The right energy in the right place

Transcription

1 The right energy in the right place ZORLU ENERJİ 2013 ANNUAL REPORT

2 Contents Introduction 4 Major Operational and Financial Highlights : A year of major achievements for Zorlu Enerji 8 Chairman s Message 12 Board of Directors 14 General Manager s Message 20 Senior Management 22 About Zorlu Enerji 24 Zorlu Energy Group s fields of activity 26 Zorlu Enerji s Installed Capacity and Ongoing/Planned Investments in Turkey 29 Zorlu Enerji s International Operations 30 Zorlu Group Review of the Year The Energy Sector in Turkey in Strengths of Zorlu Enerji 38 Zorlu Enerji in Zorlu Enerji s Investments & Electricity Generation and Sales 39 Zorlu Enerji s domestic and renewable energy investments 42 Zorlu Enerji s International Investments With our strategy, which can be summarized as 'The right energy in the right place, we are focusing on domestic and renewable resources and efficient use of resources with a high awareness of the need for a sustainable future and supply security. 45% the share of domestic and renewable resources in our installed capacity

3 Zorlu Enerji 2013 Annual Report 1 Sustainability 46 Sustainability 46 Zorlu Enerji and Sustainability 48 Human Resources 50 Occupational Health and Safety 51 The Environment 52 Corporate Social Responsibility Financial Information and Reports 54 Risk Management 56 Internal Audit Department and its Operations 57 Board of Directors Resolution 58 Corporate Governance Principles Compliance Report 74 Dividend Distribution Proposal 75 Conclusion of the Affiliation Report 77 Independent Auditor s Report 152 Investor Information Introduction We trust in Turkey s energy. We continuously move further in our aim of utilizing our country s resources and increasing our renewable energy investments, particularly in geothermal energy. 877 MW Our total installed capacity 2,283.6 million kwh Our electricity generation in 2013

4 2 Zorlu Enerji 2013 Annual Report We add more to Turkey s energy with our strengths in production and competition, as well as our innovative and high-quality solutions. Thanks to its high-capacity production power, well qualified human resources, balanced portfolio, diversified resources and capabilities to develop unique and innovative solutions, Zorlu Energy invests in projects that support security and the sustainability of energy supply.

5 Zorlu Enerji 2013 Annual Report 3 Introduction

6 4 Zorlu Enerji 2013 Annual Report Introduction Major Operational and Financial Highlights Zorlu Enerji continued its investments in 2013 on the back of its funding abilities and managed to maintain its production and sales volumes, despite the difficulties in the operating environment. Summary Balance Sheet* (TL thousand) 31/12/ /12/2012 Current Assets 586, ,471 Non-Current Assets 5,767,605 3,944,507 Total Assets 6,353,970 4,525,978 Current Liabilities 1,685,479 1,491,185 Non-Current Liabilities 3,897,566 2,843,196 Equity 770, ,597 Total Liabilities 6,353,970 4,525,978 Gross Debt ** 3,030,361 2,399,125 Net Debt ** 2,816,528 2,211,746 Summary Profit/Loss Table* (TL thousand 31/12/ /12/2012 Revenues 636, ,678 Operating Income/(Loss) (5,491) 762,389 EBITDA*** 112,884 69,709 Net Income/(Loss) for the Year**** (309,171) 598,585 Gross Profit margin 2.3% 0.8% EBITDA Margin 17.7% 12.1% * Based on CMB Financials * *A long term receivable from Rosmiks BV, amounting to TL 2,360,880 ( : TL 1,847,075) is considered in the gross debt calculation by deducting it from the total debt amount, since it was considered as a part of the financing obtained from banks and financial institutions, led by HSBC Bank PLC which is recorded as financial debt. ***Other income and expenses from operations are not included. ****Net income/(loss) attributable to equity holders of the parent.

7 Zorlu Enerji 2013 Annual Report 5 EBITDA and EBITDA margin 17.7% % % EBITDA (TL million) EBITDA Margin (%) Generation Zorlu Enerji Elektrik Üretim A.Ş. Shareholding Structure Zorlu Holding A.Ş. 45.7% Korteks Mensucat Sanayi ve Ticaret A.Ş. 17.5% Publicly held 32.0% Other 4.8% Introduction Electricity (kwh)* 2,283,593,323 2,289,334,429 Steam (tons) 675, ,710 Sales Electricity (generation) (kwh)* 2,165,441,547 2,187,246,182 Electricity (commercial) (kwh) 1,218,571,147 1,085,982,640 Steam (tons) 675, ,710 Utility and Cooling Water, CO₂ (m 3 ) 4,628,303 14,229,039 *As Rosmiks LLC, which generated and sold 718,294,536 kwh of electricity and 53,973 GKcal of heat in 2012, was transferred to Zorlu Holding on December 28, 2012, its generation and sales volume were excluded from the above figures. Additionally, Zorlu Doğal Elektrik Üretim A.Ş. s 468,177,128 kwh of electricity sales, 14,229,039 m 3 of utility and cooling water and carbon dioxide sales and 473,100,678 kwh of electricity generation in the year ending December 31, 2012 are included in the above tables as necessary amendments were made in the financial statements dated December 31, 2012 within the context of the Recognition of Mergers of Jointly Controlled Entities which was published in the Official Gazette on 21 st July, 2013 by the Public Oversight Accounting and Auditing Standards Authority. Share Price Summary (TL) 2013 Number of Shares 500,000,000 Number of Shares (Free Float) 159,905,814 Highest Share Price During the Year 1.68 Lowest Share Price During the Year 0.97 Year-End Price 1.04 Market Capitalization ** 520,000,000 Zorlu Enerji s market capitalization stood at TL 520 million at the end of ** As of

8 6 Zorlu Enerji 2013 Annual Report Introduction 2013: A year of major achievements for Zorlu Enerji Kızıldere II geothermal power plant with an installed capacity of 80 MW, and the 56.4 MW wind farm in Pakistan were commissioned during the year. Commissioning of the Kızıldere II Geothermal Power Plant The Kızıldere II Geothermal Power Plant, which is located in Sarayköy/Denizli, was brought online in two stages with a total investment of US$ 250 million. Kızıldere II is Turkey s largest geothermal power plant and one of the world s 10 leading geothermal power plants with an installed capacity of 80 MW. In addition to the existing 15 MW Kızıldere I Geothermal Power Plant, which was acquired via the privatization of ADÜAŞ back in 2008, we reached a total installed capacity of 95 MW at Kızıldere, which offers some of the greatest geothermal potential in Turkey, with the completion of the Kızıldere II Geothermal Power Plant in Kızıldere power plant is a first for Turkey with its integrated use as a power plant, a greenhouse and a source of domestic heating and geothermal energy. Pakistan Wind Farm comes on-stream The wind farm, with a capacity of 56.4 MW, was constructed in Jhimpir with a US$ 151 million investment by Zorlu Enerji Pakistan, which is 100% owned by Zorlu Enerji. The plant began commercial sales of electricity on 26th July, It is Pakistan s first wind farm and is planned to generate 159 million kwh of electricity per year. The power plant, which is located in the Gharo Keti Bandar Hyderabad wind corridor, will contribute significantly to the growth of Pakistan s renewable capacity and the easing of the country s increasing dependence on oil imports for electricity generation. Zorlu Enerji Pakistan has an option to increase the plant s installed capacity up to 300 MW. The plant will provide energy to 350,000 residences over a period of 20 years. The plant was rewarded with the The Best Renewable Energy Financing in the Middle East award by the Project Finance magazine in Zorlu Enerji s Dorad Natural Gas Combined-Cycle Power Plant in Israel was connected to the transmission grid. Works at the 840 MW capacity Dorad Natural Gas Combined-Cycle Power Plant, which is 25% owned by Zorlu Enerji, continue in the Ashkelon region of Israel. The plant was connected to the country s national grid in July 2013 and is expected to go into commercial operation during Zorlu Doğal applied to EMRA to construct a new geothermal power plant in Sarayköy/Denizli. Following the company s exploration activities in Sarayköy/Denizli, Zorlu Doğal Elektrik Üretimi A.Ş. (Zorlu Doğal), owned 100% by Zorlu Enerji, applied to the Energy Market Regulatory Authority (EMRA) for a 100 MW generation license to construct a new geothermal power plant in the region. Nemrut Geothermal Electricity Generation A.Ş. was founded with the purpose of utilizing the geothermal resources in Bitlis and the surrounding regions in electricity generation. Nemrut Geothermal Electricity Generation A.Ş. was founded as a 75%/25% owned JV of Zorlu Enerji and Rarik-Turkison Enerji İnşaat Maden Proje Ltd. to utilize geothermal resources in Bitlis and the surrounding regions in energy generation. The company obtained a Geothermal Resources and Natural Mineral Water Operating License, valid for a period of 30 years, and a Geothermal and Natural Resources Exploration License, which is valid until 3 rd June, 2014.

9 Zorlu Enerji 2013 Annual Report 7 Introduction With its first corporate bond issues, Zorlu Enerji raised funding for its investments and diversified its financing sources. Zorlu Enerji raised a total TL million of new funding via two separate corporate bond issues, which were privately placed to qualified investors, during The bond issues helped extend the maturity of the debt, diversify funding sources and create new funds for the upcoming investments. Zorlu Enerji received the Best Corporate Governance Award by World Finance. Zorlu Enerji received the Best Corporate Governance Award by World Finance, which is one of the world s leading publications. Zorlu Enerji was selected as Turkey s best company in corporate governance practices in the voting conducted. Zorlu Doğal, which is 100% owned by Zorlu Enerji, received Turkey s Climate Performance Leaders Award. Zorlu Doğal, which transparently shares its risk management strategies on greenhouse gas emissions and climate change with the public, is the only energy company to conduct voluntary reporting and to be ranked among the top companies in the Carbon Disclosure Project. In 2013, Zorlu Doğal was ranked in group B, the second highest group in the performance rating for companies which announce their climate change strategies by using the Carbon Disclosure Project (CDP) platform. The company therefore received Turkey s Climate Performance Leaders Award. Zorlu Enerji received the highest score among the four energy companies which conduct CDP reporting. Zorlu Enerji received the highest score among the four energy companies which are included within the Borsa İstanbul (BIST 100) index and which conduct CDP reporting. The Company was also the first energy company to receive Turkey s Carbon Disclosure Leaders Award in Zorlu Enerji received the title of National Champion within the scope of the European Business Awards. With its projects in sustainability and corporate responsibility, Zorlu Enerji received the title of National Champion as part of the European Business Awards - which is one of the most prestigious prizes of the business world. Under the European Business Awards, companies from various sectors which recorded important achievements in Europe are evaluated on the basis of different categories such as innovation, leadership, social responsibility, marketing, growth strategy and process management. Zorlu Enerji was one of the 40 companies which were selected as a National Champion from Turkey in the Environmental and Corporate Sustainability category. Gökçedağ Wind Farm adds another prize to its international prize portfolio. Zorlu Enerji was rewarded for its Gökçedağ Wind Farm with the Sustainability Prize by the European Bank for Reconstruction and Development (EBRD) in the Environmental and Social Performance category at the Sustainability Awards. Sustainability Awards granted by the EBRD reward successful and sustainable projects in the fields of social, environmental, energy efficiency and climate. Zorlu Enerji was ranked the third in the Leadership category at the European Corporate Social Responsibility Award Turkey Competition which was organized the by European Commission. Zorlu Enerji participated in the Competition with the Energy Drama project which was conducted with the collaboration of TOÇEV (Tuvana Education Foundation for Children). The Company came to the forefront among the 50 companies and 62 projects in the Competition. The Energy drama project aims to educate children about the energy resources and the importance of sustainable energy through an interactive story. Turkey s first energy education project to be conducted by an energy company reached 15,170 children through a total of 247 events organized at 60 schools over a period of 6 months. Zorlu Enerji won the MerComm Galaxy Golden Prize for the second time with its 2012 annual report. Zorlu Enerji was rewarded with the Golden Prize for its 2012 annual report in the categories of Energy and Design at the Competition organized by Mercomm. Zorlu Enerji prepared its 2012 annual report with the theme of Our energy is Turkey s energy, emphasizing the domestic and renewable resources, from which the Company draws its strength.

10 8 Zorlu Enerji 2013 Annual Report Introduction Chairman s Message Our country has significant opportunities to become a regional power in the energy sector with its geopolitical position and energy potential. Zeki Zorlu Chairman

11 Zorlu Enerji 2013 Annual Report 9 Introduction The recovery trend in the global economy became more visible in While the year 2013 marked the passage of 5 years since the breakout of the global crisis, the recovery in the global economy has gradually become more visible. In 2013, global growth picked up with a shift in favor of developed countries, while economic growth in developing countries started to lose momentum. US economy returned to a growth cycle while Japan started to emerge from its long lasting deflation and recession. Meanwhile, there were some signs of nascent, albeit limited, recovery from the Eurozone. Developed markets remained strong in response to FED s decision to taper bond purchases, in what can be considered the first step towards exiting expansionary monetary policies. On the other hand, financial volatility increased significantly in developing markets, especially in those having internal fragilities such as political instability, high inflation and current account deficit. Turkey, which succeeded in maintaining its sustainable growth path, recorded 4% GDP growth in Although two rating agencies raised Turkey s credit rating to investment grade, the impact of cyclical conditions on capital flows and an increasing foreign trade deficit continued to keep the current account deficit in place as the soft belly of the country. The Turkish Central Bank s (CBT) gradually tightening monetary policy, and the high levels of interest rates together with the depreciation of TL, had negative impact on economic activity and the companies balance sheets. We believe that our country, which has successfully overcome challenging macroeconomic conditions, will continue its steady growth and maintain its position in the long run as an attractive country for investments thanks to its strong characteristics, such as a young population, a large and dynamic domestic market and its strategic geographic location. While global balances are being re-established, energy demand is steadily increasing. In this period, which is marked by a rebalancing of the world s balances, demand for energy and, accordingly, energy investments are steadily increasing on a global scale while there is a general shift in energy demand from the West to the East. Developments in the world energy market have elevated our country to a geostrategic position. Turkey is expected to become one of the world s most important energy hubs within the next five years thanks to the Trans Anatolian Natural Gas Pipeline project, strengthening of the relations with Iraq in terms of gas and oil trade and improvement of economic relations with Israel, which has recently discovered vast quantities of off shore gas reserves. As the Nabucco project has been dropped, the Trans Anatolian Natural Gas Pipeline, the Trans Adriatic Natural Gas Pipeline and the projects to transport Israeli and Cypriot gas to Europe via Turkey will introduce new resources to the market apart from the Russian gas and enhance Turkey s power in the region.

12 10 Zorlu Enerji 2013 Annual Report Introduction Zorlu Enerji, which has been carrying out projects both in Turkey and abroad, completed the first private sector energy investment in Pakistan and constructed Pakistan s first wind farm, which began commercial operations in Kızıldere II We added Kızıldere II, which is the biggest geothermal power plant in Turkey and one of the leading in the world, to our portfolio. Facilitating private investments is one of the most important steps in reducing dependence on foreign resources. Our country has important opportunities to become a regional power in the energy sector by virtue of its geopolitical position and its energy potential. The greatest macroeconomic threat that our sector faces in this process is our high dependence on foreign resources for energy production. In 2013, natural gas had a 44% share in electricity generation while coal and hydro each had a 25% share and wind 3%. Approximately 98% of the country s natural gas and 92% of oil needs are imported. As clearly indicated by these figures, in order to lower our dependence on foreign resources we should diversify our energy sources and complete the pending legislation and regulations in the sector as soon as possible. Turkey had achieved significant progress in the area of regulations and resource diversification in The Energy Market Regulatory Authority collected the applications for the country s first solar power licenses in June. The applications from various market players including our Company had reached 8,900 MW for the total 600 MW licenses to be tendered. Another important development in 2013 was the reduction in the eligible consumer limit to 5,000 kwh. The limit was further lowered to 4,500 kwh at the beginning of 2014, in line with EMRA s decision. Reducing this limit can be seen as an indicator that the electricity market in Turkey will become more competitive in the coming period. On the other hand, steps taken towards establishing an Energy Exchange represented a positive development towards the ongoing liberalization of the Turkish electricity market. The Natural Gas Market Law will complement the regulations related to the electricity market and the Energy Exchange. Within this context, the pending new Natural Gas Market Law is expected to be supportive for the electricity market. These developments are expected to pave the way for the formation of a market structure where pricing will be cost based with greater transparency, predictability and equality together with the elimination of cross subsidies and where private sector will assume a more active role.

13 Zorlu Enerji 2013 Annual Report 11 We crowned 2013 with successes which were worthy of our Group s 60 th anniversary. Introduction We put our stamp on leading projects in the domestic market and abroad. We crowned 2013 with successes which were worthy of our Group s 60 th anniversary. With our new investment at Kızıldere, we took a major step forward in geothermal energy, which we see as a strategic growth area for our Company. The Kızıldere II Geothermal Power Plant, which is Turkey s largest and one of the world s leading geothermal power plants, was added to our portfolio during We continue to look for further investment opportunities in this field. Zorlu Enerji which is committed to undertaking leading projects both in Turkey and abroad, has completed Pakistan s first private sector energy investment in 2013 by constructing the country s first wind farm. The Dorad Natural Gas Combined-Cycle Power Plant in Israel, in which we have a 25% stake, was connected to the national grid during In addition to this plant, which we plan to bring online in 2014, we have two other ongoing projects in Israel. We expect to become one of Israel s leading private sector electricity producers once these projects are completed. In line with our growth strategy, we will continue to invest in new geothermal, hydroelectric, and wind power projects in order to increase the share of renewables in our generation portfolio, which currently comprise 45% of our installed capacity. For a sustainable energy future, we will continue to invest in environmentally friendly projects which utilize domestic and renewable resources. As Zorlu Enerji, we aim to contribute to the sustainability of both our industry and our world via our corporate social responsibility projects. In line with this understanding, we determined environment and education as our fields of corporate responsibility. Accordingly, we try to design our projects in a manner to ensure that they will contribute to the local people s social and economic lives in the regions where we have operations. Zorlu Enerji, which has adopted sustainability as a business approach, has become one of the pioneering and important players in the sector with its strong corporate and financial structure. Our Company will continue to further contribute to the sustainable development of the Turkish economy by investing in domestic and renewable resources, as a responsive, responsible and pioneering company. We trust in Turkey s energy and we work hard to provide sustainable energy. I would like to take this opportunity to thank all of our employees for their efforts and our shareholders and stakeholders for their support. Zeki Zorlu Chairman

14 12 Zorlu Enerji 2013 Annual Report Introduction Board of Directors Zeki Zorlu Chairman Ali Akın TARI Vice Chairman Olgun Zorlu Board Member Selen Zorlu Melik Board Member ( Denizli) Zeki Zorlu began his professional career in a family owned textiles company in Babadağ, Denizli. Opened his first textiles store in Trabzon, Zeki Zorlu established Korteks Mensucat Sanayi ve Ticaret A.Ş. in In addition to its textiles sector investments, Zorlu Group entered the energy sector in 1993; subsequently, the electronics and white goods sector with Vestel, which the Group acquired in 1994; and the real estate sector in Today, Zorlu Group has 25,000 employees and 60 companies under its roof. Mr. Zorlu serves as the Co-Chairman of the Board of Directors at Zorlu Holding as well as the Chairman of the Group companies operating in the textiles and energy sectors. ( Koruköy) Ali Akın Tarı graduated from Istanbul Law Faculty before starting his career as a Tax Inspector in 1972 at the Ministry of Finance, where he went on to serve as Chief Tax Inspector, Vice-President of the Tax Inspectors Board and Group Head of the Istanbul Tax Inspectors Board. He was appointed as a Board Member of the Banking Regulation and Supervision Agency in 2001 and also elected as a Board Member of the Saving Deposits Insurance Fund in the same year. He left the Banking Regulation and Supervision Agency when his period of duty expired in 2004, and was appointed as a Consultant for the Ministry of Finance. Mr. Tarı became a member of the Board of Directors and the Audit Committee of Dilerbank in 2008 and has continued to serve as a member of the Board of Directors of Dilerbank since Mr. Tarı, who also holds the titles of Certified Public Accountant and Independent Auditor, serves as the Vice Chairman of the Board of Directors of Zorlu Enerji Elektrik Üretim A.Ş., in addition to his positions as a Board Member at Vestel Elektronik and Vestel Beyaz Eşya. ( Trabzon) After completing his higher education in the United Kingdom, Olgun Zorlu began his professional career in 1986, gaining management experience in the textiles companies of the Zorlu Group. In 1998, he began serving as Board Member at Zorlu Holding. In addition to his current responsibilities as Board Member at Zorlu Enerji Elektrik Üretim A.Ş., Mr. Zorlu also serves as Board Member at Zorlu Holding and its subsidiaries. ( Trabzon) Selen Zorlu Melik graduated from Uludağ University, Faculty of Economics and Administrative Sciences, Department of Business Administration. She began her professional career at Denizbank in Following her internship at Denizbank Bursa Branch, she joined the Management Trainee Program at the same bank in After working in a number of positions at Denizbank headquarters, Mrs. Zorlu Melik attended a Marketing Certificate Program at the University of California, Berkeley (USA) in Subsequently, she started to work at Korteks Yarn Plant in 2002, and became a Board Member at the same Company in She has been serving as Vice President at Zorlu Energy Group, Board Member at Zorlu Enerji Elektrik Üretim A.Ş., and also as Board Member at several Zorlu Group companies since As of April 2012, Mrs. Zorlu Melik acts as Deputy President of Zorlu Energy Group.

15 Zorlu Enerji 2013 Annual Report 13 Introduction Bekir Cem KÖKSAL Board Member ( Ankara) Bekir Cem Köksal graduated from the Department of Mechanical Engineering at Boğaziçi University in 1988, and obtained a master s degree from Bilkent University in He subsequently worked in the banking industry between 1990 and In 1997, he was appointed as the Assistant General Manager at Denizbank, and in 2002 he joined Vestel as Chief Financial Officer. Mr. Köksal currently serves as an Executive Board Member in charge of Finance at Vestel and also serves as the Board Member at Zorlu Enerji Elektrik Üretim A.Ş.. Hacı Ahmet KILIÇOĞLU Board Member ( Giresun) Hacı Ahmet Kılıçoğlu graduated with a Bachelor s degree and Master s degree in Economics from the University of Essex. He started his professional career in 1979 at the Ministry of Industry and Technology. In 1980 he became an Assistant Specialist at Türkiye İş Bankası, and after working in the private sector for a couple of years, Mr. Kılıçoğlu assumed administrative positions at the United Nations Development Program (UNDP) and the F-16 project. He then took office at Türk Eximbank where he worked in various positions. He later served as the CEO of the bank and as a Board Member between 1998 and He has been serving as a Board Member at the Turkish Banks Association for 12 years and was also elected as the President of the World EximBanks Union (The Berne Union). He also served as Consultant to the President at the Islamic Development Bank and Vice Chairman at Denizbank. Having been appointed as Board Member at Zorlu Enerji Elektrik Üretim A.Ş. in 2013, Mr. Kılıçoğlu also serves as Board Member at Vestel Elektronik, Vestel Beyaz Eşya and Doğan Yayın Holding in addition to his Vice Presidency position at the Turkish Education Association. Burak İ. Okay Board Member ( Ankara) Burak İ. Okay graduated from the Faculty of Law at Ankara University in After completing an International Law Certificate Program in New York, he embarked on his professional career at Türkiye İş Bankası, Department of Legal Consultancy. He later worked at Garanti Bankası, MNG Bank and Nortel Networks Netaş, respectively, before joining Bener Law Firm as an executive. Mr. Okay joined Zorlu Group in 2006 and played an active role in the structuring of the legal department that serves all Group companies. He continues to work as the Legal Coordinator for Zorlu Group and has been a Board Member at Zorlu Enerji Elektrik Üretim A.Ş. since 2007.

16 14 Zorlu Enerji 2013 Annual Report Introduction General Manager s Message Turkish energy sector is focused on meeting energy demand, reducing dependence on foreign sources and diversification and efficient use of resources. İbrahim Sinan Ak General Manager

17 Zorlu Enerji 2013 Annual Report 15 The Energy Exchange (EPİAŞ), which is currently at the establishment stage, will represent an important step in the liberalization process. Introduction One of the significant causes of the current account deficit in Turkey is our dependence on imported resources in energy production. The change in FED s monetary policy in May 2013 triggered capital outflows from the developing countries, which led to a spike in interest rates and steep declines in stock prices and national currencies. This switched the spotlight to Turkey s current account deficit. According to analyses conducted by the Economist Magazine and JP Morgan, Turkey has one of the world s largest current account deficits and external financing needs when compared to its national income and international reserves. This mainly stems from Turkey s high energy import bill. Turkey s high dependence on imported resources for energy production highlights the need to invest in domestic and renewable energy sources. In order to meet the increasing energy demand, private sector s role and renewable energy investments need to increase. In parallel to Turkey s economic development, electricity demand has increased at a CAGR of 7% over the last 30 years. As such, the priority for the Turkish energy sector, which had an installed capacity of 64,044 MW as of the end of 2013, has been to meet the energy demand while at the same time reducing dependence on energy imports, diversifying its energy resources and using energy more efficiently. Accordingly, Turkey has to take the necessary measures as soon as possible and continue with new investments in the energy sector. Although a target of 100,000 MW of installed capacity has been set for 2023, the current market conditions are not conducive for the private sector to undertake the required investments. In order to pave the way for private sector investments, the state s involvement in the sector should be gradually reduced, necessary regulations be put in place and remaining privatizations be completed. Figures set out in the 2014 Investment Program, prepared by the Ministry of Development, also support our views. According to the program, resources set aside by the state for energy sector investments will be cut by 20% in 2014 compared to the previous year. Parallel to this, the state s share in the energy sector is expected to drop further. In the meantime, a foreseeable free market structure and a competitive market environment should be established if private investments in the sector are to gain speed. The Energy Exchange, which is in the process of being established, will represent an important step in the sector s liberalization process. The Energy Exchange will facilitate new investments in the sector thanks to the establishment of a more predictable, transparent and efficient pricing mechanism. The Energy Exchange will also help the financing of the total US$ billion investments, which are required by the sector until As a reflection of these positive developments, we had quite an active year for energy privatizations in The privatization of the three thermal power plants, out of a total of 46 plants, 28 being hydro and 18 thermal, owned by the Turkish Electricity Generation Company (EÜAŞ) and included in the privatization portfolio of 16,000 MW, have been finalized during The tenders for the remaining generation assets are planned to be completed by On the distribution side, with the transfer of the remaining 8 distribution regions to the private sector during 2013 all the 21 distribution regions have been completely privatized. With the establishment of a fully liberal energy market in Turkey, private sector investments will gain further pace.

18 16 Zorlu Enerji 2013 Annual Report Introduction We completed 2013 successfully, a year in which Zorlu Group celebrated its 60 th anniversary and Zorlu Energy Group its 20 th anniversary, thanks to our investments and projects. 45% Renewable energy resources accounted for 45% of our installed capacity as of the end of Our sustainability approach leads our investments. In order to ensure sustainable economic development, secure and sustainable energy supply should be pursued with an approach that safeguards environmental and cultural values. At this point, Turkey has also started to shift its focus to domestic and renewable energy resources in line with the global trend. The Electricity Energy Market and Supply Security Strategy Document, published by the State Planning Organization, states that the primary objective in the sector is to increase the share of the domestic and renewable energy resources to at least 30% by This aim is of considerable importance in leading the sector. As an important player in the energy sector, we are leading our investments with an awareness of our responsibility to future generations and natural resources. Zorlu Enerji focuses on sustainability and internalizes this approach at all levels of its operations. Electricity generation from domestic and renewable energy resources, secure and reliable supply of energy, economical and balanced use of natural resources and energy efficiency are the main pillars of our operations. As a result of our increased endeavors towards utilizing Turkey s rich renewable energy resources, the share of renewable energy reached 45% of our total installed capacity by the end of Our newly commissioned power plants began to contribute to profitability in 2013, which marked a milestone for Zorlu Enerji in terms of investments. We had a successful year in 2013, which was also Zorlu Group s 60 th anniversary and Zorlu Energy Group s 20 th anniversary, thanks to the completion of our ongoing investments and the progress we made towards new projects. Our revenues increased by 11% from TL 576 million in 2012 to TL 636 million in 2013 while total capex reached US$ 191 million. Following the transfer of the Russian investments to Zorlu Holding as part of the restructuring process undertaken at the end of 2012, we had attained a more profitable generation portfolio and increased the share of renewable energy further thanks to the new plants commissioned during Although the new plants contributed only partially to our financial results in 2013, the change in the portfolio mix reflected positively to our

19 Zorlu Enerji 2013 Annual Report 17 Introduction operating margins. In line with this, our EBITDA increased from TL 70 million in 2012 to TL 113 million in 2013 while EBITDA margin improved from 12.1% to 17.7%. We expect the newly commissioned power plants to contribute further to profitability in 2014, which will be their first full year of operations. Another important achievement in 2013 was the diversification of our funding sources and raising of new funds for our investments via our first corporate bond issues. We obtained a total TL million of new funds through these issues which were privately placed to qualified investors. Our installed capacity reached 877 MW following the commissioning of our new power plants in Today, we have an installed capacity of 821 MW in Turkey, comprising 7 hydroelectric power plants (in Tokat, Eskişehir, Kars, Rize, Erzurum, Tunceli, Erzincan), one wind farm (Osmaniye- Gökçedağ), two geothermal plants (Denizli-Kızıldere) and five natural gas plants in Yalova, Bursa, Lüleburgaz, Kayseri and Ankara. Including the wind farm in Pakistan, which has an installed capacity of 56.4 MW, our total installed capacity reaches 877 MW. Geothermal energy is our strategic priority. Geothermal resources, which we deem indispensable in our growth map, have strategic importance for Zorlu Enerji. We plan to account for half of our country s 2023 geothermal capacity target by To this end, in addition to our existing 15 MW geothermal power plant in Kızıldere, which is Turkey s biggest geothermal region, we constructed a second power plant with a capacity of 80 MW and brought it into operation in By commissioning Turkey s largest geothermal power plant, we reached an installed capacity of 95 MW in geothermal energy. The new Kızıldere II (80 MW) plant will sell its output at a guaranteed price of USc 10.5 per kwh for the next ten years within the context of YEKDEM. Sales to YEKDEM under this scope started in We commenced activities for new geothermal investments in Within this context, we continue our drilling activities in the Manisa-Alaşehir geothermal area. We aim to bring our new plant - which will have an installed capacity of 45 MW - into operation by the end of In addition, based on the positive findings from our exploration activities in Karataş region in Sarayköy, Denizli we applied for a 100 MW license to construct a new geothermal power plant. We are also conducting exploration activities in Bitlis and its surroundings to utilize geothermic resources in the region in electricity generation. Within the context of our hydroelectric investment strategy, we increased our focus on the Sami Soydan Hydroelectric Power Plant Project (124 MW) to be realized on the Dalaman River and the Tirebolu Hydroelectric Power Plant Project (30 MW) to be built on the Harşit River. Additionally, we stepped up our works for constructing two more wind farms in the Osmaniye region. We made pre-license applications to EMRA for two imported coal fired power plants; in Akçakoca (Düzce) and Soma (Manisa), and two natural gas power plants; in Aliağa (İzmir) and in Kıyıköy (Kırklareli), respectively. In addition, we applied for licenses for 5 solar power plants with a total installed capacity of 80 MW. We are also investing to become a preeminent player in the Asian and Middle Eastern energy markets. We use all opportunities to become a regional power in Asia and the Middle East, where energy demand is rapidly increasing. In this sense, 2013 was a year of significant achievement for us.

20 18 Zorlu Enerji 2013 Annual Report Introduction At Zorlu Group, we are aware of our responsibility to our world and its resources, while carrying out our activities both in the domestic and international markets. Zorlu Doğal voluntarily participated in the Carbon Disclosure Project and became the only energy company to be ranked in Our sustainability report was the first report to achieve the GRI A level in the sector and the third in Turkey. Zorlu Enerji brought Pakistan s first wind farm into operation in With 56.4 MW of installed capacity, the plant started to sell commercial electricity to the National Transmission & Dispatch Company in July We hold the option to raise the plant s installed capacity up to 300 MW. Our plant located in Jhimpir will supply power to 350,000 residences in Pakistan for a period of 20 years. The Dorad combined-cycle natural gas power plant in Israel, with an installed capacity of 840 MW, in which we have a 25% stake, was connected to the 400 KV switching plant transmission grid in 2013, and is planned to start production at full capacity in the second quarter of In Israel, we also continue the construction of two other natural gas power plant projects, namely Ashdod and Ramat Negev, with a total capacity of 175 MW, jointly with our local partners. In addition, we continue our studies for the financing of the Solad natural gas power plant project, which will also be realized in this market. We transparently disclose our sustainability work to the public. At Zorlu Group, we bear in mind that we are responsible for our world and its resources and we act with this awareness both in Turkey and abroad. In this context, we transparently disclose our greenhouse gas emission and climate change risk management strategies to the public. In 2013, our subsidiary, Zorlu Doğal participated in the Carbon Disclosure Project voluntarily, and became the only energy company to be ranked. Zorlu Doğal was included in Group B, which is ranked the second in the Performance Evaluation performed among the companies which disclosed their climate change strategies through the Carbon Disclosure Project (CDP) platform in 2013, and the company was deemed worthy of Turkey s Climate Performance Leaders Award. We presented our sustainability work to our stakeholders in our second Sustainability Report. Our report, which conveys our sustainability performance, our perspective on energy and sustainability management and our plans and goals for the future, was approved by the Global Reporting Initiative (GRI), the corporate reporting standard for companies operating in the international arena. Our sustainability report was the first sustainability report in the energy sector and the third in Turkey to be granted the GRI A Level.