withdrawal capacity). The project will improve Turkey’s energy security, improve its ability to cover demand peaks during the coldest days, lower the cost of gas imports by providing seasonal storage, lower network investments costs and improve operational flexibility. 2. Objectives The objective of the Project is to increase the reliability and stability of gas supply in Turkey by implementing critically needed gas storage and network infrastructure; and support BOTAŞ in developing a gas trading platform and strengthening its operations as a financially stable and commercially managed corporation. 3. Rationale for Bank Involvement The Bank has supported the Government’s gas sector reforms and implementation strategy for the past decade and the project since the approval of the Gas Sector Development Project in November 2005. Implementation preparations experienced major difficulties and delays and the cost of the gas storage component increased substantially; hence the need for additional financing. The value of the benefits to be derived from using the gas storage have increased as well and the project remain viable - the currently projected economic rate of return (ERR) is about 15%. 4. Description The original Project consists of two components: gas storage facility; and network expansion. (1) The establishment of a gas storage facility in an underground salt formation located close to Tuz Golu through the provision of financing for: (a) surface and subsurface facilities including engineering and construction, solution mining, the gas pipelines and the compressor facility; (b) water and brine discharge pipelines; (c) cushion gas; and (d) consultants' services to assist in the supervision and monitoring of the implementation, environmental monitoring and regulatory aspects of the Project; and (2) Construction of two compressor stations in Erzincan and Corum and other network infrastructure to assist in transmitting the increasing volumes of gas expected to be imported into the Republic of Turkey from existing and new sources. The additional financing will provide US$ 200 million for the Tuz Golu gas storage facility. The network expansion component is about to be completed and will not need additional finance. In addition US$ 25 million is proposed for the financing of a gas trading platform. 5. Financing Source: ($m.) Borrower 389.1 International Bank for Reconstruction and Development 225.0 Total 614.1 6. Implementation The Tuz Golu gas storage is under construction. Implementation arrangements including an owner’s engineer (a consortium of experienced and renowned engineering and technical firms) and environmental monitoring consultants are in place. The design of the Tuz Golu storage facility was prepared by the owner’s engineer and the construction technology that is being used has been successfully employed elsewhere in the world. The owner’s engineer continues to advise BOTAŞ on day-to-day project implementation and contract management. A forthcoming Bank-administered technical assistance project includes a component for the preparation of the regulations and design of the gas trading platform. Implementation of the platform would initially be carried out by BOTAŞ and after its possible unbundling (proposed in the draft amendment of the Natural Gas Market Law) by the company in charge of transmission and system operations. 7. Sustainability The project will improve Turkey’s energy security, improve its ability to cover demand peaks during the coldest days, lower the cost of gas imports by providing seasonal storage, lower network investments costs and improve operational flexibility. Although this facility is the first of its kind in Turkey, underground gas storage is very well understood from a technical design and operational perspective in other parts of the world. Salt has a unique self-sealing property, which enables it to withstand significant pressures and makes the caverns very robust. 8. Lessons Learned from Past Operations in the Country/Sector The Bank has supported the project since the approval of the Gas Sector Development Project in November 2005. A sequence of events and setbacks caused the multi-year delay to the start of Tuz Golu construction. The Tuz Golu contract is a very complex contract and at USD 605 million it is also a very high value contract - among the largest procurement contracts in World Bank history and the first-ever contract of its kind. 9. Safeguard Policies (including public consultation) Environmental and social risks are moderate. Environmental impact assessment (EIA) was carried in 2005. An addendum was prepared in 2012/2013 and disclosed in-country on March 4, 2013 and submitted to InfoShop on March 5, 2013. Expert consultants engaged under the project will assist BOTAŞ in the monitoring of environmental aspects. The scale of social impacts is small. The original 2005 Land Acquisition Plan (LAP) was revised in 2012/13 and the new revised LAP was disclosed in-country on March 4, 2013 and submitted to InfoShop on March 5, 2013. More details are available in the Integrated Safeguards Datasheet (ISDS) which is being disclosed simultaneously. 10. List of Factual Technical Documents Project Appraisal Report, 2005. Environmental Impact Assessment, 2005, and its addendum, 2013. Land Acquisition Plan, 2013. 11. Contact points BOTAŞ contact: Mehmet Gazi Dulger Title: Project Director Boru Hatlari Ile Petrol Taşima A.Ş. (BOTAŞ) Bilkent Plaza A - II Blok, Bilkent 06800 ANKARA, TURKEY Tel: (90-312) 297-2018 Email: mgazi.dulger@botas.gov.tr Bank contact: Kari Nyman Title: Lead Specialist Tel: (1-202) 458-1469 Email: knyman@worldbank.org 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank.org Web: http://www.worldbank.org/infoshop